Wednesday Night #1479

Musings on the media and the sale of the Montreal Gazette
Update: No surprise — Gazette to go Web only on Sundays
Montreal has, in some ways, developed into a microcosm, its Anglophone population, a relatively small population within an important multicultural community. Until recently CanWest owned the one Montreal based English language daily, the voice of English Montreal. If devoted newspaper readers and journalists worthy of the name deplored the none-too-gradual deterioration of the paper’s content and relevance to its market under the management of the Asper family’s CanWest, they may expect even more greatly diminished quality under the new conglomerate Postmedia Network. Sadly, Anglophone Montrealers today must get their local news from La Presse and (for the more intellectually inclined) Le Devoir, supplemented by feisty neighborhood publications like the Westmount Independent, the Suburban and newer upstarts. The situation in Westmount where the Independent has rapidly assumed front-runner status vis-à-vis the entrenched Westmount Examiner vividly illustrates the problem of the corporate-owned, but locally-rooted community paper. The Examiner’s owners simply aren’t interested in the community.
Throughout the first two-thirds of the twentieth century, when typesetting was an honorable profession, The Montreal Gazette published an early morning edition, the Montreal Star, three or four daily editions depending on the importance of breaking news and the Herald, appeared once daily around noon.  Care was given by editors to both grammar and content.
The corporatization of many dailies including the Gazette, the apparent diminishing interest in readers in all but the op-ed, editorial and obituary pages as well as, perhaps, the comics, explain, in part, the flagging interest of Anglophone Montrealers and Canwest’s recent policy and sale of the Gazette, but instant news updates, along with analyses that reflect global perspectives – from a wide variety of sources – available on the ubiquitous Internet appear to have become a more important factor than the relative ease of reading the printed page.  Noting that the the best publications (The Economist, New York Times, New Yorker) have only subtly changed their design, while  always aiming to improve their content, and have strengthened their brand while adapting to the Internet, Wednesday Night Mavens foresee the eventual emergence of a relatively small number of Web-based international newspapers available on subscription-only basis, and bringing back the quality and timeliness of the early 20th century dailies, on a world-wide scale.

Science, Innovation and McGill University
The results of the synergy created from the creative partnership between universities and industry can be of incalculable benefit to both as well as to the broader community in which they exist. This is a chicken and egg situation demanding the intellectual expertise and reputation of the University and a creative approach to the market on the part of  one or more neighboring industry clusters – which comes first? The  enviable success of Waterloo University and its commercial partners is in sharp contrast to the difficulty experienced by McGill, despite the best efforts of individuals like Richard Bruno when he headed OTT . The intellectual and monetary cost of processing an idea to the patent stage is great, however, it would appear that what is lacking in McGill’s attempt to match the success of other great universities lies more in the nature of financial constraints placed by the administration on the scientists, rather than than in any penury of brain power.  Until there is a drastic change in the model, there is little likelihood of a wealth of invention and innovation coming out of McGill.
Smaller Chinese companies, located in lesser-known cities of China, each have a special relationship with the local university for R&D. While profit-sharing arrangements are not known, they often publish the number of patents held – frequently an impressive number. Questions may arise regarding conflict or interest and/or restrictions on academic freedom. Some point out that large organizations can simply come in and ‘buy’ universities, or faculties whereas ideally there would be increased sources of venture capital.
Universities are, in fact, brands and McGill, recognized for its excellence, could, for example, extract rent for its  brand in partnership with commercial enterprises.  The provincial government, too, has much to gain from world-class research in terms of attracting creative businesses, but sadly, these potentials appear to remain unrecognized. despite the historical precedent of MacDonald College, which is frequently credited  with the initial success of Québec’s agribusiness.
A little-mentioned drain on McGill’s purse is its location in an historic area of Montreal, surrounded by many former luxury homes, declared of heritage value by the province, thus requiring a large amount of money to maintain in their original state.  Many of these have been generously donated to McGill by heirs of the original owners, form an important part of the University campus, but constitute a drain on the University’s monetary resources.  Unfortunately, McGill has made the decision to partially ease that problem by demanding complete ownership of patents developed by its employees, hardly the incentive for creativity or partnership with business enterprises.

Canada and the world economy
As the world emerges, however precariously, from its financial crisis, Canada looks great compared with the United States.  More recently, the Canadian stock market has been underperforming for about three months but the world appears to continue to love Canada and the (regulated, conservative) Canadian banking system.  It has been suggested that at least part of our favorable position on the world scene is due to the fact that we went through our crisis about fifteen years ago  and find ourselves currently in better condition partly from having suffered the pains of recovery then.  From an economic point of view, Canadian government does not deviate much no matter which party is in power, resulting in an image of economic and political stability that is viewed favorably.   It should be kept in mind, however that it is less that Canada’s performance has improved, but that it has not deteriorated as has the rest of the world.  However, in future years, we will need to withstand the world’s appetite for emerging markets and resources — China wants to buy Canada; China has enough money to buy Canada.   The real test for Canada will be whether it can improve in step with the anticipated ultimate improvement in the rest of the world over the next ten years, especially in terms of productivity.

Interest rates and real estate
As the world recovers from its financial crisis, it is inevitable that interest rates, including mortgage rates will rise, putting an end to the present insatiable appetite for real estate and the rapidly rising cost of acquiring dwellings. It is anticipated that real estate demand and prices will fall. There is some concern about the result of higher mortgage rates in the United States.  Unlike Japan where, with its decreasing number of family units, the problem can be acute, the growing population in the United States will ultimately overcome the problem, however there is uncertainty about  how sensitive the U.S. will be to rising mortgage rates.  Although it varies from state to state, unlike Canada, all U.S. mortgages are basically non-recourse, that is people cannot be evicted from their home for any reason. But even at the current low cost of mortgages, the U.S. housing market is flooded with repossessed homes. People are simply walking away. [Curiously, Biggest Defaulters on Mortgages Are the Rich: More than one in seven homeowners with loans in excess of a million dollars is seriously delinquent … By contrast, about one in 12 mortgages below the million-dollar mark is delinquent.]
The only way that interest rates will stay low is if the world is in a very bad state
Although it is impossible to know how sensitive property prices will be to rising interest rates, what is feared is that the next wave of resulting foreclosures will depress the housing market for some time. It is, however, foreseeable that the Bank of Canada is going to clamp down on the current very active mortgage lending (an indication of people’s exuberance over market opportunities – or low interest rates). As an addendum to the still current active housing market, Wednesday Nighters, recognizing the potential liabilities arising from real estate transactions strongly recommend the intervention of an agent in order to avoid possible costly litigation.

Debt, austerity and the world economy
Much concern has been expressed about the indebtedness of so many countries as they emerge from the financial crisis.  Although Canada is in deficit, it is a cyclical deficit, that, unlike that in the United States, is due to the slump arising from the world financial crisis.   Our debt-to-GDP ratio is about 25%, much less than that of the U.S.
Paul Krugman’s column  on Myths of Austerity and the debate that it has precipitated has raised a number of discussion points.
If the government had not intervened to stimulate the economy, we would have been in the most harrowing depression ever experienced. Ceasing to spend money is what causes a downward spiral. Thus, one of the ‘cures’ for a downward spiral is to wage a war, which  stimulates the industrial sector. (Note that  WWII is credited by some for ending the depression earlier than would have otherwise occurred.) The circular flow of income is like a ball that is rolling and the goal is to get it to roll the way you want. Right now, it is not rolling the way we want. The U.S. is in extremely difficult straits, but the world still moves in the rhythm of the United States. And, at least at present, the U.S. dollar being the world exchange currency, that country has the privilege of printing money without fear of the potential consequences in other countries in a similar situation.
For some commentators, the Germans are  if nothing else being hypocritical in advocating austerity. Like China, theirs is an economy that lives off demand created elsewhere.

Conclusion? Prognostication by economists may be flawed as human action is more frequently governed by human psychology than by economics.

BP and the oil spill
The bill is not the problem for BP; the trouble is that the brand has been ruined in the United States and around the world
Although its brand has suffered from bad publicity, and it is possible that BP may have to undergo a name change, as the largest payer of pensions in the U.K. (as well as the State of New Jersey), it cannot be permitted to go bankrupt, nor is it likely to, thanks to its accumulated wealth. [How much will the final tally be? Three analysts surveyed by Reuters Insider television forecast BP will spend between $63 billion to $100 billion over the next 15 years in fines, cleanup costs and legal costs while analyst Peter Hutton at NCB Securities in London pegs total costs at $40 billion. Reuters]
Despite the efforts of the Taiwanese  A Whale, the skimmers and all other efforts, the oil continues to flow in the Gulf of Mexico.  Comparisons with the Exxon Valdez disaster do not take into account that that spill affected only about 350 people compared to the millions affected by the current disaster.   The lesson that we should have learned from Katrina is that the ecological system – and natural barriers to disaster – of the entire delta has been destroyed by development. Houses continue to be built on the shoreline and recognizing the risk, the government [perversely] actually subsidizes their cost of insurance.
A relevant article for disbelievers is Melt Zone, in the June issue of the National Geographic. Melting ocean ice in Greenland can cause the water level to rise by 24 feet, a guarantee of increasing risk to the inhabitation of our ocean shorelines.

A PQ government after the next election?
The PQ is a romantic party – it wants a return to the past when French was the dominant language in not only Quebec, but in Europe
In the view of a start-up company in the financial sector, logic dictates that a PQ government, like any other, wants to attract (international) businesses and have a thriving economy. The diversity of the population, with its multiple linguistic capabilities, in Montreal is a major attraction for a new company whose clientele is international.
It is likely that Pauline Marois will not be the Leader of the PQ going into the next election. Her élitiste life style and attitudes have offended a large majority of the party. But today’s political landscape offers no choice. Jean Charest’s popularity has declined drastically – and with good reason. The QLP is tired. There is no alternative like the ADQ in the past. In addition,  divisions between urban and rural voters are huge and the younger francophone urban generation is not interested in another referendum.

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The Prologue
Not sure whether there is a scientific basis for our belief that warm and humid weather creates soggy brains, but we are feeling singularly un-clever and therefore will resort to poking you with assorted news items that have piqued our interest, and astute commentary from some Wednesday Nighters. Any and all are worthy topics for an entire evening. With your help, we will try to do (some of) them justice.

On the Gulf of Mexico spill
— Planet Ark/ World Environment News asks Should BP Nuke Its Leaking Well?  Former long-time Russian Minister of nuclear energy and veteran Soviet physicist Viktor Mikhailov thinks that’s the way to go. And so do others including Matthew Simmons, who is convinced that the relief well will fail.   We have heard the suggestion before on Wednesday Night; perhaps our initial reaction should be revisited?
— The Giant oil skimmer [A Whale] being tested in Gulf  but so far the tests are inconclusive, thanks to rough seas. Did you see the size of this ship?

— Question of the Day: What do the oil catastrophe and the Wall Street collapse have in common?
In both cases, a powerful, politically protected industry invented something that could not easily be repaired when it broke…
— BP Wants Partners to Help Shoulder Spill Cost
Newly released documents show that on June 2, BP sent out demands for nearly $400 million to its partners in the well, Anadarko Petroleum Corp. and Mitsui Oil Exploration Company of Japan, or roughly 40 percent of the $1 billion it had spent in May. – Any bets on how keen the partners are to join in the fun(ding)?

The economy
Paul Krugman’s interview with Charlie Rose last Friday focuses on the sad state of job creation (or lack thereof) and his column  on Myths of Austerity which concludes “the next time you hear serious-sounding people explaining the need for fiscal austerity, try to parse their argument. Almost surely, you’ll discover that what sounds like hardheaded realism actually rests on a foundation of fantasy, on the belief that invisible vigilantes will punish us if we’re bad and the confidence fairy will reward us if we’re good. And real-world policy – policy that will blight the lives of millions of working families – is being built on that foundation.”
Meanwhile Ross Douthat attacks the Pessimism Bubble and reminds us that “Our weaknesses are real, but so is our potential for resilience. While our rivals (in Asia as well as the West) face a slow demographic decline, our population is steadily increasing. The European Union’s recent follies make our creaking 200-year-old institutions look flexible by comparison. And China can throw up all the high-speed rails and solar panels it wants, but it won’t change the fact that most of the country is still sunk in rural poverty.”
A Market Forecast That Says ‘Take Cover’
WITH the stock market lurching again, plenty of investors are nervous, and some are downright bearish. Then there’s Robert Prechter, the market forecaster and social theorist, who is in another league entirely.
Mr. Prechter is convinced that we have entered a market decline of staggering proportions – perhaps the biggest of the last 300 years.
Originating in the writings of Ralph Nelson Elliott, an obscure accountant who found repetitive patterns, or “fractals,” in the stock market of the 1930s and ’40s, the theory suggests that an epic downswing is under way, Mr. Prechter said. But he argued that even skeptical investors should take his advice seriously. Ron Meisels is not convinced. He takes time out from his holiday in Brussels to point out that Mr. Prechter “is a nice fellow, but a lousy forecaster.  He made a number of great forecasts before 1987, but then turned bearish forever.”
Tony Deutsch comments: “Even if Prechter were to be right (unlikely, because over-all economic activity keeps growing, perhaps not as fast as we would like it!) we need more than one of the many, many business cycle theories as evidence . So far, all we know for sure is that Mr. Prechter got his name in the paper.”
Kimon adds (from Paris) “My own view is that high vulnerability is the new normal and volatility the rule rather the perception. The reason is that not only is it a dangerous world out there but that, unlike most other periods of history there is now a class of very powerful market actors who benefit from financial catastrophy.  Example the short sellers etc.  Therefore at the first signal of impending doom, the vultures will see what they can do to realize self fulfilling prophesies.”
Another thought (thank you Ron Robertson) Only a closer union can save the eurozone
“… whenever the European Council meets in Brussels, the European bond markets tend to slump with short delay. Yields are now close to the level they were at in early May, when the European Council set up the €440bn ($540bn, £360bn) European Financial Stability Facility and when the European Central Bank started to buy bonds. This crisis goes on and on.
The reason is that investors have lost confidence in the political economy of the eurozone. European politicians such as Wolfgang Schäuble, German finance minister, praise their own long-termism. But investors ask with some justification: what is long-termist about a bank bail-out without bank resolution? Or a sovereign bail-out without fiscal union?”

The G20 and the World Cup
Stephen Harper has been so busy paying homage to the Queen (and so he should; she’s a lot nicer, probably a lot brighter, and certainly has more experience than any of the Heads of State with whom he has been hobnobbing) that he has had little to say about the G20 other than the somewhat fatuous remark that “Toronto’s pain [is] the world’s gain”.
Meanwhile, the last word on the G20 belongs in our opinion to Hubert Bauch  G20: Spectacle vs. substance
And now, on the heels of the $1billion show in Toronto, we have Denis Coderre suggesting that Canada should host the World Cup. The National Post says it ain’t gonna happen which is from all accounts a good things as Fifa seems to be if not the only – the major beneficiary by a wide margin – of any World Cup event, so we would like to endorse the Case for permanent Games site(s)  – including Olympics and World Cup.
While we are at it, once again, could we please think about a nice remote permanent site for the G20? We know the arguments about security being easier to guarantee if the site changes from one meeting to the next, but surely a permanent site could be well designed and upgraded constantly. And what about sending the leaders – and their entourages – off on one of the huge cruise ships (Yes, Tony Philbin, we liked the picture!) – plenty of room for everyone, isolated, and we believe that not even the Somali pirates would want to take this group hostage.

Geopolitics and investing
Beware the ‘bolt out of the blue’
By Larry MacDonald (Globe & Mail)
Investors ignore geopolitical risk at their peril. A recent UBS report offers guidelines on fortifying your portfolio
Investors are too blasé about geopolitical risk, declare Mike Ryan and Kurt Reiman in Geopolitics: The Blind Side, a research report published in June by UBS Financial Services Inc. and UBS AG. It may be difficult to quantify geopolitical risk, but that does not excuse ignoring it.
What if North Korea invades South Korea next month? This event could wreak havoc on investment portfolios for an indefinite period of time. Accordingly, it and other simmering conflicts deserve more weight in portfolio deliberations, alongside the “quantifiable variables that can be incorporated into statistical models.”
Indeed, given that economic instability tends to elevate geopolitical risk, our current era would seem to especially require consideration of the potential for “bolts out of the blue.” High unemployment, scarce resources, escalating military spending and a fragile global economy are all fertile grounds for a possible unravelling of the status quo.
Tony Deutsch comments … “Not so much in Korea, where I suspect the leadership of the North not only pretends to be crazy, but more in Iran and its neighborhood. DEBKA tells us, and the NYT is remarkably silent, about considerable US naval forces now cruising around.That may be in fact a force for deterrence, but whoever sent them there, must think that there is something to deter.”

Crisis/crises
This leads us to a delightful thread among some of Wednesday Night’s contributors that resulted from our discovery of the triple crises website which states that the world is experiencing three simultaneous crises in finance, development, and the environment and encourages thoughtful analyses by economists and other experts. Wednesday Night experts did not agree.
Kimon points out that at the New School of Athens (NSOA) “we talk about 5 – adding Security threats and Health.  Who will deny the relevance of these two? Even five is an arbitrary limit.  Much better to argue that we are nearing a global system breakdown and to take it from there.  A crisis of crises.”
Bert, on the other hand would “cut it down to one actual crisis: too many people too few resources. The rest being symptoms of that one single root cause. Our ever growing footprint (population and consumption) is creating ever greater demand on natural resources, leading to an increase in environmental problems and type casting development as the creation of natural resource export economies (a model that has historically been rather poor at lifting all ships with the tide).”
Paul Shrivastava suggests more optimistically that “Kimon is right, 3 or 5 or any number is arbitrary.  There is the global identity crisis, cultural crises, etc.  In other places I have written that we live in a “crisis society”* where all major systems are in crisis.  Crisis has become the de facto mode of transformation and change.  No crisis, no change.  So let us not be scared of them.  The Chinese symbol for crisis has two characters – 1. danger, 2. opportunity.  In all these crises, I see opportunities for moving towards sustainable society.”
And Guy Stanley weighs in:
“On the triple crisis, I suggest that development actually is working, especially in Asia and even parts of Africa, but there is a crisis in development theory, since countries that follow the orthodox path, which includes premature capital account opening, generally do not do well. The environmental and oil supply crises are linked bizarrely in that peak oil is actually a large part of the solution to global warming. Our institutions — especially the political ones–seem to be having a hard time adapting, although even there the record is mixed. Even political systems, which in the US are currently behaving surprisingly or dismayingly poorly, are not uniformly misfiring. The EU response to the financial crisis, for example, seems to be doing OK despite the obvious inadequacy of the underlying financial/regulatory/community structures to deal with transborder financial issues. Capitalism as a system is perpetually in crisis and the banks v sovereign debt v regulator struggle is but the latest episode in a dismal replay of the 1930s. Sadly the hard money people may win this one which will unnecessarily prolong the others. The confrontation of the earth with human population expansion depends a lot on how we live: in fact a surprising proportion of the richest countries plus China are experiencing or facing precipitate population decline, so there seems to be some self-limiting properties at work. But when one says “a general crisis” one might also ask compared with what? The 1930s clearly faced a general crisis in that there were at least three revisionist powers with savagely destructive systems (Germany Russia and Italy) wanting to profit from democratic weakness which was itself propelled by the financial crisis and economic orthodoxy, the war’s end was another when the world faced at least two alternatives about how to reconstruct. On balance, one would probably have to admit that it has generally worked despite its obvious mistakes. At least we avoided nuclear war. We now have assets for moving ahead that were unimaginable a couple of generations ago, such as the Internet for local organization and the astounding increase in the number of scientists and engineers who can be brought to bear on problems if only the politicians were a tad less venal. We also have Cleo’s immensely interesting book to show some unsuspected connections to watch out for if we don’t get moving on the bigger issues, such as climate change.
“The trifecta site has a lot of useful information to be sure. But I think the current comedy series about the Russian sleeper spies in the US shows us how far we’ve come in defusing things. Or maybe we were just lucky…”