Posted by: Daryl & Wendy Ashby | July 13, 2010

William Hanley Speaks

The trader on the floor on the New York Stock Exchange was clearly upset in late June as the stock indexes slid toward levels not seen since last September. He snapped at a CNBC-TV reporter: “Journalists sell fear. We sell hope.”

That observation was made as the U.S. market was embarking on a seven-day losing streak going into the Independence Day long weekend, taking it down 16% from its April high. The S&P/TSX composite index was off about 10% in roughly the same period. 

So, yes. I confess. It’s all my fault. If I and my fellow journalists hadn’t been questioning the level of stock prices and the strength of the economic recovery, the correction might never have happened. 

I gave a little luncheon speech to a local services club in September of 2008, warning that all hell could break loose if investment banking-house Lehman Bros. failed, triggering a financial crisis in the wake of the housing bubble bursting. A club member approached me after the lunch and declared politely that if the media were more positive, these crises might not happen or at least might not be as disturbing. It’s best to look on the bright side, he said. 

I confess again: The bright side has most often not been my stock-in-trade. Some long-time readers will know if there is any darkness or perceived darkness lurking anywhere, Bill Hanley will be looking for it. And the dark days were truly out there in the fall of 2008, with the Great Recession already underway. 

Over the 16 years my column has been appearing in these pages, I have enjoyed many sparring sessions with readers who have written, phoned and emailed to challenge my views. Many have taken issue with my oft-negative views, which have become even firmer over time, given the flat stock returns of the past decade and two market crashes. 

But, in reality, most journalists are not inclined my way. The financial pages are mainly filled with reportage that largely depends on reports from and interviews with economists, analysts and the like. Most of my colleagues don’t get the chance or want the chance to muse gloomily, as I do. 

Indeed, the financial pages mostly reflect the events and the mood of the times, with the power of the press often vastly overstated. 

Right now, the pages of the Financial Post and other business papers are reflecting the increasingly urgent discussion of whether the stock market’s slump is presaging a downturn in the economy to come and a possible double-dip recession. 

There is no doubt the recovery has been losing steam, more so in the United States than Canada. U.S. housing and employment have not recovered. Now, consumers seem to be tiring, with various key statistics indicating the pressure on them. 

The possible summer of our economic discontent that this gloomy Gus wrote about in the spring is not just probable, but upon us. The summer stocks sale is here, offering many issues at significantly lower prices. 

But there has been no real clearance sale as yet. And that is the question investors and commentators must address as the second half of 2010 gets underway: Is the market ready to offer even more bargains, reflecting and discounting economic events six months ahead? 

Yet a weakening economy doesn’t necessarily equate to a serious decline in profits. The gains in earnings of the past year will be difficult to match year over year in the next six or nine months. But most companies have proved they can make money in tough economic circumstances, getting more for less out of personnel and plant. And balance sheets are in great shape, too. 

So here’s a rough outlook from your perennial gloomster: The North American economies will weaken, but probably avoid the dreaded double dip. Stocks will weaken further during the summer, but will not crash and burn. Yet the market is likely in for a long period of churning, much like the 1970s. 

In sum, it says here that this market is for trading, unless you can stomach the churning and stick with those solid dividend-paying stocks that will see investors through a difficult time. 

But of course, it will be my fault if events transpire as I roughly forecast. So, I apologize in advance. Sorry. 

Financial Post


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