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shorting Canadian Banks

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  • Sep 25th, 2017 7:23 pm
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Deal Addict
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May 11, 2014
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Iqaluit, NT
asa1973 wrote:
Sep 5th, 2017 12:06 pm
well, it depends... On NYSE it's still above SMA200 ;)

https://finance.yahoo.com/chart/RY#eyJt ... IjF5In0%3D

other banks are better even on TSX , but cherry picking it's all you can do for now :)
Mostly due to appreciating Canadian $ vs US$
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Sr. Member
Oct 21, 2014
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Burlington, ON
leflower wrote:
Sep 5th, 2017 12:43 pm
Gung, make jokes all you like...but Canadians are over leveraged and the banks have lent out too much money. The perfect storm is approaching.
Thanks, I will. I hope you're positioned for when the panic subsides.
[OP]
Member
Dec 13, 2014
355 posts
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Hampstead, QC
there is nothing panicky in this selling...simply slow and steady decline....when and if the panic arrives...then Ill be positioned to cover
Sr. Member
Aug 17, 2008
525 posts
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Anything could knock a bank down. Look at Australia's CBA. But IMO, the Cdn banks are fundamentally sound.

Think this article repeats a part of what @Mike15 already mentioned.

Via The Globe and Mail,

The ideal time to load up on Canadian bank stocks has arrivedOpen this photo in gallery:

SEPTEMBER 5, 2017Canada's big banks delivered upbeat third-quarter results, but investors aren't impressed. They should be.
Canada's big banks delivered upbeat third-quarter results, but investors aren't impressed. They should be.

It was a good quarter: Bank profits from the six biggest banks rose 6 per cent over the previous quarter and 11 per cent over the third quarter of last year. That's impressive for a big, mature sector.

The results were also quite clean, which is to say that they reflected what the banks' day-to-day operations can do, in contrast to some of the previous reporting seasons when results were complicated by notoriously volatile divisions or one-off divestments and provisions for credit losses.

And the third reason to applaud the results is because profits beat analysts' expectations, which suggests that the market might not be giving enough credit to the banks.

Robert Sedran, an analyst at CIBC World Markets, summed up the quarter this way: "Very good revenue growth, very good credit quality, very good earnings growth, and very good capital accretion. This combined with a very good valuation setup supports our positive stance on the banks at this time."

Yet, investors aren't keen on bank stocks right now. The sector is down 8.5 per cent from its high earlier this year. On average, the share prices have been flat in 2017, before factoring in dividends.

Bank of Montreal is the laggard, falling nearly 8 per cent this year and Canadian Imperial Bank of Commerce isn't far behind, sliding 5 per cent. Royal Bank of Canada is essentially flat, Toronto Dominion Bank is up all of 1 per cent and Bank of Nova Scotia is up less than 3 per cent. National Bank of Canada is almost 4 per cent on the year.

Worrywarts are no doubt concerned about the usual suspects.

Tighter mortgage regulations and rising mortgage rates appear to be acting as a brake on the housing market. Sales are falling and prices are retreating in key markets, raising concerns about a sharper downturn and its potential impact on the banks' underwriting activities and the quality of their loans.

More generally, the ebullience that greeted the Trump presidency and some of the U.S. administration's promises – stronger economic growth, less financial regulation and lower taxes – has given way to political infighting, another debt-ceiling imbroglio and rising conflict with North Korea.

As a result, U.S. and Canadian stock markets were pummelled on Tuesday, and Canadian bank stocks were caught in the downturn as their strong third-quarter results were swept aside.

However, investors should breathe in and buy.

Let's start with the most obvious selling feature: dividends. With stock prices going nowhere but quarterly payouts heading higher by an average of 7 per cent over the past 12 months, dividend yields look curiously rich. The average yield for the Big Six is an impressive 4.1 per cent.

Next, interest rates are going up. The Bank of Canada raised its key rate by a quarter of a percentage point in July, amid strong economic growth and as part of a global move toward unwinding the monetary stimulus that followed the financial crisis a decade ago.

Higher rates might cool the need for bank loans, but they are undoubtedly good for bank profits: Margins expand because banks can charge a higher rate of interest than they pay on deposits.

We'll hear more about the Bank of Canada's plans for rate increases on Wednesday morning, when it makes its next interest-rate announcement – but most observers believe that higher rates are coming this year.

And lastly, bank-stock valuations are compelling. According to Mr. Sedran's calculations, the stocks trade at 11.3 times his fiscal 2017 per-share profit estimates, which is cheaper than the historical average.

You can worry about North Korea or the latest tweet from the White House. And yes, Canadian consumers have a lot of debt and home prices in Vancouver and Toronto are still bubbly.

But these issues will simmer for some time, while the buying opportunity might not.
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Jan 20, 2016
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Burlington, ON
Gungnir wrote:
Sep 5th, 2017 1:51 pm
Thanks, I will. I hope you're positioned for when the panic subsides.
well, according to gart and other fools, americans are less leveraged, but their bank stocks dropped 2x from Canadian :) in last days

Good shorter will go for them in such case, but not the OP :)
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Jun 27, 2007
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asa1973 wrote:
Sep 6th, 2017 9:35 am
Good shorter will go for them in such case, but not the OP :)
as the saying goes, don't change horses in midstream.
banks are negative post BOC raise. something is not right, Sherlock. Rats abandoning the ship... I think TREB's AUG stats spooked horny bulls...
After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: it never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!
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Jan 20, 2016
1011 posts
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Burlington, ON
dlhunter wrote:
Sep 6th, 2017 10:20 am
as the saying goes, don't change horses in midstream.
banks are negative post BOC raise. something is not right, Sherlock. Rats abandoning the ship... I think TREB's AUG stats spooked horny bulls...
And that's why Chase fall -3.4% in a day? And other US banks? Twice to RY/TD??

P.s. looks like they're unspooked back :) RY +0.44% this morning ;)
Imo usual volatility on NK noise and other
Deal Addict
Jun 27, 2007
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asa1973 wrote:
Sep 6th, 2017 10:54 am
And that's why Chase fall -3.4% in a day? And other US banks? Twice to RY/TD??

P.s. looks like they're unspooked back :) RY +0.44% this morning ;)
Imo usual volatility on NK noise and other
Royal mirrors JPM performance, to a smaller degree. I'm not banks expert, but the problem with Canadian banks is with over leveraged consumer and bubbly RE. On top of that, banks piled a lot of uninsured mortgages in the last year (after Feds introduced stress testing for CMHC insurance). CIBC is number one, Royal not so distant second. These are expected to get porked out the most by bears.
After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: it never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!
Sr. Member
Oct 21, 2014
627 posts
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Burlington, ON
dlhunter wrote:
Sep 6th, 2017 11:25 am
Royal mirrors JPM performance, to a smaller degree. I'm not banks expert, but the problem with Canadian banks is with over leveraged consumer and bubbly RE. On top of that, banks piled a lot of uninsured mortgages in the last year (after Feds introduced stress testing for CMHC insurance). CIBC is number one, Royal not so distant second. These are expected to get porked out the most by bears.
Go ahead and pile on the short, I've got it on good authority that it's the safest trade. See you next quarterly :)
Deal Addict
Nov 9, 2013
1804 posts
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Edmonton, AB
dlhunter wrote:
Sep 6th, 2017 11:25 am
Royal mirrors JPM performance, to a smaller degree. I'm not banks expert, but the problem with Canadian banks is with over leveraged consumer and bubbly RE. On top of that, banks piled a lot of uninsured mortgages in the last year (after Feds introduced stress testing for CMHC insurance). CIBC is number one, Royal not so distant second. These are expected to get porked out the most by bears.
As mentioned previously in the thread, any chance these fears are already priced in?
[OP]
Member
Dec 13, 2014
355 posts
104 upvotes
Hampstead, QC
rate hike will pinch consumer spending reducing GDP growth. Strong CAD will hurt exporters. Perfect storm approaching and 90 will be broken very soon.
This can snowball down pretty fast IMO. A great short entry for anyone right now.
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Feb 7, 2006
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leflower wrote:
Feb 9th, 2016 8:16 am
In my opinion is one of the safest trades out there. My targets have been RBC and TD as have been short for a year now.
Deutche Bank looks like its about to rollover and will likely have to issue more shares shortly to increase their liquidity...the party has started.
Oil exposure both direct and indirect is a very big deal and while the share price has fallen, it has a ton more to go down IMO.
Take a look at this wonderful article by Zerohedge yesterday:


http://www.zerohedge.com/news/2016-02-0 ... -one-chart
Roughly 18 month ago you clearly stated "In my opinion is one of the safest trades out there".
Pretty sure "safest trades" isn't a description I would use :rolleyes:
leflower wrote:
Sep 6th, 2017 6:13 pm
rate hike will pinch consumer spending reducing GDP growth. Strong CAD will hurt exporters. Perfect storm approaching and 90 will be broken very soon.
This can snowball down pretty fast IMO. A great short entry for anyone right now.
Now you state " a great short entry for anyone right now".

Possibly the following might help:

Compulsive lying
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May 11, 2014
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Interest rates are going to increase lending margins at the Big 6.
http://www.calgaryherald.com/business/b ... story.html

The Big 6 have already been taking a cautious approach over the last year as been seen with the lack of prime rate cuts made by the majors in the last interest rate take down. While consumer debt is at an all time high, economic growth and inflation have been robust enough for the bank to increase rates. Spending by consumers while may be held back, will be supported by a stronger Canadian $ due to increased rates. This becomes a mute point should the Federal Reserve start raising rates as well. What will pinch consumers is low investment, geopolitical risk from a collapse of NAFTA, war etc.

In other words, this 0.25% means nothing nor does the possible next raise in October. If anything, may help the banks.
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Sr. Member
Aug 17, 2008
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Is it just me or do you also see similarities in these two trades?

(1) https://invst.ly/51i6l
(2) https://www.bloombergquint.com/china/20 ... r-gives-in

You should read this in its entirety and not just what I chose to pull out of it.

Excerpts;
“I always thought we had a good risk-reward trade on, but we made a number of mistakes, including being way too early,”
"Even at its weakest point, FILL IN THE BLANK never dropped enough to move the needle on FILL IN THE BLANK wager."
"The trade went against him almost from the beginning."
"Record FILL IN THE BLANK debt levels are still a challenge"

Yes, I am having some fun with this thread, but I'm also saying that both trades lacked proper risk-reward management regardless of the final outcome.

Here are a couple of articles on what I mean by risk/reward.

https://www.tradermike.net/2006/09/r_r- ... s_defined/
http://www.vantharp.com/tharp-concepts/ ... p#Overview
Deal Addict
Jun 27, 2007
3111 posts
493 upvotes
Gungnir wrote:
Sep 6th, 2017 1:03 pm
Go ahead and pile on the short, I've got it on good authority that it's the safest trade. See you next quarterly :)
nah, I made my bed. In fact, I will buy RY at 80. Can't wait...
After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: it never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!

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