Financial Markets Meltdown

[Map Maker]

Originally Posted by raab

That’s what scares me about it. It’s not like this is some small company that no one has heard about. Undoubtedly big institutional investors are looking at it with the Market Cap of 2B. How much of a cut on spot rate are we talking about? Because from the cash flow I’m seeing they make their market cap in 6 months of operations. Something just seems off because it seems too good to be true. I just don’t know what it is.

I went thru it before and couldn’t find much wrong with it and gave it a true value of $18 ( but that was a year ago).
Ships depreciate, rates fluctuate.
But the main reason why the stock should not by touched is because it is highly manipulated by group of stock investors. It’s like one of those internet Robin Hood stocks. IMO.
Best day when I sold it and never looked at it again.

[fishtank]

How long can the us keep the rate up this time until it crash the market ?

[raab]

I thought this video from Munger and Buffett on the current banking crisis may interest some of you.

Kind of sad, as it seems like Buffett is not quite as sharp as he once was. Charlie hasn't changed in 20 years. Incredible that they're both still around.

https://youtu.be/3y5aNVKVdew

[Dean2]

For a long time I have recommended ZWU for people that need monthly income in retirement. It paid out a high monthly dividend that was a combination of the underlying stocks dividends plus premiums earned from a covered call over lay. What you gave up for the high income was potential capital gains if you were in a rapidly rinsing market. However you also gained in a rapidly declining market. Properly done, covered calls should make money in any market though they will make more at some times than others.

For 2022 ZWU paid out 8 cents a month dividend, like it has for the past few years, showing just over an 8% yield. However, for 2022, almost exactly half of that payout was return of capital. That is them giving you back your own money. This means the effective yield is under 4%, and that means you are at best earning around the weighted average dividends paid out by the stocks the fund holds. Ergo, the covered call program and fees must be costing more than it is earning. This is not anywhere near on par with the performance this fund was built on and means it may not be exactly what most are looking for.

The Return of Capital lowers your average cost base on the share, and this is calculated in Dec and applied by most brokerages in April or May. You should see the adjustment in the average cost per share reflected in your account. So long term it means you effectively increase the potential capital gains on your holdings.

If you are earning enough dividends outside a registered plan to take full advantage of the 50,000 near zero tax treatment on dividends, then the increased capital gains is not all bad as you only pay tax on 50% of the gain, and the return of capital is not taxable in the years you receive it. You do however have to look at whether you are holding this fund in a registered account like a LIF that is paying out a monthly, quarterly or annual payment, or is it in an RSP that the dividend is being reinvested, TFSA has considerations as well, or is it outside a registered plan and are you spending the dividend or reinvesting it.

These considerations apply to all funds using covered call strategies, for example ZWB, to increase yield.

Company Name Symbol % of Net Assets Dividend Yield % P/E
BMO Equal Weight Utilities ETF ZUT 5.54 -- --
Fortis Inc FTS 5.43 3.69 20.82
BCE Inc BCE 5.21 6.05 22.76
Pembina Pipeline Corp PPL 5.10 6.14 8.79
Enbridge Inc ENB 5.01 6.82 44.15
PPL Corp PPL 4.90 3.41 28.58
Duke Energy Corp DUK 4.86 4.17 18.91
Emera Inc EMA 4.77 4.70 13.90
TC Energy Corp TRP 4.63 6.64 34.86
Exelon Corp EXC 4.59 3.53 18.02
Portfolio Allocation Total Net Assets: $1.9B

$1.9B
Total Net Assets

[Jim Blake]

Thanks Dean, your insight into financial matters is much appreciated!!!

[KGB]

What do you say about Nvidia now Dean? Crazy run so far!

[Dean2]

Originally Posted by KGB

What do you say about Nvidia now Dean? Crazy run so far!

I say the same thing I said a month ago when it was at 270. It is now trading at nearly 180 PE ratio were as it was already way high when it was 113. So 180 years of income to cover the stock price.

[Dean2]

Originally Posted by Dean2

Hind sight is perfect. Over the years there are a ton of stocks I have mijssed out on. Never made any money in Crypto, Shopify, Bombardier, Air Canada, Blackberry, Cannabis stocks and a raft of others, but I have also never lost any money on those stocks either.

In this case Nividia did great and went up double, however its large competitor Intel, went from $70 to $29 in the same period so dropped in half. I am not good enough to tell which chip maker will be the winner in any given year so I don't buy Chip stocks.

Like I have said before, you can get rich investing, but not by swinging at the fences and gambling on 10 baggers. I NEVER buy stocks that pay no dividend, stocks that trade at high P/E ratios, Nividia trades at a PE of 113, which means it takes 113 years of their earnings to match this stock price, or after 20 years still make no money, like Shopify, are not in stable industries that have good long term viability, and the Tech world is constantly being upended by innovations. I also don't buy companies with Byzantine structures like the Brookfield Group of Companie or any industry that I cannot completely understand.

Nividia
Previous Close 271.91
Open 270.31
Bid 267.70 x 1400
Ask 267.71 x 800
Day's Range 263.55 - 271.67
52 Week Range 108.13 - 289.46
Volume 45,541,407
Avg. Volume 50,297,757
Market Cap 667.333B
Beta (5Y Monthly) 1.76
PE Ratio (TTM) 113.95
EPS (TTM) 2.35
Earnings Date May 24, 2023
Forward Dividend & Yield 0.16 (0.06%)
Ex-Dividend Date Mar 07, 2023
1y Target Est 267.83.

I stick to Banks, Utilities, Pipelines, Communication etc. They are dominated by large companies, they are Oligopolies, well run, long track records and pay significant dividends at least quarterly. It takes a long time for the share price to double, but earning 7 to 4% dividend means even if the share price never moves and the dividend stays flat, I double my money every 10 to 18 years. That said, all of these companies increase the dividend annually so it doesn't actually take 7 to 18 years to double your money just through the dividends and share usually..

I would love the have a crystal ball, but since I don't I have to stick to the slow but safe way to invest.

This is what I said a month or so back, Mar 25, 2023, just for reference.

[Dean2]

https://bilello.blog/2023/the-week-in-charts-5-20-23

KGB. Have a read through this weeks blog. A lot in there on Nividia.
If you read the actual link there are a bunch of graphs you will find interesting.
Here are the 10 highest Price to Sales Ratios in Nasdaq 100 today…

NVIDIA $NVDA: 29x

Lucid $LCID: 18x

Intuitive Surgical $ISRG: 18x

Seagen $SGEN: 17x

DexCom $DXCM: 16x

Datadog $DDOG: 16x

Cadence $CDNS: 16x

CrowdStrike $CRWD: 15x

Verisk $VRSK: 15x

CoStar $CSGP: 14x

The expectations for all of these companies are high, but nothing compares to euphoria surrounding NVIDIA and the anticipated AI boom.

At 29x sales and 182 earnings investors have not been this optimistic on its future prospects since 2000.

What happened after that?

NVIDIA stock declined over 90% and was lower 14 years later…

Will the exact same thing happen today?

No – every time is different. But when investor expectations are this high, it becomes increasingly difficult for a company to “grow into” that high valuation with an increase in sales and profits. More often than not, reality does not meet the lofty expectations, and we see a reversion to the mean in terms of the multiple and stock performance.

NVIDIA has been the best performing stock in the S&P 500 over the last 10 years, up over 8,000%. But the odds of a repeat performance in the next 10 years are essentially 0, with NVIDIA’s market cap now at $773 billion (5th largest company in the S&P 500). An 8,000% gain from here would mean that its market cap would grow to over $61 trillion (all of the S&P 500 companies combined currently have a market cap of $37 trillion).

[IronNoggin]

Bank of Canada says mortgage payments could spike as much as 40 per cent

The Bank of Canada estimates that mortgage borrowers who renew their loans over the next few years will see a spike of 20 per cent to 40 per cent in their monthly payments.

So far, the bulk of borrowers have not felt the sting of higher interest rates because their mortgages have fixed monthly payments. But the bank said that by 2026, nearly all borrowers have to renew their mortgages, resulting in higher payments.

“In light of higher borrowing costs, the Bank of Canada is more concerned than it was last year about the ability of households to service their debt,” the central bank said in its annual Financial System Review. “More households are expected to face financial pressure in coming years as their mortgages are renewed.”

When these borrowers renew their loans, they will be required to revert to their original amortization schedule unless they refinance and take out a new mortgage. If they keep their original amortization period at renewal, their payments will have to increase by 40 per cent, according to the central bank’s calculations.

https://www.theglobeandmail.com/busi...gage-payments/

[Jim]

Originally Posted by IronNoggin

Bank of Canada says mortgage payments could spike as much as 40 per cent

The Bank of Canada estimates that mortgage borrowers who renew their loans over the next few years will see a spike of 20 per cent to 40 per cent in their monthly payments.

So far, the bulk of borrowers have not felt the sting of higher interest rates because their mortgages have fixed monthly payments. But the bank said that by 2026, nearly all borrowers have to renew their mortgages, resulting in higher payments.

“In light of higher borrowing costs, the Bank of Canada is more concerned than it was last year about the ability of households to service their debt,” the central bank said in its annual Financial System Review. “More households are expected to face financial pressure in coming years as their mortgages are renewed.”

When these borrowers renew their loans, they will be required to revert to their original amortization schedule unless they refinance and take out a new mortgage. If they keep their original amortization period at renewal, their payments will have to increase by 40 per cent, according to the central bank’s calculations.

https://www.theglobeandmail.com/busi...gage-payments/

Should start to see the toys come up for sale on Kijiji when this happens, getting ready to low ball these people

[KGB]

Dean, I agree with your analyzes of the situation with Nvidia. It is a hype and it’s all about the hype around AI. But I bet you that it will go higher disregarding all historical data and valuations. I would say that we will see the stock at $500 per share in a few months…
Well here is my problem: my gut tells me it will be at $500 but my brain tells me to stay a hell away of it…
The second and the most important question is- how long this momentum gonna last?

[Dean2]

You raise a very good point about the large jump in payments many will suffer on renewal. Extending the amortization to keep payments down works, but is a really unattractive option unless there is just no other choices and for some, payments will almost double. For those folks, selling or extending the amortization may be the only options.

If I had a mortgage coming up for renewal in the next 6 months, I would already be working with my existing bank, and an independent Mortgage Broker on the options available to me. The more you know, the better your chances of coming out alright.

500,000 at 1.5% with 15 years remaining, payment, $3,104, at 6% $4,220. At 25 years 1.5% $1,997, at 6% $3,222. Then you have to add heat, water, power and property taxes.

I wrote this back in April, hopefully it helps some folks.

Originally Posted by Dean2

I was perhaps a little too black and white in my previous statement, let me qualify it a little. Depends on what rate I could negotiate with the bank or using a broker. You can check the link below for indication rates but I would also be looking at talking to a broker to shop the renewal around for the very best deal. You can transfer a mortgage at renewal for zero cost, and in many cases Lenders are paying a bonus for moving a mortgage to them.

Things are kind of wonky right now because the yield curve is so heavily inverted. Rates offered clearly tell us the Lenders expect rates to be lower 2, 3 and 4 years out, the whole game is, exactly when the rates will actually start to drop. Right now, the lowest posted variable rate mortgages are priced higher than the 2, 3 and 4 year fixed. You can get a 3 year closed fixed, 4.64%, for 1.5% less than the current best posted 3 year closed variable rate, 6.15%. Even the 2 year fixed are about 5.09%. While I don't expect rates to go up much more, maybe another .5% depending on what inflation does over the next 6 months, I also don't expect them to be coming down anytime soon either. It doesn't make a lot of sense to pay a higher rate on a variable mortgage that is closed, when you are taking all the risk.

I would not take a 3 year closed variable rate unless I could get it to within a 1/2% of the best 3 year fixed close rate I could negotiate. I also would not take a variable unless I could convert it to fixed rate at any time with NO penalty. The no penalty conversion to fixed used to be a feature of every variable rate mortgage but you have to watch real close, and make sure you ask, as many lenders have quietly removed that option from their closed variable rate mortgages and many have stopped offering open variable rate mortgages that allow you to convert or pay them out at any time without penalty.

The variety of incentives, rates and terms is one very good reason to work with a broker, or at least talk to one. You pay a lot of money over the life of a mortgage, it is well worth your time to check out what the Lenders are offering and to negotiate hard for the very best deal you can find. Hope this additional information is of help for those renewing or taking out a new mortgage.

https://www.ratehub.ca/best-mortgage-rates

This is on the current RBC website. Other lenders will be offering the same deals.


Switching your mortgage couldn’t be easier.

We make it as easy as possible to switch your mortgage to RBC. We’ll take care of everything for you – from contacting your current lender to managing the paperwork to covering up to $1,100 in switch fees. Move your mortgage today and experience the RBC difference.
Switch Fees Covered by RBClegal disclaimer 4

Whenever you switch your mortgage, there are switching fees to consider. At RBC, we value your business, which is why we cover up to $1,100 in switching fees.

We cover a value of:

Up to $300 in processing fees based on a current home evaluation
Up to $300 in discharge fees charged by your previous lender
Up to $500 in title insurance fees

These are typical fees paid for all switches. If you switch before your term expires you may incur additional prepayment fees charged by your previous lender.
Plus for a limited time.

For a limited time offer, enjoy a cash bonus of up to $3,500 and 55,000 Avion points when you switch your mortgage to RBC between February 15th and June 30th, 2023.
Responsive Table
Value of the Eligible Mortgage You're switching Cash Deposited in Your RBC Bank Accountlegal disclaimer 1
$300,000 – $499,999.99 $500
$500,000 – $749,999.99 $1,000
$750,000 – $999,999.99 $2,500
$1,000,000+ $3,500

This is the current ATB Cash Back offer

Get up to $4,000* cash back with an ATB mortgage
Start your pre-approval today to lock in your cash back.
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On a mortgage loan amount of $200,000 to $299,999


TD Still offers variable Open mortgages. As you can see, they are more expensive than the variable closed, but you can usually negotiate on the posted rate by at least .5%. To be fair to TD, CIBC offers the same open variable rate mortgage but theirs is currently priced at 10% or Prime +3.2%. That is NOT a good deal ever when you can get a Heloc at Prime most everywhere else.


Get a low variable rate that changes when TD Mortgage Prime Rate changes.

TD Mortgage Prime Rate is 6.85%

Open mortgage: a mortgage which can be prepaid at any time, without requiring the payment of additional fees.

This mortgage has set payments, like all mortgages, but you are free to increase them by any amount, at any time. Of course, if you increase the amount you pay, you’ll save money on overall interest.

With a variable rate mortgage, the interest rate can fluctuate along with any changes in our TD Mortgage Prime Rate. Your principal and interest payment will stay the same for the term, but if the TD Mortgage Prime Rate goes down, more of your payment will go towards the principal. If the TD Mortgage Prime Rate goes up, more will go towards interest. If your interest rate increases so that the monthly payment does not cover the interest amount, you will be required to adjust your payments, make a prepayment, or pay off the balance of the mortgage.

You can also lock in your interest rate by converting to any fixed rate mortgage at any time. Your regular payments will remain the same.

Payment options:

Once a year, you may increase a payment by any amount, without charge.

You can make full or partial prepayments on any date. Full prepayment is subject to an administration fee according to the year of discharge:
In Year 1 = $500
In Year 2 = $250
In Year 3-5 = $0

[eric2381]

We could say that your “gut” is your emotions. And your “brain” is your logical thought. I would listen to my brain and logical thought before I listened to my gut and my emotions. Always manage your risk.

[big zeke]

Originally Posted by eric2381

We could say that your “gut” is your emotions. And your “brain” is your logical thought. I would listen to my brain and logical thought before I listened to my gut and my emotions. Always manage your risk.

I really knew little about Nvidia when my investment guy brought it up a year or more ago. I now have taken back all of my initial money and am playing with the house money. I can't tell when this will crash but eventually common sense gets reintroduced. I am no good at guessing timing as these things can fall fast.

I'm happy with them right now, still not clear on why they are so hot.

[eric2381]

If you’ve made great money already, and you aren’t sure how high it will go and you obviously cashed out some to minimize your risk, I know what I would be doing if it was me.

[KGB]

Originally Posted by eric2381

We could say that your “gut” is your emotions. And your “brain” is your logical thought. I would listen to my brain and logical thought before I listened to my gut and my emotions. Always manage your risk.

Lol sure, but sometimes you have to go with your gut to get the glory. Those who dont risk don’t drink the champagne….
I have done both in the past. But you are absolutely right about managing the risks.

[eric2381]

You’ve got your methods and I’ve got mine.

[Dean2]

In case someone is interested, TD and RBC report their earnings today, loan loss provisions will be up so earnings will be down from that and the surtax. If they follow the usual pattern, which happens whether earnings beat the same quarter last year or not, their share price will take big hit today and then recover most of that tomorrow and the following week.

[Trochu]

Originally Posted by Dean2

In case someone is interested, TD and RBC report their earnings today, loan loss provisions will be up so earnings will be down from that and the surtax. If they follow the usual pattern, which happens whether earnings beat the same quarter last year or not, their share price will take big hit today and then recover most of that tomorrow and the following week.

TD is down over 3% already today...

[S.C.W.]

Thank-you for the heads up Dean !

[Dean2]

Originally Posted by Trochu

TD is down over 3% already today...

Yep, pattern is playing out, RY down just over 3% too. BNS and BMO got spanked hard yesterday, but neither is on my buy and hold list.

With respect to BNS, unfortunately, its performance over longer periods continues to significantly under perform. Maybe this new CEO will get it turned around but so far, not seeing many moves that say big changes are happening. TD and RY announced results today, between higher loan losses and the surtax, earnings at both are down. I am very surprised the analysts have underestimated loan losses by so much at all of the Banks given how conservative Canadian Banks are and their long history of over provisioning, on the front end of any trouble on the horizon. Despite the drops all of the Banks are announcing dividend increases so you know they don't see this as a long term issue.

Link to the full RBC results. I just got done going through it in detail. Despite the short forms you read in most of the press, the results are really quite good, strong ROE, capital ratios above required, good production across all of the lines of business etc.

https://stockhouse.com/news/press-re...r-2023-results

Exec Summary

All amounts are in Canadian dollars and are based on financial statements presented in compliance with International Accounting Standard 34 Interim Financial Reporting, unless otherwise noted. Our Q2 2023 Report to Shareholders and Supplementary Financial Information are available at: http://www.rbc.com/investorrelations.

Net Income
$3.6 Billion
Down 14% YoY


Diluted EPS1
$2.58
Down 13% YoY


Total PCL2
$600 Million
PCL on loans ratio3
up 5 bps4 QoQ


ROE5
14.4%
Down from 18.4%
last year


CET1 Ratio6
13.7%
Well above regulatory
requirements

Adjusted Net Income7
$3.8 Billion
Down 13% YoY



Adjusted Diluted EPS7
$2.65
Down 11% YoY


Total ACL8
$4.8 Billion
ACL on loans ratio9
up 3 bps QoQ


Adjusted ROE7
14.9%
Down from 18.6%
last year


LCR10
135%
Up from 130% last
quarter

TORONTO, May 25, 2023 /CNW/ - Royal Bank of Canada11 (TSX: RY) (NYSE: RY)) today reported net income of $3.6 billion for the quarter ended April 30, 2023, down $604 million or 14% from the prior year. Diluted EPS was $2.58, down 13% over the same period. Adjusted net income7 and adjusted EPS7 of $3.8 billion and $2.65 were down 13% and 11% from the prior year, respectively.

Results this quarter reflected higher provisions for credit losses, with a PCL on loans ratio of 30 bps, mainly attributable to provisions taken on performing loans in the current quarter, largely driven by unfavourable changes in our credit quality and macroeconomic outlook, as compared to releases in the prior year which reflected reduced uncertainty from the COVID-19 pandemic. The current quarter also reflected higher provisions on impaired loans.

Pre-provision, pre-tax earnings7 of $5 billion were up $54 million or 1% from a year ago, mainly reflecting higher net interest income driven by higher interest rates and strong loan growth in Canadian Banking and Wealth Management. Higher Corporate & Investment Banking revenue in Capital Markets also contributed to the increase. These factors were partially offset by higher expenses, mainly due to higher staff-related costs, including from headcount growth, as well as stock-based compensation. Higher professional fees (including technology investments) and higher discretionary costs to support strong client-driven growth also contributed to higher expenses.

Today we declared a quarterly dividend of $1.35 per share reflecting an increase of $0.03 or 2%.

Our balance sheet strength coupled with a robust capital position, with a CET1 ratio of 13.7%, supported solid volume growth and $1.8 billion in common share dividends. We have a strong average LCR of 135%. We also continue to operate with a prudent ACL ratio, which included $173 million of provisions taken on performing loans in the current quarter.

Compared to last quarter, net income was up 14% reflecting the impact of the Canada Recovery Dividend (CRD) and other tax related adjustments in the prior quarter. Adjusted net income7 was down 13% with lower results in Capital Markets, Personal & Commercial Banking, Wealth Management and Insurance.

[Jim Blake]

Thanks Dean!! Very much appreciated!!!

[Map Maker]

Nutrien is starting to look tempting.

[nelsonob1]

Originally Posted by Dean2

You raise a very good point about the large jump in payments many will suffer on renewal. Extending the amortization to keep payments down works, but is a really unattractive option unless there is just no other choices and for some, payments will almost double. For those folks, selling or extending the amortization may be the only options.

If I had a mortgage coming up for renewal in the next 6 months, I would already be working with my existing bank, and an independent Mortgage Broker on the options available to me. The more you know, the better your chances of coming out alright.

500,000 at 1.5% with 15 years remaining, payment, $3,104, at 6% $4,220. At 25 years 1.5% $1,997, at 6% $3,222. Then you have to add heat, water, power and property taxes.

I wrote this back in April, hopefully it helps some folks.

Wouldn't the difference between 1.5% and 6.0% be an extra 4.5% interest each year on $500,000 be circa $22,500 or about $2,000 more each month?

[KGB]

Originally Posted by eric2381

You’ve got your methods and I’ve got mine.

Nvidia jumped 25% today on the earning report… unfrigginbelievable! Should’ve gone with my gut feelings, lol!

[eric2381]

Could also go with your gut and pick your favourite lotto ticket number.

[eric2381]

An investor should never look back and think could’ve should’ve would’ve.

[Sledhead71]

Originally Posted by eric2381

An investor should never look back and think could’ve should’ve would’ve.

This is opposite of my views, I've learned from past "missed" opportunities to capitalize on future investment.

[Dean2]

Originally Posted by nelsonob1

Wouldn't the difference between 1.5% and 6.0% be an extra 4.5% interest each year on $500,000 be circa $22,500 or about $2,000 more each month?

You calculation is accurate, however you need to remember a mortgage is paid over 15 or 25 years in the example I used. So the balance decreases each month, thus the payment over 15 years does not go up the full amount of the first year interest increase. In the example I used, at a 15 year amortization and 6% interest rate with a payment of $4,220 the balance owing is 478,792 after 12 months. If you keep the same payment and drop the interest rate to 1.5% the balance owing is 456,571, for a difference of 22,221, which is very close to the 22,500 you calculated.

If the loan was paid back over 12 months you would see the payment at 6% be 43,033, versus 42,006, so again not the full 2,000 a month. If you were just paying interest, no principal, then you would see payments go up from 625/m to 2,500, for the difference of 1,875, which reflects the full interest rate increase and a static principal balance.

For those watching Bank earnings, BMO was trading at $118 prior to announcing earnings on the 24th. They dropped to $112 on the announcement, they gained some on the 25th and again today, trading back at 114.65. RBC and TD are in positive territory today after yesterdays large drops on their earnings announcements on the 25th. TD dropped the most of those 2, a bit over 4.5% from 81.30 to 77.60 now at 78.08. Royal went from 124 to 120 yesterday, back now to 122.50.