A Comment -- General Comments From an Expert (A Commentary)

Prospects have brightened a lot since the Russian war. Countries that were shutting down nuclear plants are now changing their minds and considering nuclear a clean source of energy. She's still researching this space to settle on a name.

Canada in good shape financially from banking perspective (no small regional banks). 
Confidence in Canadian banks is justified.
Believes UBS/Credit Suisse merger - while stabilizing - was forced by market conditions (not ideal scenario).
"Too big too fail" even more prevalent with merger. 
Structural problem of lower interest rates in Europe the main cause of bank fragility. 


 

Advantage of DIY Investor: Time horizon clarity. Time horizons are an important factor when creating a financial plan, and are relatively simple for the individual investor; are you planning for a twenty-year retirement? Thirty? Forty? It is not so simple for professional investors. Are investment decisions made based on quarterly performance reviews? Annual fee targets? The three-year minimum assessment window for professional fund managers? Conflicting time horizons compromises good decision making. All of us are susceptible to short-term thinking, but professional investors are especially vulnerable. 

With the recent banking turmoil he hasn't made any changes to their portfolios. Their investments are for the long term. There is no soft or easy landing since there are too many variables at play in the economy. The Fed raises interest rates until things get broken and things are now pretty much broken in terms of confidence in the global economy. Therefore there may be one more interest rate increase followed by time to consider the effects. Then they may take action if things worsen. Yes there is a loss of confidence in the banking system but SVB was a disaster to begin with and Credit Suisse hasn't been in good shape since the financial crisis of 2008. The Feds and Central Banks took action on the weekend to add liquidity. They won't let the banking system fail but there are issues. Canadians don't need to worry about their banking system.

The economy in North America is still growing. Read the Trillion Dollar Triage. The bottom line is that the Fed has a dual mandate: take care of the economy and fight inflation. It is now pretty clear that the economy is slowing and inflation could come off a lot since interest rates went from 0 to 5% very quickly. The Fed cares about banking stocks but not much about the stock market overall.

The question was on Canadian banks. TD and Royal Bank have more exposure to the U.S. and may be able to buy up some regional banks. He prefers National Bank which is insulated from the present issues. Banks don't pay enough for deposits so people tend to look for other products elsewhere. He prefers Canadian banks over the U.S. ones.

The question was on covered calls. He doesn't deal with them since they could hurt the upside potential of a stock. You should fully understand what they are before getting into them. If you like a certain company, buy the stock.

Yes, valuations are high, but he owns Apple, MSFT, Google and Meta because they have catalysts to grow, high cash flows and moats. That's why investors are chasing them in this low-growth, unstable market. You must be there, but watch valuations too.

There's decent risk/reward in bonds, in which she has been adding instead of large-cap stocks. That said, there are still opportunities in stocks, but wait till next week's Fed meeting. There could be a loss in consumption coming.

It's the disinflation formation: 2-year below 4%, commodities leading down as the Nasdaq outperforms the other indices. This week has cracked investor confidence. The reality is nobody is making money this year. The year started being long commodities and financials and those are not working. This will lead to less liquidity in the market, because investors will pull back their cash into there is clarity.

Worried about contagion from banking instability in the USA.
Unfortunate that investors reacting to fear.
Supports backstopping of banks to avoid major depression.
Confidence in banking system essential in order to avoid major pain in the economy. 
Believes regulation should apply to all banks - not specific banks over others. 
$30 billion investment into banking system is good as it signals commitment to supporting banking sector. 

Advantage of DIY Investor: Benchmark blindness. Comparing portfolio performance to a benchmark is one of the most popular ways to gauge the ability of a professional investor, but this practice carries significant behavioural risks. By focusing on short-term outcomes rather than a sound investing process, all kinds of behavioural errors come into play. Decisions are driven not by logic and evidence, but a myopic obsession with short-term comparisons. DIY investors need not be concerned with such benchmarks and are free to focus on process rather than outcomes. 

We have to have confidence in our institutions, our banks. If you don't, you can leave. Something's changed over the last 100 years. We've all seen photos of long lines at the banks during the Great Depression, as people lined up to withdraw their money. Today, in the digital age, we can do it with our phones. That's what we saw last week with SVB, billions of dollars of deposits were withdrawn because of a lack of confidence. Regulators have to address that. The problem of 2023 in banking is liquidity.

Perhaps some. There are 5,000 banks in the US, while there are 34 in Canada. It was not a mistake to buy the bonds, it was a thought-out decision. One side of their business had started to lapse, and the managers decided to take risk. Instead of acting like a bank, they acted like a very large hedge fund. Banks have a function in society, and SVB went beyond the role of a bank. The mismatch of going long on mortgages and short on deposits didn't work their way. Deposits overwhelmed the bonds they could get rid of, they had to take losses on their bond portfolio, which led to a capital raise, leading to an issue of confidence, possible credit rating issue, and then a run on deposits. Where were the regulators while SVB was acting as it did? See his blog at goodreid.com.