Thursday, August 13, 2009

The Meaning of Markets:: The TSE in a New Global Order

Toronto Stock Exchange vs. Dow, S&P, and NASDAQ, January 2000-August 2009
click on graph for larger image

This year's Annual Sociology Meetings had a session on the meaning of markets. A long while ago, I did a rather boring dissertation, but part of it examined the role of stability plays with respect to organizational outcomes. In a nutshell, the greater the stability, the greater the accumulated capital {defined broadly à la Pierre Bourdieu}, and the greater the sustainable competitive advantage. The idea was that stability reduces uncertainty.

The thing is that there was a key assumption. Faith in the market. Ten years ago, there was plenty of faith in the market. There was talk of a new economy. The network economy. The information economy. In those heady times in the US, it was under Clinton that Glass-Steagall Act was repealed. This opened the door for the creation of superbanks {e.g., Citigroup, now a "zombie" bank} and colossal deals, as well as for various investment vehicles {e.g., derivatives}, which were more slick marketing than sound finance.

North of the US border, deregulation was resisted in Canada. I don't think the lesson to be learned is deregulation = bad, regulation = good, but rather that it's important to have stability in institutions like capital markets. I think it was Jon Stewart on the Daily Show who confronted the circus act otherwise known as Jim Cramer by saying that there's a two-tiered market, one for the insider elites and the rest of us.

I think it's interesting to see how the Canadian stock market has fared in the past 9 1/2 years. The graph above shows that the Toronto Stock Exchange {blue} has fared well in the 2000s, when compared to the Dow, S&P, and NASDAQ, in the US. The implication is that if you were in the TSE in January of 2000 with a diversified portfolio, you would currently be in the black, despite the recent downturn.

Based on OECD data, a Conference Board of Canada report shows that the Canadian economy is poised to jump from 11th. to 5th. out of 17 "developed" nations in 2010, on the basis of a stable banking sector and relatively lower unemployment.
"Canada is expected to weather the global recession better than most of its peers, which is a credit to its stable financial sector and a relatively healthier economic position upon entering the downturn"--Conference Board Chief Economist Glen Hodgson
Innovation in Canada is at a crossroads, particularly the undercapitalized biotech sector. The federal and Ontario provincial governments saw it fit to "invest" $10.9B CAN in a GM bailout, while Ontario just launched a $250M emerging technology fund. It's apples and oranges though, right? Across Canada, the auto. sector employs far more than biotech, doesn't it?

BIOTECanada, an industry association, says no.

What I'm wondering is if Canada can attract investments globally, through capital markets or through venture capital on the basis of a more stable economy. Of course, what factors into this is fiscal policy {taxes}. While before I was conceptualizing stability as reducing uncertainty, I'm now wondering if stability enables an institutional flexibility that buffers against exogenous shocks {e.g., the US financial crisis}. Possibly related to this, perhaps Canada's smaller economy is more nimble than other leviathans. Perhaps more critical is Canada embracing a further shift from exporting natural resources and towards innovations in biotechnology and clean energy.

Twitterversion:: Is #Canada poised to make a play for econ. dominance? Would you rather invest in: Toronto Stock Exchange, NYSE, or NASDAQ? @Prof_K

Song:: Take The Money And Run (Remastered 2003) (2003 Digital Remaster) - Steve Miller Band


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Kenneth M. Kambara said...

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