The Abitibi mention reminds me that some of us would prefer it, together with Cott and Nortel, to those monsters of incompetence which are the US banks. De gustibus non disputandum est, so I'll try to shutup.parvus wrote:Andrew Willis wrote:But to put all these numbers into comparison, let's quickly recall the rates that AbitibiBowater paid for when it sold high yield debt late Wednesday. Three-year junk bonds from North America's No. 1 newsprint maker, which faces major financial headwinds, came with an eye-opping 13.75 interest rate. That's a world away from what the banks pay for capital, reflecting the fact that investors want a premium for backing AbitibiBowater, but have next-to-no solvency concerns with the banks.
Canadian Banks
- Studebaker Hawk
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Nixon at RBC says it's an investor's market. That is probably true but one needs to watch out for the unforeen potholes along the way. BNS stock got hit hard today on the suggestion by the G&M that the banks will be shamed into making everyone whole. They then go on to discuss BNS' sale of ABCP to Coventree and the fact Coventree is sueing BNS to repurchase the ABCP it sold. I saw that situation as one where Coventree simply hadn't done their due diligence but there seem to be others who take the position that BNS tricked them into buying that bad paper. Meantime, when we look at bank stocks we really don't know what worms lie under the surface. No one likes uncertainty.
It will be interesting if that lawsuit gains any traction. Think of all the AAA junk that has been sold in the last three years by all the players. Tricksters indeed!Donut wrote:...BNS tricked them into buying that bad paper. Meantime, when we look at bank stocks we really don't know what worms lie under the surface. No one likes uncertainty.
For the fun of it...Keith
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"BNS tricked them into buying that bad paper."
Yeah right. Coventree specializes in ABCP and it sounds like they are going to try to convince a judge that they were so dumb and ignorant about ABCP that they got "tricked".
Mike
Yeah right. Coventree specializes in ABCP and it sounds like they are going to try to convince a judge that they were so dumb and ignorant about ABCP that they got "tricked".
Mike
Research until your head hurts then scream Banzai!!! and charge fearlessly to victory or death!
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ISTM that Donut's post is not correct. The sequence of events is that Coventree, acting as "manufacturer", produced the product and that Scotia, acting as wholesaler, sold it to Canaccord, who repackaged it for retail clients.Yeah right.
There were two suits launched last year. One was Canaccord suing Scotia. I think the other was a group of investors suing Canaccord. Neither suit is recent.
Coventree is being wound up and has no assets worth suing.
That would be Canaccord, not Coventree - and Canaccord should, ISTM, qualify as a "sophisticated investor". But then I'm not a lawyer.they are going to try to convince a judge that they were so dumb and ignorant about ABCP that they got "tricked".
Adde: the two suits are discussed here:
The more interesting suit involves a Vancouver businessman who sued Canaccord Capital Corp. for selling him ABCP. He alleges negligence, breach of contract, breach of fiduciary duty and negligent misrepresentation.
Canaccord denied liability in a statement of defence, but in an eyebrow-raising legal manoeuvre, it also issued a third-party notice to Scotia Capital Inc., and Scotia Capitaux Inc., manufacturers of some of the ABCP that Canaccord sold. The notice warns that Canaccord will seek to recover money from Scotia for any damages it has to pay. Canaccord alleges that Scotia was negligent, engaged in negligent misrepresentations, breached its contract and fiduciary duties and breached securities laws in the marketing and sales of the ABCP.
Sic transit gloria mundi. Tuesday is usually worse. - Robert A. Heinlein, Starman Jones
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- chiaroscuro
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The major difference here is that Abitibi must rely strictly rely on it's reputation when floating a bond. In Abitibi's case the reputation is bad and the interest rate sucks. US banks on the other hand can line up at the Fed tit and get discount loans using any asset they darn well want to as collateral, no matter how bad it reeks. That same crap ABCP they were selling, they now use as collateral. Would Citi be toast without that sort of public sector coddling? If Abitibi could do the same don't you think they could float that bond at a much lower rate? You have much more faith in a company when you know there is a big sugar daddy behind them.adrian2 wrote:The Abitibi mention reminds me that some of us would prefer it, together with Cott and Nortel, to those monsters of incompetence which are the US banks. De gustibus non disputandum est, so I'll try to shutup.parvus wrote:Andrew Willis wrote:But to put all these numbers into comparison, let's quickly recall the rates that AbitibiBowater paid for when it sold high yield debt late Wednesday. Three-year junk bonds from North America's No. 1 newsprint maker, which faces major financial headwinds, came with an eye-opping 13.75 interest rate. That's a world away from what the banks pay for capital, reflecting the fact that investors want a premium for backing AbitibiBowater, but have next-to-no solvency concerns with the banks.
Adrian, I would appreciate if you didn't keep on mentioning me in posts. I know I have angered you...but let it go dude.
"Common sense is the collection of prejudices acquired by age eighteen." ~~AE
I don't think your understanding of how the fed works is correct.chiaroscuro wrote:US banks on the other hand can line up at the Fed tit and get discount loans using any asset they darn well want to as collateral, no matter how bad it reeks. That same crap ABCP they were selling, they now use as collateral. Would Citi be toast without that sort of public sector coddling? If Abitibi could do the same don't you think they could float that bond at a much lower rate? You have much more faith in a company when you know there is a big sugar daddy behind them.
I did not mention your name. As long as you post here, you may expect your ideas to be scrutinized and occasionally debated. You have not personally angered me, AFAIK we have never met, so the dude appellation is unwarranted, IMO.chiaroscuro wrote:Adrian, I would appreciate if you didn't keep on mentioning me in posts. I know I have angered you...but let it go dude.
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He can't. He's stalking. Maybe it's that Romania heritage.chiaroscuro wrote:Adrian, I would appreciate if you didn't keep on mentioning me in posts. I know I have angered you...but let it go dude.
Communication with old people is difficult as they feel superior to you and find difficulty in remembering anything.
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I did not mention your name. As long as you post here, you may expect your ideas to be scrutinized and occasionally debated.
Okay now I understand. Adrian owns this thread. But will there be contagion? Will he then own the "US bank" thread, "Stagflation Coming?" thread and so on?Studebaker Hawk wrote:He can't. He's stalking. Maybe it's that Romania heritage.chiaroscuro wrote:Adrian, I would appreciate if you didn't keep on mentioning me in posts. I know I have angered you...but let it go dude.
"Common sense is the collection of prejudices acquired by age eighteen." ~~AE
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It's a bit more complicated, I think. DBRS chose to rate the non-bank ABCP stuff that Moody's and S&P took a pass on, because of the differing definition of what would constitute a liquidity crisis that would require the counterparty to step in and make whole the (now long-term) debtholders.
Wovon man nicht sprechen kann, darüber muß man schweigen — a wit
finiki, the Canadian financial wiki Your go-to guide for financial basics
finiki, the Canadian financial wiki Your go-to guide for financial basics
Battered banks think worst is over
TARA PERKINS
FINANCIAL SERVICES REPORTER
May 28, 2008
Bankers are cautiously optimistic that the liquidity crunch that's been pounding global investment banking operations for nine months now is dissipating, but they fear reverberations will still be felt in the real economy.
TARA PERKINS
FINANCIAL SERVICES REPORTER
May 28, 2008
Bankers are cautiously optimistic that the liquidity crunch that's been pounding global investment banking operations for nine months now is dissipating, but they fear reverberations will still be felt in the real economy.
TD Q2 release.
http://www.td.com/investor/2008/2008q2qr.pdf
Disappoints market; while I like TD and will buy it in time I think this will keep any positive lift on this sector in check for the time being. RY probably going to disappoint some too; the unknown is how bad CM really is.
Meanwhile US financials are tanking today, again. For this sector a lot rides on tomorrow's US GDP number, its all a bet on the economy and if one looks past the noise of individual reports there are no solid reasons to expect recovery any time soon.
As Canada generally lags the U.S., and at this point in time there is a significant gap in actual performance and expectations which means we have more risk on this side of the border than is generally recognized. There is far too much positive "Canada well positioned" talk going on. The market is not merely the energy sector, despite reports to the contrary.
http://www.td.com/investor/2008/2008q2qr.pdf
Disappoints market; while I like TD and will buy it in time I think this will keep any positive lift on this sector in check for the time being. RY probably going to disappoint some too; the unknown is how bad CM really is.
Meanwhile US financials are tanking today, again. For this sector a lot rides on tomorrow's US GDP number, its all a bet on the economy and if one looks past the noise of individual reports there are no solid reasons to expect recovery any time soon.
As Canada generally lags the U.S., and at this point in time there is a significant gap in actual performance and expectations which means we have more risk on this side of the border than is generally recognized. There is far too much positive "Canada well positioned" talk going on. The market is not merely the energy sector, despite reports to the contrary.
I would rather be in this market than sitting on the sidelines. Yesterday I reinvested the cash portion of our portfolio which I keep short term just in case the rates go up and the rate I received for 30 days was 3.16% for TD Mortgage. However the discipline approach to having that percentage of cash stay on the sidelines, makes me realize how much of this cash is not working to the extent the stock is with capital appreciation and dividends.
We are being paid to be patient and we even get raises along the way, with BNS last week, love those dividends.
We are being paid to be patient and we even get raises along the way, with BNS last week, love those dividends.
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There's an article here about a fund manager who has been selling energy to buy the banks, which is exactly what a few of us have been arguing. And doing:
http://www.financialpost.com/story.html?id=552648
http://www.financialpost.com/story.html?id=552648
Value investing: Embracing the sexy side of bank stocks
Mr. Rosentreter says that the textbook definition of value investing is to pick stocks with slow growth, high dividends and low price-to-earnings ratios.
At the same time, though, there's “a whole other dimension to value, which is the concept of buying broken companies and waiting for them to recover” – something he says can take “many, many years.”
It would seem that right now, banks fit both categories. They have historically been the quintessential blue-chip stock, but they are also hurting, especially the banks that are still paying for their involvement in the U.S. subprime mortgage mess with whopping writedowns.
One of the first decisions investors have to make before choosing to invest in banks, Mr. Rosentreter advises, is whether you believe that “broken” banks will be fixed over the long haul. Most people would say yes, that it's “a slam dunk” because banks have always managed to grow. But he urges investors to always consider some of the contrarian views before making a final decision.
Maybe banks are in the same position that some argue Tim Hortons is in Canada: “Maybe the market is saturated and there's no room to grow.” Or perhaps the areas of future expansion for banks are less predictable: “The banks grew in an area called subprime, for example, and look what happened there.”
If you decide that this is a short-term period of hurt for the banks, there's the issue of timing – should you buy the stocks now or, as Mr. Rosentreter asks, “is there more bloodletting to come?” Will bank shares fall some more before they begin to rise again?
On that point, analysts this week certainly had their say: Most expect the rest of 2008 to be rocky, although many say the worst is over with respect to credit-crunch writedowns.
I think a bet on banks for the long term is going to pay off in time but as folks know, I'm interested in minimizing my downside risk. I don't average down. I sell and wait for a bottom or something which is close enough.
I don't believe that, after the nice rally from March 17 when I last bought banks, the current price position in most Canadian banks resembles a stable level. I see no reason to take 10 - 20% risk (or more if a major market wide tumble is afoot) to own them now.
Ultimately a bet on banks is a bet on the economies of the US and Canada; while Canada has been relatively insulated from the US turmoil so far, the banks have seen plenty of difficulty based on their exposure there.
With loan loss provisions rising in both the US and Canada, and the real potential for Canada's economy to inherit more of the US difficulties (particularly in housing, certain sector weakness, Ontario weakness) it seems reasonable to believe that upside in the economy is currently limited in Canada and certainly limited in the US so the chance of more pressure on prices is much higher than what limited upside might exist. And in general I see the downside risk to global markets as being marked at present.
With the forgoing in mind its my contention that one can use the charts to pick safer entry points and I do not see one today. March 17th was a scary but safer entry point.
I'm adding this context to explain my thinking not to convince anyone of anything. I would not ever put a dime in US banks (bank failures, particularly with smaller banks, have only just begun down there) but Canada's banks I'm interested in buying. Just not now.
I don't believe that, after the nice rally from March 17 when I last bought banks, the current price position in most Canadian banks resembles a stable level. I see no reason to take 10 - 20% risk (or more if a major market wide tumble is afoot) to own them now.
Ultimately a bet on banks is a bet on the economies of the US and Canada; while Canada has been relatively insulated from the US turmoil so far, the banks have seen plenty of difficulty based on their exposure there.
With loan loss provisions rising in both the US and Canada, and the real potential for Canada's economy to inherit more of the US difficulties (particularly in housing, certain sector weakness, Ontario weakness) it seems reasonable to believe that upside in the economy is currently limited in Canada and certainly limited in the US so the chance of more pressure on prices is much higher than what limited upside might exist. And in general I see the downside risk to global markets as being marked at present.
With the forgoing in mind its my contention that one can use the charts to pick safer entry points and I do not see one today. March 17th was a scary but safer entry point.
I'm adding this context to explain my thinking not to convince anyone of anything. I would not ever put a dime in US banks (bank failures, particularly with smaller banks, have only just begun down there) but Canada's banks I'm interested in buying. Just not now.
Requires free registration, S&P lowers ratings on a number of broker dealers / investment banks.
Review Of Investment Bank Sector Sparks Mostly Negative Rating Actions
Of course S&P last year rated Bear Stearns A+, and earlier this spring before the blow up A-3 but cited a belief that it could come back.
Review Of Investment Bank Sector Sparks Mostly Negative Rating Actions
NEW YORK (Standard & Poor's) June 2, 2008--At the conclusion of its review of global universal and investment banks, Standard & Poor's Ratings Services lowered its ratings on Lehman Brothers Inc., Merrill Lynch & Co. Inc., and Morgan Stanley. Standard & Poor's also revised its outlooks on Bank of America Corp. and JPMorgan Chase & Co. to negative. In addition, Standard & Poor's affirmed its ratings on Citigroup Inc., removed the ratings from CreditWatch negative, and assigned a negative outlook. We also placed the ratings on Wachovia Corp. on CreditWatch negative. The outlooks on the large financial institutions sector in the U.S. are now predominantly negative.
Code: Select all
Summary Of Today's Rating Actions
To From
Ratings lowered
Lehman Brothers Holdings Inc.
Counterparty credit rating A/Negative/A-1 A+/Negative/A-1
Merrill Lynch & Co.
Counterparty credit rating A/Negative/A-1 A+/Negative/A-1
Morgan Stanley
Counterparty credit rating A+/Negative/A-1 AA-/Negative/A-1+
Outlook revised to negative; rating affirmed
Citigroup Inc.
Counterparty credit rating AA-/Negative/A-1+ AA-/Watch Neg/A-1+
Bank of America Corp.
Counterparty credit rating AA/Negative/A-1+ AA/Stable/A-1+
JPMorganChase & Co.
Counterparty credit rating AA-/Negative/A-1+ AA-/Stable/A-1+
Ratings placed on CreditWatch negative
Wachovia Corp.
Counterparty credit rating AA-/Watch Neg/A-1+ AA-/Negative/A-1+
Ratings affirmed
Credit Suisse
Counterparty credit rating A+/Negative/A-1
Deutsche Bank AG
Counterparty credit rating AA/Negative/A-1+
Goldman Sachs Group Inc.
Counterparty credit rating AA-/Negative/A-1+
UBS AG
Counterparty credit rating AA-/Negative/A-1+
U.S. Bancorp
Counterparty credit rating AA/Stable A-1+
Wells Fargo & Co.
Counterparty credit rating AA+/Stable/A-1+
The Texas ratio and Canada's big banks-article by Harry Koza in the Globe and Mail.
So, no worries, then: None of our banks is at any immediate risk of insolvency. Still, if you invest in bank stocks, the Texas ratio is worth tracking as an early warning in case the banks you're investing in have constructed pyramids of bad loans.
Texas ratio of big banks
2Q 2008 2Q 2006
Bank of Montreal 11.2% 5.2%
Toronto-Dominion Bank 2.9% 1.9%
Canadian Imperial Bank of Commerce 7.1% 7.8%
National Bank of Canada 5.1% 5.3%
Royal Bank of Canada 7.8% 3.7%
Bank of Nova Scotia 9.7% 10.6%
https://secure.globeadvisor.com/servlet ... 06/RKOZA06
So, no worries, then: None of our banks is at any immediate risk of insolvency. Still, if you invest in bank stocks, the Texas ratio is worth tracking as an early warning in case the banks you're investing in have constructed pyramids of bad loans.
Texas ratio of big banks
2Q 2008 2Q 2006
Bank of Montreal 11.2% 5.2%
Toronto-Dominion Bank 2.9% 1.9%
Canadian Imperial Bank of Commerce 7.1% 7.8%
National Bank of Canada 5.1% 5.3%
Royal Bank of Canada 7.8% 3.7%
Bank of Nova Scotia 9.7% 10.6%
https://secure.globeadvisor.com/servlet ... 06/RKOZA06
So far M. Bernard is dead wrong.JaydoubleU wrote:There's an article here about a fund manager who has been selling energy to buy the banks, which is exactly what a few of us have been arguing. And doing:
http://www.financialpost.com/story.html?id=552648
We might give him one half marks for trimming in energy at least. While the trend remains up in energy generally, there is reason enough to be cautious. With $100 million in assets he can't jump in and out as I might.
But buying the banks? May 30?
Incroyable.
What's his justification for buying?
"It may not be done yet, but the worst is over for the banks," Mr. Bernard said. "Writedowns will become smaller. Financials will be No. 1 again in less than a year. I see the banks index rising 15%. Add to that a yield of 4%."
Since his purchase, using closing values (and today's price at time of writing) the index is down 6.4%.
"The move to banks from energy may well be a bit too soon," Mr. Bernard said. "But I'd rather not chase rabbits." - P. Bernard
Yet that is EXACTLY what he did, believing the breakout from a minor consolidation was his signal that all is ok. He bought momentum, he chased the rabbit.
Funny you should mention the head and shoulder pattern on BNS. First I have to ask - which time frame are you looking at? For one can argue there are head and shoulder patterns present in multiple time frames.
One of the problems with the pattern as a forecasting tool is that one can see head and shoulder patterns in too many places if one tries too hard; they also appear in multiple time frames. If we accept that a H&S pattern is nothing more than:
- left hand: a trading range
- top: the uppermost trading rang
- right hand: follows a change of trend from up to down, this is the second lowest trading range
The depth of the two more or less stacked levels of trading range can be measured and then used to determine what I prefer to consider as a "price possibility" rather than a forecast, as its my opinion that technical analysts should focus more on measurement than forecasting.
BNS - Daily
- If this is what you are referring to, the E&M price extension brings price back down to the spring lows ~ $42. So too does the broken rising consolidation pattern. Price may find support near current levels however there does not yet appear to be capitulation in evidence in this latest move down so I would not, er, bank on it.
BNS - Weekly
- A small head and shoulder marked out by the circles - target already achieved earlier this year
- A large head and shoulder consolidation pattern which extends down to ~ $28.00
These are not "forecasts" just price possibilities. I've shorted so many rising wedges in my trading career that I know they are worth while trades to take.
When it comes to such big declines... I can hear it now, "no way". No doubt some feel this extent of price movement is impossible. I never discount the possibility of where price may go. Drawing some arrows and lines on a chart, mapping out via price extension where price *may* go does not give me a guarantee it will head to such depths, but I've seen prices hit such targets often enough that I certainly would not totally discount the possibility.
Does this mean I would not buy the stock unless it hit 42 or 28? No, I merely continue to evaluate price action as it rolls out. Tradeable bottoms, particularly sector or market wide, tend to be fairly obvious. One doesn't have to be dead on right all the time to improve performance. And if wrong, that's what a protective stop is for.
Now lets look past BNS and consider the entire Canadian financial sector:
S&P TSX Capped Financials Index
The big head and shoulder pattern suggests a price possibility through Edwards and Magee price extension which extends to a further 25% decline from the close on Friday June 27 2008.
Impossible? No. The US market - different as it is - has already exceeded this. Canada wouldn't be catching up just following along, well back. But it would still be painful.
In a few months we can check back and see if the price possibility was reached.
What we can say is such a decline would be entirely consistent with tough economic times that persist for several more quarters. That does not seem so impossible to me.
Again, I'll buy a tradable bottom setup if one shows up, just like I did March 17. I just won't assume its the end of selling.
One of the problems with the pattern as a forecasting tool is that one can see head and shoulder patterns in too many places if one tries too hard; they also appear in multiple time frames. If we accept that a H&S pattern is nothing more than:
- left hand: a trading range
- top: the uppermost trading rang
- right hand: follows a change of trend from up to down, this is the second lowest trading range
The depth of the two more or less stacked levels of trading range can be measured and then used to determine what I prefer to consider as a "price possibility" rather than a forecast, as its my opinion that technical analysts should focus more on measurement than forecasting.
BNS - Daily
- If this is what you are referring to, the E&M price extension brings price back down to the spring lows ~ $42. So too does the broken rising consolidation pattern. Price may find support near current levels however there does not yet appear to be capitulation in evidence in this latest move down so I would not, er, bank on it.
BNS - Weekly
- A small head and shoulder marked out by the circles - target already achieved earlier this year
- A large head and shoulder consolidation pattern which extends down to ~ $28.00
These are not "forecasts" just price possibilities. I've shorted so many rising wedges in my trading career that I know they are worth while trades to take.
When it comes to such big declines... I can hear it now, "no way". No doubt some feel this extent of price movement is impossible. I never discount the possibility of where price may go. Drawing some arrows and lines on a chart, mapping out via price extension where price *may* go does not give me a guarantee it will head to such depths, but I've seen prices hit such targets often enough that I certainly would not totally discount the possibility.
Does this mean I would not buy the stock unless it hit 42 or 28? No, I merely continue to evaluate price action as it rolls out. Tradeable bottoms, particularly sector or market wide, tend to be fairly obvious. One doesn't have to be dead on right all the time to improve performance. And if wrong, that's what a protective stop is for.
Now lets look past BNS and consider the entire Canadian financial sector:
S&P TSX Capped Financials Index
The big head and shoulder pattern suggests a price possibility through Edwards and Magee price extension which extends to a further 25% decline from the close on Friday June 27 2008.
Impossible? No. The US market - different as it is - has already exceeded this. Canada wouldn't be catching up just following along, well back. But it would still be painful.
In a few months we can check back and see if the price possibility was reached.
What we can say is such a decline would be entirely consistent with tough economic times that persist for several more quarters. That does not seem so impossible to me.
Again, I'll buy a tradable bottom setup if one shows up, just like I did March 17. I just won't assume its the end of selling.