By Winston L. Cook, President Henley Financial and Wealth Management
March 23, 2020
As you know, stock markets around the world have experienced unprecedented volatility, primarily because of the COVID-19 pandemic, PANIC, and what we may learn in the future “market manipulation”. In these crazy times, we thought it might be helpful to offer some information and insights in an effort to address the implications it has on your investments.
Over the past couple of weeks, the value of most investments has fallen considerably. There are lots of opinions out there on why this is happening but it’s not something anyone could control or predict accurately. When it comes to investing, it’s really important to make sure our decisions are logical more than emotional so rather than trying to figure out what’s driving other people’s decisions, it’s much simpler to focus on asking what makes the best sense for you. From our perspective, there are 3 general courses of action to consider:
It’s not easy to watch your investments drop in value. For some people their instinct will be to run to safety but be careful before you move forward with this course of action for the following reasons:
- A lot of the damage is done already. If you trust the logic that successful investing is all about “BUY LOW, SELL HIGH” then selling low after a big drop of 20%, 30%, or more doesn’t make logical sense.
- You could miss out when the market starts to go back up. If you move all of your money into a ‘safer’ place, you will miss the opportunity to recover in a low-interest environment. In the past, we have seen lots of people miss the opportunity with no chance to participate in the recovery.
- Successful market timing is really difficult. We’ve always said the decision to sell at the top is extremely difficult to time. The decision to buy back in at the bottom is also extremely difficult to time. The ability to time both the sell decision and the buy decision properly is near impossible. You may instinctively want to move to safety for a period of time but the next challenge is to decide when to get back in.
Remember that you only make or lose money at the point where you sell your investments. If the market drop is causing you stress and stopping you from sleeping at night then it might make sense to cut your losses and either shift to something less aggressive or get out of the markets altogether. However, before you make the decision to sell, you might want to consider the next strategy.
Could this be the buying opportunity of a lifetime?
Although this strategy is not for the faint of heart, some will look at the downturn in the markets as an opportunity to buy. We want to be clear that we’re not trying to downplay the significance of the COVID-19 virus or minimize the experience that people are currently dealing with but, when you look back at other major downturns in the stock markets (in 2008 for example) you can see how events like these could create opportunity from an investment perspective.
For those of you who’ve been in one of our information sessions, you’ll have heard us say that times like these are when investments go on sale. If big-screen TVs go on sale 20% to 50% off, people line up for hours to get a chance at getting those deals.
In hindsight, many of us would agree that buying more investments in 2008 after the world financial crisis caused markets to go down 50% would have been a great thing. Similarly, buying more investments back in 2001 after the tech bust would have paid off down the road. While our industry likes to remind us that “past performance is never an indicator of future performance”, years from now, we suspect many of us will look back and see that this recent downturn in 2020 was the best investment opportunity in our present day lifetime.
If you have a group rrsp or pension plan through work, the good news is contributions continue to happen every month. This is known as Dollar Cost Averaging and, over time, it tends to create higher investment returns than if you were to make just one contribution per year. This is because making multiple investment purchases over the year helps you buy more when the markets are low. Right now, with every new contribution you make, you’re essentially getting a far better bang for your buck than you were in February simply because lower investment values mean you can buy more investment units with each contribution.
Here are a few market statistics to think about:
- Markets typically rebound within 12 months after big drops.
- Markets have gone down 20 of the past 80 years. In 18 of those 20 years, the markets rebounded with positive returns in the following calendar year.
- The average return that followed a negative year was 14.6%, We know it can be tough to invest more (or more aggressively) when the markets are falling so, if you’re not so panicked that you need to sell but still nervous of investing more, there’s one more strategy to consider.
Stay the course…
Most of the financial industry will preach the buy and hold strategy. There are many reasons why but most people will believe that markets will eventually recover. The key word here is ‘eventually’. Often the reason that people are fearful is that we just don’t know how long the recovery will take. While it’s easy to let doom and gloom take over our decision-making process, it’s important to take a logical rather than an emotional approach to decision making. So, let’s look at some additional realities of the stock market:
- Markets go up more often than they go down. Over the past 90 years, markets have gone up 74% of the time and down 26% of the time.
- Markets have lost more than 20% only 4.5% of the time.
- Markets rarely experience back to back negative years. It’s only happened twice in the past 75 years the bottom line is that markets go up and down. As much as we hope markets will stay positive all the time, the risk of a correction is always there.
Every correction or bear market is a test of patience. It’s not easy but a necessary reality of the markets. From the beginning of time the stock markets have steadily increased and will continue to do so in the future, there will always be a down turn, correction or crisis to recover from along the way. What you must understand is that this unprecedented sell off has been created more by panic and fear than smart economic metrics.
We realize that the position of many is not being able to invest more at this time and that is understandable given the circumstance surrounding our present situation. Having faith in the future of our world, it’s population and our inevitable economic return is what we all want. We will survive this and we will return stronger than ever as a population because it’s human nature to survive and conquer the elements placed before us.
Please be well and stay the course we will get through this together.
When will our dollar come back to a common value that we are comfortable with? Since the global oil rout began in late 2014, everyone has been trying to call a bottom in crude prices. Looking at it with a wider perspective, crude prices have a huge impact on the global economy as a whole, directly influencing those countries that are major exporters of it. Canada, the world’s sixth largest oil-producing country by volume is particularly exposed to fluctuations in crude prices, and its currency reflects this by showing a strong correlation to crude oil prices (given no other major economic developments).
Adding to this point, Canada’s largest trading partner for oil is just south, as the United States gobbles up more than 95% of its crude exports. Oil is priced in U.S. dollars (USD), so lower oil prices mean less U.S. dollars coming in per barrel exported. Less USD supply drives up the value of USD versus the Canadian dollar (CAD), resulting in a weaker Canadian dollar.
The weakening of the Canadian dollar is a major concern for anyone who has immigrated to the United States from Canada, and a great boon for anyone looking to move to Canada or buy property here.
So now for the 96.5-billion-barrel question: Have oil prices bottomed? Speculators look to global events for a clue as to a bottom forming for oil, as every OPEC meeting and every meeting between Russia, Iran, or Saudi Arabia about oil production immediately causes a spike in crude. If the talks yield nothing of substance, crude prices immediately fall back down. Is this just the Wall Street, or is there more to it? The answer lies in Economics 101: Supply and Demand.
Oil speculators know that a commodity’s price is dependent on the balance between the supply present and available for use and the current and future demand of that commodity. When representatives from OPEC, Russia, Saudi Arabia or Iran meet with each other, speculators are hoping for an agreement that affects the supply/demand balance with a lessening of the future supply via production cuts, or at least a freezing of the output to allow for demand to outpace supply. It is the underlying supply data, however, that suggests we’ve bottomed out in crude prices and thus the Canadian dollar in the short-term at least.
Is oil turning around, and could it possibly be undervalued.
Well if we look at the price at the pump it seems to be rising slowly. Although yesterday I bought some US currency and paid the highest exchange I have in recent years. Time will tell but as we know our currency is valued to our resources.
After the last debate for the presidency of the United States of America, it’s hard to imagine that these are the best two candidates to lead a world power for at least the next four years. You would think with all the people in the political ring you would have someone who cares about our future generations and not about what happened 20 years ago and how that makes you unfit to lead. If having a skeleton in the closet means you will be called out when you run for office. Then you would never have a leader in the free world as we have all done something that would consider us unfit to lead a country.
Henley Financial and Wealth Management brings you this article with consideration of what might happen moving forward.
Predicting what will happen in the stock market is hard. Nope, scratch that. It’s pretty much impossible. But in light of the looming November vote, I took a look at what happened in the markets over the past few decades in relation to US presidential elections. However, before I get to that, I would like to emphasize that when it comes to markets, the past does not predict the future. And so I am not making any predictions here about what will happen on November 9, 2016, the morning after.
What happens in the markets during the lame duck session between an election and the inauguration of the new president? The performance of the stock market between Election Day and Inauguration Day might be taken, in part, as a statement of investor confidence — or lack thereof — in the incoming administration.
The line of thinking is that Republicans are better for the markets because they tend to push for more pro-business policies, such as lower taxes and less regulation. However, the stock market has historically performed better under Democratic presidents. American presidents since 1945 show the average annual gain under the blues (Democrats) was 9.7%, while under the reds (Republicans) was 6.7%.
The only two presidents who saw negative market returns during their tenure were Republicans: Richard Nixon, who was in office during the Arab oil embargo, and George W. Bush, who closed out his second term as the Financial Meltdown in 2008.
Taking it a step further, both poor and good stock performance in the year before or after an election had less to do with the president’s party and more to do with what was going on in the actual economy.
As for Obama, he took office the year after stocks lost nearly 40%. And notably, days before stocks touched their lowest in March of 2009, the president stated, “What you’re now seeing is profit and earnings ratios are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective”. Stocks are up by about 209% since he said that. Is it because Obama was a great president and his policies changed the world?
No the strong performance of the market from 2009, was not due to the election of President Obama and retention of a Democrat-controlled Congress in 2008. It resulted instead from a recovery in the economy after the Great Financial Crisis.
So what does this mean for November 8?
The result of that election is unlikely to have a major bearing on the performance of the US stock market.
The markets don’t like uncertainty, as the market sees it, Hillary Clinton is a known player whose policies are expected to be largely a continuation of the current administration.
Trump and his economic positions, however, are less predictable and do not always follow the party, he is for tax cuts and deregulation, but against free trade. Thus, he is perceived as more of a political risk in the market.
That sort of emotional response to a political shock is actually quite typical of investor and, more broadly, human behavior. Unexpected and potentially destabilizing political events tend to make traders and investors nervous, which then sometimes leads to volatility in financial markets. But as history has shown time and time again, these events generally do not have a sustained impact on markets.
Yes, investor sentiment in the immediate aftermath of the election can affect the market. And, yes, presidential policies affect the economy, which then, in turn, can affect the markets.
However, there are a bunch of other factors not wholly connected to presidential policies — such as oil-price shocks, productivity shocks, and things like China’s devaluation of its currency — that all influence what happens with the stock market. In any case, perhaps the most telling historical debate with respect to the relationship between presidents and the stock market (or lack thereof) is the following. Stocks saw their best gains under Republican Gerald Ford — but he wasn’t elected president, and he wasn’t even the original vice president on Richard Nixon’s ticket in 1972.
So whoever wins this circus act called the US presidential election of 2016, the markets will continue to perform based on solid economic performance until that performance is upended by a real economic event.
So while I was skipping through news articles I came across this one. I decided that this is a way of life for many people and occasionally I may have fallen into this trap for various parts of my life. I have taken out the names and the rest is, as it appeared I think it is worth the read.
I’ve spent this last year trying to figure out the right career for myself and I still can’t figure out what to do. I have always been a hands-on kind of guy and a go-getter. I could never be an office worker. I need change, excitement, and adventure in my life, but where the pay is steady. I grew up in construction and my first job was a restoration project. I love everything outdoors. I play music for extra money. I like trying pretty much everything but get bored very easily. I want a career that will always keep me happy, but can allow me to have a family and get some time to travel. I figure if anyone knows jobs it would be you so I was wondering your thoughts on this if you ever get the time! Thank you!
My first thought is that you should learn to weld and move to North Dakota. The opportunities are enormous, and as a “hands-on go-getter,” you’re qualified for the work. But after reading this a second time, it occurs to me that your qualifications are not the reason you can’t find the career you want.
I had drinks last night with a woman I know. Let’s call her Claire. Claire just turned 42. She’s cute, smart, and successful. She’s frustrated though because she can’t find a man. I listened all evening about how difficult her search has been. About how all the “good ones” were taken. About how her other friends had found their soul-mates, and how it wasn’t fair that she had not.
“Look at me,” she said. “I take care of myself. I’ve put myself out there. Why is this so hard?”
“How about that guy at the end of the bar,” I said. “He keeps looking at you.”
“Not my type.”
“Really? How do you know?”
“I just know.”
“Have you tried a dating site?” I asked.
“Are you kidding? I would never date someone I met online!”
“Alright. How about a change of scene? Your company has offices all over – maybe try living in another city?”
“What? Leave this city? Never!”
“How about the other side of town? You know, mix it up a little. Visit different places. New museums, new bars, new theaters…?”
She looked at me like I had two heads. “Why the hell would I do that?”
Here’s the thing. Claire doesn’t really want a man. She wants the “right” man. She wants a soul mate. Specifically, a soul mate from her zip code. She assembled this guy in her mind years ago, and now, dammit, she’s tired of waiting!!
I didn’t tell her this because Claire has the capacity for sudden violence. But it’s true. She complains about being alone, even though her rules have more or less guaranteed she’ll stay that way. She has built a wall between herself and her goal. A wall made of conditions and expectations. Is it possible that you’ve built a similar wall?
Consider your own words. You don’t want a career – you want the “right” career. You need “excitement” and “adventure,” but not at the expense of stability. You want lots of “change” and the “freedom to travel,” but you need the certainty of “steady pay.” You talk about being “easily bored” as though boredom is out of your control. It isn’t. Boredom is a choice. Like tardiness. Or interrupting. It’s one thing to “love the outdoors,” but you take it a step further. You vow to “never” take an office job. You talk about the needs of your family, even though that family doesn’t exist. And finally, you say the career you describe must “always” make you “happy.”
These are my thoughts. You may choose to ignore them and I wouldn’t blame you – especially after being compared to a 42-year-old woman who can’t find love.
But since you asked…
Stop looking for the “right” career, and start looking for a job. Any job. Forget about what you like. Focus on what’s available. Get yourself hired. Show up early. Stay late. Volunteer for the overtime. Become indispensable. You can always quit later, and be no worse off than you are today. But don’t waste another year looking for a career that doesn’t exist. And most of all, stop worrying about your happiness. Happiness does not come from a job. It comes from knowing what you truly value, and behaving in a way that’s consistent with those beliefs.
Many people today resent the suggestion that they’re in charge of the way the feel. But trust me. Those people are mistaken. That was a big lesson I learned it several hundred times before it stuck. What you do, whom you’re with, and how you feel about the world around you, is completely up to you.
Our Home and Native Land…The true north strong and free
Albertans have been hit by a modern day gold rush. Oil prices have soared and adventures have flooded into the province, everyone wants to strike it rich, this black gold has been flowing freely and many have been riding the wave. These are the glory days in Alberta the spirit of Oil is alive and well.
Oil is everything in Alberta the province has been turned into a big money making machine. This has been the best time of the provinces existence, go big or go home. Suddenly they are more Oil companies setting up shop and the spin-off from the industry has created thousands of jobs.
As the price of Oil climbs so do the dreams of many… we are rich and this will last forever or so we all hope.
We know that oil has been leveraged to get the world to notice that there is a power in play, and oil and those who have it will be the power brokers in the world’s economy. This has help to create a boom in Alberta; millionaires are born money is everywhere. Alberta is rich! With this new found power in the world’s economy comes the boom of industry and everyone wants a piece of the action.
People from across the country flock to Alberta, construction is up and the vacancy rates are down. Everyone is in the search of high paying jobs living the dream of finding gold at the end of the rainbow.
Oil has helped to increase our stock portfolios, there is real estate speculating in Alberta, and of course, many have jumped into the oil ventures market. There is money to be made in every sector. Canada is the place to be our economy is booming we are a natural resource haven. When will it end?
Young entrepreneurs are getting together to start up Oil and Gas companies. There is a rapid expansion in the industry. It has lead to spin-off companies to help keep the production in place and drive the profits into the stratosphere.
Wow, we are a world power!
Then suddenly a worldwide economic recession hits and the price of Oil drops rapidly and the boom is over. The power brokers are no more the spin-offs are now gone and so are the dreams of many. We don’t see it coming because we don’t want it to end.
When do you think this happened?
Easily you could say 2015, but this actually happened in 1970 when oil was selling for $3 a barrel, and then climbed to $15 almost over night and by the end of the decade Oil was $40 a barrel. Then came the world’s economic collapsed in mid 80’s. By the mid-90’s we saw this cycle happen again, and we are seeing it happen yet again.
Canadians are resilient we have lived through the highs and lows of the times and we always recover. This time is no different the sun will soon shine on us again; we will rise up and take the world by storm the cycle will continue. Only the next time hopefully we can learn from our past that nothing lasts forever.
As they say, the cure for high prices is higher prices.
That always seems to make the high prices more reasonable, Its called sticker shock we become acclimatized to paying a high price for our consumer goods.
But the truth at the heart of the collapse in oil prices in 2015, a force that will shape our personal finances in the coming year, is that we will become acclimatized to these low gas prices. In the GTA, it’s good news. The commute is cheaper and so is the cost of heating our homes. It adds up to a tax cut as good as the one the Liberals are giving us.
The downside of cheap gas is the upside to other expensive consumer goods across the board. So much for the savings established at the pump
In the west, where 40,000 industry-related jobs have disappeared, more pain is on the way because the energy rout may only be midstream. Even if it isn’t, more jobs will likely go. Until the price of oil stabilizes, the only thing companies can do is guess and keep cutting to make sure their costs stay below their falling revenues.
It’s hard to recall that 18 months ago, oil was at $110 (U.S.) a barrel. Today it’s trading under $35, two-thirds lower. If you think about that in terms of your household, how would you fare if your family income was cut by 69 percent?
This is all about a fight for control of the world’s oil market, dominated by the Organization for Petroleum Exporting Countries (OPEC), of which Saudi Arabia is the lead. As China’s insatiable demand for energy drove up prices, a search for cheaper supplies made sense. New technologies made it easy to drill into shale formations and fracture the rock to release oil, creating a plentiful supply of energy in North America.
A sign of the times is that the U.S. lifted a 40-year ban on the export of domestically produced oil. That is because fracking is making the U.S. almost energy self-sufficient, just as China’s economy is slowing — and so is its need for oil. In the meantime, Iran is adding two million barrels to world markets as part of its nuclear deal.
The Saudis seeing a long-term threat to their oil power have ensured that OPEC continues to produce at the same pace to keep up market share. The Saudi goal is to drive the higher-cost fracking industry under. Our, even more, expensive oil sands are caught in the crossfire.
OPEC shows no signs of standing down.
In June 2014, with $110 oil, the loonie sat at 92 cents (U.S.). It cost us $1.09 for one American dollar. Today, it was at 72 cents, a drop of 22 percent. Which is $1.38 to $1 at the consumer level!
If oil rebounds, so will the dollar; if not, it may fall further which is something Canadians living close to the borders care a lot about. Even if you don’t live close to the border that cheap flight or vacation in the U.S. is no longer an option.
Toronto share prices are down 9.8 percent year to date. Energy stocks make up about 10 per cent of the TSX and have fared much worse. The TSX Energy Index is down 26 percent.
If oil prices improve, these shares will too.
We climbed out of our 61-cent-dollar hole in 2000, gradually getting to par in 2009 without much inflation. Our exports to the U.S. were cheaper and so more attractive, creating profits and jobs. By substituting Mexican avocados for California ones, we energized our economy without higher prices. Cross your fingers we can do that again.
If we can’t and inflation starts picking up, rates may rise even though the Bank of Canada doesn’t want them to. If so, housing starts will cool, consumer spending will fall and we’ll all have a harder time.
There are a lot of ifs, and’s and maybe’s here and, as always, beware of forecasts. Between now and this time next year, anything can happen. As I stated in a previous article no one can predict the future but much speculation will spin these storylines moving forward. All we can do is live life have fun and enjoy the day as it comes.
Since gas is cheaper in your area fill up and enjoy the ride as it will not last. We know all too well that things go up and down over night. This soon shall pass and we will be talking about something completely different in 12 months time.
As I was driving home yesterday I noticed that the gas priced at 72.9 cents a litre earlier in the day was now 92.9 cents a litre. Now I know that the dollar rose by .005 of a cent against the mighty US dollar and Oil was up by .21 cents yesterday but how does that make the price at the pump jump .20 cents a litre in a day.
To put the jump in price in perspective, that would mean a $15.00 difference when filling up my SUV, which has a 75-litre tank. So it does make a big difference for those who commute daily.
So how are Gas Prices at the pump determined?
Until recently the Oil companies were gloating over record profits. I realize this not to be the case now but when a barrel of oil was at record highs, gas was $1.50 per litre. Now that a barrel is at its lowest point in the last 30 years the price of gas does not seem to be following the trend at the pump. Yes, it is cheaper than it was but still expensive based on the price of a barrel of oil. Or is it?
In 1984 gas was 39.9 cents a litre and a barrel of oil was $28.75… Well, today a barrel of oil is $28.76 and gas is 89.9 cents a litre on average.
So why is there such a difference?
The break down at the pump is determined by the following factors
Crude oil – The cost of raw material for making gasoline, which accounts for 40% – 55%
Taxes – Federal, Provincial and Municipal tax applied to the cost per litre, which accounts for 25% -35%
Refining costs – The difference between what it cost to buy crude oil and what refined gas sells for in the wholesale market accounts for 10% – 25%
Marketing Costs – This covers the retail margin for expenses and profits of 4% -6%
Distribution – Transportation to various regions is between 21% – 26%
US dollar – Crude is bought and sold in US dollars
Supply and Demand – Predictable impact on the price
So what affects the price range at the pump?
The price of crude oil is the main contributor to the general increase in retail gasoline. Generally, Crude oil prices depend on several factors including worldwide supply and demand, the stability of the distribution network, the value of the U.S. dollar, and the price speculation.
The Organization of the Petroleum Exporting Countries (OPEC), a cartel of 13 oil-rich countries, which produces about 40 percent of the world’s crude oil, exerts significant influence on prices by setting production limits on its members. The United States consumes more oil and refined products (such as gasoline, diesel, heating oil, and jet fuel) than any other nation in the world. The demand for crude oil in China has risen with their populations, increased trade, and a growing internal economy. Interruptions in the flow of crude oil through the distribution network can cause gasoline prices to rise, including natural disasters like Hurricane Katrina, the Gulf Coast-BP oil spill, political instability in countries like Iraq, Libya, Yemen, Saudi Arabia, Venezuela, Nigeria, or monetary instability. Oil is traded on the world market in U.S. dollars. When the value of the dollar drops compared to other major currencies, producers earn less and compensate by raising the price per barrel of oil.
Government taxes are the second largest part of retail gasoline prices at the pump.Then you have speculation in the commodities markets where crude oil is traded also drives up the cost. Financial speculators make money on the fluctuations in prices of commodities like oil by placing bets that the price will go up or down.
Refiners lose money when plunging prices require them to sell gasoline for less than the crude oil they bought. Refining costs and profits vary due to the different gasoline formulation. Refiners blend formulas and such blends are more complex and more expensive to make. Many contain ethanol, an alcohol mixed with gasoline to create a cleaner fuel that can account for up to 15 percent of some gasoline blends.
Retail dealer’s costs include wages and salaries, benefits, equipment, lease/rent, insurance, and other overhead. An individual dealer’s cost of doing business varies depending on location and number of local competitors.
Stations next to each other may have different traffic patterns, rents, and sources of supply that affect their prices. Gasoline often costs more in wealthy neighborhoods, because stations pass along higher real estate costs. Credit card companies also earn 2.5 percent of the transaction cost as opposed to a flat fee, which impacts dealer margins.
Supply and demand creates a predictable impact on the price of gas. The supply of Oil does not come out of the ground in the same form from everywhere in the world. You have a Light to Heavy and Sweet to Sour crude, the price of Oil is quoted as Light / Sweet crude. This is in high demand as it has fewer impurities and takes less to refine into gasoline. But most of the Oil available throughout the world is heavy/sour crude. This is where the most money is for the refineries because they can obtain Heavy / Sour crude for a lower price due to the large supply meaning a higher return on investment but it is a lower quality of crude. Which again is why they mix gasoline with ethanol to help create a cleaner fuel at the pump. Although when you have too much oil on the market the return on investment is cut drastically.
The consumer creates the demand the more cars on the road the more demand for gas. Simple math if you oversupply then the price is lower if you undersupply the price is higher. The consumers will fluctuate based on price but by a very small percentage.
So what we are seeing is the perfect storm between supply and demand, the strong US dollar and a lower commodities market thus creating a lower price at the pump. The cost of doing business has gone up over the last 30 years creating a difference in price at the pump between 1984 and 2016 on the same cost of a barrel of oil. But based on recent profits made in the industry everyone with the exception of the consumer is now experiencing a loss of revenue.
So I guess you have to pay attention to the price at the pump to make the most of your savings while you can. We all know that this will not last forever at some point there will be a reduction in production and the wheels of profit will start to turn again.
We still really don’t know why the price at the pump can fluctuate so drastically daily as in the image above. All we can do is laugh and understand that supply would be up and demand would be down at this location.
If history is any guide, a win by Justin Trudeau and the Liberals bodes well for Canadian stocks.
Stretching back to 1922 and the time of William Lyon Mackenzie King’s first term in office, stock returns have been three times higher under Liberal prime ministers than with Conservative leaders, this according to monthly data up until August 2015 compiled by Bloomberg from TMX Group Ltd., operator of the Toronto Stock Exchange.
Over about 63 years in power, the Liberals of Pierre Elliott Trudeau, Jean Chretien and Louis St-Laurent witnessed a weighted compound annual growth rate of 6.8 per cent for the Standard & Poor’s/TSX Composite Index and its predecessor TSE Index. That compares with a 2.2 per cent annual gain for the Tories of Stephen Harper, John Diefenbaker, Brian Mulroney and others.
Is it timing? Have the Liberals been lucky over 100 years to do so well? Over 100 years there does seem to be a pattern. It could be that when economic growth is poor, people want austerity and think Conservatives are better managers. Then when things improve people get tired of that and they vote for the Liberals. Or has change always come at the right time?
The data, which covers the tenures of more than a dozen prime ministers of both major parties, compares the compounded annual growth of Canadian stocks weighted relative to the amount of time a particular leader was in office. The longer the time served, the greater the impact on the resulting figures.
Under Harper, Canada’s leader since 2006, the benchmark gauge has posted compound annual growth of 1.5 per cent, the second-worst performance of any prime minister since Richard Bennett. Bennett, a Conservative who ruled during the time of the Great Depression from 1930 to 1935, is the only prime minister with a negative stock return of 9.7 per cent. Pierre Trudeau’s second term was weaker than Harper’s for stock performance but his overall tenure was better.
As with other leaders, Harper’s stock market record reflects events that are beyond his control. The incumbent Conservative led the country through the worst global financial crisis since the Depression and more recently witnessed a 50 per cent drop in the price of oil, one of the nation’s biggest export products. As a result, Canada’s economic growth will be about 1.1 per cent this year, one of the weakest in the Group of Seven countries.
Markets are, at least in part, a reflection of confidence or a lack thereof. It is interesting that the Liberal legacy of sound economic management, jobs and growth, is something we don’t hear about during election campaigns. But it would appear that they have delivered and can contribute to the economic growth of a country.
Typically if you get more money into the hands of people with a higher tendency to spend it that’s good for economic growth. The market will do better if the Liberals are seen as more of a middle of the road player that encompasses all, as opposed to the Conservatives which have been linked to business and benefiting corporate entities.
The 13-year Liberal dynasty that came before Harper, led by Chretien and Paul Martin, presided over combined compound annual growth of 8.3 per cent from 1993 to 2006.
Martin, who held power for three years through a minority government, posted the best compound growth rate of any elected Liberal at 18 per cent. Resource stocks in the S&P/TSX surged as the Canadian economy wrestled with a weakened currency for much of their rule, along with the rise of China as a global economic power and the rapid rise of commodities prices from crude to gold.
Again we must understand that the Harper government went through the financial crisis of 2008, which certainly was not his doing.
All is not lost for the Conservatives, however. The best performance of any prime minister was the nine-month rule of Joe Clark from June 1979 to March 1980. Canadian equities surged 33 per cent during his time in office, for annualized compound growth of 47 per cent. Elected at age 40, Clark was the youngest prime minister in Canadian history.
This is not to say that Trudeau will not go through a financial crisis, or market correction over the next four years. But while in power the results from the markets going forward are in his favor. 2015 has been flat year with minimal gains and as we have seen in the past there is a calm before the storm approach in the markets. We cannot predict markets going forward but we do know that they will go up and of course go down. Timing may once again in favor of the Liberals.
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