As I wrote some of this,
there was a discussion on CBC radio on the merits/drawbacks of an educational
system that won’t let primary-, middle- & high school students
repeat a grade for fear it might hurt the poor dears’ self-esteem,
as a result of which universities have been forced to subject incoming
students to literacy and/or numeracy tests. As this led to a discussion
of students’ expectations & ability to stand on their own feet,
one university professor phoned in to share her experience with one
student. After she gave him a mark for an assignment lower than that
he thought he was entitled to, she received a phone call from his mother
who wanted to come in & discuss her son’s paper with her. When
told this was not feasible due to legal privacy constraints, the 24
year-old student the next day brought her a note from his mother that,
after consulting legal counsel, she had ascertained that the professor
could discuss her son’s paper with her provided he consented to her
doing so. In the end the professor had a third party read the paper,
whose grade was three percentage points lower than hers had been.
As Merrill Lynch’s
Chief North American Economist David Rosenberg was close to the mark
in many of his economic prognostications. Earlier this year he came
home to Canada, joining the “buy-side” of the market as the economic
guru at Toronto-based money manager Gluskin Sheff. His latest
market overview dumps cold water on the notion that a sustainable rebound
is underway in the US : with 16.8% “real” unemployment & bank
credit continuing to tighten he calls this a pipe dream since “For
the first time in the post-World War Two era, we have deflation in credit,
wages and rents ... a toxic brew that in the end will ensure that the
focus in equity markets on capital preservation and income orientation
will be the winning strategy over a strict reliance on capital appreciation.
At a time of big &
growing deficits, spending by Canada’s Privy Council Office (which
exists to meet the Prime Minister’s every need, desire or whim) in
the year ended March 31st, 2009 was up 14% YoY, much of it
due to a 25% boost in its staff’s compensation. Unfortunately many,
but by no means all, top public sector employees in Canada have adopted
with a vengeance Gordon Gekko’s motto in the 1987 movie
Wall Street that “Greed is Good”; thus the base salary
of the Governor of the Bank of Canada is twice that of the Chairman
of the Federal Reserve & the remuneration of an Alberta Provincial
Court judge is in the same range as that of a Justice of the US Supreme
Court. And how is it that supposedly right-of-centre governments on
both sides of the border can spend money like drunken sailors when in
power & get away with accusing their left-of-centre adversaries
of having ‘big government’ aspirations?
No. 329 - September
FED SURVEY : MOST
OF U.S. ECONOMY IS MENDING (AP)
∙ Its latest survey
of business conditions around the country found that in eleven Federal
Reserve districts economic activity either was “stable”, showed
“signs of stabilization” or had “firmed” & only in the St.
Louis one was the economic decline just “moderating”.
While anything but
a stellar endorsement, the stock market nevertheless reacted with great
: DOUBLE-DIP RECESSION RISK RISING (Reuters)
∙ After reports
on September 4th that, while the pace of job losses
in the US had slowed in August, the unemployment rate had gone from
9.4% to 9.7%, he told Reuters that a soft job market & flat incomes
could hinder a sustained recovery & that “The risk of a double
dip for US economic growth in 2010 is increasing ... This challenges
equity markets that are currently pricing a V-like recovery in corporate
revenues and credit availability.”
He is Co-CEO of Pimco
which manages a US$850BN bond fund (the largest in the world); so for
many people his credibility is greater than that of central bankers
with greater job security.
TREASURY : MILLIONS
MORE FORECLOSURES COMING (Reuters)
∙ As of August 31st
360,165 home owners, 12% of those eligible under the Home Affordable
Modicfication Program (HAMP), had their mortgages reworked, up 50% in
a month. But it warned “even if HAMP is a total success , we should
still expect millions of foreclosures.”
The consensus forecast
is six million over the next three years.
U.S. HIRING OUTLOOK
∙ A Manpower Inc.
survey found that US employers plan to hire fewer new employees in the
Fourth Quarter than in the Third, while in Europe & Asia the outlook
was less bleak.
Some economists believe
the economy is now growing at a 3% annual rate; if so, that may
be due to non-recurring events such
as the Cash for Clunkers program & the surge in inventory building.
∙ In 2008 power
consumption declined 1.6% YoY & is expected to slip another 2.7%
this year. If so, it will be the first time in 60 years it has done
so for two years back-to-back.
is sometimes used as a proxy for economic activity.
RAILWAYS CAST DOUBT
ON ‘GREEN SHOOTS THING’ (G&M, Brent Jang)
∙ The CFO of Norfolk
Southern told a webcast audience he expects improvement in the second
half of this year but “Economic conditions certainly remain unstable”,
his counterpart at Burlington Northern that, while consumer spending
remains weak, it has seen a “modest uptick” in weekly shipments
in July & August, the EVP of Canada’s No. 1 railway, CN, that
“we don’t think ... the recovery will be very rapid” & the
CEO of its No.2 railway, CP, that “I’m looking for the second half
of 2010 before ... we’re going to see any substantive growth.”
Railway freight traffic
volumes are a leading economic indicator.
CONSUMERS CUT DEBT
BY RECORD $21.6B IN JULY (AP)
∙ Consumers cut
their debt by 0.9% MoM, i.e. US$21.6BN, 5x the US$4BN expected.
rate, this is higher than June’s 7.4% & the highest since June
BANKS EASE BURDEN
OF CREDIT CARD DEBT (WP, Nancy Trejos)
∙ As more Americans
lose their jobs & struggle financially, banks are forgiving more
credit card debt or modifying its terms, since it’s better to “get
something as opposed to nothing.”
A while ago they were
reported to be paying people to turn in their cards.
BUYING POWER IS
THE NEW REALITY OF THE HOUSING MARKET (AP)
∙ Lenders now demand
more money upfront, high credit scores, proof of income & perfect
paperwork, the standards when the WW II generation bought their first
Many in the industry
expect these attitudinal changes to last for years.
RATINGS FIRMS LOSE
FREE-SPEECH BID (Bloomberg)
∙ A US judge recently
refused to dismiss a law suit against Moody’s and S&P, rejecting
their counsels’ argument that investors cannot sue them over deceptive
ratings since those are opinions protected by free-speech rights.
In so doing he cleared the way for investors to sue them & others
for hiding the risks in securities linked to sub-prime mortgages.
This is likely to
be of greater benefit to supposedly sophisticated big players who had,
but didn’t use, the resources to do due diligence than to Mom &
OUR ONE-PARTY DEMOCRACY
(NYT, Thomas L. Friedman)
∙ We now
have for all intents & purposes a one party system; for on energy/climate-
& healthcare issues the Republicans with few exceptions are content
to sit on their hands, hoping President Obama will fail. More’s the
pity; for the more he must depend on his own party to get legislation
passed, the more more left-of-centre the outcome will be.
The puzzling part
is how Obama c.s allowed others to gain control of the public healthcare
GRADING THE HEALTHCARE
SPEECH (NW, Katie Connolly)
“death panels” with simple, memorable points - while he adequately
tackled the most pervasive healthcare lies head-on, he didn’t
come up with a catch phrase with the emotional potency of “death panels”
∙ Tell Congress
what should be in the bill - Public option aside, he called for
no denials for pre-existing conditions, a fee on insurance companies
on their most costly plans, protection of Medicare & a commission
to examine waste - A;
While his speech
will appeal to his base but won’t move the vitriolic radio hosts &
others opposing reform, the real question is
how it will play out with the majority Americans in neither camp &
the ‘Blue Dog’ Democrats in Congress?
OBAMA’S KEY TO
PROSPERITY : LESS SPOCKY, MORE ROCKY (NYT, Maureen Dowd)
∙ Trying to be a
different kind of President, he has lost sight of political realities.
Sometimes you must keep your foot on your opponent’s neck & sometimes
it’s good when people fear you. Discourse is OK, but when the other
side fights dirty, you’d better get angry before it’s too late.
For now, without pro-active leadership, the Democrats have reverted
to their habitual self-destructive scrapping (& the Republicans
to theirs, being mean-spirited & shameless, attacking big government,
conveniently overlooking their own track record).
in politics is a matter of an iron fist in a velvet glove.
HEALTH REFORM BECOMES
WINDFALL FOR INSURERS (G&M, Barry McKenna)
∙ Heavy lobbying
by the health insurers has turned reform into a potential windfall for
them. Subsidized coverage for the 47MM now uninsured will grow their
client base, more Medicaid will benefit them since they administer it
for the states, preventative care programs will benefit their subsidiaries
in that field & making health insurance more affordable by lowering
the minimum coverage ratio to 65% will cut their costs. Robert Laszewski,
a former health insurance executive now with the Alexandria, Va.-based
consulting firm Health and Strategy Associates estimates the
insurance industry could benefit from this by $600+billion over the
next decade. The only potential fly in the ointment, he says, would
be a ‘public option’.
A public option would
be the only real
bit of reform; much of the rest is just more downloading of costs
from the private- onto the public sector.
OIL SANDS PROJECT
AT STAKE IN NORWAY VOTE (CP, Bob Weber)
∙ In 2007, Statoil-Hydro
ASA, two-thirds owned by the government of Norway, paid $2.2BN for an
oil sands lease in Northeastern Alberta & has since spent
more money developing it. But this investment is controversial among
Norwegians who pride themselves on their environmental awareness, five
of the country’s seven political parties believe it was a mistake
& on August 30th Norway’s largest newspaper editorialized
that Statoil shouldn’t profit from Canada’s refusal to meet its
commitments under Kyoto, and that it & the government were involved
in a “collective denial of responsibility” for oil sands emissions.
Since 2005 the country
has been run by a coalition of three centre-left parties. But if the
Monday September 14th parliamentary election
were to result in a return to power of a centre-right coalition, instructions
will likely soon go out to its representatives on the Statoil Board
to vote against any continuation of its involvement in the Alberta oilsands.
LIFE SENTENCE LONGEST
EVER GIVEN TO DRUNK DRIVER (CP)
∙ On September 9th
Mr. Justice Michel Mercier of the Quebec Superior Court sentenced to
life in jail an “incorrigible” repeat drunk driver who in October
2008, after a night of binge drinking, had mowed down, & killed,
a wheelchair-bound mother out walking her dog.
The 57 year-old had,
prior to his latest drunk driving episode, 18 drunk driving convictions
on his record (& a total of 114 criminal convictions) without ever
being sentenced to more than 15 months for drunk driving, since he
‘he had never hurt or killed anyone’. A newspaper editorial compared
his drunk driving to “playing Russian roulette with the gun pointed
at others” & compared the various lesser penalties for his drunk
driving over the years as merely “the cost of doing business.”
APPROVES SETTLEMENT EXPANSION (AF-P, Marius Schattner)
∙ On September 7th,
days before the next visit by Obama’s Special Envoy for the Middle
East, George Mitchell, the Israeli Cabinet approved the building of
455 new homes on the West Bank (even though warned by the US & the
EU against doing so). Mahmoud Abbas said it now will be useless for
him to meet with President Obama & Prime Minister Netanyahu during
the UN General Assembly session later this month, his chief peace negotiator,
Saeb Erekat “This further undermines faith in the peace process, and
the belief that Israel is a credible partner for peace”, his spokesman
“We will not go back to the negotiating table before a halt to the
settlement building” & the Israeli anti-settlement Peace Now
group “these building approvals transform any peace process into a
political farce.” But settlers blasted it as “not enough”; one
of its representatives said “We are extremely disappointed ... I’m
ashamed of the attitude of the government, which is not resisting American
pressure” & a member of Netanyahu’s Cabinet “The Americans
don’t run this country, Israelis do.”
The Americans may
not run Israel, but it benefits greatly from Washington’s financial
magnanimity & political forbearance. The settlements on the West
Bank & in East Jerusalem, home to 10% of Israel’s Jewish population
are illegal by international standards. At some point Obama & the
EU must fish or cut bait : force the Israelis to face reality or lose
credibility in the Arab world & beyond.
GERMAN FAT CATS
GET LEANER (EJ, Business Browser)
∙ In 2008 the average
total compensation package of the CEOs of the 30 DAX benchmark companies
declined by 20% YoY to the equivalent of C$3.6M; worst-hit was the Deutsche
Bank’s CEO whose bonus evaporated, cutting his compensation by 90%
YoY to C$2.2MM.
Rather unlike the
North American situation.
CLIMATE DEAL IS
‘IN THE BALANCE’ (BBCNews, Richard Black)
∙ According to UK
Foreign Secretary David Milibank there is a “real chance” next December’s
UN Summit in Copenhagen to prepare the ground for Kyoto 2.0 won’t
reach agreement. For the developing countries stand firm in their belief
that, since the industrialized West grew rich through intensive fossil
fuel use, it must now take the lead in cutting emissions &
hasn’t done enough in that respect, nor to help them deal with the
impact of climate change.
This is akin to a
dispute among those on a sinking ship as to who should lower the life
TO CLEANER CLIMATE BREAKS ‘LOGJAM’ FOR UN MEETING (AF-P)
∙ Denmark’s Climate
& Energy Minister Connie Hedegaard believes Japan’s September
7th announcement of a 25% target cut in its greenhouse gas
emissions could be a game-changer in Copenhagen in December : “everybody
has been waiting for everybody else to move in the negotiations ...
the strong message from Japan is exactly what is needed.”
came before Japan’s new Prime Minister was even sworn in and, while
it acts on one of his campaign promises, overrules dire warnings by
Japan’s bureaucrats that such a tripling of the Aso government’s
8% target would “ruin the economy”.
A NEW CHAPTER OF
BUBBLE FICTION (G&M, Bruce Wallace)
∙ Washington was
shaken when, prior to the election, the US-educated Mr. Yukio
Hatoyama mused that Japan’s future was tied to Asia (i.e. China),
rather than the US; for it has long taken it for granted that it would
ever be its most important ally in Asia & the world.
∙ The last Japanese
politician to try & challenge the old order was Junichiro Koizumi
who, upon becoming Prime Minister in 2001, sought to do so by, among
others, by sending personally-written weekly emails to 1.6MM subscribers
combined musings on various topics with inspirational messages on the
need for change. In 2005 he saved the LDP from defeat by
running against it with the slogan “Change the LDP, Change Japan”
but, unable to surmount the Japanese deep-seated discomfort with the
idea of change, was pushed out the following year, illustrating
the difficulty of overcoming 1,500 years of tradition.
∙ The Democratic
Party’s leadership is deemed ill-equipped to operate Japan’s opaque
power-sharing government machinery put together over half a century
by the LDP, the bureaucracy & the corporate sector. While it has
promised to take spending control away from bureaucrats, its lack of
experience may make it more, not less, bureaucrat- dependent. With the
national debt at nearly 2x GDP, it will have little fiscal elbow room.
His hope to become the prime minister who will lead Japan out of its
post-war order into the 21st century,
will in the end depend largely on whether the Japanese public really
wants, & is prepared for, change or whether its vote was a nostalgic
plea for a return to ‘normality’.
His detractors call
him ‘charisma-challenged”, make fun of his hair-do & decry his
inexperience. But on his father’s side he is a fourth-generation
politician : his great-grandfather was Speaker of the House of Representatives,
his grandfather a Prime Minister, his father a Foreign Minister, his
brother a minister in the outgoing Aso government & he himself was
elected in 1986 to the House of Representatives as a Liberal Democrat
(leaving the party in 1993).
CHINA’S OIL GIANT
BORROWS BILLIONS TO EXPAND ABROAD (Reuters)
∙ The CNPC (China
National Petroleum Corp.) announced it had secured a US$30BN five-year
loan ‘at a favourable interest rate’ from the China Development
Bank (in what one analyst called a ‘diversification of the risks of
foreign exchange reserves’).
State-owned CNPC controls
PetroChina, a now listed company, into which it spun off its operating
assets a decade ago, & shares in its exploration & development
activities as an equal partner.