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(P&I) Finance Canada

January 20, 2014
Davos 2014 Courtesy: WEFLive

Davos 2014
Courtesy: WEFLive

Drama. Investors continue to crave for yield and have been pouring their money into the “financial cauldron” because there’s already a lot of money there, we guess. But the question is, Where is the “yield” to come from? How does “money beget money” if there’s no excess demand for it?

The economists at Davos have decided that a deflationary scenario in the large economies is unlikely but also expect that inflation will remain low because of low consumer demand for goods, low prices and excess supply for commodities and energy, and moderate global economic growth (Reuters, January 20, 2014, Deflation ‘ogre’ probably won’t come to life).

Western economies continue to pray for growth and profits in the 3rd world and the emerging economies because – it is obvious – there are a lot of people there and they don’t have anything (The Street, January 20, 2014, Borrowed Dollars Reported to Be Pouring Into China).

1789 French Revolution USA

1789 French Revolution USA – Cancelled

The usual outcome in the clash of craving and want is the declaration of revolution (France in 1789 and Europe in the 1840s and 100 years thereafter) or war (Reuters, January 16, 2014, Canada loses patience on Keystone XL, tells U.S. to decide).

There are, of course, no safe havens, but investors have flocked and landed on food, sin and money as the enduring or temporary home for their otherwise idle capital. Please see Exhibit 1 and 2 below.

Exhibit 1: Finance Canada – Fundamentals – January 2014

Finance Canada - Fundamentals - January 2014

Finance Canada – Fundamentals – January 2014

Exhibit 2: The Undervalued Canadian Banks & Insurance Companies – January 2014

The Undervalued Canadian Banks & Insurance Companies - January 2014

The Undervalued Canadian Banks & Insurance Companies – January 2014

The banks and insurance companies paid $19.2 billion in dividends last year for an aggregate yield of 3.6% and a return of earnings of nearly 50%.

They also gained $140 billion in market value last year for an return of +21% but that rate of growth has waned in recent months.

Nevertheless, all of them but one (Fairfax Financial) are currently trading in the Perpetual Bond™ and our estimate of the downside risk in the portfolio due to the demonstrated volatility is minus (8%). Please see Exhibit 3 below.

Good For Investment But Bad For Cash

Inflation Is Good For Investment But Bad For Cash

But, will there be a surprise? Rising inflation and global growth are good for investment but bad for money that is merely close to cash.

For cash to become money, it needs to buy risk and an investment is just and only the “purchase of risk”. But those who don’t know the price of it, that is, the price of risk, might soon learn the cost of it as they re-visit the time-worn and old-fashioned safe havens that are no longer there.

Exhibit 3: (B)(N) Finance Canada – Prices & Portfolio – January 2014

(B)(N) Finance Canada - Prices & Portfolio - January 2014

(B)(N) Finance Canada – Prices & Portfolio – January 2014

For more information on the chart elements and additional references to the theory, please see our Post, The RiskWerk Company Glossary.

And for more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in AmericaBig OilShopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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