The Wall Street Waltz: 90 Visual Perspectives, Illustrated Lessons From Financial Cycles and Trends, Revised and Updated Edition

Chart 15

The 51st Estate

While markets tend to move simultaneously all around the Western world, some places move more simultaneously than others. For example, for all intents and purposes, Canada is the financial 51st state of the United States or, perhaps, in investment terms the 51st estate. This chart shows how closely the Canadian market was tied to the U.S. market from 1961 until 1969. As you can see, the two markets moved together almost perfectly, not only in timing, but also in magnitude.

While other charts throughout this book show the commonalities between financial markets in differing countries, looking at Canada, the dissimilarities are so small as to be immaterial. For example, look at 1965 and 1966. There is no measurable difference between the movements for the two indexes. Chart 14 aims at a different point and is in a different format, but it shows you that the similarities continue during 1969–1981.

Why does the Canadian market move so closely with the U.S. market? Simple—their economy as a whole lock-steps with the U.S. economy. Financially, whatever happens in the United States happens in Canada with almost no difference. Yes, there are business differences, but they aren't terribly important. For example, Canada is resource-rich, making the country relatively mining oriented, producing products like potash-based fertilizer. Potash (potassium chloride) is one of the three principal fertilizers, all three of which are necessary for all plants. Canada has the ...