” Does the recent flattening of the yield curve portend recession? Not necessarily …on the other hand..” St. Louis Federal Reserve.
This month we discussed the repercussions of one bank failure in the United States. Banking is a con game, meaning it relies on the confidence of the depositors. If people lose confidence in one bank this can create a run and, as we saw with SVB, a bank closure. The US has literally thousands of small banks that could not withstand significant withdrawals. Canada on the other hand has a handful of large well capitalized banks. We all have 20/20 hindsight. I can tell you why a bank collapsed but I cannot forecast which one will be next or if there will be a next one. The government made sure they injected an equal dose of liquidity and confidence to the banking sector.
Have we changed our outlook? Yes and No. We still focus on companies that pay dividends that can withstand short term problems. I look back to March 2009 when the Bank of Montreal’s price declined to the point where its dividend yield was 10%. I purchased shares of BMO. I look at the Canadian banks and believe their earnings may decline due to provisions for weaker loans. I am starting to think the Canadian banks with yields approaching 6% are becoming attractive for investors that can handle near term volatility. I do not know when the markets will begin to rally but I think there are attractive investment opportunities available today.
