For a recent program on CBC’s Market Place journalists purchased 153 trays of various kinds of fish fillets at several major Canadian supermarkets & had them tested at the University of Guelph’s fish origination test lab. It found 34 were mislabelled, the most extreme case one in which $4.99 pollock was sold as $7.99 cod. When confronted with this, Ottawa’s Food & Drug Inspection Agency said its job was to monitor food quality, not labelling & that in any case 75+% compliance was ‘quite good’. Another investigated the claim by a Rent-to-Own chain that it charged interest @ 29½% per annum; it found that it was really charging as much as 500% & that the 29½% rate was only applied after it had raised the base price for interest calculation purposes by up to 4x that of similar merchandise in stores. Both suggest consumer protection in Canada may leave something to be desired & that, if 75% compliance is deemed “quite good”, the rapidly growing number of Canadian consumers concerned about food quality have good reasons to do so.
Last week 200 grain combines gathered in a Manitoba field to break the record set last year in Ireland when 175 combines simultaneously worked in same field for five minutes. And they did. But while Manitoba has fields big enough to handle that many combines, I didn’t realize Ireland had any; for 175 of them with 18 foot ‘tables’ each would cover a two-thirds of a mile frontage & in five minutes would harvest 160 acres.
One of you sent me pictures of the new bridge being built just below the Hoover Dam near Las Vegas. But what really caught my eye were the water marks on the rock faces behind the dam that showed that, due to drought & withdrawals for human use, water levels behind the dam are now over a hundred feet lower than they used to be.
A recent Bloomberg headline read “Goldman Sachs Lost More than $100(US) on Three Days in Second Quarter”. But the fine print noted it made a profit of 55 of the 65 trading days in the quarter that netted it US$5.6BN. But presumably from the firm’s perspective a 85% profit day ratio is a big come-down from the First Quarter’s 100%.
While common wisdom holds that the Taliban in Afghanistan is on a roll, this overlooks the fact that its financial base may be drying up as the growing economic wellbeing of many of its citizens is making many food crops more profitable than poppies for the vast majority of Afghans who still make their living off the land.
This spring the Alberta government cut its top royalty rate on crude oil from 50% to 40%, made permanent the ultralow 5% initial royalty rate & offered new incentives for deep complex wells. Contrary to some critics’ expectations, it seems to have paid off; for oil companies have been paying near-record amounts at its land sales & the number of drilling rigs active in the province has almost tripled YoY to 242 (while the total for all of Western Canada increased only 140% to 378). But this leaves one question & produces one potential fly in the ointment. The former is that some of this might have occurred in any case since there is a new ‘hot (very desirable light) oil play’ in Central Alberta’s Cardium formation, & the latter that companies are now bragging about how much this has increased the Net Present Value of their oil properties in the Province (which in due course may bring renewed pressure for still more royalty cuts to boost the return on the companies’ now more valuable properties to ‘acceptable levels’).
GLEANINGS VERSION II
No. 373 - August 12th, 2010
WHEAT WORLD (G&M, Brent Jang)
· On August 4th wheat futures prices had risen 50% in 23 trading days (& by 6.7% on that day alone) to US$7.25, prompting the Rome-based FAO to try & pour oil on the waves by saying that, after two years of bountiful harvests, “world inventories have been replenished sufficiently to cover the current anticipated production shortfall.” Experts blame speculators since global wheat output is forecast to be down just 3.7% YoY (obviously having forgotten their Economics 101). According to a Canadian Wheat Board official “This ... price spike caught ...market participants by surprise. It has been too wet in Western Canada (where the acreage seeded this spring is 8% below the five year average & wheat output this year will be down 17% YoY to 15.6MM tonnes) and too dry in Russia.”
Investors ignored the FAO’s & the subseq1ue3nt USDA’s attempts to dismiss the runup in wheat prices, rightly so if the lower wheat output in Russia, the Ukraine & Kazakstan proves to be “tectonic in nature ... (and) multiyear in duration.” The farm gate value of the wheat in a loaf of bread in North America is 8¢ when its price is US$4.75, & 12¢ when it is US$7.25, per bushel; so the effect of higher wheat prices on the price of bread will here be muted. But the poor & not quite so poor 1-2BN people in the world who buy wheat as is to make their own bread, & for whom it is a core dietary item, will be hit hard & quick. The short term supply risk lies in the floods in Pakistan’s bread basket region, the world’s sixth largest wheat producer, & a drought in Russia, the No. 5 producer & No. 3 exporter, that has burnt up over one-third of its wheat crop this year & is now affecting the seeding of next year’s crop of winter wheat that traditionally has accounted for two-thirds of Russia’s total wheat production. Hence its ban on wheat exports; for it won’t have enough to meet its own needs. Longer term the primary supply diminuants are a shrinking availability of water for irrigation & the ongoing loss of productive farm lands to urbanization & industrialization. And demand will keep growing regardless due to the continuing & growing competition for grain from US ethanol producers, the 60+MM new mouths that must be fed each year & the changing dietary habits of the developing world’s rapidly growing urban middle classes.
BANKING SYSTEM ON VERGE OF NEW CRISIS (DT, Harry Wilson)
· London-based Noster Capital is betting against five major European banks, incl. Barclay’s & UBS, on the grounds that many people still don’t understand the extent of the problem, or the risk, in Europe’s banking system. Its criticism of the stress tests is scathing; for “The point of a stress test is that you stress something until it breaks” while the criteria used in Europe were even less rigorous than those in the US that were criticized for being insufficiently robust. It still expects another shock to the system from the US housing market as more mortgages go in default & vast amounts of MBS mature & must be refunded.
Initially all Europe’s banks had to contend with was the junk paper the US banks had foisted on them. But this was first augmented by the PIIGS nations’ dicey paper, & now the foreign currency-denominated Central & Eastern European home mortgages, on their balance sheets, the latter of which, since their currencies have weakened, home owners can no longer afford to service (Noster Capital was founded in March 2008, is run by an ex-JPM employee & was largely profitable during the financial meltdown).
FED MAKING SYMBOLIC SHIFT (WSJ, Jon Hilsenrath)
· The August 9/10 FOMC meeting is expected to consider start rolling over its maturing MBS again due to a ‘creeping concern’ about the state of the economy.
The Fed did in fact end the recent “passive contraction” of its (bloated) balance sheet that has been reducing the level of liquidity in the system & will be buying US$10BN of bonds which given that the M1 money supply stands at 1.7TR, is merely a symbolic gesture. And adding to system liquidity is meaningless at a time that the system is already awash with liquidity and bankers don’t want to lenders or borrowers borrow.
ADMINISTRATION TO PROVIDE $3 BILLION FOR HOUSING (AP, Alan Ziebel)
· US$2BN will go to the 17 states with above-national average unemployment rates for over a year to fund programs some had already designed to help unemployed keep their homes. And the other US$1BN will fund a new program by the Department of Housing & Urban Development to provide home owners with emergency, zero interest rate loans of up to US$50,000 for up to two years.
This was required by a little-noticed provision in the financial regulatory reform bill signed by the President last month after passage by a Congress that had problems further extending unemployment benefits for those who had run out of them. And pray tell, what is a US$50,000 windfall going to do for an unemployed home owner other than delay the evil day he or she has to adjust the life style to which he/she feels entitled; and even in a best case scenario how are they going to pay back loans the proceeds bought groceries and/or made mortgage payments?
U.S. DOLLAR HAS LONGEST LOSING STREAK SINCE 2004 (Bloomberg)
· The US Dollar Index, its benchmark of international value, has declined for nine straight weeks, two weeks short of the 2004 record; but, while bets against the US$ have risen from their June lows, they are still short of their 2007 record level
Shorting of the dollar (rightly) assumed the Fed would start buying more bonds to try & stimulate economic growth, thereby keeping interest rates low & weakening the dollar.
U.S. OUTPUT PER WORKER SHRINKS IN SPRING QUARTER (Reuters)
· Due to more hours being worked & slower growth, it slipped in the Second Quarter for the first time in 18 months, at a 0.9% annualized rate, after rising at a 3.9% rate in the First (suggesting corporate profits may come under pressure).
Productivity during the year to March 31st rose the most in 50 years. But if this means the squeezing of more work from the same people has reached the stage of diminishing marginal returns, corporations may have to start hiring new people (which short run may put still more pressure on productivity until they become more efficient at their new jobs).
CASH-STRAPPED GOVERNMENTS SHUTTING DOWN PROGRAMS ALL OVER U.S
(NYT, Paul Krugman)
· Colorado Springs has turned off street lights. Local governments are breaking up roads they can no longer afford to maintain. In education teachers are being laid off & programs cancelled, and in Hawaii the school year is being shortened. And this is only the beginning. We are told there is no choice but to cut back on no longer affordable essential services and Republicans & “centrist” Democrats say we must reduce the deficit; but at the same time they advocate preserving tax cuts for the affluent. But programs would be affordable if politicians would just increase some taxes. And since the federal government can borrow cheaply, it isn’t cash-strapped at all & could, & should, come to the aid of local governments
· So the political class is showing its priorities : rather than letting taxes for the top 2% of Americans go back to their Clinton-era level, it will let the nation’s foundations crumble. And, while in the short run these local government cutbacks will impede recovery, in long run a well-educated work force & quality infrastructure is critical to economic growth, something emerging nations understand as they invest heavily in education & infrastructure.
· The anti-government campaign was said to be about opposition to waste & fraud. But there was never as much as claimed; so now that services only governments can provide are being slashed, America is on an unlit, unpaved road to nowhere.
Once again Krugman raises questions about his Nobel Prize credentials. For saying the federal government “isn’t cash-strapped at all” since it can still borrow is akin to an individual saying he’s OK since he has yet to max out his credit cards. And, regardless of the merits of taxing the well-to-do more, the US$700BN he expects this to yield over a decade is barely half of the current year’s federal deficit. As to the public sector, it’s like a sandwich; while some public servants do essential grunt work, like cleaning hospitals & schools & maintaining infrastructure, and others serve the public directly, like emergency room doctors & nurses, class room teachers & firemen, in between there is a big, fat & growing layer of people with tenure, like Krugman himself, many of whom do little more than keep each other busy generating paper & who are well-positioned to protect their ‘rice bowl’; in the 1980's corporate America eliminated some of this layer & was the better for it, and the time is long overdue for the public sector to follow suit.
CHINESE TURBINE COMPANIES TO BUY FROM U.S. FIRMS (Bloomberg)
· Shenyang-based A-Power Energy Generations Ltd. is to provide the turbines for a large Texas wind farm. But the United Steel Workers Union announced on August 6th that, since lawmakers objected to this, A-Power now plans to buy 50,000 tons of steel from US steel mills & parts from US suppliers, and invest in a new plant in Nevada. The union’s president said “This is a new model ... But I don’t have any illusions that this will be easy.”
And he is right; the Chinese bargaining position is strong & they know it.
U.S.-VIETNAM NUKE DEAL WILL LIKELY ALLOW ENRICHMENT (AP, Foster Krug)
· In last year’s US-UAE deal the latter, in order to get US nuclear equipment & reactors, pledged not to enrich uranium or extract plutonium from used nuclear reactor fuel (both of which can be used for nuclear weapons production). While Washington had hoped to use this as the template for all subsequent such deals, many countries, incl. Vietnam, consider this an infringement of their souvereignty, & the Administration has warned US lawmakers it likely won’t be able to secure such a pledge from Hanoi as part of any US-Vietnam nuclear deal
Under Bush India got a non NPT-compatible deal. And now Vietnam under Obama? How is this reconcilable with the hard line on Iran (& North Korea)? It seems to validate Iran’s contention that, for a nation to get ‘respect’ in diplomatic circles, a nuclear weapons’ capability is a sine qua non. If so, the world may be about to enter a phase more risky than the Cold War; for at least then, if bombs started flying, people knew whence they came, which won’t be the case if there are a multitude of nuclear ‘players’.
GROUND ZERO MOSQUE A WORTHY RESPONSE (LAT, Doyle McManus)
· Imam Feisal Abdul Rauf, the man behind the plan to build a US$100MM mosque two blocks from Ground Zero, is a good guy : he has time & again denounced Islamist terrorism & encouraged his followers to be “both good Americans and good Muslims.” Opposition to mosques is emerging all over, from Staten Island, N.Y. to Murfreesboro, Tenn. & Temecula, Calif. Those fuelling it, incl. Sarah Palin & Newt Gingrich, both of them with presidential ambitions, have no connection with New York & simply want to project themselves for self-promotion reasons as defenders of Western civilization against a militant Islam. But in so doing, they play into bin-Laden’s hand by undermining the moderates in Islam’s civil war between its forward- & backward-looking elements by implying that ‘no matter how moderate you say you are, we think you want to destroy our way of life’.
Los Angeles is a long ways from Ground Zero. Even giving him the benefit of the doubt the imam displayed colossal bad judgment & insensitivity in his choice of site. And now his critics’ rage has only been intensified by news that the State Department previously funded two visits by him to Muslim countries to “build bridges” & proselytize how good life is for Muslims in America, & had approved funding for a third.
FIRST LADY’S TRIP TO SPAIN EARNS WIDESPREAD CRITICISM
· The five-day sojourn of Michelle Obama & her youngest daughter, and a gaggle of friends & Secret Service agents, at a posh resort in Spain came under fire on talk shows & blogs. While questions were raised about the cost of the Secret Service agents’ accommodation & the US$11,555 hourly cost of the Air Force jet that took them there at a time that Obama has called for ‘frugality in lean times’, what really grated people was that, during her recent visit to the Florida Panhandle hit hard by the BP oil spill, Mrs. Obama said “for parents looking for things to do with their kids this summer ... this is a wonderful place to visit.”
Why is it that when people gain public office, they leave their common sense behind?
CANADIANS’FAITH IN MOUNTIES IN DECLINE (Postmedia News, Amy Minsky)
· Recently a number of top Mounties filed complaints with the Prime Minister’s Office about the RCMP’s first-ever civilian head, appointed three years ago to clean up the Augean Stables its top management had become, being verbally abusive, insulting & arrogant (all purely subjective calls). A poll found just 51% of Canadians, down six points in three years, now believe its management is up to snuff and, while 70% still believe that those at ‘the sharp end’ are doing a good job, that number is down too, by 11 points over the same three years.
Having always been a ‘closed shop’ promotion- & otherwise, an outsider, & a civilian at that, with a mandate to clean house may well have been baited & sabotaged to make him lose his cool. In the Roman Empire a legion that had performed badly in battle was punished by decimation : every tenth of soldier in it was killed. Prime Minister Harper should similarly retire every second malcontent to send a message to the rest that they’d better learn to work with the Commissioner & to create upward mobility for second tier managers into the force’s top echelon to (hopefully) infuse it with new energy & ideas.
B.C COURT TOSSES OUT TASER MAKER’S APPEAL
(Vancouver Sun, Tiffany Crawford)
· In his public inquiry into the much-publicized death three years ago of a Polish immigrant in the Vancouver Airport after being Tasered 5x by four RCMP constables, Mr. Justice Braidwood concluded that the Taser hits had contributed to his death. Taser International immediately sought to have his finding squashed on the grounds he had ignored the body of evidence it had presented that purported to prove the energy weapon is safe. But on August 10th the BC Court of Appeal dismissed its contention that the inquiry’s finding was ‘unreasonable’.
At one time Taser International had a track record of 78 court wins out of 78.
REPORT HIGHLIGHTS OILSANDS TOXINS (G&M, Nathan Vanderklippe)
· An Environment Canada that study that tracked 85 Canadian mining operations producing tailings & waste rock found the oil sands account for just 50,000 tonnes (i.e. 10%) of the ‘reportable substances’ found therein, but for the lion’s share of ‘dangerous substances’ that cause tumours of the lung, skin & bladder (in one case 42% more in 2009 than in 2006), carcinogens & heavy metals.
While the apologists say it’s the concentration, not the amount, of these substances produced that matters, no one really knows what, if any, are their ‘safe’ levels of concentration; and, regardless of what the experts contend, common sense suggests the likelihood of a link between volume & concentration.
WATCHDOG SEEKS TO STOP FINGERPRINTING (EJ, Canada Digest)
· Canada’s Privacy Commissioner is suing the American Association of Medical Colleges in the Federal Court. For in administering the Medical College Admission Tests (MCAT) it uses “biometric identification” to prevent cheating; this exposes Canadians who write the tests solely to qualify for entrance into a Canadian medical school to the risk of having their fingerprints & photographs subsequently accessed by US authorities under the Patriot Act.
This is a case in which tradition & institutional inertia have needlessly opened the door to the “extra-territorial application of US law” (which it would never tolerate if the shoe were on the other foot, even in a less xenophobic environment than currently prevails).
AFGHANISTAN’S NEIGHBOURS JOCKEY FOR CONTROL OF POST-NATO REGION (G&M, Graeme Smith)
· Iran’s Deputy Foreign Minister emerged from talks with his Indian counterpart saying they had agreed to oppose any change in the Afghan constitution (sought by the Taliban since it guarantees a number of seats in parliament for women - which doesn’t even exist in Canada & the US). Iran wants a strong central government in Kabul & opposes any reverting back to the Afghan tradition of decentralized governance by local chiefs, out of concern this would give the Sunni Taliban control over lands along its Eastern border & India because it fears decentralization may favour forces favourable to and/or controlled by Pakistan.
· In the past year, as President Karzai distanced himself from his US/NATO allies, he moved closer to Tehran. And during his August 6th press conference at Iran’s Embassy in New Delhi Iran’s Deputy Foreign Minister confirmed “We believe and consider the government of Afghanistan as a good replacement for any foreign troops ... We have no doubt in the capability of the Afghan government.”
The writer makes no mention of China. But it has a tiny sliver of common border with Afghanistan in the Hindu Kush, has had a long relationship with Pakistan & an occasionally militarily confrontational one with India, is vitally interested in regional Muslim affairs due to its own Muslim minority problems, and has a big leg up on Iran & India since it is bulking with cash & already has a presence on the ground as it develops a huge copper deposit South of Kabul. This could conceivable evolve into a North-South vs. East-West power struggle that India & Iran would likely lose.
TURKISH COURT ANNULS ARREST WARRANTS OVER “COUP PLOT” (BBCNews)
· This came after the military undertook not to promote some of the alleged plotters. The indictment against them was drawn up in 2003, not long after President Erdogan’s AK Party came to power & was based on a supposed plot to provoke tensions with Greece by bombing mosques, thereby justifying a military takeover (which the accused claimed had been part of the ongoing contingency planning that the military in every country routinely engages in).
A ‘strategic withdrawal’ by government before next month’s constitutional referendum?