Canadians are working hard to make a good life for immigrants
Why is the stock exchange obviously ignoring the current horror reports from business and society – does the capital market know more than we do?
BY Andrew | A quick look at the price chart of the TSX amazes us: at 16,000 points today, at the end of September, we are almost where the corona crisis began. In the previous “New Market and Financial Crisis” (outbreak in 2000 and 2009) it took much longer until the old pre-crisis highs were reached again. But why is the stock exchange obviously ignoring the current horror reports from business and society. Does the capital market know more than we do? What is the reason for the discrepancy between the gloomy expectation and the brighter reality?
Experience: The stock market is a good leading indicator and is rarely wrong
According to an old saying, the stock exchange can foresee all relevant economic events for about half a year and transfer them to prices. Such a clairvoyant ability is attributed to it both in the big picture (business cycle) and in the small picture (share prices).
In everyday life, the stock market converts the hard facts (so-called indicators) into prices; first the prices, then the news – even though many lay people and stockbrokers believe that it is the other way around and that every noticeable change in prices must be based on some corresponding economic news at the same time.
The TSX no longer represents the Canadian economy
If we trust this “knowledge”, we are facing rosy post-Corona times, as girl reporter turned Minister of Finance Chrystia Freeland reassures us through her office to avoid answering reporters’ questions. Everything will be fine! The informed skeptic will nevertheless place a big question mark in three respects behind a rapid and powerful “recovery”.
First: the TSX index only represents 25 to 30 percent of Canadian economic output (GDP), which is known to be dominated by unlisted medium-sized companies. If the big corporations are doing splendidly, this only applies to a limited extent for the entire economy.
Second: foreign financial investors grabbed up TSX shares from March when the stock market barometer fell by up to 40 percent to just over 11,000 points. This process will fizzle out quickly.
Thirdly, Canadian citizens, on the other hand, hysterically sold their equity securities and fled as always to cash. They are still afraid of mega-inflation today when they see the government happily printing money at the Bank of Canada to finance “Corona aid packages”.
All in all: the TSX rise may be exaggerated, and according to some analysts, the shares are about 25 percent too “expensive” across the board.
What will happen economically if the stock market continues to rise?
Should the economy (GDP) nevertheless reach its pre-Corona level soon, not everything will remain as it was. Here, too, three major long-term trends are clearly evident. The appropriate keywords are: rebirth of state capitalism precisely because of corona aid (wage subsidies, loans, permanent subsidies, lots of new administrative jobs for Liberal Party stalwarts and elites), brutal bankruptcies of small businesses / self-employed, and increasing impoverishment of a broad strata of the population.
The last two trends largely result from the first. However, there is no need to fear social unrest in Canada. And the “rich”? In our scenario, they will always be on good terms with the Liberal Party elite and will be left alone. Millions of well-off people already vote for the Liberal-NDP alliance today.
Economically things are going downhill even with a TSX of 20,000!
Even at a TSX level of 20,000 points, it should be apparent that most Canadians will soon be worse off. The pragmatic foreign countries, primarily the USA, and China will then slowly buy up Canada and its valuable large corporations.
Their investment will be a wise one. Canadians are a hard-working people who will so gladly work for their migrants and the new owners of their economy.