the markets today

Okay, my faithful readers.  I am going to go on one of my financial jags, so if that’s not for you, don’t bother reading any further.

For the rest of you...

Holy Smokes!  The stock markets around the world got whacked today, which does not bode well for the US market tomorrow.  These are a few of the headlines that greeted me today.  “Stocks in Europe put in their largest one day decline since Sept. 11, 2001.” “US recession fears sparks deep selling throughout Asia.” Bank of China $8 billion write off.”

And then there is a real intriguing headline “How a French Bankers Comments Derailed Global Stock Markets.” The real interesting thing about this article is it is the only one I can’t read!  Every time (and believe me, I’ve been trying all day) to read it, I get booted off, not just the article but the Internet as well.  There have been several articles with a similar theme in the title, but anything that has to do with this subject boots me off.  I can’t get more than a sentence in before this happens.  And it is only with this subject matter.  Everything else is fine.  Almost makes me think that it’s on purpose.  Someone is doing damage control, saw that whatever this guy said had a huge effect on the global markets and so they made it impossible for us poor folks in North America to access it. 

Oh, I just looked up and saw that it is 1p.m.  I’ll be right back.  I want to see what the Toronto Stock Exchange closed at. 

I’m back.  The final closing numbers aren’t up on my screen yet, but right now it says -597.05.  Which is a drop of -4.69%.  Huge.  Add that to the -6.6% drop of last week and it is not a pretty picture. 

What is really interesting me, is that generally when the stock markets are lower, the “safe haven” investments (i.e. gold) usually rises in price.  But that hasn’t been happening in the last few days.  Gold has been whacked as well.  Now, one could argue that gold has been having a meteoric rise and in order to be strong, needs to rest for a while.  Back up and fill, consolidate the ridiculously exuberant upsurge before it continues it’s rise.  But, maybe not. 

Banks around the world have been hit big time.  They have suffered huge losses due to the sub-prime and credit challenges. 

Now, it is my understanding that the Canadian banks are a very different creature than the US banks.  That they are more tightly regulated.  That there is some exposure to the sub-prime mess, but not to the extent of some of the US banks.  Not only that, but we don’t have the multitude of banks that the US has.  There are five major banks and one mini-major bank.  That’s it.  None of these banks have ever even come close to going under, not even during the Great Depression in 1929-1934.  Not only that, but don’t you think that even if there was a huge disaster, that it would be unthinkable that the Canadian Government wouldn’t bail them out.  There is only five of them.  How could a country run without banks.  I think the Government would have to. 

So, here’s my question.  Has anybody noticed what these Canadian banks are selling for?  Price/earnings in the 11’s.  Dividend yields of 4.26-5.42% The only exception in Toronto Dominion which has a P/E of 11.33 and a yield of 3.68%.  (I heard from a pretty reliable source, that the TD has repeatedly stated that they have absolutely no exposure to the sub-prime market.  But you’d want to verify that for yourself) Now if you add in the fact that we pay a much lower tax for dividend income, I don’t know.  It’s something to think about. 

Do I think this is the end of the stock market slide?  No.  Do I have a crystal ball that says that we should buy bank stocks?  No.  Am I watching the Canadian bank stocks and saying, hmm?  Yes.  Do I think the bank stocks might slide a lot further?  It’s very possible, almost to the point of probable.  I think they will slide a lot more, which is why dollar cost averaging could be a smart strategy.  Do I have any kind of financial degree what-so-ever?  Absolutely not!  I’m just telling you what’s on my mind. 

See how much fun I have when I’m not working on a manuscript.  That’s all for today. 

Posted by Meg Tilly on Monday, January 21, 2008 in Chewing the Fat

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