Keep up the bad work

October 27, 20236 Comments

With one of the weaker stock markets in the world, one has to wonder what’s gone wrong with the TSX 300. I’ll look at the chart first, then talk about some “internal” problems. After my obvious displeasure in the Canadian government decisions guiding our economy, I will, at the end of this blog, point out an opportunity in this mess. With every cloud comes a silver lining, right?

The go-nowhere TSX 300 chart

Do I need to point out the go-nowhere rectangular pattern for the TSX that differs so greatly from most developed world charts?

Do I need to show you the World Index Chart (XWD-US) to illustrate the vast differential of the TSX’s underperformance?

So, whazzup with Canada?

To start, we’re all aware of the materials sector’s bad performance, and longer termed flat pattern. This sector is about 11.6% of the TSX 300. So its significant, but not as large as energy (19%), financials (30%) and industrials (13.5%). Nonetheless, it has a negative impact on performance.

Oil production & profitability

Canada is the sixth largest oil & gas producer in the world. WTI oil is back to $85  after hovering in the $60’s-$70/ barrel early this year. But with carbon taxes on production, not to mention de-incentivizing of production growth, the sector isn’t doing as well as it could –  and its about 19% of the index. Don’t forget energy’s influence impact other sectors in Canada. Housing, materials, you name it. Quite frankly, a governments job is to do best by its people and its economy. Destroying its most important industry is about as opposite to that duty of stewardship as one could witness. This is akin to the US government destroying its technology sector, or Greece’s government tearing down its olive trees.

“Trudeau’s policies on oil and the green movement are “Moronically stupid – Canada has been taxing away production.  when it should be incentivizing.  Rafi Tahmazian

Banks

And don’t forget, our banks have historically benefitted via financing energy projects. This ties into the de-incentivizing government polices noted above.

Not to mention the flood of money by government print n’ spend projects creating a supply/demand inflation problem. Higher rates to push back on inflation  have reduced spending by consumers of late – directly impacting banks.  A big chunk of the TSX 300 (also 19%+) is in the banks.

So here we have two large sectors of the TSX being directly harmed by government policy. This all adds up to a go-nowhere chart.

Say it ain’t so!

Whadda ya mean you cant spend billions frivolously and avoid inflation? Finally the Bank of Canada Governor spills the beans! Gosh, its great when the guys at the top finally reach the conclusion that I have been warning about for FIVE YEARS!!!!!

 

Well, according to Finance Minister Freeland, Canada has a  “very fiscally responsible budget.”

Which of course, we don’t. Full stop. Tiff Macklem, BOC (above) acknowledges this irresponsibility.

“Claims made by the finance minister about the federal budget were dubious and should raise eyebrows.” Fraser Institution

In the news today:

Weak August employment number from the SEPH  (August employment down -47k) added to the pile of evidence that the Canadian labor market is steadily softening.”

“The recession will arrive in Canada earlier than its neighbor in the south.” David Rosenberg 

The upside

There is upside to all of this nonsense. The TSX chart clearly shows a range bound pattern. You guys know that there are few situations that are as easily traded, with such a well defined buy, sell and stop-loss points as a rectangular chart pattern.

If you have not watched my stagflation video, I strongly recommend that you take the time to do so. Its a must-watch. As I noted in that video, now is NOT the era of Buy n’ Hold. Its all about trading now. And the TSX is about as tradable a pattern as we could witness.

For that wonderfully tradable pattern, we must thank the incompetents who are currently running the country. Thanks for the easy trading opportunity, guys. Keep up the bad work.

6 Comments

  • With all the doom and gloom in every aspect of Canada, it’s good to hear that there’s still opportunities for those who think outside the box. Great, to the point article, as usual Keith.

    Reply
  • Keith, I greatly appreciate your blogs and investing advice, and I never miss reading your articles, but I have to disagree with your views on the energy sector. This sector is thriving. Companies stock prices are soaring, and they are paying record dividends and growing dividends. IMO for example just reported record earnings. We also have a debt and deficit problem in Canada which you continue to point out. So why shouldn’t the energy sector pay it’s share?
    And I worry about the world my grand children will be living in. Unless we curb fossil fuel usage, their world is going to be a much warmer place for future generations.

    I wish you would give this some thought and get off the energy band wagon, but I doubt…….

    Reply
    • Paying their fair share of taxes like any other industry is fine–what is different than extra penalties (not applicable to other producer countries far bigger than us) for – quite frankly- supplying a commodity that our world would be absolutely ground to a standstill without. And its not just taxes. We are years away from alternate energy–for example, several car makers toyota and ford of late recently announced their EV development is going the the backbench–lithium shortage etc. Scarcity to meet need, mining (massive pollution involved to water and air), then recycling–big issues. Next, fossil energy is a primary industry for Canada=like it or not-= per my comments on taking down the tech industry in the USA–you don’t cut your nose off to spite your face. Finally, the claims of global warming for/against are argued by smarter people than I – both sides have points to consider, hard to make a flat assertion and I am not of a strong opinion–but having said that–taxes are NOT the answer (except to people unaffected by economics as much as most of us – typically working in secure jobs/ for government in some capacity, or left wing idealists). Technology is the answer.
      The debt was not caused by the energy industry–it was caused by a foolish reckless government throwing money around like confetti. The energy industry is not the problem and is not the one to penalize for this reckless behavior – especially given its necessity.

      Reply
    • Canadian energy stock prices are soaring? Don’t you have access to charting? The Cdn energy ETF XEG is currently sitting at 2015 levels (Apple is up over 800% since then). You have a strange definition of ‘soaring’.

      As for energy companies paying their fair share of federal tax, two of the best known commodities investors worldwide, Rick Rule and Jim Rogers, have both said that O&G extractive products are over 70% tax by the time the consumer purchases them – and Canada has some of the most taxed energy in the world. Also look at effective tax rate and royalties on the income statements of our explorers & producers instead of just repeating the lies and propaganda you’ve read in state-sponsored media.

      The Canadian government is only in such a severe debt and deficit crisis because they’ve spent more in 7 years than every other government combined in the country’s history. Taxpayers didn’t ask Trudeau/Singh to dramatically expand government, regulate the private sector out of existence, force business investment to historically low levels, finance foreign dictatorships, pay billions to consultants for reasons Freeland can’t explain, or finance media at $2B/annum to promote state narratives and attack Conservatives. Now that most Canadians are totally dependent on government versus having revenue-generating jobs in business, those voters will continue voting left until they die.

      You have the right to express your opinion, and I have to right to point out that your opinion isn’t supported by a single fact.

      Reply
  • Political risk in Canada and abroad also is a factor in returns. Chile insisting in getting a much larger cut in lithium mining , or Panama the same with copper with First Quantum Corp, etc. The governments abroad can no longer be bought, lock stock & barrel by the private sector, as in days gone by Pinochet, etc.)

    Reply

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