The Toronto Stock Exchange closed last Friday at 11,692, 174 points below the closing price at the beginning of 2010. The yearly gains have been wiped out in less than a week. Talk about panic selling that has not been seen in a while. Whether you call it a crash or the long awaited correction it’s time to take a look at the overall situation.
What are the causes?
So who or what was the cause of this? I do not think we can put our finger on 1 reason. It certainly is a set of colliding variables.
First you have the threat that some strapped governments will have difficulty making good on their debt obligations to banks all over the world. Concern about banks’ exposure to these risks could be enough to spur financial institutions to curtail lending to each other triggering the same credit crunch we saw in 2008.
Then there is the crowd who has been expecting a correction on the grounds that the market is overvalued and had gotten ahead of itself. The recovery had run out of steam for them. Following the losses they swallowed in 2009, many amongst them were quick to exit the market for fear of having to pay the toll again. The better than expected job creation numbers for both Canada and the US went completely unnoticed.
Finally, the trading “error” that caused the massive sell-off on Thursday really happened in the wrong time. It provides conspiracy theorists nuclear fuel for creative story telling. Whatever the story is behind this, the final tally is fear and uncertainty in the markets.
This week will be all about calming fear and monitoring the situation overseas. Keep in mind that if Greece defaults, then Portugal and Spain are next. Do you think the ECB will let the world come to an end? I don’t think so.
Stabilization efforts have already started as I write this. The European Union unveiled an unprecedented loan package worth almost $1 trillion and a program of bond purchases to stop a sovereign-debt crisis that has been shattering their currency. Stocks surged around the world, the euro strengthened and commodities rallied. Expect the same reaction on the North American markets today.
This is what I’ve been talking about; the world will not be coming to an end economically anytime soon, so kudos to those amongst you who bought on the last correction. As you know, I even bought on margin when the slide started, unfortunately, I missed out on a lot of good deals out there since I am fully deployed.
Luckily,I’m coming out of this correction with slight losses in the portfolio; the Silver weighting provided the support ground and might turn out to be the means of achieving a good return for the month of May. This is not a V shaped recovery and this is opportunity right here for beating the market using skill and some luck. Following all those stop losses that were hit; there is a lot of money that will be looking to enter the market again.
How about you dear Reader, did you pick up any stocks during the correction?