Was Harper right?

Zoomer | October 16th, 2008

My daughter asked me recently if stock indexes can go to zero. Not unless everything loses all its value, I said. That’s not going to happen so the bottom is somewhere between zero and here.

We are certainly seeing some wild swings in the indexes and at times it seems as though investors are in full panic mode. They can’t sell fast enough and volume is at almost unprecedented levels. Even the computers can’t keep up. On Oct. 10, GlobeinvestorGold posted a notice on its website apologizing for delays in its market reports, saying that data volume was up by 200 per cent over normal.

No one can predict where the markets will settle because there is no rationality in what we are seeing. But I will make this prediction: we are closer to the bottom than we are to the peak that we reached just four months and an eternity ago when the TSX topped out at 15,154.77. As I write, the Composite Index has lost more than 6,000 points or 40 per cent since then. If it falls that much again, we’d be down to around 5,400. Call me a cockeyed optimist but I just don’t believe that is going to happen. Surely there is something of value left in Canada !

In the midst of all this carnage, our Prime Minister was observed on television telling us there are lots of bargains in the stock market. The media and the opposition parties were all over Stephen Harper after his comments on The National, castigating him for a lack of “empathy” – the buzz word of choice in the final days of the election campaign. And you could certainly say his timing wasn’t exactly the best.

Even the normally unflappable Peter Mansbridge seemed nonplussed by the remark. “Are you sure you want to say that?” he asked incredulously, giving the Prime Minister every opportunity to retreat, retract, expand, or provide some nuance. No way. Mr. Harper reiterated his view that there are some “great buying opportunities” out there, citing the oil sector as an example and telling viewers how the markets always overreact.

The opposition leaders couldn’t contain their glee. With thousands of people worried about their jobs (although not actually losing them yet, according to Statistics Canada), the Prime Minister was telling folks to go out and buy stocks! The cool, methodical Mr. Harper had just handed his political enemies a giant cudgel with which to pummel him as the campaign was coming down to the wire. It probably didn’t make the difference between a minority and a majority government, but who knows?

Of course, the Prime Minister does not play the stock market himself. Although he told us he has an RRSP that holds mutual funds, he can’t actively manage it under conflict-of-interest laws. But, he went on, he is well aware of what’s going on thanks to his mom who he said was watching her portfolio “hour by hour”. She apparently was providing him with daily updates on the precarious state of her finances when she got a few moments off from looking after the kids at 24 Sussex Drive while the PM and his wife were on the campaign trail.

But, putting aside what his political opponents are calling the insensitivity of his comments, was he right? Is it time to buy? Our readers want to know too. Wrote one: ” Since some stocks seem to be bargains now, like Precision Drilling and Suncor, should I be buying? Maybe this sounds like a dumb question with all the turmoil in the markets. It is concerning; but I don’t want to miss out on some bargains either which would help offset the original price I paid.” – Melanie W.

Some people are out there snapping up bargains – remember, you can’t execute a stock trade without a seller on one side and a buyer on the other. What it really comes down to is how much risk you can tolerate and your time horizon.

The reality is that some stocks that looked like great bargains a week ago are now even cheaper – in some cases, a lot cheaper. Next week, they could be cheaper still. Over the long haul, those who invest in solid companies today will be richly rewarded. But in the short term, they may have to reach for the Tylenol.

The bottom line is that if you’re a patient investor and you won’t need the cash soon, begin the process of adding quality stocks. Otherwise, sit on the sidelines and wait. The stock market is in Wal-Mart mode these days, rolling back prices before our eyes.