Wednesday, September 12, 2007

Great minds think alike

It's rare that I find myself agreeing with Canada's major banks on very much, but I was certainly nodding my head more than usual as I read the story in this morning's Globe on what the heads of Canada's major banks think about the current market turmoil.

In a nutshell? Yes, the August swoon isn't pleasant for anyone, but it is probably necessary to shake out some of the bad bets people were making. When money is easy, there isn't adequate pricing of risk. Markets can't go up forever, and the current bull run will emerge stronger because of it.

But we're not out of the woods yet. "People haven't gone to confession yet," TD Bank head Ed Clark was quoted as saying. "Your gut is telling you there's a lot of stuff to come out in the marketplace." In other words, we haven't seen the worst yet because a lot of these credit problems haven't seen the light of day in quarterly reports yet. That's going to happen over the next 3-6 months.

Add it all up and I come to the conclusion that the market's going sideways for awhile. Fundamentals will inch it up, but every time some new company fesses up to bad debts, it'll sink down again. So I'm in no immediate rush to get money into the market any time soon, but I'm still very positive on the mid- to long-term outlook. I have not a shadow of doubt that the Canadian banks will by and large remain the profit-making machines they always have been, so if they keep stagnating for much longer, I might be tempted to scramble together some more money to put into them.

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