I’ve done a bit of work over the weekend and wanted to show you the similarities in stock markets “crashes” in both the U.S and Canada.
Below is a 25 year chart of the SP 500.You can clearly see, the current level is the absolute best the SP500 could do over the past 25 years. Not even with the invention of the most sophisticated and influential communications device man has ever created (The Internet) back in 2000, coupled with massive employment, massive corporate earnings and massive global growth could the S&P push past its current level around 1550 – 1600. What on earth could possibly be the driver now?
Now have a look at Canada’s “TSX” over the same time period, and notice something concerning. The TSX has not participated in this last “blow off top” run that the SP500 is currently experiencing as (in my humble view ) it’s purely been fabricated by the Fed’s massive liquidity injection of 85 billion dollars per month.
Canada’s TSX Index is already showing signs of weakness in not even reaching the previous 2008 highs. It appears to be rolling over.
Previous crashes where from 11,000 – 6,000 and again in 2008 from 14,000 to 8,000. Ouch. It took nearly 6 years to recover the levels from the 2000 crash, and so far nearly 6 years later – the TSX has still not recovered the levels from the 2008 crash.
Considering that a large majority of Canadian stocks are resource and commodity related, one could argue that these companies may exhibit some resilience ( and /or even prosper ) in the face of a falling US dollar, and flows into gold and the precious metals. Although if history provides any lessons here – fear is fear, a crash is a crash – and as U.S equities go….. Canada may not be far behind.
Certainly something to keep an eye on.
We’ve briefly touched on a few of the “animal characters” you will encounter during your trading career. Bears, bulls, gorillas, snakes and wolves. Here’s a bit on Hawks.
Hawks carefully monitor and control economic inflation through interest-rate adjustments and monetary-policy controls. In general, hawkish investors prefer higher interest rates in order to maintain reduced inflation.
The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.
The global economy has unfolded broadly as the Bank projected in its October Monetary Policy Report (MPR). The economic expansion in the United States is progressing at a gradual pace and is being held back by uncertainty related to the fiscal cliff. Europe remains in recession. Chinese growth appears to be stabilizing. Commodity prices have remained at elevated levels since the October MPR and global inflationary pressures are subdued in response to persistent excess capacity. Global financial conditions remain stimulative, though vulnerable to major shocks from the U.S. or Europe.
In Canada, economic activity in the third quarter was weak, owing in part to transitory disruptions in the energy sector. Although underlying momentum appears slightly softer than previously anticipated, the pace of economic growth is expected to pick up through 2013. The expansion is expected to be driven mainly by growth in consumption and business investment, reflecting very stimulative domestic financial conditions.
This should bode well for long Canadian Dollar trades moving forward as a rise in interest rates is generally seen as good for the currency.