The Risky Toronto Stock Exchange Is Now Scarier Than Ever
...Banks in trouble is the first part of the iceberg about to hit Canada.
The second part of the iceberg is the coming (if not already happening) bursting of the commodities bubble. So much of Canada’s recent good fortunes can be traced back to soaring prices for oil, metals and agricultural commodities. That will come to a very painful end.
If you believe Wall Street, and you really should not, commodities are sky-high because of the insatiable appetite for resources by China and India and whichever other countries a clever analyst can throw into an acronym.
In reality, commodities have soared because the relatively small resource markets, by the standards of global finance, have been deluged by a mountain of money looking for the next big thing. Hedge funds, pension funds, sovereign wealth funds, to name some of the players, have poured enough money into commodities that the true, real-world fundamentals have ceased to dictate price.
Many of the bullish bets on resources are indeed predicated on the “story” of an ever-growing China. And the problem is, that story is coming unglued. China is slowing dramatically, as an excellent recent article from the Atlantic pointed out.
Preoccupied by the goings-on in Europe, China is sure to come back on investors’ radars. And when it does, it wouldn’t be surprising if the recent weakness in commodities turns into an all-out rout.
Which means that energy and mining stocks are likely to be decimated. (Gold is not a pure commodity like the others, so I do put that in its own category). By the way, a commodities implosion will also hurt the capital markets divisions of the banks. It’s all so interconnected.
When the tech bubble burst in 2000, Canada suffered, because Nortel (and others) had such a big influence on the index. But fortuitously, a generational commodity boom started that would more than compensate.
Now, there is no obvious next bubble to save the day. If housing and commodities do what I expect, the TSX is in for the mother of all bear markets.
At least we can all still buy doughnuts at Tim Hortons.
Read more: [link to www.businessinsider.com