Juggling Dynamite

This is an interesting, far-ranging discussion, worth a listen. Unfortunately the clip ends in the middle of his summary on how too loose monetary policies caused the financial crisis, and how similar policies threaten capital today. In closing he says: “…a necessary condition to have a financial crisis, in my opinion, is too loose monetary policy that encourages people to take undue risk and go out on the risk curve and do silly things. We should have shut this down in 1998, 1999, the NASDAQ bubble. We should have raised rates, we didn’t. Then we got the implosion.”

Then we got the credit/housing/commodity bubble…and implosion…then we got 3 years of QE…and now for the next trick??

“Stanley Druckenmiller, founder of Duquesne Capital Management LLC and one of the best performing hedge fund managers of the past three decades, talks about U.S. entitlement spending, political gridlock in Washington, Federal Reserve policy and leadership, and investment strategy.” Here is a direct video link.

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.”