I didn’t care much for Stephen Harper’s accusation, earlier in the campaign, that the opposition were cheering for a recession. At the time, it seemed like a cheap shot. But the longer this goes on, the more I’m starting to think there’s something in it. The Liberals are now trying to make a “gaffe” of Harper’s perfectly sensible observation that the present panic on the stock markets presents a remarkable buying opportunity, for those with cooler heads. Stephane Dion, in particular, was quick to denounce the advice as “so insensitive.”
I’m sorry? How? What would they have him say? Sell? Take your lumps? Do nothing? You can only call it “insensitive” if you are bound and determined that nothing should break the spell of panic that now grips the country — that no possibility of an upside should be allowed to intrude. Just so long as cooler heads do not prevail.
This is demagoguery of the worst sort. And I don’t just mean that nothing about the present state of the Canadian economy justifies lumping it in with the United States or Europe, still less invoking the ghost of R. B. Bennett. We have not suffered a real estate crash, nor are we likely to; we have not seen a single financial institution go under, nor is any likely to; we did not have anything like the sub-prime mortgage mess; nor do we have the institutional equivalents of Lehman Brothers or Bear Stearns — large, highly-leveraged, stand-alone investment banks without the backing of a chartered bank.
But that’s not what distinguishes the opposition demagoguery in this case. It isn’t that they’re fear-mongers: it’s that, having mongered such fears, they do not propose to do anything about them. Sensibly enough — the problems of the Canadian economy, such as they are, find their origins outside our borders, and will find their solutions there. But it’s the height of hypocrisy, whaling away at the government for doing nothing while offering precisely the same themselves. The 85 lefty economists who signed that letter demanding the government go into deficit and otherwise “stimulate” the economy might have been out to lunch, but they were at least putting their names on the line, and exposing their proposals to public criticism. The opposition are taking no such risk, or responsibility.
So. We are not in a depression. We are not even, so far as anyone knows, in a recession. And while the rest of the world’s financial system dissolves in panic, Canada remains a notable island of stability. We do not have an emergency on our hands. What we have is a nasty downdraft in the stock market — one that is reflective of a deeper crisis, to be sure, but a crisis not of our making.
Is a 35% drop in the stock market (from its June peak) a crisis in itself? No it is not. The stock market does not owe you a living. It’s down 35% from four months ago, but it was up 50% in the three years before that (see chart). The present “crisis” has taken prices on the TSE all the way back to where they were in the dark days of 2005 — when they had just finished climbing 50% in two years. Think back to that time. You were rich! You were happy! You were counting your money!
Maybe you should have sold then. But you didn’t, because you wanted more. Now you’re paying the price. You’ve given up three years of gains. But you’re still up 50% from where you were five years ago. And, if you’re sensible, you’ll make up for not selling then by buying now. Those who were on the buy side on October 19, 1987 made a killing in the months that followed.
Not willing to risk it? Fine. Just sit tight. Worried about your retirement? If you’re anywhere under 55, you’ll be fine. You don’t need the money for 10 or 15 years. Stocks will have more than recouped their losses by then (at a compound annual growth rate of 5%, you double your money every 14 years). If you’re over 55 — what are you doing in the stock market?
This bears emphasis: If you’re old enough to be worried about your stocks, you’re too old to own them. Stocks earn more in the long term, because they’re riskier in the short term. You should be heavily in stocks when you’re young, because you’re not going to need the money any time soon. But you should be gradually shifting into safer investments — bonds, T-bills — as you get older. By the time you’re of retirement age, they should be only a small part of your portfolio. That’s not complicated. It doesn’t take a PhD or a high-powered investment adviser. It’s just common sense.
So when the Liberals invoke the pensioner who’s lost half of his savings in the stock market plunge, you have to ask: what was he thinking? To be sure, on this one point the Grits have actually proposed something creative — allowing pensioners to keep their investments in their RRIFs a while longer, rather than being forced to sell at these prices in order to make the required withdrawals on the usual schedule.
But at some point, people have to take a little responsibility for their actions. Otherwise, we have the individual version of moral hazard: everyone has a great ride on the stock market on the way up, but comes crying to government to bail them out when things turn south.