Serial Markets Update

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From The Economist March 16, 2013 "After more than five years of financial turmoil, some stockmarkets are back to, or close to, their pre-crisis levels. Stockmarkets rose until mid-to-late 2007, and even into 2008, before the severity of the financial crisis hit them; their troughs were in early 2009. Last week the Dow Jones Industrial Average surpassed its previous peak (though it is still around 7% off once inflation is taken into account). The S&P 500 and Germany’s DAX are expected to reach all-time highs soon. The FTSE 100 is near its 2007 peak, which was only 3% shy of its record high in December 1999. Not all stockmarkets have recovered to this degree. Greece’s Athex composite index is still more than 80% below its peak in October 2007."

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The current animal spirits are still feeding off of debt and Canada continues to be a leader in leveraging it. Canadian credit market debt is now 165% of disposable income (Statistics Canada March 15, 2013). 

Canadian household debt continues to trend higher (chart left).

As can be seen from the chart above in the upper panel on stock and commodity markets, not all stock markets are back to their pre-blowout highs of 2007-08, most are not. Nor are the commodity markets back to their 2011 highs. Unless they breakout, as a minority of stock markets have, then the trend for commodity prices is still down. The combination of falling commodity prices and rising debt levels is not a successful investment model.

Real estate prices will follow commodity prices as new houses come on stream at prices below existing built houses. As credit risk gets re-examined, replacement value, comparative value and income value will all point to a return to fundamentals.

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