TSX mirrors the economy

I guess saying “told you so” about my predictions surrounding Canada’s current economic conundrum sounds a little “braggy”. Still, I am sure it is nice to know that developments predicted on these pages and reiterated (almost ad nauseam) over the years were accurate. Hopefully my warnings, rants, and investment suggestions surrounding that outlook helped you prepare and invest around the now-current realities surrounding Canada’s investment climate. Today, I will bring you up to speed on WHY I remain cautious on Canada (with exceptions, such as commodity trades – note I say “trades”). That, and the current outlook for the TSX index.


Takeaways From the Oct 25th BOC Meeting

  • The Bank of Canada is not yet ready to acknowledge that the inflation battle is over, recently noting the economy is “on the tight side.”
  • At the same time: The Bank of Canada has also recently noted that there is “risk that the economy could slow more than expected” 
  • Inflation + slowing = stagflation
  • Tongue in cheek: You’ve probably NEVER heard me say it was inevitable Canada would be stuck in an environment of stagflation.

How did this happen?

Spending like a drunken sailor: “Bank of Canada worried government spending could impede inflation fight” News Headline. Blog readers know I’ve harped on Trudeaus reckless MMT spending and its inevitable consequences. I predicted this outcome years ago!

Carbon tax: “On Oct. 30, Macklem introduced a new angle, stating that the elimination of the carbon tax would lead to a one-time drop of 0.60 percentage points in the inflation rate due to accumulated tax increases over the years. This essentially means that, with our current inflation rate at 3.8%, the carbon tax is responsible for 16% of inflation. Although the governor claimed that this had been the Bank’s message for some time, he had not explicitly disclosed this ratio until now.” National Post

Chris Sankey: Liberal net-zero agenda is a plan to kill the economy (msn.com)

Note: The bill to axe the carbon tax was voted down this Monday. The clown show continues.

Canadian Housing Travesty

Why this matters: Have you heard of the “wealth effect”? That’s when you see your house value up, and your investments doing well. You feel wealthy. You buy that leather couch, you go out to dinner, and order a good bottle of wine with it.

The reverse is true when you see these core assets shrinking or stagnant. Especially when inflation, created by reckless spending and carbon taxes, pushes prices, then rates, up.

“More unaffordability coming into an already supply-stretched Canadian housing market” David Rosenberg, Economist

“Canada’s housing situation is going for worse. There are lots of Canadians who have put down 5% for Pre-builds that qualified 1+ years ago losing their deposits. I was speaking to my lawyer who is currently representing clients here on the West Coast trying to get their deposits back that will or have been lost b/c of financing-related issues. Apparently, there are even more cases in Ontario where families are losing their deposits as a result of interest rates pushing them out of qualifying for a home that they could afford a year ago. Some serious housing pain in Canada and it is showing in our currency. Canada is one of the worst performing currencies in the G-10 YTD and I don’t think this trend will reverse anytime soon.BearTraps PM 

Bottom line

The technicals for the TSX 300 match the fundamentals for the Canadian economy. That is: a go-nowhere market. The TSX is stuck in a sideways pattern that encompasses about 18,500 to 20,800, or thereabouts. I’ve mentioned this pattern in past blogs and videos.

It bears noting that we’ve seen that uber-predictable rally from those lows recently. Currently the index is about half way through its range. A move to 20,800 would give investors about 5% from todays pricing. Not so exciting. Mind you, the indicators below the chart (Moneyflow momentum, Force and Momentum) are indicting the probability of the move as good.

Solution: All this doom and gloom on the Canadian economy and markets suggests that we continue to look at a variety of ideas outside of Canada. As always, I’ve got your back. I encourage you to consider the sectors discussed in my recent “trading ideas” blog. I’ll keep the ideas coming. Stay tuned!

Keith on BNN

I’m on MarketCall tomorrow: Friday November 10th at 12:00 noon. I’m happy to answer your questions on individual stocks, or technical analysis techniques on the show.

Note:  Calls are prioritized over emails, so best to go that route:

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  • Hi Keith,
    You commented about the decline in the CAD. How low do you think it might go based on the technical tools that you utilize?

    • Wendy–against the USD, it doesn’t look too bad at this moment. The loonie looks to be hitting a support level near $0.72 that I have been pointing to over many years via a long termed chart–last blog with the chart was here: https://www.valuetrend.ca/canadian-dollar-outlook-and-why-it-should-matter-to-you/
      The loonie hasn’t moved much since that blog in March, but there is a range it likes to move up to around $0.76. My recent look at the USD suggests it may be getting weak – which would push the loonie higher. Here’s my USD video: https://www.valuetrend.ca/video/usd-outlook/
      For the loonie to move much higher than 0.76, its obvious the fundamentals are not strong enough in Canada to assist a move in the loonie much pass that, at least at this point. Even if oil got its legs back again in the new year (which I suspect it will in Feb/March seasonal period)


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