Markets | Fear, not facts, may be factor behind latest trends

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By SHAWN BERRY
berry.shawn@dailygleaner.com

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The loonie had its biggest one-day drop Friday as many financial and economic indicators in Canada were hit by international financial turmoil.

Canada's currency spent much of the day down more than three cents against the American dollar, and at one point it was down as much as 4.87 cents U.S. - its biggest one-day decline.

But within minutes of hitting the intraday low late in the afternoon, the loonie began to revive and ended Friday at 84.69 cents US - down 2.59 cents - still one of the biggest one-day drops.

Analysts said the market was in a panic mode as the TSX fell by 535 points Friday.

David Murrell, an economics professor at the University of New Brunswick, said Canadians should be confident at a time when people in other countries are worried.

While banks are failing elsewhere, he said, that isn't a concern in Canada.

"None of the six banks or credit unions are going to go under. These are sound, well-managed banks," he said.

People need to accept their losses on the stock market and have faith they will recover, he said.

"I can't understand what's going on out there. It's irrational fear," he said as investors spent much of the day caught in the grip of a selling cycle.

The forestry and tourism sectors have already been hit hard and Murrell said if things don't turn around soon, people will look to cut unnecessary expenses. That could take a toll on jobs.

"People are going to cut down on luxuries and travelling. I worry more about that because the stock market will go back up," Murrell said. "We're still going to have coffee and go to the movies. We're just going to spend less on it.

"But you might see more people going to hamburger joints instead of a high-end restaurant."

People will be putting off purchases of big-ticket items such as cars, he said.

But he reiterated that people should have faith, noting that after the 1987 stock market crash, it took two years for people to make their money back, but they did.

He applauded the federal government's intervention Friday to buy up to $25 billion of insured mortgage pools in a bid to inject more liquidity into the financial pool.

It's not clear what the turmoil will mean for New Brunswick, said Andreea Bourgeois of the Canadian Federation of Independent Business.

There are signs the Canadian economy is weathering the storm.

As evidence of that, Bourgeous said average house prices in Fredericton were reported this week to be on the rise, and the number of New Brunswickers working in September was 3,300 more than the same time in the year previous.

"The sky is not falling," she said.

But she said there are signs that should lead to caution, noting the association saw the number of respondents reporting difficulty in accessing financing go from 18 per cent to 25 per cent in one week.

With files from The Canadian Press