Juggling Dynamite

Macro shocks are a constant throughout time. The market impact is often dramatic in the short-term. Longer-term, outcomes vary depending on the level of optimism that was priced in when the shock hits.

Coming into 2026, most asset markets were exhibiting excessive optimism -pricing the best of all possible outcomes. Just one example: the S&P 500 came into the year trading at 28x its trailing 4Q 2025 earnings — among the top 4 most euphoric episodes since 1900 (shown below, courtesy of B of A). Historically, periods of sharp mean reversion have always followed. Sentiment tends to be contagious.

Other global markets have been less optimistic than US large cap stocks, but in comparison to delirious, less crazy can look relatively better, and still be irrational.

Canada’s TSX index has a very small tech sector and yet, the ‘risk-on’ Canadian stock market leapt with tech-soaked US markets into 2026.  The NASDAQ (below in red since 2024) peaked in October 2025, while the TSX (in black) rose into January. Both are selling off today, and although fossil fuels are up sharply, the energy-heavy TSX is down more than broader US markets.

While the US dollar is up sharply against the basket of global trading partners, it’s weaker versus Canada’s loonie. The thinking is that higher oil prices may keep the Bank of Canada from further policy easing.  It’s a question of how deeply Canada’s economy and stock prices contract. With Canada’s housing market now in its 4th year of mean reversion, the Bank of Canada’s resolve to hold is still to be tested.

Periods of rapid leverage expansion often appear like progress until liquidity tightens. Like recent years, in the mid-2000s, structured credit markets grew rapidly outside traditional banking channels, supported by reckless lending and wilfully blind underwriting assumptions. Stress began in narrow segments before spreading more broadly in 2007–2010.  The NASDAQ (below in red) peaked in October 2007, while the commodity-centric TSX held up to June 2008. Both then collapsed in unison as risk-on markets imploded through March 2009.

In the last tech buble, the NASDAQ peaked in March 2000 and the TSX in August 2000; again both then tanked together into the fall of 2002.

None of us can know what happens next in world events. But that’s always true. What’s different this time is that capital risk has rarely been higher, and after a period of record over-valuation, the masses have a painful payback period due.

Private equity returned fewer profits to investors for a fourth straight year as the industry sat on $3.8 trillion of unsold assets and struggled to raise money for new funds.

Distributions as a percentage of net asset value remained at 14% last year — the second-lowest level since the depths of the 2008 financial crisis, according to a new report from Bain & Co. And the duration of the rut is even more severe than what private equity firms faced then. Here is a direct video link.

Also see, Private Credit Fund Is Selling $477 Million of Assets at 94% Value as Industry Worries Continue.

From 2009 to 2022, alternative and private lenders multiplied as traditional banks tightened underwriting standards and yield-starved investors looked beyond conventional options. As usual, ‘easy money’ led to overconfident, under-analyzed allocation decisions across many asset classes at once.

Real estate busts tend to be slow-moving, and then suddenly, all at once. Eight years after the US commercial market peak, the price discovery in current sales is wiping out years of prior price appreciation. The 90% price cut to a landmark Chicago building highlighted below gives a sense of the magnitude of write-downs unfolding.

Chicago office buildings continue to get massacred…

A landmark Chicago Loop office building recently took a massive ~90% ‘haircut’

The 1.4M SF building sold for $41M or just $29 per SF

It last sold for $306M in 2018, per Crain

Absolutely brutal pic.twitter.com/EOqAGJCe7E

— Triple Net Investor (@TripleNetInvest) February 25, 2026

Residential markets have largely frozen on the still-massive overshoot between current asking prices and the level buyers are willing and able to pay. With sales volumes at 45-year lows in 2026, price discovery remains far below what most can presently fathom.

New home sales are approaching an all-time low in Toronto. Janice Golding has more on the struggle to sell recently built housing. Here is a direct video link.

If the Canadian average national home sale price were to return to even 2018 levels, it would require a further drop of 25% from 670K today to about $500k (and a drop of about 40% from the February 2022 peak of $827k).

If you think that can’t happen, you are not well-studied in the aftermath of real estate bubbles.

Broad price discovery is yet to occur in equity, credit and ‘alternative asset’ markets. There will come a day, there too, when people will look at their purchase prices and account statements from the glory days of the bubble and say, “What were we thinking?”