Juggling Dynamite

Canadian dollar index (FXC) broke below .70/U$ this am as West Texas Crude broke below $32 and copper below $2.00.  Canada can’t catch a break these days.

The TSX is officially into bear market territory, now down more than 20% from the cycle peak in September 2014 and falling… Closing below 12,700 (dotted line below) last week, the next key test is the 11,000 area (brown bar below) which was the dot.com peak in September 2000, as well as support that held through the QE-led exuberance of late 2009 to late 2012.

If the 11,000 support area fails once more, we will be watching for a test of the 2009 uptrend (yellow bar) in the 10,000 area.  Ultimately, history suggests that if the present downturn is to be the third and final cyclical bear to end the secular bear that began for stocks from extreme over-valuations in 2000, then a retest of the March 2009 lows (green bar) in the 8,000 level is in the cards for the TSX composite.

The Canadian dollar (red below) typically leads the Canadian stock market (TSX in blue since 1999), and it’s already below the 2009 low as shown here.

At Venable Park, we have long suspected that at least one more test of the 2009 lows was probable before this secular bear could end.  Time will tell if that thesis was correct.  One thing for sure, few financial managers have told their clients or investors that this is a probability.

California finally declared a state of emergency this week due to the methane gas leak that has been gushing in the Alison Canyon (30 miles from LA) since October with no end in sight.  Just one more major ecological disaster harming every living thing that will take months to stop, never mind clean up.  See:  Porter Ranch gathers for Town hall meeting.

Another disaster harming health and home and reminding yet again of why the world needs to evolve to smarter fuel sources. Way past time to wise up.  Yes we can.

The rising U$ is wrecking havoc on China and other developing economies which pegged themselves to the U$ for trade purposes over the past decade. While the dollar weakened this helped those countries sell goods, but as the dollar strengthens it is making their exports more expensive and less attractive as demand is contracting all over the world.

Michael Darda, chief economist at MKM Partners, discusses the link between monetary policy and global market volatility and concerns over Chinese debt. Here is a direct video link.

The same easy money policies drove debt growth and over-spending all over the globe between 2003 and 2015. The end of that era means a hard reversal everywhere all at once.  See The end of monetary illusions shocks markets:

 Central bankers are no longer the circuit breakers for financial markets.

Monetary-policy makers, market saviors the past decade through the promise of interest-rate reductions or asset purchases, now lack the space to cut further or buy more. Even those willing to intensify their efforts increasingly doubt the potency of such policies.

That’s leaving investors having to cope alone with shocks such as this week’s rout in China or when economic data disappoint, magnifying the impact of such events.

“The monetary illusion is drawing to a close,” said Didier Saint Georges, a member of the investment committee at Carmignac Gestion SA, an asset-management company. “With central banks becoming increasingly restricted in their stimulus policies, 2016 is likely to be the year when the markets awaken to economic reality.”