Some people don’t realize that marketing for financial newsletters is at least as much about finding successful pitches that will catch your interest as it is about touting the latest and greatest stocks picked by a particular newsletter pundit. They often come up with a new ad to sell their newsletter when they’ve discovered an exciting new pick with a good story behind it …
… but at least as often, they simply continue re-sending the same marketing letter for years regardless of whether the stocks being teased are still the favorite pick of the newsletter editor (and in a few rare cases, we’ve even seen stocks teased in heavy promotional barrages that readers have told me aren’t even in the newsletter’s portfolio anymore). The goal is to get your attention and get you to sign up for a newsletter… so when they find a spiel that works, most of these publishers will milk it until it’s dry.
Today is a case in point — Michael Lombardi runs several newsletters, and for this Investing with Michael letter he’s been promoting his “New Swiss Bank Account” idea very consistently since he first ran the ads (or at least, since our network first detected them). That was in January, 2012, almost three years ago … and I continue to see them every few months.
Including today. And yes, the ad is virtually the same as it was in 2012. He’s still implying that this investment is on par with a “Swiss bank account,” with higher yields, and is backed by precious metals and other natural resources, and that’s still quite an exaggeration in my book. So for this teachable moment we’re just re-running that article.
And frankly, it’s still pretty accurate — the yields on these investments are similar to what they were then, mostly a bit lower now since they’ve gone up in price more than the dividend has been raised… and they’ve been pretty boring. It’s still remotely possible that he might have been teasing the preferred shares of these banks instead of the regular common equity, but I don’t think so — partly because there’s little chance for capital appreciation with preferreds and he teases potential for substantial gains beyond the yield they provide.
Over the last three years they’ve been relatively steady investments. Their dividends have not grown dramatically, and the stocks have not performed spectacularly well (they’re mostly up between 20-30%, ignoring the dividend, in the three years since this article first appeared, which is dramatically worse than the 60-80% returns you would have gotten from a basket of US bank stocks or from the S&P 500 during that time). And they still trade largely as a group, though not in complete lockstep.
But yes, the pitch is the same — want to see if you find it interesting?
What follows has not been edited, updated or revised since it appeared on January 23, 2012. We’ve kept the original comments appended in case you find them interesting.
The latest pitch from Michael Lombardi is for one of those “limited to our best customers” newsletters, something he calls Investing with Michael, which seems to mostly be a safety-focused large cap stock picking service. If that’s true then a thousand bucks a year is a bit steep, but certainly not unheard of — and that’s after they have, of course, “slashed” the price for you, their very most special-est customer.
Lombardi says that he’s an “investor, not a trader,” and that this service will supply at least six conservative investment picks per year… along with two special reports.
The report that’s catching the eye of my readers lately is called The New Swiss Bank Account: How Canadian Safe Haven Investments Pay 5.1% Every Year on Top of 44% Returns — so what’s he talking about?
Well, he starts off with a long diatribe about how Canada is the new Switzerland — with a stronger bankings system, better regulations, a pro-business government, great natural resources wealth to back their currency, no ties to the weak euro, etc. etc.
Here’s a taste from the ad:
“Yet, there’s a tiny group of investors who are not worried about the euro, dollar or any other crisis.
“That’s because they have their money safely tucked in the ‘New Swiss Bank Accounts.’ At this moment, they are enjoying safety, privacy, and security, along with Treasury-busting yields of 5% per annum and returns on capital exceeding 44%.
“That’s why …
“The Guardian Declares These Investments ‘The Envy of the World’
“‘This is the last safe country on Earth,’ I explained to a business associate on one of my recent trips to Europe. ‘Nobody is talking about this place, but you won’t find a safer place for your money—not even in Switzerland.'”
More? You asked for it!
“You also get privacy. This nation ranks nearly the same as Switzerland in banking privacy, according to the Heritage Foundation.
“And security. Though relatively tiny in population—with a smaller population than Spain and Poland—you won’t find a more stable and secure nation on the planet. It has a long history of pro-business regimes, from colonialism to independence.
“Not only are these ‘bank accounts’ backed by gold and silver resources, but they are also backed by oil and deposits, timberland, and mineral wealth. You can feel safe knowing your money is backed by precious metals and other valuable commodities.”
He then goes on to “let the cat out of the bag” in case you hadn’t guessed, and clarify that yes, this “New Swiss Bank Account” is something to do with the Canadian financial system. Here’s some more:
“… unlike bank accounts in Switzerland—which are complicated and cumbersome to open—opening a New Swiss Bank Account is easy.
“You put your money into a special ‘bank account’ based in Canada. It’s 100% legal, and can be accomplished using your normal brokerage account (including your online brokerage). It takes only 30 minutes, and you can open a New Swiss Bank Account starting with as little as $49.
“You don’t even have to be Canadian citizen.
“I should also be clear that opening a New Swiss Bank Account is NOT opening a regular bank account at a Canadian bank, such as a savings account. It’s NOT buying a guaranteed investment certificate or certificate of deposit from a Canadian bank. It’s also NOT buying Canadian Treasury bonds.
“These fixed income investments might be safe, but they only pay measly rates of 1.2% to 2.4%.
“Nowhere near the 4% to 5% you’d get from a New Swiss Bank Account. And you’d lose out on the benefits that you get with the New Swiss Bank Account, such as the opportunity to have your investment increase in value. Because, unlike a regular bank account, your New Swiss Bank Account can increase in value, just like a stock….
“New Swiss Bank Accounts are a very special kind of financial instrument, fully backed by Canadian banks, paying yields exceeding 4%.”
So which investments are being teased here? One last clue:
“The top two New Swiss Bank Account companies in Canada today (in terms of biggest current yields). One of these companies will pay you 4.4% and another pays you 5.1%, guaranteed for the next 12 months. I’ll also tell you why I expect these payments to increase in the coming years.”
Well, we toss all that into the mighty, mighty Thinkolator and, considering those clues, have to accept the answer that comes out the other end: these “New Swiss Bank Accounts” are … common shares of Canadian banks.
Not as sexy as we thought, eh? Still, hard to argue with the performance the big Canadian banks have shown since the financial crisis (and, frankly, during the crisis — at least compared to US and many other global banks). And the big five Canadian banks do generally have solid yields, good reputations, and prospects for dividend growth. So what are the “top two” from Lombardi?
Well, it’s pretty clear that he’s picking the top two yielders among the big “safe” banks, so that would be Bank of Montreal (BMO) and Canadian Imperial Bank (CM), both of which yield about 4.7% right now, though 4.4% and 5.1% would have been possible effective yields in recent months (Lombardi’s ads don’t necessarily stick with “up to the minute” numbers in their teasers).
Those are also the two Canadian banks that did worst in the financial crisis, though most of the group trade pretty closely together, and they’ve slightly outpaced some of their peers in the last couple years. You can find lots of articles extolling the virtue of Canadian bank stocks for safety and dividend growth, and for a generally less risky play on the North American financial sector that doesn’t come under all of the same regulatory, housing, and bailout-connected upheaval that causes shares of big US banks to be so volatile.
There are still risks, of course — plenty of folks think Canada is headed for a housing slump, perhaps even a crash (though sentiment seems to be that the overpriced, crash-threatened segments of Canadian housing are localized in a few hot areas), and Canadian banks, though not as global as US banks, certainly are susceptible to the same kinds of macro forces that are making most bankers quake in their boots these days … even if Canada’s economy is more resilient than many. That resilience, of course, does have a bit of cyclicality to it — Canada has both a big manufacturing sector (including lots of auto manufacturing) and a large reliance on oil exports to the U.S. and commodity exports, particularly lumber and agricultural commodities, to the rest of the world. So if the world gets sicker, we might expect Canadian exports to suffer, though they’re not necessarily as directly tied to the health of one economy as Australia is to China, for example.
The other banks? The ones you’ll hear mentioned (and which trade in the US) are all large, here they are along with their ticker, their dividend, and their trailing PE ratio and current price/book ratio, all according to Yahoo Finance:
- Bank of Montreal (BMO) 4.7% PE:12 P/B:1.5
- Imperial Bank (CM) 4.7% PE:11 P/B:2.1
- Bank of Nova Scotia (BNS) 3.8% PE:12 P/B:2.1
- Toronto-Dominion Bank (TD) 3.4% PE:12.5 P/B:1.6
- Royal Bank of Canada (RY) 4% PE:17 P/B:2.1
(FYI, number six on the list, in terms of size, would be National Bank of Canada, which is far smaller with a market cap near $12 billion and isn’t listed in the US).
BMO and CM, in addition to being the two highest-yielding, are also the smallest (market caps between $30-40 billion, so not really “small”). Each of the banks has different books of business across different provinces to some degree, and the big Toronto standard-bearers (TD and RY) seem to be priced at a little bit of a premium, as you might expect. The variations in Price/book value stand out to me and make BMO and TD look a bit more appealing (TD has also had the best dividend growth among the Canadian banks in recent years, averaging around 8% annually), though it’s hard to delve into the distinctions between these banks without better understanding their balance sheets and geographic exposure … and I’m not going to do that, because digging into bank balance sheets makes my brain heat up so much that my hair starts to hurt. Suffice to say that Lombardi seems to be teasing some big Canadian bank stocks as the equivalent of the “New Swiss Bank Account” … and that most of the laudatory quotes he uses (like that one from The Guardian) are from 2009, when Canadian banks started to really pants the US financials in the rebound.
So what do you think? Do you think these big Canadian banks are still hot picks a couple years after they proved optimistic investors right following the financial crisis? If so, would you also go for the two highest yielders and single out CM and BMO, or do you have other favorites? Let us know with a comment below.
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