Blogs & Comment

Sorry Ivison, but Harper's been right about the market

I came across an interesting articleby The National Post’s John Ivisontoday about Stephen Harper’s market predicting capabilities.
Here’s how his article starts:

    Stephen Harper is to stock markets what a former colleague was to horse racing. The Baron was such a terrible racing tipster, the paper eventually made a virtue of it by rebranding his column, Lose your Shirt with the Baron. If he backed a horse, you knew it was a candidate for the glue factory.

He then points out that the market has fallen 10% since October, when Harper told Canadians that there were “probably some great buying opportunities out there.” Later he writes about Harper’s comments after the G20 and the market reaction:

This should have been a signal for a thundering herd of investors to head for the exits. Remarkably, though, the TSX made a triple-digit gain, in line with most other world markets.

Now Ivison is a great writer and columnist, but I don’t agree with the idea he puts forward (and not just him, I’ve read articles on this before) that the markets are reacting to what Harper says, or that the PM should be criticized for saying to buy when the bottom hasn’t yet been hit.
First of all, the markets and what Harper says, in my opinion, don’t have a lot to do with each other. Stock markets react on economic news like job data and housing numbers, company info such as Petro-Canada merging with Suncor, or on huge international economic news, like what came out of the G20.
It’s misguided to criticize Harper for saying the markets will rebound when they don’t for a couple reasons. (Though, it’s worth asking whether or not he should be making market predictions in the first place, but that’s a blog post for another time.) One, there are so many factors that dictate how the market, and Canadian investors, will react, and two, the markets should be looked at over months or years, rather than days. Yes, I know, everyone wants to focus on the daily highs and lows, but what does it mean if the markets tank the day Harper says something, but the next day they jump back up again? That’s right, not much.
When Harper made the commentabout good buying opportunities in October, he was right. On Oct. 7, 2008, the day the PM made that remark, the S&P/TSX composite index had fallen nearly 5,000 points from its 2008 high on June 6. Since those comments were made the market has dropped less than 1,000 points (as of April 3 close). While it’s true people would have still lost money if they bought stocks in October, it’s also true that they would have found some extremely cheap buys if they had entered the market at that point. (Not as cheap as if they bought the week of March 3, when the market was around 7,600 points, but it’s not like Harper was touting good buying options in September, when the the S&P was about 12,000 and falling.)
I think people should take Harper’s GDP growth projections, which are more optimistic than many economists, to task, or if he should be making grand predictions like Canada will rebound better than anyone else, but when it comes to his investing advice, he’s actually been spot on. October was a good time to buy, and the markets did go up yesterday just like he said they would.
Our government might be out of touch on a number of issues, but the stock market isn’t one of them.