It was an easy call, that The Bank of Canada would hold rates (again) and the rate hike hiatus was still in play in the Great White North. Though we did have a wonderful heatwave this week. Not so white, not so cold. We are in wait and see mode on the inflation-fighting front. The BoC will say they are “data dependent”. The inflation and economic readings will dictate the movement of rates moving forward. For now, the rate hike hiatus continues. The easy tweet / call …
Here’s a very succinct and accurate take on the key trends.
And south of the border, sticky inflation is harder to unstick …
Canadian bank goes south?
In the Globe & Mail, banking reporter David Berman suggests (paywall) that there might be very good value in TD Bank (TD).
TD has traditionally traded with a healthy premium over most other Canadian bank stocks – based on estimated price-to-earnings ratios – because of the bank’s strong growth, gargantuan size and impressive U.S. retail banking footprint.
Now, the stock’s valuation is trailing.
The stock has garnered the attention of shortsellers, many who are shorting TD as a hedge against investments in the regional bank First Horizon, a TD takeover target. TD is also the most American Canadian bank, and it is falling due to that exposure plus its ownership position in brokerage firm Charles Schwab (SCHW).
I’d be with Mr. Berman on this call. That said, Canadians should be aware of any Canadian home bias and overweight positions to any sector such as Canadian banks. And be prepared for volatility. There is a lot of uncertainty in the U.S. (regional) and Canadian banking space. I like the premise of buying TD as it goes on sale. As always, this is my opinion, and not advice.
Many Canadian investors look to this chart and can excuse some of the price volatility.
The big U.S. banks kicked off earnings season with a bang. As per Berman’s post …
But as JPMorgan Chase & Co. JPM-N +7.55% increase demonstrated Friday, the mood may be overly grim. The U.S. bank reported a surprisingly strong 52-per-cent increase in first-quarter profit, sending the stock on a 7.5-per-cent rally in afternoon trading.
In reports, the big banks do give a nod to a gradually weakening consumer and tightening credit conditions (lending). Many of the big bank CEOs echo the prediction of a soft recession.
On the other hand …
Jeremy Grantham believes there is more contagion to come, from the stress in regional banking and commercial real estate.
Other things will break, and who knows what they will be,” Grantham said. “We’re by no means finished with the stress to the financial system.
There is a $1.5 trillion wall of debt that becomes due by 2025. The loans will face resets at signifcantly higher rates (3 times?) and many property owners will not quality for loans. The keys will be handed over for many commercial properties. While it sounds scary, we don’t know if this will cause greater economic contagion beyond the regional banking and real estate space. I was happy to find a writer on Seeking Alpha that spotted the banking risk well in advance. The crisis was created in plain sight.
He made some good money shorting banks. He’s done for now. I will keep checking in with this writer and will report any interesting insights. He’s quite defensive, with a more than healthy gold weighting. His general take is that there is a real risk of contagion, but the Fed would quickly jump in with rate cuts. It’s tricky for traders trying to stay one step ahead of the Fed.
Gold shines …
Central bankers are certainly diggin’ the gold thing these days 😉 Perhaps they are hedging their own bad behaviour? Just a thought.
Only time will tell how this all plays out. But it is more than interesting to keep an eye on this ongoing economic event, and risk.
John Mauldin offered another wonderful take with inflationary choices.
All this feeds on itself and will, I think, keep inflation well above the Fed’s 2% target, which looks increasingly ridiculous as time passes. I’m (cautiously) optimistic we won’t see 9% annual inflation again. But 2%? The only way that happens is if they generate a severe recession… which may, in fact, be the plan (but I hope we avoid it!).
More Sunday Reads
The Dividend Hawk takes a close look at the week. Always a good read.
Kyle penned a very good Making Sense of the Markets for MoneySense. I will be covering that column for the next two weeks.
This week I offered a post showing the superiority of Canadian Robo Advisors over high-fee Canadian mutual funds. The post compares mutual funds to the returns of the Questwealth Portfolios from Questrade and Justwealth – Canada’s best performing Robo Advisor.
And on saying goodbye to high feel mutual funds, I love seeing tweets and getting messages such as this ..
And happy blogging anniversary to Frances Horodelski. A good follow. I should check in with Frances with more regularity.
At My Own Advisor, Mark makes the call to end the RRIF withdrawal schedule. Good call.
Without lowering the withdrawal percentages further – or using the more powerful tool of raising the age at which withdrawals must start – today’s seniors have a far higher chance of living to see severe depletion of their RRIF nest-egg’s purchasing power …
On retirement withdrawal strategies you can check out Mark’s work and offer for self-directed investors at Cashflows & Portfolios.
Tops at Tawcan
At Tawcan, Bob takes another look at his top 5 holdings. Like many Canadian self-directed investors, Bob holds Canadian stocks, a sprinkling of U.S. stocks and tops up the international exposure by way of ETFs.
I offered a cheeky tweet on one of our top holdings …
Matt has crunched the numbers to churn out his March dividend and portfolio update. From that post …
In March I received $1,004.15 the first time I have hit a $1k in a single month. This represents 19.5% income growth over last March. I received payments from 17 stocks in all three of my investment accounts. Here is the breakdown per account:
- TFSA $453.97
- RRSP $426.85
- LIRA $123.36
Matt will create a very nice top-up for his pension. Nice to see that. Matt, of course, will also be also to sell shares to create additional income.
At stocktrades.ca, Dan offers 11 of the top stocks to buy in Canada in April.
- Nuvei (TSE:NVEI)
- Sunlife Financial (TSE:SLF)
- Shopify (TSE:SHOP)
- Telus (TSE:T)
- Parkland Fuels (TSE:PKI)
- Goeasy Ltd (TSE:GSY)
- Dollarama (TSE:DOL)
- TFI International (TSE:TFII)
- Loblaw (TSE:L)
- Canadian Natural Resources (TSE:CNQ)
- Royal Bank (TSE:RY)
Why so defensive?
On Findependence Hub a fund manager is getting defensive, weighing the odds of a recession.
Readers will know that I am a fan of defensive stocks and sectors for retirees, or for those who want to manage risks.
It’s been a while since I linked to this, but check out and catch up on the podcasts at The Maple Money.
Thanks for reading. Have a great Sunday, and don’t forget to follow this blog. It’s free.
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