Tuesday, April 30, 2013

The state of democracy in the OECD

Most of us learned that democratic governments have three separate but equal branches; the legislative, the executive and the judiciary.  Right now we are seeing a major shift in the importance and relevance of each branch.  First off, the legislative branch is getting its ass kicked (we are excluding the US for now from the discussion).  Here in Canada the role of the legislative has never been weaker, in part because of the central role undertaken by the "party" the reality on the ground is that backbenchers (those who's party is the government but are not part of the executive) no longer have any say, and even don't have the right to ask questions or propose new legislation (which was often done in the past).  

Prorogation -- a strange device that fundamentally changed the relationship between the executive branch and the legislative branch, has further weakened our Canadian democratic process.   In effect, the executive branch was able to shut down the legislative branch for several months when uncomfortable questions were asked by parliament.  The then governor general, either badly advised or lied to, agreed to this massive change in the interaction between the two sections of the government.  This expedient was wonderful for Steven Haper's then minority government -- but as the American conservatives are discovering with dismay, once the rule has been changed others will use the same gaps (Obama has retained all the power that Bush was given by his GOP Dominated congress).  

In the US, partys (and its affiliated entities) have muscled the independent thinkers out simply by getting them kicked off the primary ballot.  In many elected seats, because of gerrymandering  there is  no competition -- so a small number of individuals now control the selection process for an a much larger population -- the impact of this has been dramatic; there is now open warfare in Congress (and to a certain extent the Senate) and virtually no decision can be taken.  The opposition's job is no longer to modify and amend the governing party's agenda and legislation, but to oppose ALL legislation, to block the government.  Obviously the Republicans have been especially good at this, but the Democrats are not far behind.

Looking at Europe the situation is even more serious.  The clear rise of the technocrats that wields supranational power is in evidence.  The Euro has removed the decision process from the elected government to some faceless bureaucrate in Brussels or Berlin.  Granted those who want to avoid reality at all cost (I'm thinking of you PIIGS) are easy to blackmail... and have often been willing to sell the soul for "just one more day".  Something tells me that the European scene is about to become more "interesting"  as unemployment now grips the center countries (France and Italy) a nationalistic backlash has to be expected, especially since many German elected official have a way of saying the wrong thing.  BUT and this is important, those who see a Euro surviving the current crisis have to see a federated Europe -- something akin to what took place in Canada and to a certain extent in the US (the states still have many powers).  That means additional diminished roles for "local" governments.  Don't know if the unemployed French or Italian factory workers will have the patience for such grand scheme, when others will offer them more immediate (and more nationalistic) solutions.  Those (like me) who see the death of the Euro as inevitable are less sanguine about a federated Europe -- manly because these nation states retain, to this day, virtually all their independence...  

Looking at history, it is clear that no political system can survive for ever, the reality of humanity is a dynamic change.  Those who clamor for the status Quo, are probably really regretting the initial move down from the tree!  The decline of the democratic process may be a necessary evil if you consider the challenges faced by OECD countries and their citizen:


  1. Pension funds have nowhere the means of supporting their future obligations.  
  2. Economies are near standstill despite hugely accommodating monetary policies.  
  3. Government coffers and ability to add taxation have reached their natural limit, 
  4. people are living longer than they were 40 years ago, but still want the same benefits that were agreed 40 years ago.


The reality is that democracy is poorly suited governing tool where the pain of adjustment is deep and protracted; there are always charlatans out there promising more milk and honey today .  France proved it with the election of Francois Holland a socialites who ran on the platform that "everything will be fine, we just have to tax the rich!" Holland is now in charge of the most unpopular government in France's fifth republic's history -- and this only after 18 months in power.  Certain countries have found a happy middle ground between pure autocracy and democracy; Singapore has all the trappings of a democracy, but in reality is a dictatorship with the ability for the population to express its displeasure with the government every 4 years.  It has been a model of probity, but its unclear if the model can be replicated in a "real country" since Singapore is the size of the island of Montreal.

Still one has to wonder about democracy...

Monday, April 22, 2013

Inflation is just not playing its part


This is bad, not "really bad like the Dutch housing crisis" but bad insofar as the Bank of Canada has been trying for a while now to get inflation back on track into the 2.0% and 3% range that has been the BoC's policy for the past few years.

As Mark Carney prepares to leave for Greener pasture (Bank of England) he must be disappointed.  Canada's economy is slowing, as demand for primary goods falters, inflation is well below the BoC's traget level, and Canada remains attached to the hipe to the US economy.   If the latest figures from Caterpillar (NYSE:CAT) are to be believed the global economy's expansion is faltering.  Demand for Steel, Aluminum, Copper (and hence demand for things that move the raw material that make-up those products) is faltering.  CAT is particularly gloomy with global GDP growth at 2.5% and Chinese growth at 8% -- funny enough most economists have GDP growth in China at 7% for 2013/14...

Anyway back to Canada

Pension Manager balk at Barrick Gold's CEO compensation

Some of Canada's largest pension funds have protested at Barrick Gold's CEO pay package that include a rather massive bonus for the year, that despite the company's lack luster performance (we are not talking gold prices here -- but performance of a mining company).  This is noteworthy because until recently few institutional managers would question management's compensation plans.... it would seem that these large investors have had enough, that the Co-Chairman's golden handshake of $11 million was unacceptable.

See here

Them are the news that are fit to print.  Things here are not great, but then Europe is a mess and so we look good in comparison   



Thursday, April 18, 2013

Trudeau as a credible prime Minister

Justin Trudeau son of Pierre Elliot Trudeau -- a famous and outspoken past prime minister was "anointed" as the leader of the Federal Liberal Party.  I say anointed because although there was an election he won with nearly 80% of the ballots cast -- in the first round.  Today we are at least two years away from a Federal election, and the election of Trudeau as the leader of the Federal Liberal Party is the "buzz" across the nation (to be fair its mostly the MSM talking to itself out of sheer boredom) .  His father was famous for bringing Canada's constitution back from Great Britain, and for introducing a Bill of Rights (to the ever damnation of the Quebec separatists).  So a 30 year old guy follows in the footstep of his father, many have been there before

Could Trudeau be a good prime minister?  Who knows, guys with spectacular resumé kind of sucked and some with ordinary achievement records were great.  Reading biographies of political leaders it is clear that nothing prepares you for that job... nothing at all!

One thing for sure he's got what it takes to win, he ran in a difficult riding (constituency) where the Liberals had not won for a long time (20 years).  So this is a man than can convince, he's a half decent orator, and seem to be able to surround himself with smart (even smarter than him) people.  That's the mark of a great leader -- so there's hope there.

On other news;


The world is falling apart, its official now (mind you it was kind of official a few months ago too)!  Apparently the IMF just figured out that Spain's debt level is unsustainable the fact that the IMF recommended (even forced) Spain to take drastic budget cutting actions is now announcing that these policies have impacted the economy is... well typical of the IMF really.  

The IMF here doesn't cover itself in glory by stating the obvious.  And in related news is there any relation here to the prodigious  fall of Gold prices?  One thing for sure something's up.  My first economics professor told us that supply and demand is what creates a price point, and when there is excess supply then the price falls!  Gold has gone from $1,900 an ounce to $1,400 an ounce, a rather large correction.    



The market signals are strange, aside from the set-up for a "head and shoulder" market (the possible precursor to a major correction), the US economy (the air and blood of Canada's growth) is giving mixed signals.  Then the growth is inventory, but average income is rising (median income probably not).  Apple (no position) seems to be in free fall too from near $700 a share to $396 today -- we broke the $400 level!!!.  Not sure why it keeps dropping with a p/e of 9.13 its not that expensive?  Markets do  strange things  sometimes (Henry Blodget today announced that he was buying Apple -- he though the price fall was ridiculous).  I watch the whole thing from afar with some level of bemusement.

On a Canadian front things are going So-So.  First off foreigners love of Canada seems to be ebbing:



Canadian equity positons are being sold off -- bonds are still being bought but equity are being sold mainly because the Canadian equity market is dominated by ressource company (35% at least) and material (from Gold to Copper) are going down.




Wednesday, April 3, 2013

Inflation is back -- maybe, hopefully, it could still happen

So earlier this week StatsCan published the IPPI; basically the price of industrial production and the RMPI that shows the rise in cost of raw materials.  Good news if you are from the Bank of Canada -- that has been desperate to get inflation back on track of the 2% to 3% zone.  IPPI and RMPI are both up after having been flat for months.



Both charts show one thing -- which is not especially good, all the price increase in industrial production comes from raw material costs -- none of it from general price inflation -- in an economy that is 60% services -- that's a reflection of a weak economy.  There is no pricing power.

Canada's policy makers have run out (like the rest of the world) of macro-economic tools to affect the economy.  Interest rates are low, velocity of money is not rising (which is different than falling) and the fiscal tool shed is empty -- mainly because the government will not consider an expansionary (and deficit growing budget) so that they can achieve their targeted zero deficit by 2014/15.

Canada's problem is far less serious than the rest of the world -- still low growth and zero-bound interest rates cause all kinds of long term problems, most Canadian have not noticed by pension funds obligations are discounted at a rate of 7.25% -- its the law here.  IN reality the discount rate is far lower -- in the 2% to 4% range (depending on duration you are considering).  That means that pension funds are underestimating future (discounted) liabilities -- never mind their current dilemma that  the risk free rate of investment is around 2% (and not 5%).  Statistics will show that immigration is growing in Canada; you see it everywhere -- but that GDP growth (and labor) are nearly flat. 

All this to say that the Bank of Canada got some OK news earlier this week -- inflation in the raw material sector is good for Canada's exports, but the economy is still in a funk, the real bet is that the U.S. can be there for us!




You go away for a few days!!!

So North Korea has decided that there's isn't enough tention in the world, that we need to push that button a little harder.  You know that things are bad when the US president will not talk about it!  The fact that B2 bombers are in Korea tells you something.  What is missing from all this is a sense of what is going on in the hermit kingdom?  Is the new president playing is grandfather's game and if so why moving so fast to the full confrontation mode.

In other news the French government is modifying its new income tax laws so that the courts can approve, but bottom line is that income in excess of Euro 1 million will be effectively confiscated by the state -- taxed at 75%.  Of course the law of unintended consequence applies here -- French footballers who earn considerably more than Euro 1 million are threatening to leave the country.

In other news (really all that stuff was an excuse to talk Canadian stuff) it looks like TansCanada pipeline is confident of getting approval to change the use (and direction) of its east west pipelines.  The impact is that Quebec and the Eastern provinces would get Alberta crude instead of buying expensive European crude (about $20 per barrel cheaper!).  Separatist must really really hate this outcome, one minister what even quoted as saying the Quebecers prefer more expensive Europe oil (to be told to shut the &$%-up a few hours later)

Here in Quebec the bullshit continues; the latest is to nominated Gilles Duceppe (ex-leader of the Block Quebecois -- a Federal separatist party that died at the previous election of irrelevance).  Anyway GD got the job of heading a commission to see if the labor training business should be Federal or Provincial -- the kicker here is that everyone involved is a "strong separatist"; the commission has been set up to see how the labour training process should be run, by people that have already indicated that the province alone should be responsable of such training (although they are not wrong), but that the Federal government should pay for it -- no questions asked!

Oh the hypocrisy of governments -- but really what's pissing everybody off is that these 5 individuals are going to get paid for 24 months to produce conclusions they have already drawn.  Moreover, the objective of the exercise (avowed in fact) is to get the Quebec population in a pro-independence mood.  Governments are slow at adapting to change, but information is quick and the old games of hiding your true intention from the public -- especially one that can be reminded of your position via videoclips is becoming virtually impossible.  Within hours of being nominated these individuals that had claimed (in press conference no less) of their open-mindedness as to the whole problem were shown to preach the exact opposite just a few weeks earlier.

The king of the videoclip remains Jon Stuart of the Daily Show, Quebecers that don't understand (or care about the rest of North America) have generally been unaware of this phenomena -- it has for the past few months been hitting Montreal's shores with hilarious consequences, such as a journalist being challenged on his facts to have same journalist play the very damaging clip on his iPhone to the politician... hilarious I tell you