​Is this the boom?

As stock markets hit record highs the optimists are talking about the coming growth cycle.

​Is this the boom?
Both the Dow Jones index and the TSX index hit record highs yesterday. Canada's main stock index hit an all-time high of 15256.32 on Thursday. The TSX continues to trade high again this morning. The new record beats both the market top achieved June 06 2008 when the index was 14969.55, just before the Great Recession. This market peak also beats the peak the market hit September 01, 2000, when the index hit 11388.82, just before the dot-com crash. So, good news all round.

Is the boom we've been waiting for? 

Since the Great Recession the global economy has muddled along, sluggish in growth, lacking in vigour. But some recent goods news has sparked discussion an emerging American economic recovery.

A couple of weeks ago WP published an interview with Dan Bastasic, vice president of investments and lead portfolio manager for the IA Clarington new Strategic U.S. Growth & Income fund. Bastasic's premise: American growth is returning. Five years of recovery have sowed the seeds for the next secular bull market. A "deleveraged", less debt-constrained consumer, a recovering housing market, and new supplies of energy are laying the ground work for a multi-year investment opportunity.

"There is some growth returning. We think we see the first indicators of this around the edges," said Bastasic at the time. Key indices such the producer price index is no longer falling. There has been an uptick in the CPI. "We're starting to see [a recovery]," said Bastasic.
The latest stats seem to confirm the positive outlook. The strong job report Thursday surprised many. Reports suggest companies such as Ford Motor Co. are adding staff. The improvements in employment will lead to gains in incomes, this will spur demand. A virtuous circle begins to turn.

Indicative of this potential: Yields on treasury securities climbed yesterday as the great investing herd began to move out of treasuries on expectations an improving economy could see the Federal Reserve raise rates sooner than expected. "The last leg up for this market will be the repositioning of all that bond money back to equity markets," said Bastastic two weeks ago. 

If there is a worry out there, it is that the masked black-flagged Sunni militias closing in on Baghdad, will disrupt the recovery. A Citigroup report released yesterday suggests a potential Black Swan event might be oil supply shocks. In the past such shocks have caused equities to drop 30 percent. A decline like that from current levels would see the Dow Jones to below 12,000 and the Standard & Poor's 500 Index to under 1,400.

Whether or not that will happen is a question that finds an answer in the region of the desert where the border between Iraq and Syria used to be. Abu Bakr al-Baghdadi, the self-proclaimed leader of the Islamic State, has promised to lead the conquest of "Rome" as he called on Muslims to migrate to his new land to fight for a new Muslim Caliphate. Adding muscle to the claims of the Sunni militant group is the fact that the force recently wrested control of al-Omar oil field, Syria's largest and most important oil facility. The field has a capacity of 75,000 barrels of oil daily. "We took control without any clashes. They just fled," an ISIS fighter was quoted as saying. 

As the world turns and burns, as the events of the high age of oil play out, let's hope the lid can be kept on the chaos before market gains evaporate.