Monday, March 31, 2014

Michael Lewis: Flash Boys

Michael Lewis is a contemporary of mine (no joke didn't know him but he did his MA in Economics at the LSE at the same time I did).  Granted he did much better than I, and is a man of conviction.  ML started in Salomon Brother's bond sales desk in the early 1980s -- Although the world believes that Salomon was a investment bank (it was in some small scale) where it dominated was in the bond market.  In fact, long after ML left the bank it was convicted of cornering the US gov't short term bond market -- it takes some massively large brass balls to try that (even in the 1980s).  Salomon Brothers was the biggest bond house on Wall Street.

Anyway, ML wrote his first book:  Liar's Poker that was a cautionary tail as to what banks actually did -- the amazing thing (and it shows the level of depravity of young bankers) was that future bankers used the book as a "how to get into banking manual".  ML wrote a number of other great books (Blind Side, Money Ball, The New new thing) and some less good books (the Big Short: story was great book was too long).

Anyway, last night Amazon started selling ML's new book:  Flash Boys that talks about the High Frequency Traders (HFT for short), something that started about a decade ago (early for some but not in the institutionalize way you have today).  What the HFT guys need is fast computers (algorithm ) high speed bandwidth and cheap execution cost.

I've not read the book yet, but HFT do two things; first they trade ahead of the market -- as is explained in the 60 minute clip they are able to execute a trade ahead of the rest of Wall Street.  The second thing (which I guess he talks about in the book) is price discovery.  Price discovery is very important it tells you where the demand/supply curve really is.  HFTs do that by flooding the exchange with orders -- and removing these order almost instantaneously -- but slow enough to trigger actions by the "regular" market participants (which generates a "failed trade"), this way the HFT discover at what price institutional money start to sell stock and at what price options will trigger  activity (buying/selling/exercising).  Having that information allows you to "game" the market.  Knowing how the price will affect the market behaviour is a huge structural advantage -- in fact the HFT don't care about the price they just know the present a few seconds ahead of everyone else, and they know what the market will do when the price changes!

You know the problem is serious when Fidelity, Goldman and a bunch of massive hedge funds (multi billion) are concerned about the problem -- the attractiveness of ML's book is that it puts it all in perspective. BTW the real question is why do exchange allow HFT traders to operate -- the reason is revenues: HFT account for about 50% of all exchange revenues -- a source of revenues that did not exist a few years ago.

Finally, how much are we talking about?  Well imagine one HFT spent $300 million in optic cable to shave 3/5 milliseconds from its trading.  That's a lot of money for such a small time advantage.

The other attractive aspect of the of the book is that it shows the solution to the problem... which was the creation of a exchange that stops the HFT from functioning, the method is very interesting, but HFT are really really smart and have huge incentives to find a solution.  One thing for sure is that the HFT's form of "legal" frontrunning may become more difficult execute.  Don't know what they are going to do about price discovery.

Anyway, interesting stuff

Note:  BTW this is not saving the market for the little guy -- there is no little guy, the issue here is that the markets are rigged by some of the institutional participants (like the LIBOR scandal of last year).  This is not about Every Man Trader; its the Big Boys who are complaining; hence the Shadenfreude



Friday, March 28, 2014

Markets and OCLS musing

Today there are exactly two markets that are down:  China and Taiwan; the rest are all up! Today is an upday, why I don't know -- could it be that inflation in Portugal is higher than anticipated, could it be that...really my point is that I don't know (call your broker he doesn't know either).  There is no rhyme or  logic to short term capital market movements -- that's why momentum traders did so well (at least until the high frequency traders got into the action), because there's inertia in the short term market movements.

My March favorite trade was Oculus Innovative Sciences (NASDAQ:OCLS) that was up 40% on the 14th of March.  On the 21th of March Facebook announced the acquisition of Oculus 3D a private company. I am certain dear reader than you can do simple math -- 14 is before 21, so a small med tech co with a market cap of USD 30 million saw massive trades a week prior (and a price increase of 40%) to Mark's making  an acquisition announcement of Oculus 3D -- can you say" insider trading".  OCLS was a stock with virtually no trading presence (10,000 share a day was a good day) on the 14th two blocks of 2 million and 2.5 million were traded (and several smaller traders occurred too later in the day -- maybe the unwind of a stupid position...).  Considering they bough the wrong company does this constitute insider trading?  This is not the first time that what appears to be "insider trading" hits the wrong company.  It happened a year ago, in this case the error is strange since OCLS is a medical device Co.  Anyway, don't know if the SEC will investigate.

On the longer side of the equation things are looking difficult; king Copper is off its high, rumours are that no steel plant in China is even breaking even -- Hong Kong real estate investors are bitching about the price reduction (they never complain when the market is up), and overall there is a general malaise in the market (despite being up for the day).  The reality is that long term investments in the capital market generates a half decent yield -- taking in consideration dividends (about 2% per annum) the market generates about 5% capital gain per annum -- taking arbitrary dates (Jan1, 2001),  It you employ a simple trading rules:  selling the downmarket and buying as soon as there is an upswing (about 7% per annum) -- the difference between 70% gain and 110% gain over 15 years is relatively small annual increase.

Anyway, market are up today -- Friday the 28th.  The economies of the OECD are not doing great (Q4/2013 was good for the US but poor for the rest: Europe was at 0.5% and Canada at 0.7%) -- obviously the raw material game has gone sideways (sic Copper), there are tension that need to be resolve (Europe's debt issue, China's over reliance on investments for growth and Russia's expansionist behaviour of late).  But again because there are massive problems it doesn't mean that these thing will be reflected in short term market movements!

(no position in OCLS or Facebook)


Wednesday, March 26, 2014

Malaysia & bad information

In a prior life I had dealings with many Malaysian companies.  It started in the early 90s when Malaysian Airline was a potential customer as such I took a flight from Montreal to Kuala Lumpur to meet with the CEO and his team.  What followed was a comedy of error that could have cost me my life!  Bottom line the aircraft's thrust reverse opened on take-off from Taipei airport (it was ok since the aircraft  was a B747) if that aircraft had been a twin engine (like a B777) would would have been toast, trust reverser deploying on take-off is a major problem.

40 hours later than planned I arrived at my meeting with the airline's CEO who made jokes about my late arrival -- I was too polite to say anything about the fact that it was his aircraft's technical difficulty that cause the delay, but what was amazing is that he had no idea that one of his B747 came very close to disaster. This a reflection of Malaysian society.  Malaysia is the land of double management; on one hand you have the "Bumi Putra" (son of the earth) and then you have the real management (usually ethnic Chinese) who really run the show.  It leads to a breakdown in communication, for although the real management was in the room, they could not tell the bad news to the Golf playing CEO -- these were details!

This is one story, but the truth is that I faced similar problems with many Malaysian companies.  On the bright side they are a lovely people and its a nice place to visit (especially if you like eco-tourism and diving).  But time and time again it was the same situation; talking to the CEO or CFO was a waste of time -- the guy who know was the COO (or some other title) 90% of the time he was ethnic Chinese.  He would never speak in meetings (but you could invite him/her to lunch) and then get the real lay of the land.  Still did lots of business in Malaysia, but after a few years I knew the trick, talk to the head guy, maybe play a round of golf, have a chat with the CEO and then get the deal done with the COO.

What happened on M370 may never be discovered, was it an accident what is intentional (on thing for sure if it was intentional no one left any clue).  The breakdown in communication was a problem from the very start:

  1. The pilot in Command had less then 10 flights on the B777 and the the co-pilot was on his first flight on the B777.  Yes many of the system are identical (or at least similar) to other Boeing aircraft, but similar is not the same.  
  2. The pilot in Command had around 3,000 hours of flight experience and not 18,000 is a very important factor, because he could easily be overwhelmed by the aircraft system on which he has very limited experience, and his co-pilot has never flown the type until the fatale day.  
  3. That the Malaysian airforce did not investigated an unknown aircraft flying in their airspace is a major disgrace to these countries airforce (this is why they were so reluctant in sharing information) 
  4. That Malaysian government ministers contradicted themselves over and over is a further indication that this is a country were leaders "shoot from the hip" and just make stuff up
  5. Finally, the family of the passengers received text/email about the "confirmed total loss of the aircraft" and of the death of their relatives -- shows a certain level of callousness

On a number of occasions working with Malaysian companies I came across this ability to say just about anything so as to change the topic of conversation, and then denying (often despite recorded evidence) that they said what they said.    The Malaysian's desire to look good lead to false information being distributed, their lack of experience in dealing with the 24/7 media machine (and their inability to understand the risk in saying wrong things) just made things worse -- after all this is a government that controls all media channels.  They were probably not comfortable with the crazies at CNN & FOX -- UFO and black holes were discusses as seriously alternatives to explain the loss of aircraft (but since Americans are allergic to geography) as they cannot understand how vastness and emptiness the southern oceans are as a more reasonable reason for not finding the aircraft within 20 minutes (like on their TV shows).  Other questions were never raised, why did MAS not pay the Inmarsat aircraft tracking fee?

We may never know.  On the other hand it took the French two years to find their lost aircraft -- so there is still time.



Tuesday, March 25, 2014

Market update

So back to reality of the North American markets.

Last week I heard an interesting comment that Europe was keeping the Euro strong so that inflation not become an issue (Since June 2013 the Euro is up from 1.3 to the USD to 1.37).  Considering the self interest of the source as a major North American exporter to Europe (who is making a killing on the F/X) its not surprising, but the analysis looks flawed.  There is no doubt that a strong currency can impact the rate of inflation; but evidence does not support this assertion.  Few economies are as open as Canada, and the Lonnie has been on a one way elevator down (for about 12 months now) from above parity to the US Dollar to slightly below 0.90 to the USD today, a 12 % drop.  Yet there is little inflation here(the Consumer price index kind)!  Real estate price continue to defy gravity, the Canadian Stock market (S&P/TSX index) is up 6% for the year so far (that's 24% on an annualized basis), and here's Canada CPI chart up to February 2014:

No inflation here...


Of course the problem with the European version that a strong Euro keeps inflation at bay is even more discredited by the fact that Europe is largely a closed economy.  A strong currency would therefore have limited impact on Europe's inflation, since only about 10% of GDP is with outside trade.

Cracks began to emerge in the American real estate market a few months ago.  An ever increasing number of properties were being sold on an all cash basis, an indication that the buyer are financial institutions (read hedge funds) looking to generate economic rent from tenants (and capital gains on eventual disposition).  Part of the problem is that economics of these trades are not what they were once;   5 years ago when reasonable properties were sold in lots of 25 or 50 to hedge funds that were ready to live with empty building for a few years and to make the necessary improvements to attract tenants.  But the past 12 months (up to December 2013) saw a massive 17% increase in real estate prices (the Economist)

The economics have changed the smart money has moved on.  So the markets are freaking out!  Moreover that's for the housing prices, considering the damage that Amazon is doing to the average mall (without generating any real profits) it amazes me how well commercial real estate income trust continue to perform.  I cannot remember the last time I bought goods in a store.  So the malls are dying and real estate is back in trouble.  However, this time around the guys suffering are hedge funds and their "rich" investors-- and not the banks.  My guess is that Congress will pass new "hedge fund saving legislation" very quickly.  After all, you got to support the guy who got you elected.

Around the globe (excluding Canada) markets have had terrible performance an indication that the high mark for p/e has been reached  -- maybe that's where Canadian inflation is hiding...  Global companies have played the GAAP game to an extent that there's no more room for "improvement" and investors are beginning to notice.

Bond markets are going nowhere and the story remains depressing -- there is no demand inflation because the average wage earner is being squeezed by the excess labor available.  This has created a depressed economy that is unable to see future upside.

Finally, my European buddies are still saying that things in Europe are stabilizing... yet nothing in the debt side of the equation has changed.  My guess now is that with Ukraine situation nothing will happen.  Commercial loans that mature will be slowly replaced by ECB loans that will bailout the banks (and the pension funds that are exiting the sovereign loan market as fast as they can).  Someday, the Germans will wake up and figure out that war was not necessary.  They will own all of Europe because they will old all the debt owed by Greece, Portugal, Spain, Italy and yes even France...  the good times are here!

 


Monday, March 24, 2014

Knowroaming -- a week in

Ok so I am back (more or less) from Mexico, the Knowroaming experience has been excellent - at least until Friday 1 pm Mexico time when the phone got a NO SERVICE message.  Now that I am in Houston its back, but the last three days have been blacked out.

In a nutshell over the past week, I called Canada, called Europe, spoke to clients in Mexico and LatAM, sent email, used Google map to find restaurants and various destinations, the bill for the week $24.71.  Not bad really if you consider the number of foreign calls I made.  I didn't activate my "new voicemail" apparently its easy.  Before I forget, they use a call back system to reduce the cost of overseas' calls.  You dial the number you want and it calls you back within 15 seconds

My verdict is that the technology works fine, its somewhat complicated to set up but really worth the effort because the costs are just amazingly low.

Also the service from Knowroaming has been spectacular -- Saturday at 7 pm local time (9PM Toronto) I was in contact with a technical desk -- they tried and figured out this morning (when the could talk to Movistar -- the cell provider that the problem was at their end.

Unlock your phone and roam the world!

Sunday, March 16, 2014

Knowroaming

Many months ago, a Canadian company announced that they had a gizmo that would cut your roaming charges (both voice and data) by between 80% and 90%.  Granted since then the big boys (Bell/Rogers etc) were forced to be more reasonable, mainly because they were concerned that ATT was about to come in and add real competition.

Anyway, the Knowroaming system rates are higher than owning a "local" phone, but then when you travel you don't want to have number of sim cards where you remembered to pay you monthly bill (it can add up).  Well the Knowroaming device arrived a few days ago, just in time for a week of finance conference in Mexico City, where being reached in real time is essential.  There's a physical part (which is a sticker you install on your sim card), and software that is installed on your phone.

Now my potential Mexican clients have a local number to call, all my current client can call me on my usual number and I have relatively inexpensive data in Mexico -- 30c a MB which is about three times what the locals pay.  I also have a US and a UK number and can acquire other country number for a reasonable fee.

So I installed this little device and off to the races with the software installation!

The installation  process was less than intuitive, especially since some things can only be done on the road, and I got up this morning to catch my flight at 4:30 AM... its been a long day.  Turns out there's an complex (but elegant) way of installing the software and a quick and "nerd" way -- frankly, the nerd way is easier.  But now I'm at the race.  and my phone works.

I think I am one of the first one to have this device installed, they shipped it priority when I said I was leaving for a week in mid March (started shipping at the very end of February).  This is really a breakthrough, also because all my usage is pre-paid no insane phone bills in a few weeks when I get back home.  I've loaded $50 for the week, the guys say that with reasonable data usage and limited international calling (by me) it should be more than enough.

A game changer.  Check them out www.knowroaming.com

P.S.  The Knowroaming system is now in its second day on the road, last night I was able to check my emails (not on wifi) and make some calls (ok so I am lying there a bit).  But bottom line since I've pre-paid a $50 credit, and I've only used up $2.00 I feel safe with the idea that I will not have a huge bill.




Wednesday, March 12, 2014

Malaysian Airline and how to manage a crisis

Ok

More than 4 days ago a B777-200 aircraft in route to Shanghai was lost from the radar screens and since then a search for the missing aircraft and presumed dead crew and passenger has been in full swing.

Several years ago a Singapore Airline aircraft, Silkair 189 was lost in similar circumstances; the aircraft suddenly lost contact with it the ground -- it was found in several very small parts in the jungle of Indonesia.  The reason for the aircraft loss was never fully explained -- pilot depression was suggested but bottom line there were no aircraft piece larger than 2 feet across, the aircraft slammed into a boggy terrain in Indonesia, none of the black boxes were ever found


  1. Aside from Science fiction stories the odds that the crew and passengers survived is virtually impossible.  There are several things (unlike the Singapore airline incident) were it is evident that those in charge are incompetent.
  2. First off, aircraft are not followed by radar, civilian radars do not resemble military ones, the aircraft is not "painted" like in the war movies, rather civilian radars ping the aircraft, that responds with its call sign, its speed direction and altitude (as far as it knows).  
  3. The fact that people with stolen passports were able to board the flight is not surprising, in many Asian countries boarding a flight is still very much like it was in North America in the late 90's minimal check of documents, as long as the photo matched that was it.  So there's nothing really there, except to demonstrate that Asian airlines have old style security checks.
  4. The air control system is run by the military in many Asian countries, often because it was the military that first installed air control systems, and if its not broken why fix it.  It stayed that way because until very recently (around 20 years) commercial flights were few and far between. When I first travelled to Asia there were far fewer airlines and flight.

So far the story is simple, the fact that journalists didn't even know the basics is not entirely surprising, and shows a lack of understanding of how Asian system operate.  Now Malaysian Airline, the Malaysia Government and its military are showing the shortfall of their system.  It is evident that lots of information was available to the military but was not passed on to those who were searching for the aircraft.  The comments from Boeing and the US military assisting the search is telling as to their level of frustration.

It is now apparent that for the past 4 days the 50 vessels and aircraft were looking for the aircraft at the wrong place.  How did this happen, it no turns out that military radars saw the aircraft en route towards India -- 90 degree off its planned route towards Shanghai.

Why the miss-information?  Well first off with a poor system of reporting between the military and civilian authorities it may take time for the information to come out, if a flight was suddenly going in the wrong direction maybe it was en embarrassment as to why the Malaysian air force didn't send military aircraft to follow the wayward plane.  It turns out now that the air control had "contact" with the aircraft for a further hour -- contact was lost at 2:40 am and not 1:40 am.

The interesting aspect here is that it seems that someone wanted to keep the information away from the public -- especially with regards to the time the aircraft disappeared.  Moreover, the straight of Malacca is a pirate haven, one of the oldest, and as such Malaysia, Indonesia and Singapore all have military grade radar that follow all movements in that area... Yet someone -- I doubt we will ever find out who though that they could keep that information away from the public.

The failure of crisis management at its best.

Note:  I've noticed lots of "crazy" comments on how the "Governments" want to hid their capabilities -- hence not releasing any information.  Bottom line the real problem is data overload.  You got to find the needle in the proverbial haystack.  Today RR came out with some interesting data, that they received engine information for 4-5 hours after the aircraft was supposed to be destroyed (BTW this could still be wrong or explained because of some assumption).  Everyone remembers the issue around the Air France Brazil/Paris flight that was lost a few years ago.  Aside from the transponder the aircraft broadcast data on problems at all time directly to the manufacturer, so that they can track aircraft system performance.  Anyway, my comment has nothing to do with "hiding" of data, rather incompetence!

Saturday, March 8, 2014

Markets are on fire! No really ...

So on January 3rd 2014 the S&P was trading at 1,831 on Friday it closed up at 1,878 so a massive increase of less then 1% since the beginning of the year.  The VIX at 14 is low, in fact as an indication of volatility when the markets are quiet its an indication that not much is going on.

The 5 and 10 year treasury are mucking around 1.6% and 2.8% -- and they've been there for a while.  Every day one hears that the Feds are about to shut down the money machine; but there's not much of a movement around.

Up hear in Canada (land of the "frozen ones") mot much is going on -- both Quebec and Ontario are in election mode and the Federal government is changing electoral system where the supervising authority for election shenanigans will no longer able to take action.  Still cannot believe I used to support the conservative -- must have been some kind of brain craziness.

Anyway, things are quiet, the Loonie (Canadian dollar) is well off its high of a few years ago, and the way things are going the CAD is going to 0.75 to the US dollar -- I know it makes no sense, but if you do some "technical analysis"  which means drawing some stupid lines on a graph to make it look scientific -- that's what it tells you!  Not sure why the Bank of Canada is not doing anything, granted with near zero inflation (CPI -- not assets) there's not much that can be done -- like raising interest rates.  The Canadian economy is growing but not very fast (and here in Quebec we are near standstill).

Back to the market, if you follow the big guys they (SocGen and Nomura) all say the same thing; some of the largest emerging markets (India/China and Brazil) have stalled, and whereas in the past these guys could be ignored its more difficult now.  One thing for sure, the Quantitative Easing project in Europe and America (Japan and China too) have shown one thing!  You can keep the party going for a while but eventually the lights come up and you realize that thing are not so rosy.

Take the big issues:


  1. Southern European failed economies of Greece, Spain and Portugal -- are things better in any of these countries (Unemployment, absolute and relative debt level, GDP growth) The answer to all three is no!  The only thing that has happened is that the ECB has stopped asking hard questions to any of these countries.  Will Italy and France join the ball?  Don't know and really don't care.  Bottom line these economic experiments remain failures -- its just that the international press got bored and moved on.
  2. China's and Japan's money printing machine.  Don't know how much debt is outstanding in China, but its a lot -- over the past 5 years China is issued the equivalent of 4 times the world GDP in debt.  Sometime in the future these loans will have to be repaid, refinanced or forgiven.  Japan's experiment to create inflation has been a disaster.  Deflation is back (BTW deflation is also starting to be a problem here in Canada -- not for asset for consumption)
  3. Russia and Ukraine:  That looks like a massive mess for the Russians.  If Putin's game plan is to take over Crimea -- good luck to him.  It will not be easy or neat.  His objective has to be to ensure that the whole of the Ukraine stays within its sphere of influence, annexing Crimea is not going to achieve that.  Looking at Putin I see Bush (jr) at work -- funny enough the American republicans were in love with both (suddendly the American right is in love with a "dictator", amazing).


So back to the numbers, right now the markets are all going sideways -- the VIX is going low (and even maybe even lower) until some catalyst forces a revaluation of the right market prices.  My money is on the Russians doing something stupid -- like a drunk Russian solider firing his gun on unsuspecting Ukrainians ( or even Ukrainian soldiers).  Suddenly the market will decide that a p/e of 14 is too high (it really is too high) and some form of correction will occur.

When will this happen... i just don't know

Note:  Please note that the TSX/Composite index as done well over the past 2 months -- both Canada is not that important a place -- looking at the major indices the story is the right one.  Local issues here are the reason markets are doing well.

Wednesday, March 5, 2014

So I was listening to the radio this morning

As I was preparing breakfast this morning I was listening to CBC radio where the host was talking to the Quebec Consumer Protection Agency's spokesperson on a 1 year investigation on price rigging in Montreal chain stores.  In this case the target was "The Bay" or better know wold-wide as the Hudson bay Company -- one of the world's oldest company (really its founding charter dates back to the 17th century).

Anyway, this  spokesperson said that after a year they had uncovered a scheme  whereby stores where inflating the price of goods to make the sales price more appealing.  The specific example here was a $800 dollar mattress priced down from its "regular" price, of lets say $2,800 (that me saying the number by the way!), but in fact the real retail price was  around $2,000 (spokesman didn't know that price either)

In this story there are three important fact:

(1)  The retail price indicated by the store
(2)  The "real" retail price that the store sold the mattress
(3)  The sales price.

I swear before God the spokesperson didn't know figure (1) and (2).  This was also the only example he had (after a full year's investigation).  I see two things here; either the spokesperson was the most incompetent person in the world (hey don't discount that possibility), or that the investigation didn't really last for a year; they got the mandate but did nothing for about 11 months and 15 days -- then sent a Senior Official to make enquires.  In two weeks they found out that stores inflate the regular price (like we didn't know this).  What a massive waste of resources.

Unbeknown to the French speaking Quebec government there are now apps that show you the retail price of all goods on earth.  Its easy go to www.amazon.com and there you are.   The "fraud" here is that the rebait was not actually 70% it was 50% from The Bay's regular price.  By the way if anyone went to the Mattress King there they would find the same mattress for $825 regular and if you are ok with a mismatch in color then its $600....

The real crimes here:

(1)  That a spokesperson would know little about the story
(2)  That he singled out a specific store (is that the only instance?)
(3)  That any customer who has a mobile phone with internet could figure out what is the real price in about 10 seconds with maybe cheaper options that buying a mattress at The Bay
(4)   That the Quebec government waste its time on such trivial matter
(5)   That The Bay would be stupid enough to think they could hoodwink they clients so easily

No one looks good here -- nor does CBC Radio after they should have pre-interviewed the guy to figure out if he was too stupid

Anyway, Wednesday morning rant over!


Tuesday, March 4, 2014

Oh and by the way I am way too gloomy

Despite my predictions of:

(1) European banks going bust -- that didn't work out
(2) Euro ceasing to exist -- that too didn't work out
(3) China restructuring -- Still waiting on that one too
(4) Canada doing well (ok so 2012 was a good year -- 2013 more difficult)
(5) Canada's conservative government is against democracy -- Actually got that one on the money
(6) Canadian dollar will stay at or above parity to the US dollar for ever (never said that) still not gona happen
(7) If you print money inflation will come (turns out not so much in consumption) I was partly wrong (but asset prices continue their rise)
(8) The stock market has peaked (boy did I get that one wrong!)

So take my thoughts with a large grain of salt.... i am very gloomy indeed.

Ukraine & Canada

In last last few hours tensions in the world have abated as Putin announced the "early" end of the war games on the Ukrainian frontier.  That means that stock markets are up (in Europe and American futures) as they are in Russia.  God only knows who the players were here that got the tension to abate. What did the German promise, what did the Americans?  What made Putin confident that ethnic Russians in the Ukraine would be protected (that, by the way, is the real issue) from fervent nationalist (and by the way united) Ukrainian leaders (or maybe only talking heads).

Anyway back to Canada.  First off for those who don't know Ukrainian is a very important minority in Canada, in the wheat belt (Manitoba and Saskatchewan) after English it is the most spoken language. Brian Mulroney, one of Canada's ex-Prime Minister spoke it!

The crisis (again in the Balkan region) had the potential of becoming something very ugly -- not that the American military would intervene (that was always a stupid idea -- what kind of imbecile would station American troops 5,000 miles from home and lest then 500 from the Russian border? wait there's a joke here somewhere!).  The American press made a big fuss about how the country was divided (its not) Yes they are interested in democracy -- the other kind of government has not been great -- but that doesn't mean they are pro-Western!

The economic story here is interesting.  Russia is a massive exporter of natural gas to Western Europe. Although that's not about to change -- no one is building nuclear power generators right now, energy demand has plateaued because of Europe's weak economic growth, America is looking at energy exports again (although it is illegal for energy to be exported from the US -- with some exceptions), and the Russians need the revenues -- so that's a non-event in terms of negotiation tool (Europe needs the energy and Russia needs the money).

Looking at the world economy, we are near a tipping point; Western government have printed money (lots of asset inflation -- look at house prices and stock prices) but not much "consumption inflation"  Canada is looking at a big fat zero in terms of CPI.  Looking outside of Canada, we've got 'Merica with its slow economy (Europe I already mentioned) but what about China?  The amount of money being printed there is simply astronomical (Last week a figure of $13 trillion was mentioned as the size of credit expansion in the past 7 years.  That's massive).  Since the stats are either unavailable (or in Chinese which is the same as far as I am concerned), it remains that China continues to grow via capital investments (46% of GDP) -- compare that to America and Japan at 22%. BTW the Chinese are well aware that they have a problem. Apparently its is a critical topic -- they just don't know how to get off the ride!

Here we circle back to Canada -- we are one of the few (Australia, Brazil, Chile and Canada) global suppliers of raw material and for Canada, a Second degree country, global economic growth is our engine of growth, as demand for raw material raises prices (and the currency) and make the country economically vibrant.

What happens if Russia invades the Ukraine?  None of it is good, and its not like the recent global economic news has been good.  It would not take much to tumble the world economy into a recession -- it may happen anyway, but military action in the Ukraine would certainly tip that vase over.


So for now good news



After nearly a year I am back!

Its early March 2014 and I've decided to post again.  Obviously my interests have shifted since 2013.  In fact, the posts were there for my non-North American clients, who were looking for quick update on the Canadian economy.  Surprisingly in a world of 6 billion, there are not many economic articles on Canada that make it into the foreign press... granted of late with the maire of Toronto.

Just one thought, we in Montreal are thankful for Mr Ford, the current maire of Toronto, he has completely shifted attention away from Montreal's own corruption enquiry (its deep) and away from the Quebec elections (one party is running on a platform of separation -- kind of).

Those who know me wanted me to start writing again --- they also wanted me to reveal my identity.  Frankly, the mystery is more interesting than the reality!

The other reason I'm posting again is that in the last few days I've had something in the order of 500 views of my last (April 2013 post) and tons of comments -- don't know why, someone interesting must have linked to my page...

Anyway, I am back