Can Canada’s Big Banks Survive a Coronavirus Recession?

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One of the sharpest and swiftest economic downturns witnessed in modern times is bearing down on Canada’s banks. The market has punished the Big Six banks after the coronavirus pandemic triggered a meltdown. Fears of a deep recession, which some economists believe could dwarf the 2008 Great Recession, is weighing heavily on banks. The Big Six have already experienced a sharp decline in their market value. Canada’s largest lender, Royal Bank of Canada (TSX:RY)(NYSE:RY), has suffered the least, losing 17% for the year to date.

A deep recession is looming

A looming property crash, sharp rise in unemployment, and extreme levels of household debt will spark a surge in loan defaults. That will apply considerable pressure to the banks. Many are already facing headwinds because of fallout from the coronavirus pandemic and an emerging recession. Surveys indicate that Canadian households are particularly vulnerable to external economic shocks. This is because they have one of the highest ratios of debt to income in the developed world. As coronavirus layoffs, notably across the hospitality, entertainment, and hotel industries, gain momentum, many will face unprecedented financial pressure.

According to a recent Financial Post article, almost half of all Canadians are on the brink of insolvency. A quarter of respondents claimed that they were already unable to meet their financial obligations. That points to the growing likelihood of a sharp increase in loan defaults for Canada’s banks. A substantial increase in impaired loans will have a marked impact on the balance sheets and earnings of the Big Six banks. It will force them to redirect capital from productive revenue-generating activities to provisions for impaired loans.

There are fears that a coronavirus-induced recession could be longer and deeper than the Great Recession. That would force the banks to protect their balance sheets through a range of measures. These include controlling costs by reducing their employee head count, dialing down spending on growth initiatives, and potentially even cutting dividends.

Mitigating risk

The Big Six banks have implemented strategies to mitigate the risks associated with an economic downturn. Key is that all mortgages with a loan-to-value ratio (LVR) of less than 80% require mortgage insurance. In the case of Royal Bank, that means 34% of its Canadian residential mortgage portfolio is protected by insurance. That shifts the financial burden for those mortgages, if the borrowers default, to the insurer.

Royal Bank’s Canadian residential mortgage portfolio has a conservative LTV of 53%. This indicates that it would take a considerable decline in property values to impact the bank’s mortgage portfolio. It also illustrates that there is plenty of room for Royal Bank to restructure impaired loans.

Importantly, each of the Big Six have low gross impaired loans ratios, highlighting that it would take a significant surge in defaults to have a material impact on their balance sheets. Royal Bank finished its fiscal first quarter 2020 with a gross impaired loans ratio of 0.45%, which is one of the lowest among the Big Six, underscoring the quality of its loan portfolio.

The Big Six banks have considerable assets and are well capitalized. That helps to protect them a sharp economic downturn and decline in credit quality. Royal Bank reported a first-quarter common equity tier one capital ratio of 12%, which is well above the regulatory minimum and one of the highest among its peers.

Looking ahead

Canada’s Big Six banks are well capitalized and capable of weathering a deep recession triggered by the coronavirus. While overextended borrowers do pose a hazard, a combination of mortgage insurance, low LVRs, and quality credit portfolios will mitigate that risk. Despite a decline in growth, it is likely that the Big Six will maintain their dividends because of low payout ratios and the ability to reduce costs.

Royal Bank’s dividend-payout ratio of 46% indicates that there is plenty of room to accommodate lower earnings before a cut would be considered. For these reasons, Royal Bank’s recent decline in value and juicy 5% yield, along with its solid fundamentals, make it an attractive stock to buy.

Fool contributor Matt Smith has no position in any of the stocks mentioned.

2 TSX Stocks With a P/E Under 5

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If you have ever read or followed Warren Buffett’s advice and want to be a value investor, you know now is the time to buy TSX stocks.

While most stocks are low, some are a lot cheaper than others. But with so many options, we’ll need to filter out the stocks that aren’t cheap enough to buy.

When we look at the price-to-earnings (P/E) ratios, we can already get a quick glimpse into a company’s value. It’s a good way to start an initial search for your next stock. This way, you can reduce the number of stocks you have to spend time doing lengthy due diligence on.

It’s important investors don’t get hung up on a company’s P/E. Earnings don’t always reflect a business’s full operating profits. With new accounting rules, sales of business units, for example, can positively or negatively affect a company’s net income.

This is why we use the P/E ratio only as a means to eliminate more expensive stocks. Then once we have narrowed down the field of companies, we can start to look at the best TSX stocks to buy.

On the TSX today, there are a number of stocks with P/E ratios below five times. However, the top two TSX stocks to buy today would be Corus Entertainment (TSX:CJR.B) and AltaGas (TSX:ALA).

Media TSX stock

Corus is a media company that is trading extremely cheap. At current prices, Corus is one of the highest-value stocks on the TSX.

Despite the fact that many analysts are calling for lower TV advertising during this pandemic, I don’t think that the drop off will be that bad. After all, everyone is stuck at home watching TV anyway.

Regardless of how bad it’s impacted, Corus can deal with a major shock to its operations. It is financially strong and has little risk when it comes to its debt.

Plus, its dividend is just a small fraction of the company’s earnings and free cash flow in a given year. This gives it major flexibility to ride out a short-term storm.

At Monday’s close, the stock traded for just over $2.50. That’s basically a P/E ratio of three times based on its 2019 earnings. The dividend also yields a whopping 9.3%, and that dividend rate was just 28% of last year’s earnings.

It’s impossible to predict how affected Corus’s business will be, but clearly, at just three times earnings, the stock is extremely cheap.

Midstream and utility stock

AltaGas is an attractive TSX stock that has midstream energy assets in addition to natural gas utility services.

The natural gas distribution that AltaGas engages in accounts for just over half its business. This gives it stability and helps reduce risk of the overall business.

The midstream energy side has higher commodity exposure, but it also has major long-term growth potential. Both segments combine to make AltaGas a great value pick at these low prices.

The company has been one of the more volatile TSX stocks the last few weeks, as investors worry about AltaGas’s commodity exposure and high debt loads.

The company has done a great job, however, over the last few years to strengthen its financial position in anticipation of a major market crash like we are seeing. This has left it in a lot better shape and is a major reason why AltaGas is a buy today.

As of Monday’s close the stock was trading for under $12. That’s nearly 50% off its highs and at a trailing P/E ratio of just 4.2 times.

Bottom line

There a numerous TSX stocks just like these companies, trading extremely cheap on a long-term basis. Investors who are willing to buy the stocks and be patient will be heavily rewarded. But don’t miss your chance to buy soon; these discounts won’t last forever.

Canadian Stocks to Buy on the Cheap During the Market Crash

Many investors fear market crashes. However, long-term investors should embrace this crash, because bear markets can potentially allow you to make millions. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.

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Fool contributor Daniel Da Costa owns shares of CORUS ENTERTAINMENT INC., CL.B, NV. The Motley Fool recommends ALTAGAS LTD.

Binance Futures Hosts Trading Competition With Prize Pool Worth $1M

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Cryptocurrency exchange Binance announced on March 25 that it will be hosting a trading tournament where participants could compete in teams and win a prize pool of up to $1 million in BNB tokens.

According to the announcement, the tournament will take place between April 10 and April 25, and will take place in two ways: daily ROI and overall USDT team profit tournaments.

Binance explains that all teams that trade in perpetual contracts on Binance Futures during the competition period will be ranked based on the total USDT profit of the team, which corresponds to the sum of the top 10 individual results within the team.

Team trading’s conditions

The exchange adds more details on how the total $ 1M prize pool in BNB tokens will be split: First place will receive 30% of the total reward. Second and third place will each get 20% of the total reward. Fourth to tenth place will split the remaining 40%.

Among other conditions, Binance says that the distribution of the rewards within each team will be made on the basis that each team leader will receive 30% of their team’s total reward.

The top 10 individual USDT profit contributors will receive the 20% divided equally, while the other team members will receive the remaining 50% equally.

Popularity bonus to be awarded

Binance clarifies that team members must register for the competitions between March 26 to April 10, further explaining that there will be no changes after the registration period has elapsed.

Besides, a “bonus popularity” award of USD 5,000 in BNB tokens will be awarded to that leader with the largest team.

What Could Possibly Go Wrong? Reserve Requirements Are Now Zero

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With the flurry of actions the Fed undertook over the past few weeks to supposedly “stabilize” financial markets, one very important action has flown under the radar. And it’s one that could have a very debilitating effect on US banks and the entire financial system.

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One of the elements of monetary policy that central banks use to influence the amount of money created within the financial system is that of reserve requirements for banks. The current banking system is a fractional reserve system, meaning that banks only keep a fraction of their deposits on hand; the rest are loaned out. Those loaned funds are then redeposited, then loaned out again, etc. In this way, a single $100 deposit can become hundreds of dollars of bank deposits, with each dollar in deposits being accepted in the economy as equivalent to $1 in cash. But it’s a very small amount of cash that actually underpins the entire sum of those bank deposits.

This is known in mainstream economics as the money multiplier. If a bank has a reserve requirement of 10%, then it can loan out up to 90% of each deposit. So if $100 is deposited, $90 is loaned out. That $90 is re-deposited and $81 loaned out, etc. The “multiplier” is 100 divided by the reserve requirement, so that if the reserve requirement is 20%, banks can create up to $500 in deposits for every $100 initially deposited; if the reserve requirement is 10%, banks can created up to $1,000 in deposits; if the reserve requirement is 5%, banks can create up to $2,000, etc.

Normally the Fed sets reserve requirements at anywhere from 0-10%, with only very small banks being allowed to get away with not having any required reserves. But effective March 26, the Federal Reserve lowered reserve requirements to zero for all depository institutions in the US. Using the money multiplier, we divide 100 by zero and get – infinity. Yes, that’s right, US banks can now created unlimited amounts of bank deposits because they don’t have to keep anything on reserve. Wells Fargo, Bank of America, and Citigroup can all create money ad infinitum.

You might wonder how that’s supposed to help the stability of the banking system. Well, it doesn’t really. The Fed probably was thinking more about liquidity than about stability, as allowing banks to keep no reserves on hand during a time when there are apt to be bank runs seems to be about as unstable a move as can possibly be. Allowing banks to keep zero reserves, and to create as much money as possible by eliminating reserve requirements, is a recipe for disaster. Along with the other moves the Fed has been making, like trillions of dollars of quantitative easing and liquidity provision to repo markets, the stage is being set for an inflationary disaster.

Special: Secret IRA/401k/TSP Investment Outperforms Stocks

If you’re still invested in dollar-denominated assets like US Treasuries, US corporate bonds, or US stocks, you need to be aware of the dangers that the Fed’s recent policies pose to your investments. With the dollar set for a massive devaluation, investors both big and small risk having their investments made worthless as the dollar weakens even further. If you haven’t taken steps to protect your wealth, by investing in gold for example, then you need to start thinking about it right now. In an era in which unshackled central banks will run amok creating money out of thin air, protecting your wealth is more important than ever.

Your No. 1 COVID-19 Investing Opportunity

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If you want to come out of the COVID-19 crisis with your stock portfolio intact, buy steady, reliable stocks.

And I have one such stock in mind right now.

It’s a company whose founder, George Hatsopoulos, I chatted with once, in my days as a financial journalist.

I interviewed him in the 1990s as a correspondent and anchor for PBS’ Nightly Business Report. He ran a powerhouse health care company helping lead the fight against a virus — HIV — with faster, automated testing machines.

What I remember most from the interview was Hatsopoulos’ brilliance and humble nature.

Much has changed since then. Hatsopoulos retired in 1999. The company merged with another health care business in 2006.

But the company continues to have a leading role helping health care researchers fight back against viral threats such as COVID-19.

And thanks to the panic sell-off of recent weeks, investors can now buy a reliably growing stock like this one at a reasonable valuation.

A Leader in the Fight Against COVID-19

The company we now call Thermo Fisher Scientific Inc. (NYSE: TMO) — originally named Thermo Electron — has been around since the late 1950s.

Today, its stock is down more than 16% from its all-time high in January.

TMO Lost 16% Since January

(Source: TradingView.com)

In mid-March, Thermo Fisher Scientific received emergency authorization from the Food and Drug Administration for its COVID-19 diagnostic test.

CEO Marc Casper told CNBC that the company would immediately start shipping out the first batches of 1.5 million kits, which can be administered at a doctor’s office or testing center. The firm aims to ramp up production to 5 million tests a week in April.

Thermo Fisher Scientific Is Hitting on All Cylinders

The way I see it, the COVID-19 tests are just the start of why its stock deserves a closer look from investors.

For one, Thermo Fisher Scientific — which makes scientific and diagnostic equipment, as well as lab supplies such as chemical reagents — is a company hitting on all cylinders.

It earned $12.35 a share in 2019 and despite the business interruptions of COVID-19, should generate as much as $13.37 a share in profits this year, rising to nearly $15 a share in 2021.

After the panic-selling of recent weeks, the stock is trading at a forward price-to-earnings ratio (P/E) of roughly 18.

That’s a rare undervaluation for a company known for its steady, reliable growth, and which typically trades at much higher P/E levels.

Presuming the stock moves back up to a P/E of 25 in the next 18 months or so, that would give Thermo Fisher Scientific a stock price of $380 — or 30% above the current level of the stock.

But there’s yet another reason to buy beyond the COVID-19 diagnostic system and the currently undervalued stock.

A New Tool for Detecting COVID-19

The company recently landed a whale-sized biotech acquisition with the $11.5 billion purchase of Europe’s Qiagen N.V.

A maker of molecular diagnostic tools and applied testing technologies, Qiagen has also been on the forefront of the COVID-19 rapid testing effort.

The company began shipping its own set of diagnostic testing kits in February. It followed up in late March by unveiling what it calls the first “syndromic” test for the virus as well.

The deal — announced at the start of March — already has the blessing of Wall Street analysts.

It adds one more tool to Thermo Fisher Scientific’s arsenal of weapons for detecting COVID-19 — and generating hefty profits for its shareholders in the process.

Best of Good Buys,

Jeff L. Yastine

Editor, Total Wealth Insider

Poll: How Can We Help You Get Through This Crisis?

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A Tale of Two Markets

Sector expert Michael Ballanger looks at how economic forces are pulling markets in contradictory directions.

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Could the US Become Another Weimar Republic?

Rudi Fronk and Jim Anthony, cofounders of Seabridge Gold, discuss the potential ramifications of current U.S. fiscal and monetary policy.

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A Historical Perspective on Silver

Technical analyst John Newell looks back at the gold to silver ratio through history.

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Fremont Gears Up to Drill for Discovery in Nevada

James Kwantes of Resource Opportunities profiles a company that is financed to drill the Griffon project this year in the southern Cortez Trend.

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Mickey Fulp: 'Never Let a Good Crisis Go to Waste'

In discussion with Maurice Jackson of Proven and Probable, the Mercenary Geologist offers his take on the coronavirus pandemic, its impacts on economic policy and what he's buying (or not buying)...

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Technical Analyst: Silver Looks Bearish Short to Medium Term

Technical analyst Clive Maund charts silver and explains why he is bearish in the short to medium term.

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An Important Message for Investors: Don’t Panic Even If Stocks Fall Further

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Despite recent stimulus, including Trump’s massive US$2 trillion package and rate cuts, stocks remain on a downward trajectory. The Dow Jones Industrial Average recently suffered its largest single day drop ever, down by 19% over the past month. The S&PT/TSX Composite Index (TSX:^OSPTX) followed it lower, losing 22%.

A painful short-term outlook

Despite recent rallies, however, there are signs of further short-term pain for stocks. Many economists are now recognizing that the recession triggered by the coronavirus will be deeper than the 2008 Great Recession. There have even been some claims that it could mirror the Great Depression, which would ravage stocks.

Measures being employed to control the pandemic including travels bans, social distancing, curfews and other restrictions on movement will sharply impact the economy. Consumption and business activity are expected to decline substantially.

It’s estimated that the global economy could contract by up to 1%. The International Monetary Fund (IMF) has warned that 2020 global growth will be negative. The Fund believes that the recession sparked by the pandemic will be severe and will be on par with the Great Recession of 2008 — or even worse.

That doesn’t bode well for financial markets and stocks. During the Great Recession, the TSX lost around 50% from peak to trough, and the ensuing bear market lasted for almost 18 months.

Since peaking at a record high of almost 18,000 points, the S&P/TSX Composite Index has lost 30%. If the recession triggered by coronavirus is as bad — or even worse — than the financial crisis of 2008, stocks will fall further. That means the market could fall by up to another 20% over the coming months.

Negative catalysts abound

There are many potential triggers for the next market decline. Sadly, key is the potential for a surge in coronavirus cases that will shake an already distressed Wall Street.

There are also growing concerns that China’s volume of coronavirus cases may have been far greater than Beijing disclosed. For that reason, the impact on the world’s second-largest economy could be worse than originally anticipated.

That will impact demand for commodities, as China is the world’s single largest consumer of metals, coal and many other basic materials.

If energy markets are indication, there’s worse ahead for stocks. The international Brent benchmark has plunged 62% since the start of 2020 — and has further to fall.

A combination of a looming demand shock triggered by a weaker global economy and rising supply because of the oil price war between Saudi Arabia and Russia will push prices lower.

Another significant event to monitor closely is earnings. Earnings season is upon us, and pundits are anticipating that many companies will have experienced sharp declines. That will only worsen over coming months as the fallout from the coronavirus and emerging global recession harshly impacts the performance of many businesses.

There will be coronavirus-induced bankruptcies during 2020 primarily be among bricks and mortar retailers, airlines, hotels, cinemas, airplane manufacturers and producers of consumer discretionary products. As those bankruptcies mount, it will spook already nervous markets, causing them to fall further.

This is important to remember

One thing is clear: Stocks are poised to fall further and the bear market could be deeper than the one that emerged in 2008.

What’s vital for investors to understand is this: Do not panic.

We know that the economy and stocks will eventually recover. After the 2008 Great Recession, the global economy returned to growth. Between the end of 2008 and 2019, global GDP grew 38% and the Dow Jones Industrial Average surged by 225%, while the S&P/TSX Composite gained 90%.

The sooner the coronavirus is brought under control, the sooner recovery can begin. This emphasizes why adhering to social distancing requirements, travel bans and other strategies implemented to contain the pandemic are crucial.

This was reiterated by the IMF Managing Director Kristalina Georgieva, who stated: “The economic impact is and will be severe, but the faster the virus stops, the quicker and stronger the recovery will be.”

That emphasizes why it’s important not to panic, focus on your reasons for investing and maintain a long-term perspective.

Canadian Stocks to Buy on the Cheap During the Market Crash

Many investors fear market crashes. However, long-term investors should embrace this crash, because bear markets can potentially allow you to make millions. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.

Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

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2 Stocks to Sell in a Dismal Market

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Volatility remains king in the current market. After most stocks hit 52-week highs in February, March brought with it a score of 52-week lows. That same extreme volatility last week shot the market back up well over 1%. Throughout this volatile market, there has been plenty of talk about great buying opportunities but not much around selling stocks.

Here are several underperforming stocks to consider selling in lieu of one or more discounted top picks.

The power is on, but nobody is buying … Sell!

Cameco (TSX:CCO)(NYSE:CCJ) is a one-time titan that has ended up in the discount bin in recent years. As one of the largest uranium miners on the planet, Cameco benefits from the growing adoption of nuclear power. Utilities looking for a clean and quick way to generate power for their growing infrastructure needs have turned to nuclear power. So, why would investors want to sell?

The only problem with that is the cost of uranium has had a dismal decade. Following the Fukushima disaster in 2011, the demand for nuclear power has all but evaporated. This has resulted in the price of uranium dropping to the low US$20s per pound from a near US$60 per pound back in 2011. That drop represents a solid argument for investors that want to sell.

Demand for nuclear power has grown in recent years, fueled by strong demand in countries with growing infrastructure needs. By way of example, China, India, and Russia constitute nearly half of the new reactors under construction worldwide. Unfortunately, despite that renewed growth, the price of uranium remains low.

Cameco has even turned to cease production at some facilities, slashing costs and as well as its dividend to rein in costs. Year to date, Cameco is down over 11%, which may seem like a win considering the state of the rest of the market, but over the trailing 12-month period those losses extend to over 30%. In other words, now might be a great time to sell and pick up another discounted stock that has growth potential.

Staying healthy is paramount in this new reality

The global coronavirus pandemic has dramatically changed our daily lives. The pharmaceutical sector in particular is facing immense challenges to work with governments and agencies on providing medicine to patients and working on a potential vaccine to COVID-19. Bausch Health Companies (TSX:BHC)(NYSE:BHC) is doing its part as well. The company recently announced it was ramping up production of chloroquine and azithromycin in some markets, while providing supplies and assistance in others. So, why would investors want to sell?

Unfortunately, those efforts don’t exactly make Bausch a screaming buy. The company has been clawing out from billions of debt stemming back to its near collapse in 2016. When well over 90% of the company’s value was wiped out, many investors were stuck holding pennies on the dollar, waiting for better times.

That time to sell might be now. To be clear, what Bausch has done in the past few years to turn around was nothing short of incredible. Investors will find better gains (and possibly dividends) by opting to invest in any number of discounted greats.

So far in 2020, Bausch has dropped over 45%, while over a longer two-year period, the company is near flat.

Fool contributor Demetris Afxentiou has no position in any of the stocks mentioned. Tom Gardner owns shares of Bausch Health Companies. The Motley Fool owns shares of and recommends Bausch Health Companies.

BMW’s Blockchain Solution for Supply Chains to Roll Out in 2020

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World-famous car manufacturer BMW Group plans to roll out its blockchain supply chain solution to 10 suppliers this year.

Dubbed “PartChain,” the platform has already been successfully tested by BMW in 2019, an official announcement on March 31 revealed. 

In its early version, PartChain is designed to ensure traceability and immediate data transparency for automobile components across complex supply chains that engage multiple international parties. 

The 2019 pilot implemented the solution for purchasing and tracking front lights, with the involvement of two of BMW Group’s total 31 plants, as well as three locations of the supplier Automotive Lighting.

Andreas Wendt — a member of BMW AG’s Board of Management, who is responsible for the Group’s purchasing and supplier network — said that BMW now wants to expand the project to “a large number” of other suppliers, with 10 selected for 2020.

Combining blockchain with cloud technology

In the long-term, Wendt said that BMW’s vision is to use blockchain to create “an open platform that will allow data within supply chains to be exchanged and shared safely and anonymized across the industry.” 

Whereas the pilot had been limited to component tracking, BMW sees the platform’s future applications extending to tracing critical raw materials for manufacturing “from mine to smelter.”

Together with blockchain — which provides for tamper-proof, verifiable data collection and transaction —  PartChain uses cloud technologies from Amazon Web Services and Microsoft Azure. 

Intra-industry development

Wendt revealed that BMW now intends to share the PartChain solution with other members of the Mobility Open Blockchain Initiative (MOBI), which BMW co-founded back in 2018. 

As Cointelegraph reported at the time, MOBI is the result of a collaboration between BMW, GM, Ford and Renault — as well as high-profile blockchain, tech and engineering firms including Bosch, Hyperledger, IBM and IOTA.

The project has led to the creation of the MOBI Vehicle Identity Standard, which aims to establish a blockchain-based database for Vehicle Identity Numbers. This supports unique digital certificates for information such as vehicle identity, ownership, warranties and current mileage, which can be securely stored in an electronic wallet.

Historic 21% Rally — The End of the Coronavirus

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Sometimes things need to get exponentially worse before they get exponentially better.

We already started to see that last week when the Dow Jones Industrial Average surged 21.3% in just three days.

It was the biggest three-day gain since 1931.

In today’s 16-minute Market Insights video, my colleague Jeff Yastine and I explain why it’s the beginning of the end of the coronavirus … and why right now is the perfect time to buy stocks.

Regards,

Ian King

Editor, Automatic Fortunes

No, You Should Not Totally Shun TSX Energy Stocks Right Now!

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This year has been an unpleasant one for energy investors. Falling oil and gas prices have driven energy stocks to all-time lows. Canadian energy stocks have tumbled in the range of 50-80% in just the last couple of months. However, the collapse is still not over. The energy sector continues to look weak, and stocks could go down more in the coming months.

Volatile oil and weak energy stocks

On its part in the oil price war, Saudi Arabia will start pumping more oil from April, fueling the supply glut in an already oversupplied market. Lockdowns in many countries driven by the coronavirus outbreak have already dented the demand for crude oil. Thus, this double whammy will likely further weigh on the energy sector in the near term.

Crude oil is already trading at around $20 — its multi-decade low levels. Canadian oil prices have been below US$10 per barrel. The current scenario will further dent companies with poor liquidity and debt profiles.

Some of the biggest oil companies in Canada, such as Cenovus Energy and Husky Energy stocks, were notably weak recently. These two have fallen 80% and 65% since last month, respectively. Both have fallen below $5 levels.

However, some of the energy names are worth considering at the moment. I think we are approaching the bottom, and some oil stocks will soon start their recovery. Just as their fall was sharp, the recovery will be even sharper.

Will crude oil rebound?

In my view, oil prices might not sustain longer at such low levels. No oil producer in the world has a breakeven price close to these levels. Thus, either through production cuts or through sanctions, crude oil prices could reach respectable levels in the short to medium term.

The demand side of the equation remains weak amid lockdowns and travel restrictions. Experts are estimating 20% lower demand while the pandemic dominates. However, as the global curve of COVID-19 deaths flattens in the coming months, demand could again well exceed its normal levels.

Suncor Energy: Top energy stock in Canada

Canada’s biggest integrated energy company, Suncor Energy (TSX:SU)(NYSE:SU), is an attractive pick at the moment. Its large scale and presence throughout the energy supply chain make it look relatively less risky compared to upstream companies.

Weak crude oil prices dent margins on the production side, but they minimize the input costs for the downstream operations. The legendary investor Warren Buffett holds over $300 million in Suncor Energy.

Attractive valuation and dividends

Suncor Energy stock has fallen more than 60% since last month when the virus started weighing on markets. The stock last traded at these levels in 2004. The selloff brings its forward price-to-earnings ratio to approximately 10 times. This is significantly cheaper compared to its average historical valuation of 19 times. Notably, this implies that the stock is trading at a large discount and has a potential for a bounce back.

Despite its recently announced production cuts and reduced capital spending for the year, Suncor Energy remains an attractive investment proposition. Its strong balance sheet will likely get it going through these challenging times. Suncor stock currently yields above 10%. It also increased payouts in the last financial crisis in 2008, and investors can count on it for dividends.

Apart from Suncor Energy, top TSX stock Canadian Natural Resources also looks attractive. It is one of the lowest-cost producers in the country with an unmatchable set of oil sand assets.

In my view, energy stocks might keep trading weak in the near term. However, they could bottom out soon. I am not recommending investors time the market and look for bottom-fishing opportunities. But these stocks could reap significant gains in the long term. Investors could spread out their buying over the next few months to make the most of this opportunity. As the famous saying of Chinese philosopher Sun Tzu goes, “In the midst of chaos, there is also opportunity.”

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How to Stay Invested During Coronavirus and the Market Crash

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The financial commentary I’m seeing and hearing now on Bay Street and Wall Street seems to be largely binary. One camp believes we’re in for a depression much worse than the 1929 crash. The other camp generally believes we’re in for a V-shaped recovery in a few months.

Many have seemingly become financial experts overnight and are predicting precisely when markets will bottom. (Some believe we have already hit the bottom). I’m no expert on this situation. However, in reading what economists and various health authorities are saying on the matter, I’ve gleaned the following insights. These support a long-term investing strategy, which requires patience and calm.

Insight #1: slow and steady growth over the long term

Demand destruction is real. Folks aren’t likely to go immediately see three movies or eat three restaurant meals post-coronavirus outbreak because they’ve missed some during the outbreak. But, we’ve also had record growth this past bull market that has set the bar pretty high. In other words, slow, low, or no global growth for a while could be a good thing. This will moderate expectations and set a new floor, allowing for future, demand-driven growth.

Insight #2: a long/deep recession

Central banks aren’t likely to stop short-term volatility in the markets. Lower interest rates don’t solve medical problems. In other words, this recession/dip could be longer and deeper than 2008. I certainly believe this recession will be longer than many think.

Strategy #1: go defensive

We’re going to see bankruptcies if the current economic pathway continues. Getting more defensive seems to be a good idea. Investors are now beginning to price real liquidity/solvency risks into stock prices. Therefore, balance sheet strength may trump income statement strength over the near term.

Strategy #2: keep an eye on lenders

Financial institutions remain key to our global economy and global recovery. Much of the stimulus is focused on financial institutions. Keep an eye on lenders like Canadian Imperial Bank of Commerce in the coming weeks and quarters. This is where funds will flow, in and out.

Bottom line

In this high volatility environment, a Foolish investor should never take all of their money off the table at one time. They should also never invest everything they have in the stock market at one point in time. God forbid, please don’t invest on margin. We’ve seen how that’s turned out for many investors recently. These investment strategies are generally not successful over the long term.

Staying invested in high-quality companies over long periods of time entails taking a few body shots on the way. But staying out of the markets altogether when everything rallies can turn out to be a knockout from a total return standpoint. If you’ve read any of my recent pieces on keeping dry powder aside for times like these and buying these dips, this is precisely the time to be buying.

As iconic investor Warren Buffet has said “be greedy when others are fearful.” It looks like we’re nearing maximum fear in the markets right now. That said, I would encourage a “nibbling” strategy, or dollar-cost averaging in this environment. This is because we don’t know who long/short or deep/shallow this recession/bear market will be.

Stay Foolish, my friends.

Fool contributor Chris MacDonald does not have ownership in any stocks mentioned in this article.

Binance Academy Launches Blockchain Accelerator in China

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Binance Academy, the educational arm of leading crypto exchange Binance, announced the establishment of a blockchain research institute in Shanghai on March 30.

The Lingang Blockchain Technology and Industry Research Institute is intended to operate as a think-tank and talent hub for distributed ledger technology (DLT) innovation in China.

Binance to integrate blockchain with other innovative technologies

To accelerate the application of DLT in China, Binance’s blockchain institute plans to integrate blockchain with other emerging technologies with an established foothold in the country — including artificial intelligence, big data, and internet-of-things.

The blockchain research institute is headed by Don Tapscott, who will also act as the honorary dean of the organization.

Tapscott describes DLT as representing “the second era of the Internet — the Internet of Value,” adding that blockchain technologies will drive the creation of “innovative and productive organizations.”

Binance’s Helen Hai, who is credited with spearheading the Lingang initiative, stated that the institute is “committed to building the blockchain industry, driving blockchain research, and cultivating top blockchain talent.”

Binance takes steps toward re-establishing in China

The institute’s launch comprises a tentative step toward the Binance re-entering China, with the exchange having shut down all Chinese operations in September 2017 amid China’s cryptocurrency crackdown. 

In January, Binance Charity committed to purchasing $1.4 million in medical supplies that would be donated to more than 300 hospitals and medical organizations hardest hit by the COVID-19 pandemic.

In November 2019, rumors that Binance was seeking to establish an office ran rampantly across the crypto community — comprising the first indication that Binance may be seeking to re-establish itself in China after more than two years. 

One month prior, Binance launched peer-to-peer trading services for Chinese Yuan pairings against Bitcoin (BTC), Ethereum (ETH), and Tether (USDT).

What Is the FOMC and How Does It Affect Your Investments?

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Many investors have undoubtedly heard of the Federal Reserve System, even if they may not know exactly how it operates. But fewer have heard of the Federal Open Market Committee (FOMC), which actually makes the monetary policy decisions that the Fed carries out.

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The FOMC consists of the seven members of the Board of Governors of the Federal Reserve System, who are all appointed by the President, the President of the Federal Reserve Bank of New York, and four of the remaining eleven Federal Reserve Bank Presidents, who rotate onto the FOMC about once every three years.

The FOMC meets for eight regularly scheduled meetings per year. All the Federal Reserve Bank Presidents take part in the deliberations, even those who aren’t currently voting members of the FOMC. FOMC participants assess the health and strength of the economy and vote on monetary policy actions, most importantly targeting the federal funds rate and deciding on monetary actions such as quantitative easing and repurchase agreements.

You may be saying to yourself, this is all fine and good, but how does it affect my investments? Read on to find out.

How Monetary Policy Works

The Federal Reserve System was founded in order to provide an “elastic currency” to the US economy. In the minds of its creators, the Fed would inject money into the financial at times when it was needed, for instance at harvest time or during financial panics, and withdraw the money once it was no longer needed.

The primary means by which the Fed was supposed to do that was through open market operations, purchasing and selling securities on the open market. Those securities could be US government bonds, corporate debt, farm debt, etc. When there was a need for money in the economy, the Fed was supposed to purchase securities, using money it had newly created. When the Fed wanted to withdraw money from the economy, it would sell those securities back on the open market.

The Effects of Monetary Policy

In practice, however, a central bank with the ability to create money ex nihilo is under tremendous pressure to continue creating money. By injecting newly created money into the financial system, interest rates are lowered, making it cheaper for businesses to borrow money to expand their operations. They become used to those low interest rates, and militate against allowing interest rates to rise back to market levels.

Thus the elastic currency, rather than rising and falling as market conditions dictated, became elastic only in one direction, upwards. When the Federal Reserve was created in 1913, the total money supply in the US was $19 billion. Today it is nearly $20 trillion and growing. That’s a thousand-fold increase in a little more than a century.

As we have come to realize over that century, the effects of monetary policy are anything but neutral. And it’s the manipulation of the money supply by central banks that has caused and contributed to the great financial crises of the last century, including the Great Depression, the 1970s stagflation, the Dotcom bubble, and the housing bubble.

Because interest rates perform a signaling function, lower interest rates signal that more money is available to borrow. But because interest rates are naturally lowered when people decide to defer consumption and save, preferring to consume in the future, interest rates that sink due to increased savings still allow for future consumption.

Interest rates that are manipulated lower through money and credit created out of thin air, on the other hand, signal to borrowers that more money is available. But because people are consuming in the present and not saving more, they don’t have the ability to increase consumption in the future.

By manipulating interest rates, the Fed incentivizes borrowing to finance long-term projects such as skyscrapers, ships, factories, and housing developments. But when those long-term projects are completed, there isn’t a demand for them because there hasn’t been any saving to enable that future consumption.

That manifests itself as housing bubbles, investment bubbles, and various other sorts of asset bubbles. Resources have been malinvested, being directed into areas of the economy that don’t serve a productive function. And until those malinvested resources are redirected into serving consumers’ actual needs and wants, an economy can’t recover from a recession.

Unconventional Monetary Policy Since the Financial Crisis

The housing bubble was a classic example of the effects of monetary policy on the economy. In its attempts to paper over the collapse of the Dotcom bubble (itself a Fed creation), the Federal Reserve continued to inject money and credit into the financial system. That money made its way into the housing sector, creating a massive housing bubble.

Interest rates were low, enabling cheap borrowing. That led to the rise of house flippers, people who bought dozens of houses with cheap money, then sought to make a profit. Banks had money to burn, and actively looked for more and more borrowers to buy houses, so that they could make a profit on loaning money.

Lending standards were loosened as a result, and people who had no business taking on credit ended up with multi-hundred-thousand dollar mortgages. The result of the bubble and its ultimate collapse was foreseen by some, but it was incredibly destructive to the entire economy. Major financial firms such as Bear Stearns and Lehman Brothers completely collapsed as a result, and many areas of the country are still feeling the effects of the bubble’s collapse.

Not learning its lesson from the Dotcom bubble’s collapse, the Fed intervened in the way it had in all previous financial crises. It pushed interest rates down, down, down. But this time it had to push interest rates all the way to zero. And still that wasn’t enough.

Even the $700 billion bank bailout wasn’t sufficient, and so the Fed began its policy of quantitative easing, purchasing trillions of dollars worth of securities in order to shore up the financial system. The Fed probably thought that it could buy those securities to stabilize the system, then sell them once the economy recovered. But today the Fed’s balance sheet is still over $4.2 trillion, or about five times what it was before the financial crisis.

Wall Street and the US financial system have become addicted to easy money and low interest rates, and they don’t want either to stop. Any attempt the Fed makes to normalize monetary policy will result in a collapse of markets, and so once again the Fed faces pressure to continue its monetary easing.

What Does the Future Hold?

All eyes are on the Fed now, or more specifically on the FOMC. At the beginning of March, the FOMC held an unscheduled meeting at which it decided to make an emergency 50 basis point cut to the federal funds rate, cutting its target range to 1.00-1.25%. That move was intended to demonstrate to markets that the FOMC stood ready to shore up the economy. But its effects were just the opposite.

By making such a massive cut, the first emergency rate cut since 2008, the FOMC signaled that the economy was actually in weak shape since it needed such a large cut. What we’ve seen since then bears that out, with the Dow Jones shedding thousands of points and falling into bear market territory. Further FOMC actions helped stimulate those massive declines.

Since that first emergency rate cut, the Federal Reserve has:

• Promised up to $5.5 trillion in emergency liquidity to repo markets;
• Cut its target federal funds rate another 100 basis points, to 0.00-0.25%;
• Promised at least $700 billion in quantitative easing;
• Re-opened crisis era emergency liquidity facilities such as the Primary Dealer Credit Facility, Commercial Paper Funding Facility, and Money Market Mutual Fund Liquidity Facility;
• Opened up dollar swap lines with numerous foreign central banks;
• Created new emergency liquidity facilities to purchase corporate debt;
• Increased the size of its balance sheet by over $1 trillion.

Two things should be clear to investors today. First, the gains made by stock markets since the financial crisis have largely been the result of the FOMC’s monetary policy. Second, the FOMC’s intervention thus far has put us back to where we were in 2008 and 2009, when markets were on the verge of total and complete collapse. The Fed will repeat everything it can from its 2008 playbook, but there’s no guarantee that its actions this time around will bear any fruit.

Looking back at 2008, we can see that the FOMC’s actions to stabilize markets were largely ineffective. Stock markets continued to fall, despite the trillions of dollars worth of securities purchased by the Fed and the push to drop interest rates to near zero. And the subsequent rounds of quantitative easing did more to monetize the federal government’s debt spending than to strengthen the economy. All of that money eventually made its way to stock markets, enabling the stock market bubble that we’re seeing today.

There’s no reason to think that the FOMC will do anything different than what it has done in the past. After all, when your only tool is a hammer, everything looks like a nail. The FOMC will very likely engage in more quantitative easing above and beyond what it already has pledged and, because interest rates are already at zero, there’s a very real risk that the FOMC will try to push interest rates into negative territory.

All of this will be bad news for stock investors, but great news for those who invest in gold, silver, and other precious metals. We’re headed back to a period that will likely see markets perform much the same as they did in 2008 and in the years thereafter. Stock markets recovered only weakly, while gold and silver took off and reached record highs. With gold and silver already moving in response to recent events, there’s every indication that those investors who move into gold and silver today will be able to reap the gains that will follow.

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If you’re interested in learning more about how to protect your investment portfolio with gold and silver, contact the experts at Goldco today. Their years of experience helping Americans protect their retirement savings give them the edge when it comes to helping you protect your investments. Given the risk to your investments posed by the FOMC’s future actions, you owe it to yourself to keep your assets safe. Contact Goldco today to find out how you can do that.

COVID-19’s Digital Disruption Shaking Up the Old-World Market

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It’s no secret.

The world is changing before our eyes.

Old-world industries are scrambling to find a way to keep up in this new digital landscape that COVID-19 has ushered in.

However, there are a few sectors leading the way for other companies to follow suit and find success in this new frontier.

Check out this month’s Macro Monday and find out why the following industries are the ones to watch in the new digital world:

• Online streaming services and traditional media.
• Telemedicine and restaurant/food services.
• Remote-workplace tech companies allowing for teleconference communications.

Can you think of other traditional old-line industries that will change to the digital or online world as a result of COVID-19? Let us know at boldprofits@banyanhill.com.

Regards,

Amber Lancaster

Director of Investment Research, Banyan Hill Publishing

Viable Vaccines and Yesterday’s Dreams

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There’s an Ordinary World…

Somehow I have to find. And as I try to make my way to the ordinary world, I will learn to survive.

I hope you like spending time with your family, ‘cause we’re in for another month of social distancing.

As part of his regular COVID-19 briefing to the American people, President Trump called for another month of voluntary shutdown. The original 15-day period of official social distancing would’ve ended today. But Trump extended the shutdown, calling his earlier hopes for an Easter revival “aspirational.”

Sorry, Easter Bunny, we’re busy looking for coronavirus infections … no time for eggs this year.

At least … outside. You can still hide those suckers in the house. Just don’t lose any. That “forgotten rotten egg under the couch” smell isn’t something you want to experience … trust me.

Perhaps Trump’s most striking admission was that the coronavirus pandemic could infect millions in the U.S. and claim 100,000 to 200,000 lives.

“It’s a horrible number,” Trump said in the understatement of the year, noting that the country would do well if it “can hold” the number of deaths at 100,000. I’m not sure that his version of “doing well” is the same as mine … or yours, for that matter.

However, Trump said one thing that I think we can all agree on right now: “I want our life back again.”

The Takeaway:

It’s a simple statement that carries so much weight: “I want our life back again.”

After 15 days of social distancing, only leaving the house for necessities, “visiting” the grandparents via the cold impersonality of video chats and scouring the earth for anything that resembles toilet paper … we all want nothing more than a return to normalcy.

A return to the mundane, boring life of wildfires, threats of World War III and China trade wars. You know … the good ol’ days.

Unfortunately, there’s no spiffy trading chart for COVID-19. There’s no true way to distance your life or your portfolio from the pandemic’s full impact.

All we can really do is hunker down and ride out the storm … while playing a few hundred games of Uno with your family. (My youngest has an Uno obsession that has only grown bolder with all of us locked in the house with her. I think it’s time to teach her euchre.)

As for your investments, you should fare pretty well right now … if you moved into gold, bonds and currencies like Great Stuff suggested. Yes, there are opportunities to be had — especially in biotech and social-distancing technology companies.

The biggest point I want to make here is that you need to maintain your wealth. That way you’ll have the capital to reinvest when the market turns around (and we finally have our lives back again).

And, if you’re still unsure of how to prepare for this volatility … it’s beyond time to watch this message from a former Washington insider. Click here now!

Good: Wake Me up When September Ends

It seems that every drugmaker and biotech firm worth its salt is working on a COVID-19 vaccine these days.

So, it should come as no surprise that Johnson & Johnson (NYSE: JNJ) — a drugmaker with no real history in the vaccine market — announced that it too has a vaccine candidate. The company said today that it will begin clinical testing on humans in September, and that the vaccine should be ready early next year.

Now, I know what you’re thinking … we’ve heard all this before. But what makes Johnson & Johnson different is that it’s already mass-producing the vaccine — just in case the testing proves successful. That way there will be plenty of the vaccine ready to go, once it’s approved.

Furthermore, Johnson & Johnson will make the vaccine available “on a not-for-profit basis.”

These are bold moves from a big drugmaker with deep pockets. While Johnson & Johnson reportedly won’t profit from the vaccine — if it’s successful — that’s a lot of goodwill and marketing the company can bank on for decades to come.

JNJ isn’t a wow kind of investment, but if the company is successful on the vaccine front, it would bolster the buy-and-hold case for Johnson & Johnson coming out of this pandemic.

Better: Test for Echo

Any biotechs that aren’t racing to find a vaccine are more than likely racing to find a fast, reliable COVID-19 test instead.

The latest entry into the speedy coronavirus-testing race is Abbott Laboratories (NYSE: ABT). Today, Abbott unveiled a small, portable five-minute test.

“This is really going to provide a tremendous opportunity for front-line caregivers, those having to diagnose a lot of infections, to close the gap with our testing. A clinic will be able to turn that result around quickly, while the patient is waiting,” said John Frels, vice president of research and development for Abbott Diagnostics.

The company plans to make 50,000 tests per day beginning April 1 … no fooling.

What’s more, the U.S. Food and Drug Administration gave Abbott emergency authorization to roll out the new test “for use by authorized laboratories and patient care settings.”

Now, Abbott’s test isn’t as convenient as Astrotech Corp.’s (Nasdaq: ASTC) BreathTest-1000, but Abbott has the resources and capital to roll out its test at a much faster rate.

I think this is the same reason why Sony Corp.’s (NYSE: SNE) Betamax lost out to VHS from the get-go. Anyone still have a Betamax player out there?

Best: Hoarding Profits

If you’re still struggling to find suitable bathroom tissue, like my family is, I don’t have a solution for you … unfortunately. (Knock over those books one more time, cats, and you’ll really wish you hadn’t…)

What I can offer you, however, is a way to profit from all those annoying hoarders: Invest in the companies that make toilet paper and other hoard-able goods.

For instance, Procter & Gamble Co. (NYSE: PG) and Kimberly-Clark Corp. (NYSE: KMB). Both companies make a plethora of goods favored by hoarders, including toilet paper. And both stocks saw upgrades from “hold” to “buy” at Jefferies this morning.

The ratings firm cited short-term benefits from the hoarding movement surrounding COVID-19, noting that P&G could see 5% organic sales growth heading into a likely recession.

One of the best investment sectors when heading into (and during) a recession is the consumer goods sector. With both P&G and Kimberly-Clark getting a head start on sales, both are solid choices to add to your short list for investment ideas.

Or, as Jefferies puts it, these stocks are “among the best in staples to weather near-term macro headwinds.” I like my wording better, but whatever floats your boat…

By the way, if you’re a real technical investing kind of junkie, this P&G article on Investopedia will hit all your buttons.

Germans could soon be issued “immunity certificates” that would allow them to leave the country’s coronavirus lockdown earlier than the rest of the population if they test positive for antibodies to the virus.

— Adam Bienkov, Business Insider

A lot of reactions to COVID-19 have given me the heebie-jeebies. We’ve seen everything from quarantines locking down millions of people to companies paying workers with cash cards (which, with their “nominal processing fees,” seem like some weird reinvention of the company coupons that coal-mining firms used to use way back in the day.)

But this idea of “immunity certificates” coming out of Germany (of all places) really sparked a knee-jerk reaction for me.

I get that they want to make it so that immune people can get back to work, but the last thing anyone wants to hear in German right now is “papers, please.”

Great Stuff: Get Back Jojo

So, we have a president pining for rosier times, the Dow creeping back to positive ground and Johnson & Johnson offering future vaccines gratis.

Now, you know by now that I’m not a guy to look a gift rally in the face — to mix metaphors here. I still think we’re headed for trouble (and make it double). Yet, today’s broad move higher and the growing green in my account are a refreshing bit of optimism.

Around here, that careful optimism has another name: Paul Mampilly.

To Paul, this pandemic crash is an ultra rare opportunity to build your wealth beyond what you’ve ever dreamed. And his Strong Hands approach to investing is crucial for times like this. Paul believes America will emerge from the coronavirus stronger than ever … no matter how long it takes.

If you have yet to hear Paul Mampilly’s vision for a rebuilt United States — America 2.0 if you will — don’t wait until we “get our lives back again.”

Click here to learn more now.

Though, I hear you, dear reader. You want more. More Paul Mampilly. More of Paul’s world-famous trade research. More ways to put the market’s whipsaws in your favor.

Why, it’s a veritable “Mampilly Monday” here at Great Stuff!

And for good reason: Paul Mampilly’s “rebound” method looks for specific opportunities in volatile markets just like these. Little clues can show Paul manipulations going on behind the scenes … and turn in a solid profit.

Paul’s “rebound” strategy is so powerful — How powerful is it?! — that historical data shows it could’ve made you 529% during the worst month of the 2008 crash. (Now how’s that for powerful?)

Before midnight EDT, click here to learn exactly how Paul’s strategy works. Though, I have to warn you to act quickly. Today’s the only day you can click this link here.

Now, if you’ll excuse me, I have to set up what’s sure to be another riveting game of Uno. Don’t forget, you can always check Great Stuff out on social media: Facebook and Twitter.

Until next time, good trading!

Regards,

Joseph Hargett

Editor, Great Stuff