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Is the economy, Canadian and otherwise going to hell in a handbasket?
April 1, 2014
8:12 am
Loonie
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There have been a number of comments on various threads from people who think that the economic outlook for the years ahead is grim, and that we should batten down the hatches, think ultra-defensively, and so on. Others have affirmed that all is well and shall remain well. Canadian banks, for instance, are seen as a bulwark by some, but as potentially vulnerable by others.

I would like to devote this thread to an intelligible consideration of this topic. Citations, book reviews, bibliography and evidence would be keenly appreciated, whatever your position, so that the rest of us can come to our own conclusions.

I don't have anything in particular to add at this point, but wanted to open up the discussion rather than having it just as a postscript to other discussions.

Thanks for any help you can give.

April 1, 2014
11:57 am
Itisthetimethisistheplace
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I feel this topic will be a rabbit hole, however, I took the bait of @Loonie’s OP and decided to put a few words together. I thought I would give the opinion from a traders point of view.

I use Elliott Wave Analysis, which is basically the group psychology of all investors everywhere on the planet. Worldwide stock markets reflect all information, and all knowledge available to man. They have their own language and communicate where they are going next.

In the big picture, I believe we are close to the start of an economic depression. This is my personal view and my personal view alone. I am not trying to panic or scare, but as @Loonie said, hopefully it will open up a discussion that will be fruitful.

I believe there is a technical pattern forming that started over 20 years ago and is nearing completion. This pattern is large and is almost always followed by a major decline in the stock market, and a severe recession or an economic depression. The size of this pattern tells me this time, an economic depression will follow, and the start of that depression is close. This economic depression will likely last many years and be worse than the 1930s. This is what the predictive language of the markets, is warning me.

I trade for a living so it is my job to try and understand and evaluate the language of the markets on a daily basis. This is how I see things playing out over the next decade. I can’t upload charts to support what I am saying, but my written word is the ‘evidence’ I put forward.

I debated on whether to share my ‘numbers’, but I decided to anyway.

For the ultra-short term (think 4-6 weeks) I am actually quite bullish.

If the $INDU break out above their ATH of 16,588 I believe we are heading to 17,300-17,400.
If the $SPX break out above 1885 (it did intraday) I believe a new rally leg is starting and I am still determining a target.
Paper $GOLD I see under a lot of pressure with a short term price target towards $1,150 and after that I believe it will be time to back up the truck.

Both the $INDU and $SPX need to break out above their respective ATH for my short term bullish wave to be valid.

Fast forward past the next 4-6 weeks and I believe we are in for a sharp decline, but I don't see that as being the start of what I am talking about. I am projecting late 2014, early 2015 when my scenario will start to play out.

So there you have it. Discussion opened.

April 1, 2014
7:10 pm
Loonie
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Thanks for your ideas, ITISTHETIME... I appreciate your candor. I had never heard of Elliott Wave Analysis before, but have now looked it up.
Has anyone read The Crash of 2016, by Thom Hartmann? I have not, but was wondering about it. Apparently the author is a reputable writer.

April 1, 2014
9:36 pm
Norman1
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Loonie said
There have been a number of comments on various threads from people who think that the economic outlook for the years ahead is grim, and that we should batten down the hatches, think ultra-defensively, and so on. Others have affirmed that all is well and shall remain well. Canadian banks, for instance, are seen as a bulwark by some, but as potentially vulnerable by others.

Historically, the Canada's economy has had grim periods and really happy ones. I don't expect that to change.

As for big Canadian banks, they have, and will continue to, participate in the long-term growth of the economy and do well in the long term. One example that comes to mind is someone who purchased shares of Bank of Montreal in the late 1980's around $28. Each of the $28 shares have split twice since then to become four shares. Each of the four share is trading around $74 each today! $100,000 so invested in the late 80's would be worth around $1 million today. The dividends were initially around $7,000/year and would now be around $40,000/year.

For long-term investors, does it really matter that much? Warren Buffet wrote the following on page 18 of his 2013 letter to Berkshire Hathaway shareholders about macro economic predictions:

Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)

April 2, 2014
11:43 am
Itisthetimethisistheplace
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Hindsight trading is the easiest investment to make in the world. Nobody knew in the 80s that Canadian banks would perform so well in the coming years. If you were invested for the long haul then yes, I agree they outperformed.

As for Warren Buffett and his pearls of wisdom…I rarely follow MSM regarding financial matters. Listen to all, follow none.

Nobody knows where the markets are heading, that much is true. I believe however I provide my own clarity and that is all I care about.

@Loonie – I haven’t read that book. I have read ‘The Great Crash Ahead’ (Harry Dent). That was interesting because he based the majority of his study on demographics. He used research work from Richard Mogey whom had a composite market cycle chart. Here is a quote from the book “…a peak around the late summer of 2011 that then bottoms after a much bigger downturn in very late 2012, and then another down cycle between sometime in 2017 into late 2022…”

With all my study work at the time I happened to agree with his synopsis, however the downturn in to late 2012 didn’t happen in my opinion because of the endless rigging in the markets keeping everything afloat. Finally, something about this reached the MSM just the other day, and for once they told it how it was.

http://www.cbsnews.com/news/is.....ket-rigged

Anyway, we are straying off topic. Right now, I still hold my original course with the heading of the economy. The market seems very toppy right now and I will follow up with the reasons why I think so later today or tomorrow.

April 2, 2014
4:08 pm
GS1
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Michael Lewis - the author of Flash Boys was also on The Daily Show with Jon Stewart last night. I saw the 60 Minutes piece and also The Daily Show and found it extremely interesting.

GS

April 2, 2014
7:26 pm
Loonie
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I missed Stewart but just watched the CBC clip. Nice to see that it was a Canadian who identified the problem and pursued it until he'd uncovered the truth. I had no idea! It really shows you just how out of our league we all are when we enter the markets.

April 2, 2014
10:32 pm
GS1
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Loonie:

For most of us the HVT people are not affecting what we buy. Whether I buy 100 or 500 or 1000 shares of "X" they don't really care. It is the institutional folk who are buying 100,000 shares of "X" where they were doing the front running, as best as I could tell from the two interviews I saw. I did not, and likely will not read the book.

Greg

April 3, 2014
6:14 am
Itisthetimethisistheplace
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GS said

Loonie:

For most of us the HVT people are not affecting what we buy. Whether I buy 100 or 500 or 1000 shares of "X" they don't really care. It is the institutional folk who are buying 100,000 shares of "X" where they were doing the front running, as best as I could tell from the two interviews I saw. I did not, and likely will not read the book.

Greg

Greg,

At the end of the day the problem is that providing someone a way to cut in line is against the law.

The defenders of the HFT and HVT behavior claim they're providing "liquidity."

For example, if you and I trade 100 shares of a IBM stock back and forth 1,000 times there is the appearance of 100,000 shares of liquidity in that name. In fact there is only 100 shares of liquidity present. If some third party comes in and tries to buy or sell more than 100 shares this will become immediately apparent, because neither of us is willing to transact in more than that number at any given point in time!

We are swerving off topic again, let's bring it back and talk about the economy!

April 3, 2014
8:30 am
GS1
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The economy is either going to stay the same, get better or get worse. One needs to be prepared for worse case scenario (enough ready cash, enough savings, comfortable asset allocation, comfortable debt levels, etc) at all times.

I used to work with folks who would take out a mortgage with the payments based on their then current overtime payment level. When overtime got cut off, as it always did in the aerospace industry, they were in a mess.

I know it is easy for me to say "be prepared" but that is the reality. People need to be defensive.

Greg

April 3, 2014
3:08 pm
Norman1
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ITISTHETIMETHISISTHEPLACE said

Hindsight trading is the easiest investment to make in the world. Nobody knew in the 80s that Canadian banks would perform so well in the coming years. If you were invested for the long haul then yes, I agree they outperformed.

It wasn't hindsight trading when the shares were actually purchased in the late 1980's and again in 2009.

Perhaps no knew in the 80's that the banks would perform so well. But, at least three people saw that buyers would likely do quite well at the valuations they were trading at then.

April 3, 2014
3:23 pm
Norman1
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Loonie said

I missed Stewart but just watched the CBC clip. Nice to see that it was a Canadian who identified the problem and pursued it until he'd uncovered the truth. I had no idea! It really shows you just how out of our league we all are when we enter the markets.

I went to the CBS site. It's not illegal and it is not frontrunning. Look like a plug for an alternate IEX exchange.

High-frequency traders are just doing what traders have done for years manually. When a buy order for 300,000 shares shows up on the order book, anyone with Level II quotes will see the order and know that a big buyer is present. That's considered to be public information. The traders see the big buy and adjust their asking prices accordingly. That's why institutions move the market each time they buy and sell.

The only difference is that what used to happen in seconds now happens in milliseconds.

April 3, 2014
7:26 pm
Itisthetimethisistheplace
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Norman1 said

Loonie said

I missed Stewart but just watched the CBC clip. Nice to see that it was a Canadian who identified the problem and pursued it until he'd uncovered the truth. I had no idea! It really shows you just how out of our league we all are when we enter the markets.

I went to the CBS site. It's not illegal and it is not frontrunning. Look like a plug for an alternate IEX exchange.

High-frequency traders are just doing what traders have done for years manually. When a buy order for 300,000 shares shows up on the order book, anyone with Level II quotes will see the order and know that a big buyer is present. That's considered to be public information. The traders see the big buy and adjust their asking prices accordingly. That's why institutions move the market each time they buy and sell.

The only difference is that what used to happen in seconds now happens in milliseconds.

We are steering off topic here, but before we split off into another thread this is a very interesting read.

http://blogmaverick.com/2014/0.....y-trading/

Norman, you talk about the Level II quotes so you must have some experience of trading. I don't want to have a discussion about that in this thread, but large orders (other than iceberg orders) sitting at the offer or the ask, does not always mean an institution is a willing seller/buyer whom patiently waits to get filled on all those contracts at a certain price level. Spoof orders are common place and as price moves near them, orders get pulled/added in microseconds. Tens or hundreds of orders in the book beyond what institutions or 'Flash Boys' truly wish to transact is common place, every second of every day. But knowing you can cancel them before they are executed against is, I believe, half the problem.

Anyway, back to the topic. Anyone?

April 5, 2014
3:49 pm
Norman1
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Loonie said
Has anyone read The Crash of 2016, by Thom Hartmann? I have not, but was wondering about it. Apparently the author is a reputable writer.

Keep in mind that being a reputable writer doesn't mean having predictive ability.

After the 1987 market crash, economics professor Ravi Batra came out with the book The Great Depression of 1990. It was a best seller. If there was a Great Depression in the 1990's, I must have missed it. Or maybe Professor Batra was 18 years ahead of his time in his prediction!

Wasn't there a best-seller Why Your World Is About to Get a Whole Lot Smaller around 2009 by former CIBC economist Jeff Rubin? The prediction was oil would reach something like US$225 a barrel by 2012. Globe & Mail has charting of NYME light, sweet crude oil. Since 2009, oil reached only as high as $114 - $115.

April 5, 2014
5:42 pm
AltaRed
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The only thing I truly believe is that developed economies have pulled most of the rabbits out of their hats and GDP growth will be materially smaller over the decades ahead than in the past 20 years. I also do not think emerging markets will be the big promise that many are salivating over. There is too much dysfunction, financial thievery and lack of rule of law in too many of those countries for them to blossom in the same way that OECD countries did over the last century.

What that means to me is lower returns in both the equity and bond markets for the foreseeable future worldwide. Canada is a trading nation and a resource economy. It will struggle because of that. Maybe 1.5-2% growth at best as a long term average, about the same as population growth. That will reduce long term portfolio returns considerably.

April 5, 2014
10:34 pm
Loonie
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Not all predictions are right, of course. Still, if there is evidence to be considered, I'd like to know about it.
Has anyone read End This Depression Now! by Paul Krugman? He won the Nobel Prize in Economics, among other things. I just found this one today but have not read it.

April 6, 2014
7:53 am
phrank
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The elite can only make what they deem acceptable profits by creating instability. Buy low, sell high. Just look at Canada for example. We have an excess of all resources. We are the only country in the world which has substantial surplus in Oil, Gas, Lumber, Meat, Grains, Land, Hydro Electric, Uranium for Nuclear, Fresh Water etc etc. Why don't we benefit from this surplus? Why do we pay more for our energy, food and land than other countries? Why are we not the richest country in the world? Bad management? Bad government? I think we are the richest in many ways, unfortunately those riches do no make it to the everyday man. Don't buy into this whole everything is going to garbage hysteria, it's simply another infomercial line fed to us to increase profits.

April 6, 2014
8:52 am
Itisthetimethisistheplace
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Loonie said

Not all predictions are right, of course. Still, if there is evidence to be considered, I'd like to know about it.
Has anyone read End This Depression Now! by Paul Krugman? He won the Nobel Prize in Economics, among other things. I just found this one today but have not read it.

@Loonie - I am firmly in the camp of Austrian economics and I find much of what Paul Krugman has to to say as simply jaw-dropping. I am not a fan. As a trader, do I care if the markets go up or down? Of course not, I can make money either way. But, I still have a family, I still want my children to grow up in a country where the economy is driven by real growth and not artificially induced money printed growth. Which is why I can only see trouble ahead.

Watch this video and you decide who 'was' right. You may or may not be a fan of Ron Paul but his approach to the economy is spot on in my opinion.

As for the evidence (of why I believe what I believe) I would post my charts here (I don't think we can on this Forum) to provide my point of view and describe what I see and why. If you want to see them, PM me your email and will send them to you when I get a chance.

@voodoo22 - what makes you say it is simply another infomercial line to increase profits? What evidence do you have of this? I hear you on the natural resources side of things, Canada is one great big beautiful country and we should all be the beneficiaries of its output. That is a great point of view.

April 6, 2014
4:57 pm
Sam
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Armageddon was yesterday… Today we have a serious problem.

I’ve given my youth and most of my hair to the auto industry and I can tell you… I’ve never seen a gloomier future for the manufacturing sector in Ontario, or for that matter, Canada. Having one of the highest electrical rates really hurt, a 40% increase in the price of natural gas, drew blood and with having so much our parts business outsourced to the lowest bidder, this $0.75 increase to the minimum wage effect June 1st will be the last nail in our coffin.

There will not be another bailout for GM, because General Motors desperately want out of Canada. Over the last 15 years, the workforce in Oshawa alone has declined from approximately 14 thousand, down to a current 3,500.

All of the increases that have been imposed upon us, and the manufacturing sector, had to have been approved by our Governments, and we may be looking at a further tax increase to help support a provincially run pension plan. We are at war folks, and it’s not Al-Qaeda we need to fear, it’s our own Government.

ALL insurance rate increases have to be approved by our Provincial Government. We have one the highest premiums.

Telecommunications, Bell/Rogers, all the rate increases have to be approved by the CRTC, our Federal Government. We have one of the highest bills.

Air Travel, Toronto’s airport is taxed to the hilt.

Banks. When the Royal Bank of Canada can make a net income of over 2 BILLION dollars in just 3 MONTHS. That’s after paying expenses, wages, rent, whatever. Meaning they must rape the populous, US, for how many billion just for them to net 2. This money would be better served in our pockets, to spend on the necessities of life. It’s our spending that simulates the economy. Why is our Government going out of their way to stifle growth?

If you were to ask me… where are we going? My response would be… BUY A GUN. sf-frown

April 6, 2014
7:37 pm
Itisthetimethisistheplace
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Sam said

Armageddon was yesterday… Today we have a serious problem.

I’ve given my youth and most of my hair to the auto industry and I can tell you… I’ve never seen a gloomier future for the manufacturing sector in Ontario, or for that matter, Canada. Having one of the highest electrical rates really hurt, a 40% increase in the price of natural gas, drew blood and with having so much our parts business outsourced to the lowest bidder, this $0.75 increase to the minimum wage effect June 1st will be the last nail in our coffin.

There will not be another bailout for GM, because General Motors desperately want out of Canada. Over the last 15 years, the workforce in Oshawa alone has declined from approximately 14 thousand, down to a current 3,500.

All of the increases that have been imposed upon us, and the manufacturing sector, had to have been approved by our Governments, and we may be looking at a further tax increase to help support a provincially run pension plan. We are at war folks, and it’s not Al-Qaeda we need to fear, it’s our own Government.

ALL insurance rate increases have to be approved by our Provincial Government. We have one the highest premiums.

Telecommunications, Bell/Rogers, all the rate increases have to be approved by the CRTC, our Federal Government. We have one of the highest bills.

Air Travel, Toronto’s airport is taxed to the hilt.

Banks. When the Royal Bank of Canada can make a net income of over 2 BILLION dollars in just 3 MONTHS. That’s after paying expenses, wages, rent, whatever. Meaning they must rape the populous, US, for how many billion just for them to net 2. This money would be better served in our pockets, to spend on the necessities of life. It’s our spending that simulates the economy. Why is our Government going out of their way to stifle growth?

If you were to ask me… where are we going? My response would be… BUY A GUN. sf-frown

Sam, thank you for your post. When @Loonie started this OP, I hoped there would be an open discussion and we would get real peoples' perspective. I liked your honest and blunt post.

I agree with you on many points. I strongly believe the middle class will eventually be wiped out. An unprecedented transfer of wealth is taking place right now because, not only for many of the reasons you listed, but a complete disregard by the government for fiscal responsibility. Their only way is to wallpaper over the cracks so the real fragility of the economy is not exposed. They do this via stealth taxes and money printing which are all around us, which kicks the can that little bit further down the road.

Many people have buried their head in the sand and just accept whatever the government do because they believe they have everything covered. They do not. They are flying blind and they have no idea what they are doing. Thankfully, we just don't look in as bad shape as the US which is why it doesn't get talked about.

With over $1.2 trillion in Canadian government debt, they are desperate to find new ways for additional revenues.

http://opinion.financialpost.c.....ll-rising/

Speaking of banks, combined they got $114B from the government (ahem the tax payer) during the recession. And they claim it wasn't because they were in financial difficulty. BMO, CIBC and Scotiabank were insolvent during the financial crisis - so if this wasn't financial difficulty, I don't know what was.

I knew this was happening at the time but it was not reported as far as I was aware.

http://www.cbc.ca/news/busines.....-1.1145997

Thanks for the great post.

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