Wednesday Night #1530

Written by  //  June 29, 2011  //  Reports, Wednesday Nights  //  No comments

Scribe’s Prologue
The Hudson’s Bay Company in the seventeenth century, dealing largely with fur traders in the Canadian North, are said to have traded animal skins for merchandise and/or accepted animal skins on deposit.  In the latter case a small quadrangle of skin was given as a token of the value of the entire skin for use in the future purchase of merchandise.  It does not require too great a stretch of the imagination to consider the temptation to create multiple tokens from single skins and true or not, helps explain the ephemeral nature of money and debt to this day.  The fine engraving of personages on the face of a Canadian bank note is totally unrelated to anything other than human faith in the ease in which it may be exchanged for goods and/or services and the perceived integrity and reputation of the issuer, namely the Bank of Canada.
Two centuries earlier, Benedetto Cotrugli had invented the double entry bookkeeping system which remains in universal use to this day.  The only tangible evidence of indebtedness (in the absence of negotiable security) is a debit entry to the lender and a credit entry to the borrower as well as an ultimate promise to reverse the entries (that is, repay the debt).

The Greek Crisis
There has been lively debate among several WN economists over the Greek Crisis – short versions can be found on the Greece, EU and world economy page – well worth the reading.
The principal reason that Greece is determined to face the fury of its citizens and its creditors at the same time is that its indebtedness is primarily to private banks and European governments, obviously exacerbated by the adoption of the euro as common currency and monetary system unrelated to any common government.  As interest payments to foreign banks drain the coffers, Greece has been selling such national assets as the postal and telephone services to private companies.  Recent demonstrations provide proof of citizen dissatisfaction with the entire situation as well as with the proposed solution.

China
The Chinese, having bought considerable American debt, are now said to be buying up European debt as well as European enterprises and, once again, fears of the Chinese taking over the world, now monetarily rather than, as believed in the past, through population growth, have been revived. However, as China celebrates the 90th birthday of the CPC, it is evident that there are many internal social problems to be faced.

The IMF – and DSK
Wednesday Nighters expressed considerable satisfaction over the election of Christine Lagarde as Managing Director of the International Monetary Fund, her term of office to begin on July 5.  The fact that she is the first woman elected to that post was lauded  and her qualifications in general acclaimed, although in one WN economist’s view, the other candidate, Mexico’s Central Bank Governor Agustin Carstens, would have been better qualified, given his previous experience as deputy managing director of the IMF (2003-06) .  One must wonder if women have achieved true acceptance as equals when the sex of a candidate becomes an important news item.  It is to be hoped that, as has happened, for instance, with medical practitioners in Canada it will be so common as to not be a topic of discussion.
Meanwhile, it is impossible these days to discuss Mme Lagarde’s accession to the post without raising the on-going drama of DSK’s arrest, prosecution and forthcoming court appearance. In what proved to be incredibly prescient, (Strauss-Kahn Case Seen as in Jeopardy) Beryl advanced the hypothesis that the accuser might turn out to be a flawed character and that the holes in the case that have previously been noted might prove to be far greater than currently believed. Among other points: according to the recently-released NYPD-generated timeline of the events, DSK was in the hotel for almost two hours after the alleged incident; security cameras do not show the accuser running into the halls screaming – as might have been expected. If DSK was set up, conjecture is that it would have been for political reasons, to remove him from the running in the forthcoming French elections.

The market
The market remains within its normal trading range, having reached the end of its corrective period on June 10 and having begun to return to its growth mode.  It is heading into its fifth growth period and is expected to be selective, requiring the skills of professionals to maximize gains.  Utilities are beginning to draw attention with a reawakening.

High-frequency trading
A recent 60 Minutes segment on Wall Street: The speed traders provoked a discussion of the controversial technique in which computers – programmed by gifted quantative analysts (“quants”), who typically have no experience of market conditions or trading systems, but who create pure statistical support for developing statistical trading models – can make thousands of stock trades in less than a second.
Some consider the rise of HFT to be a new threat, while to others it is a smart but harmless tool, but there is no doubt that the powerful computers are making huge profits from rapid multiple trades twenty-four hours a day, based on small movements in the markets. There is official concern as evidenced by the fact that the former chief executive of the London Stock Exchange, has been appointed to lead the U.K. government’s investigation of the role of the technology in the next few decades, and how its evolution will affect issues such as financial stability, regulation, integrity of financial markets, competition and the future role and location of capital markets. Likewise, the SEC and Congress have expressed concern over the influence of HFT, but many market experts are sceptical that either group understand the issues (see: High Frequency Traders – Cost Reducers or Criminals? )

Prologue

Falling between the two major holidays of summer, we suspect that this Wednesday may be sparsely attended as some are away on business before the summer silly season, others on holidays in exotic – or somewhat exotic – places including, sadly damp cottages where weeds are flourishing, mosquitoes and black flies reign. Wherever you are, we are sure that you will be glued to every moment of the Royal visit – have you downloaded your official mobile apps?  Has anyone thought that the Royals should be treated to the typically Canadian experience of serving as a human buffet for our flying friends? Our only comment at this stage is that we hope Kate will be allowed to leave the hats at home – has anyone noticed that the royal headgear is growing more and more ridiculous, a trend that appears to have started with Camilla? If Kate insists – here are some suggestions http://www.hatsforkate.ca/

Following up on last week’s discussion, you may have missed two excellent columns from Chantal Hébert: In Quebec, sovereignty going way of the Church and Sovereignist leaders have run out of fuel

Greece is on everyone’s mind – or at least everyone who isn’t thinking about the Royal visit, however, we have decided to defer that topic until next week, when we can benefit from Kimon’s first-hand experience. He writes from Paris “just back from Greece and preparing a paper on the [Greek Crisis] following an extensive set of interviews which I have conducted both in Athens and Western Europe with key analysts and officials (including a few cab drivers who are surprisingly sophisticated on these matters).” See Greece, EU and world economy 2011 for more.

As we write, the IMF has just designated Christine Lagarde as its new Managing Director. No surprise, but did anyone notice that Canada, hand-in-hand with Australia, opted to endorse the only other candidate, Agustin Carstens of Mexico? No, you probably didn’t notice, as the news came out last Friday afternoon. Needless to say, one of Mme Lagarde’s first concerns will be Greece. Wednesday Night has a second-hand connection to the new M.D. – the father of one of our far-flung OWNs worked closely with her at Baker & MacKenzie – his assessment … “highly intelligent and impressive person”. Trivia question: What is Mme Lagarde’s wonderfully French maiden name?

The International Criminal Court (ICC) has indicted Libya’s Qaddafi on charges of crimes against humanity. Reaction is mixed as human rights groups cheer, while other commentators are concerned that this will make NATO’s job more difficult. However, now that 17 leading Libyan soccer players have defected to the rebels, we figure Gadhafi’s days are numbered. Adding weight to our view, as soon as the postal strike vote was concluded, John Baird headed to Libya to meet the rebels – his statesmanlike assessment of the situation: “I don’t think we’re going to move from Gadhafi to Thomas Jefferson.” The post-Gadhafi regime, he cautioned, “won’t be perfect.”

On a related event, the Cambodian trial of four Khmer Rouge leaders has begun. It is hard to believe that the little old people pictured in the nightly news were once younger and capable of the horrific deeds – war crimes, crimes against humanity and genocide – with which they are charged. This trial may well be the last as PBS Newshour explains. Another source elaborates that The Cambodia Daily, which is especially openly critical of Prime Minister Hun Sen, and Globe magazine (a regional answer to Time with a Cambodian edition too) have both argued that if the investigation and prosecution were to continue, it would begin to pull at some major threads in the patchwork fabric of the government i.e., the list of people to be investigated could include those now in senior positions in the government. Thus, in the quest for ‘stability’ and the fact that so much of the world has lost interest in a 30-year old event, no matter how ghastly, it is likely that many of the guilty will enjoy a long and quite prosperous life.

A smaller scale illustration of man’s inhumanity to man is this story from Spiegel Servant Abuse Case Could Challenge Diplomatic Immunity about the abuse of an Indonesian domestic by a Saudi diplomatic family in Germany. Not that, unfortunately, such cases of domestics’ abuse are unusual, but, the ramifications for diplomatic immunity are encouraging.

We are looking for a bright and cheery note to end on; however it seems the fates are against us. The Science, Technology and Innovation Council has just released its report on the state of the nation (innovation-wize) and it sounds depressingly same-old Canada struggles to capitalize on innovation Canadian businesses need to invest more in research and development so the economy can cash in on the ideas stemming from an impressive talent pool.

On the other hand, we are thrilled to note that the Vatican is right up there with the innovators: Pope Benedict XVI on Tuesday tweeted for the first time. Benedict’s tweet read: “Dear Friends, I just launched News.va Praised be our Lord Jesus Christ! With my prayers and blessings, Benedictus XVI”. We are not quite sure what Jesus Christ has to do with the Vatican portal, but possibly the invocation will protect the site from hackers and other Internet sinners.

Still, perhaps we should settle for celebrating the birthday of Antoine de Saint-Exupéry?

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