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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Jim McMannis who wrote (35617)	8/20/2005 11:32:13 AM
From: Chispas	Respond to of 116555

Investors should worry more about financial stocks .. . Ray Turchansky The Edmonton Journal August 20, 2005 Falling oil prices this week caused investors to take some profits and run, but it could it be that they're deserting the wrong ship. Contrarians are saying that oil prices are merely testing some resistance levels and will rebound nicely, but the stocks you should be bailing out of are the financials, namely banks and insurance companies. For months now investors have been consumed by concern about energy stocks, as every upward movement of oil prices to the recent high of $67.10 US a barrel on Aug. 12 intensified fear that the party could end at any moment. When oil fell to $63.27 by Thursday's close, it dragged most energy players from their 52-week highs reached barely a week earlier, as EnCana dropped 8.5 per cent, Canadian Natural Resources 11.5 per cent and Nexen 13.5 per cent. But the retrenchment wasn't that earth-shattering, given that the S&P/TSX Capped Energy Index had soared 55.3 per cent this year until Aug. 10, before giving back 7.1 per cent. The minor correction was even welcomed on many fronts, a pause that refreshes before the assault resumes up the wall of worry that is built on terrorism, supply shortages and refinery malfunctions. Almost overlooked by investors consumed with resources was what has been going on in the financial field. While the S&P/TSX Composite Index is currently 39.5 per cent weighted in resources, it is also 31.2 per cent weighted in financial services and insurance. This year the S&P/TSX Capped Financial index rose 12.4 per cent until Aug. 2. That was the infamous day when Canadian Imperial Bank of Commerce announced it would pay $2.4 billion to settle the so-called Newby class action suit by Enron shareholders. And days later CIBC said it would pay out an additional $274 million in the so-called MegaClaims suit for its part in lending money that led to Enron's bankruptcy. In other MegaClaims settlements since Aug. 2, Toronto-Dominion Bank said it will pay $130 million and the Royal Bank of Canada $47 million. Toronto-Dominion will also hold $300 million in reserves for the class-action suit. The result on share prices was immediate. Since Aug. 2, the S&P/TSX Capped Financial index has fallen 4.1 per cent, wiping out one-third of its gains during the first seven months of the year. CIBC shares took the biggest hit, dropping 13.3 per cent, while the rest of Canada's five major banks had share prices suffer between 2.4 and 4.9 per cent. Even investors who felt bank stocks were overpriced and had shifted into insurance companies became victims of guilt by association. Since Aug. 4, Manulife Financial, the bluest of all chips championed by widows and orphans, has withered 5.5 per cent. And Sun-Life, which was embraced as having more growth potential, has shed 4.3 per cent of its share value. But there are other issues making some investors fear dark days ahead for financial companies -- expected lawsuits against the banks by their own shareholders, interest rates that the Bank of Canada is expected to start raising in September, and the fact federal finance minister Ralph Goodale has now kyboshed any chance of bank mergers at least until after the next election. CIBC shareholders are said to be on the verge of filing a multibillion-dollar class action suit related to the bank's settlement with Enron investors. After the settlement, the bank had already suspended its share buyback program and was expected to freeze any dividend increases, while industry observers figure its credit rating will be downgraded by agencies. Of course, many people feel any dip in the share prices of financial firms means they are on sale. Financial writer Larry MacDonald noted that four reputable guests on the ROB-TV program Market Call this week each listed CIBC as one of their top three stock picks. There's no doubt the days when banks were boring are gone. But uncertainty doesn't necessarily mean opportunity. Ray Turchansky is a freelance writer and income tax preparer. He may be contacted at turchan@telusplanet.net >>>>>>>>>>> canada.com