Turkeys

On October 6, 2008, stock markets gave up more than 5% of their value. In just two days the losses totaled almost 10% as equities (the Dow, the S&P and the Nasdaq) dropped to the lowest point in five years.

The next day Stephen Harper, prime minister, said this: “I think there are probably some great buying opportunities emerging in the stock market as a consequence of all this panic.”

 At the time he was running in a federal election, which he won. But Harper was savaged in the media for his advice to buy. History shows that was mid-point in a bear market which bottomed five months later. At its depth, 54% was erased in that two-year period. But then over the next decade, it gained 75%. An ETF based on the S&P gained 160%. Someone buying shares of RBC in the winter of ’09 had tripled their money by the autumn of ’18.

Harper was right. Duh. It was pure logic. When markets go risk-off, with everyone hitting the SELL button, it’s time to get out the chequebook. But for that you need courage, confidence. Most lack it.

Since hitting historic highs in September, stocks are off almost 20%. No 2008 at this point. But Christmas Eve turned into a rout immediately after another Trump tweet trashing the central bank. Losses amounted to almost 3% and the day ended in a swirl of White House-induced angst. Hour-by-hour, a political crisis is developing. Markets worry about a president who deliberately shut the government, dismissed the defence secretary, rashly pulled out of Syria, shocked allies, may punt the Fed boss and could face indictments or an impeachment attempt in 2019. It’s a mess. An unfolding one. Markets hate uncertainty. Sell, sell.

On Christmas Day Trump tried to walk back some of this. “I have great confidence in our companies,” he said. “We have companies, the greatest in the world, and they’re doing really well. They have record kinds of numbers. So I think it’s a tremendous opportunity to buy.”

History will prove him right, as it did our guy. But Trump himself isn’t an observer. He’s the spark. By attacking the Fed he’s weakened it. If the central bank relents and halts rate increases (or even cuts) it’ll be seen as a lackey institution, bowing to political pressure. If it keeps on its avowed path, the president keeps attacking. Lose, lose. So the very institution that can best deal with a financial crisis has been made part of it. Such is the peril of a one-man government.

What next?

I have no answer. Nor does anyone else. The most powerful person in the world is utterly unpredictable. Against every shred of advice, he might take a run at Jay Powell, forcing the Fed boss to give up his chairman’s seat. Bonds would explode higher and stocks plop lower. Traders would have no idea where monetary policy was headed and take few chances. It could end quickly if the Fed’s No. 2 guy moves up. It could get worse if a political crisis ensues. Months of chaos could unfold as Trump tries to manipulate markets – the symbols of his MAGA renaissance.

Or, he could apologize, back off, express confidence in the Fed and pledge to work with the newly-elected Congress in the best interests of Main Street.

Guess which it will be?

Right. Me, too.

The best course of action is to ignore your investment accounts until the daffodils are nicely out. Certainly do not sell into a storm. If you have cash to invest, this is a cool time to do so. Those who have balanced and diversified portfolios can take solace in the fact that while stocks have lost 20%, they certainly have not.

And remember history. Harper was right. So is Trump. Nuts, but right.

Now go and turkey.