Marcap

Go Long on Canadian Insurance, Short on Banks - Dundee Capital

Shorting Canadian banks in my opinion, is an excellent move as they are now extremely overpriced.

True, Canadian banks do not have the same risk exposure in some areas such a mortgages and business/personal loans, as do many of their American counterparts. But this is due primarily to a stricter lending policy in Canada for mortgages and other loan financing.

Unfortunately, the same cannot be said for the extending of credit card debt. On the contrary, the fact of the matter is that like in the USA, Canadian banks are very highly extended in credit card financing, much of it to those who in reality did not even remotely qualify for the extremely high limits they were given. Once that sector of the market falls, which it will, the poop will surely hit the fan in both Canada and the USA alike, the result of which will not be very pleasant.

Dennis Gartman: Next Great Trade Is Canadian Banks

"He noted that Canada’s Big Six banks (Royal, TD, CIBC, BMO, Scotia and National) have nowhere near the levels of toxic waste on their balance sheets, nor shall they."

I would not be so sure about that. From what I can tell, some Canadian banks are just a guilty as their US counterparts when it come to inaccurate Balance Sheet reporting.

Here are some examples:

TD - $15.8B in Goodwill and Other Intangibles

Royal Bank - $9.1B in Goodwill and Other Intangibles

CIBC - $2.1B in Goodwill and Other Intangibles

Scotiabank - $2.1B in Goodwill and Other Intangibles

BMO - $1.5B in Goodwill and Other Intangibles

Now while this total Balance Sheet fluff amounts to just over $30.6B, considering that Canada has only approximately 11% of the population of the USA (33 million vs 301 million), this $30.6B would be the equivalent of $278.2B in the USA, if looked at from a per capital basis.

As for actual toxic assets, such as the realization of bad mortgages, loans, credit card debts, and so on, I think that Canada does lag behind the USA somewhat in that respect. Considering that many companies in Canada do have US Parents, it sometimes takes a while before company closures and downsizing in the USA have an impact on their Canadian counterparts, resulting in layoffs, etc. In short, what happens in the US more often than not, does eventually trickle down into Canada. Albeit Canada has far more Natural resources than does the USA, but natural resources alone do not sustain growth...only manufacturing does. But unfortunately both Countries lack considerably in that area.