Wednesday Night #1372

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Terry & David Jones, the consummate diplomats, are with us from Washington on their annual fact-finding mission which always turns up more facts about Ottawa and Quebec than we can ever unearth. We can, of course, quiz them in turn about the buzz in The Nation’s Capitol in the assurance that we will receive a suitably conservative briefing from David – don’t expect an enthusiastic blurb on Obama. We congratulate David on his inaugural piece in The MetropolitaIn, although we were somewhat surprised to see the topic was Bernier-Couillard (and a relatively kindly commentary) rather than a probing analysis of George Bush’s farewell trip to Europe. But then, without the Minister and the Moll, Canada would sink back into virtual world anonymity.
This is another double-header evening (see Wednesday Night #1370) and we are delighted that Donald Walcot, Chair of the McGill Pension Investment Board, member of a number of pension committees, and most recently, Chief Investment Officer of Bimcor Inc.,the investment management arm of Bell Canada Inc., has accepted the invitation to join us extended by Gerald Ratzer and Tony Deutsch.
That said, we may expect to look at any number of subjects, starting with the economy (let us not forget that Terry Jones, among her many accomplishments is an economist) and the wise stewardship of the McGill Pension Fund. As we (fundamentalists) learned long ago, just about anything that happens in the world has an impact on the economy, so we suggest: ever-topical Energy (oil) with the news that the Saudis will pump more oil, and we should not overlook the lengthy Gazette piece on nuclear power which is surely music to Doug Lightfoot’s ears; the consequences of Ireland’s vote against the Lisbon Treaty; the latest developments in Afghanistan and Pakistan; the continuing crisis in Zimbabwe, world hunger; Laura Bush as popular envoy plenipotentiary; Canada’s apology to the aboriginal peoples (the right thing to do? empty words? consequences?) … the list is long and we haven’t even mentioned Mad Max.

The Report

Bill Weintraub and Magda arrived from a creatively staged reading of “Crazy about Lily“, accompanied by a saxaphonist playing music of the era, at the Atwater Library, generating many reminiscences about Montreal of the 1940s and 50s. While Lily St Cyr remains an iconic personality, as a practitioner of the art of striptease, many details of her life are virtually unknown. Model for the Wolf Girl in Al Capp’s Li’l Abner comic strip, she instructed Marilyn Monroe in how to walk and dance; married six times, she died alone and penniless.
David Jones is also a well-known writer, with many articles published in Canadian media including The Hill Times, Ottawa Citizen, Policy Options and now, the most recent issue of the MetropiltaIn. He is also the coauthor (with David Kilgour) of Uneasy Neighbo(u)rs. Terry (Teresa Chin Jones) has just published her first (legacy literature) book Tales of the Monkey King, which recounts Chinese folk tales she heard as a child from her mother.

U.S. Presidential campaign
American visitors are astonished by the keen interest with which Canadians are following the U.S. election. The announcement that John McCain would be speaking to the Economic Club of Canada generated frenetic ticket purchases – all were gone within twenty minutes of the posting on the club’s website. Some may question whether he is bringing Canada into the campaign, but others point out that any candidate (and especially one with Senatorial committee responsibilities for Commerce, Science, and Transportation) may travel wherever he or she wishes.
Much more important is the number of young people who became engaged in the primary process, and the fact that race is not the major issue. One can be hopeful that we may achieve a society where one can truly be detested for oneself alone.
John McCain represents the past with military and legislative experience and extensive travel. He has chosen to not temper his support for free trade in order to appease industrial victims of NAFTA. Age is certainly a factor in the campaign. While his 96 year-old mother is often noted, more relevant is his father’s death at the age of seventy.
If Barack Obama fails, he will do so on his own, not on the basis of race. His popularity reflects a shift in emphasis from experience to youth and perceived honesty in government. His greatest problem is his relative lack of experience, last seen in 1940 with unsuccessful presidential candidate, Wendell Willkie. He will therefore have to emphasize judgment and will likely fashion a message that Senator McCain is a man of the 20th century, while the challenges we face are of the 21st century.

Pension Funds
One of the problems facing future U.S. Presidents will be the increasing inadequacies of the current pension plan in the Social Security system.
The Canada Pension Plan, could be considered the gold standard of the world’s pension plans, thanks to good planning and active management by world-class investment professionals – some of the most sophisticated risk-adjustment investments in the world -. Much credit belongs to Paul Martin’s decisive action as Finance Minister, but some may be attributed to Canada’s culture. Note that the QPP is also highly regarded.
In contrast, the U.S. plan is an under-funded transfer system and in the foreseeable future, will be bankrupt, the deficit being covered by the general revenue fund. Only a national consensus on the severity of the problem will force the politicians of both parties to bring about the necessary changes. Given the two-year cycle of members of the House of Representatives and four-year Executive cycle, there is a marked unwillingness to take the political risk of increasing taxes, decreasing benefits or other drastic measures. Add to this the diversity of the population and its pride in an entrepreneurial, do-it-yourself approach to investment and security. It was also suggested that the individuals who make the decisions on the nature of government-sponsored pension plans are personally far removed from the reliance of a large part of the population on government plans. Furthermore, in the US, there is no equivalent to the Pension Investment Association of Canada, the forum in which large and small pension funds from across the country share information and knowledge, and which is the recognized voice of all Canadian pensions.
Americans know that their system is not doing well but their answer is, generally, a focus on innovation and increased productivity in recognition of which President Bush has introduced a sort of self-administered investment plan funded by employer and employee rather than by a government administered fund. Presumably the ultimate success of each individual plan will reflect the skill and judgment of the individual.
Pension plan problems in Canada have been exacerbated by the post war baby boom, as has Medicare, the cost of which has been predicted to double in the near term. In this country, the start of the baby boom was slow only reaching its peak about a decade following the end of World War II. This being the case, it is only now that we are beginning to feel the effect of larger numbers of pensioners and older medical patients being supported by fewer contributors.

Alan Greenspan in Montreal
BMO Financial Group recently hosted a luncheon featuring A Conversation between the former Fed Chairman and Dr. Sherry Cooper, Chief Economist of BMO Capital Markets. Several Wednesday Nighters who were present report that the analysis of geopolitical factors presented was highly informative, and the format was particularly successful. Among the most interesting comments were the following on the world’s food crisis.
The rapidly increasing price of grain is frequently blamed on the use of corn in the production of ethanol but this cannot explain the magnitude of the increase. In the effort to produce meat more economically, producers are feeding their livestock corn rather than letting them out to pasture. [One Wednesday Nighter points out that neither is the cause of increasing costs of rice.] Meat consumption is a function of affluence and as developing countries become more affluent, their consumption of meat increases to the detriment of the indigent population of less affluent countries. This, but another indication of the widening gap between the affluent and the indigent, should be a matter of concern for world governments.

Should Canada deport deserters from the US military?
The invasion of Iraq has been controversial since its inception, particularly in Canada. This makes our handling of the issue of Canada sheltering U.S. Armed Forces deserters very difficult. We welcomed them during the Viet Nam War, but during that war, they had been drafted, whereas the current deserters have volunteered and hence entered into a binding agreement with the United States government. It is true that many who had volunteered for the National Guard had little or no expectation that they would be facing an active enemy in Iraq, but it was hardly the fine print of a commercial agreement. Canada, however, frequently tempers justice with mercy. The Canadian and U.S. bigamists of Bountiful, B.C. have been treated with understanding as has our former citizen, Conrad Black who having renounced his Canadian citizenship, logically is undeserving of support.
Canadians feel quite righteous about our empathy for others, but may possibly have second thoughts in future negotiations with the U.S. on unrelated topics. In the final analysis, law and justice are not synonymous.

Nuclear energy
With the constant rise in fuel prices, nuclear energy is slowly gaining currency. Here too, Canada has been a leader in developing nuclear technology since the development and sale of the CANDU reactor. Vulnerability to terrorist attacks is not so much because of China Syndrome, but for the incredible costs of rebuilding the transmission lines, maintenance is a problem but the next generation of light water reactors is expected to be much easier to safeguard. At some stage, however, the reactor part must be replaced.

The economy – dismal forecast
A very unpleasant combination of non-falling interest rates and falling economic activity, making it imperative to pick individual equities whose value will prevail. Bonds don’t make sense because of interest rates. Cash appears the best choice, but it loses purchasing power …