Five very clear signs we were in a financial bubble. In addition, CIBC’s Benjamin Tal talks about the next move for markets and inflation

New York magazine published The clues you missed: 5 super clear signs we were in a financial bubble earlier this month, and although it was written with the tone of a definitive hoax, it does raise some interesting questions for Canadian investors.

It was the first sign of an impending bear market that we lost, according to the column, the curse of the stadium’s naming rights. Enron famously purchased the naming rights for the Houston Astros baseball stadium before the company’s massive fraud was exposed. The recent renaming of the Staples Center in Los Angeles to the Crypto.com Arena was supposed to serve as a warning that cryptocurrencies are going to drop in gear.

The multi-million dollar non-fungible tokens (NFTs) from the Bored Monkey Yacht Club were another sign that things were spiraling out of control in terms of monetary conditions and general asset prices. The entertaining and fierce trading of meme stocks like AMC Entertainment and GameStop has provided further indications that there is a lot of money chasing too few assets.

Special Purpose Acquisition Companies (SPACs), the fourth evidence cited by New York Magazine, didn’t make much sense, but it raised hundreds of millions of dollars before many of them went off. Finally, the capitulation of prominent market pessimists such as short seller Jim Chanos was the fifth evidence that a bear market is imminent.

These stories are fun to read and it’s easy for investors to beat themselves up about the “I should have seen it coming” way. However, the key point is that signs of a market top appear only in hindsight – they can build up for a long time before asset prices correct lower.

For example, the technology IPO craze in the late 1990s lasted for years, in which investors could buy newly issued shares in the morning and sell them at 3:30 the same day for a big profit. Making money has never been so easy, and it was clear that the boom could not last forever.

Likewise, the local housing market has provided signals after signals that there are bid wars in the market in particular, but also affordability ratios well beyond what most Canadians can pay.

When the housing market enters an extended period of major price drops, there will be no shortage of similar articles in New York Magazine that point out how pronounced the correction is. But the truth is, no one knows when that will be.

— Scott Barlow, Market Strategist, Globe and Mail

This is the Globe Investor newsletter, published three times each week. If someone forwards this email newsletter to you or you are reading it on the web, you can sign up for our newsletter and others on our website Newsletter subscription page.

rundown

Higher rates but less inflation scare: What CIBC’s Benjamin Tal expects for stocks, home prices and the economy

Rising fears of a recession have gripped stock markets, with the S&P/TSX composite now firmly in correction territory. The Globe and Mail recently spoke with Benjamin Tal, deputy chief economist at CIBC Capital Markets, who shared his views on the risks of economic downturns, monetary policy and the implications for the housing market. Mr. Tal also made some suggestions about stocks that could do well in this challenging environment.

Rising expectations of an economic recession in the US may spell more trouble for stocks

The Federal Reserve’s aggressive monetary policy tendency has prompted some of the biggest banks on Wall Street to ramp up expectations of an economic recession in the United States, threatening further declines in an already battered stock market.

See also:

Friday’s Russell rebalancing could increase volatility in a nervous stock market

US bond outlook improves as recession risks rise: Pimco

Retired and looking to GICs? Why you should take a look at what insurance companies offer

Looking for refundable GICs at affordable prices? GICs offer this insurance company, and some additional features that are of particular interest to retirees. Rob Carrick takes a look at these little-known products.

Pipelines have performed better than most during the market downturn. Here are three to consider

Almost all stocks are falling in a bear market, but pipeline companies are doing better than most. The reason is twofold. For starters, global demand for oil and natural gas is keeping their lines full and their pumps running at full capacity. There is no indication that this will end soon, even as talk of a recession grows. Secondly, the high profits paid by these companies provide attractive returns that help to set a floor for their prices. Gordon Pape takes a look at three pipeline companies he has recommended.

Why Calling the Bottom of Bitcoin or Any Cryptocurrency Is So Misleading

Bitcoin and ether, the two most popular cryptocurrencies, have been in waves since November, and each time a new inflation comes, believers swear this will set the floor. These can be reassuring words for anyone trying to understand the economic downturn, especially for inexperienced retail investors. But the fact that it is almost impossible to describe the bottom. Tim Kiladze writes that anyone who suggests creating a floor is marketing streaks rather than any real analysis.

See also:

The latest Crypto crash leaves retail investors baffled and bruised

Crypto Lenders Facing DeFi Defeat

An Inverted World of “Reverse Currency Wars” is real

Financial firms, such as Goldman Sachs, have warned for months that protracted “currency wars” – as countries struggle to prevent a weak US dollar and overvalued local currencies from hobbling exports – could turn upside down, with frightening consequences. They have dubbed this policy area “reverse currency wars,” and appreciate the re-emergence of inflation, and that the Fed’s hawkish strength and the dollar will force governments and central banks to rethink the direction of the exchange rate and race to keep pace. There are signs that this is happening now, a very disturbing prospect for global markets, with lower equities, flatter bond yield curves and heavy pressure on vulnerable financial conditions. Reuters’ Mike Dolan explains.

Other (for subscribers)

Number Breaker: Ten TSX Energy Stocks With Strong Price Momentum

Wednesday Insider Report: Trustee Invests Nearly $500,000 in This REIT With Expected Return Over 40%

Tuesday Insider Report: Major institutional contributor invests $15 million in this weak stock

Analysts promotions and downgrades on Wednesday

Analysts promotions and downgrades on Tuesday

globe advisor

ESG opposition, greenwashing allegations have ‘some legitimacy’, but it will help improve transparency

Are you a financial advisor? Register with Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, coverage and in-depth industry analysis and access to ProStation – a powerful tool to help you manage your clients’ portfolios.

Ask Globe Investor

A question: I’m considering selling some shares in my tax-deductible savings account to save money to help pay for renewal. I realize it’s not the perfect time to sell, so what’s a good technique? My TFSA owns a mix of ETFs, REITs, and individual stocks. I take a buy and hold approach, so I tend to stick to my stocks that have losses (eg Air Canada) and sell stocks that have gained (eg TD). ideas?

Answer: Whether the stock shows an unrealized gain or loss in your account should not be a factor in your decision. Just because Air Canada (AC)’s price has fallen since your purchase doesn’t mean it will outperform Toronto-Dominion Bank (TD) in the future, and TD’s positive return doesn’t make it likely to outperform Air Canada. You also don’t need to consider capital gains — or capital losses — when deciding which stock to sell, because there are no taxes in a TFSA account.

The only thing that matters now is your forecast of the future performance of each stock.

Airlines are notorious for volatility. They incur a lot of debt, operate in a highly competitive market, and face a range of risks including unexpected fuel prices, economic stagnation and health-related travel restrictions. Air Canada stock prices skyrocketed in the years leading up to the pandemic, but are now back to where they were in 2017. Will they take off again? hit me.

Banks are a much more stable business, particularly in Canada where the five largest financial institutions have their fingers in everything from personal and business lending to wealth management, investment banking, and insurance. Banks are also paying dividends which have risen steadily over the years. Including dividends, TD has reported a total annual return of 12.5 percent for the past 20 years.

Past performance is not a guarantee of future results. But TD and the rest of the big banks have been making profits and growing profits for far too long. I know which stock to stick with, but it’s your call.

– John Heinzel

What’s new in the coming days

David Berman explains why energy stocks now face political risks as politicians grapple with rising inflation and rising gas prices.

Click here to view the Globe Investor earnings report and economic news.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter Tweet embed

You may also be interested in our market update or Carrick on Money newsletters. Explore them on our website Newsletter subscription page.

Compiled by staff at The Globe Investor

Leave a Comment