Wednesday Night #1348

2 January 2008

Oh Come all Ye Faithful
Pedant and Insightful
Oh Come Ye, Oh Come Ye to Wednesday Night.
Come and be clever, on your fav’rite subject
Come comment on the world scene, oh, come share the news you hear
Come comment on the world scene , come allay our fear.

We had planned for a lighthearted look at the forthcoming year, whilst exchanging good wishes, but as the news of the past week has made the lighthearted part of that option inappropriate, we offer instead a menu that must inevitably include the tragic events in Pakistan and Kenya, a last-minute forecast of the Iowa primary – and the intriguing prospect of a run by Michael Bloomberg as an Independent -, the G8 under Japan’s chairmanship, and the UN Security Council with Libya as Chair, not an altogether reassuring situation.
We are very pleased that Olivier d’Auriol will again be with us from Lausanne (His last visit was in June 2007) . His perspective as a Swiss and as the manager of a fund of funds of funds will no doubt add some new dimensions to the somewhat dismal economic forecasts (U.S. economic forecast for 2008: Bleak), including the speculation that a slowing U.S. economy will cause the U.S. dollar to continue its decline against the euro. Possibly he will also comment on the woes of USB in the wake of the subprime crisis.
In the plethora of economic forecasts of major economies, only the outlook for China is upbeat (People’s Daily editorial forecasts 2008 key year in China’s history)
Whither Canada in all of this? The IMF certainly isn’t bullish, but the Globe & Mail panel of economists, while “showing more signs of anxiety than in previous years” seems to believe that the U.S. economy will start to overcome its difficulties by the middle of 2008, and the rest of the industrialized world (meaning, we presume, Canada too) will then rebound in tandem with the United States. The National Post bears out the gloom and doom with its story: The bears on Bay Street now outnumber the bulls, according to a late-year survey of Canadian investment managers.
Meanwhile, is there cause for rejoicing over the cut in GST? Most comments we have heard reflect Wednesday Night’s opinion that there is little benefit to any but the high-income consumers who won’t care much anyway.
Whither Canada politically? Dare we say, anyone’s guess?
We look forward to your comments, predictions, idle chatter – NO, NO, Wednesday Night chatter must never be idle, but should always be entertaining.
News & Reviews you may not have seen
Parliamentary elections in Pakistan scheduled for Jan. 8 have been postponed by the government until February, the secretary of the Election Commission said Tuesday.
While from our perspective this would appear to be a sensible decision, given the disarray in the Pakistan Peoples Party, it seems that opposition parties, including Bilawal Bhutto and his father, the new co-leaders of the PPP, were pressing for the vote take place as originally planned. In our view, rather than helping the democratic process along, the results of an early vote would be even more subject to suspicion and recriminations. We are not impressed by the argument advanced by “opposition party members and Western diplomats [that] the decision to push the election into February was largely intended to deprive the two main opposition parties of a huge sympathy vote after Ms. Bhutto was killed on Thursday.” A sympathy vote is not exactly the best basis we would suggest for good government.
A related topic is the government’s astonishingly amateurish attempt to falsify medical evidence and lay the blame for Benazir Bhutto’s death on a lever on the sunroof of her vehicle as she ducked down. It was inevitable that an amateur photographer would produce documentation to the contrary.
Cleoo Paskal has forwarded a fascinating and thought-proving analysis Why Benazir Bhutto posed a threat , which we urge all to read: “On Nov. 7 this columnist wrote that Pakistani politician Benazir Bhutto’s election plans were likely to fail ‘if she survives’. The skepticism over her longevity was because of the threat she represented to both the Punjabi component in the Pakistan army and to the continuation of the military’s monopoly over state power.”
Also worthwhile is the commentary on the anointing of
Bilawal Bhutto as his mother’s political heir, My heart bleeds for Pakistan. It deserves better than this grotesque feudal charade by Pakistan-born writer, broadcaster and commentator, Tariq Ali
Alas, poor Kenya!
The turmoil in Kenya since last Thursday’s vote was unexpected (at least, by us). As the team of observers from the European Union said, the Electoral Commission of Kenya (ECK) had failed to ensure the credibility of the vote, President Mwai Kibaki has had himself sworn in, riots have errupted amidst dire predictions that the apparent vote rigging could drive one of Africa’s most stable countries into tribal warfare. The news and analysis bears out this bleak possibility.
(RCI) A joint African-United Nations force took over peacekeeping duties in Darfur on Monday. But the force of 9-thousand soldiers and policemen is only a little larger than the beleaguered African Union peacekeeping mission it replaces. It will take months to build up to its planned strength of 26-thousand. Sudanese President Omar al-Bashir long resisted western demands that he accept a UN force. But in June he accepted a compromise deal for deployment of a “hybrid mission” of mainly African troops.The Darfur conflict has pitted ethnic African rebels against the military of the Arab-dominated Khartoum government. Arab militias allied to the government, known as janjaweed, are accused of a campaign of atrocities against ethnic African civilians, razing villages and raping women.
What if Iowa Settles Nothing for Democrats?
DES MOINES – Iowa is packed with presidential candidates and hundreds of campaign aides, advisers and contributors. Twenty-five hundred representatives of news organizations have been granted credentials to cover the caucuses Thursday night, twice as many as in 2004. Rarely has a political event been so intensely anticipated as a decisive moment, at least on the Democratic side. But what if it is not decisive?
The New York Times coverage of the candidates and issues is well worth bookmarking.
Anyone who shares our distrust of Rudy Giuliani as the Republican presidential candidate must read the piece on his business dealings in the December issue of Vanity Fair
Bloomberg for President?
Now this is fun – much more fun than the slate for either party and is even attracting attention abroad Bloomberg tempted by open race for the US presidency as well as at home
Japan is to propose the fight against global warming as a main discussion topic at a Group of Eight nations summit later this year.
The Japanese government takes over the chairmanship of the G8 group of industrialised nations on 1 January. It also wants to discuss at the summit development in Africa, high oil prices and preventing nuclear proliferation.
In the continuing discussion and debate on climate change, we offer this from the Economist:
Molten iron raining down like cowpats; ice floes at New Orleans. The weather of 1783 was an extraordinary case of sudden climate change driven by atmospheric gases
As noted above, Libya takes over the Chair of the UN Security Council. This should prove to be more than interesting in light of recent comments from the special representative of the NATO secretary-general on the absence of Arab and Islamic nations from the reconstruction of Afghanistan.
Passing of an era: Netscape Navigator, the world’s first commercial web browser and the launch pad of the Internet boom, will be pulled off life support Feb. 1 after a 13-year run.

The Report

Although Conrad Black is not perceived as a hero or even as a likable character by most people with the possible exception of his peers, the crimes of which he has been accused have only hurt wealthy, ruthlessly ambitious people such as he. His conviction and the punishment meted out is judged to be problematic at the least. Beryl Wajsman neatly summarized the problems with the verdict, arguments that he also published in The Suburban
While Lord Black was judged innocent of nine of thirteen charges, the three counts of mail fraud that Black was found guilty of related to the expedition by mail of contracts and cheques related to non-compete payments that the prosecution had alleged were fraudulently obtained. There was no conviction on a main charge of fraud. The main crime for which he has been convicted appears to have been the removal of boxes of documents from his office in Canada. If so, one should ask why this is considered a crime in the U.S. where he was been tried.
The main question that arises is the validity of a prison term in a case where the victims were not the innocent poor, but men with ambition, sophistication and the same order of affluence as he. If a prison term were designed to induce penitence, it would, in this instance, be more likely to induce rage at what, objectively, appears to be a more politically motivated than justice motivated act, and/or an attempt on the part of the U.S. justice system to make amends for defects in the system.
Once Maslow’s hierarchy of needs has been fulfilled and lifetime security achieved, further acquisition of wealth represents an indication of one’s position in the pecking order among one’s peers. If indeed, Lord Black’s crimes were so heinous as to warrant a prison term as a time for reflection and penitence, as intended for run-of-the-mill criminals, a far more fitting punishment in his case would have been confiscation of a sufficient portion of his wealth as to cause him to lose his position in the pecking order and his seat in the House of Lords.
2008 has begun with the U.S. presidential election campaign well underway. Given that the winners will be known after the January and early February caucuses – at least in the case of the Democrats -, it is hard to understand how the American voters can be expected to remain interested until Election Day in November. The amount of money collected and spent by candidates is of such enormity that one questions whether the reward to the donors is uniquely benevolence or to what extent it is like the winning ticket on a horse race that has the potential for personal gain. As flawed as the Canadian system may be, it is considered by at least some Wednesday Nighters to be superior.
The suggestion that Michael Bloomberg might run as an Independent generated highly negative reactions based on his origins as a successful tekkie who likely owes his success as Mayor to the thriving economy of New York – rather than the reverse. We are also reminded of the spoiler role played by Ralph Nader which gave the U.S. and the world, George W. Bush.
In Switzerland, the president and vice president are elected by the Federal Assembly from among the members of the Federal Council for a one-year term. However, the normally routine procedure has been over-turned this year when Christoph Blocher, the charismatic leader of the right-wing Swiss People’s Party which gained 29% of the last vote, was unceremoniously voted out of Cabinet and therefore may not serve his expected term as President (the problem is still not resolved).
The $1.3-billion MSX-TSX merger, announced on December 10 has been widely applauded, reflected by the fact that the share price for the Montreal exchange immediately rose. Because of its experience in the more complicated technological aspects, Montreal will be responsible for the operation of the financial products derivatives exchange. Subject to shareholder and regulatory approval, the creation of the new entity (the TMX Group) is a done deal.
The first carbon emissions trading contract should be launched sometime in the first quarter, despite the lack of final precisions from Ottawa on the regulatory environment. It is expected to be a unique product, based on compliance credits.
Another project being examined is the hosting by the Montreal Exchange of a retail bond market, which would have great advantages in terms of transparency.
Note: As of today, the Winnipeg Commodities Exchange no longer exists although WCE Clearing Corporation and Canadian Climate Exchange Inc. will continue to operate in Winnipeg.
Despite the horror stories in the press of losses in sub-prime mortgages, it was not the financial institutions, but the poor who really hurt the most. As for the lenders, the investment in sub-prime mortgages represented a relatively minor portion of their portfolio, so the overall effect was somewhat limited. Large investors such as Goldman Sachs and UBS were aware that the mortgage markets would suffer a severe decline, but they were unaware of how quickly. Only Goldman Sachs acted rapidly enough to succeed in shorting funds. In retrospect it is obvious that neither the regulatory bodies like the SEC, nor most of top management understood what was going on in the subprime market. The tragedy of the sub-prime experience is that it was motivated not by the desire to create wealth but by the desire to create debt to the detriment of the already impoverished. Business (banks most egregiously) fails miserably in its responsibility to the poor and the lower income members of society.
One area that remains of concern to some is the changeover from Defined Benefit to Defined Contribution basis of pension funds whereby the worker is often faced with the need to make investment decisions that he or she is in no way qualified to make. In response, it was pointed out that only 5% of Canadians have a net worth of more than $5000 and thus 95% must rely on government pensions which 40 years ago covered 50% of the retiree’s basic needs. Today, they cover less than 30% and one-third of our urban households live below the federally-defined poverty levels. Although some complain bitterly that the federal government has not met its fiduciary responsibilities with respect to the CPP, it was pointed out that the CPP suffers from undercapitalization, thanks to the failure of the previous generation to contribute fully.
The flexibility of the petroleum market appears to remain intact with hundred-dollar-per-barrel oil. A test of that flexibility would have been a reduction in consumption in response to increasing cost, an event that does not even appear on the horizon. Meanwhile, it was argued entertainingly that no government that wants to wean its population from dependency on fossil fuels can do so without control over the oil supply. To put a stop to the manipulation of the market price of oil by the cartels and small number of ‘oiligarchs’ [or would that be oily-garchs?], wrest control of the supply from the largely corrupt supplier regimes and establish an international mechanism to ration oil would require a war. This poses a dilemma for those who would seek through ethical investments to further the reduction of emissions, lessen the dependency on fossil fuels and encourage clean technologies, as most ethical investors abhor wars.
There is a high probability that the U.S. economy will grow at a one percent lower rate than in 2007. The Chinese economy is expected to grow by 7%, a rate below which the Chinese economy risks collapse. The Chinese have been trying to slow down their economy for four or five years. Internally, changes are being made such as more rationality in wages, which will boost the cost of manufacturing and exports marginally, but it is a near certainty that the bubble will not burst in China. One observer expects China to continue its aggressive pursuit of projects and business in the developing world, as we have seen it do in countries like Sudan.

4 Comments on "Wednesday Night #1348"

  1. Diana Thébaud Nicholson January 1, 2008 at 2:57 pm · Reply

    When Olivier was last with us in June, one of our topics was the ‘One Laptop Per Child project’. By curious coincidence, it is back in the news this week with a report on the successful introduction of 50 of the ‘little green laptops’ to a hilltop Andean village, where primary school children got the machines six months ago.

  2. Diana Thébaud Nicholson January 1, 2008 at 5:01 pm · Reply

    Africa aid wiped out by rising cost of oil
    The rising cost of oil has wiped out the benefits many African countries were expecting from western aid and debt relief over the past three years, new research from the International Energy Agency has shown.
    The situation is raising fears that, in spite of the strong growth many African countries have seen in recent years, there could be a repeat of the 1980s’ debt crisis in the developing world that was caused in part by the oil shocks of the 1970s.
    … The IEA’s warning comes as Senegal’s President Abdoulaye Wade said “crippling” oil prices threatened to provoke “unrest and violence” in Africa.
    Mr Wade, who has been among the most active African leaders on the issue, told the FT he was encouraging 15 non-oil-producing African countries to form a multinational energy corporation of their own to compete for oil concessions on the continent in order to hedge against further price spikes.

  3. Diana Thébaud Nicholson January 7, 2008 at 4:24 pm · Reply

    Last Wednesday Night, some of the people appeared to miss my point about defined contribution pension plans. These plans are likely OK for many of the Wednesday Nighters. They are interested, know how to ask the right questions and will probably do better than most people, and maybe even better than a defined contribution plan. One advantage of defined contribution plans is that the company cannot steal the workers pension plan, as has happened in the past.
    However, I have seen several real examples where the defined contribution system works against people. I know of one instance where the employees have a choice of four mutual funds into which their money is invested. Two of those funds were losing money every year and the other two were marginally profitable. The people putting in the money knew nothing about mutual funds or investments. Some of them had their money in the two losers, year after year. Fortunately for them, this was pointed out to them by a parent – the company did not seem to care whether or not the employee got good advice. The mutual funds the company chose for the employees to choose from are not ones I would have given a second look to.
    It appears to me that there are a large number of people in this position. Doug Lightfoot
    The people in the McGill pension plan are fortunate that people like Gerald Ratzer are asking the questions they do.

  4. Diana Thébaud Nicholson January 8, 2008 at 7:33 pm · Reply

    Cayne Quits As Bear Stearns CEO
    Bear Stearns made it official Tuesday evening: James Cayne is resigning as chief executive following months of pressure to take responsibility for his role in steep mortgage-related losses.
    Cayne will be replaced as CEO by Bear’s president, the well-regarded investment banker Alan Schwartz. Cayne is retaining the title of chairman. The news comes just weeks after Bear Stearns logged an $854 million loss for the fourth quarter, with its full-year profit nearly wiped out by billions of dollars worth of write-downs on its holdings of mortgage securities and derivatives.
    “I believe this is the right time to implement our succession plan,” Cayne said in a statement Tuesday evening. “We are beginning a new year and are at a pivotal point in the development of our business at a time of rapid change.”
    In other words, Cayne is taking the fall for losing billions in the mortgage meltdown.

Leave a Comment

comm comm comm