Wednesday Night #1467

See also Wednesday-Night.com for videos and photos

Although 1467 was apparently a ‘common’ year with no earth-shattering events (aside from the fact that Pope Paul II arrested and tortured some of the abbreviators – we too would like to arrest ‘abbreviators’ on Facebook, Twitter, et al), Wednesday Night #1467 was certainly not ‘common’.
Earlier Guy Stanley had forwarded the link to Hans Rosling’s gapminder, which explains UN statistics on demographics in brilliant, dynamic, entertaining graphic displays, accompanied by an engaging delivery. Highly recommended for all.
The Greek situation is not stabilized until Germany votes the necessary funds [Update: Rescue of Greece Faces Test in Germany], therefore we should not regard the bailout as a done deal — yet. Germany, where the retirement age is 65+, has strong feelings about subsidizing a country where the retirement age is 55+. Europe is worrisome; private wealth has suffered from loss of value of the euro versus the dollar, a poor stock market in 2009, and repercussions of the Madoff affair.
The Canadian dollar
When the Canadian dollar went to 63 cents, Canadian manufacturers started to make profits and unions negotiated wage increases based on the profits. Those collective agreements are still in force and cannot be easily re-opened, so Big Business, particularly the pulp & paper industry has big problems. Consensus appears to be in line with last week’s sentiment that the $C will continue at and/or above par for some time to come thanks to a number of factors. With respect to Canadian stocks, it must be remembered that many of the large companies (e.g. Alcan) are no longer Canadian-owned. But the market has been phenomenal since March. Historically after this kind of recovery, there has been a pause of several months. One seasoned investor counsels that, although there are lots of bargains, it may be wise to take money off the table as stocks hit the target; this has the added advantage of having cash to take advantage of any weaknesses in desirable stocks. Longer term, the key is to identify the ‘nifty fifties’, the major trends and companies that are attractive investments for pension funds and the money that will flow from the heightened M&A activity.

Economic overview
With the welcome surprise visit of Maureen Farrow, many of the proposed topics flew out the window, as we were treated to a tour de force review of the world according to Maureen.
We have come a long way since the Great Recession, and there is real traction on the recovery, thanks to monetary policy that has opened up the levers to keep recovery on track,  and fiscal  stimulus. The big test now is whether we will be able to wean ourselves off the monetary stimulus in a timely fashion to ensure a smooth transition. Other drivers of the economy must support the economic activity. Every country in the world wants to export more – but to whom?

The world is dividing into four economic masses  which will be very different from one another.
— China, India, Singapore – driver economies putting in place modern technologies and infrastructure, and designing businesses around the next economic activity; they have consumer publics with huge pent-up, or growing, demand.
— Beneficiaries – countries with resources to sell: Australia, Brazil and Canada. Canada will likely see the greatest M&A activity we have ever seen. We need the capital, but if we handle this right, we will have our own people employed to develop the responsible exports of resources we will never use.
— Countries under massive restructuring – mature economies – the U.K. and the U.S. Their strength lies in having fiscal, monetary control and an independent currency. the latter being a common characteristic of all countries mentioned so far.
–At the bottom of the list:  Japan (falling deeper and deeper in deflationary spiral; demographics and debt implications) and Europe – ‘euroland‘ – with one monetary policy, 28 fiscal policies and one currency that doesn’t fit all. They need to work harder, retire later, pay income tax and – join the world – if they want to prosper.   It is not only sovereign debt, it is that the economies are calibrated differently. The cost of Brussels will have to be reduced. It must be remembered that the origin of the European Union is the Coal and Steel Agreement, established  so that France and Germany would never go to war again. And not only has peace been maintained, but the a powerful counter force/economy to the U.S.  has been created. But, it is an over-governed entity; e.g., the members never gave up their central banks.
Three indispensable levers are monetary policy, fiscal policy and independent currency.

The risk of deflation is a worry in Europe and the U.S. – it is already embedded in Japan. Decline of weekly salaries; latest CPI figures; Broad money supply, which has been negative for three months in euroland. Monetary policy is not tightening – simply trying to get back on the rails. Unemployment rates will continue high as this is not a cyclical recession, and over the last 30 years, experience is that with each recession it takes longer to come back.

Another expert questions whether there is truly excess  capacity in the labor force, or is there simply a  portion of the labor force that has neither the technological skills, capability to be retrained, and/or ability to produce the marginal product equivalent to minimum wage? As technology progresses, these people are inevitably pushed out of the employment market (example: wheelbarrows on construction sites replaced by forklifts). Thus over-stimulation of the economy is likely – quantitative easing will not be quantitative uneasing – and we may well be facing inflation sooner rather than later. Inevitably politicians will react late as unemployment figures will still be too high.

Europe is obviously not an optimum currency area because of the national disparities. Canada and the U.S. also have regional disparities within a federal system and have regional adjustment mechanisms to compensate. Given their concerns for sovereignty, the Europeans may not be able to sustain the euro.

Canada’s new (proposed) Refugee Policy – will it have any effect on the under-employment of talented immigrants?
The new policy is designed to eliminate the number of ‘welfare’ refugee claims from individuals who have no intention of becoming productive members of Canadian society. (See Jeffrey Simpson  Order out of chaos – why refugee reform makes sense) It adopts the international ‘safe third country’ approach that identifies a list of countries from which refugees would not be accepted and provides two types of fast-tracking for refugees; one for those from unstable political regimes where persecution is a known problem and the second for those from other countries. A little-known problem, which the reform is designed to correct, has been that of Israeli refugee claimants in recent years.
The policy is not designed to solve the under-employment of non-refugee immigrants. That problem dates back to 1979 when Canada changed its point system for immigrants – and did so again in 1984. Prior to 1979, Canada selected the type of persons it wanted as immigrants. Furthermore, under-employment is often attributable to the barriers raised by professional associations. It was questioned whether this is not an issue for immigration policy, given that Canada advertises for and encourages qualified individuals, indicating that they will be able to practice their professions. The issue was not resolved this evening and will undoubtedly resurface.

The C.D. Howe Institute
Maureen Farrow delivered a message from David Beigie, Carl’s son, whom she had seen earlier in the week at a C.D. Howe luncheon with the American Ambassador, which was the inaugural round table that C.D. Howe has created in Carl’s name. David spoke very warmly about Carl’s memories of Wednesday Night and sent his regards and thanks to Wednesday Night for the words of comfort and postings regarding Carl’s death.
The C.D. Howe has received a record $1.73-million donation from Canada’s top banks and insurers for monetary policy research. The money will go towards the creation of an endowed research chair at an external organization (we can imagine the line-up for that); support of additional internal research capacity; and the creation of a leading independent working group comprised of experts from industry, academia and government to guide the institute’s monetary policy research. There must be some Wednesday Nighters who would be interested and eminently qualified. It is hoped that there may be matching grants, particularly as the C.D. Howe is one of the few – if not the only one – has not received either federal or provincial funding.

The Quebec government
The Charest government has not handled the new budget well. As a result, the public reaction  has included a demonstration by some 50,000 people representing the over-taxed ‘silent majority’ on Saturday. One Wednesday Nighter believes that there has been a failure to communicate and educate the people to the realities of the situation. Another, more cynically, suggests that the budget doesn’t do anything to fix the problems, that the government has neither strategy nor plan and they should be thrown out of office (along with successive ones) until they get things right.  Are we simply taking a leaf out of the Greeks’ book? A widespread expectation that governments create resources out of nothing and therefore if you make a lot of noise, you will get something. Unfortunately, Mr. Charest has a reputation for caving in.   Similarly, Beryl Wajsman is in full cry on The Suburban site [the website from Hell]: “In dusty little corners of the budget we learned of ‘fusions or abolitions’ of provincial government agencies. Agencies which in each and every case duplicated or triplicated the work of government ministries and pre-existing commissions or crown corporations.
“Let us take a brief glance at some of these ‘fusions or abolitions’.  Our personal favorite involves transport. The activities of the Fund for the sale of goods and services; the Fund for partnership in transport infrastructure; the Fund for contributions of drivers to communal transport and the Fund for the conservation and improvement of the transport network will be rolled into a new Fund for road infrastructures and communal transport!!! Four funds into one. Not a bad deal it seems. Except what in the name of sanity were the four Funds doing in the first place? We the taxpayers were funding these bureaucracies. We have a Ministry of Transport. Couldn’t these matters have been taken care of there?”
Influence peddling
In other news of Liberal woes, all are as shocked and surprised as Mr. Charest by the suggestion by former Justice Minister Marc Bellemare that donors to the party might influence the selection of judges. How could that be? Obviously there is a need for the enquiry that Mr. Charest has promised us (at what cost?). As charges and counter-charges are hurled (Allégations de trafic d’influence -Marc Bellemare vide son sac, the situation could evolved into Louisiana 1932. To further complicate the plot, some historical perspective This is a topic that is not likely to die a quick and silent death, and despite its seriousness, lends itself to years of political lampooning.

T H E  P R O L O G U E

There is no evident thread that runs among the news items that we have garnered this week, unless it is that in most cases, there is an underlying theme of governance and the prevalence of problems in its absence.

Poland
The tragedy of the plane crash that killed the Polish president, his wife and the major part of the country’s leadership rightly dominates the news as the country mourns and pundits and people around the world wonder why the pilot landed the plane in bad weather and why so much of Poland’s leadership was traveling together on a single aircraft. Margaret Lefebvre forwarded the link to a thoughtful piece on the legacy of Lech Kaczynski and his wife, an excellent analysis, but the world is left wondering what next for Poland? Roger Cohen writes movingly of the hope that emerges from this tragedy: The Glory of Poland – History’s gyre can be of an unbearable cruelty – the death of Poland’s elite in the same cursed place, Katyn. But even the cruelest history can be overcome.
Will it be possible in the very short time allocated to find and elect a new president of the same calibre, political canniness and ideology? It is encouraging to note that “far from aggravating frictions in Russian-Polish relations, as initially feared, the plane crash that killed Poland’s president and a swath of the upper echelon of politicians and military leaders on Saturday appears to have achieved the opposite effect, encouraging kindness and understanding on both sides.” (NYT)

Nuclear Summit
The unprecedented 47-nation Nuclear Summit convened by President Obama appears to be generating some positive developments along with general good feelings, despite the concerns over Iran, which is (of course) not there, but is actively sniping from the sidelines – “humiliating for humanity” quoth Ahmadinejad.  The aim of the exercise is to make sure that worldwide stocks of separated plutonium and enriched uranium are destroyed or accounted for and therefore unable to fall into the hands of militant groups. As the Christian Science Monitor observes: “The Obama nuclear summit is focusing less on nuclear weapons and more on more poorly guarded nuclear materials that could be used to build nukes.” You will be pleased to know that Canada signed up to get rid of its ‘bomb-grade uranium’ right after Ukraine. Along with Iran and North Korea, the other absentee is Israel’s president; reportedly  for fear that it would be attacked for its policy of ‘nuclear ambiguity’ and that its neighbors (Turkey and Egypt) might insist on signature of the 1970 Non-Proliferation Treaty. Jeremy Kinsman’s observations on Mr. Obama’s nuclear and foreign policies are – as always – astute and worth reading.

Almost obliterated from most headlines is the overthrow of the government of Kyrgyzstan. A UN special envoy, Jan Kubis, has arrived in the capital, Bishkek, and has been meeting with all parties to try to “maintain and restore constitutional order while respecting the wishes of the Kyrgyz people.”  Beyond the Balkan-style politics, the country is strategically important to the U.S. which maintains an important air force base there as a link for the war in Afghanistan; it is also the only country that hosts both an American and a Russian base – a sore point for the Russians. Stratfor sees the revolution as part of Russian resurgence in the area and offers a geopolitical analysis that explains why.  Meanwhile, in a move that hardly qualifies as altruistic, both countries have promised aid to the new government. TIME has extensive coverage.

The elections in Sudan have been extended after election monitors warned of “serious problems” with the polls including voters’ names missing from registers and ballot papers sent to the wrong stations. Former President Jimmy Carter, whose center is supervising the vote, said the election results would only be legitimate if these mistakes were corrected. Maybe we should invite him to oversee some of our elections – he could have a field day! This is Sudan’s first multi-party vote in 24 years and, as the Globe & Mail reports, the threat of bloodshed is ever-present.

World economy
It appears that China is gradually coming around as was reported last week Beijing lays ground for renminbi shift – good news for all?
The Economist tells us that the skies are brightening over Greece and adds a beautifully sunlit illustration to emphasize the outlook.
Experts continue to point to Canada’s trade surplus as an indication of our ‘healing’ economy, but with the rising dollar, we may soon face the same dilemma as Australia
We and our emerging markets specialists will all keep an eye on the BRIC meeting this week – it is forecast that they will renew calls for increased representation and voting rights for emerging economies in international financial organisations such as the IMF.
Further food for thought
Guy Stanley forwards the link to the superb – and entertaining – statistical presentation by Swedish guru Hans Rosling that debunks myths about the so-called “developing world” including population and income distribution.  View, enjoy and learn.

SCOTUS
The latest topic in Washington – and among political observers around the country – is who will be president Obama’s pick to replace Supreme Court Justice John Paul Stevens. Slate offers a fascinating range of ideas, including Hillary Clinton. The White House was quick to refute that rumour.

Canada notes
We will ignore the case of the unfortunate Ms. Guergis (other than to cite Stephen Kinsman: “The only two people of whom I have ever heard in my entire life, both of whom managed to marry beneath each other.”) in favour of observing Minister Flaherty’s promised quest for the fountain of pension reform knowledge. We note that he is heading west to Winnipeg and Calgary – and still has not requested a Wednesday Night date.
China’s huge investment in Syncrude may give pause to environmentalists , but as it is a minority position, Sinopec will have no say in the operation of the asset, thus will likely sail through Investment Canada, says the Financial Post.

Exciting news from academia: U of T announces new School of Global Affairs, thanks to the generosity of Peter Munk – NB The search is on for the Director.

In Quebec, the popularity of Jean Charest’s Liberals is plunging;  77% of Quebecers are unhappy –  the other 23% probably ‘don’t know’ – according to the latest poll, the fall aided and abetted by

Good news for the block of St. Catherine Street where the late, lamented Seville Theatre used to stand: Ste-Catherine Street West to get $100M facelift. What a pity that the Seville was allowed to languish for so long that it cannot form the heart (and soul?) of the new development. The timely restoration of the Rialto Theatre on Park as a dance center is exemplary and gives a boost to renewed efforts by Peter McAuslan and his Board for the Empress on Sherbrooke before it is too late.

Finally, TINA FEY IS BACK AS SARAH PALIN enjoy!