# Shorting banks - Royal Bank



## james4beach (Nov 15, 2012)

I've been waiting about 7 years to do this, and I think the timing is about right now. Today I opened a short position on Royal Bank. Some people criticize me for making up fake trades so here's the screen shot









I might add to the short if the position goes wel. Approximate holding time for this will be 6-12 months. Why RY and not others? I would ideally short XFN (but I can't for complicated reasons) and I picked RY because it best approximates XFN and has certain loan loss characteristics that make me think their losses are going to increase.


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## spongewen (Nov 26, 2015)

do you expect oil go back again to lower $20? i recall BNS and NA have larger oil exposure.


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## james4beach (Nov 15, 2012)

Is anyone else short the Canadian banks?

My general thesis goes something like this: (1) the mega rally of the last few years was liquidity/QE/ZIRP driven but otherwise very weak on fundamentals, (2) accounting rule changes on mark-to-market loans post-crisis has masked deficiencies in loan quality, (3) the Canadian economy is rather weak, (4) banks are very highly leveraged (RBC is 26:1 by my measure) and will feel the impact of a slowdown rather hard, (5) the sector is extremely over-owned on the tails of yield chasing + QE inflation and there's a lot of potential downside in reversions to mean, (6) a bank as large as RBC at $112 billion cap is already owned by virtually everyone who can possibly own it, and nobody can acquire it


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## james4beach (Nov 15, 2012)

spongewen said:


> do you expect oil go back again to lower $20? i recall BNS and NA have larger oil exposure.


I don't have a strong opinion on oil. For me the biggest factor is the QE/ZIRP inflation of the banking business and the vulnerability of these highly leveraged banks to a broad slowdown and higher loan losses. I pretty much could have shorted any one of them


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## humble_pie (Jun 7, 2009)

wishing you the best luck in the world ... 

even if the stock goes down, though, there's still a snake in eden. James u are the party who has to pay the dividends. I'm told that retail investors cannot even claim these disbursements as carrying costs for tax purposes, gah


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## james4beach (Nov 15, 2012)

Yes I'll have to make payments in lieu of dividends, but when I look at the technical setup for things like this (and potential profit) I consider the total return, which is the only thing that really matters.


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## spongewen (Nov 26, 2015)

good luck, even though as you say, like most of people here, i have quite big exposures to banks as well


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## gibor365 (Apr 1, 2011)

> wishing you the best luck in the world ...


 don't wish you any luck :biggrin: 
Long RY


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## humble_pie (Jun 7, 2009)

now is the time for all worried men to sell options on their bank shares.

worried about a downturn, that is.


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## jdc (Feb 1, 2016)

james4beach said:


> I've been waiting about 7 years to do this, and I think the timing is about right now. Today I opened a short position on Royal Bank.


Looks good to me. Saw a report the other day about the under-capitalized position of Canadian Banks for energy loan losses. See the chart below, should be okay as long as upper downtrend line on this chart holds. I'd set a stop around there, but I think that this is a good setup for the trade that you made. Good luck.

http://schrts.co/n9GRHS


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## humble_pie (Jun 7, 2009)

james4beach said:


> Yes I'll have to make payments in lieu of dividends, but when I look at the technical setup for things like this (and potential profit) I consider the total return, which is the only thing that really matters.



hmmmn there is no proxy stock for the canadian banking/finance sector that has no dividends?


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## jdc (Feb 1, 2016)

humble_pie said:


> hmmmn there is no proxy stock for the canadian banking/finance sector that has no dividends?


Horizons has HFD - BetaPro S&P/TSX Capped Financials™ Bear+ ETF


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## james4beach (Nov 15, 2012)

The ETFs are valid vehicles, I just can't trade them because of US tax complications (I'm not supposed to touch any Canadian ETF).

You bulls out there should be happy about my trade! This guarantees that I will be buying the shares in the future  A healthy market has a mix of long + short positions.


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## humble_pie (Jun 7, 2009)

jdc said:


> Horizons has HFD - BetaPro S&P/TSX Capped Financials™ Bear+ ETF



... but james4 is unique in that, due to US tax laws, he requires a shortable common stock, never an ETF.

in addition i wonder whether a thinly-traded ETF would even be shortable, at any canadian broker


EDIT: sorry i was a bit slow on this ... but to short HFD would be to long the financial sector of the market ... to long HFD would be to short the sector ... except that james4 needs a stock ...


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## humble_pie (Jun 7, 2009)

james4beach said:


> You bulls out there should be happy about my trade! This guarantees that I will be buying the shares in the future  A healthy market has a mix of long + short positions.



this is the grand thing about optioned/paired/hedged positions. Always happy .each:


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## jdc (Feb 1, 2016)

humble_pie said:


> in addition i wonder whether a thinly-traded ETF would even be shortable, at any canadian broker


It is thinly traded for sure, maybe spreads are too high, but this is a double-short ETF, so you don't need to short it. There is a corresponding double-bull ETF too.


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## humble_pie (Jun 7, 2009)

you're right, no need to short, i didn't catch on for a couple minutes.

but there are other negatives to HFD. It's one of those reset-daily double & triple leveraged ETFs whereas james just wishes to descend gracefully, ever lower & lower, over a period of 12 or more months.

also a thinly-traded security with big spreads isn't quite the reason why brokers wouldn't offer it at the loan post. Although the 2 are related ... but the reason brokers might not offer HFD or its kin is simply that there are no shares available for shorting.


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## james4beach (Nov 15, 2012)

Those derivative ETFs are only meant for day trading, or maybe holding for a week. They are not appropriate for long term positions because of the cumulative errors of up/down percent moves in daily terms. This is why all of these ETFs decay with time. Just look at some of the popular ones from years ago and where they are today versus their benchmarks!


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## jdc (Feb 1, 2016)

Yeah, wasn't recommending it, just pointing it out. Here's a related article that just popped up in my feeds.... 

http://business.financialpost.com/i...dian-banks-relatively-low-oil-loan-provisions


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## jdc (Feb 1, 2016)

jdc said:


> Looks good to me. Saw a report the other day about the under-capitalized position of Canadian Banks for energy loan losses. See the chart below, should be okay as long as upper downtrend line on this chart holds. I'd set a stop around there, but I think that this is a good setup for the trade that you made. Good luck.
> 
> http://schrts.co/n9GRHS


I didn't realize that you were American, James. The US listed RY stock chart doesn't look bearish at all.....


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## Eder (Feb 16, 2011)

RY has had a great run lately and although it is trading at a forward PE about 30% below historical averages there's a good chance the USA pops rates a bit in June and that will make markets swoon and make this trade profitable. But then it might not. 

I wish all investors the best of luck but I always give the guy at the crap table that's slipping in bets on the "DON'T PASS" line the stink eye.


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## james4beach (Nov 15, 2012)

jdc said:


> I didn't realize that you were American, James. The US listed RY stock chart doesn't look bearish at all.....


I'm not American, I'm just working in the US at the moment. I still have to abide by crazy IRS regulations that severely limit my Canadian investment activities.

I do my technical analysis on the Canadian listed RY because I believe the technicals matter more on the Canadian side for this one. TSX volume for RY is on average double the US volume, so the TSX is the primary exchange and US is secondary.


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## doctrine (Sep 30, 2011)

The technical chart for RY is not negative at all. It's above the 200 day, and the 50 day is moving aggressively higher meaning a golden cross is in the future if the stock price stays where it is. That's usually considered a late technical indicator, but the 50 day is probably going to cross the 100 day in the next week or two anyway which gives you a week or two advance notice.

I am long RY, last bought at $71.20 in January; my overall ACB is $59. Thus, I am a believer in the long term profitability and profit generating machine that is RY. Although as I've said previously, I normally buy the banks when they're below the 200 day (which RY was in January) and not interested in buying now.

On the bearish technical side though, it looks like RY only really looks good for a short when it's breaking the 200 day. Which means if it fell decisively through it (currently looks like $73.59), it might be a good short term move to pile onto it at that point. You still might get lucky and it might break the 200 day anyway. Time will tell but the odds do not look fantastic and RY looks fairly valued to me, implying it could go either higher or lower but not necessarily one or the other. On the other hand, you might also just be early to the usual summer selling season.


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## james4beach (Nov 15, 2012)

I see the T/A differently: Here's multi-year RY with its 200 day moving average

I see a stock that's gone nowhere (yes after dividends) for two years. There's a series of lower highs and lower lows which is a bearish pattern. This latest decline and rally back was the most violent one yet and it's been struggling to even stay above its 200 day moving average. I read this as general exhaustion by buyers; in three rally attempts since the 2014 peak, RY has been unable to either make new highs or even to form a solid base.

Just look at that 200 day average more closely. Through 2015, it spent most of its time below the moving average, any rally attempts to get above it were feeble. In my technical analysis, I always look at whether the 200 day moving average is acting as a "floor" or a "ceiling". Here, it's proving to be a ceiling.

To me, it looks weak (really I'm talking about the sector here, generalize to XFN). The stock offers increasing risk to those who hold it long, and the _longer it fails to reach new highs, the worse the risk/reward proposition gets_. This is the chart of a stock whose buyers have started questioning why they're still holding it.

With that pattern of "rally, stall, decline" I evaluate its short term upside potential as only 10% and its down side as around 20%, which is why I'm taking the bet.


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## james4beach (Nov 15, 2012)

jdc said:


> Looks good to me. Saw a report the other day about the under-capitalized position of Canadian Banks for energy loan losses. See the chart below, should be okay as long as upper downtrend line on this chart holds. I'd set a stop around there, but I think that this is a good setup for the trade that you made. Good luck.
> 
> http://schrts.co/n9GRHS


Thanks for this jdc. How did you draw those nifty blue lines for the channel on stockcharts? Was that automatic? And yes that's exactly what I was visualizing. Lower highs, lower lows.

I never trade with real stops since the institutions run the stops, but I have mental stops and know when I will abandon the trade.


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## doctrine (Sep 30, 2011)

I understand how the 3 year looks more bearish because it hasn't reached those highs, but this year there has been a steady sequence of higher closing lows and is potentially breaking through the longer term down channel. Sometimes people do try to push stocks down when they hit the top of a channel but the shorter term charts are fairly strong. If it breaks through $76 or so, technically it's on its way to $80. On the weak side, if it closed below the end-Jan peak of $72.50, I would say your risk/reward would be better. If I was short now, I would cover if it went up to $76 and perhaps double down if it fell to $72. Just my take. I would definitely be a buyer of your shorted stocks under $70.


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## Janus (Oct 23, 2013)

Wishing you good luck on this trade. It feels like investors on this board swear by Canadian banks above all other assets, so you're certainly sticking your neck out.  

I don't follow technicals, but given the state of the Canadian economy, energy loan losses that have yet to be booked and the insanity that is our mortgage market, I'd say the risks don't look entirely baked-in to the price.


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## kcowan (Jul 1, 2010)

I am a dividend investor so I ignore swings. Biggest holding is TD but RY and NA are about half at cost.


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## gibor365 (Apr 1, 2011)

> I see a stock that's gone nowhere (yes after dividends) for two years.


 Depends with what you are comparing  in 2 years RY gained 4.5% and XIC lost 5% down , plus RY has almost much higher yield



> I am a dividend investor so I ignore swings. Biggest holding is TD but RY and NA are about half at cost.


 In financials, RY my 3rd biggest holding after CM (from ESP) and TD...
Bought RY exactly 5 years ago at $59.88 and added small amounts couples of time when I had free trades (holding in LIRA , so no new money), at some point was 20% down, but overall for 5 years return is not too bad with nice dividends that I DRIP


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## atrp2biz (Sep 22, 2010)

Eder said:


> I wish all investors the best of luck but I always give the guy at the crap table that's slipping in bets on the "DON'T PASS" line the stink eye.


Until the shooter sevens out and you wish you were that guy. Yes--it's 'guy' because in my couple years dealing the game while in school, I've never seen a woman bet the dark side.


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## jdc (Feb 1, 2016)

james4beach said:


> Thanks for this jdc. How did you draw those nifty blue lines for the channel on stockcharts? Was that automatic? And yes that's exactly what I was visualizing. Lower highs, lower lows.
> 
> I never trade with real stops since the institutions run the stops, but I have mental stops and know when I will abandon the trade.


I drew the lines on stockcharts manually using the "Annotate" link under the chart. I'm a member and have more options, but I think that non-members can annotate too (but not save annotated charts). 

I agree with your comment about not setting hard stops with your broker. I only use mental stops too.


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## CPA Candidate (Dec 15, 2013)

Wow, James is bearish and spreading the news, what a surprise. The Dunning-Kruger effect is strong with this one.


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## Eder (Feb 16, 2011)

I think I have suffered thru a recent slump at the poker tables due to Dunning-Kruger effect. Thanks for the tip!


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## james4beach (Nov 15, 2012)

CPA Candidate said:


> Wow, James is bearish and spreading the news, what a surprise. The Dunning-Kruger effect is strong with this one.


That's particularly amusing coming from you, Candidate


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## tygrus (Mar 13, 2012)

James, with all respect, I think this is ill advised. Banks never lose money. They have so many ways to nickle and dime customers like raising rates on all those helocs they put out over the past decade. The govt wont let them even wobble a little.


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## humble_pie (Jun 7, 2009)

james4beach said:


> I never trade with real stops since the institutions run the stops, but I have mental stops and know when I will abandon the trade.


yes exactly




jdc said:


> I agree with your comment about not setting hard stops with your broker. I only use mental stops too.


good show!


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## GalacticPineapple (Feb 28, 2013)

tygrus said:


> James, with all respect, I think this is ill advised. Banks never lose money. They have so many ways to nickle and dime customers like raising rates on all those helocs they put out over the past decade. The govt wont let them even wobble a little.


If you put a gun to my head and said I had to invest my entire life savings in one Canadian company I would choose, as of today, Royal Bank.


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## gibor365 (Apr 1, 2011)

tygrus said:


> James, with all respect, I think this is ill advised. Banks never lose money. They have so many ways to nickle and dime customers like raising rates on all those helocs they put out over the past decade. The govt wont let them even wobble a little.


Very true  Practically every year all big banks increase fees by couple of cents  . I'm happy that we have stuff account


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## gibor365 (Apr 1, 2011)

> If you put a gun to my head and said I had to invest my entire life savings in one Canadian company I would choose, as of today, Royal Bank.


 Interesting approach  . I think my first choice will be FTS, than BCE and on 3rd place TD/RY


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## humble_pie (Jun 7, 2009)

tygrus said:


> James, with all respect, I think this is ill advised. Banks never lose money. They have so many ways to nickle and dime customers like raising rates on all those helocs they put out over the past decade. The govt wont let them even wobble a little.



i don't think we're talking only about the small portion of bank business that is domestic retail operations, though. The chartered banks have octopus-like enterprise tentacles all over the world ... rightly or wrongly (time will tell which) i get the impression that james4 is shorting the entire octopus.


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## birdman (Feb 12, 2013)

I agree that Banks have many ways to make money and I believe the next wave which has already started will be reducing overhead. There is currently minimal demand for teller services and most transactions are automated or electronic. The use of cash is minimal and cheques clear your account in a day or two. As mentioned by others, fees go up and compared to 30 yrs ago they are now into many new businesses (brokerage, mutual funds, insurance, etc) and I expect you will see more. They will always find a way to make money and hopefully control losses. Risk Management has come a long way over the past 30 or so years. Really, you probably don't require the large branch networks they presently have and the value of their real estate must be huge. How often do you go into a branch, do you still get paid by cheque, do you do your banking in person or over the internet? They will no doubt have challenges but I think their divy is as safe as it has been for the past 100 yrs.


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## yyz (Aug 11, 2013)

Bank of Montreal is starting to cut branch hours so I would say the overhead reductions have started.


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## gibor365 (Apr 1, 2011)

yyz said:


> Bank of Montreal is starting to cut branch hours so I would say the overhead reductions have started.


Actually CIBC increased branch hours


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## andrewf (Mar 1, 2010)

Shorting is dangerous because you have to be right about direction and timing. I may have beliefs on the first, but I am always cautious on the second. Hence my AAPL skepticism never translated into a short. In retrospect a long GOOG short AAPL pair trade would have worked out amazingly well. But it could easily have went the other way.


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## tygrus (Mar 13, 2012)

There was an well publicized article about 3 years ago of some hot shot honcho out of the US who set up shop in TO to take down the short of a life time in the housing market and he was targeting the banks to do it. 

I imagine he has been sent home with his tail between his legs.


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## james4beach (Nov 15, 2012)

andrewf said:


> Shorting is dangerous because you have to be right about direction and timing.


It's no different than going long a stock. You also have to be correct on direction and timing for buying a stock, even if you're a long term holder.

Really it isn't a big deal guys. It's stock speculation; most people do it long. It's also possible to do it short.

This is a speculative trade and I told you the time frame I have in mind. I'm not going to stay short the stock for years on end.


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## Ethan (Aug 8, 2010)

james4beach said:


> I see a stock that's gone nowhere (yes after dividends) for two years.


The stock has gone nowhere in the last 2 years, while net income has risen from $8.3 billion in 2013, to $9.0 billion in 2014, to $10 billion in 2015. That's a dangerous time to be shorting a stock in my opinion.


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## Ethan (Aug 8, 2010)

james4beach said:


> It's no different than going long a stock. You also have to be correct on direction and timing for buying a stock, even if you're a long term holder.


When going long on a stock you receive dividends and your loss is limited to your investment.

When going short a stock you pay dividends and your loss is theoretically unlimited.

Shorting a stock is significantly riskier in my opinion.


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## Ethan (Aug 8, 2010)

Janus said:


> Wishing you good luck on this trade. It feels like investors on this board swear by Canadian banks above all other assets, so you're certainly sticking your neck out.
> 
> I don't follow technicals, but *given the state of the Canadian economy*, energy loan losses that have yet to be booked and the insanity that is our mortgage market, I'd say the risks don't look entirely baked-in to the price.


*Economy off to ‘roaring start’ as Canada sees biggest gain since 2013*

http://www.theglobeandmail.com/repo...-dimming-chances-of-rate-cut/article29469477/


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## birdman (Feb 12, 2013)

James, from your posts it seems you are a much better investor than I am as I am pretty well a buy and hold guy. However, what I don't understand is that when you short the stock it is costing you the divy of 5% but when I buy the stock I receive the 5%. Thats a 10% difference in income between buying and shorting! I realize that I have to put up the $$ to purchase the stock but quite frankly I have the cash which isn't earning much anyways; say 1 or 2%. Does this come into play when you do the short or what am I missing? I guess if its a short term play then it doesn't matter that much??


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## Janus (Oct 23, 2013)

I think the whole point of shorting a bank has to do with the fact that they are leveraged institutions - a moderate fall in the bank's assets, if widespread enough, can wipe out shareholder's equity in a moment - see citibank. Raising fees doesn't protect against that.

Let's say I have $100 in assets and $90 in liabilities, so $10 of shareholders' equity (10%). If my assets fall in value by only 10%, I'm wiped out entirely. 

In this case, the assets are mostly canadian houses.

(the numbers here are used for illustration)


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## gibor365 (Apr 1, 2011)

Ethan said:


> *Economy off to ‘roaring start’ as Canada sees biggest gain since 2013*
> 
> http://www.theglobeandmail.com/repo...-dimming-chances-of-rate-cut/article29469477/


On 680 News Business report they said about another indicator of growth ... sells of man underwear  .... and it's going up sharply


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## andrewf (Mar 1, 2010)

james4beach said:


> It's no different than going long a stock. You also have to be correct on direction and timing for buying a stock, even if you're a long term holder.
> 
> Really it isn't a big deal guys. It's stock speculation; most people do it long. It's also possible to do it short.
> 
> This is a speculative trade and I told you the time frame I have in mind. I'm not going to stay short the stock for years on end.


I disagree. The trend is your friend with stocks, as they have a long term upward bias. For most stocks, you could be wrong forever.


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## birdman (Feb 12, 2013)

Janus said:


> I think the whole point of shorting a bank has to do with the fact that they are leveraged institutions - a moderate fall in the bank's assets, if widespread enough, can wipe out shareholder's equity in a moment - see citibank. Raising fees doesn't protect against that.
> 
> Let's say I have $100 in assets and $90 in liabilities, so $10 of shareholders' equity (10%). If my assets fall in value by only 10%, I'm wiped out entirely.
> 
> ...


Using your example, the value of the asset securing the loan would have to fall at least by 35% to wipe out the equity. The reason here is that mortgages generally do not exceed 75% of the value of the property unless they are CMHC insured. Furthermore, I believe in most provinces you are liable for any shortfall and cannot simply "walk away". The borrowers would have to make an Assignment in Bankruptcy. Also, not all mortgages are at 75% as they have been paid down over the years. If done properly lending is not as risky as many think; you just have to know what you are doing. Similar precautions are taken in business and commercial lending. Banks are not in the risk business. Finally, banks lending is spread over many asset classes including residential mortgages, commercial mortgages, business loans, consumer loans, gov.loans, cr. cards, etc. and are further diversified through international operations, insurance, brokerage etc. I personally am not concerned but accept the fact that they will always have challenges.


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## Janus (Oct 23, 2013)

frase said:


> Banks are not in the risk business.


Sorry but this might be quote of the year on CMF.


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## james4beach (Nov 15, 2012)

Janus said:


> I think the whole point of shorting a bank has to do with the fact that they are leveraged institutions - a moderate fall in the bank's assets, if widespread enough, can wipe out shareholder's equity in a moment - see citibank. Raising fees doesn't protect against that.


Citibank. Or Deutsche Bank or the various European banks, which are collapsing before our eyes.

I agree Janus. They operate with very high leverage and in a poor environment, the slowdown hits their equity very hard. Which is why CIBC, BMO and Scotia went completely underwater during the 2008 crisis (government bailouts exceeded equity values). Of course, most Canadians ignore this part of it and pretend that the banks were completely OK during the crisis. I'm still amazed about this denial... just look at this thread and comments such as "Banks never lose money" and "Banks are not in the risk business."

This all happened just 8 years ago. Very recent! Three Canadian banks lost ALL their money, and most certainly they are in the risk business. Banks have enormous risk exposure to capital markets - yes I mean Canadian banks. Their equity only came roaring back due to enormous government stimulus (from Canada + US), plus unprecedented Federal Reserve stimulus via QE which re-inflated all asset values. Very lucky.

But whatever. I've had this conversation before on CMF, and many people think all of this only happened to US banks (they are totally ignorant of the fact that the US Federal Reserve + Bank of Canada + CMHC provided massive stimulus to Canadian banks). People also seem to think that only US banks take leveraged risk in market securities and derivatives.

Now sure, I may be wrong on my timing of the short, and I'm just speculating. But the Canadian bank (equity) will eventually decline tremendously; it's just a matter of time. The only way this won't happen is if there is never a recession, never a housing market decline, and never any disasters in global capital markets.


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## yyz (Aug 11, 2013)

tA quote from your link

"The study estimates that at some point during the crisis, three of Canada’s banks—CIBC, BMO, and Scotiabank—were completely under water, with government support exceeding the market value of the bank."

Now that's proof?

Even funnier is they look for donations to carry on this work and accept securities donations.Maybe I'll donate a bank stock ?


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## birdman (Feb 12, 2013)

Okay, I understand and agree that my comment on "not being in the risk business" was incorrect and poorly communicated. My comment was intended to relate to lending when the phrase was used when discussing loans that "we are not in the risk business" and the loan was declined. 
Similarly, all loans when granted were considered good. Clearly, there is risk with any loan and yes, I have made a few myself. One of the worst was interim constructions financing pending receipt of confirmed long term mortgage take out financing. The only problem was that the takeout financing letter was a forgery and the underlying leases provided were not accurate or factual. Thankfully the loan wan't that much. 
I think I will be exiting this thread before I'm drawn and quartered.


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## Pluto (Sep 12, 2013)

James, I'm not optimistic on this. Partly because you have to pay the dividend, and partly because the banks stocks, relative to late 2014 have been beaten up a bit already. (I sold my banks back in fall 2014, and bought them all back early this year.) I'd have been more optimistic if you set this up over a year a go when the banks were bumping up against their historically high p/e's and the market sentiment for the banks was overly optimistic. Presently RY and the other banks have been beaten up a bit and are below their normal p/e. Seemed like the time to close a short position at the Jan or Feb lows. It just looks like the concerns you cite were anticipated at those lows. However, there doesn't seem to be a whole lot of upside right now either....So good luck, RY might hit anther air pocket soon giving you the opportunity.


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## Janus (Oct 23, 2013)

frase said:


> Okay, I understand and agree that my comment on "not being in the risk business" was incorrect and poorly communicated. My comment was intended to relate to lending when the phrase was used when discussing loans that "we are not in the risk business" and the loan was declined.
> Similarly, all loans when granted were considered good. Clearly, there is risk with any loan and yes, I have made a few myself. One of the worst was interim constructions financing pending receipt of confirmed long term mortgage take out financing. The only problem was that the takeout financing letter was a forgery and the underlying leases provided were not accurate or factual. Thankfully the loan wan't that much.
> I think I will be exiting this thread before I'm drawn and quartered.


Didn't mean to pick on you - your points about loans are totally fine, I just had to pick on the wording of that one phrase. 

Voices of informed dissent make for interesting debate!


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## Ethan (Aug 8, 2010)

Janus said:


> I think the whole point of shorting a bank has to do with the fact that they are leveraged institutions - a moderate fall in the bank's assets, if widespread enough, can wipe out shareholder's equity in a moment - see citibank. Raising fees doesn't protect against that.
> 
> Let's say I have $100 in assets and $90 in liabilities, so $10 of shareholders' equity (10%). If my assets fall in value by only 10%, I'm wiped out entirely.
> 
> ...


I think you're overstating the risk from Royal's exposure to Canadian houses. Mortgages with less than 80% loan to value ratios are insured. Mortgages with lower loan to value ratios would need to see house prices fall by a minimum 20% before the loan is underwater, and as someone mentioned above the loan to value ratio falls with every payment. Even if a non-insured borrower were to default on their mortgage, Royal would take title to the house and sell it, which would cover much of the losses on the loan.

Next consider Royal's exposure to this market. 1/3 of their revenue comes from outside of Canada. Of Royal's total credit risk of $1,332,263 million, only 17.5% or $234,181 million comes from residential mortgages (table 45 in the annual report). So Royal's exposure to Canadian mortgages is somewhere south of 17.5% of their credit risk.

Falling housing prices are certainly a risk Royal is exposed to, but it is an area that gets a disproportionate amount of scrutiny in my opinion. Royal derives significant income from other countries, not to mention their capital market, wealth management and commercial banking divisions.

Given the volatility in the financial markets over the past few years, this trade certainly could be profitable at some point in the short term. It sounds like james4beach is predicting a dramatic fall in their share price, which is something I would argue has a remote chance of happening. I predict Royal shares to be significantly higher in the future.


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## james4beach (Nov 15, 2012)

Pluto said:


> James, I'm not optimistic on this. Partly because you have to pay the dividend, and partly because the banks stocks, relative to late 2014 have been beaten up a bit already. (I sold my banks back in fall 2014, and bought them all back early this year.) I'd have been more optimistic if you set this up over a year a go when the banks were bumping up against their historically high p/e's and the market sentiment for the banks was overly optimistic.


Good points! I just didn't want to short banks before I actually saw some business deterioration.


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## humble_pie (Jun 7, 2009)

i'm being the devil's advocate here, but haven't the chartered banks got an ace up their sleeve? whose profit could carry them for a decade or more, even in the teeth of misfortune?

i mean the prime downtown real estate that the branches are sitting on. Everywhere. In every canadian city.

some of the hectares have belonged to the banks for a century. One cannot even begin to imagine the gains if the banks commence selling those god's little acres. It won't matter if the sales are booked as asset adjustments or as earnings. Even the price won't matter, because all god's chillun must have depreciated down to zero decades ago.

bank-owned real estate has got to be the best hedge in the world. Almost as good as fort knox before nixon went off the gold standard.


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## avrex (Nov 14, 2010)

Everyone seems to be picking on james' choice, but I do agree....



james4beach said:


> ....a mix of long + short positions.


I think a properly diversified portfolio does include a small allocation to short positions. 
Why? Because your portfolio returns are much smoother and less volatile.

When stock markets go up, yes, you may not gain as much as the general market, however, 
when the markets crash downwards, you also don't lose as badly. Occasionally, you even get lucky and correctly pick the short in an upward moving market. Yay, double win.

James' short happens to be a Canadian bank. 

My latest short happens to be TSLA, via options (a position which I took off the table in Jan after a profit, but a short that I may be ready to turn on again soon).

I applaud him (and anyone) for looking at ways to diversify their portfolio.


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## humble_pie (Jun 7, 2009)

i don't see anyone "picking" on james4's short in RY. Everyone can see that james has prudently built in a natural hedge for himself, by shorting only 100 shares. 

i imagine his margin would have allowed him to short at least double that number, possibly triple, quadruple or even more. Yet james chose only 100 shares, which is a natural hedge in the broadest sense, the implication being that the remainder of his unspent cash/margin position (the difference between short 100 shares & short 400 shares, say) is being utilized to conserve cash.

other folks here are contributing reasonable points of view as to why true long-term short positions - far riskier than options - are difficult to maintain. I don't see anyone "picking" on a minimal 100-share canadian bank short.

it's kind of james4 to share some of his actual stock choices, i wish this manoeuvre well & i see several other people on here also wishing the best for this short sale.

as for bearish option plays, with the exception of naked calls these are never, ever as risky as shorting stocks imho.

.


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## OptsyEagle (Nov 29, 2009)

avrex said:


> I think a properly diversified portfolio does include a small allocation to short positions.
> Why? Because your portfolio returns are much smoother and less volatile.


I posted about this point in the past but I might as well repeat it again in this thread.

In the early to mid 90s a few mutual fund companies came out with a line of mutual funds called "market neutral" funds. The idea was that even when a money manager was doing a good job picking stocks, if the stock market was in a down trend their performance would usually be negative. I think we all know how that feels.

In their infinite wisdom they invented the "market neutral" fund which attempted to pick an equal weighting in long positions and short positions, in the hope of neutralizing that annoying stock market volatility and leaving nothing but their incredible stock picking abilities. When I looked into them, all I did was look at a long term chart of the stock market index, fluctuating on that incredible upward direction and said "why in the world would anyone want to neutralize that", and stayed away from them.

Needless to say, you don't see any "market neutral" mutual funds anymore. That is because, they failed miserably. The reason for that is what most investors desperately try not to admit. That the majority of their good performance actually comes from the upward bias of the stock market and very little of it comes from their ability to select the right stocks at the right time, whether they go long or short. The professional mutual fund managers could not do it and I hazard to say, most of us can't do it either.

As always, there will be enough exceptions to this to keep many of us trying but on average I believe I am correct. If you attempt to go long and short in equal weightings, it is my opinion, you will severely underperform the long term results of just going long an index fund and forgetting about it.

Again, just my opinion and the best of luck to you if you decide to give it a try. Who knows, maybe you will be the one to prove me wrong.


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## james4beach (Nov 15, 2012)

humble_pie said:


> i don't see anyone "picking" on james4's short in RY. Everyone can see that james has prudently built in a natural hedge for himself, by shorting only 100 shares.


Thanks. I like the feedback, it's all good to hear. Who knows how the position will go and of course I may lose money on it. (I hope it will be profitable).

My current available margin is 43 K and this position is worth 7.5 K.


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## humble_pie (Jun 7, 2009)

OptsyEagle said:


> If you attempt to go long and short in equal weightings, it is my opinion, you will severely underperform the long term results of just going long an index fund and forgetting about it.



the thing is, though, james4 didn't short in equal weightings. He shorted only 100 shares. The manoeuvre appears to be something of an experiment. Then he was brave enough to post the position in real time. Gotta admire that!






OptsyEagle said:


> Needless to say, you don't see any "market neutral" [simultaneously long/short] mutual funds anymore. That is because, they failed miserably.



an inspired hypothesis is that these kinds of funds - including the ever-growing number of covered call ETFs or income trusts that utilize options these days to hopefully boost income - do badly because they employ the wrong managers. They employ kids with very recent degrees in theoretical finance. You can sometimes glimpse a few of them - or their imitators - here in the forum.

they're greedy, they lack experience, they build the algos that they're convinced will bring them gains, & hubris gets em in the end.

james4, on the other hand, is behaving like the opposite. He's being cautious & prudent.

(hint to jas4, you could have bought a call when you shorted the stock, this is the classic strategy) (the big green is very good about the commissions when the pair are done together) (right now the combo has to be phoned in but coming soon is the interface that will handle the pair spread) (in the meantime representatives will take the pair order at web commish) (your commish to short 100 sh RY plus buy one call would have been $11.24)


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## jollybear (Jun 28, 2015)

It`s great to read member`s opinions on this subject.....I personally think James picked the wrong stock to short. I`m basing this on the fact that CND Financials are currently cheap relative to the entire index (XIC) Why not pick a sector (or individual stock in your case) to short that has been stretched and is expensive.....like Metals & Mining.....FM.TO for example. There`s lots of valid reasons why this sector should under-perform as compared to CND financials.

RY with a strong divided yield of over 4% as compared to other potential stock candidates to short is also a valid point already discussed.


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## OptsyEagle (Nov 29, 2009)

HP, I can't help but agree. No doubt it was a serious lack of experience and overconfidence that created these types of funds. It didn't take too much, on my part, to see the flaw in their logic. It took them at least 5 years and millions of investor dollars, to figure it out.

I also agree we do have a few of the over-confidence posters here as well and hence my reason for pointing out this issue. Just trying to help.

I was over-confident once myself. Use to think I knew a lot and could learn everything else if I put in the effort. Now I know there are things I can know and much, much more I can never know. That tidbit of knowledge has helped me a lot. 

As they say, it is not what you don't know that will hurt you. It is what you know for sure, that is false, that will really hurt you big time.


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## james4beach (Nov 15, 2012)

RBC has been named in the Panama Papers leak and shown to have used the Panama-based firm to set up 378 shell companies. RBC responded by saying that there are legitimate reasons to set up holding companies and that they work within legal and regulatory frameworks.

http://www.reuters.com/article/panama-tax-canada-idUSL2N1770QJ
http://www.huffingtonpost.ca/2016/0...counts-prompts-probe-questions_n_9608364.html

This raises the risk that RBC may have liabilities related to tax frauds and penalties (IF there are in fact tax frauds) or could suffer harm to its reputation by being associated with the Panama Papers.

I believe they are innocent until proven guilty.


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## Pluto (Sep 12, 2013)

Well if it turns out they are guilty of something, that could be the opportunity to cover your short and go long rbc. lol. Buy on bad news, sell on good news.


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## My Own Advisor (Sep 24, 2012)

I believe they are innocent until proven guilty as well but every day the price drops more, a better buying opportunity.


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## zylon (Oct 27, 2010)

*“You know, it’s a bull market!”*

A 5-minute read.

OLD TURKEY

http://blog.smartmoneytrackerpremium.com/2010/04/old-turkey.html


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## none (Jan 15, 2013)

I'm starting to think that this was a very good idea. Well thought out analysis.

but seriously, this has the impact of COMPLETELY ERASING 5 years of hard work of this cash in a savings account! THE HUMANITY!


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## doctrine (Sep 30, 2011)

Technically, I stand by my original call on 29 Mar that RY is not technically weak. In fact, it's strengthening. It has broken decisively above the $76.50 old highs/resistance, is trading at a 9 month high with the next resistance at about $80.50, and the 200 day moving average has bottomed and is now moving upwards, indicating long term positive momentum. No reason to be short unless it falls below $74.


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## godblsmnymkr (Jul 15, 2015)

whats your stop here?


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## james4beach (Nov 15, 2012)

So far the position has gone 4.9% against me... this is nothing. When you buy a stock, do you give up if it's fallen a mere 5%?

I do have soft stops in mind but I don't like sharing them because I feel it reveals my hand. I'll cover if it goes up "enough"


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## jerryhung (Mar 28, 2011)

Banks are going up like crazy

BMO new 52w high daily now
RY near $79 today (I sold at $76, boo)


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## atrp2biz (Sep 22, 2010)

james4beach said:


> So far the position has gone 4.9% against me... this is nothing. When you buy a stock, do you give up if it's fallen a mere 5%?
> 
> I do have soft stops in mind but I don't like sharing them *because I feel it reveals my hand*. I'll cover if it goes up "enough"


I don't think the market makers care about a 1 lot short position.


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## none (Jan 15, 2013)

I think that's code for: "I don't know what I'm doing."

Seems about right.

This thread is a great example of seeing someone act on something they think they know but really don't. They built up a house of cards and if it goes their way it's vindication and justification for their wisdom. If it doesn't, then there must be some other unpredictable factor. That's the rub though.. it boils down to when doing stuff like this is just making up a signal in a bunch of unpredictable noise.

I may well be proved wrong, however, one has to admit, James certainly didn't see this bump coming. Also, if he's so certain of his thesis it would seem this is the time for him to double down. Watcha say james? Go in for another $8K?


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## atrp2biz (Sep 22, 2010)

Tomorrow is also ex-payment in lieu of dividends day.


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## zylon (Oct 27, 2010)

*It's all good j4b - as long as you have a plan*

At the end of Feb 2013, I shorted a hundred shares of JNJ.

A few folks here thought I was nuts.
What they overlooked when I posted the trade was the caveat "with a tight stop".

I got out with less than 3% loss - not the end of the world.

Looking back at it, technically it was a good set up. It just didn't work out.


image upload with preview


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## none (Jan 15, 2013)

My case and point.


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## The_Tosser (Oct 20, 2015)

none said:


> My case and point.


you are my favorite read on this whole site. Oh yeah, I've been watching for a bit. Solid thinking. You've nailed this clown to a "T".


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## none (Jan 15, 2013)

People like James think people index because they're lazy or because they are average. The vast majority of people who don't index just don't understand that stock picking is more often than not a fools game. If you want to gamble go to Vegas. Investing is a business and you don't screw around. You employ the method that maximizes the expectation to end up with the most amount of money at the end of a time frame while also minimizing risk for a certain expectation. The answer is indexing. It's quite simple. 

To quote a horrible person:









Of course there's always the unknown unknown problem but the problem with that is they're just generally unknowable and therefore the only option is to dump it into 'Risk'. No real other choice.


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## Nordic (Dec 17, 2014)

atrp2biz said:


> I don't think the market makers care about a 1 lot short position.


lol no doubt. 'reveals my hand', wtf.


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## GalacticPineapple (Feb 28, 2013)

james4beach said:


> It's no different than going long a stock.


Wouldn't the margin interest alone mean that if you had a potential short and a potential long with the same expected return, you'd be better off taking the long?


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## CPA Candidate (Dec 15, 2013)

Makes thread about shorting RY. Timing is "right".

RY posts 9 consecutive positive sessions, goes overbought and is near 52 week high. Everyone has a good laugh.


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## james4beach (Nov 15, 2012)

Picking individual stocks is always gambling. Whether it's going long (as I do with most of my stocks), or short (as with RY in this thread) it's still gambling... speculation. It's not inherently any safer to go long vs short.

If you doubt that, dig up threads on people who bought RIM, BBD.B or resource stocks in the past.

In the course of speculation, you win some and you lose some. This position at just a few % move is far from "done".



GalacticPineapple said:


> Wouldn't the margin interest alone mean that if you had a potential short and a potential long with the same expected return, you'd be better off taking the long?


Are you talking about the borrowing cost to borrow the shares to hold short? As far as I know, TDDI doesn't charge such a fee. Interactive Brokers does charge the fee. I agree though, if you're using a brokerage that charges you a cost to borrow the shares, then yes -- profits don't seem symmetric short vs long.

At TDDI, as far as I can tell, I'll only pay a margin expense if the mark-to-market brings my margin account into negative cash balance. As I have plenty of cash sitting around this is not going to happen.



> I don't think the market makers care about a 1 lot short position.


Then you don't need to know the details of my stop points. As you say, it's inconsequential.


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## none (Jan 15, 2013)

james4beach said:


> Picking individual stocks is always gambling. Whether it's going long (as I do with most of my stocks), or short (as with RY in this thread) it's still gambling... speculation. It's not inherently any safer to go long vs short..


This is absolutely untrue but the fact that you think this goes a long way to explain many of your misguided and incorrect rants. Gamble away.


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## atrp2biz (Sep 22, 2010)

james4beach said:


> Then you don't need to know the details of my stop points. As you say, it's inconsequential.


I couldn't care less about your stop points. I was just pointing out the ridiculousness of your notion of not wanting to reveal your hand.


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## supperfly17 (Apr 18, 2012)

You guys should take it easy on him. At least he has the b**** to post his trades. Although he may be wrong, we can learn from his mistakes, and so can he.


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## Oldroe (Sep 18, 2009)

The man shorted 100 shares of Royal bank that's like buying 1 Nevada ticket for 50 cents. Why would anybody care. And with his passed history it was likely a fantasy trade.


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## james4beach (Nov 15, 2012)

supperfly17 said:


> You guys should take it easy on him. At least he has the b**** to post his trades. Although he may be wrong, we can learn from his mistakes, and so can he.


Thanks.

With the few trades I've posted, my track record has been quite good. The negativity from none, Oldroe, CPA Candidate shows that they are more interested in being grumpy than actually making money.

Do you guys want to make money, or not? Not every trade will be successful; only an idiot would expect every trade to work out successfully. It's also very amateurish to call my RY short "failed" when it's only moved 5.0% since entry point; as far as I'm concerned, this position hasn't _done anything_ yet.

I've shared several trades with the forum in the last 2 years and my track record is good. Not stellar, but good. More often than not, they've been profitable -- that is the benchmark of trading success. Nobody has 100% success in trades.

So for none, Oldroe, CPA Candidate, and the others who don't have a clue about trading, here's a review of what I've shared with the forum:

- I perfectly shorted XEG on its way down and then covered for a gain, a quick 8% profit, details in this thread. My only mistake was to cover it too early, otherwise the timing was beautiful. *You're welcome.*

- I repeatedly bought CEF.A at its lows, again with great timing buying a beat up precious metal sector. With fundamental & technical explanations, especially taking advantage of the steep discount to NAV. Details here. *You're welcome.*

- And then there's this whole thread on my DIVZ stock picks. It's an experiment in progress, but results to date are quite good.

- Multiple purchases, for many years, of GICs are high interest rates (I actually caught some of the peak interest rates). I have a good record of catching interim highs in GIC rates. Examples are here, and again here. Repeatedly getting interim highs on yields is a good boost to fixed income returns. *You're welcome.*

- RY short... outcome remains to be seen.


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## none (Jan 15, 2013)

james4beach said:


> - Multiple purchases, for many years, of GICs are high interest rates (I actually caught some of the peak interest rates). I have a good record of catching interim highs in GIC rates.


WOW. _ Slow clap..._


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## james4beach (Nov 15, 2012)

none, with my good success rate across all these trades (post# 95), if all you can muster is a slow clap then you might be suffering from a stroke... time to visit an ER and get that noggin' checked out.

5,000 posts!


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## lonewolf (Jun 12, 2012)

Typical thread talk of a rare bearish thread aligning with the 5 day daily sentiment index (trade futures.com) jumping to 83.4% bulls which is higher then @ the all time high in the DJI, 5 day total put/call ratio lowest in nearly 2 years (readings seen last week)


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## jollybear (Jun 28, 2015)

I won`t be going long anything with the TSX knocking at the 1400 level, fueled by an over-bought commodity run. When the US$ strengthens, commodities will feel the pressure. James RY short will benefit from a weakening TSX but I still think there was better stock choices to short on the TSX as I previously indicated. 

As for the negativity directed at James.......it`s pretty easy to hide behind a computer and blast other members....there`s lots of examples on this forum. I suspect these are the same dweebs that would be hiding in the corner instead of talking their big bashing game in a face-to-face situation.


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## Pluto (Sep 12, 2013)

yeah, none et all, why can't you express your dissent in a proactive way? I think james is going to end up being a fine investor because he is always chewing on it and experimenting and getting experience. You negative guys are just snipers.


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## Janus (Oct 23, 2013)

Pluto said:


> yeah, none et all, why can't you express your dissent in a proactive way? I think james is going to end up being a fine investor because he is always chewing on it and experimenting and getting experience. You negative guys are just snipers.


100% agreed.


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## none (Jan 15, 2013)

Oh I'm sorry, let's all hold hands and sing koombiya and hopefully RY will tank and James can make 10 years of GIC gains in a month.

I CAN FEEL THE GOOD FEELINGS!!!!


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## KaeJS (Sep 28, 2010)

james...

I will not bash you, but I will try to help you understand something.

99% of the time it is never a good idea to short the Canadian Banks...

Why you would choose to short one of the most stable companies you can buy is beyond me. Nevertheless, you shorted Canada's largest bank while their earnings have increased year over year...

I'm just curious. Why would you short RY when you could have shorted something else that is more likely to die? 

As a second thought... why would you not have just bought a $74 put for a couple months out? It probably would have cost you $100 (or less!) and saved you a lot of loss but still give you the right to short at $74.

My friend, education is key. 

1. The reality of the market is that most people don't know what they are doing. 
2. The fact is that nobody knows which way the market is going to go (not even "none"). 
3. The TRUTH is that the market is more about RISK MITIGATION rather than "being right".

So, where did you go wrong on your trade?

It wasn't necessarily your thought process (although, as I said, shorting RY is a bad idea). No, you went wrong on your risk mitigation. You did something risky.

Lastly - When the US banks starting posting good results about a week or two ago..... that should have been your queue to cover your short.

While you were shorting RY, I was writing naked puts on National Bank (NA). In the period between March 28 to April 15, I made $2400 clean and clear on these options. Granted, I am playing with a lot more than just a board lot, but the point is that you and I had opposite thoughts about the market. A person is only going to write puts if they are bullish. But I had a plan and I wrote my options out of the money. You failed to execute a plan.

none can be an ******* sometimes, but the quote he posted is correct. There are unknown unknowns and you did absolutely nothing to mitigate that risk.

I wish you the best of luck, but I am bullish on RY and all the Canadian banks.
Good luck trying to cover below 74... RY has been above 74/share 70% of the time over the last 1 year.


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## lonewolf (Jun 12, 2012)

A trait that a very successful trader told me was needed to play the market & be successful was to be able to admit when wrong.

Not saying anyone was right or wrong often its just often misunderstanding


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## Eder (Feb 16, 2011)

I'm rooting for RY tanking this summer...$60 would be a nice spot to buy and we might get close next 2 quarters.


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## none (Jan 15, 2013)

james4beach said:


> none, with my good success rate across all these trades (post# 95), if all you can muster is a slow clap then you might be suffering from a stroke... time to visit an ER and get that noggin' checked out.
> 
> 5,000 posts!


_Whooooosh_ To be bragging about what great GIC rates you got over the last 4 years is hilarious. You should calculate the opportunity cost of your decisions. I'm sure they'd be quite nauseating.


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## The_Tosser (Oct 20, 2015)

none said:


> Oh I'm sorry, let's all hold hands and sing koombiya and hopefully RY will tank and James can make 10 years of GIC gains in a month.
> 
> I CAN FEEL THE GOOD FEELINGS!!!!


+1 rofl. That's what it's all about isn't it?

My favorite was always "I didn't and wouldn't buy the bottom in 2009 because I didn't like what the US Gov was doing to manipulate stock prices"

I mean just look @ that statement and ponder it for a while, rofl.

It's exactly like somebody coming up to you and saying, "Here, take this lifetime gift".............. and then you telling them to '**** off'......  lmao.


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## lonewolf (Jun 12, 2012)

Tosser you rofl to early. The most likely path for price is to take out the 09 lows in the DJI based on how I see the price pattern sometime in the next 25 years.

The rally from the 09 low will look like a suckers rally when were down around 1000 in the DJI

Some commodities gave up 40 years of gains don't think it cant happen to stocks.


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## yyz (Aug 11, 2013)

Sometime in the next 25 years? So go to cash for up to 25 years until your prediction comes true. Great advice


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## lonewolf (Jun 12, 2012)

Thanks YYZ for advice. Agree with you regarding cash though the stock market is not the only game in town around the 09 lows in silver & gold looking to go long. Will have to relook @ price pattern when we get there. I really think the gold/silver long trade around the 09 lows is going to be good very, very good better then long stocks from the 1974 low


I think it will be in the next 10 years though price levels seam to often to take longer then I think to get to projection so I went 25.


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## MrMatt (Dec 21, 2011)

Shorting some of the most robust and consistently profitable businesses in the country seems like a good idea.
The dividend alone makes shorting the banks a really difficult task.

There is easier money to be made elsewhere. Short something without a healthy dividend if you want, at least it will lower the hurdle.


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## humble_pie (Jun 7, 2009)

just imagine the dermatitis of the tosser's skin from all that rolling around on the floor. Abrasions, inflammations, eczemas, rashes, sores, hives, boils, corns, carbuncles & persistent bleeding wounds.


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## lonewolf (Jun 12, 2012)

MrMatt said:


> Shorting some of the most robust and consistently profitable businesses in the country seems like a good idea.
> The dividend alone makes shorting the banks a really difficult task.
> 
> There is easier money to be made elsewhere. Short something without a healthy dividend if you want, at least it will lower the hurdle.


 by pass dividend with options

Humble that's what rofl means I kind of wondered if tosser & I were both bad spellers


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## humble_pie (Jun 7, 2009)

lonewolf said:


> Humble that's what rofl means I kind of wondered if tosser & I were both bad spellers



rotflmao will eventually produce scrofula & other oozing skin suppurations

be careful wolf, some dermatitii are contagious


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## GoldStone (Mar 6, 2011)

tosser is a rich guy, he can afford to keep a cleaning lady to keep his floors spotless. i'm not worried about him.

otoh, I am worried about james. shorting canadian banks is like stabbing yourself in the gut, he may end up helpless on the floor in the pool of his own blood.


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## humble_pie (Jun 7, 2009)

GoldStone said:


> tosser is a rich guy, he can afford to keep a cleaning lady to keep his floors spotless. i'm not worried about him.
> 
> otoh, I am worried about james. shorting canadian banks is like stabbing yourself in the gut, he may end up helpless on the floor in the pool of his own blood.



cleaning lady or not, constant abrasion will destroy the skin .each:

as for james, let us be serious. Let us not flip out into a melodrama about stabs, guts & pools of blood.

jas4b shorted a measly one hundred (100) shares in a pilot project. 100 short shares are not capable of harming his account, dividends payable or not. The worst that can happen is that, if he's wrong, a few dividends payable might inspire him to cover.

meanwhile i find find stochs & RSI on some bank charts to be very high, suggesting a correction looms.


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## lonewolf (Jun 12, 2012)

I have heard both Tim Wood & Robert Prechtor (sp) say they would get hate mail & phone calls saying they were more or less crazy & reasons why there call was wrong before they made really good market calls. I have heard Prechtor say not exact words if he made a call & he got no negative response & or praise response he knew he made a bad call. Lot of negative comments made around ones trades is that a good or bad sign ?

Money management, money management is big part of battle don't know the position size James is thinking of taking or has taken in regards to shorting banks. Though if trade goes against him, from reading other posts he has written I do not think he will be bleeding on the floor from money lost on a single table maybe a small paper cut which will heal with interest from GICs or other good trade. 

There are people out there that can make really good trades & blow up with bad money management


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## lonewolf (Jun 12, 2012)

humble_pie said:


> jas4b shorted a measly one hundred (100) shares in a pilot project. 100 short shares are not capable of harming his account, dividends payable or not. The worst that can happen is that, if he's wrong, a few dividends payable might inspire him to cover.
> 
> meanwhile i find find stochs & RSI on some bank charts to be very high, suggesting a correction looms.


 Humble that's why your good. You understand reduce risk. Who makes the money the specs that risk or commercials that reduce risk.


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## gibor365 (Apr 1, 2011)

> - Multiple purchases, for many years, of GICs are high interest rates (I actually caught some of the peak interest rates). I have a good record of catching interim highs in GIC rates.


Wow! Does it also count as successful trading ?! 
I'm also good with it....bought a bunch of 1-2 years GICs in PT with 2.45% rate. Caught all big promotions of Tangerine, PCF and EQ .

P.S. Agree with james that investing is a gamble, but why to short RY or JNJ?! Want to short , short Blackcerry or BBD.D


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## Jaberwock (Aug 22, 2012)

Since the general overall trend of the market is upward, with occasional corrections, the odds of gaining from a short position are lower than the odds of gaining from a long position.

Those odds are further reduced when you add in the cost of borrowing the shares, and the cost of paying rather than receiving dividends.

Shorting is gambling, with the odds stacked against you.


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## lonewolf (Jun 12, 2012)

jaberwock the general trend is for individual stocks to come to market & maybe rise in price or decline in price from IPO price. Stocks do die their life expectancy is not eternal so individual stocks don't always go up. 

The over all trend of the modern market might be up since inception which has not really been that long compared to the length of time man has walked on earth. Stock markets come & go. With the use of options the fastest money can be made shorting the index if timing is precise. When stocks are rising which is most of the time of late the reward is not as big when playing the odds of rising market. Catch a crash without of money puts on the S&P the reward is far greater then an equal percentage rise


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## Jaberwock (Aug 22, 2012)

lonewolf said:


> Stock markets come & go. With the use of options the fastest money can be made shorting the index if timing is precise.


Making money would be easy if you could precisely time the market, but you can't. Options can make you fast money, but 90% of options expire, so 90% of the time the option holder loses 100% of his investment.

Last year was a volatile year for the S&P 500, but overall it was down slightly for the year, so not a good year to be long. Even so, I made money by doing exactly the opposite of what you suggest. I sold "out of the money" put options on SPY. Out of 62 option sales, 54 expired. Of the eight times when I had to buy the index, I sold three times at a loss to conserve cash, and held five times as the market recovered, supplementing the income using covered calls and eventually selling at a profit.

Long strategies and short strategies both work at different times, but overall the long strategy has the best chance of success because the markets trend upward in the long term.


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## Oldroe (Sep 18, 2009)

I make money everyday in the markets. It's been 9 years since I've had a losing position in the markets. Most of my decisions are 8-20k. I never lie, do not miss direct and really like to see people successful in the markets.


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## humble_pie (Jun 7, 2009)

Jaberwock said:


> Making money would be easy if you could precisely time the market, but you can't. Options can make you fast money, but 90% of options expire, so 90% of the time the option holder loses 100% of his investment.


not sure where the 90% comes from? for every expired option, there's also a winner who sold it in the first place .each:

i'd agree, though, that all studies show that the majority of monodirectional option buyers do lose. Does this lead to the conclusion that the majority of option sellers do win, though? again i'm not sure





> Last year was a volatile year for the S&P 500, but overall it was down slightly for the year, so not a good year to be long. Even so, I made money by doing exactly the opposite of what you suggest. I sold "out of the money" put options on SPY. Out of 62 option sales, 54 expired. Of the eight times when I had to buy the index, I sold three times at a loss to conserve cash, and held five times as the market recovered, supplementing the income using covered calls and eventually selling at a profit.


this record is awesome





> Long strategies and short strategies both work at different times, but overall the long strategy has the best chance of success because the markets trend upward in the long term.


i don't short stocks save & except for a brief few days, occasionally, when side-stepping long or short into the underlying stock is a good way to close an option pair.

but i imagine the lure of selling short is that markets crash far faster & far more steeply than they rise. They don't call holding long through rising markets "climbing the wall of worry" for nothing.

crashes are lickety-split. Me i think that the hope of diving off the 10-metre tower to win olympic gold is what draws people to short.


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## lonewolf (Jun 12, 2012)

humble_pie said:


> but i imagine the lure of selling short is that markets crash far faster & far more steeply than they rise. They don't call holding long through rising markets "climbing the wall of worry" for nothing.
> 
> crashes are lickety-split. Me i think that the hope of diving off the 10-metre tower to win olympic gold is what draws people to short.


For buying straight puts or calls. For playing crashes far out of the money puts I like best. For being long in up markets I like the positive curvature of deep in the money but not to deep so positive curvature is lost. Like to go year or 2 out in time sell about 6 months before exploration rule of thumb. spy good for this more liquid. commodities price on chart is different fear of shortage often causes spikes into top. Stocks fear/panic spike into lows. Emotion shows on price chart.


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## james4beach (Nov 15, 2012)

GoldStone said:


> otoh, I am worried about james. shorting canadian banks is like stabbing yourself in the gut, he may end up helpless on the floor in the pool of his own blood.


If it eases your worries, shorting 100 shares isn't going to hurt me. I always speculate with small positions.

Here's some perspective: just the FX volatility on my USD cash/bond holdings have caused a $3,000 fluctuation over a couple months. RY would have to move 40% to create a loss of that magnitude to me, and I'd cover it long before that. My RY short is not going to hurt me.

I appreciate all the comments though on why it may not be the best short.


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## Eder (Feb 16, 2011)

james4beach said:


> My RY short is not going to hurt me.
> 
> .


Then it won't help you either...in other words a pointless trade .


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## GoldStone (Mar 6, 2011)

Eder said:


> Then it won't help you either...in other words a pointless trade .


+1

much ado about nothing


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## james4beach (Nov 15, 2012)

_You_ guys are the ones who made a big deal out of this. What a bunch of whiners... position has moved 4.6% and all these dramatic posts about how I have no idea what I'm doing, how bank stocks only go up, how I make up fictitious trades, and how (even if the trades are real) how it doesn't matter.

You'd think I've caused many of you some kind of personal assault or injury by taking a tiny speculative position on a stock.

Here's the truth of the matter, I think: most of you like bank stocks, and you feel upset that I'm betting against them. So you're trying to attack the person posting the critical opinion, and trying to knock them down.


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## none (Jan 15, 2013)

Read this: http://www.iflscience.com/brain/no-youre-not-entitled-your-opinion

You might learn something.


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## james4beach (Nov 15, 2012)

none said:


> You might learn something.


I think you need to learn something about trading. Do you think the market is full of millions of actors who are all making the same exact bets, or all who believe the same thing? Of course not. If everyone believed that RY stock will inevitably go higher, then why on earth would anyone ever *sell* any shares on any given day?

TMX logs show me that at 4:00:00 today, sellers at a variety of brokerages sold well over 5,000 shares of RY. Why would these morons sell their shares?

Whether you like my position or not, this doesn't change the fact that plenty of other market participants share my opinion. Markets have a mix of opinions. I suggest that you come to grips with the fact that not everyone has the same belief on any given security.

Or, go ahead and hunt down everyone who sells shares every day (every buy has a sell, ya know) and shriek at them for being wrong... like you're doing with me.


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## none (Jan 15, 2013)

Speculation is the practice of engaging in risky financial transactions in an attempt to profit from fluctuations in the market value of a tradable good such as a financial instrument, rather than attempting to profit from the underlying financial attributes embodied in the instrument such as capital gains, interest, or dividends. Many speculators pay little attention to the fundamental value of a security and instead focus purely on price movements. Speculation can in principle involve any tradable good or financial instrument. Speculators are particularly common in the markets for stocks, bonds, commodity futures, currencies, fine art, collectibles, real estate, and derivatives.

Speculators play one of four primary roles in financial markets, along with hedgers who engage in transactions to offset some other pre-existing risk, arbitrageurs who seek to profit from situations where fungible instruments trade at different prices in different market segments, and investors who seek profit through long-term ownership of an instrument's underlying attributes.


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## james4beach (Nov 15, 2012)

I don't think there is a clear line between investing and speculation.

Maybe we're getting caught up on terminology here.


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## none (Jan 15, 2013)

Nice edit.


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## james4beach (Nov 15, 2012)

So remind me... what's the primary issue you're taking with my posts?

Is it because I'm saying that my gamble is not that different from people who buy & hold bank shares for the long term?


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... If everyone believed that RY stock will inevitably go higher, then why on earth would anyone ever *sell* any shares on any given day?


I get the main point ... but believing the long term will be up does not stop one from selling a portion or all in the short term. 




james4beach said:


> ... TMX logs show me that at 4:00:00 today, sellers at a variety of brokerages sold well over 5,000 shares of RY. Why would these morons sell their shares?


Without knowing the sellors ... it is hard to say. 

Some may have a cost base of $30 where they want to move into GICs or other investments. Others have posted here on CMF they they would prefer to spread the CG taxes over many years so that they sell a portion then re-buy to make their ACB higher. Then there are the MF players who may have to sell because of too many MF units were redeemed for their cash float. With pensions being limited in the percentages of a particular investment, they might be forced to sell as well to keep the percentages in line with regulations. There are a lot more reasons as well.




james4beach said:


> ... Whether you like my position or not, this doesn't change the fact that plenty of other market participants share my opinion. Markets have a mix of opinions. I suggest that you come to grips with the fact that not everyone has the same belief on any given security.
> 
> And I would also suggest that not everyone selling is selling because they agree with your opinion.


True ... though the market has a lot of different reasons to buy/sell so IMO, unless the sector as a whole or an extremely high percentage is selling like early 2009 - anyone thinking buying or selling is for one reason only has their head in the sand.




james4beach said:


> ... shriek at them for being wrong... like you're doing with me.


Yes ... I wonder why more than expressing one's thoughts and/or exploring details is needed. All of which can be done in a civil manner.


Cheers


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## Eclectic12 (Oct 20, 2010)

Jaberwock said:


> Making money would be easy if you could precisely time the market, but you can't ...


Percisely timing does not work ... however, noticing the market is panicking then taking 2/3 of a $28 to $113 off the table then re-buying months later for $50 certainly improved returns. 

Then too, putting a limited amount into a leveraged investment worked nicely as well. The underlying stock went up by 80% to 110% ... the leveraged investment went up over 200%. Compared to past limited bets, this one had the added bonus of the cash distributions being restarted so that just the cash distributions re-paid 40% of the cost before selling.


There's money in buying and holding then there's money in a lot of other places too.


Cheers

*PS*

I have worried more about making money than trying to be precise.


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## hboy43 (May 10, 2009)

james4beach said:


> _You_ guys are the ones who made a big deal out of this. What a bunch of whiners... position has moved 4.6% and all these dramatic posts about how I have no idea what I'm doing, how bank stocks only go up, how I make up fictitious trades, and how (even if the trades are real) how it doesn't matter.
> 
> Here's the truth of the matter, I think: most of you like bank stocks, and you feel upset that I'm betting against them. So you're trying to attack the person posting the critical opinion, and trying to knock them down.


If one follows what I do, one would certainly see how I must agree, a 4.6% move is quite inconsequential. A move like that happens to my positions in the dozens (hundreds?) of times (from close to next close) to me every year.

As to the second quoted paragraph, I suspect it has WAY more to do with your total body of work here than that particular transaction.

hboy43


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## james4beach (Nov 15, 2012)

hboy43 said:


> I suspect it has WAY more to do with your total body of work here than that particular transaction.


That's fine. As a bear, I'm used to be being disliked... it's actually kind of amusing to me.

Certainly I do have very different opinions on some matters than others. I think dividends are widely misunderstood, as shown here by people who think that I lose money on my short when RY pays out a dividend (in fact the stock price declines on the ex date, since the cash is removed from the company value). Dividends are a null operation in total return.

I'm also bearish on banks in general. There's no question RY may still rally for years, at least until the credit cycle reverses. Ultimately, I feel it is a bad investment for a variety of macro reasons that I've already discussed earlier. And I've said it before... Royal Bank is the most over-owned stock in Canada.


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## hboy43 (May 10, 2009)

james4beach said:


> That's fine. As a bear, I'm used to be being disliked... it's actually kind of amusing to me.


I don't think people dislike you, at least I don't. Oh, I might have a year ago, but I got past it. As I said elsewhere when Tosser was taking a rude shot at you, I think I could sit down and have a beer with you. I think perplexed might more represent mine and perhaps other's opinions.

hboy43


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## yyz (Aug 11, 2013)

james4beach said:


> That's fine. As a bear, I'm used to be being disliked... it's actually kind of amusing to me.
> 
> Certainly I do have very different opinions on some matters than others. I think dividends are widely misunderstood, as shown here by people who think that I lose money on my short when RY pays out a dividend (in fact the stock price declines on the ex date, since the cash is removed from the company value). Dividends are a null operation in total return.


 But stocks don't always decline on ex dividend date do they?It's not a hard and fast rule that you seem to think it is. Mr Market has something to say about that as well.


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## james4beach (Nov 15, 2012)

yyz said:


> But stocks don't always decline on ex dividend date do they?It's not a hard and fast rule that you seem to think it is. Mr Market has something to say about that as well.


They don't always decline because you're seeing two effects: the ex dividend day drop when the value is removed from the company (cash comes out... and cash isn't free) plus daily movements that occur whether or not it's ex div. Those daily movements mask the effect of the ex dividend drop, especially during a bull market when there is a persistent upward bias in stock prices.

Some past studies have shown that on average, stock prices fall 80% of the value of dividends. That is, for a $1.00 dividend stock prices on average fall by $0.80. You can find a paper citing the studies here.

In that paper you'll also find the important fact:


> In the US, according to NYSE Rule 118, all open limit orders to buy stocks are reduced by the cash dividend amount on ex-dividend days.


A dividend removes money from a company, it's not free money. This is why the exchanges and market makers automatically adjust the price down. The bigger mystery is why stocks don't drop by exactly the dividend amount. In the theoretical sense I'm correct about dividends being a null operation. In the practical sense -- as shown in these studies -- only 80% of the theoretical decline occurs.

So yeah, by being short I am at a slight disadvantage on a dividend stock, on average by 20% of each dividend payment.

That RY dividend resulted in approximately 20% x $0.81 / $78.71 = 0.2% movement against my position. Sure, with a lot of dividend payments, that adds up. Over a full year, that force of dividends acting against a short seller on RY adds up to approx 0.8% loss, ignoring tax effects.


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## AnnaDanishek (Apr 21, 2016)

There is currently minimal demand for teller services and most transactions are automated or electronic. The use of cash is minimal and cheques clear your account in a day or two. As mentioned by others, fees go up and compared to 30 yrs ago they are now into many new businesses (brokerage, mutual funds, insurance, etc) and I expect you will see more. They will always find a way to make money and hopefully control losses. Risk Management has come a long way over the past 30 or so years. Really, you probably don't require the large branch networks they presently have and the value of their real estate must be huge


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## james4beach (Nov 15, 2012)

AnnaDanishek said:


> They will always find a way to make money


They did not find a way to make money in 2007-2008. _They lost tons of money._



> and hopefully control losses.


They did not control losses at all. They were leveraged 30:1 into a downturn (and still are leveraged this high).



> Risk Management has come a long way over the past 30 or so years.


Their risk management was completely ineffectual. The Canadian banks required incredible amounts of liquidity from the Bank of Canada, US Federal Reserve, and CMHC just to stay afloat. Without these emergency loans, they could not have survived.


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## hboy43 (May 10, 2009)

A few questions.

You assert that 30:1 leverage is bad. Do you have any figures for fiscal year end leverage for one of the big five going back say 200 or so years just so we have a historical context?

Do you have a URL for the national post or globe and mail articles that disclose how the banks almost went under?

Finally, it seems that your short position in RY is quite small as a percentage of your net worth. It would seem to me that a very strong idea would tie up about 10% of net worth. I have currently 5 positions that size because I really believe in what I do.

Hboy43


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## humble_pie (Jun 7, 2009)

hboy43 said:


> Do you have a URL for the national post or globe and mail articles that disclose how the banks almost went under?


here is my recollection from previous posts by james4 some time ago.

the source of the astonishing info that canadian banks - despite their denials - were in fact gravely imperilled during the 2008/09 meltdown is not a mainstream article in traditional media such as the globe or the natPost. 

nor was the source some nutbar marginal rag of the type that keeps going on about The End of the World is Nigh.

rather, the source was some dry-as-dust official publication ... james4 do you still have that link & can you run it by once again? would appreciate




> Finally, it seems that your short position in RY is quite small as a percentage of your net worth. It would seem to me that a very strong idea would tie up about 10% of net worth. I have currently 5 positions that size because I really believe in what I do.


yes, there's a lot to be said for your approach, ie Go Big or Go Home.

still, there are many folks, including myself, who practice the opposite. Me i experiment first. Put a toe in first, test the water. It looks as if james4 does the same. Nothing wrong with this approach, imho.


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## humble_pie (Jun 7, 2009)

.

i've lost track of the number of times i've posted messages asking the harassing cmffers (always the same people) to please stop harassing james4beach & lonewolf.

both jas4 & the wolf have unique points of view. Both add greatly to the forum. Neither harms or hurts anyone.

turning now to james4 - the target of some hostile posts upthread - james as i've said before is a young man with an excellent job, a thriving investment account, a natural desire to experiment & a healthy curiosity about the world around him. 

as we all can plainly see, james works hard. He pays his taxes on time. He honours his parents. He cares about our country. He'd like to make the world a better place. He has a strong disciplined savings habit & his flourishing account shows this.

what's not to like? me i often disagree with james on specific points, but i welcome his participation here & i would be so very grateful if the harassing attacks would stop.


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## birdman (Feb 12, 2013)

http://www.nsi-ins.ca/wp-content/up...anks-in-the-Financial-and-Economic-Crisis.pdf

Here is paper talking about the performance of Canadian Banks during 2007 and 2008 which talks about our Banks ranking first out of 134 countries on the soundness of its banks. As I have full confidence in Canadian Banks I did not read the article in its entirety but thought some of you may be interested.


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## hboy43 (May 10, 2009)

humble_pie said:


> i've lost track of the number of times i've posted messages asking the harassing cmffers (always the same people) to please stop harassing james4beach & lonewolf.


I don't think my rebuttals of James are harassing, but maybe I am wrong. Most of the time I don't even bother any more, and when I do it is more for 3rd party viewers, as it is quite clear after literally years of trying I cannot present any sort of argument that will convince James of anything. I think my reasoning is pretty strong, but who knows, maybe I am the poster child for the Dunning-Kruger effect.

I agree James is a nice guy with many fine qualities. I don't wish him any ill. 

As for Wolfie, I don't understand a word he says, so can't comment.

hboy43


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## Pluto (Sep 12, 2013)

hboy43 said:


> I don't think my rebuttals of James are harassing, but maybe I am wrong.
> 
> As for Wolfie, I don't understand a word he says, so can't comment.
> 
> hboy43


I don't think you are being singled out as a harasser. You are just challenging him. I think the harassers are the ones who just insult, don't offer a a critique nor alternative, and vanish. You have your own strategy and critique of other strategies. Nothing wrong with that. Its the snipers that just snipe and don't dialogue on relevant issues that are tedious. Some, maybe all, are indexers who think everyone should be like them.


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## humble_pie (Jun 7, 2009)

.

hboy, not yourself. The constant offenders are upthread.

the effect of all the hostility is draining on the forum, though.

in addition, the forum sees a lot of cursing & swearing these days, which we never used to see when CC & Frugal ran the show. The negative effect from all the dronemouths & pottymouths is net energy loss.


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## kcowan (Jul 1, 2010)

humble_pie said:


> i would be so very grateful if the harassing attacks would stop.


+1
Let's keep the variety of opinions and approaches alive and hopefully well in CMF.

(PS where the hell is the Report a post Key?)


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## yyz (Aug 11, 2013)

humble_pie said:


> here is my recollection from previous posts by james4 some time ago.
> 
> the source of the astonishing info that canadian banks - despite their denials - were in fact gravely imperilled during the 2008/09 meltdown is not a mainstream article in traditional media such as the globe or the natPost.
> 
> ...


You mean this one where they even admit the report is an estimate?

https://www.policyalternatives.ca/newsroom/updates/study-reveals-secret-canadian-bank-bailout

From a charity that accepts donations to carry out this work?


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## yyz (Aug 11, 2013)

kcowan said:


> +1
> Let's keep the variety of opinions and approaches alive and hopefully well in CMF.
> 
> (PS where the hell is the Report a post Key?)


Bottom left corner of your post the triangle


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## mrPPincer (Nov 21, 2011)

yyz said:


> You mean this one where they even admit the report is an estimate?
> 
> https://www.policyalternatives.ca/newsroom/updates/study-reveals-secret-canadian-bank-bailout
> 
> From a charity that accepts donations to carry out this work?


FYI, the Canadian Centre for Policy Alternatives is a very well-respected think-tank. Some say it leans slightly to the left.

Yes it relies on donations and grants and is a registered charity with CRA.
So are other more right-leaning (arguably) think-tanks such as Fraser Institute and the more right-leaning C.D.Howe Institute, but they are funded more I believe from big business and multinationals.

There is nothing wrong with this.
We need an outside perspective on the impact of political decisions besides the popular media, and we need the ideas & concepts on how to move forward that these kind of institutions provide.

FWIW often these think-tanks are in full alignment on certain topics, and as equally surprisingly, often contrary to the buzz of the sound-byte popular media messaging of the type (imho) that is so popular because it's exactly the kind of re-affirmation that their consumers lap up unquestioningly.


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## mrPPincer (Nov 21, 2011)

> Study reveals secret Canadian bank bailout
> 
> Throughout the 2008-2010 financial crisis, Canadian banks were touted by the federal government—and the banks themselves—as being much more stable than other countries’ big banks. Canadians we assured that our banks needed no bailout. However, CCPA’s latest study, The Big Banks’ Big Secret: Estimating Government Support for Canadian Banks During the Financial Crisis, suggests that this was not the case.
> 
> ...


^(bolding mine)

- See more at: https://www.policyalternatives.ca/n...et-canadian-bank-bailout#sthash.dBduxgzF.dpuf


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## yyz (Aug 11, 2013)

You say well respected, by who?The internet is a great place where if you can always find a differing opinion.

http://www.macleans.ca/politics/ott...rnatives-targeted-for-audit-for-being-biased/

Obviously the CCPA has an agenda right? I mean they publish an alternative federal budget among other things.The question maybe is why and who is paying them to do it? Dio they think of themselves as some sort of shadow government? After all if we are going to talk about the secret bank bailout story that never seemed to go anywhere ,then we may as well throw out the CRA going after them .Or was that CRA audit because of the CCPA article? The fact is neither side has proven anything have they?So in that case can you believe one story over the other? 


James is a man like stated above and he can and will defend his logic.I don't think he needs anyone running to his aid whenever someone disagrees with his thinking.


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## mrPPincer (Nov 21, 2011)

Thanks for that link, chilling indeed, CRA getting political possibly, looks like it doesn't it?

James needs no help from the likes of me defending his logic, agreed, he is fully capable and adept at doing it on his own as you say.

What I took exception to was a percieved underappreciation of this work of the Canadian Centre for Policy Alternatives, the specifics of which are recognized by even the more right-wing think-tanks here in Canada.


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## Pluto (Sep 12, 2013)

yyz said:


> James is a man like stated above and he can and will defend his logic.I don't think he needs anyone running to his aid whenever someone disagrees with his thinking.


Yes he is capable to stick up for himself. 
The forum is supposed to be mainly about finance, not expressing personal resentment via insults and sniping. Although james can stick up for himself I still want these snipers to back off. It breaks up and distracts. It weakens and sabotages threads that could otherwise be more coherent and educational.


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## james4beach (Nov 15, 2012)

I was thinking of the Policy Alternatives doc, yes. And you don't need to rely on the Policy Alternatives document as an authority on the huge lines of liquidity to the Canadian banks.

The information was directly published by the US Federal Reserve. Actually, they first concealed the information, until a Bloomberg lawsuit forced the issue and it went all the way to the Supreme Court. In the end the courts forced the Federal Reserve to reveal its data. You must realize how hard the Federal Reserve fought to keep this info secret

http://www.bloomberg.com/news/artic...data-compiled-by-bloomberg-released-to-public

There was a total of $7 trillion of loans and support offered to global banks. Peak lending balance was a bit north of $1 trillion.

When that data came out, I analyzed the tables myself. Canadian banks drew huge amounts of Federal Reserve emergency loans and that's a fact, not a right winger (or left winger) theory.

What the Policy Alternatives piece adds to this analysis is that the Bank of Canada also provided significant emergency support on top of what the US Federal Reserve did. The third piece -- CMHC lending -- is not in dispute either.

Because the Bank of Canada has poorer disclosure, or rather wasn't sued to high hell like the Federal Reserve, the Policy Alternatives writer had to reverse engineer some of the figures from other available data. This is a fine piece of forensic investigation. But it leaves the piece open to criticism, of course: what were the sources? Well... when the source (Bank of Canada) conceals the data, you can only guesstimate.

I agree that this report has been downplayed in Canada, including by government. The official narrative is that our banks were incredibly healthy, never had problems in 2008, etc. This just isn't true.


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## james4beach (Nov 15, 2012)

hboy43 said:


> I don't think people dislike you, at least I don't. Oh, I might have a year ago, but I got past it. As I said elsewhere when Tosser was taking a rude shot at you, I think I could sit down and have a beer with you. I think perplexed might more represent mine and perhaps other's opinions.


Thanks. I bet we'd have some good discussions!


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## james4beach (Nov 15, 2012)

I appreciate the words of support from many of you. Many of you are very kind, and it's nice seeing those positive posts too. humble_pie, Hboy43, mrPPincer, Pluto & others... all of you are quite nice, and thanks!

Overall I am hoping that we can continue having discussions with differing opinions. Presenting cases on both sides are good.

And yes I am a very conservative investor. I plowed 40 K into govt bonds & short term bonds this week, my only real trade. My RY position is inconsequential, as is my long-only DIVZ portfolio.

But all of this trading is fun


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## Eder (Feb 16, 2011)

The banks were provided money in 2008 in exchange for mortgages as collateral ...nothing to see here unless you're the Huffington Post trying to stir up outrage over business as usual. Its not hard to find out what really happened with Canadian banks but its more fun to believe Zero Hedge etc.

http://www.torontosun.com/2012/05/01/bank-bailout-claim-pure-propaganda

btw I also am glad you post here James...we have lost too many valuable people already .


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## humble_pie (Jun 7, 2009)

james4beach said:


> I was thinking of the Policy Alternatives doc, yes. And you don't need to rely on the Policy Alternatives document as an authority on the huge lines of liquidity to the Canadian banks.
> 
> The information was directly published by the US Federal Reserve. Actually, they first concealed the information, until a Bloomberg lawsuit forced the issue and it went all the way to the Supreme Court. In the end the courts forced the Federal Reserve to reveal its data. You must realize how hard the Federal Reserve fought to keep this info secret
> 
> ...



yes, this is the dry-as-dust document i recall your having posted once in the post, thankx.

some here are concerned about the banks' new bail-out provisions. Where a failing bank's creditors & possibly depositors will get to pay for the burden, not the federal gummint. Needless to say, in such a scenario shareholders would be savaged.

it's not that i necessarily believe any of this. It's rather than we are living in times that grow ever more perilously dangerous. Documents such as these need to be passed in front of our eyes, for us to consider. We don't need to accept or reject, we don't need to agree or disagree. It's enough to be able to merely say Noted.


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## lonewolf (Jun 12, 2012)

james4beach said:


> And yes I am a very conservative investor. I plowed 40 K into govt bonds & short term bonds this week, my only real trade. My RY position is inconsequential, as is my long-only DIVZ portfolio.
> 
> But all of this trading is fun


 I really think with in the next 10 years we will experience a deflationary crash all these IOUs it will be hard to collect on. I m in the small minority that view government bonds as not being safe there are no assets to back GBs except tax payers that cant afford to. It will be hard to find a bunker deep enough when banks, government bonds, a lot of corporate bonds are defaulting with the DJI falling @ least to 09 lows with most likely path to around 1000


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## Pluto (Sep 12, 2013)

Eder said:


> The banks were provided money in 2008 in exchange for mortgages as collateral ...nothing to see here unless you're the Huffington Post trying to stir up outrage over business as usual. Its not hard to find out what really happened with Canadian banks but its more fun to believe Zero Hedge etc.
> 
> http://www.torontosun.com/2012/05/01/bank-bailout-claim-pure-propaganda
> 
> btw I also am glad you post here James...we have lost too many valuable people already .


That's an interesting article. It reminds me of another article about 3 years ago concerning a CDN bank exec who, for retirement dividend income, buys only CDN bank stock. She said people don't understand the cdn banks, the regulations, and the protections of the banks, implying that, of course, she does and she is perfectly happy owning their stock. 

However, as far as jame's approach goes, people need to have their own ideas and test them out for themselves. So what he does doesn't perplex me. I don't agree with him on the banks, but individuals have to work their own ideas out to arrive at a strategy that makes sense for themselves (without having their energy tied up in destructive negativism of opponents). As an example, there is a thread by boringinvestor on an indexing strategy. Do non-indexers post insults and other distracting sabotaging remarks in that thread? Nope. It is left alone by people who are not using that strategy and who simply accept that others like it and will use it. And so that thread stands as a reasonably coherent thread free of the crap. But apparently there is a core of evangelical indexers who have made it one of their life goals to disrupt threads on alternative strategies. I'm probably belabouring the point.....


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## yyz (Aug 11, 2013)

james4beach said:


> They don't always decline because you're seeing two effects: the ex dividend day drop when the value is removed from the company (cash comes out... and cash isn't free) plus daily movements that occur whether or not it's ex div. Those daily movements mask the effect of the ex dividend drop, especially during a bull market when there is a persistent upward bias in stock prices.
> 
> Some past studies have shown that on average, stock prices fall 80% of the value of dividends. That is, for a $1.00 dividend stock prices on average fall by $0.80. You can find a paper citing the studies here.
> 
> ...


Your article actually does have Canada in here 

"One such study is that of Jacob and Ma
(2005), who examine the influence of the lack of a limit order adjustment mechanism on ex-day
behavior in Canada. They find a close-to-close price drop of approximately 54% of the average
dividend. They claim that their results are consistent with the lack of a limit order adjustment
mechanism."

The "mystery" as to why stocks don't drop by the amount of the dividend is not really a mystery.The market can be affected by worldwide events/news a particular stocks new etc.There is no real control over that ,it's always a variable that will affect it.

Let's see what happens today as an experiment with BMO going ex-dividend.Closed April 27 at $82.47 and today ex-dividend day it has been as low as $80.58 intra day.Let's see where it ends.

*Edit closed at $81.47 for a drop of exactly $1.00 The dividend was what $0.84 so the theory above didn't pan out.
*At the lowest point today the stock was down $1.89 more than $1 below the dividend 

Maybe an idea to sell the day before ex-dividend?I've floated that before with BCE.


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## humble_pie (Jun 7, 2009)

Pluto said:


> ... as far as jame's approach goes, people need to have their own ideas and test them out for themselves. So what he does doesn't perplex me. I don't agree with him on the banks, but individuals have to work their own ideas out to arrive at a strategy that makes sense for themselves (without having their energy tied up in negativism of opponents).




exactly. James4's bloomberg article shows how relentless digging by journalists can be the only avenue citizens can take to get the truth ferreted out.

Bloomberg had to sue under the Freedom of Information Act - not request, but actually sue - in order to dislodge the facts from the US federal reserve system. The facts that would reveal the extent of global banking subvention by the feds during the 2008/08 financial collapse.

as pluto says, we're not talking about agree/disagree. We're talking only about a fair & transparent disclosure of information, so ordinary citizens can judge for themselves.


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## lonewolf (Jun 12, 2012)

Yes to wikileaks


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## humble_pie (Jun 7, 2009)

wikileaks was not methodical digging by journos though


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## none (Jan 15, 2013)

bump-o :stupid:


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## The_Tosser (Oct 20, 2015)

none said:


> bump-o :stupid:


lmao, and that's the best plan he could think of to boot!, rofl. Well that and 'it's safe to go long bonds' from 2 weeks or so ago, rofl!

I don't pay a lot of attention for obvious reasons, but goddamn i have thought about this once or twice in the last few weeks, rofl.

wtf are people thinking that makes this thing called trading, so damn difficult? rofl.

Wouldn't buy stock @ generational lows because 'i don't like what the fed is doing', but will short Cad banks ( of all things) 6 years later, rofl.

Doomers! they're all the same.

hey we've had a nice run, maybe he can catch a white-knuckle scalp to the downside here,


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## none (Jan 15, 2013)

People, particularly James, have a hard time distinguish between good intuition from wishful thinking. We all do. The secret (I think) is to realize that it's almost impossible to know to difference.

The future according to james.... :stupid:


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## The_Tosser (Oct 20, 2015)

none said:


> have a hard time distinguish between good intuition from wishful thinking.


Putting money to work, for real, tends to clarify a whole lot of **** one thinks about themselves,


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## none (Jan 15, 2013)

Yeah, I think it's weird that people even have such a thing as 'play money'. If I'm going to play with money I'm sure as hell not going to 'buy xxx' or 'sell y'. Where's the fun in that? Instead I'd rather invest in things that maximizes the probability of ending with the most amount of money so that I can spend it on booze and hookers. That sounds like a lot more fun than throwing proverbial stock picks at a dart board.


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## Island Climber (Feb 2, 2016)

Ironic, after reading all 18 pages of this thread I stumbled across this article the following day. It appears the international eyes of investment also share James's thoughts...

theglobeandmail.com/globe-investor/inside-the-market/canadian-bank-investors-get-ready-to-be-rewarded-for-keeping-the-faith/article30150540

James, thanks for letting the short out of the bag. This discussion, though divisive, had some excellent thoughts throughout- hopefully RY drops and you make a buck or two, at which time those of us in the long camp will add to our positions at a discounted price.


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## lonewolf (Jun 12, 2012)

The_Tosser said:


> wtf are people thinking that makes this thing called trading, so damn difficult? rofl.
> 
> Wouldn't buy stock @ generational lows because 'i don't like what the fed is doing', but will short Cad banks ( of all things) 6 years later, rofl.
> 
> ...


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## james4beach (Nov 15, 2012)

Island Climber said:


> James, thanks for letting the short out of the bag. This discussion, though divisive, had some excellent thoughts throughout- hopefully RY drops and you make a buck or two, at which time those of us in the long camp will add to our positions at a discounted price.


Sure, discussion is always good.

My position in RY has gone 7% against me, which is unfortunate, but part of the speculation game. It will be interesting to see how this pans out in the coming months.


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## james4beach (Nov 15, 2012)

none said:


> The future according to james.... :stupid:


I play the speculation game. Sometimes it goes your way, sometimes it doesn't. I've had a string of wins in the past year -- for example a beautifully timed XEG short I posted months ago.

Only a moron would think it's possible to have a 100% win rate.

Do _you_ think I should have a 100% win rate?


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## humble_pie (Jun 7, 2009)

^^


not 100% but how you doing with the roybank short each:


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## james4beach (Nov 15, 2012)

My current position, including dividend effects, I am down 4.5%. Not profitable. I still consider this to be a position that hasn't "moved" yet, meaning it hasn't moved significantly either my way or against me.

However Friday was good for my overall portfolio as I am very heavy in treasury bonds and also have gold exposure. As you know humble_pie I have been heavily endorsing ST bond exposure, for example in my not-so-subtly-titled thread,

I think short term bonds are a buy (April 26)

You can see in that thread I also bought 20K govt of Canada 10 yr bonds right at the low before this current rally. It's been a good week for my portfolio.


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## zylon (Oct 27, 2010)

*j4b* - based on the following snip, your bank short might be the right idea; the correct timing is anyone's guess.

I lifted this from *kereport dot com* blog dated 2016/07/02 comments section.




Robert Moriarty is this guy.


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## GizelleGizelle (Jun 10, 2016)

Royal Bank's shares rose 21.1% in the past quarter!!!!!!


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## james4beach (Nov 15, 2012)

Timing is always the difficult part. I'm currently at a 3.3% loss on my RY short (includes dividends) -- like I said before, this hasn't moved yet at all, in either direction.


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## none (Jan 15, 2013)

lame bump


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## OnlyMyOpinion (Sep 1, 2013)

Now now, be kind. It takes two to make a market.
Up ~6.8% since James' July lament and a 2.5% dividend bump (the second this year). 

Here is some consolation though, dated Aug 8. I won't vouch for the veracity of the source: 
The REALLY Big Short: The $13.7 Billion Dollar Bet Against Canadian Banks Over Housing and Insider Sales


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## humble_pie (Jun 7, 2009)

OnlyMyOpinion said:


> Now now, be kind. It takes two to make a market.
> Up ~6.8% since James' July lament and a 2.5% dividend bump (the second this year).
> 
> Here is some consolation though, dated Aug 8. I won't vouch for the veracity of the source:
> The REALLY Big Short: The $13.7 Billion Dollar Bet Against Canadian Banks Over Housing and Insider Sales




thankx for interesting article, only MO.

reading it, i couldn't help but hear the unique language signature of Ted Dixon, owner of canada's premier insider trading service INK Insider.

CFA ted, who also writes for the globe & mail, is one heck of a smart guy imho. I'm a big fan of ted dixon.

but your article turns out to have been authored by a relative unknown named stephen punwasi.

as best i can make out, stephen is a net based marketing media designer, neither a bank analyst nor an insider trading analyst.

he looks a little ...
maybe goofy kid ...
kind of flyé ...
plagiarize sort of ...

:biggrin: 

https://twitter.com/stephenpunwasi


as for jas4's banking short, the timing has gone 100% against him

ouch think of the dividends the poor guy has had to pay

still, there will likely be a banking correction at some point

brexit.china.vancouverhousing.oilpricesmeltdown
fortMac.europedecays.refugeesdrown.therearestill
afewtrumpsupporters


.


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## james4beach (Nov 15, 2012)

I got stopped out and covered the RY short. The premise of the short was the belief that the pattern showed that they had failed to make new highs and were going to stay weak for a while. That's not what happened -- and unfortunately RY in particular, instead of performing along with XFN, started outperforming by quite a bit starting in May. It got to my soft stop point and I covered to control losses.

Speculative positions don't always work out. You win some, you lose some. Earlier for example I went short XEG, and another time I bought CEF.A right during its weakness. Those were good trades; this one with RY was not.

Good news for you shareholders: I helped boost the RY price


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## OnlyMyOpinion (Sep 1, 2013)

humble_pie said:


> thankx for interesting article, only MO.


My disclaimer was added because it seemed to me that the article was written by a "Tiffany Greene" with maybe Stephen doing the graphics?(_"Written with contributions by Stephen Punwasi"_). While he has a linkedin and twitter presence, Tiffany seems oddly absent from the the internet for someone who is a_ "Torontonian, journalist and real estate lover"_ ?
Perhaps Tiffany is a pseudonym or even Stephen's alter ego? There was discussion of her and of the site betterdwelling on Reddit about a month ago but it seems to have died out without any conclusions. https://www.reddit.com/r/canada/comments/4ts3vz/quite_a_few_very_popular_articles_from/


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## humble_pie (Jun 7, 2009)

OnlyMyOpinion said:


> My disclaimer was added because it seemed to me that the article was written by a "Tiffany Greene" with maybe Stephen doing the graphics?(_"Written with contributions by Stephen Punwasi"_). While he has a linkedin and twitter presence, Tiffany seems oddly absent from the the internet for someone who is a_ "Torontonian, journalist and real estate lover"_ ?
> 
> Perhaps Tiffany is a pseudonym or even Stephen's alter ego? There was discussion of her and of the site betterdwelling on Reddit about a month ago but it seems to have died out without any conclusions.
> 
> https://www.reddit.com/r/canada/comments/4ts3vz/quite_a_few_very_popular_articles_from/




onlyMO you are right! tiffany greene it was!

what a quirky mystery, as your reddit post link says.

here's another recent piece from Better Dwelling dot com. I swear i've already read this article, maybe 2 years ago, in mainstream media. With details right down to mark cohodes' elegant retirement chicken farm in california. 

this article is from a lass who calls herself Kaitlin Last. As your reddit post says, Tiff & Kate don't appear to have any other existence outside Better Dwelling dot com.

who are these ladies? why are they copying/plagiarizing the published work of fairly well-known journos?

to the best of my knowledge, traditional shorters of canadian bank stocks also, at the moment they're shorting, go long in bank stocks of other countries which have already taken a big hit. Europe banks come to mind now. A few years ago, like in 2010, it was short canadian banks, go long US banks, but that play is over now .each:

what do you think, onlyMO? is it possible that Tiff & Kate are fronting for some stuffy sober hedge fund that has suddenly decided to go cool in social media?

https://betterdwelling.com/city/toronto/marc-cohodes-short-canadian-real-estate/



.


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## gibor365 (Apr 1, 2011)

> I got stopped out and covered the RY short.


 Thus , I understand that you lost 9% + 2 dividends ... not a big deal ... you lost much more on long VRX


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## Market Lost (Jul 27, 2016)

Just came across this thread, and it made me cringe a bit. I remember reading a blog called "Financial Uproar," which was written by a Nelson Smith who is also a writes for Motley Fool. He decided it would be a good idea to do this a few years ago, and he also lost on this bet. To me, shorting Canadian banks is a bit like shorting Japanese bonds - seems like a good idea, but it's lost a lot of money for a lot of people for a long time.


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## james4beach (Nov 15, 2012)

gibor365 said:


> Thus , I understand that you lost 9% + 2 dividends ... not a big deal ... you lost much more on long VRX


Yes that's about right. VRX was a rather more painful 50% loss ... though just 3 shares, a total loss of $488. Glad I didn't bother with a 4th share! LOL

In 2015, I "shorted" Credit Suisse by going long puts, which was kind of exhilarating. The other exhilarating one was going short XEG. But despite these wins, I'm not sure I should be speculating with these random positions. I'll try to stick to methodologies, like this non-dividend portfolio.



Market Lost said:


> To me, shorting Canadian banks is a bit like shorting Japanese bonds - seems like a good idea, but it's lost a lot of money for a lot of people for a long time.


Yeah, seems like a good idea, but reality is that Canadian housing & economy hasn't weakened yet like I thought it would. I thought there would be more of a banking sector fallout from all the energy & metals businesses, but I guess not!

What would be _really_ funny is if I covered at the peak price.


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## Market Lost (Jul 27, 2016)

james4beach said:


> Yeah, seems like a good idea, but reality is that Canadian housing & economy hasn't weakened yet like I thought it would. I thought there would be more of a banking sector fallout from all the energy & metals businesses, but I guess not!
> 
> What would be _really_ funny is if I covered at the peak price.


I have had the same issue with selling at the bottom.


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## gibor365 (Apr 1, 2011)

> What would be really funny is if I covered at the peak price.


 wouldn't be even more painful ?!


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## twa2w (Mar 5, 2016)

james4beach said:


> .....
> Yeah, seems like a good idea, but reality is that Canadian housing & economy hasn't weakened yet like I thought it would. I thought there would be more of a banking sector fallout from all the energy & metals businesses, but I guess not!
> 
> What would be _really_ funny is if I covered at the peak price.


What is the expression - something like " a mania can last far longer than I can remain solvent"


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## james4beach (Nov 15, 2012)

Yes it's very important to realize that the market doesn't move rationally and especially not in the same timeframe you expect. It's useful looking back at some of my old trades because it demonstrates this. Notice in the list below that although I repeatedly went short Fannie Mae ... one of the biggest stock disasters in US history ... but ultimately _I never profited from it_! In fact the early losses scared me away from touching it again, so I totally missed the actual move.

Another great illustration is Indymac Bank. My initial short wasn't timed right, even though my fundamentals were right. Timing is everything. Notice from this history that in the case of Fannie Mae I was _3 years too early_, and didn't make any profit despite having the proper fundamental position on one of the greatest frauds/disasters of our time.


March 2005, I shorted Countrywide Financial (one of the biggest US mortgage bubble frauds), but way too early. Gave up on it, flat position.

August 2005, I shorted Fannie Mae (which I recognized as a highly levered disaster) and covered at a 2% LOSS

Jan 2006, I shorted Fannie Mae again ... covered for 7% LOSS

July 2006, I shorted Fannie Mae again, then gave up on it -- flat position.

April 2007, I shorted US financials XLF, which was lucky timing and I had a 38% profit in a little over a year

May 2007, I shorted Indymac Bank (this is a bank that eventually collapsed and got delisted at $0). On this initial short, I covered at a 10% LOSS.

May 2007, I shorted US homebuilders XHB, which was great timing and I had a 22% profit

August 2007, I shorted Countrywide Financial again, this time for a 56% profit. Bingo.

August 2007, I shorted XFN (Cdn banks) for 15% profit. Note however that I covered the short in March 2008, before the worst declines! Covering Canadian banks in March 2008 might have been one of the worst trades ever... I would have made a killing on this.

October 2007, I shorted Indymac Bank again for 73% profit. Bingo. The bank collapsed.


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## new dog (Jun 21, 2016)

Twa2w I believe it is the market can stay irrational longer then you can stay solvent. I was also thinking about that very same quote.

I personally don't like to short anything unless it is used in some sort of hedging strategy. The only time I would short is if I see excellent evidence that the fall is imminent and that is very rare. When silver hit $50.00 with all the hammers and technical hits back in 2011, I saw that as one of those rare times when shorting seemed like a good idea.


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## humble_pie (Jun 7, 2009)

james4beach said:


> ... reality is that Canadian housing & economy hasn't weakened yet like I thought it would. I thought there would be more of a banking sector fallout from all the energy & metals businesses, but I guess not!




in early 2016 my own financial sector outlook was somewhat similar to james4, although mine included a strong dose of Brexit regardless of whether the vote would go positive or negative. Europe & england have woes period, i was thinking.

in the short term, the yes-brexit choice by great britain does not seem to have deterred financial markets.

but timing is everything, as posters upthread point out. The other shoe may fall in due course. Here are a couple sources at one extreme calling for a post-brexit economic nuclear winter.

http://www.cnbc.com/2016/08/29/bank...line|story&par=yahoo&doc=103895524&yptr=yahoo


.


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## canew90 (Jul 13, 2016)

Year in and year out the spread between 52 week highs and lows are always fairly large. Patience and having your buy points for the stocks you want is the key. Don't worry about buying at the bottom, as no one knows what that might be at any time, buy or add to the holdings you want and if the market goes further, buy more.


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## financialuproar (Jan 26, 2010)

Market Lost said:


> Just came across this thread, and it made me cringe a bit. I remember reading a blog called "Financial Uproar," which was written by a Nelson Smith who is also a writes for Motley Fool. He decided it would be a good idea to do this a few years ago, and he also lost on this bet. To me, shorting Canadian banks is a bit like shorting Japanese bonds - seems like a good idea, but it's lost a lot of money for a lot of people for a long time.


Hey that's me!

Market Lost is right. I used long-dated options to try to short the Canadian housing market via the banks. It would have been a nice payoff for me had they worked out, but about six months afterwards the banks had rallied from 52-week lows to 52-week highs. I sold the options for losses, but still got out somewhat intact. 

I firmly believe Canada is in a housing bubble. But at the same time, I'm not sure the banks are the way to play it when the time comes. I think Home Capital or Genworth is the better choice. But even then, I'm not short either of those names. 

All I've really done is avoided Canadian financials.


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## Market Lost (Jul 27, 2016)

financialuproar said:


> Hey that's me!
> 
> Market Lost is right. I used long-dated options to try to short the Canadian housing market via the banks. It would have been a nice payoff for me had they worked out, but about six months afterwards the banks had rallied from 52-week lows to 52-week highs. I sold the options for losses, but still got out somewhat intact.
> 
> ...


Small world. 

I think that you're about to see some decline in Vancouver, finally, and perhaps a bit of a pull back in Toronto. Although, I have a feeling that the big banks are already planning for some issues as only RY has increased their dividend this quarter, and it was only about 2.5%, despite the fact they're all making record profits, and the they are lowering their loan reserves for the oil sector. It just makes you wonder.


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## Oldroe (Sep 18, 2009)

I can't see interest rate going up.


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## CPA Candidate (Dec 15, 2013)

Once again, the Canadian bank (and financial) short thesis has failed to find traction in reality. Time to watch the "Big Short" again for inspiration. Maybe you can find a stripper with 5 rental properties (it's called research).


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## Market Lost (Jul 27, 2016)

CPA Candidate said:


> Once again, the Canadian bank (and financial) short thesis has failed to find traction in reality. Time to watch the "Big Short" again for inspiration. Maybe you can find a stripper with 5 rental properties (it's called research).


Can I tell my wife that's why I'm there?


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## atrp2biz (Sep 22, 2010)

Can I get a receipt for that song for my line 221?


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## new dog (Jun 21, 2016)

I will put this post here as Deutsche bank is really having problems now and if it goes everyone is going to feel it.

http://www.cnbc.com/2016/09/29/the-deutsche-bank-crisis-how-we-got-here-and-where-we-are.html

This is from CNBC so it can't be a conspiracy theory.


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## humble_pie (Jun 7, 2009)

new dog said:


> I will put this post here as Deutsche bank is really having problems now and if it goes everyone is going to feel it.
> 
> http://www.cnbc.com/2016/09/29/the-deutsche-bank-crisis-how-we-got-here-and-where-we-are.html
> 
> This is from CNBC so it can't be a conspiracy theory.



deutsche bank is said to be the biggest counterparty for index derivatives created for ETF fundcos in the world. Solactive is the name of a german company - essentially a group of mathematicians - who create the index products. Deutsche bank then sells them.

cambria ETFs in the US are built on Solactive indexes. Cambria & its star founder mebane faber were greatly touted in cmf forum not too long ago, by a tiny group of visibly obvious ETF product salesmen. The enthusiasm for "meb" did subside over time though, since the cambria funds have not done particularly well.

.


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## james4beach (Nov 15, 2012)

This is true. Deutsche Bank is one of the world's derivatives giants and biggest counterparties. Other big ones are JP Morgan, HSBC, and Royal Bank of Canada.

It's difficult to tell the impact of a giant bank's implosion and derivative unwinding. Sure, ETFs can be affected, but that's just one of many potential impacts. These banks are so giant ... so critical to global contracts ... that they can potentially impact any other major bank that engages in derivatives bets.

Royal Bank has the largest derivatives exposures in Canada, with $13 trillion notional exposure. This is double the next closest bank, TD at $7 trillion exposure. We know from past experience (2008) that banks don't have a good handle on the risk of their derivatives portfolios.


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## Market Lost (Jul 27, 2016)

james4beach said:


> This is true. Deutsche Bank is one of the world's derivatives giants and biggest counterparties. Other big ones are JP Morgan, HSBC, and Royal Bank of Canada.
> 
> It's difficult to tell the impact of a giant bank's implosion and derivative unwinding. Sure, ETFs can be affected, but that's just one of many potential impacts. These banks are so giant ... so critical to global contracts ... that they can potentially impact any other major bank that engages in derivatives bets.
> 
> Royal Bank has the largest derivatives exposures in Canada, with $13 trillion notional exposure. This is double the next closest bank, TD at $7 trillion exposure. We know from past experience (2008) that banks don't have a good handle on the risk of their derivatives portfolios.


It'll be about the same impact as Greece and Brexit. Remember how both these "crises" were going to end in markets crashing into oblivion?


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## humble_pie (Jun 7, 2009)

Market Lost said:


> It'll be about the same impact as Greece and Brexit. Remember how both these "crises" were going to end in markets crashing into oblivion?



i for one don't believe that the Greece & Brexit stories have even begun yet. 

greece is heartbreaking. Ask any canadian of greek descent. Never since WW II has Hellas been so tortured by contemporary history.

what i find surprising is that greeks are so uncomplaining that most people in the west don't even know what is happening. Another 2 seconds of contemporary history & turkey is going to take the same route. Syria is gone, at best will be another lawless failed somalia. The whole of western europe is at risk.

me i think that markets ignoring the euro blackout are living in a kind of cloud cuckooland, but on the other hand CCL might be able to endure for a few years yet ...

.


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## Market Lost (Jul 27, 2016)

humble_pie said:


> i for one don't believe that the Greece & Brexit stories have even begun yet.
> 
> greece is heartbreaking. Ask any canadian of greek descent. Never since WW II has Hellas been so tortured by contemporary history.
> 
> ...


I'm not suggesting that what is going on in Greece is a good thing for the Greeks, but it was the fear of contagion that caused so much angst in the world, and to steal from T.S. Elliot, it ended with a whimper, not a bang. As for Turkey, or Syria, as far as the financial markets are concerned, they're not very consequential. Plenty of countries are in trouble in the developing world, and it really doesn't matter to our markets. Look at the BRIC countries, they pretty much melted down, and unless you were invested in them, you likely didn't even notice. 

Brexit may not even happen, and if it does, the Brits how voted for it so they could control their immigration will find out that they won't have any more control then they had before, and they're going to be following the same EU regulations they did before. The people who voted for it were ignorant, and got hoodwinked by a bunch of *rhymes with glass blows* who now seem to have jumped ship.


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## mark0f0 (Oct 1, 2016)

The problem with shorting, shorting practically anything these days, is that the proceeds of the short have to be invested in what essentially amounts to nothing but cash. 

Low interest rates basically mean that the banks can borrow for nothing, and invest in practically anything that provides a yield greater than zero and still make money. Its the higher interest rate environment that will likely prove to be deadly for the banks in contrast. 

I do think there will be a lot of turbulence in the banks' share values when the CMHC inevitably runs out of money after their subprime mortgage guarantees are called upon, and questions arise over whether the government will provide a "no holds barred" bail-out of the CMHC or not. This is the only opportunity I think there is to make any money from a short of a Canadian bank. Otherwise, the Canadian banks' earnings should actually accelerate with the ongoing housing downturn due to spread expansion.


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## Eder (Feb 16, 2011)

C banks would love higher rates.


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## Market Lost (Jul 27, 2016)

mark0f0 said:


> The problem with shorting, shorting practically anything these days, is that the proceeds of the short have to be invested in what essentially amounts to nothing but cash.
> 
> Low interest rates basically mean that the banks can borrow for nothing, and invest in practically anything that provides a yield greater than zero and still make money. Its the higher interest rate environment that will likely prove to be deadly for the banks in contrast.
> 
> I do think there will be a lot of turbulence in the banks' share values when the CMHC inevitably runs out of money after their subprime mortgage guarantees are called upon, and questions arise over whether the government will provide a "no holds barred" bail-out of the CMHC or not. This is the only opportunity I think there is to make any money from a short of a Canadian bank. Otherwise, the Canadian banks' earnings should actually accelerate with the ongoing housing downturn due to spread expansion.


The banks don't write sub-prime, in fact the term is rather meaningless in Canada as it refers to the mortgages that Freddy or Fannie won't insure, and last time I checked, they don't operate north of the border. As for CMHC, unless you're in Alberta, all mortgages are recourse loans, so you don't just get to walk away for free.


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## humble_pie (Jun 7, 2009)

Market Lost said:


> I'm not suggesting that what is going on in Greece is a good thing for the Greeks, but it was the fear of contagion that caused so much angst in the world, and to steal from T.S. Elliot, it ended with a whimper, not a bang ...
> 
> ... Brexit may not even happen




pfui on the poet, the story has not ended yet imho

brexit, pound sterling, dollar, gold, banks, oops

.


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## CPA Candidate (Dec 15, 2013)

Bears are never wrong, they're just so far ahead of the rest of us they we can't understand or appreciate their genius yet. I'm certainly wrong at times, but I incorporate new information and it leads to changed opinions. The perma-bear is a staunch character, any news that contradicts the thesis is discarded, ignored or discredited. Being wrong is not an option.


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## 1980z28 (Mar 4, 2010)

agree


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## james4beach (Nov 15, 2012)

CPA, experts around the world call out Canada's outlandishly high real estate valuations and unsustainable RE market. My bearish position on the banks is well founded and hardly a "fringe" opinion. Banks inevitably suffer when real estate falls.


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## Pluto (Sep 12, 2013)

james4beach said:


> CPA, experts around the world call out Canada's outlandishly high real estate valuations and unsustainable RE market. My bearish position on the banks is well founded and hardly a "fringe" opinion. Banks inevitably suffer when real estate falls.


james, it my memory is correct, from approximately 1990 to the mid 1990's Vancouver real estate fell 25%. What happened to the banks during that time that has you concerned will happen again?


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## mark0f0 (Oct 1, 2016)

Market Lost said:


> The banks don't write sub-prime, in fact the term is rather meaningless in Canada as it refers to the mortgages that Freddy or Fannie won't insure, and last time I checked, they don't operate north of the border. As for CMHC, unless you're in Alberta, all mortgages are recourse loans, so you don't just get to walk away for free.


In Canada, subprime means loans that the banks don't want without insurance, or without a very serious charge being taken against capital. 

Hence, if it requires CMHC insurance, it almost certainly was, at least in the eyes of the bankers, not a mortgage that is eligible to be a prime asset. 

Recourse vs. non-recourse didn't matter at all in the US. Broke people, recourse or not, don't repay their mortgage backed loans.


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## james4beach (Nov 15, 2012)

Pluto said:


> james, it my memory is correct, from approximately 1990 to the mid 1990's Vancouver real estate fell 25%. What happened to the banks during that time that has you concerned will happen again?


Back then the large commercial banks didn't have the high levels of leverage they do today. Nor did they have multi trillion $ derivative books. Banking has become a completely different beast starting in the 90s. They are much more like hedge funds and leveraged speculators than traditional banks.

Not only is bank leverage much higher today than early 90s, but so is consumer leverage: household debt to income ratios were only 80% in early 90s, vs near 160% today.

Both bank and household balance sheets (the two are linked) are more fragile than in the past, and more vulnerable to large shocks. Consumers with this degree of leverage cannot withstand a serious shock. A spike in unemployment or interest rates will cause defaults, which will translate to banking losses and decline in assets of all kinds.


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## mark0f0 (Oct 1, 2016)

james4beach said:


> Back then the large commercial banks didn't have the high levels of leverage they do today.


"Back then", the large commercial banks weren't loaded up with government-insured, rapidly re-priceable mortgage loans either. They actually took risk lending significantly to the private sector, hence, higher levels of leverage simply weren't possible. 

The contemporary lynchpin of the Canadian banking sector is whether the CMHC will make good on the subprime mortgage insurance they've written against the nations housing stock. 



> Not only is bank leverage much higher today than early 90s, but so is consumer leverage: household debt to income ratios were only 80% in early 90s, vs near 160% today.


But private sector business has very little leverage and enormous amounts of cash on the books relative to the 80s and 90s. In the 80s and 90s, there was relatively little leverage amongst consumers, but the corporations were heavily leveraged. I don't intuitively know which is a worse setup, but I know that it takes a lot less overhead at the banks to deal with corporates than it does with consumers. 



> Both bank and household balance sheets (the two are linked) are more fragile than in the past, and more vulnerable to large shocks.


Bank balance sheets look excellent, IMHO, and the banks have a long runway of business ahead of them in re-financing "corporate Canada" for the next leg of long-term growth. The elephant in the room is how will CMHC's subprime mortgage insurance play itself out as Canadian housing price declines accelerate after the few years of stagnation we've seen thus far. 



> Consumers with this degree of leverage cannot withstand a serious shock. A spike in unemployment or interest rates will cause defaults, which will translate to banking losses and decline in assets of all kinds.


Defaults are largely covered by the CMHC, and the banks will get to hike their risk premia (they already are!!) to incorporate this risk. 

The 1990s saw banks mostly quadruple 1990-2000 as consumers retrenched and corporations went on a spending/borrowing spree. As the housing market falls and enthusiasm shifts to the corporate sector and Canada's cheap stock market (TSX P/E = 15), the banks should do quite well. The credit union competitive threat probably will be neutralized as well as such organizations are too heavily invested in uninsured housing loans and small business loans correlated to the housing market.


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## Pluto (Sep 12, 2013)

james4beach said:


> Back then the large commercial banks didn't have the high levels of leverage they do today. Nor did they have multi trillion $ derivative books. Banking has become a completely different beast starting in the 90s. They are much more like hedge funds and leveraged speculators than traditional banks.
> 
> Not only is bank leverage much higher today than early 90s, but so is consumer leverage: household debt to income ratios were only 80% in early 90s, vs near 160% today.
> 
> Both bank and household balance sheets (the two are linked) are more fragile than in the past, and more vulnerable to large shocks. Consumers with this degree of leverage cannot withstand a serious shock. A spike in unemployment or interest rates will cause defaults, which will translate to banking losses and decline in assets of all kinds.


Some defaults always happen when the economic cycle ends. One "consumer" I recall from days gone by, that was an instructive lesson, was Campeau. 

https://en.wikipedia.org/wiki/Robert_Campeau

and Paul Reichman

https://en.wikipedia.org/wiki/Paul_Reichmann

who met his Waterloo at Canary Wharf.

these guys used a lot of leverage, but the banks did not collapse. 

I don't see the big banks balances sheets as fragile as you claim.


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## james4beach (Nov 15, 2012)

When a real estate slowdown happened in the US in 2007, and in UK and Europe at other times, the banks did not fare well. Every western country that's had a real estate bear market in the last few years has had a major fallout in banking.

Canada has not yet had a real estate bear market. I have trouble believing that the experience of Canadian banks will be so different from the experience of similar global peers


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## Eder (Feb 16, 2011)

james4beach said:


> Canada has not yet had a real estate bear market.


I beg to differ.


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## james4beach (Nov 15, 2012)

I meant in modern banking times. Banking was completely transformed starting in the 90s. These highly leveraged, derivatives-loaded banks in Canada have not ever been subjected to a real estate bear market.

The way banks responded to a 1980s bear market in real estate is almost irrelevant because the institutions were so different back then.

My hypothesis is that the banking peers in other countries (US & Europe) are more representative than Canadian banks pre-1995.


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## new dog (Jun 21, 2016)

I understand what you are saying james but I do have to add we had a extremely bad bear market in the west in RE in the 80's.


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## Pluto (Sep 12, 2013)

james I don't know clearly what you mean by real estate bear market. It would be helpful if you specified a % decline to define it.


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## james4beach (Nov 15, 2012)

To better define the scenario I am concerned could have fallout in the big Canadian banks:

A prolonged, nation-wide decline in residential and commercial real estate, such that the national home price average declines at least 15%, and does not rebound to a new high reading within 5 years.


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## Video_Frank (Aug 2, 2013)

Here's an article about Toronto's real estate market in the '90s.



> Between 1989 and 1996 average price of a house in GTA have declined by 40% adjusted for inflation or $182,625 in today's money. Downtown of Toronto was hit the worst with over 50% decline in value of a home.





> Only in 2010, or 21 years later, real average housing prices reached the peak of 1989. In real terms, the fallout from the burst of the bubble looks much worse than when you look at nominal numbers. In nominal terms the average house prices between 1989 and 1996 fell by 23%, while in real terms it fell by whopping 40%.


Pretty sure this would meet your definition.


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## james4beach (Nov 15, 2012)

Yes I agree that was a real estate bear market.

But the big five banks were not like the businesses they are today. Back then they didn't have giant off balance sheet derivative books, they didn't heavily depend on market-traded asset backed securities, they didn't have this incredible level of complexity and opacity, and they didn't operate with the high leverage of today. Modern banks are more like global hedge funds which piggy-back on top of traditional depository banking.

If you'd like to read a bit about how commercial banking has transformed, read
http://www.theatlantic.com/business/archive/2015/10/wall-street-other-peoples-money/411694/
http://www.theatlantic.com/magazine/archive/2013/01/whats-inside-americas-banks/309196/

For example, Royal Bank has a $13 trillion off-balance-sheet derivative book. Investors aren't even aware it exists, because it's not shown on the balance sheet. There was nothing like this before 2000 ... derivatives are very recent. Asset backed securities are very recent. Things have changed a lot since the early 90s, and go back earlier to the 60s or something: it's night and day.


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## Pluto (Sep 12, 2013)

Well perhaps you could give a reference for RY's off balance sheet derivatives. The two references you gave didn't refer to RY as far as I could see. 

There are stories about banks as far back as the '60's that went bust doing foolish things that nobody knew about. One was discussed in Adam Smith's book, the Money Game. In that case, as I recall, a trader with a hot hand was given authority to trade large sums in futures. He lost a lot on coco, but didn't tell anybody, and tried to make it back, but things got worse, and the bank went bust before anyone could stop this hot trader. This idea that banks do risky things now, that they never did before is, I believe, untrue. I think you are idealizing the past. 

I suppose you will say that trading coco futures is different than this derivatives and asset back thing, but the common denominator is risky leveraged activity. They did it in the 60's at some banks, and they do it now. 

You younger folks have had it rough with two serious bear markets in short order between 2000 and 2008 that understandably has evoked caution and fear. Apparently the last one has shaken faith in the finance system to, I think, an excessive degree.


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## mark0f0 (Oct 1, 2016)

james4beach said:


> To better define the scenario I am concerned could have fallout in the big Canadian banks:
> 
> A prolonged, nation-wide decline in residential and commercial real estate, such that the national home price average declines at least 15%, and does not rebound to a new high reading within 5 years.


Happened in the 1990s. The big banks still quadrupled 1990-2000. Banks benefitted through wider spreads, asset rotation away from housing as a destination for speculation, and vibrance in other sectors of the economy.

The only big roadblocks the banks experienced in the 1990s was the Chretien government's Finance Minister Paul Martin cracking down on bank merger talk.


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## james4beach (Nov 15, 2012)

Pluto said:


> Well perhaps you could give a reference for RY's off balance sheet derivatives. The two references you gave didn't refer to RY as far as I could see.


You can find it buried on page one hundred something of their annual audited financial statements. The information is there, but it's buried where no investor can find it. (That's kind of my point about opacity and complexity). If you haven't yet read through Royal's hundreds of pages of financial statements, you can also find the summarized derivative data via OSFI: http://www.osfi-bsif.gc.ca/Eng/wt-ow/Pages/FINDAT.aspx

Select Royal Bank of Canada, click Quarterly, then BCAR Derivative Components. You'll see that Royal has 11,173,826,463 (in $ thousands) of notional derivative contracts, which is $11.2 trillion. (OK so it's not the $13 trillion that I thought it was). Don't worry folks. Only $11 trillion, or 7x Canada's GDP.

Basel III guidelines, *which are what Royal and every other large global bank use*, are incredibly complex. The regulations are 509 pages long, which is notably more complex than past guidelines: http://www.bloomberg.com/news/artic...s-babel-as-conflicting-rules-undermine-safety

Experts in the field, academics have poked holes at many aspects that underpin all the large global banks (and remember, Canadian banks are based on the same framework -- Basel III and IFRS accounting standards). Some of the big critiques are:

1 - the banks are too complex and opaque (this is different than past decades)
2 - too much derivative exposure
3 - poor disclosure and transparency of derivatives
4 - Basel III is too complex and allows sleight of hand with risk weightings
5 - it's impossible to properly manage risk in institutions that are this complex
6 - their leverage is way too high ... these banks need much more capital

Even Wall Street bankers, as quoted in those Atlantic articles I linked, have remarked that it is impossible to properly analyze the books of modern banks, and impossible to assess and control their risks.

But I'm sure they're all wrong. I'm sure that those professional bankers are unable to understanding banking risk, but our dear CMF forum members have a better understanding of how risky the banks are.


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## Oldroe (Sep 18, 2009)

Those Wall Street experts told everybody that derivative's where to complicated to understand.

They said only us experts understand.

Turns out they didn't understand derivatives. They might be experts at financial collapse certainly not experts at Derivative's.

So only you are expert enough to read and understand a major bank financial statement.

Not a Canadian bank statement because Canada is only 3% of the world economy.

Go short another 100 RY hope you get rich.


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## humble_pie (Jun 7, 2009)

james4beach said:


> You can find it buried on page one hundred something of their annual audited financial statements. The information is there, but it's buried where no investor can find it. (That's kind of my point about opacity and complexity). If you haven't yet read through Royal's hundreds of pages of financial statements, you can also find the summarized derivative data via OSFI: http://www.osfi-bsif.gc.ca/Eng/wt-ow/Pages/FINDAT.aspx
> 
> Select Royal Bank of Canada, click Quarterly, then BCAR Derivative Components. You'll see that Royal has 11,173,826,463 (in $ thousands) of notional derivative contracts, which is $11.2 trillion. (OK so it's not the $13 trillion that I thought it was). Don't worry folks. Only $11 trillion, or 7x Canada's GDP.
> 
> ...




so? if you believe that the venerable royal bank of canada consists of $11 trillion dollars in global derivatives while all other canadian banks present similar profiles, why do you continue to insist that their fund families & their ETF families & the ETF families of their broker-dependent clients are all holding real, actual, virginally pure, certifiably segregated shares of common stock? registered to their names? held in professional 3rd party custody?

:biggrin:

.


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## james4beach (Nov 15, 2012)

humble, yes you have a point there. But Royal's books are their own operations (including their own hedging & speculation) whereas mutual funds are supposed to be different assets held for the beneficial owners. I will admit though that these are hard to separate. Royal is a prime broker, after all.

As for being short RY. I'm no longer short. In fact I'm long at the moment. I couldn't help buying RY as part of my XIU top weights unbundling -- it makes mathematical sense for this index mimicking. Still, I am lighter weight banks than the index.


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## mordko (Jan 23, 2016)

1. Couch Potatoes don't hold RBC managed ETFs.

2. If an ETF managing company goes bankrupt then there won't be an issue other than if the market in general is affected because all ETF assets are with a Custodian. 

3. If the Custodian goes bankrupt then there won't be an issue because client assets are segregated. For there to be an issue the Custodian would have to steal. Hypothetically that's possible, but that's possible with absolutely anything.

4. What ETFs hold depends on ETFs. CP ETFs are index based. They hold stocks except for a tiny fraction of holdings. 

5. ETFs are transparent. For example in the US ETFs are required by SEC to publish actual holdings. In most cases this is done on a daily basis, sometimes monthly. In the latter case the content has to be made available daily to external institutions which serve to arbitrage the price. 

6. All of this won't stop dumb conspiracy junkies from selling their theories, but one hopes that anyone with a brain cell would take them with a pinch of salt.


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## james4beach (Nov 15, 2012)

CMHC's latest report indicates overvalued housing across the country. Their overall assessment of Canada has gone from "yellow" (moderately problematic) in July to "red" (strongly problematic) in October.

http://www.cbc.ca/news/business/cmhc-canada-real-estate-1.3822489

This is what I mean when I say that overvalued housing is a Canadian-wide problem; it's not something that gets contained to Vancouver & Toronto. And if it affects all of Canada, it's a risk to banks too -- not just directly mortgages, *but for all the credit & business associated with real estate* - which is a TON.

Real estate linked economic activity has been estimated at between 1/3 and 1/2 of Canada's GDP growth. Trust me, if housing cools, everything cools, and banking profits plummet.


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## james4beach (Nov 15, 2012)

Sources about my point that real estate accounts for a huge portion of Canada's GDP growth:

http://www.bnn.ca/how-canada-s-hot-housing-market-is-propping-up-gdp-growth-1.518657
http://www.huffingtonpost.ca/2016/08/02/real-estate-gdp-canada_n_11309192.html

Maybe someone can explain to me how economic activity can grind to a halt (if housing cools) yet banks remain unscathed. Perhaps all those real estate agents, brokers, and financial middlemen who derive income from rising housing have NO loans or business with the banks.


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## Pluto (Sep 12, 2013)

^
I'm not aware of anyone who claims the banks would remain unscathed. You typically frame issues in extremes: unscathed/complete disaster as economy grinds to a halt. Perhaps there is a moderate way of looking at this. Economies slow down and even shrink for a time, then pick up again.


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## james4beach (Nov 15, 2012)

Did I sound extreme? Let me revise: I expect banking stocks to underperform if a bear market in real estate begins.


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## Eder (Feb 16, 2011)

I expect Canada to under perform in that case...


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## mark0f0 (Oct 1, 2016)

james4beach said:


> Maybe someone can explain to me how economic activity can grind to a halt (if housing cools) yet banks remain unscathed. Perhaps all those real estate agents, brokers, and financial middlemen who derive income from rising housing have NO loans or business with the banks.


Not only will the banks be unscathed from a RE meltdown, but they'll benefit. As they have put options against most of their meaningfully at risk mortgage debt, by virtue of having that debt insured by CMHC subprime mortgage insurance. Just like you or I might buy put options against, say, our stock portfolios if we believe the price of them is going down.

When values crash, spreads will widen. The banks will be beneficiaries of this spread widening on their asset base, while the funding side of the equation will be kept very low, by the Bank of Canada, through low policy rates and QE if necessary.

Sure, there's probably a few egregious examples of the overleveraged, in which the banks will be booking losses. But with so much of the banks' book of business being short-term adjustable rate, with rates adjustable at the discretion of the banks, the remaining solvent borrowers are largely going to be on the hook to pay for the defaults. Thus preserving the bank's balance sheets. 

No reason, IMHO, that the 1990s, where the Canadian big chartered banks quadrupled their equity value in a decade, while housing sunk, can't or won't repeat itself.


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## mark0f0 (Oct 1, 2016)

james4beach said:


> Did I sound extreme? Let me revise: I expect banking stocks to underperform if a bear market in real estate begins.


I don't disagree. The banks might only double or triple in the next decade while the gold miner stocks (for example) return 10-20X (like the techs did in the 1990s!). That's underperformance, but certainly such performance wouldn't make most of us all that upset.


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## james4beach (Nov 15, 2012)

mark0f0 said:


> Not only will [Canadian] banks be unscathed from a RE meltdown, but they'll benefit.


If that's true, the Canadian banks will be unlike every one of their global peers.

Bankers from across the world will flock to Toronto seminars to learn how to make leveraged banks thrive while economic activity crumbles.

Indeed, Canada could innovate a whole new school of banking. In the future, top bankers and economists will study _The Beaver Protocol:_ the ground-breaking method to expand your bank during periods of credit deflation, crashing M&A, falling asset prices and rising consumer & business insolvency.


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## mark0f0 (Oct 1, 2016)

james4beach said:


> If that's true, the Canadian banks will be unlike every one of their global peers.


Global peers would love to have the sort of structure that Canadian banks have. No duration mismatch risk (the Interest Act basically bans lending for terms > 5 years). A depositor base that is fiercely loyal. Customers who are mostly sheep and lemmings, highly leveraged, and willing to get fleeced. A legal system which is highly credible in the enforcement of legitimate debt obligations. A government that has put a large amount of resources behind the banking sector by insuring subprime mortgages at the CMHC. And exposure to the deeply countercyclical/inverse correlated gold sector just in case deflation or strong inflation ("monetary instability") rears its ugly head.





> Bankers from across the world will flock to Toronto seminars to learn how to make leveraged banks thrive while economic activity crumbles.


Well there's no reason why the same formula can't work anywhere else, but it takes a lot of government intervention. The lynchpin of the Canadian banks is hence whether government will continue to intervene in the markets, ie: will they pay out on CMHC subprime mortgage insurance claims in full or not. 



> Indeed, Canada could innovate a whole new school of banking. In the future, top bankers and economists will study _The Beaver Protocol:_ the ground-breaking method to expand your bank during periods of credit deflation, crashing M&A, falling asset prices and rising consumer & business insolvency.


Worked in the 1990s. The banks doubled down on their use of CMHC subprime insurance this time around in comparison.


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## humble_pie (Jun 7, 2009)

james4beach said:


> If that's true, the Canadian banks will be unlike every one of their global peers.
> 
> Bankers from across the world will flock to Toronto seminars to learn how to make leveraged banks thrive while economic activity crumbles.
> 
> Indeed, Canada could innovate a whole new school of banking. In the future, top bankers and economists will study _The Beaver Protocol:_ the ground-breaking method to expand your bank during periods of credit deflation, crashing M&A, falling asset prices and rising consumer & business insolvency.



hello! this is sarcasm nicely done!!

a light but lethal touch. Reminds me of jonathan swift in Gulliver's Travels.

.


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## Oldroe (Sep 18, 2009)

How funny you are now long on RY and the US election is next week. I almost fell off my chair.


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## james4beach (Nov 15, 2012)

@humble_pie, thanks 

@Oldroe, well you have a point there and you are justified falling off your chair. I went from being short to being long. However this was a consequence of back-testing a method to replicate/beat the TSX by using its top weights in each sector. I decided the method is worth trying, and it required that I buy RY. The other reason I decided this method is doable is that it allows me to avoid large financial sector weightings. With this strategy, I only have 20% financial sector exposure (RY is proxy for the whole sector) vs nearly 40% in the Canadian index.

So yeah, I'm long RY. But this is because I finally found a nearly passive strategy that lets me replicate the TSX index, but with half the normal exposure to banks. For a very long time, my main gripe with TSX index investing was that heavy financial exposure. Now I can proceed with passive index-like investing without being up to my eyeballs in banks.


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## Oldroe (Sep 18, 2009)

So now you are a market timer. 

Good for you just don't try for perfect.

There's opportunity suck up your will power and buy.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> @Oldroe, well you have a point there and you are justified falling off your chair ...
> 
> However this was a consequence of back-testing a method to replicate/beat the TSX by using its top weights in each sector. I decided the method is worth trying, and it required that I buy RY. The other reason I decided this method is doable is that it allows me to avoid large financial sector weightings ...


I'm sure this could be misunderstood as baiting or taunting instead of the way it is meant.

But ... wow, maybe the restrictions forced on you by the US has paid off in that you no longer seem to love the TSX index so much despite loathing bank investments as they stand.




james4beach said:


> ... For a very long time, my main gripe with TSX index investing was that heavy financial exposure. Now I can proceed with passive index-like investing without being up to my eyeballs in banks.


I suspect this also may be misinterpreted but what "gripe with TSX index investing"?

It seemed pretty clear that individual stocks were loathed due to well documented concerns while the TSX index was a clear cut recommendation as the index would overcome the heavy financial weighting. ETFs with much higher financial exposure OTOH were described as criminal.


Don't get me wrong ... I think you'll like this method, especially being able to more tightly control the financial exposure but I don't recall much if any griping about the TSX index. I can call a lot more of "it's okay as the indexes overcome, drop losers, keep winners etc.".


Cheers


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## james4beach (Nov 15, 2012)

Eclectic, I didn't realize that I may be taunting with any of that text.



> wow, maybe the restrictions forced on you by the US has paid off in that you no longer seem to love the TSX index so much despite loathing bank investments as they stand.


I still love the TSX index as the best zero-effort way to invest in Canada. But at least my eyes have been opened to stock picking possibilities, even though I highly question whether anyone (including me) has the stamina to stick to a steady methodology for decades. It's a lot of work.

I have two different experimental strategies, both involving individual stock picking. One method in the DIVZ thread is a stock picking method focusing on low dividend paying, mostly small caps. High risk and potentially high reward! Up until recently I had flaws in that methodology but I recently iterated and think I have addressed those going forward.

The other method is grabbing the top weights from XIU, which has shown to me that (as humble, Argo and others have said) that some unbundling of XIU has definitely given superior performance, at least since 2000. I'm not convinced it will work forever, but it definitely works for now.

My US tax situation have definitely warmed me up to the idea of picking individual stocks. The only thing that made this palatable for me is achieving more even sector exposures. *My overall goal is to get TSX exposure and match (or beat) XIU performance, in a way compatible with US taxes.*



> I suspect this also may be misinterpreted but what "gripe with TSX index investing"?


I like XIU, XIC and ZCN a lot but my own "gripe" with investing with the index is the enormous financial sector exposure. XIU is 40% in financials... that's unacceptable. So I was talking about the issue I have with the TSX index: too heavy in certain sectors (finance & energy sometimes).

I still think XIU is a great way to invest in Canadian stocks, but I am bothered by its high financial exposure. Would I buy it personally? Yes absolutely, if taxes weren't a concern. In fact I may still buy XIU in my RRSP.


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## mark0f0 (Oct 1, 2016)

james4beach, does your methodology include the golds or not? Lots of Canadian managers are absolutely convinced that the way to outperformance has been to exclude them. And that works. Until one year it doesn't and fails in a spectacular way. 

As far as RY goes, just look at TD waving their magic wand today and extracting another 15bp from all of their adjustable rate mortgage customers. Magical, ain't it? I'd hate to be short the banks when they have the ability to pretty much arbitrarily change the rules as they go.


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## james4beach (Nov 15, 2012)

mark0f0 said:


> james4beach, does your methodology include the golds or not? Lots of Canadian managers are absolutely convinced that the way to outperformance has been to exclude them.


My DIVZ (small cap) methodology does, yes. It's a momentum following approach that will fully benefit from whatever sectors are hottest -- even gold miners, oil juniors, etc.

My sampling-XIU methodology does not. This one matches the main stream fund manager approach, and popular theme here at CMF, to avoid miners and only stick to big old boring large caps. This strategy has been in vogue since 2000. As you say, this one will work until it doesn't. One day the commodity bull will spark again and miners/commodities will beat the pants off all the boring old large caps.

Personally I like the idea of mixing these two strategies. I'll give them each a few years and see how I feel about them in 2020.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> Eclectic12 said:
> 
> 
> > I'm sure this could be misunderstood as baiting or taunting instead of the way it is meant.
> ...


Not your text ... I was worried that my pointing out that without the US forcing it on you, likely you'd have kept happily buying the TSX index would be seen as baiting or taunting.

Or my "what gripe?" comment could be taken as something else instead of keeping the "over leveraged investments are to be avoided like the plague, indexes that include significant amounts of the over leveraged invests are good" contrast in mind. 




james4beach said:


> ... I still love the TSX index as the best zero-effort way to invest in Canada. But at least my eyes have been opened to stock picking possibilities ... *My overall goal is to get TSX exposure and match (or beat) XIU performance, in a way compatible with US taxes.* ...


Whereas I'm trying to figure out why in the time frame XIU was down 37%, my equity was down 11% and my FMV for my RRSP was up 3.6%. I have to check but I suspect my dividend paying equity at that stage was in the 90% of total equity investments.

It seems without trying too hard I managed to avoid the worst of the drop off.




james4beach said:


> ... I like XIU, XIC and ZCN a lot but my own "gripe" with investing with the index is the enormous financial sector exposure. XIU is 40% in financials... that's unacceptable. So I was talking about the issue I have with the TSX index: too heavy in certain sectors (finance & energy sometimes) ... Would I buy it personally? Yes absolutely, if taxes weren't a concern. In fact I may still buy XIU in my RRSP.


If you won't touch the over leveraged individual stocks *at all* as stated in other threads, it is really a "gripe" if you happily would buy the 40% exposure index, where you can?

Or maybe it's just the use of "gripe" I am used to seems to be a lot different than this use?


Cheers


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