In order to examine this topic, let us see the process of how a bank is created in the US:
Uncle Joe: Them banks make a lot of money.
Uncle Joe’s friend: Yup.
Uncle Joe: I want to make a bank and start making money myself.
Uncle Joe’s friend: Great idea! I’m in! What should we call this new bank?
Uncle Joe: How about “Uncle Joe’s Bank”…
Uncle Joe’s friend: Wow!
The conversation might be longer, but you get the drift. These kinds of conversations were the reasons why the US has so many what I like to call “Bugs Bunny Banks” that were one of the main reasons behind the subprime mortgage crisis that lead to the recession of 2008-2009.
The conversation above, however, does not apply to creating Canadian banks, because the requirements are much steeper in Canada. Because of that, the total number of Canadian banks is less than 20, and the number of Canadian banks where most people deposit their money is five.
Canada’s economy is highly dependent on resources (such as oil, gold, timber, etc…), and the world just can’t get enough of these resources nowadays because of the growing demand in emerging economies, so it is very hard for this economy to fail, which means that it is very hard for Canadian Banks to fail, at least under the current conditions. Not to mention, of course, that Canadian Banks use the soundest principles in the world.
Now that I have explained myself, take a look at RY and BMO, they released some less than expected results 1 week and 2 weeks ago, and their stocks fell immediately, but now, they’re both back to the pre-results level. It was an obvious buying opportunity when these stocks fell… I recommended RY two times last week, I wonder if anyone took the advice.
I like to trade these stocks, no make that “I love to trade these stocks”. Not only they go up shortly after I buy them, they also act as a hedge against currency inflation (I buy them in Canadian, so if the Canadian dollar falls, the stock goes up, which is great, because all of my other stocks are in USD).
RY (NYSE) is always a buy below $50, and BMO (NYSE) is always a buy below $55.