Juggling Dynamite

Canadian banks have been one of the most egregiously over-valued sectors on QE-hype the past couple of years. Their much overdue price correction is now gaining momentum. Sadly, Canadian investors have never been more overweight both in individual stocks and mutual funds focused on financials, but also in broad market funds and ETFs that replicate the TSX index–today 37% concentrated in financials. Modest dividends of 3 to 5% will once more prove insufficient suave for the ravage of capital losses.

Terence Burnham, a finance professor at Chapman University, and author of the excellent book “Mean Markets and Lizard Brains” discusses banking risks, saying “The Fed’s instability is linked to both the emerging markets and Bank of America’s balance sheet.” Here is a direct video link.

Marc Faber thinks stocks will correct by 20 percent to 30 percent but said they will present good value only if they drop more like 40%. Here is a direct video link.