The TSX composite is down more than 600 points as I write this — a nearly 5% drop in one morning. Elsewhere, global markets have tumbled today as fears over a U.S. recession mount. This is all just adding salt to the sore, as markets all over the world were already down as of mid-January. And the hope that they’ve finally reached bottom is not made any more comforting by the fact that the proximate cause of the current plunge was a big economic stimulus package announced by the commander-in-chief of the world’s largest economy.
Government helpless? Central banks irrelevant? Consumers gone to ground? This seems to many like the Big One at last.
Is it? Well, it seems clear that right now, at least, the markets are acting on sentiment as much as on information. But it’s also clear that all the heady talk about how “it’s different this time” — how commodity demand defies the economic cycle; how the rest of the world has “decoupled” from the U.S. economy; how the subprime-fuelled credit crisis was easily contained — was just talk. Who cares whether the U.S. is in a recession or just a downturn? A slowdown is bad enough, and will have consequences around the world.
Are governments powerless to help? Of course not. The problem with George W. Bush’s $145-billion stimulus package is not just that it’s too little, too late; it’s that such short-term-inspired spending, however expedient, is among the factors that got the U.S. economy into this mess in the first place. (Will the $145 billion work? Wait till November.)
Contrast the situation here in Canada, which will be hard-hit by a U.S. slowdown. (This is expected for Ontario and Quebec, but I suspect oil prices will not be as robust as some observers believe.) The federal government not only has reason to act, but the money to boot. Hopefully, in its ’08 budget if not before, it will eschew the easy path of industry-specific support, and announce instead meaningful, broad-based tax relief for individuals and businesses — measures that will benefit all Canadians over the long term.
The long-term view informed our philosophy in the special investing report on page 49. Staff writer Calvin Leung, with help from reporter-researcher Megan Harman, scoured the globe to identify well-priced stocks in companies that should serve their shareholders well over the long term. They found 15 that are poised to perform, let the market go where it will.
Invest with care.
