Wednesday Night #1652

Written by  //  October 30, 2013  //  Reports, Wednesday Nights  //  2 Comments

An intimate gathering of Wednesday Night ‘regulars’ made for a very focused discussion, led off by Catherine Gillbert’s reference to the CBC interview with journalist Jacquie McNish of the Globe and Mail and Jim Leech, president of the Ontario Teachers’ Pension Plan, who have just published The Third Rail: Confronting Our Pension Failures. As our resident pension expert had not heard the interview, the discussion was somewhat generic, compensated for by the detailed exchange on Thursday that appears in the Comment below.
The Senate scandal
As Halloween and the Conservative Party Convention approach, one cannot but wonder whether the goblins of the season have not played out a preview in Ottawa. Thanks to democracy, however, the greatest show on earth, the ghosts of Duffygate refuse to leave. For all its flaws, perceived, fabricated and real, the price of maintenance of the Senate is well justified as insurance against abrupt change. Certainly, much good, as well as much controversial legislation and policy have come out of the present Government of Canada, but there is also much unease over the tight rein which is perceived to constrain the intelligence and creativity of elected members of the ruling party.
The next federal election will most certainly prove to be interesting. Will Duffygate be a factor? Will the once powerful Liberal Party succeed in overcoming the electoral humiliation largely the result of the heroic charismatic final performance of the great Jack Layton? To what extent will Justin Trudeau live up to the hype building up around him and the magic of his family name? Will Stephen Harper continue to pull rabbits out of the hat as he appears to have always succeeded in doing in the past?
With the arguable exception of Aboriginals, we are all either immigrants or descendants of immigrants and may rightfully take pride in the privilege of discussing these issues, voting on these issues and making changes when considered warranted.

Certainly the westward population movement which began with the opening of the Lachine Canal at the very end of the nineteenth century and increasing with each new discovery of hitherto concealed petroleum has hastened this movement and Canada (as well as the rest of the world) is progressing as it must. Indeed, population, wealth and influence have been moving westward.

Quebec Hydro rates
This morning’s news that Alcoa is threatening closure of its Quebec facilities over proposed electricity hikes has been greeted with alarm by the authorities of the affected communities. Some 3,000 jobs would disappear and given the multiplier effect, the communities would be devastated. Mme Marois’ initial reaction was less than sympathetic to Alcoa, but she later conceded that she would personally intervene in the negotiations.  At least one observer close to the industry has commented that this makes no sense when Rio Tinto Alcan was recently given a reduction – presumably based on the formula that dates from the 1980s that provides for a rate that fluctuates with the world aluminum price.
Meantime, Hydro is seeking increases for domestic consumption while one Wednesday Nighter reports that rates are lower in Florida, where electricity is generated by shale gas and  solar energy.

Québec  is not sharing the affluence of the western provinces. One Wednesday Nighter offers a personal example of  the plight of the Quebec economy: Loblaw’s has been reducing staff here, possibly because of cash flow problems. [Update: “while consumers may love watching our grocery chains try to outdo each other on low prices and more nuanced offers, the country’s biggest retailers and their investors must hate it.”  Food fight among Canadian retailers takes toll on Loblaw, Metro]  Although neither appears logical nor realistic, one explanation offered has been resistance to products manufactured  in Bangladesh, although Loblaw’s has been quite exemplary in taking a lead in compensating victims of the factory collapse. Or, does the non-Francophone name play a part?

On the investment scene, the stock markets have done well since mid-September but are now tired so it would not be surprising to see some weakness in the not-too-distant future.

**Quotes of the Evening**

“Traditionally, the Conservative Party has been playing the role of opposition so they need to be held in on a tight rein.”

“Harper expects total loyalty by everyone in the party but does not give loyalty back”.

“Nigel Wright was great until two nights ago.”

“Democracy is good because dictators will get thrown out.”

“I see Harper`s goal is to lead us so far to the right that it will take four to five elections to turn around.”


It seems that Mélanie Joly may have lost her candidate in St-Léonard (Candidate with Joly team questioned about domestic violence)

Halloween pumpkin with witch

We cannot help but wonder whether anyone in the Party or the PMO gave thought to the fact that the Conservative Convention  is scheduled to open on Halloween – will Mike Duffy dress up as a pumpkin (not much of a stretch) and Pamela Wallin as a witch?
Alan Hustak reminds us that “Eighteen years ago tonight the No side defeated the Yes side 50.6% to 49.4% in the Quebec referendum on separation.”

The Economy Matters
One of the sources we consult often is Robert Savio’s Other News. This week we were rewarded with The Uncertain Future of the World Economy whose cheerful opening paragraphs state:
Five years into the crisis, growth in the U.S. is still below potential, Europe is struggling to pull out of recession and major emerging economies are slowing rapidly after an initial resilience during 2010-2011.
Longer-term prospects are not much brighter largely because the key problems that gave rise to the most serious post-war crisis – income inequalities, external imbalances and financial fragilities – remain unabated and have indeed been aggravated.

We had hoped to eschew the Senate scandals in favour of economic and other items, but even Jim Flaherty could not resist a reference (Senate scandal a disruption to economic agenda, Flaherty says) while delivering  his important message confirming predictions of a balanced budget by 2015-16.
CBC reports the Canada-EU free trade tentative deal to be tabled in the House of Commons Tuesday. Perhaps this will change the channel ever so slightly and turn debate to issues of the Canadian economy, eventually improving the outlook from the Bank of Canada (Bank of Canada downgrades economy for next three years; leaves interest unchanged)
Alan Greenspan, perhaps the most famous of Ayn Rand’s disciples, has just published a new book The Map and the Territory: Risk, Human Nature, and the Future of Forecasting which is not being universally acclaimed by his fellow economists. Paul Krugman has this to say (on his blog): “The thing is, Greenspan isn’t just being a bad economist here, he’s being a bad person, refusing to accept responsibility for his errors. . . . And he’s still out there, doing his best to make the world a worse place.”
And J. Bradford DeLong writes in Greenspan Has Left the Building thatToo much of the book reads, as the Washington Post’s Steven Pearlstein put it, like it was lifted from the Web site of Mitt Romney’s 2012 presidential campaign.”
Robert J. Samuelson presents a balanced view in The Greenspan paradox and concludes that “neither critics nor defenders acknowledge the real source of failure: He was too successful”
In Foreign Affairs, Mr. Greenspan asks: How did so many experts, including me, fail to see it [the 2008 financial crisis] approaching? He answers: I have come to see that an important part of the answers to those questions is a very old idea: “animal spirits,” the term Keynes famously coined in 1936 to refer to “a spontaneous urge to action rather than inaction.”

The Environment and energy
The economy and energy are inextricably bound together. Thus, we have the EU environment ministers and business leaders calling for action on climate policy adoption of “ambitious” energy and climate goals for 2030 to create a low-carbon economy in Europe to spur investment.
And Alberta premier Alison Redford is headed to Washington – again – to advocate for Keystone. No doubt she will point to the legislation tabled on Monday creating the Alberta Environmental Monitoring, Evaluation and Reporting Agency (AEMERA) which will initially focus on the northern Alberta oilsands and will be responsible for administering the Joint Oilsands Monitoring Plan, a federal and provincial government initiative that monitors air, water and forests in the northeast until the agreement expires in 2015. (That’s not very long.)
While this may allay certain objections from opponents of the tar sands,  the bad news is that some major oil, gas and provincial pipelines have been excluded from list requiring environmental reviews although projects in a variety of new categories, including diamond mines, international or interprovincial bridges and tunnels, some offshore exploratory wells and oilsands mines expansion projects would require automatic reviews into impacts. But heavy oil or oilsands processing facilities, deep underground oilsands drilling operations, such as one that has recently experienced a blowout in northern Alberta that was ongoing for months, could proceed without any federal review, in the absence of a special request from the environment minister.
On a related matter, CBC reports that Canada lags U.S. on making [pipeline safety] data public  However in a welcome initiative, CBC has published an interactive map of pipeline safety ‘incidents’ developed from information made available by the NEB which oversees cross-border pipelines. The documents indicate that the rate of overall incidents has doubled in the past decade – and data doesn’t include smaller pipelines within provincial boundaries.

Thursday November 7: From 5 to 7pm, the Jeanne Sauvé Foundation and Canada 2020 are hosting a panel discussion of a new National Survey of Canadian Public Opinion on Climate Change produced by Canada 2020 and the University of Montreal
— How do Canadians really feel about climate change? Who do they think should take the lead on addressing it?
— And what is the best mechanism to do so?
— Canada 2020 will release a new poll tackling these questions and more.
— The panel will discuss the implications of our findings for Canada’s federal parties as they head towards the 2015 federal election.

Saturday’s Gazette featured an important piece by Robert Galbraith Sounding the alarm over belugas’ decline – Unlike other whale species found in the St. Lawrence Estuary, the SLE beluga is non-migratory. Scientists said they’re witnessing just the tip of the iceberg, concerning whale mortality rates, and that the actual number of deaths is in fact much higher. [They] can’t put their finger on a single culprit behind the calves’ deaths and drop in overall numbers, but agree it may be a combination of factors. Some of these include climate change, (such as warming water and reduced ice coverage), noise pollution from boat traffic, a lack of diversity in the breeding pool, a host of life-threatening viruses and bacteria, parasites, toxic algae blooms …  chemical contamination of prey and habitat loss.

The twists and turns of the Senate scandal – and in particular, the Mike Duffy versus Stephen Harper parts – are now so complicated that we are grateful to CBC for a timeline even if it’s five days out of date. On Monday evening John Ivison summed up the situation   Harper had better hope Duffy is done and that there is no more , but there is no assurance that Monday’s disclosures are anywhere near closing this file. Meanwhile, the Tory convention is only three days away. What strikes us most about recent events is that Mike Duffy has gone from being the really bad guy to someone with a band of media cheerleaders and a figure that evokes some sympathy as a manipulee of the PMO.
Relief for Quebec voters: Mme Marois’ announcement that there will be no provincial election in 2013 – though by-elections will be announced in Outremont and Viau. Best guess is December 9. For political junkies, entertainment will be found in the four federal by-elections on 25 November, especially Toronto Centre which is already proving to be lively.
In the last week of the municipal elections across Quebec,  Montreal is the center of attention. One hotly contested area is CDN/NDG where Wednesday Nighter – and guest last Wednesday – Marie-Claude Johnson is running for Mélanie Jolie.
We cannot remember a Montreal election that created so much interest and level of emotional reaction to the leading mayoralty candidates, and are pleased that the major parties are presenting a number of individual candidates of merit and achievement. In our own district of Peter-McGill, there is Damien Silès, (also a guest last Wednesday) whose dedication to and track record in creating programs for the homeless and disadvantaged is impressive.
We remind everyone that a huge plus (in our opinion) is that in municipal elections, you can split your ticket – you don’t have to vote for the mayor and district councillor from the same party.

Municipal issues
The push-pull between urban centers and the suburbs is often discussed, but the problem is rarely quantified.  David Thompson is the author of a new report from Sustainable Prosperity, a University of Ottawa-based research network, that outlines the hidden costs of sprawl titled Suburban Sprawl: Exposing Hidden Costs, Identifying Innovations.
A UBC study reveals that [traffic-related] air pollution is about nine times deadlier than car crashes Mounting evidence indicates a causal effect between exposure to air pollution from traffic and the development of asthma in children and adults. Diesel exhaust causes lung cancer. Approximately 21,000 people die prematurely from air pollution each year in Canada. The authors highlight four overlapping strategies with short- and long-term options to help mitigate the effects of traffic-related air pollution:
— Reducing vehicle emissions: introducing programs to remove or retrofit high-emission vehicles; reducing traffic congestion; expanding infrastructure for electric cars
— Modifying current infrastructure: limiting heavy truck traffic to specific routes; separating active commuting zones (e.g. cycle and walking routes) from busy roads
— Better land-use planning and traffic management: locating buildings such as schools, daycares and retirement homes at least 150 m away from busy streets
— Encouraging behavioural change: creating policies to reduce traffic congestion in specific areas and encouraging alternative commuting behaviours.

2 Comments on "Wednesday Night #1652"

  1. Diana Thebaud Nicholson October 30, 2013 at 1:41 pm ·

    With all the talk and literature on the world and U.S. economy, we seem to have forgotten that the U.S. is slated to come to a grinding halt again in January as the Tea Party once more attempts to hold us all to ransom. There is rapidly accumulating data indicating that some important players are fed up with this situation. International contracts increasingly call for payment in currencies other than the USD; the Yuan assumes greater prominence where arrangements with China are concerned, for instance, because some Chinese leaders believe China may have amassed too much of a debilitating currency. China may be the most alarming example but is by no means the only one. Some now seek a different currency or basket of currencies to support repayment of loans to others. I believe such trends could spell trouble for all of us, of course, but particularly the U.S., and it is not a situation the IMF, World Bank, Bank of International Settlements, etc., wish to encourage, for many obvious reasons. But it is a trend the repercussions of which should be explained in words of one syllable and hammered into the heads of all members of Congress. SK

  2. Diana Thebaud Nicholson October 31, 2013 at 10:44 pm ·

    Tony Deutsch:
    Just finished listening to the programme, and came to the quick conclusion that all you can do in 23 minutes is to scare people, alas not groundlessly. Perhaps one way of approaching the subject is to define a pension system as the combination of a promise up front, and a relatively complicated system which operates through the years to deliver (or not deliver!) on that promise. A DC plan is simple: the promise is to deliver whatever accumulates in an account on retirement, after years of contributions at an agreed rate. The higher the returns on the amounts paid in over the years, the higher the value of the account. There can be no over-or underfunding, because there is no way for the funds to be different than the value of the promise. (Do not knock this arrangement, with good investment experience it may deliver more than the legal maximum allowable on a Canadian DB plan. On the other hand , there is no guarantee by anyone. If you lose half of your money, it is your loss. The experience with people managing DC accounts on their own is bad.)
    DB plans also start with a promise . The usual promise will give you a lifetime annuity at the ‘normal retirement age’ , say 65, based on your pay, years of membership in the plan, and an accrual factor. The usual Canadian maximum is years of service (max. 35) times the average pay of the last five years, times 2%, up to an annual maximum which when I last looked was about $90000. (I assume that now it is more) The formula can be less generous: career average earnings , and an accrual factor of less than 2% are not unusual. The promised benefit is guaranteed by the plan sponsor, usually the employer. It is his business to accumulate the funds needed to meet the promises. There is a legal requirement to put enough money into the plan to pay for the present value of the promises. If there is not enough money in the plan by that criterion, there is a funding shortfall, or deficit.
    Government pension plans may not be funded at all, with current pensions being paid from current plan contributions distributed to current pensioners. This is known as pay-as-you-go. It is not a Ponzi scheme, because in the latter the account holders can technically insist on the instantaneous withdrawal of all their funds, whereas with a PAYGO pension plan withdrawals are predetermined by the annuity commitments. PAYGO should work well with a labour force expanding faster that the pensioner population, which is not the case in Canada. For this reason, governments have been trying to collect more contributions than the current payout, so some funding can accumulate. This is the case with the CPP. Proposals for CPP expansion only make sense, if the expansion is to be fully funded.

    Gerald Ratzer responds:
    I agree with everything you said, but my takeaway is a little different.
    Many people as individuals do not have the concept of scale, nor do they realize just how much the RSPP money managers cost them over time. As mentioned, the management expense ratio can easily be in the 2% to 3% range and with long term bond returns in the 2% area and inflation also at about 2%+ any investor in a bond fund will have a negative return when allowing for the MER and inflation.
    My suggestion for DC funds, is members of a DC plan are allowed to participate in a larger plan (like the McGill one) during both the accumulation and paid out phase (think internal LIF). … The McGill MER is 0.50% (50 basis points) and well managed. … I [would] also asked them to seriously consider allowing us to repatriate registered funds we may have. This could well double the size of the MUPP in less that 10 years and further reduce the MER to close to 30 bps. A win-win for all.

    Tony answers Gerald:
    If you look at a corporate DC plan, say Shell Canada, what you find is that plan members are offered a management selection of mutual funds (at less than retail MERs), and it is their individual responsibility to make their choices from that menu. The default option is a money market fund. The problem is, even if each mutual fund is managed well within its own category, the plan member has no rational basis on which to make her selection of what, in effect, is the asset allocation of her portfolio. The plan management cannot make recommendations, without the risk of being held responsible for resulting losses. The simple solution is to have professional management of the entire portfolio, with individual choices limited to a small number of very broad asset categories, say 60% equity, 40% fixed income or vice versa.

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