The other sector that is completely out of favour with investors is Canadian Financials. The short interest ratio on Canadian banks was most recently at 9.2 days (short position in shares divided by the average daily trading volume of those shares). This is well above the current short position on U.S. bank shares at 1.4 days and even above the short position on U.S. bank stocks before the financial crisis in 2008, which got up to 2.9 days. Measured another way, 3.6% of the outstanding bank shares in Canada are sold short versus 1.2% in the U.S. Foreign investors believe that Canadian banks look like the U.S. banks just before the housing collapse. We don’t see anything nearly that dire and have been adding to our holding of Canadian bank stocks.

Lots of worries around lately and stocks are ‘taking it on the chin’ here in late June. While we don’t want to appear to be ‘perennial bulls’ on stocks, our view continues to be that global economic conditions continue to improve off the 2008 recession. Central banks in Europe, the U.S. and especially Japan are providing a superb interest rate and monetary backstop for financial assets. Corporate earnings are growing and cash levels are high while investors are still worried about everything from China to Europe to the U.S. Fed. This just looks like another good buying opportunity on weakness. While defensive stocks have dominated the gains over the past year, we believe that the cyclical and growth stocks are ready to retake the leadership position. Their valuations are at cycle lows and yet earnings are expanding. Always tough to buy in the face of weak markets, but no one rings the bell at the bottom.

1 2 3 4