Wednesday Night #1168

Written by  //  July 21, 2004  //  Herb Bercovitz, Reports, Wednesday Nights  //  Comments Off on Wednesday Night #1168

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Individual Privacy versus security
The sanctity of personal privacy has always been an important pillar of democracy. Pierre Trudeau’s observations on absolute freedom of bedroom behaviour represented for Canada, a reinforced reminder of that principle. The fallout from the events of September 11 in the United States have severely tested the personal privacy doctrine. From cameras randomly recording the movement of passersby on the streets of large cities to detaining people on suspicion of sabotage without due process, represents to some, a step backwards. Some, though guilty, are caught in the trap which they would certainly have escaped in the relatively recent past. Few would object to trading some lack of privacy for increased security but the fear exists that one step backwards might conceivably represent a trend. Not unlike the little Dutch boy and the dike, it is only constant public vigilance that can prevent that from happening.
[Editor’s Note: Our guest, Carole Tremblay (aka C.J. Howard) has recently published a fast-paced political thriller, “Cyberca$h” on the subject of privacy rights; this is a must-read for those who fail to see the relationship between power concentrated in the hands of the government and the individual’s rights to privacy.]

The economy of post World War II Germany rebounded well ahead of that of the rest of Europe. Many predicted that the digestion of East Germany would represent a mere glitch in the upward surge of economic strength of that country. However, globalization with subsequent outsourcing, especially to China, as well as continuing high production costs have shown Germany to be relatively vulnerable and insufficiently prepared to adapt to the new reality through new political and social solutions. Meanwhile, Berlin which used to be one of the most exciting cities to live and work in, is suffering from the collapse of the real estate market, many stores are closed, people aren’t spending money and a generally dour atmosphere prevails. While there are some recent indications of light at the end of the tunnel,these do not bode well for Labor.

Traditionally a country of businessmen and traders, China has remained communist in name only, enjoying a growth rate of nine to thirty percent, depending on the sector. Massive waves of privatization , notably in land, property, business, government and enterprises, from the huge office towers and hotels in cities like Shanghai, to an array of shops, restaurants, telecommunications and other commercial interests. There are millions of millionaires and new tensions will arise from the newly-created and very “nouveau” wealth. The country can hardly be categorized as a democracy but doing business there requires very little if any government intervention or interference. Bribery is a way of life for dealings with bureaucrats, but alleviated by the move to privatization. Whether it’s the second largest economy in the world (as recently stated by Sherry Cooper), it is creating a lot of opportunities for foreigners and for Chinese.
So rapid is the expansion that the government is taking steps to slow things down. One problem is caused by the attempt to control population. In principle, couples are only permitted to have one child, in most rural areas, two are permitted to support agriculture, and, surprisingly, the fifty-five ethnic groups outside the main groups are left relatively uncontrolled. Unfortunately, the abortion of female fetuses and the giving up of female children for international adoption, have begun to change the demographics with unknown consequences for future generations. At present, males outnumber females (current ration of birthrates are 60-40, a fact of which the government is becoming increasingly conscious.The big bubble is still young, but a generation from now the situation may be very traumatic.

The world economy
Concerns regarding the turbulence and attempts to slow down the Chinese economy, have had a ripple effect in North America. Greenspan has stated his belief that the economy will be self-sustaining and that he would be raising interest rates moderately in a steady fashion over time. Some Wednesday Nighters believe that these modest increases will be limited in number. The world economy is slowing down and the demands of labour remain reasonable. We are now in a period of flux, but down the road things will settle down. With the rising price of commodities, South American countries ( Argentina, Brazil, Mexico) should be doing well, probably leading to an improvement in their political situation. In Canada, the outlook is good; interest rates will rise, but world economic growth will decelerate and return to more reasonable levels; employment growth is foreseen to be relatively moderate compared to GDP growth. Export volumes up 8%, but as Canadian companies have internalized the moves in the dollar, smaller profit margins will be the rule . The era of free money is well and truly behind us. While some opine that things are going to change steadily and we are going to have to return to normal, others suggest that the only real inflationary pressure is in commodities, which is not reflected in the CPI.

Air Canada’s future do we need a flag carrier?
In the past, national airlines have been seen to be the evidence of a country’s maturity and success, waving their nation’s flag around the world. With bankruptcies and international mergers, they have been disappearing with little or no damage to the country they had represented during their corporate life. This being so, the question is inevitably raised as to whether Air Canada stands as our national anachronism.
The consensus is that Canada does need Air Canada but not an Air Canada with subsidiaries that compete against it, and it cannot continue to be All Things to All Canadians. Because of its unique place in the world – few outside the aviation industry realize that Air Canada enjoys an enviable reputation for service and reliability in the international marketplace – and especially in North America, Canada would risk becoming a backwater without its own airline. However the national carrier’s main function should be to serve as a transborder and international carrier, leaving domestic feeder services to be assured through alliances with other Canadian airlines.

Fundamental or technical analysis?
In the area around the Mississippi Delta, the earth is so warm and moist that plant growth is rampant. In New Orleans visitors are sometimes told by natives that if you spit, something will grow there. This is not unlike the stock market preceding the recent bubble. Money invested in dot coms was almost certain to grow like plants in Louisiana. In fact, almost everyone became an instant expert. There is still money to be made as there always has been and venture capital is freely but more cautiously available, but the question is raised as to whether fundamental or technical analysis is a better tool for predicting the future. Fundamentalists maintain that there is a technical component to their analysis whereas Technicians believe that while insiders possess information not available to the average investors, technical analysis detects investors’ intentions at a very early stage and detects future trends before the actors themselves are conscious of them. However, if there were a perfect system, we would all be incredibly wealthy and the two methods of analysis have proven far superior to the crystal ball. Some investors have enjoyed their greatest success in a falling market, others in a rising market, but rarely in both. The best predictor of the stock market is the stock market itself. Of the Bank of Montreal’s thirty-five funds, only two exceeded the performance of the T.S.X. Index.
Avalanches provide an interesting analogy. Understanding how and why they occur are certainly important in their prevention, but past patterns and experiences and slight deviations are extremely helpful as warning signs.

Wednesday-Night creates charts and follows stocks, including timely related financial news items, in which Wednesday Nighters are interested and in order to demonstrate a service that could eventually be developed and marketed. Wednesday Nighters are invited to participate and help to test the service.

Pension Funds
The prediction of market behaviour has become increasingly important to pension fund managers. Traditionally, pension funds have been invested in interest bearing instruments. During the period of high interest, they were flush with money, some of which was frequently offered to pensioners and future pensioners in the form of increased benefits. With the decline of interest rates to prolonged periods of low levels, they are now looking for opportunities to invest in secure equity to ensure viability. For the individual investor, yields can be deceptive when rates of inflation, capital gains and income taxes are taken into account as well as the jurisdiction in which he or she lives.

Politics in Canada and the United States
Canada’s new Cabinet
Paul Martin‘s strategy of targeting health care, child care, municipalities and the environment, although appealing to the electorate, may prove a quagmire if provincial governments, in whose jurisdiction these fall, decide to exact an unacceptable price. The Cabinet appears to be more left-leaning than the PM, which reflects the tradition that minority governments are more populist/socialist. It could also be a shrewd strategy to clearly define the differences between the Liberals and Conservatives enticing, some suggest, Stephen Harper and the Conservative Party to react to the Liberals’ espousal of the popular themes and reveal themselves in a manner that will cost them popularity with the voting public.

The new Cabinet – whither the Liberal government?
It was noted that the Cabinet is somewhat left-leaning compared to Martin himself. Paul Martin has managed to gain reelection without any real prospect of job security. His strategy of targeting health care, child care, municipalities and the environment, although appealing to the electorate, may prove a quagmire if provincial governments, in whose jurisdiction these fall, decide to exact an unacceptable price. On the other hand, some suggest that Stephen Harper and the Conservative Party will react to the espousal of the popular themes and reveal themselves in a manner that will cost them popularity with the voting public. The naming of Jean LaPierre as the new Minister of Transport raised a few eyebrows; he is an advisor to Gerry Schwartz and close friend of Paul Martin, but is deemed to have no weight in Quebec.
What will the new cabinet do to enable tax reduction? Hospitals are reduced to organizing charity events to purchase needed equipment. Feds can free-up some money and try to attach certain conditions to increased funding for provincial priorities.
Lester B. Pearson in the ’60s had 2 minority governments that lasted 26 months. Minority governments tend to be more populist and more socialist leaning.

The U.S. presidential elections
Markets are more comfortable with a Republican administration, however the Democrats have proven that they have been fiscally more responsible than the Republicans, so the bond market would not react unfavorably [to a Kerry win]. Election of a Democratic administration could well serve to soothe the investors worldwide who are nervous about the Bush administration.


After an almost continuous four-month absence from Montreal, Jeremy Jonas, Alcan‘s preeminent globe trotter, is eager to share his perspective on contrasts between China, North America, Australia, India and Europe arising from these travels. We note that Jeremy does not wish to comment on the Middle East, but no doubt others will bring insights.

The newly-announced Martin cabinet will surely also elicit comment.

“Martin’s cautious mix designed to showcase priority promises on the West, health care. 8 ministers from Quebec, one fewer than last time; Major portfolios reserved for loyalists like McClellan and Goodale; 8 new members, including stars Dosanjh and Dryden”

The latest news from Europe regarding the power-sharing deal for the presidency of the European Parliament is provocative – the Spanish socialist Josep Borrell will lead the assembly before stepping down halfway through his five-year term in favour of a conservative candidate. How is this going to work? Like Canada’s minority government?

On a lighter note
For all of those bedeviled by letters from Nigeria and elsewhere: Nigeria is actually taking three Nigerians to court for stealing more than $242m from a bank in Brazil. They had allegedly persuaded a senior bank official to send the money for what they claimed to be a new airport in exchange for a $10m commission. In this case, we think the Brazilian bank official should be tried for lack of any, let alone “due” diligence. Huge Nigeria scam trial collapses

Finally, we salute Pamela Patchet Hamilton of Beaconsfield, just named runner-up in this year’s Bulwer-Lytton Fiction Contest held by San Jose State University for her entry:

“The notion that they would no longer be a couple dashed Helen’s hopes and scrambled her thoughts not unlike the time her sleeve caught the edge of the open egg carton and the contents hit the floor like fragile things hitting cold tiles, more pitiable because they were the expensive organic brown eggs from free-range chickens, and one of them clearly had double yolks entwined in one sac just the way Helen and Richard used to be.”

Despite the convolutions of some Wednesday Night debates, we will continue to strive to not equal this torrid prose, while recognizing that it takes a very good writer to deliberately write that badly.

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