Financial ‘tainment would have us focus on US indices back near 2007 cycle peaks, but the reality of real life returns for investors have been much worse than this headline would suggest. In reality most portfolios have held overweights in popular sectors (metals, mining, social media), stocks, exotic products and new issues which have frequently lost money or dramatically underperformed the main benchmark return. People will often mention some winners they may hold. But it is the losers that can suck away benefits for the portfolio over all.
The Canadian TSX composite index has rallied over the past 6 months, but has not recovered the losses it experienced in 2008 or 2011.
Moreover most traditional portfolios have suffered even more from overweights in previously popular and now falling sectors like energy, materials and mining.
Source: Cory Venable, CMT, Venable Park Investment Counsel Inc.
Without the over-valued financial sector, the TSX would be somewhere closer to 9500 rather than present 12700. From here, priced-for-perfection financials look increasingly vulnerable to slowing global demand, weak consumer credit appetite and softening realty prices in Canada.
In a related story, Marc Faber, Editor & Publisher of The Gloom, Boom & Doom Report says China’s pace of growth depends on whether authorities can deflate the nation’s massive credit bubble. Here is a direct link.