June 5, 2018 comment and an update for American Express

On Tuesday, the S&P 500 was up 0.1% and Toronto was up 0.4%.

The seemingly unstoppable Amazon was up another 1.9%.

CRH Medical was down 2.2% but this gives back only a small amount of the recent gains.

Yesterday I doubled my small remaining position in Berkshire based on my recent update for that stock and given its recent pullback.

Canadian Western Bank will report earnings on Thursday. It’s always possible it will have a poor result due to loan losses. But that is not my expectation. As largely a pure lending operation, CWB tends to report steady gains quarter after quarter. Loan losses however can be volatile.  Given the steady improvements in the Alberta economy (though it is not fully recovered), I would think that loan losses would not be unusually large.

In any case even if CWB reports quite good results and a positive outlook, the market may not respond. The market has been concerned about Canadian Banks in general, mostly on the consumer lending side. CWB is mostly a commercial lender. Still, the negative sentiment affects it.

Despite the uncertainty, I added to my CWB position today.

Speaking of banks and loan losses, the Canadian Bankers Association posted the latest figure for mortgage delinquencies a few days ago. Their latest update is somewhat out of date as it is for the month of February. Ontario continues to have record low 90-day delinquencies at just 0.10% or 1 mortgage in a thousand. Similarly the d90-day delinquency rate in British Columbia is at near record lows of 0.15%. Houses in Vancouver are often said to be affordable. But somehow, virtually everyone with a mortgage is managing to keep their payments relatively current and very few are more than three months behind. These delinquencies could rise if one or more of the following three things occur: 1. A recession with job losses 2: A significant rise in interest rates as people renew, or 3: A significant drop in home prices that might cause some people to give up trying to pay. Another possibility might be if people have trouble renewing due to mortgage stress tests. But my understanding is that anyone stating with the same lender will not be subject to a stress test.

The report for American Express is updated and rated (higher) Buy at $99.34.

After several weak years, American Express has seen earnings rise rapidly in the past three quarters. And it is expecting about a 20% in 2018 boosted by the lower income tax rate. While VISA is the clear leader, American Express appears more attractive at this time.