Long term portrait of the loonie and Canadian stock market

This chart of the Canadian dollar (CDW in red) and the Canadian stock market (TSX in blue) since 1997 captures the historically tight correlation between the country’s petro-currency and stock market.  There was a brief disconnect in 2000, when the loonie began to swoon at the start of the year and the broad market rallied into September on blind love for dividend paying shares like the banks and pipelines, along with misguided faith and creative accounting at Nortel.  Nortel went bust of course, and the dividend paying stocks crashed more than 40% in 2001-03, and again in 2007-09.

We can see another major gap between the loonie and the TSX today and the same financial gurus are assuring us all that this time is different.  ‘Course, they always say that.
TSX and C$ since 1997

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Consensus continuing to miss big picture

Pal’s comments here are more cogent than most in explaining the key factors now sweeping the global economy and markets.

Discussing how much higher the dollar could climb and the impact it will have on commodities, with Raoul Pal, Global Macro Investor Publisher. Here is a direct video link.

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Education models transforming

In the aftermath of the credit bubble, students and their parents are no longer able or willing to borrow mind-boggling sums to ‘afford’ education. Governments will not be able to continue underwriting super-sized post-secondary costs either. Economic realism is demanding new, more efficient learning models. More savings for consumers and more creative destruction for institutions that have become impossibly bloated and disconnected from the financial resources of their customers. Sal Khan is a leader in this revolution. His insights in this discussion are worth the time.

Khan Academy’s Sal Khan discuss whether or not online education will ever replace traditional classrooms, and why he thinks paying for that MIT or Harvard degrees may be “a little bit suspect.” Here is a direct video link.

Here is segment two of his interview. Here is segment three.

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Driverless cars disrupting traditional insurance business

Technological advancement is not only disrupting the traditional business models of energy producers. Driverless cars are another massive disruptor on the horizon. A lot less accidents will be an enormously positive change for drivers and taxpayer-funded health care, while lowering insurance costs, and thus evaporating a cornerstone of traditional insurance profits. On the other hand, blame for whatever accidents do happen will more likely fall on manufacturers, who will need to increase their insurance coverage. The world is in the midst of massive change. 10-20 years from now, what we think of as state of the art today will be considered old-fashioned artifacts.

The advent of driverless vehicles may be a game-changer for insurers. The need to address legal issues, such as third-party liability in the event of an accident, is becoming more pressing. Here is a direct video link.

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Saudis racing to diversify away from oil

Saudi Arabia has seen the future and understands that the world is moving away from oil. Eh tu Canada?

Saudi Arabia relies on oil exports for around half its revenues, but as low oil prices raise the country’s deficit, non-oil economic growth has been slowing too. Bloomberg’s Willem Marx reports on efforts by some Saudis to diversify the Kingdom’s economy.Here is a direct video link.

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Understanding why financial foundations are broken and how they must be restored

2016 political contests should be all about which leaders articulate the most defined plans to support a revolution of our energy, infrastructure and finance systems. All 3 issues are foundational, and present the most obvious opportunity to make dramatic and lasting improvement for our future.

A failure to enforce necessary controls and prosecutions in finance over the past 20 years has been a significant cause of the secular decline now gripping the global economy. It doesn’t need to be this way. We have the historical precedent to make lasting improvement. Better Markets has put together a helpful primer on the US Presidential candidates and who is saying what so far, along with a detailed summary of the Glass-Steagall financial reform law and efforts to reinstate it. Read the 8 pages here:

After the Great Crash of 1929 and the Great Depression of the 1930s, laws were passed to create layers of protections between the gambling on Wall Street and the hardworking American families on Main Street. Importantly, these layers of protections were of different types: structural, regulatory and supervisory.

The Glass Steagall Act was the key structural legal protection enacted. It prohibited the same bank from engaging in both relatively low risk traditional commercial banking (using FDIC insured and Fed backed savings accounts to make mortgage and business loans) and high risk investment banking (running mostly unregulated trading and securities). For more than 60 years, the Glass Steagall Act kept those activities separate and during that time, the U.S.had the highest rate of economic growth in its history while the financial system avoided catastrophic crashes.

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