Had a handful of really great trades on the USD/CAD in the middle of last month, but not much here in the past week or so. I find these to be good longer term moves that are a suitable trending/drifting play.
To be honest, I am not very familiar with Sprott and their motivations. I am also not disputing their numbers (although I haven't verified them either), but I would think that somebody else somewhere would have picked up on this. To the best of my knowledge, Canadian banks have not needed nor received this help from the government. Certainly not the $114 billion that is stated in this report. The reason they survived relatively unscathed is due to conservative lending practices, high tier 1 and capital ratio's (as mandated by government regulations), and underexposer to derivates and the USA housing market. It is unlikely that the Canadian government gave $114 billion worth of help to banks without anyone noticing or even the media catching wind... Remember - $114 billion is a lot more in Canada than it is in USA. It's hard to believe that such a large amount could go unnoticed by everyone.
Good stuff, at least someone is making money from that trend. My investments denominated in USD sure don't like it.
Interesting report released by the Bank of Canada yesterday titled "Financial System Review". Very insightful information regarding the Canadian financial system, global financial system, as well as the global macroeconomic situation. Recommend for anyone interested in the economic views of a central bank, particularly one who has watched over the most stable financial institutions in the world during this recession. http://bankofcanada.ca/en/fsr/2009/fsr_1209.pdf
I signed up to ET just because of this thread and series of misinformed posts that are clear pumping. Given that my focus is mean reversion, I know a thing or two about valuations and in this case, unprecendented bailouts of Canadian Banks. The numerous extroadinary bailout programs designed to support Canadian banks are all clearly outlined on the Department of Finance's website under "Budget 2009". Total bailouts for Canadian banks are not 114b, rather approaching 300B, as per the government's own documentation. This is an astounding figure, given that they Canadian economy is about 1/10th that of the US. The fact that most aren't aware of this fact is simple - Canadians are simple, uneducated sheep, that are more than happy to keep buying "blue chip" institutions, as buy programs soothe frayed nerves. Below is a summary and some facts: Extroadinary Financing Framework (200B) - 125B for Insured mortgage purchase program. This program enables banks to exchange mortgages for treasuries. Given that RBC and TD in particular have huge mortgage portfolios in hard-hit areas in the north east and south east, the benefits are huge. RBC has spent over 20B in the past several years buying small banks and asset managers to acquire a footprint in the US that has never been profitable, even in the peak. Several assets were acquired at peak valuations in 06 and 07 (alabama national) to put together a portfolio of assets that are considerably smaller than those held by Region's financial, yet only minimal writedowns have occurred to date. Are investors to surmise that Canadian banks are so superior in their risk management practices that even with large lending practices in the hardest hit parts of US real estate are somehow leaving their Canadian parent holding companies immune from the crisis? 13B for federal organizations that are trade and finance oriented. in many cases, these agencies are purchasing outright toxic assets from canadian banks. canadian secured credit facility - to provide liquidity to illiquid asset backed markets, such as Auction Rate Securities and Asset Based Commercial Paper. Both markets have collapsed and remain largely closed, under the weight of products sold to investors with no ability from banks to provide liquidity. numerous lawsuits are underway on both sides of the border. Canada Life Insurance Assurance Facility - THis one is the mother lode and most opaque of all programs. It was designed in large part because Manulife, another "stable" canadian institution, decided it would be a good idea to sell investors principal protected notes with guaranteed rates of return tied to the TSX index, yet offer investors a very high debt coupon of 6-7% per year. Sounds fine, except, the insurance company that sold more than 60B of such products forgot to hedge, as in buy simple index puts. Soooo, the company is on the hook to (somehow) honor these instruments as they mature, even though the main index is down substantially. You think John Hancock investors would have sold their company to Manulife had they known how the folks up north managed their risk? Extroadinary Liquidity Provision - changes under the program could increase lending up to 300B per year! Wrt to Sprott, he is a former banking exec that is one of the country's most successful hedge fund investors. Just google his name and you will see he runs several large gold and commod funds, with the basic premise that central banks cant be trusted and will debase currencies to whatever level is necessary to cover up the insane lending practices prevalent in north america the past decade. "To be honest, I am not very familiar with Sprott and their motivations. I am also not disputing their numbers (although I haven't verified them either), but I would think that somebody else somewhere would have picked up on this. To the best of my knowledge, Canadian banks have not needed nor received this help from the government. Certainly not the $114 billion that is stated in this report. The reason they survived relatively unscathed is due to conservative lending practices, high tier 1 and capital ratio's (as mandated by government regulations), and underexposer to derivates and the USA housing market. It is unlikely that the Canadian government gave $114 billion worth of help to banks without anyone noticing or even the media catching wind... Remember - $114 billion is a lot more in Canada than it is in USA. It's hard to believe that such a large amount could go unnoticed by everyone."
Good to see some dissenting opinion here, even if someone had to sign up to enter it. I agree, the bailouts to Canadian banks, primarily through the CMHC and the NHA, have been enormous. The CMHC and the NHA collectively have a portfolio of almost $800B of loan guarantees, entirely against real estate, and are government supported. But under what scenario do the Canadian banks end up suffering massive losses if the Canadian housing market crashes? Does the government end up legislating modifications to the CMHC guarantees, the result of massive losses at the CMHC? Losses on the banks' own portfolios (which are mostly short-term investments; Canadian banks have very little in terms of >5 year loans)? Or do the banks merely get eclipsed by the other components on the stock market, particularly in the resource and energy sectors, that will benefit enormously from the sort of inflation that would occur once all the loan guarantees are monetized? Just trying to get my head around things... I want to believe the goldilocks (no pun intended) scenario of gold going to $5000/ounce, oil to $300/barrel, etc., and the resources sector eclipsing that of the banks. But what if that doesn't happen?
pitz its not what if - its called deflation. Very hard to hedge that kind of risk out from your portfolio ... I suggest you Buy options on volatility - on credit spreads widening (as an aside this can lead to basis trading blow ups, so be long CDS')... in general be long volatility, this includes commodity and currency volatility, pretty much volatility in every asset class is game. You can see that in this recent March 2009 <b>intervention</b> - the first and biggest losers as a result of this massive move were those buying volatility... all the key players lost as spreads shrunk, rates are at zero so people are happily short volatility and all asset classes become correlated and now move in one direction because of it.. it comes out as a reflation trade and as preparation for inflation but really its the product of massive synchronized Gov't intervention globally...
psytrade, the Canadian banks have essentially hedged deflation out, through the use of government loan guarantees. If houses deflated to 25% of their previous value -- the government, under the current scheme, guarantees such and will print money and hand it to the banks to cover all the defaults. Strong inflation would hurt the Canadian banks' earnings relative to everything else in the Canadian economy. The thing to keep in mind is that the Canadian banks run dramatically different businesses than the US banks. Canadian banks do not borrow short, lend long. There is barely, if any, duration gap on the portfolios.
CIBC Q1 2010 results: Net Income, revenue, EPS all up substantially vs. Q1 2009 and vs. Q4 2009. Provisions up. http://ca.us.biz.yahoo.com/cnw/100225/cibc_q1_2010_results.html?.v=1
BMO Q1 2010 Results: Net income, revenue, EPS all higher. Provisions LOWER. When is the last time you heard lower provisions from a bank? Probably why it's up 3.5% today. http://ca.news.finance.yahoo.com/s/...reports-657-million-profit-first-quarter.html