The Downturn

Gentlemen (and a lady), we are in a truly exciting period of time.
Dow is 20% off of the peak. This MEANS we are in the bear market. Nope, 19.99999% just couldn't do it, not even 19.99999999999%, we just HAD to hit 20% in order for the bear to crawl up our ass and stick it to us because going from 19.9% to 20% was just so hard.

How about the TSX you ask? It's been holding up fine by the fact that we have the oil you say? Fine markets don't go through waterslide ride down like yesterday's 400 points drop. This is despite record oil price indicates otherwise. We are clearly hitting something here.

Okay, being a little more serious, here's what's wrong with TSX. (Morningstar)
It's had a 50% gain since 2005.
Let me say that again, 50% market gain since 2005. That's 15% annum. You've never seen TSX do that before. There has clearly been some optimism built into the TSX market.
On top of that, TSX is heavily concentrated in 3 sectors - Energy (30.1%), Financial (28.1%) and basic material (17.9%). Especially notable companies are Potash Corp - this company alone now makes up 4.7% of the index. RIM is at around 4.5% and Encana is at around 4.8%. CNQ follows close at high 3% range.

So 4 stocks that almost make up 17% of the index. I'm pretty scared. Although we see a number that's close to 14000 on the board, we are heavily exposed to very few companies. The recent run can be attributed to them, and other than the asset prices, the companies are nothing spectacular with moats that can be taken down. Sooner or later, it will happen.

This isn't just characteristics of TSX though - most of SnP gains were due to few energy related stocks. This market can't be too stable. Markets are suppose to represent reality over long run. What it's representing right now isn't sustainable. Something's gotta give in order for it to return to reality.

By my watch though, I'm truly hoping that some sort of crash comes down - save for ones in Peter's personal portfolio. THEN we'll get to experience truly extraordinary things. Markets swerving left and right, no one knowing what to do. I'm guessing that the "mechanisms" that the markets have to close up when things fall too fast will have absolutely no effect. People will still want to sell when the market reopens and contingency plans are just that - plans that usually fail.

So now we have a certainty - it's going to fall sometime, uncertainty - no one knows what or when and we have emotion - due to the number of people with money involved.
Truly a nice brew for exciting times ahead.