Bear with me, because this is going to sound a bit cuckoo. But I've been feeling much better about these frantic markets ever since the oil price started swinging so wildly. When an asset price is this volatile, you know there's nothing fundamental about its valuation – plain old panic selling is in the air.
That can be terrifying, because humans are irrational animals prone to being paralyzed by fear. But it's also rather comforting, because it allows for investors to be soothed by powerful people who assert some calm. All we need now is for Canada's corporate titans and central bank types to step up and provide it.
In business news and on Twitter, the nasty headlines and comments about our tough times are never-ending – so much so that sometimes I think people want to see a recession, or to see some banks fail. There's something about watching a train wreck. Amid this cacophony, we need to be reminded the real picture is much rosier. Sure Alberta is a hot mess, but the gross domestic product in both Canada and the United States is supposed to grow this year, which is especially encouraging for our big banks, because their bottom lines are dominated by domestic retail-banking profits. Retail-banking earnings are, at their very core, a multiple of GDP growth.
It's time for our 'whatever it takes' moment, harking back to 2012 when European Central Bank governor Mario Draghi dropped his famous line. Markets rely on messaging, and we've let naysayers hijack the narrative. Take the mic back and calm everyone down. The more volatile markets remain, the tougher it will be to deliver expected growth, because companies will have a harder time financing it.
Bank of Nova Scotia chief executive officer Brian Porter did his duty at the Canadian Club of Toronto last week. Taking questions from the media after his speech, he stressed investors are blinding themselves with bad ideas. "There is a real disconnect today between our business, and our customers' businesses, and what the financial markets think is going on in the real economy," he said.
"I've seen this a number of times in my career; I've never seen it as blatant as it is today," he added. "I think the market is, personally, way ahead of itself."
On European banks, whose share prices have been hammered, he said Scotiabank continues to do business with them and has kept trading lines open. On energy loans, he reiterated what Canadian bank CEOs have been saying for months: sure, the lenders could lose a little money, but it won't be anything catastrophic.
"This is quite manageable for the bank," he said of the rough energy market, stressing once again that provisions for credit losses related to energy exposure are likely to be worth between $450-million and $550-million through the end of 2017 – all of which would be spread out quarter by quarter.
Mr. Porter had some fun when explaining this by toying with the reporters standing in front of him. After he first disclosed these figures in January, he could feel some disappointment because it wasn't particularly ugly. "I know that the press wanted to see a bigger number," he joked. The sad thing is that he was probably right: the press loves to see blood. We need to do our part and be more objective.
Mr. Porter stressed this isn't the 1980s all over again, when banks got their shirts handed to them by the likes of the Latin American debt crisis and the last energy crash. Canadian Imperial Bank of Commerce famously lent close to $1-billion to Dome Petroleum, a third of which was unsecured. The lender had barely any capital to support the loss when Dome went belly up.
Canadian banks today rank incredibly high on the balance sheets of the energy companies they lend to, which means they get one of the first claims on assets. And their loan books are way more diversified. For many, energy lending is only about three to five per cent of the total loan portfolio.
More of this positive rhetoric, please. Stuff like this can never be said enough. The pace of news in this digital age is incredibly fast – things that happen in the morning are sometimes forgotten about by lunch. Get out there and beat the drum over and over and over again.
And do it with some flair. That's especially important for Bank of Canada Governor Stephen Poloz. As much as we joke about how much his predecessor, Mark Carney, loved to be in the news, the former central bank governor had some pizzazz, which made people pay attention. There's a reason celebrities like Kanye West steal headlines. Saying something dryly isn't going to be enough to cut through the panic. It's a war for attention in these markets, so you've got to be big and bold.
Certainly it's scary to put yourself out there. No one wants to be wrong. But if everyone plays chicken, our irrational minds are going to take over – especially with the global financial crisis so close in the rear-view mirror.
Growing up, I had a baseball coach who would joke with me whenever I closed my eyes and turned my head when a ground ball came at me like a rocket. Stand right in front, he'd say, and take it off the chin if you have to. "That's why they pay you the big bucks," he'd say – the joke being that 12-year-olds clearly weren't making money for getting a shiner.
That analogy has always stuck with me. These are tough times, and our titans need to get out there and soothe us, even if it means taking a hardball or two to the face. That's why they're paid the big bucks – and this time that isn't a joke.
Tim Kiladze