Juggling Dynamite

I will be speaking at the Cambridge House Toronto Resource Conference on Thursday at the Sheraton Center Downtown with a keynote presentation at 3:30 pm (“Cyclical Opportunities in an Era of Deleveraging: How to Protect and Grow Capital Over Each Full Market Cycle”) and on an Economic Outlook panel at 4:30 pm with Ned Goodman and Frank Holmes.

This is my 7th year speaking at this annual conference. Hard to believe. When I first attended in the fall of 2007, the North American economy was just entering recession (missed by nearly everyone) and the commodity bubble was peaking at the highest prices seen in decades. Like bugs to a light, 1000’s of attendees flocked to the show. I was one of the few who was warning about the downside of over-exuberant prices. Today commodity companies and many of the materials themselves have dropped precipitously over the past 5 years. In many cases prices are the lowest seen in more than 10 years and the attendance will no doubt be a fraction of its former self. Such is the nature of humans and capital allocation: only in public markets are people attracted most when prices are obscene and the least when prices are the lowest.

You can see more about the agenda and register for free on line in advance ($20 admission at the door) here on the Cambridge House website.

With the US 10 year yield flirting with 3% again today, US stocks are bouncing further as bonds sell off, apparently all on the belief that the economy is so weak, QE might not be tapered this month after all. Of course, the fact that growth is barely breathing even with 3 years of monumental Fed intervention doesn’t seem to phase bulls who are happy to recommend stocks at similar valuations as they did in 2007 before the financial crisis was nary a phrase in the mainstream’s lexicon.

Nonsensical diversions aside: this big picture view of the Canadian broad market TSX ( we are hardware store to the world after all) is not looking so perky, continuing to wobble around the 12,800 level now since the fall of 2011 (well actually since 2006 but why quibble).  11,000 remains the downside neckline test needed to finally resolve whether this secular bear will complete the massive head and shoulder’s pattern that has been looming over it for the past 2 years.  Resolution has been a long time pending but market forces move at a pace all of their own. No one gets to command timing–certainly not central banks or governments. All we can do is time our own capital’s exposure to the price cycle. Such is the test of public markets: they are perfectly adept at driving the weak, impatient and unaware into assets just as price risks are the highest, while scaring them out once prices have collapsed once more. Heartbreak hill indeed.

Chart source: Cory Venable, CMT, Venable Park Investment Counsel Inc.

Also see today’s Breaking Bad in Commodities Markets for some more useful insight. To wit:

“The real tell in the commodities market is provided by the industrial metals. Their summer rallies have run out of steam already, largely because investors ultimately can’t ignore the impact of supply surpluses in markets such as copper.

That prices for these metals are faltering, as they have for most of the past two years, tells investors that the secret sauce of a sustainable commodities rally, strong demand, is lacking. So far this year, the S&P 500 is up 18% while the Dow Jones-UBS Commodity index is down 7%. No good news there.”

Young people today are desperately seeking places to train for productive careers. To do so, many pursue post-secondary degrees at all costs. And really who can blame them, its not as though there is a vast array of great jobs, apprenticeships or paying internships to chose from. So back to school they go. As part of the credit bubble over the past decade, the US government underwrote more and more student loans so more students could fund more school costs. Naturally admissions skyrocketed and banks and for-profit-schools reaped exponential profits as incentives stimulated quantity rather than quality education.

The students however are not faring well–coming out of the process worse for wear in many cases, with crippling debt (which can’t be expunged in bankruptcy), questionable credentials, and still poor job prospects. The below story on DeVry’s Ross School of Medicine looks at the cozy loop that delivers hopeful students to a life of debt-servitude.

If the west is to get back on track, we have to stop eating our young at the alter of perpetually higher profits for the status quo of larger, established corporations (who have enjoyed record earnings over the past few years some 70% above the long term average, but then claim they cannot afford to pay anything to student interns working for on the job training.)

DeVry Inc., which owns two for-profit medical schools in the Caribbean, is accepting hundreds of students who were rejected by U.S. medical colleges. Students at DeVry’s Ross University School of Medicine and American University of the Caribbean School of Medicine amass more debt than their U.S. counterparts. Although neither AUC nor Ross is accredited by the body that approves medical programs in the U.S., students at both schools are eligible for loans issued by the U.S. Education Department. Here is a direct video link.