Juggling Dynamite

Top line gains for the broad Canadian stock market over the past year have been driven by the financial sector as low rates have continued to drive yield-desperate capital into over-valued bank shares. Unfortunately as reflected in the chart update below, the real economy and the sectors that drive it like energy, materials, and Canadian housing are all in the midst of an ongoing downturn. Canadian banks have never been impervious to previous economic downturns, and with slowing global demand and debt-strapped Canadian consumers, financials seem particularly vulnerable this time.

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

Art Cashin, of UBS, discusses the “positive feedback loop,” where stocks go up for no apparent reason. Cashin says his frustration is that even though the markets have punched through key levels, people haven’t come in from the sidelines. Here is a direct link.

GMO’s Jeremy Grantham has spent decades thinking about some of the big issues that influence our existence and the global economy. He thinks that the assumptions which have powered the industrial revolution for two centuries are looking pretty threadbare. Grantham explains why he believes the world will see half the growth rate presently being assumed by Central Bankers. He explains the importance of energy innovation and the relief of declining population as birth rates continue to move down over time. He also makes the longer term case for investment in natural resources and farm land (but he says “after Bernanke has finished artificially suppressing interest rates, and prices have moved lower”). Here is a direct link to the audio interview.