Venture exchange signalling next global recession?

The resource-based Canadian Venture Index is today down another 2%.  Around 807, the index has taken out its previous 2013 low with no support now left between present levels and the 639 and 678 recession lows reached in 2001 and 2008.

This decline is what we thought was probable as the resource sector completed a secular peak in 2008/11 and has been mean-reverting ever since back to the lows from which the great consumer credit/China/commodity boom began in 2000.  I explained the factors driving all of this in this presentation I gave in January 2013, which is available here.

Financial analysis and risk management, in real time, are more art than a precise science. It takes a multitude of disciplines and humility to do the job well, and predicting exact turning points is highly unlikely. But if one can get general themes right and avoid losses, we have a good chance of protecting and growing capital over full market cycles no matter how treacherous the conditions may be. In doing so, we can end up miles ahead of the herd-following masses.

As I review this presentation today, the break down in general stock markets took about a full year longer than we thought likely. And the wait has been tedious. But the delay only means the downside is now likely to be all that much deeper.

Here is a September 2012 version of my partner Cory’s secular chart of the Canadian Venture exchange that I refer to in the presentation. He noted the previous secular lows as the next cyclical test marked in red on the far right bottom. The question is will the resource sector hold here, or does full mean reversion require a move below prior support. Ironically QE mania and the capital misallocations it encouraged over the past 2 years, now make that scenario more likely.  Same goes for the lagging broad market stock indices.

Venture 2012 secular view

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