Pivot? (TWTW – August 23-27, 2021)

Pivot – Well, last week’s highlights included Quarterly reporting from Canada’s banks; the FED’s Jay Powell’s speech at Jackson Hole; and … sadly, military personnel deaths in Afganistan, against the backdrop of a Western withdrawal from the country that leaves that country, after 20 years of efforts to establish democratic institutions, possibly returning to the dark ages with the Taliban back in power. Sad, very sad.

Before a couple of highlights from the Canadian banks Q3 results, that word, Pivot, caught my attention over the week-end, as it has indeed, as suggested in this Globe and Mail article –

become very common place, in terms of describing what we all need to do – Adapt, Adjust, Recalibrate, or whatever else you want to call coping with a world undergoing rapid change on many levels. Never mind that when you watch the video clip that accompanies the article, you should get a chuckle … I know I did (including thinking that our current PM could well take Chandler’s place in the clip, if I were to attempt to describe where I think he is at with his “vanity” election call…

Yes, you know, the Federal elections scheduled for September 20, 2021, which were supposedly a slam dunk for the Federal Liberals, given how well they’d handled COVID-19. Not so fast, sunshine, seems to be what the response from Canadians so far is. At this point, I will only suggest that change might be a very good thing. I don’t know about you, but I am not personally a big fan of entitlement, lack of accountability, renewed lapses (at best, considering he was actually found guilty in what? 3 instances …) in ethics, and … well, whatever. What is it about needing a majority when already having succeeded in shutting down pretty much all debate on anything, and otherwise shutting down parliament when uncomfortable topics come up, respectively governing from the cottage for … over a year???

Anyways – back on track. Canadian bank earnings for Q3, 2021 beat expectations across the board:

Royal Bank of Canada => Click HERE!

Net Income: $4.3 Billion. Of note: significant PCL “releases”, as well as excess capital (highlighted in the release as “well above regulatory requirements”.

Toronto Dominion Bank => Click HERE!

Net earnings: $3.5 Billion. Of note: PCL also down sharply at TD. That, and oh, well, Tier 1 Capital is even higher than at Royal …

Bank of Montreal => Click HERE!

Net earnings: $2.3 Billion. Tier 1 Capital … very very close to RY’s (13.4%, vs 13.5%). PCL – directionally similar to both RY and TD aka: recoveries/releases.

Bank of Nova Scotia => click HERE!

Net earnings: $2.6 Billion. Of note: $3.2 Billion of additional capital relative to Q1, 2020. Capital ratio: 12.8%.

CIBC => click HERE!

Net earnings: $1.7 Billion. CET1 ratio: 12.3%

National Bank of Canada => click HERE!

Net earnings: $0.839 Billion. CET1 ratio: 12.2%. PCL – recoveries, and lower provisioning reflecting stronger economic backdrop.

Bottom line – from what I am seeing here, impressive ROE results across the board, and capital ratios supporting the next steps for banks, which is: raising dividends. That, alongside an economic recovery continuing to gain momentum (if not negatively impacted by Delta variant …) should allow bank stocks to continue to fare well, respectively partake in the reopening “trade”.

Ways to participate via ETFs? Many: ZEB; XFN (if looking for financials overall); and HCA (HCAL if looking for some leverage). Disclosure. I am long RY; TD; and HCAL.

At $15.24 Billion of profits for the quarter, if I were to annualize this ($61 Billion, let’s say … wow …), it would take a little over 3 years to buy up all of RY’s outstanding shares (RY’s market cap is $188.5 Billion according to Google Finance); respectively a tad over 6 months to gobble up National Bank (NA’s market cap is $33.5 Billion). Alternatively, the banks could buy themselves 1 Canadian Pacific Railways a year … (but ok, that’s without a control premium relative to CP’s current market cap …). The point being that anyway you slice it, we aren’t taking about peanuts …

Is it any wonder then, that on the political front, the Liberals came up with the idea of getting some additional income from the banks, in the form of a temporary tax of some $2.5 Billion? Probably not …

Market reaction? Well, gauging from ZEB’s performance week-over-week, – down less than 1%, market participants expected very strong results. Next up – will dividend increases bolster stock prices once press released?

The Pivot …

So by the sounds of it, Jackson Hole turned up to be a huge non event as far as any changes relative to what is currently expected, namely 1) Bond purchases will be curtailed between now and year-end 2) it will be a while until interest rates rise.

Interesting though, will be to see how markets behave, in between now and then, given many still have painful memories of the taper tantrum markets suffered in the context of an earlier FED support removal …

How will we “pivot” into higher rates potentially rising faster than desirable, should inflation not be as transitory as currently advertised?

How does a market, and indeed a global economy addicted to zero interest rates, pivot to rising rates? Can it? what is stall speed, or choke rate level? Will we find out? Or, will the economy just lose momentum after a strong rebound from COVID-19 induced lows in economic activity?

A world of disruption, innovation, and themes …

Canadians lack sufficient domestic exposure to: if you answered Financials, materials, and energy … that wasn’t the answer for our domestic stock market. Here, the answer is Healthcare, and Technology. For that matter, I can probably throw Clean Energy into the mix.

The point here is to highlight the fact that thanks to the participation of Brompton Funds; First Trust Portfolios Canada; and Harvest Portfolios, we were treated last week to VERY GOOD insights and content regarding several critical themes, in the context of “Thematic” ETFs Investing Summit 2021. The focus being on Healthcare, Technology, and Clean Energy – where in the case of the latter, “All Hands on Deck” is what is needed, as suggested by Ron Pernick, from CleanEdge.

Need to check in on some significant “themes”, respectively gain insights from Active Managers looking at Healthcare and Technology through a “thematic” lens? Tune in to the postviews we’ve recorded of last week’s 3X 1 1/2 hrs or so segments => Click HERE!

Disclosure: I am, have been, and will continue to be invested in several “thematic” ETFs, including exposure to all 3 of the above areas of Healthcare; Technology; and Clean Energy. And where I continue on occasion to look at diversification through a “historical” lens, I also believe that it is important not only to diversify based on the past and how things used to work in the past, but also with an eye toward the future. To that end, I have opted to incorporate both some AI and Robotics, as well as some Blockchain into my portfolio going forward.

Thank you for your participation and for sharing your thoughts and insights:

Laura Lau; Michael Clare, and Steve Allen, Brompton Funds. Thank you also to Chris Cullen, Head of ETFs at Brompton.

Karl Cheong; and Andrew Hull, First Trust Portfolios. Thank you also to Stephanie Petsis, Business Development Manager, FT Canada. Also, thank you Ron Pernick; MD; CleanEdge 🙂


Michael Kovacs; Paul MacDonald; David Wysocki; and Mike Dragosits; Harvest Portfolios. Thank you also to Caroline Grimont, VP, Marketing, Harvest Portfolios.

Have a great week! Enjoy Summer, while we can be outdoors … which hopefully will remain the case, 4th wave or not!