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A photograph of the Royal Bank of Canada sign at its head office in downtown Toronto on Dec. 2, 2011.Nathan Denette/The Canadian Press

Albert Friedberg is one of Canada's most successful hedge fund operators. He didn't get that way by sticking to conventional thinking.

The latest quarterly report for his funds shows some of the out-of-the-box reasoning for which he's well known. He's shorted Canada's beloved banks, a position we at Marketblog seldom see anyone fessing up to, at least in public.

Now, Canada's banks have received many well deserved plaudits for not lining up to feed at the taxpayer trough during the panic, unlike many banks in the U.S. or the U.K.

Canadian banks are profitable, pay decent dividends, and seldom behave recklessly in an industry that's well known for its dice-shaking behaviour.

The many well-known positives at the banks are the underlying reason for the negative call. The banks in Canada, in Mr. Friedberg's view, are over valued and ripe for a fall.

"Canadian banks trade at excessively high multiples of book, especially when compared with banks of other countries, and at a time when the banking franchise worldwide has lost a great deal of its glamour. Not only have banks been forced to deleverage, but the business has become over-regulated. Going forward, returns on equity are likely to disappoint," he says.

Mr. Friedberg doesn't give specifics, but the Royal Bank of Canada has tangible book value of about $19 and trades for a shade over $50.

In the U.S, the largest bank there, JPMorgan Chase & Co., has tangible book around $33 (U.S.), not much more than its $35.60 share price.

Mr. Friedberg is also short some European banks. He likes one bank though: the Bank of Ireland. This position is a hedge against his negative bet on the European banks.

The hedge fund maven does have an overall gloomy take on the future, predicting that a kind of financial gotterdammerung lies in store. He figures interest rates have dropped to such absurdly low levels they'll fuel more bubbles and eventually more busts.

In his own words: "Speculation will increase, bubbles of all sorts will form, capital will be misallocated once again and the rich, with easy access to financing, will gain at the expense of the middle and lower classes. More and different troubles loom on the horizon. What the recession of the past few years has not destroyed, the next speculative boom and its aftermath certainly will. Few will be left standing."

Mr. Friedberg may well be wrong. But then again, would you bet against someone whose flagship fund is up 41.5 per cent on a year-over-year basis?