Juggling Dynamite

Another big swing day in global markets as HFT traders go wild and the media hangs on every syllable of central bank speak.

The global sell off to date has been vicious and abrupt and as usual, has knocked most participants off balance. It is entirely typical that we could see a bounce back of some duration; but cash remains scarce and bets heavily levered.  The secular bear is not dead yet.

A decline of just 10% in US stocks was enough to make Fed members start talking about rate hike delays again this week. As if a .25 rate move either way matters a wit in supporting anything meaningful at this point. Chinese stocks that have crashed 50% since June, managed to rally a bit in the last hour of trading as the People’s Bank stepped in to try and calm nerves before a public parade. Lest we the lose the plot here, central banks are the problem, not the solution. They have created a monster of over-valuation, capital mis-allocation and moral hazard worldwide. Fortunately not everyone has lost their mind.

Jim Grant, founder at Grant’s Interest Rate Observer, speaks with Olivia Sterns about the role played by the Federal Reserve in recent market turmoil.  Here is a direct video link.

Capital Dynamics Chief Executive Officer Tan Teng Boo discusses the China stock rout and why he’s predicting another global financial crisis. Here is a direct video link.

As the China miracle continues to mean-revert what many in the world had misconceived as insatiable demand, sober insights on the commodities/credit boom now busting in Australia offers similar warnings for Canada and other commodity centric nations.  See:  First the Miners, now the banks, and then comes property? 

For those who still want to believe that the latest commodity super cycle is not yet dead but only pining, we offer the following chart of the resource focused Canadian Venture Exchange, below since 2000. It is well past time to admit facts.

Having fallen steadily since global growth began weakening again in late 2010, the index has now retraced the entire gains of the China story from 2001 through 2008–and then some. At 528 today, shares in this index have lost a collective 84% from the euphoric peak in 2007.  Those who were ‘buying the dips’ throughout have been ground to dust.

It’s also important to note, that historically secular booms in commodities are followed by secular busts of 10 to 20 years as the industry consolidates to a fraction of its former self, rightsizing previously frothy household spending, finance and property sectors along for the ride.

As we consider these implications for the broader Canadian stock market (TSX shown below since 2005) , it is key to comprehend that the 15% decline to date, has still mostly been about losses in metals, minerals and mining, with the accompanying rightsizing of the finance and property sector in Canada, all yet to come.  This is why a potential retest of the 2009 lows (green band) and possibly lower, must remain on the radar.

Danielle was a guest today with Kerry Lutz on The Financial Survival Network talking about recent trends in the world economy and markets.  You can listen to an audio clip of the segment here.