Economic analysis

When presidents and PMs give investment advice: The ultimate insider information

Should you listen when politicians say buy?

(AP Photo/The Daily Texan, Tamir Kalifa)

In his daily briefing email this morning, New York investment strategist Edward Yardeni pointed out President Barack Obama not only called the bottom of the stock market in 2009, he forecast the recent collapse in commodity prices, too:

I guess we should pay closer attention to President Barack Obama’s investment advice. On April 19 he called the top in commodity prices, in general, and oil prices, in particular, when he said, “It is true that a lot of what’s driving oil prices up right now is not the lack of supply. There’s enough supply. There’s enough oil out there for world demand,” Obama said. “The problem is…speculators and people make various bets, and they say, you know what, we think that maybe there’s a 20 percent chance that something might happen in the Middle East that might disrupt oil supply, so we’re going to bet that oil is going to go up real high. And that spikes up prices significantly.” Remember that on March 3, 2009, our nation’s Chief Strategist told us to buy stocks: “On the other hand, what you’re now seeing is–is profit and earning ratios are–are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it.” He is on a roll.

As you’ll no doubt recall, Obama wasn’t the only world leader to slap a “buy” recommendation on markets in those dark days. Prime Minister Stephen Harper took a lot of knocks in October 2008 when he went on CBC and told Canadians the upheaval in the stock market was a time to get in.

Harper: “The stock market will sort itself out. I suspect some good buying opportunities are opening up with some of the panic we’ve seen in the stock market in the last few days.”

Peter Mansbridge: “Do you really want to be heard saying that? Are you suggesting people should be buying?”

Harper: “I think there are some great buying opportunities out there.”

As it turned out, he was right, if a bit early. Markets continued to fall until the following March, but if you took the PM’s advise and bought, say, the S&P/TSX Composite Index, you’d be up roughly 25 per cent today. (I looked, but couldn’t find any recent comments from Harper that related to the current bubble in commodity prices.)

So, should you listen when pols say buy? Obviously politicians will say anything if they think it will make voters happy, and like perma-bulls, they’ll never, ever issue a sell call, no matter what.

Still, there’s value in at least considering their words when it comes to the broad sweeps of the economy. After all, they do have  their hands on the levers of government spending, which they both used to deploy billions of dollars for infrastructure projects, tax cuts and bailouts. Both were no doubt aware of efforts by their respective central bankers to employ considerable monetary stimulus to reboot the economy. In the case of Obama’s sell recommendation for commodities, it came just weeks before the Chicago Mercantile Exchange hiked margin requirements for energy futures traders, a move that regulators and politicians had been pushing for, and which accelerated the commodity sell off.

Whatever your views on government stimulus and intervention in the economy, there’s no denying each leader has the power to influence consumer and investor sentiment with their policies. In other words, Harper and Obama can be seen as the ultimate insiders.

So, Mr. Prime Minister and Mr. President, got any stock tips?

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