TSX, Toronto update.

tsx jun 12 2014

There is no better time than father’s day to revisit the or TSE once again. At the beginning of 2011 (Feb.) we were already at 14250, so we have spent the past 3+ years gaining a mere 750 points. This compares to the roughly 6000 points gained in the 2 years immediately after the lows of March 2009, slightly 10-times more “robust”. Clearly the bloom is off this index.

As pointed out earlier, in the 31 or so years to the top in 2008, this index has doubled 4 times as in 1-2-4-8-16. Using the rule of 72 yields a return of about 9%. Add to that a dividend of 2% and we get a total return of 11% on average for that entire period. That compares very favourable to other broad metrics as , for instance, population growth. From StatsCan we get;

  • Since the early 1970s, the rate of population growth has held at just over 1% per year on average.
  • Over the past 10 years, with an annual average growth rate of just over 1%, Canada’s population has grown at the fastest pace of any of the G8 countries.
    This comparison with population growth as a proxy for GDP growth, is incidentally the essence of professor Piketty’s concentration of wealth thesis where r>g. Here r is a lot larger than g.
    From an Elliott Wave perspective it is easy to count a clean 5-wave sequence going into the 2008 top. Every minute detail conforms to the rules and or guidelines. The almost inevitable conclusion must be that the correction from the peak in 2008 is not over. A wave down is still required! Furthermore it should take us to the level of the 4th wave of previous degree AND erase about 50 to 60 percent of the gains from 1000 to 15000.
    Momentum, a second derivative, also tells us that things are not that hot. As noted above it has been running at about 1/10th of what it was immediately following the lows of the “great recession”, this despite every Central Banker or every member of the Club of GS, adding more and more booze to the punchbowl. Volume, by the way, has been dropping throughout this period and is running at about 1/2 of peak volume.
    On the balance of probabilities, the is now, definitely, a sell. In terms of risk-adjusted returns, it really was already a sell three years ago.