Early in January, economic forecasts were so bleak it looked like the sky was falling.

But a 37-year-old Calgary economist and former stockbroker saw nothing but opportunity in the carnage and was calmly telling his clients to buy.

The eight energy stocks Kirby Thibeault picked in early January were up 31 per cent within two months. They have since fluttered back down in the volcanic markets of the last four months to settle at the close of last week up 16.57 per cent.

When technology markets were acting like a fish out of water early in March, Thibeault urged subscribers to his now bi-weekly newsletter to net seven U.S. technology stocks.

Larry MacDougal, Business Edge
Kirby Thibeault says market participants tend to take to short a view and are largely driven by emotion.

As of last week, those tech stocks were still flopping, down 2.25 per cent.

But the soft-spoken economist, who counts among his contacts a vice-president of the Federal Reserve Bank of New York, takes a long view. Those tech stocks are an even better buy now, he said, and he is confident that his portfolio will be up dramatically in the next 18 months.

Thibeault said today’s markets are oversold because participants take too short a view and are largely driven by emotion.

Part of Thibeault’s view dates back to the late 1800s, the point at which he began his research for a thesis project, which focused on a host of economic factors that proved to be predictive of where markets were headed.

Thibeault examined a host of variables to conclude last January that there would not be a recession.

He also concluded — before the sirens blared and stock prices crashed — that an economic slowdown in the technology sector was coming. But not a recession.

The same research leads him to believe that once the current correction plays out, it will form the base for “at least another two to three years of good growth in the United States. To me, it looks really good,” he said.

“I’m not driven by emotion. I’m driven by data research. I’m really passionate about it.”

Thibeault based his thesis on pioneering work done by Arturo Estrella, vice-president of Capital Markets at the Federal Reserve Bank of New York, and Fredric Mishkin, the bank’s director of research. Estrella also acted as unofficial mentor on critical parts of Thibeault’s thesis.

After finishing his Master of Economics degree at the University of Calgary last fall, Thibeault formed Kapital Investments Corp., under which he writes a bi-weekly newsletter for subscribers willing to fork out $1,500 per year.

Thibeault said his two most important goals in the newsletters are to predict market moves three to six months in advance, and educate subscribers about markets and the economy.

The explosion of financial information in the popular press and on the Internet have inspired investors and a host of market professionals to take a short-term view, he said. “If you just look at the present, you won’t have any hindsight and thus no foresight.”

Most doomsayers were pointing to plunging stock prices earlier this year as a certain indicator of a recession because stock prices have dropped in advance of every recession, he said.

However, he also noted that diving stock prices are just as often off the mark in that they have predicted “10 of the last five recessions.”

Thibeault said market history shows doomsaying is hardwired into investors because markets usually crash much faster than they rise.

“Human nature seems to welcome negative information more so than it does positive information,” he said, pointing out that market returns actually run contrary to the pessimistic view.

For example, the average loss on the Standard & Poors 500 index from the last four U.S. recessions was 19.2 per cent, he said. The average gain from the trough to the next peak of the business cycle on the same index was 164.95 per cent.

Thibeault said we are near the beginning of another growth cycle in the U.S. economy, thanks to a host of relatively stable market indicators and decisive interest-rate cuts early in the year by the Federal Reserve Board.

The technology sector is poised for similar growth thanks to the same factors plus the fact that a host of countries have dramatically shifted expenditures to the information and communications technology sector.

Thibeault points to a 1997 study of 15 advanced economies where governments are spending five to 10 per cent of their gross domestic product on the high-tech sector in a major shift from traditional industries.

In that study, Sweden was in the No. 1 spot, Canada held fifth place just ahead of Japan and Germany brought up the rear.

Thibeault said while market players cheered the Fed for its decisive cuts in January, they have soured on it lately because Board chairman Alan Greenspan didn’t heed calls for another major interest rate cut last month.

“But I think the Federal Reserve Board will be congratulated at the end of this year for their bold but steady hand on the tiller,” Thibeault said.

He also predicted the board would unilaterally drop interest rates another one-quarter to half a point. The board recently dropped rates half a point.

Most of today’s market players have come to believe the Fed is there to provide a safety net for markets and to fuel perpetual growth, he added. “The aim of the Board is to provide price stability for sustainable economic growth. They are not there to prop up the market in the short run. They are looking at the data, not the emotion.”