Search this site powered by FreeFind

Quick Link

for your convenience!

Human Rights, Youth Voices etc.

click here


For Information Concerning the Crisis in Darfur

click here


Northern Uganda Crisis

click here


 Whistleblowers Need Protection



July 22, 2010

Heavy rains in the US grain growing regions have prompted USDA to cut its estimate of the US 2010 grain crop. China has doubled its grain imports of Canadian wheat due to unfavourable weather in its main grain-growing areas. 12 Russian regions are having the worst drought in a decade. Vietnam, the world’s second-largest rice exporter, is having weather-related issues. In Saskatchewan, Canada’s main grain-producing province, millions of hectares weren’t seeded last spring because the land was too wet or, if seeded, the grain has since succumbed to drowning. And in Pakistan’s Southern Punjab land that two years ago grew healthy grain crops now is a dust bowl. After a couple of  years of good global grain harvests the availability of grain may become more problematic in the next year (especially since there are now 30-40MM more mouths to feed & the shift from a plant-based to a more meat-based diet continues unabated in China & other countries). So in the last month or so, wheat futures rocketed upward although they recently softened, possibly due to speculators ‘taking profits’.  

One environmental Neanderthal recently advised the rest of us “To stay calm, the earth will heal itself.” He is right, but only up to a point. Mother Earth has a significant capacity of forgiving us our trespasses. But it is not infinite. She needs time to do her work, a luxury she isn’t afforded as modern society piles more abuse on her before she has been able to deal with the last lot. Thus in a river, if one sewer empties human waste into it, ten, fifty or whatever more miles downstream it will have ‘processed’ the organic material & restored the quality of the water to some semblance of that upstream of the sewer. Obviously, if another sewer dumped more human waste into it before it had finished processing the last lot, cleansing itself would take longer, but might still be doable. But a never-ending series of sewers spewing out waste will overwhelm its ability to do so, and lead to system ‘overload’ & possible shut-down. The human ‘footprint’ just keeps getting bigger, if only because during my lifetime the global population has more than tripled & its demands on the environment have grown disproportionately.  

Canada already has a looney system whereby those claiming refugee status, upon setting foot on Canadian soil are eligible for welfare payments of up to $2,500/month while Canadian seniors who have lived, worked & paid taxes here for decades, if not all their adult life, can at best only receive $1,800 from various public pension- cum pension top-up programs. Now two Liberal MPs from the Toronto region want to take that lunacy one step further; for, they have tabled Bill C-428 which would make newcomers to Canada eligible to receive OAS (Old Age Security) payments after only three years here, rather than the current ten.  

For years a significant share of all immigration have been in the “family-reunification” category, under which earlier arrivals with landed immigrant status can ‘sponsor’ family members to move here provided they assume financial responsibility for them. Many of these have been aging parents (who add to the already growing strain on Canada’s taxpayer-funded medical system from the aging Baby Boomer generation).This is nothing more & nothing less than a grandstanding pitch for Canada’s ethnic vote in the next election since the bill has little real chance of passage : the MP driving this is the Member for Brampton, a Toronto bedroom community with a big immigrant population for whom, if they had brought their parents over, this would constitute a way of ‘downloading’ back onto the taxpayer the financial responsibility for their elderly relatives that they had assumed when sponsoring them.  

There continue to be press reports that Canada’s crime rate is declining. But since most of the crimes the incidence of which is declining are committed by 16-30 year-olds, a shrinking age cohort, it would be interesting to see if it is also down relative to the size of that cohort.  



No. 370 - July 22nd, 2010 


    · In an audio on Islamist websites oft used by al-Qaeda a voice sounding like bin-Laden’s No. 2 said “These Arab Zionists with whom we live and exchange smiles ... are more dangerous than the Jewish Zionists ... Who surrounds our people in Gaza? Is it not the leader of the Arab Zionists, Hosni Mubarrak?” And it told Obama “Whether you admit it or not, the Muslims have defeated you in Iraq, and Afghanistan, and they will defeat you - and the powers that bought you - soon in Palestine, Somalia and the Islamic Maghreb.” 

He has two reasons for targeting Mubarrak. He wants to make it more difficult for him not to let the cargo from the vessel Amathea be moved from the Egyptian port where it docked to Gaza, thus effectively breaking Israel’s blockade. And he is calling on his fellow Egyptians to vote for the Islamic Brotherhood (of which he was a leading member until his better judgment prompted him to leave the country of his birth), or at least reject the Mubarrak slate, in Egypt’s forthcoming  election. But his warning to Obama is an opinion, not a fact, seemingly belied by the Taliban’s failure to disturb the recent high level international gathering in Kabul to discuss Afghanistan’s future (although the cynical view is that it was counseled not to do so by Karzai in order not to blow his chances to gain more control over aid flows & hence create more scope for ‘leakage’). 


    · Monetary & fiscal authorities threw away most of their cards fighting the Lehman Brothers’ bankruptcy-driven panic in September 2008. So there is now little political or economic ammunition left for fiscal & monetary policies to save the day if past measures prove insufficient to fuel sustained growth. Normally recessions clean out the excesses of the past. But not this time. Consumers are still heavily indebted. House prices are still higher than warranted by fundamentals. Luxury cars are still flying off show room floors. And the economy has become addicted to low interest rates & liquidity infusions. 


As the Ben Graham Professor of Value Investing at the University of Western Ontario’s Richard Ivey School of Business he ‘is talking his own book’. Still, there is validity in what he says. And while the Bush Administration, especially its Treasury Secretary, Hank Paulson, must take much of the blame for the jam the Obama Administration finds itself in, it & the Paul Krugman’s of this world, are like gamblers who, after losing once, keep doubling their bets in the hope their luck will turn & see them regain their loss (but who more often than not run out of money before that happens). Meanwhile a group of eminent economists have come up with a fiscally-neutral idea : terminate the Bush tax cuts for the upper income people & redistribute the proceeds to the lower-end ones, so as to boost consumption by  US$100BN over two years. While this would add < 0.5% a year to GDP, it may be enough to help change perceptions. 

WHAT NOW, MR. BERNANKE? (Reuters, Pedro Nicolaci da Costa) 

    · This week he will deliver his semi-annual monetary policy message to Congress. As he does, the key question will be is how much the US economy must weaken before the Fed will take action. He must somehow convince his audience it isn’t powerless in countering lower growth without casting doubt on the outlook. According to Kevin Logan, Chief U.S. Economist at HSBC, “At the moment, he and (Federal Open Market) committee are not prepared to do anything. They feel they’ve used up most of their bullets... It will be a fine line between not showing any panic ... (and) making clear they’re watching this & will do what’s necessary.”

    · The Fed’s options include the following. Buy more mortgage-related assets - this risks suggesting Fed angst about the recovery, while not helping the housing market. Buy other assets from banks - doing so only months after declaring its buying spree was over may affect its credibility. Keep interest rates low - it has long said it expects them to remain “exceptionally low” for an “extended period”. Stop paying interest on the banks’ excess reserves - the rate is only 0.25%. And open a new lending facility for non-banks - a similar move during the 2007-2009 financial crisis was widely criticized. 

    · The minutes of the last FOMC meeting revealed a growing rift between those worrying about deflation & about what steps to take if the economy deteriorates & those pushing to tighten financial conditions by launching asset sales, with out in left field Kansas Fed Chief Thomas Hoenig still pushing for an early rate boost to thwart inflationary threats.    

The Fed will be more cautious than ever; for if it got things wrong, the consequences for the economy & its reputation could be disastrous. In the event, he said “We don’t think a double dip is a high probability event”, and that, while the rate at which new jobs are being created “is insufficient to reduce the unemployment rate materially” & the US economic outlook is “unusually difficult to predict”, the situation isn’t dire enough to warrant a shift in policy (generally interpreted to mean the Fed still plans to start disgorging the US$2TR in financial assets it took onto its balance sheet when buyers disappeared during the meltdown).   


    · With the end of the tax credit program for first-time buyers, the industry is now “getting a more organic view of the housing market ... a view that is anything but pretty.” Supply is vast but demand moribund. Housing starts are at an eight months’ low. An index of homebuilders’ confidence is at its lowest level in over a year. Despite record, or near-record, low mortgage rates buyers are sitting on their hands. Applications for new home mortgages are a post-1996 low. Pending home sales are way down. And overarching all this is a gargantuan overhang of unsold new homes & millions of foreclosures. 

While this alone won’t bring on a (double-dip) recession, neither will it be of much help in speeding up, or maintaining the current rate of, economic recovery.    


    · The new Emergency Committee for Israel is has launched a hard-hitting campaign to defeat Rep. Joe Sestak (D.-Penn) for having co-signed a letter accusing Israel of blockading Gaza & not signing a bipartisan letter of US support for Israel. Its board consists of Fox News’ Bill Kristol, Gary Bauer of the Christian Right & Rachel Adams, the wife of Bush Administration official Elliott Abrams. It fears Obama has a Plan B for after the election, to impose a Palestinian state on Israel, & wants to spike his guns. 

They are right to be worried. Few things would do more to undermine the jihadi appeal & to boost his  standing in the Muslim community abroad, & at home among the growing Muslim voting blocks in key Midwestern states, ahead of the 2012 Presidential election than being seen to impose a solution on the Israelis (possibly the biggest favour he could ever do them since they seem unable, or unwilling, to extract themselves from the corner they have painted themselves into). 


    · On July 20th the Bank of Canada raised its benchmark overnight rate to, an albeit still low, 0.75%, the second increase in as many months. Canada has regained nearly all the jobs lost during the recession, and he also wants to head off inflationary pressures & encourage consumers to pay down debt before borrowing costs get still higher. 

The market expects one more bump-up in September & perhaps another in October. But contrary to the headline, he’s not alone : Australia has been hiking rates for some time & other countries, incl. China & India, have been ‘snugging’ their monetary policy stances. It’s just the traditional country ‘engines of global recovery’ that remain in the doldrums & therefore aren’t.  


    · The US & South Korea on July 20th announced plans for naval exercises on both sides of the Korean Peninsula (to deter North Korea from acts of aggression on it). Those scheduled for July 25th - 28th will be in the Sea of Japan, East of the Peninsula, & will involve the nuclear carrier USS George Washington, one of the largest war ships in the world, another 20 surface vessels & submarines, and 100 aircraft. Others at a later date will take place in the Yellow Sea, to the West of the Peninsula, which is claimed by China as its exclusive military operations zone, even though last October it was the site for another naval exercise involving the George Washington & South Korean vessels.  

To make its point, albeit weakly, China just completed its own exercises, entitled Warfare 2010, in the Yellow Sea which, however, involved only four rescue vessels & four helicopters. But this can be expected to prompt Beijing to redouble its efforts to build a ‘blue water navy’.   

THE CHINA WE DON’T SEE (WP, Robert Tulford) 

    · Beijing calls any illegal event involving over 24 people a “mass incident”. According its Public Security Ministry their number increased from 90,000 in 2006 to 120,000 in 2008 & to 59,000 in the First Quarter of 2009 (after which it quit publishing the number).  

There is no shortage of potential ethnic-, religious-, social- & economic flash points. 


    · Heavy rains upriver in the Yangtse drainage basin (& elsewhere in Central China) have caused flooding that has killed hundreds of people & made thousands more homeless, & increased the inflow into its reservoir to as much as 70,000 cubic metres per second. 

The 600 foot-high dam was supposedly designed to handle inflows of up to 100,000 cubic metres per second (but even before it was finished, there were reports of numerous cracks & other imperfections in it). Dams in China frequently fail (six YTD, & if this baby ever did, it would cause the mother of all man-made disasters. To put things in perspective, the flow of water over Niagara Falls is 2,500 cubic meters per second, and at 70,000 cubic meters per second, a week’s or so inflow is roughly equivalent to all water consumed in Canada, or in Britain, or in Germany in an entire year. 


    · Although Beijing denies it, according to the Paris-based IEA China in 2009 overtook the US in total energy usage, with 2.25BN BOE (mostly from coal) vs. 2.17BN (although Americans still use 5x as much energy per capita as their Chinese counterparts). While earlier estimates forecast this would not come to pass until later this decade, during the recession US energy consumption stalled while China’s continued to grow. 

The same phenomenon, rapid growth in China while the US economy stagnates or limps along, will also bring forward the day its economy will surpass that of the US as the world’s largest.    


    · High in the Himalayas, in the Indian-controlled part of Kashmir, a hydro dam is being built in a remote valley, the first of many planned to help feed the Indian economy’s escalating power demands. But across the border in Pakistan fears are growing this will enable India to manipulate the water flows from the mountain glaciers that are the mainstay of Pakistan’s farm sector (which accounts for 25% of its economy & employs half of its population, and features the world’s largest contiguous irrigation system).

    · With their populations growing rapidly, water is critical to both nations. The rivers that traverse the Pakistani Punjab, the country’s most populous province & the heart of its farm sector, are its lifeline. But in India Himalayan hydro projects are seen as vital to alleviating the power shortages that are crimping its economy’s growth. The dam is built pursuant a 50 year-old treaty that divided the water flow in the Indus River & its tributaries, 80% to Pakistan & 20% to India; so the latter is entitled to use some of it for farming, drinking water & power generation but not to unduly store it. Hence the issue is less if the dam can be built but about the timely release of water.


Water will become more of a bone of contention between nations than oil; for Man can survive without oil (albeit less comfortably so than with it) but not without water. Already elsewhere the right to Nile water is becoming a contentious issue for its dozen or so riparian nations, Israel & Jordan (and the Palestinians on the West Bank) have competing claims on the water in the river Jordan, and India itself has concerns about Chinese dam projects elsewhere in the Himalayas.



    · The outcome of the EU stress tests to gauge the state of affairs in Europe’s banking system will be made public this week. While the vast majority of banks tested will pass, some must fail if the exercise is to have any credibility (even though that doesn’t necessarily mean they are bankrupt, just that they are under-capitalized & must raise new capital from investors, which may prove a tall order, or governments). The main focus is on the Spanish savings banks (the “cajas”) that were hard hit by the real estate crash & that account for 29 of the 91 banks tested. While little is known about the methodology used by the London-based Committee of European Banking Supervisors (CEBS), its “adverse economic scenario” is known to assume the EU economy underperforming by 3% the official forecast of 1% GDP growth this year, & 1.7% in 2011.  

Stress testing against average EU growth doesn’t seem to make much sense given the widely disparate ways various country economies have been affected. 


    · While 67% of British voters want the wearing of full-face veils outlawed, Immigration Minister Damien Green said a ban would be “un-British” & contrary to the tradition of a “tolerant and mutually respectful society”, and Environment Minister Caroline Spelman that women are “empowered” by the freedom to cover their faces (a view apparently based on her one visit to Afghanistan which “taught her it is part of their culture”). 

In Britain, as in many other places, many politicians are mixed up about what should be their priorities The problem with his argument is that the idea of a ‘tolerant and mutually respectful society” is alien to those who make, or pressure, their women to wear burkas, & with hers that, while it may be “part of their culture” in Afghanistan, that doesn’t make it part of Britain’s culture.  


    · Despite observers remaining upbeat about its government’s ability to put its finances in order, & a recent cautiously optimistic IMF report on the Irish economy that applauds its government’s deficit-cutting efforts, Moody’s on July 19th cut its rating by one notch to Aa2 to bring itself in line with S&P that had already cut its rating to AA over a year ago. 

The good news is that it upgraded its outlook from “negative” to “stable”, suggesting it foresees no need for a further rating cut in the foreseeable future. 


    · On Saturday July 17th the IMF & EU walked away from talks with Hungary’s  government  on the grounds it wasn’t doing enough to shrink its budget deficit, while the latter claimed they were ignoring the risk in excessive austerity measures. Economy Minister György Matolcsy said “We’ve been through more than four years of austerity ... we told our partners that further austerity packages were out of the question” & confirmed the government will go ahead with a new tax on financial institutions to raise one billion dollars in new revenues that the IMF & EU believe will constrain economic growth. 

A key domestic problem is the plethora of Swiss Franc-denominated residential mortgages that, with the forint having weakened from 148 to 213 to the Swiss Franc in the past three years, have become painfully difficult, if not impossible, to service for many home owners.



    · This bolsters the view the economy, that many worried was in danger of overheating, may be slowing down from its booming First Quarter pace, thereby reducing the likelihood the central bank will aggressively raise rates on July 21st

This may also helps to explain Brazil’s equally unexpected decline in retail sales in June.  


    · The US banks’ claim of “weak loan demand” is due, among others, to the S&P 500 companies sitting on US$1.8TR in cash. 

In Canada S&P/TSX 300 companies’ cash accounts for as much as 40%-60% of their assets 

    · In China the rate of growth in power output is a pretty good ‘concurrent indicator’ : in June it slid to 11.4% from 18.9% in May. 

Nevertheless, the rate of GDP growth is unlikely to dip to the 8% level that Being deems a red flag for potential social unrest. 

    · Asian oil companies have been moving into the Alberta oil sands. Now one, state-owned Korea National Oil Corp. (KNOC), has hired a Korean construction firm to build the $300MM first phase of the Black Oil oil sands property it has owned since 2006 that will be managed by the Canadian oil company it bought last December for $1.7BN. 

Bringing in a foreign contractor is one thing but foreign workers a horse of a different colour.

Home Books Photo Gallery About David Survey Results Useful Links Submit Feedback