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Media Co-op Investor: October Part II

We Scratch the Surface of ScotiaBank and Get Creeped out by Power Corporation

by Gwalgen Geordie Dent

Scotiabank Stock
Scotiabank Stock

Welcome to Media Co-op Investor!

The Media Co-op Investor Series aims to help the general public understand the stock market, how it works and the major companies which benefit from it.

Every two weeks we examine an element or term in the stock market, how the Toronto Media Co-op has done fake-investing in companies on the Toronto Stock Exchange as well as highlighting specific large Canadian Companies, why their price has gone up and down and what they are all about.

To learn more go here.

This Weeks Term:  Blue-chip, Large/Mid/Small Cap & Penny Stocks

While reading the business pages, you might see the following terms scattered throughout articles: Blue-Chip stocks, Penny stocks, etc.  These terms are simply used to describe the size, strength and stability of the stock in question.  

Remember from last week that the term market capitalization refers to the value of all the shares of one company put together.  Usually there is some degree of estimation involved in calculating a companies capitalization as the price of shares, the currency they are traded in and the overall economy can fluctuate day-to-day.

As a basic definition:

    •    Penny stocks (AKA micro cap stocks) usually have a small market capitalization usually less than $300 million and often trade below $5 a share.
    •    Small cap stocks: between $300 million and $2 billion;
    •    Mid cap stocks: $2 billion to $10 billion;
    •    Large cap stocks: more than $10 billion.
    •    Another category is something you may have heard called Blue Chip stocks.  These are considered to be massive stocks, usually over $200 Billion, and are considered to be the most stable in terms of their ability to make money, pay out a dividend and, most importantly, not go bankrupt.

It should be noted however that there is no universally accepted definition of small, mid or large cap stocks.

The size of a stock is important for a variety of reasons.  Some investors want to invest in stocks which would be considered stable.  For this the would normally go for stocks which are Mid cap to Blue Chip stocks because they may have a competitive advantage or stability in their growth.

However, as a relative of mine tells me, smaller stocks, specifically penny stocks, have a greater chance for people to make big money.  These are because smaller cap stocks have more room to grow and expand and may often see their stock price skyrocket (or collapse completely).

Penny stocks and Blue Chip stocks have some specific features which make them even more complex.

Penny stocks will often trade on something called the Pink Sheets (also know as Pink Quote or Pink OTC Markets).  Pink Sheets are a system where stocks can be traded outside the normal stock exchanges.  These are stocks which would be traded 'over-the-counter' meaning without any regulations.  Often times these stocks are traded very rarely, or are small.  Bankrupt companies are often found there as well.  Enron was traded on Pink Sheets for a number of years its collapse.

Blue Chip stocks are the opposite.  They are considered extremely stable, massive, widely held and solid as gold.  Unfortunately for investors, this is sometimes not the case.  Many companies that were considered Blue-Chip before the financial crisis collapsed spectacularly, often without any foresight from economic pundits.

Blue-Chip stocks-no-more include economic-crisis casualites like Lehman Brothers, Bear Sterns, Washington Mutal and General Motors as well as Canadian tech-giant Nortel.

What we invested in this week

This week we tracked 10 of the largest Canadian financial stocks.  We theoretically-bought about $1000 worth of each company on September 15th, with the exception of the Bank of Nova Scotia which we bought in August.

How we did this week

Good!  Our financial stocks have been on a roller coaster ride over the past couple months, but are now on an upswing.

Back in September the Big Five (Bank of Montreal, Scotiabank, Royal Bank, CIBC and TD) earning a combined $4.8 Billion. But this was mostly based on the fact that everyone thought the economy was recovering and the housing market was still rolling along.

But there have been major concerns about how the companies have been doing in the bond and stock markets.  Even worse are concerns about a war between the the G20 countries about "currency wars" where everyone is trying to devalue their currencies to get an advantage for exporting.     

Now the currency wars seem to have diverted due to an agreement between the G20 countries, but today the Bank of Canada governor, stated that the housing market might tank as predicted by the Canadian Centre for Policy Alternatives (CCPA) last month.  The CCPA it should be noted, accurately predicted in 2008 how Conservative tax cuts could lead to the current deficit.  

While we made money overall, if you compared our investing skills to the S&P 500, we did good for the week, but bad since we started in September as the S&P 500 had it best September in 70 years.

Todays Companies: Bank of Nova Scotia and Power Corporation of Canada

The Bank of Nova Scotia (AKA Scotiabank) has been around since 1832 and is one of the most powerful banks in Canada.  It is the third largest bank in Canada with close to 70,000 employees and $500 Billion in assets. It has heavily expanded in the Caribbean, notably Jamaica as well as Latin America and Europe focusing mostly on typical commercial and corporate financial services.

According to the book, Money Laundering in Canada by Margaret E. Beare and Stephen Schneider, a series in the Montreal Gazette in 1985 investigated the role of Canadian banks in money laundering in the Caribbean.  Scotiabank ended up being fined by the US Internal Revenue Service in connection with the investigation.  

In 2007 a class action lawsuit was filed against them regarding unpaid overtime.  Scotiabank has only one unionized branch in Canada.

Meanwhile Scotiabank was also tied up in the fiasco known as the Asset Backed Commercialized paper affair between 2007 and 2009.  The Investment Industry Regulatory Organization of Canada alleged Scotiabank continued to sell worthless commercial paper between July 25 and Aug. 10, 2007, even after they were informed that it has possible bad debt associated with it.  Three weeks later the market collapsed, and close to $32 Billion of the debt being sold became insolvent.

A study in 2008 called Financing Global Warming: Canadian Banks and Fossil Fuels found that Scotiabank was funding financing massive amounts of greenhouse gas-producing industries.  $12 billion went to financing these emissions and contributing 15 percent of total financed carbon dioxide as percentage of Canada's total energy emissions.

The website Banktrak "a global network of civil society organizations and individuals tracking the operations of the private financial sector and its effect on people and the planet" highlights problematic financing that Scotiabank does in the Tar sands, cluster munitions, mining in Goa and Indonesia and US coal power plants.  It also highlights the companies lack of policy in regards to human rights, labour, taxation, agriculture, arms trading, fisheries, and forestry.

Earlier on this year, The Canada Revenue Agency and a federal court order demanded that Scotiabank hand over names of investors, including 6 well -connected Canadian business families, to determine who was putting money into a $1.1 Billion offshore investment fund that they are the owners of.  They have so far refused.

Perhaps the most stomach-churning fact is that Scotiabank, like many of the other banks was the recipient of the well-over $100 billion bank bailout from the Canadian Mortgage and Housing Corporation (CMHC)/Canadian government in 2008/2009.  CMHC bought insured mortgages off of banks, like Scotiabank, to ensure their balance sheets would not be destroyed if the housing market collapsed.  

Thankfully, that's not gunna happen, right?

We bought Scotiabank stock for $50.90 in August. Our stock is up to $54.23 or 6.5% for a gain of $66.60.

The Power Corporation of Canada has probably the funniest name a financial company can have.  My friends and I joked about starting Evil Inc. after we heard about it.  It's also, not very well known to your average Canadian.  According to its website it began in 1925 and "is a diversified international management and holding company with interests in companies that are active in the financial services, communications and other business sectors."

It is mostly invested in media, paper, insurance and investment companies owning majority stakes in Great-West Lifeco, and IGM financial Inc. with subsidies like Great-West Life Assurance, and Investors Group, Inc.  They also own La Presse.

It's board is (and has been) loaded with crazy-powerful bigwigs, mostly from the Desmarais family: Paul Desmarais Sr. (CEO of Power Corp. and the 8th Richest Canadian as of 2008), his son André Desmarais (son-in-law of PM Jean Chretien), another son Paul Jr., Brian Mulroney, Pierre Beaudion (CEO of Bombardier), John Rae (brother of Bob) and former Conservative cabinet minister Donald F. Mazankowski.  Former PM Paul Martin worked on staff.

The Desmarais family is considered extrememly well-connected politically and  heavily allied with the Liberal Party of Canada, the Trilateral Commission, the Bilderberg group, the Carlyle Group and the Council on Foreign Relations.  They were implicated in the Iraqi Oil-for-Food scandal through their complex connects and subsidiaries. 

Paul Jr. has been one of the key pushers behind the SPP, the Security and Prosperity Partnership, which many accuse of pushing for a political and economic unification between the US and Canada.

They are known to have extensive political connections worldwide.  A 2009 article in The Australian highlighted the nature of the Desmarais/Power Corporation influence:

"Power Corporation is like an iceberg -- large and largely invisible," says David Beatty, a professor of strategic management at the University of Toronto."  "No one really knows the full extent of their power," says John Aiken, an analyst at Dundee Securities in Toronto who covers Canadian banks and insurers. "They are an enigma, and I think they like perpetuating that." The father and sons all declined to comment for this story."


We bought Power Corp Shares on Sept 15th for $27.53.  The are up to $27.80 or 1% for a gain of $10.80.


September: Potash Corp

September #2: Suncor and ARC Energy Trust

October: Shoppers Drugmart and Barrick Gold

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