Friday, April 25, 2014

Gold, new economics et Friday stuff

Well two weeks ago, GS and Merrill stated that Gold was a sure thing to hit $1,045/oz.  Guess what its now at: $1,300 so again a bad call by the boys.

Although I've not started it, it now looks like I've found the  an economist for the 21st Century".  I bought his book! I have not  yet started reading Thomas Piketty book  Capital for the 21st Century, but it seems that he's found what ails us!  No wonder the WSJ and the GOP hate the thing.  It explains that the normal state is the all powerful 1%, and that the period between the first world war and the new century are the aberration.

The markets do what markets do!  The DOW, NADAQ and S&P 500 are all testing their all time highs; but again they retreat, once again failing to achieve their exalted goal.  BTW I, like many others, are bemused by the strength of the markets.  Earnings are high, but their quality dubious.  Most economies are on the edge (Look at the QE program and ECB "buy every bond" strategy).  My favourite bellwether stock: Caterpillar (NYSE:CAT) [no position] continues its upward trajectory (since January its been on fire +14% since Jan 1).  First, excellent results and positive guidance , suddenly thing are looking  in the world of construction/mining etc.  Yet Rio Tinto (LON:RIO) is down and Barrick (TOR:ABX) is going nowhere.  Strange!

Then, when my buddy asked me last week what to choose between FB and AAPL I said I don't know tech stock, but apparently made a case for FB --  because I said that each dollar of earning for FB was 8 times more valuable than AAPL.  That was apparently a reason to buy FB.  I just don't get it!  I told the guy that I don't understand tech stocks... and he should actually buy dividend paying stocks, and he hears buy Facebook.  Guess what today FB is down $1 since "my call" (really that's what he called it) and AAPL us up $40.   Now, and this is always the problem AAPL had great results -- better than anyone expected (back to my Analysts know nothing), but frankly so did FB, who had a "blow out" performance.

We're back into the zone of "who is more popular"

Wednesday, April 23, 2014

Greece Euro 3 billion 5y 4.95% first new bond offering

Greece has sold out its first bond offering a Euro 3 billion priced at 4.95% (coupon) and issued at par. The issue was three times oversubscribed.

Greek unemployment continues to rise -- 27% as of the end of January 2014, with youth unemployment around 58% -- although stats are unreliable because so many in the public service have been fired!

How can the financial market see Greece as an acceptable risk?  The kind of social dislocation we are seeing there is well outside the norm.  Certain parties that are running for office are downright scary (SYRIZA and New Dawn), how can investors make the calculation that this is a good buy?

There are three aspects (at least) that govern bond purchases.  The price (yield) the term and the size. This first Greek bond in many years is certain to become a benchmark offering.  Because it is the first, it will be a benchmark, it will stay "on the run" longer than it normally would -- that means that its offered for sale or purchase by a number of brokers with an attractive bid/offer spread in relatively large chunks.  Anyway, bond buyers have a very short investment horizon; they buy long dated instruments but that are extremely liquid.  In this case, the yield is OK (about 300 bps above the US T-bill rate), and if the expected deflation train doesn't come calling the impact on this bond price will be small because of its short duration.

My guess is that with all the hell that is about to break out in Greece over the next 12 months, (and in Europe too if you believe all the talks of deflation) then buying this bond makes sense. What is happening in the real world is rather appalling and is a real indictment of the European system. Greek politicians have signed a deal with the devil -- they are willing to subject their citizenry to the worse possible hardship so that they can stay in the club, they just want the party to continue a little bit longer.



I love this graph, because it was produced by Europe and it shows a bright future... in fact the grey area is projections based on the ability of the government to generate a surplus.  In reality, Greek 2013 GDP growth was -2.3% and total government deficit is accelerating -- at -12% in 2013 down from -9% in 2012.  Yesterday, the Greek government announced that its 2013 deficit was actually only 2.9% -- if you exclude certain "one off items".  In the same news conference Greek sovereign debt was announced to be Euro 175 billion up from Euro 157 billion in 2012, an 11% increase.  Combining the increased government deficit, the increased debt burden and the contracting GDP and you have an explosive mix.  The ultimate proof that the only driver here is to keep the party going until the Germans say "enough".  Again that is not the most important table.  The fact that the Greek economy continues to contract -- hence its ability to repay its obligations is further reduced:



Here again, the numbers are to the end of 2013.


So what was the asset allocator decision tree:  First he's got to buy some OECD bonds, and he's looking for yield.  He's likely to be European -- Americans have not had a huge appetite for Euro denominated bonds because of the fear that the Euro is a one way bet...eventually.  So he's looking for countries that will be bailed out, and Greece is an easy call.  The Spanish and Portuguese economies are nearly too big to be support by the ECB, but Greece is easy, plus they've been following the program to hell, so for the asset allocator its an easy call:

  1. Europe centric 
  2. Yield is good
  3. Put option to ECB if Greece turns to shit
  4. Maturity is good at 5 years
  5. Liquide


That's how you get a 3x oversubscribed bond! 


Tuesday, April 22, 2014

Inflation: are the fundamental changing?

StatsCan February 2014 
Consumer Price Index


Unsurprisingly the CPI was up for February -- Energy costs were way way up for the year -- Oil and Gas +9.2% and Electricity 5%.  Energy is a big component up here in Canada, the cold weather makes Canadian high energy consumers.  A few weeks ago I mentioned that the IPPI (producer's costs) were rising fast -- The CAD is going nowhere fast so the outcome is a bit of inflation.

Could this be the real thing, a resugence of "permanently higher inflation? In 2010 and 2011 we went through a similar cycle as energy costs rose dramatically, but when prices fell, so did inflation.  Inflation can only rise if the economic agents have pricing power -- if labor and producers are price givers.  Right now it seems they are both price takers:

Labour:

Fewer workers are unionized, and when they are it is benefits that are at the core of their demands.  Benefits erosion is the key labour risk and not inflation that has been low for more than a decade.  Labor union seek to protect pensions and benefits...

Capital:

Certain key players in the economic process are being squeezed out.  Corporations are doing great; my guess partly because of the squeezing out of the middle men.  Profits (as a percentage of sales have never been higher), what is happening is that the middle men and the high street shops are bing squeezed out of the process.  As an example:  several years ago I need to replace a shower head.  Three different prices:  the plumber said $600, the wholesale $500 and the internet $199.  The plumber told me that he could do it but it was a waste of my money (nice guy), middle man generated negative value -- he would neither delivery the product and required that I drive to his store since he would not take a phone order.  The internet well 5 days later the shower head was delivered to my door...

Malls are dying all over America -- the middle man who adds no value is being priced out, and the benefits are being split between the manufacturer and the consumer.  How many time have you gone to "The Brick" or "Futureshop" the shop assistant (when you can find one) knows nothing of the product -- except that A is more expensive than B.  Middle men are so worried that they are introducing legislation to stop Tesla direct sales (car dealers in New Jersey and elsewhere)

A recap:  Labor is looking elsewhere, capital is in transition (e.g. middle man death) but there are other forces at play.  Aging population, the baby boomer are leaving the workforce and the consumption "racket".  Your dad's 30 year old trousers "still fit fine".

Economic theory is created from the early 20th century (ok the late 19th century too), but these were young societies, this is no longer the case.  By 2060 Japan's population will have shrunk from 128 million to 75 million.  That has an impact on economic drivers.  Like hospitals and doctors 20 years ago, economists have to recycle their skills (and theories) on the the levers that control the engine of economic growth in a post baby boom economy.

That changes how the economy functions.



Flash Boys -- halfway there

Well one thing for sure, Lewis knows is "shit".  This book is even better than I thought, no wonder Wall Street is pissed off,via their surrogate: FOX news.  The hubbub has now died down, but I've got to tell you that all the stuff in that book is a roadmap for regulators who want to take action.

My favourite part so far is the 2010 Flash crash explanation.  It merges very well with my own issue with HFT which is the price discovery mechanism (lots of small order that test the market prices -- and disappear quickly -- microseconds).  The SEC report was complete BS because they could not get the data on what happened because they were limited to seconds of trade -- the HFT were working in 1,000 of a second -- the SEC didn't see the trading pattern.

I remember very well that day, I was on the options desk and nobody understood what had happened, first the "fat figure" reason was given (but it turned out there was no such massive trade anywhere in the market.  There was a general shock in the room (and trust me our dealing room was top notch).  Again, were were affected in the periphery (being in Canada where the rules are different than in the US).  We all knew something was wrong (it happened many times afterwards) but we didn't know what was wrong and why the market was doing that (like the characters in ML's book) they had the need and the tools to find out some of the reason for the flash crash.

Today, the market is all math, the genius (trust me they are smart) who created HFTs understand math, understand the underlying market and how it actually operates (as opposed to how we think it works).  The book is even better than I thought.  Although it must be a slog for those who don't understand finance -- and the intricacy of pricing discovery.

Aside from that, spring is finally here for good!

Thursday, April 17, 2014

Hubble, lensing and Thursday morning

Most Amazing image.  14 hours exposure from the Hubble

It puts life on earth in perspective -- these are all galaxies about half way to the "end" of the universe.  Yeah since there's is no end... how can this be halfway there.  Still mightily impressive.  Apparently the galaxies that are hazy is due to lensing effect -- where the light is distorted (and creating a lens) allowing the Hubble to see further.  Creationists put that in your pipe and smoke it!

Corporations are people too...

Some will remember Mitt Romney's comment during the 2012 presidential cycle.  For me the day that corporations are people is the day a corporation ends up in SuperMax for killing someone.  Really, has any company ever done jail time, ever?

Looking at GM's ignition key inaction they appear to have been "criminally negligent"; they knew their product was defective, they knew that it would cause accidents and they chose to do nothing.  GM knew that their product would cause injury, or even possibly death (that's kind of the meaning of criminally negligent).  I presumed that GM did a cost/benefit analysis (as they did for the Pinto problem) that the cost of paying those injured (or the family of those killed) compensation would be cheaper. Not only that but because of their re-organization that may well escape paying compensation to injured parties.

Proof if any was needed that corporation are in fact not people, since they can evade their responsibilities.  Chapter 11 washed away the sins of the company -- I wonder if that will also hold for the board of directors.  The board is the "head" of the company, it has some responsibility as to the action of the body.  It may be worth suing them personally, because they did make the decision, and they are (unlike GM) people!

Remarkable outcome.


Wednesday, April 16, 2014

Gold going down -- anyway that's what the big banks are saying

There is one thing for sure when the market is certain of one thing, usually the opposite occurs.  Morgan Stanley and Goldman Sachs are both telling their clients that gold is a sure thing for $1,050 -- or a drop of about 15%.  As Mish Shedlock tells it the big bank have a long dated habit of telling their clients one thing and doing the opposite.  Mike's point is that you cannot trust the big boys their are playing there own games.

First off, the big players like MS and GS (Citi too for that matter) have a reputation for saying one thing and then doing the opposite.  IN 2008 GS were encouraging their clients to buy CDS, but the bank's prop book was very short.  Giving the prop book massive profits -- despite near bankruptcy for part of the banking system, it remains a prime cautionary tail.

Back to the gold story.

There is an issue with gold's price gyrations, which is often unconnected from any macro or micro economic drivers (very low correlation to the market activity).  In the late 00s Gold was seen as a safe haven for investors.  Yet today the same global uncertainties are rising (you've got Russian tanks in the Ukraine, and you've got some real estate news out of China (bubble popping).  Bottom line Gold is been trading in the USD1,200 -- 1,4000 range for some months now.  There is no reason for a serious downward movement.   

So why are GS and MS bearish on gold?  My guess is that its because analyst are like university professor:  publish or die.  Analysts need to say something, to stay in the news (be controversial)  to provide commentary on the market direction even when they don't have a clue.  My guess is that these guys suddenly decided that Gold was not sexy.  There are always reasons to be contrarian; emphasis one aspect ignore or undermine the reasoning behind another and voila, you've got a reason to all negative on gold!

The worse part is that there are three distinct demand drivers for gold:  Jewellery, investors and central banks.  All three have different demand curves, often central banks will be selling gold when its cheap and buying when its expensive.  Jewellery (excluding India) is driven by economic growth, and investor demand is governed by fear and opportunity.  It is virtually impossible for the ordinary investor to make an informed analysis on these three demand drivers -- and government demand in particular is the worse, since data on gold holding is only provided annually.  Last year Russia was a big buyer, we only found out in late 2013.

Anyway now you know!



Tuesday, April 15, 2014

Still no $%& inflation

The Bank of Canada has a thing for inflation.  For years the BoC has had a 1.5% to 2.5% inflation target.  A necessary lubricant to a growing economy, and yet prices are just not cooperating.  Inflation has been rising recently to near the lower target of 1.5%, but every time we get close inflation disappears again.


(Source:  Statistics Canada)


The CPI is a measure (warts and all) of the consumer costs, another is the Industrial Production and Raw Material which also shows limited movement (at least until early 2004)


The problem that virtually all that price increase was caused by energy costs that have soared following the "continuing disagreements" in the Ukraine.  Bottom line oil prices rose from around $90/bbl to $106/bbl -- a 17% increase in 4 months.  So really no help there because everything else is not doing much at all.

What is the BoC to do?  Well the foreign exchange markets have already decided that the era of interest rate tightening is already over, and in fact in full reverse-- just look at the mortgage rates on offer from Canadian banks -- bottom line the BoC's interest rate normalization project is dead in the water, back to the rest of the world where zero interest rate policy (with all its risks) is back on.

For foreign investors the news is good -- after all Canada is still a resource rich country, with a reasonable debt position (when compared to the other guys) and where a relatively homogenous population ensures that no armed insurrection will occur (unless you count the occasional snow ball fight).  Overall, the BoC is back at square one -- the same place it was 18 months ago, except that for all its effort the CAD has dropped by about 10% (maybe that was the objective...).

The policy tools available to central banks are narrower than they were 10 years ago.  Changing demographics is a key issue here; an ageing population may not react the same way as a young one when rates change -- they are rate givers (net savings) and not rate takers (young indebted families).

The challenges for Canada are as follows:


  1. Despite near full employment workers don't have much bargaining power for wage increases
  2. Inflation, despite massive growth in money supply (insert definition here), is not occurring
  3. Canada is far more open than it was 20 years ago, the tools the BoC has grown up with are no longer effective -- a corporation that sells its goods in US dollars will match its borrowing requirements to reduce the currency risk impact using natural hedges.  This corporation is not impacted by the BoC
  4. Canadian banks are bigger today and better capitalized -- there BoC has only moral suasion (which failed recently when Canadian banks reduced prime mortgage rates despite the wishes of the BoC)
  5. New tools are required and maybe new measures of inflation too -- although StatCan is a specialist in terminating data series
Fundamentally, OECD economies are finding that population shift are impacting economic management tools -- if you think its bad here, imagine China -- where the one child policy implemented in 1979 is now "coming home to roost" with a dramatic drop in the growth of the labour pool.  Try managing that problem when Chinese companies will have to fight for new employees... What is being seen in a rather massive way in China is seen in a milder format here in the OECD.  Economists have yet to figure out what economic tools can be used to influence the economy.

Finally, on inflation and the various index we look at:  In America the price of a Big Mac has risen by 5.8% per annum over the past 10 years -- between 2004 and 2004.  Now that's not scientific.  A house in Montreal in in 2005 is now 50% more expensive than it was then -- that too is part of inflation -- unless you never moved, which statistically is wrong since 40% of Canadian move every 5 years.



Saturday, April 12, 2014

I'm not market smart, I really don't understand

A friend last week asked me where I though Facebook should be priced, and should it be more expensive than Apple?  Good question, first off I looked at both stocks; FB is around 60 and APPL is around 420.   On thing for sure in terms of market capitalization AAPL is about 2.5x more valuable than FB, but in terms of p/e then FB wins hands down at 90 vs AAPL around 13.

My friend's question is interesting insofar as there is no fundamental reason why, in terms of earning, FB is almost 8 times more valuable than AAPL.  In fact, the market is saying that every dollar that FB earns is 8 time more valuable than what AAPL produces.  The issue is not how much AAPL but how much earnings growth can be generated -- in fact the stock market doesn't value a company for its past performance but for its potential performance.

Here lies the problem, at this level the stock market is all about feeling and instincts.  There is no way to know how FB will grow and monetize its "eyeballs" and there is no way of knowing that APPL will or not later this year produce the next iphone/iPad device -- something we never knew existed but we now crave. Unless you cheat you cannot know the future!

Most people don't think of stock this way -- they don't really look at the balance sheet (although in the case of both these companies debt is irrelevant) there is a feeling that FB will go 75 or that AAPL will go to 420 -- Analysts -- a surprisingly clueless bunch will give you feelings too, backed by hard data -- that is not really hard.  The financial market can become an echo chambers;  Two years ago, all hedge funds started buying AAPL -- the stock went up because every one wanted to own it.  Of course eventually  AAPL went from 700 to 450 in the space of a few months.

Valuing a company is always difficult, you look at discount cash flow, p/e and other fun metrics, but at the end of the day, a lot that justify the value of a stock is simply greed and trend -- the cool kids are buying XYZ!

Over the past two days the market got a shellacking, as I've said before 2014 has been a wash -- there has been pressure to create hay with certain names (AAPL is one good example_ when a number of bad articles about the post-Job company seems to do nothing right).  But never think that the financial press writes about a specific company for fun, there is always a reason, someone has an objective and is trying to achieve a goal.

The market is like a game of poker -- if you don't know who the sucker is you are it!

What I told my friend:  Interesting, don't look much at Teck stocks, I don't understand the sector -- buy something that has dividends anyway...

Disclaimer:  No position on FB, AAPL or BBD

Note:  Many years ago the #1 rated aerospace analyst (NY) reviewed Bombardier Inc. (TSX: BBD) an aircraft manufacturer  out of Canada.  The analyst wrote that the weakness of the Canadian dollar was going to hit earnings.  In a fit of pique the CFO of the manufacturer sent to the analyst a copy of his now two year old report that said that the strength of the Canadian dollar was going to hit earnings!  In a nutshell the analyst biggest forecast was based on the following thought:  Any currency movement will hurt BBD, which is clearly a stupid comment -- it has to be either one on none, but it cannot be both ways.  That guy was the #1 analyst and his biggest argument for selling BBD was that a strong/weak CAD was going to hurt earning. Not so smart




Proof that Italy doesn't need to spend any money on tourism promotion

The Italian Tourist Board spends an astounding 98 percent of its budget on salaries, with basically nothing left for its actual job of tourism promotion

Priceless

Thursday, April 10, 2014

Back to regularly scheduled programming: market market market

Thursday morning and the big question is what's going on.  The past few days/weeks the word of the day was rotation -- away from bond towards equities.  Looking at the bond market 10y & 20y and its yields have returned to their mid 2013 levels, you begin to wonder what rotation?

I still see Europe as a disaster in waiting (maybe not really waiting), the markets are touting normalization because sovereign bond rates are down in the 7% range (from 15%) but then that's what happens when the ECB buys everything and anything.

News out of China is that they are having some success with deflating the investment balloon.  There have been only a few, and largely insignificant, bankruptcies so far (most of the insane to start with high yield variety).  Michael Pettis (a very smart guy) who has been an impartial China watcher for several years seems to think that they are on the right track.  So that could be good news, although its still a mighty big ship to turn around.

News out of the US continues to be "strange"  new mortgage applications are at an all time low -- we've got to go back to the early 90s to see these types of number again because refinance are included the stats are hard to understand (the stock of refinancing is a very large percentage of total mortgage applications and with stable interest rates there's not much refinancing activity).  New jobs are trending in the wrong direction, as they say the trend is your friend and the trend is not positive.

Corporation continue to increase profits -- clearly on the back of the labor force since wages are stagnant.  The events around Volkswagen and its union vote in Tennessee are just unbelievable -- the State government appears to have conspired to "bribes" VW to  not certify the UWA, while proclaiming their non-involvement in the process.

An amusingly  story out of congress where the Republicans insist that inflation was "DC math" invented by the government to give bigger benefits to the poor (they love that fight), in turn the Democrats produced an amusing "real math" situation showing BigMac inflation of 5.5% per annum between 2004 and 2014.  Still mighty amusing.

Finally, you cannot satisfy the FOX talking heads:  Noah the movie opened to great financial success (I will not see this movie).  Apparently, the crazies at FOX are complaining both that there are not enough religious movies or that they are misinterpreting the Bible (e.g. Noah); the two main crimes (a) that Noah got shit faced (actually he did Genesis 9:21), and (b) that the movie never mentioned God -- really 'cause the creator is not enough?  I mean, and this is not the first time -- do these people read the Bible.




Wednesday, April 9, 2014

Similarities: The US Republican Party Vs. Partie Quebecois

Last two days remind me of the days following Obama's re-election to the utter astonishment of the GOP and its supporters -- as a side note I viewed Mitt (documentary on Netflix), and the opening sequence where Mitt "jokes" that maybe he should write a concession speech (and find Obama's direct phone number) is telling as to the GOPs complete surprise as to its defeat.  It is evident that the PQ here too was stunned as to the popular rejection of its ideals and objectives.  18 months ago, the PQ was elected with about 31% of the popular vote, this time around they had around 25% of the support of the electorate -- its worse ever defeat.

The GOP and the PQ had the same reaction: The people didn't understand us, we compromised too much, we need to get back to our roots and be clearer. The PQ has decided that the people though they were too timid in their objectives of separation. This inability to "hear" the popular verdict, blinded by their own analysis discussed endlessly within a closed environment where outside opinions are automatically rejected as heretical.

Before the election, pollsters indicated that there were three important themes to the population: the economy (jobs), education and healthcare, separation and Quebec's value charter (e.g. if you are muslim you are bad) were small blips on the electorate's radar .    The PQ ran its campaign on value charter (badly) and separation (unintentionally) but actually didn't talk about the economy, education or healthcare.  My own view is that Quebecers are tired of the PQ insistence on creating conflicts with our neighbours .

Unfortunately for the PQ, the ideal of separation only finds strong endorsement from the baby boomers -- those who experienced the very real and hurtful segregation that was practiced here in Quebec where the "Anglos" ran the show.  The PQ's single largest strategic error was to introduce bill 101 (the language charter) because the one "in your face" item of segregation was that in Quebec power spoke english -- blue collars spoke French!

Young Quebecers (born in the late 60) came of age in a "country" where French is exclusively spoken. Where the anglophone media (TV movies) is inexistent (all movies are translated into French as are TV series).  Young Quebecers live on the Web -- make no border distinction, and really have no sense of limitation as to their future (a large percentage of population lives their entire life within 60km from where they were born).  Young Quebecers worry about getting jobs, a good education (their parents anyway) and a healthcare system that works -- we just have to look at our American cousins to see how screwed up and frightening getting sick in America can become.

The average age of the PQ's supporters is 55.  Younger Quebecers supporters equality and social justice (I know how it sounds...) will probably gravitate to Quebec Solidaire which in its heart is really a socialist party.  Internal tension within the PQ between the hard and soft separatists will explode and the party will splinter.

Finally, several friends have recounted that their children's schools, to promote political participation, regularly run moot elections -- with all four parties represented.  The PQ was usually in 3rd or 4th place.  If we had run such moot elections in my time 90% of the vote would have been for the PQ -- private school or not!  Today, Quebec's youth is focused on social justice (QS), and then the usual left right (Liberal & CAQ) split.  The thematic of the PQ (which was the coolest bunch when I was in high school) are just not relevant to today's Quebec youth -- to me the final blow.


Tuesday, April 8, 2014

Election here in Quebec

What a night!

Last night Quebec voters rendered their verdict, and by 20:36 last night (or 36 minutes after the polls closed) all Networks predicted a majority Liberal government.  For the PQ it was a slap of immense proportion; their leader (Pauline Marois) lost her seat -- and as a whole the PQ registered its lowest popular support ever (that going back to the 1970 election).

Obviously, the PQ made some rather spectacular errors (the advantage of being a Monday morning quarterback!), some were not obvious own goals when the occurred; attracting a billionaire to run for the PQ on a platform of "independence" looked like a brilliant move, turns out the electorate was unimpressed. The whole "national question debate" was a massive turn-off for the electorate nearly 70% of Quebec voters rejected the idea -- that's going to be a real struggle for the PQ (-24 seats).

Peace has been re-established with the rest of Canada.  Quebec has indicated in a loud voice that independence was not a fight they wanted to engage in, and although we feel different, we still perceive our identify to be that of Canadians.

The Liberals (+20 seats) are in a great position with a strong majority, and for the CAQ (+3 seats) the result was both strange and rewarding they lost a number of seats near Quebec city but they gained a large number near Montreal. Thanks to the new party funding system (where the government pays for everything) the CAQ now have the resources to build a real party.

More amusing (as an outsider) is what's going to happen to the PQ -- the average PQ supporter is now 55.  The fight to be the next leader started last night, about 10 minutes before Pauline Marois stepped down as leader of the PQ, the three main contenders (right, left and xenophobe) made their "I'm a Separatist" speech.  It was unseemly but on par for the political coalition that is the PQ.  Imagine the right wing (anti-union) billionaire running the PQ's union supported party... this will be entertaining.  Equally absurde is the left winger that will want to take the socialist separatist route -- all this paid by... rich Quebecers (there's so many of them).  Finally, the xenophobe (its the Jews, the muslims, the anglo all the interlopers into the "pure laine" that voted against a "Free Quebec") is going to show the ugly side of the party.  My suspicion is that this could be the end of the PQ -- maybe a slow process maybe an explosion between the left and the right -- don't know about the xenophobes... anyway, I think that last night the ideal of separation died -- a 60 year struggle ended.

Finally, you can say whatever you want about the flows of the democratic process, but one thing for sure its entertaining as hell!

Friday, April 4, 2014

Democracy, NRA & Lewis -- Friday's bucket

Democracy:

Last night I participated in the Canadian primary process for the first time ever (possibly for the last time too).  It was following the creation of a new electoral district in Montreal -- called Ville Marie.  Initially the two candidates (actually acquaintances both) we running for Canada's Liberal Party (run by Trudeau -- not the cartoonist, but the son of the one who was Prime Minister in the 1980s).  Anyway this event had to be moved to a larger venue -- there was just too many registered Liberal party voters in the district.  The room could sit about 600 and there was another 100 to 200 outside the doors in the corridor.  The final result was 289 to 198, so about half the room that attended the vote was there for show (among them a friend or two)!

The first thing that comes to mind is that the democratic process is a strange one.  the new district is widely recognized as being a Liberal bastion -- so in effect 50,000 Canadian voters (all those who live in the district) saw the selection of their new member of parliament handed to 500 voters... as Churchill once said, It has been said that democracy is the worst form of government except all the others that have been tried.  I suddenly realized that these 500 activists (1% of the electorate) selected the next member of parliament for Ville Marie -- and lets be honest here it was 100% a popularity contest, there was no debate (they got to speak of 5 minutes each) they got the job simply by registering more members to the party (actually its worse than the American system).

As an add on:  yesterday walking back from a meeting I saw a Green Party electoral poster, where the Candidate was preaching an ecological socialist solution! My first thought was that some of the worse environmental disasters have been perpetrated by Socialist governments!

The NRA

Until recently I didn't understand the NRA's game (as a Canadian bystander) but I think I now get what it is doing: Scorched Earth!  The electoral power of the NRA is such that its like Dirty Harry -- they don't even have to pull their gun to scare the crap out of all elected officials.  The stand your ground laws being enacted everywhere in America (where you can shoot a black person because...well why not) and probably shoot anyone else because you feel threatened is a worrying development.  One of my favorite TV shows is Top Gear.  This British show (ostensibly about cars) has its three stars go all over the world:  Botswana, Irak, Mianmar to name three dangerous ones.  They also went to the US (driving from Miami to New Orleans).  To this day, the three hosts maintain that they've never been as concerned about their safety than when they travelled in the US.  This morning I was reading an article about warning shot legislation (third paragraph).  Apparently its OK to try to shoot someone to defend yourself but its against the law to fire a warning shot (I Know strange better to kill than to warn).  The NRA no longer has to do anything, you just point to their (electoral) holster and hint that they're packing heat (negative adds, PAC money etc) -- and can destroy your career if they want.  Now that's power!

Michael Lewis

The vitriol!  You know that you hit a nerve on Wall Street when you get the kind of reaction Lewis is getting this week.  He wrote a new book Flash Boys, about the HFT "problem" the fact of the matter is that his book discusses not only a problem but a solution.  I must of seen (and read) two dozen blog/articles about Lewis and HFT over the past 4 days, and the large majority are negative.

I just started the book yesterday.  From the very beginning you first note that most of the data he talks about goes back to the 2008 to 2010 period (he does talk about flash crash too -- and they continue) But from the book you get that he's following a story where the protagonists have been actively looking at the problem for some years, and you know that there is a solution .  Lewis knows he's not "discovered" the problem, he's telling a story and he can really write an compelling yarn (at least the first 75 pages) that I have read.

Lewis say's that he got a taste of the acrimony when he published Money Ball -- but not the Big Short [there he got:  "It was actually worse than what you wrote" -- proof if was needed that the SEC/FBI failed in conducting criminal prosecution following the 2008 collapse of the RMBS market].  Lewis can defend himself (he was great on Bloomberg TV Tuesday) and its evident that Lewis doesn't see himself as breaking news but unlike most of these bozos he is articulate about the subject.  Finally, apparently the FBI/SEC are now investigating HFTs -- considering that even Lewis write that their activities were not illegal... don't know what they are investigating (and why they are wasting ressources).




Wednesday, April 2, 2014

Let the people speak -- the reality of elections

A few weeks ago the Quebec government decided, after 18 months in power (but without a majority in the house of representative) to seek a new mandate.  The polls were in their favor; a majority in parliament looked like a real possibility.  Three weeks on, the leader of the PQ (government) is hoping to retain a status of minority government, and they may loose all together.   [it was such a sure thing that the main opposition party had a real problem in finding attractive candidates] How did it get there?

First off, the polling numbers in general and in this case in particular looked suspicious.

  • In particular, the PQ's initial strength went from 40% to 45% within the space of a few weeks -- and over the christmas break -- when no one was around.  Today, the latest (small sample poll) shows the PQ at 29% -- neither polls add up. 
  • The more general worry is that polls are done via land line phone only,  these have shown to be increasingly unreliable:
    • Last year in Alberta, all the polls indicated that the conservatives party was set to loose massively to a more right wing party -- they didn't loose in fact they got a good majority -- the polls were way off
    • Obama's second term election:  polls indicated that the election was too close to call; when in fact he won by 55/45; which is massive.   
    • I've not owned a land line for some years, several of my friends own landline but never answer it, its needed for the alarm system or outgoing calls.   
    • The American pollster - Nate Silver wrote a book about this problem -- its worth a read, he does propose some solution, but his main beef is that pollster need new math!


Looking at the Quebec process it is clear that the PQ made a number of unforced errors:  Got a right winger (a real one) to run and make some rather strong comments about independence, the PQ over estimated the appetite/interest for a debate on race and religion (its been going of for several years), and finally focused a good portion of their energy on what the other guys did wrong a few years ago -- as the governing party you cannot win an election based on what the others did previously -- you have to run on your record (which may have been the problem -- the PQ as a government largely shied away from the hard decision, and made promisses they could not keep).  They also decided to talk about the stuff that made them happy:  separation, banishment of religious symbols -- hot buttons for the faithful, but not for the electorate in general.  That's the problem with democracy, the people are fickle and when a party refused to talk about the things that worry the population (healthcare, education & the economy), you have this result (sinking poll numbers) .

From my tone its clear that I am not a fan (which is true) but in reality the number of stupid moves the PQ did when it arrived in power was astounding.  From bad nominations to overestimating the amount of tax revenues available... mainly because they took bad counsel.  The reality of our political process is that our leaders are in dire need of hearing the truth.  Speaking truth to power is difficult -- especially when many around them (power) are more than keen to tell them exactly what they want to hear.

elections are Monday.  There are around 115 counties in Quebec, about half are too close to call (despite what I wrote above).  It will be a late night (maybe)

A primer on Quebec's main political parties:

Quebec has two main political parties who's have one main difference:  one supports some for of (largely undefined) "independence" from the rest of Canada, the other is against.


  • The Parti Quebecois is a strange animal -- because the only thing that holds its various factions together is a desire for the province to become a "country". There is a strong leftwing/artist & journalist/union base to the party (granted after 40 years on the battlement the hair are a little greyer...).  
    • Greatest problem for the PQ is that separation from the rest of Canada only has a 40% approval rate among the general population, and about 20% of those don't want to hear about separation
    • The PQ is unable to define what it means to be separate -- common passport & currency was discussed in this election cycle (once you have those I don't know what remains -- your army?)
    • Despite some talented players the over-reliance on the historical "left"has hampered their discourse.  The PQ acts as it if it was running a rich country when it is really running a poor one.
    • One of the recent "high profile" candidates is an avowed far right industrialist.  Who is generally hated by the PQ's natural constituency (journalists and unions in particular) 
    • Finally, the PQ has a tendency to exhibit some rather strong xenophobic tendencies
  • The Liberal party are generally a left of centre corporatist interventionist... well really a "Liberal" party in the greater sense with a strong corporatist feel to it.
    • Because it assembles all those who are against separation it leads to strange bed fellows
    • From uneducated leaders who insists that the way to reduce oil prices in the province by just writing a law that makes it so, 
    • Affiliation with some less than savoury characters,
    • But its real fault is to think like the PQ that the province is rich, and that its population is a piggybank
    • The Liberals don't have the factional divid that the PQ has, it has a very very smart leader (which may be a problem)
    • Its biggest problem is that it is the only home to ethnic and anglophone vote 


Tuesday, April 1, 2014

Minimum Wage should be a conservative talking point

Why should WalMart (or McDonald)  benefit from paying its workers less than is necessary to survive just to have the Government make up the difference?  Food Stamps for the working poor are a form of corporate welfare since they don't have to pay the full cost of labor.

Of course,  right wing parties will never crouch the idea of minimum wages as a way of reducing subsidies [to big business] because these "mooch" are huge political contributors to  the right -- lets cut subsidies to Corporation will never be their slogan.  The day that the GOP or Steven Harper's Conservatives ever bite the hand that feeds them will be a cold day in HELL!

Of course certain corporations may decide that they should reduce the number of workers.  However, corporate profitability (as a percentage of sales) has never been as high as it is today.  Its more than likely that they could easily absorbe these additional costs.  But as long as minimum wages is a battle of the left (and that same group cannot state the obvious case for a reduction in corporate welfare) and uses touchy feely reasons for minimum wages, the battle is lost.

First idea of this is Zero Hedge