Juggling Dynamite

Market cycles during secular bear periods are repeatedly savage. Those who buy and ride valuations beyond reason on the upside repeatedly pay with sweat, tears and capital losses on the downside. Once markets move through their natural course of mean reverting prior exuberance, previously confident participants typically panic and liquidate, locking in permanent losses. But even those brave and patient believers who are able to resist selling and hold on through the cyclical declines are rewarded with lost years holding and hoping to make back capital losses. Financial types assure us this is progress. In truth it is the opposite.

The chart below shows the drawdowns, rallies, and negative capital progress for those holding the broad Canadian stock market (TSX composite) over the past 7 years since the summer of 2008. Of course when you add in the notional 3% annual dividends, the annual return becomes modestly positive over this holding period. That is if holders were not paying any investment fees or withdrawing any income from the portfolio.

Sure, in the heavily marketed, make-believe world of theoretical investment returns, no one ever panics and sells near market lows, or adds life savings near market highs, or pays any fees, or withdraws any income, and they always have cash and nerve to buy more at market bottoms–yep, in theory there is nothing to detract from the magic of compound growth assumptions. Sure in that world–the one laid out in finance marketing materials–investing our savings in capital markets is a no-brainer.

One can imagine that few will be content to ‘hold’ their equity exposure as the bear market deflates market prices from current levels and possibly back towards the 2009 lows–or even lower. The resource heavy Canadian Venture Index has already broken below the 2008 Great Recession lows as shown here. No reprieve is yet in sight.

Shown below since 2000 (in bright color for the weekend!), US 10 year Treasury yields have traditionally been smarter than the equity market in determining turning points in the economy.  Today the gap between the two indicators is positively garish as yields turned down with economic growth in 2011 and US stocks did a Wile E. Coyote off the QE cliff.  Mind the splat below…

Here is some further commentary from my partner and technician Cory Venable.

This documentary was brought to my attention by a reader who explains that he has been adversely impacted by the influx of wind turbines near his home. I believe him. The issues here are complex and we all have much at stake. We must learn to do things smarter and better–and we will. There is endless room for improvement. But change is necessary and we will continue to revolutionize our energy policies and solutions for the rest of time. Maintaining the ways of yesterday is not an option here.

Big Wind” explores the conflict over the controversial development of industrial wind turbines in Ontario. It is a divisive issue that at times pits neighbour against neighbour, residents against corporations, and the people against their government. Here is a direct video link.

We must not kid ourselves, there are benefits and costs to every energy source and even the most cutting edge equipment and applications used today will no doubt appear primitive and worse even 5 years from now. We should also realize that the environmental and health costs of our fossil fuel epoch continues to compound with a full cost that is yet to be assessed. Much of its devastation also takes place in rural settings far away from view of the masses. The Alberta Oil Sands is one of the more heinous examples of this, where out of sight, out of mind, allows consumers to ignore the devastating impact of our current habits and complacency. The Arctic is another largely hidden crime scene for all this.

There are legitimate concerns advanced by opponents directly impacted by wind turbines. And striking a democratic balance between the interests of corporations, individuals and the collective good is always a critical and imperfect process. Transparency and full disclosure in public discussion and negotiation are crucial antiseptics to deceit, greed and cronyism.

It is also important for us all to acknowledge that individual families and communities have regularly been displaced and harmed by advancing civilization through time. Some of this is unavoidable. Some of it can be addressed through due legal process and monetary compensation. But some individual harm defies recompense. I cannot help but think of indigenous peoples that were brutally displaced all over the world when the land we now jostle over was literally taken out from under them.

Lastly it is important to realize that much of the negative commentary about the limitations and intermittence of renewable powers (some of which are voiced in this report) will continue to resolve through the ongoing now galloping innovation in storage systems, batteries and inter-regional grid sharing.