LATEST STOCK MARKET SHOCKER!!!!

your

Right.
basically, I guess, what I need to know (and what most people I know want to know) is how a slowdown is going to affect a person’s bottom line. I’d r e a l l y appreciate keeping my job, thanks.

Sophie, in the case of a bad recession, it would depend on what sector one is employed in. Businesss that sell luxury items would be harder hit than businesses that sell essentials, unless the luxuries were for millionaires; a movie theatre wouldn’t be affected, for example, but a store selling $300 sneakers would be. Or a whole region might be affected by the loss of a lot of jobs in one factory: I lived in the Upper Gatineau for part of last year and it was gearing up for hard times (in the midst of our super-prosperity!) as the sawmill in Low was going to close. Something like that affects the whole of the local economy.

That’s about as far as I can go, ’cause I’m scared of all the economists who hang around Mr. Coyne’s blog . . . They get secret bonuses from the Economists’ Guild for eviscerating amateurs like me . . .

alright, and I’m sorry to keep harping onabout this-but my region is supported by pulp and paper….
I’m not sure what that would be considered as.

Jody: On Wednesday I put together an 8 year analysis of Canadian government cash flow and noted (easily understood chart at the link on my name) this calendar year the Harper government has racked up $23 billion in debt; this fiscal year its $20.3 billion. This number is significantly above any average for the periods in question when compared to any of the past years during this decade. Something is amiss and the public deserves a straight answer before E-Day.

Sophie: your employer’s business is heavily tied to consumer discretionary and consumer staples as well as home building and other sectors that use your products. Some are very economically sensitive (like home building) while others are not (everyone needs toilet paper). The ability for your mill to operate in a bad economic climate depends a lot on what products it produces, who its major customers are (domestic or US export), where the Canadian dollar is pointing to.

The stock market is a useful indicator of where business observers (market players) believe business (and therefore the economy) is headed. That forward looking picture is not very bright at the moment, and given the turmoil at the root of the system – the ability to lend and borrow money to run business – the picture is not likely to brighten much any time soon. Even if markets stabilize, it’ll be some time before confidence returns to business and consumers. A recession is all but a foregone conclusion in the U.S. and unlike Mr. Harper, most serious market participants here too believe Canada will experience a recession as well. Some areas of the country will suffer more than others.

Bad equity markets affect other areas of the economy not immediately obvious beyond the price charts we see flashed on the news. Raising capital to fund new businesses or expansions is more difficult when equity or credit markets are poor (and they are acting very poorly indeed). Cost of borrowing is going up, for everyone but particularly for business. These costs will be passed on where they can, or absorbed by the business resulting in a further decrease in profitability which one day gets translated into… lower stock prices.

And so on.

Harper is in a difficult position. He can’t be Mr. Doom and Gloom, since he is Chief Cheerleader.

But the reality is there is reason for doom and gloom.

And that’s why we are having an election now. Harper had hoped to get one in before things fell apart. He waited too long, and he may pay a significant price for that.

His loss is Mr. Dion’s gain. That’s how it works.

Gee, and all the governments of the world had to do to turn this into (so far) just an average downturn in the stock markets was nationalize the largest insurance company in the world, and spend well over a trillion dollars in bailout packages.

What might they need to do in the NEXT 30 days?

Mr. Coyne’s correct that we can’t predict exactly what will happen in the next thirty days, but given the extraordinary lengths that the governments of the world have gone to in the last thirty days, I’m less sure as to why he’s seems so optimistic (or, at least, not pessimistic).

I’d believe this was the bottom if I didn’t hear Mort Zuckerman on PBS every week telling me the worst is yet to come. Everybody thought things would start looking up after Bear Stearns went under. Then everyone thought Lehman Brothers going under was the bottom. Then everyone thought nationalizing AIG was gonna be just about the end. Then the $700 billion bailout was the ticket.

You’ll forgive me if I worry that there are other shoes still floating in mid air.

more or less average decline in stock prices

Nice try, Mr. Coyne, but the markets are at the same level they reached in March of 2000. That means they’ve experienced nearly a decade with no gain. The last time that happened was in the sixties and seventies. Do you remember how that worked out for the economy?

“To provide a Canadian analogy, Its cold and windy outside, but right now the new weatherstripping and insulation are working well, our neighbours just had a window blown out and some shingles ripped off the roof. But you would be advised to put on an extra pair of socks and a sweater because its getting colder. We may need to go to the neighbours and help them fix their house.”

Thank you!!!!!

Let me give you a better analogy. There’s a storm blowing across the US that is headed toward Canada. Sure the sun is still shining here but that won’t last much longer and Harper thinks it’s the perfect time to plan a picnic.

I see a Reuters report that Canada’s Banking has been rated number one in the world, I am sure we will see this all over the mainstream media in Canada the next few days

Since this topic is even more important than politics, one would hope that the mere cheerleaders and doomsayers who are merely parroting lines in support of their particular aspiration for this electoral contest could stand aside; then perhaps we could have a rational discussion on where the economy is likely to go.

While this might not change the electoral outcome, at least a more honest chat about the subject might prove useful to individuals.

Or you can just have the doom and no discussion. I can play that game, but I’m not a lay person with no knowledge in this area.

Be prepared for another 15 – 20% decline in Canada’s financial institutions market value; possibly another 35 – 40% drop in energy shares. The preconditions for either event is simply a serious recession and that is pretty much a given.

Budget 2008 was developed in an era of Canada as a “global energy superpower”, while prices on commodities were still rising. Its normal for government to downplay revenue expectations to some degree – build some slack into the plan for contingencies.

However, and this is very important, it is completely unrealistic to expect the Ministry of Finance planned for the huge unravelling of the U.S. and global financial system and as well planned for a rapid and massive deep (and still not over) turn around in commodity prices across the board.

Whatever expectations Finance had when they built that budget have surely been dashed.

Any of us who have actually run businesses or who are serious investors know how that turns out.

I think I understand now.
The thing i have with this, is, even if Coyne is right and everyhting is fine, people don’t think it’s fine. People who’ve watched hlf their coworkers lose their jobs and had their own salaries cut in half know that something is not right.

So they get scared.
People who are scared are going to hoard their money, not put it into the economy.
Seems to me that we created our own recession back in March when DOOOOOOOOOM was the brief summary of every business columnist, because it scared people. I know people who had planned on, say, putting a new roof on their house or fixing the back windows in their car, who are now keeping their money ‘for a rainy day’, because with the rapid-fire cutting of salaries, they’re running scared (my life’s savings may or may not now be in a jar in a sock under my bed) because people don’t trust banks, they don’t trust the stock market, and they don’t trust politicians who say everything is fine.

I think that made sense, but it was just based on personal observation, nothing scientific, so feel free to destroy me.

Excellent post, Michael.