As I wrote some of this, there was a discussion on CBC radio on the merits/drawbacks of an educational system that won’t let primary-, middle- & high school students repeat a grade for fear it might hurt the poor dears’ self-esteem, as a result of which universities have been forced to subject incoming students to literacy and/or numeracy tests. As this led to a discussion of students’ expectations & ability to stand on their own feet, one university professor phoned in to share her experience with one student. After she gave him a mark for an assignment lower than that he thought he was entitled to, she received a phone call from his mother who wanted to come in & discuss her son’s paper with her. When told this was not feasible due to legal privacy constraints, the 24 year-old student the next day brought her a note from his mother that, after consulting legal counsel, she had ascertained that the professor could discuss her son’s paper with her provided he consented to her doing so. In the end the professor had a third party read the paper, whose grade was three percentage points lower than hers had been.   

As Merrill Lynch’s Chief North American Economist David Rosenberg was close to the mark in many of his economic prognostications. Earlier this year he came home to Canada, joining the “buy-side” of the market as the economic guru at Toronto-based money manager Gluskin Sheff.  His latest market overview dumps cold water on the notion that a sustainable rebound is underway in the US : with 16.8% “real” unemployment & bank credit continuing to tighten he calls this a pipe dream since “For the first time in the post-World War Two era, we have deflation in credit, wages and rents ... a toxic brew that in the end will ensure that the focus in equity markets on capital preservation and income orientation will be the winning strategy over a strict reliance on capital appreciation. 

At a time of big & growing deficits, spending by Canada’s Privy Council Office (which exists to meet the Prime Minister’s every need, desire or whim) in the year ended March 31^st, 2009 was up 14% YoY, much of it due to a 25% boost in its staff’s compensation. Unfortunately many, but by no means all, top public sector employees in Canada have adopted with a vengeance Gordon Gekko’s motto in the 1987 movie Wall Street that “Greed is Good”; thus the base salary of the Governor of the Bank of Canada is twice that of the Chairman of the Federal Reserve & the remuneration of an Alberta Provincial Court judge is in the same range as that of a Justice of the US Supreme Court. And how is it that supposedly right-of-centre governments on both sides of the border can spend money like drunken sailors when in power & get away with accusing their left-of-centre adversaries of having ‘big government’ aspirations?   
 
 

GLEANINGS VERSION II

No. 329 - September 10^th, 2009 

FED SURVEY : MOST OF U.S. ECONOMY IS MENDING (AP) 

∙ Its latest survey of business conditions around the country found that in eleven Federal Reserve districts economic activity either was “stable”, showed “signs of stabilization” or had “firmed” & only in the St. Louis one was the economic decline just “moderating”. 

While anything but a stellar endorsement, the stock market nevertheless reacted with great gusto. 

PIMCO’S EL-ERIAN : DOUBLE-DIP RECESSION RISK RISING (Reuters) 

∙ After reports on September 4^th that, while the pace of job losses  in the US had slowed in August, the unemployment rate had gone from 9.4% to 9.7%, he told Reuters that a soft job market & flat incomes could hinder a sustained recovery & that “The risk of a double dip for US economic growth in 2010 is increasing ... This challenges equity markets that are currently pricing a V-like recovery in corporate revenues and credit availability.” 

He is Co-CEO of Pimco which manages a US$850BN bond fund (the largest in the world); so for many people his credibility is greater than that of central bankers with greater job security.   

TREASURY : MILLIONS MORE FORECLOSURES COMING (Reuters) 

∙ As of August 31^st 360,165 home owners, 12% of those eligible under the Home Affordable Modicfication Program (HAMP), had their mortgages reworked, up 50% in a month. But it warned “even if HAMP is a total success , we should still expect millions of foreclosures.” 

The consensus forecast is six million over the next three years. 

U.S. HIRING OUTLOOK DIPS (Reuters) 

∙ A Manpower Inc. survey found that US employers plan to hire fewer new employees in the Fourth Quarter than in the Third, while in Europe & Asia the outlook was less bleak. 

Some economists believe the economy is now growing at a 3% annual rate; if so, that may be due to non-recurring events such as the Cash for Clunkers program & the surge in inventory building. 

ELECTRICITY DEMAND SPUTTERS (AP) 

∙ In 2008 power consumption declined 1.6% YoY & is expected to slip another 2.7% this year. If so, it will be the first time in 60 years it has done so for two years back-to-back. 

Power consumption is sometimes used as a proxy for economic activity. 

RAILWAYS CAST DOUBT ON ‘GREEN SHOOTS THING’ (G&M, Brent Jang) 

∙ The CFO of Norfolk Southern told a webcast audience he expects improvement in the second half of this year but “Economic conditions certainly remain unstable”, his counterpart at Burlington Northern that, while consumer spending remains weak, it has seen a “modest uptick” in weekly shipments in July & August, the EVP of Canada’s No. 1 railway, CN, that  “we don’t think ... the recovery will be very rapid” & the CEO of its No.2 railway, CP, that “I’m looking for the second half of 2010 before ... we’re going to see any substantive growth.” 

Railway freight traffic volumes are a leading economic indicator.  

CONSUMERS CUT DEBT BY RECORD $21.6B IN JULY (AP) 

∙ Consumers cut their debt by 0.9% MoM, i.e. US$21.6BN, 5x the US$4BN expected. 

A10.4% annualized rate, this is higher than June’s 7.4% & the highest since June 1975's 16.3%. 

BANKS EASE BURDEN OF CREDIT CARD DEBT (WP, Nancy Trejos) 

∙ As more Americans lose their jobs & struggle financially, banks are forgiving more credit card debt or modifying its terms, since it’s better to “get something as opposed to nothing.”  

A while ago they were reported to be paying people to turn in their cards.  

BUYING POWER IS THE NEW REALITY OF THE HOUSING MARKET (AP) 

∙ Lenders now demand more money upfront, high credit scores, proof of income & perfect paperwork, the standards when the WW II generation bought their first homes.  

Many in the industry expect these attitudinal changes to last for years.  

RATINGS FIRMS LOSE FREE-SPEECH BID (Bloomberg) 

∙ A US judge recently refused to dismiss a law suit against Moody’s and S&P, rejecting their counsels’ argument that investors cannot sue them over deceptive ratings since those are  opinions protected by free-speech rights. In so doing he cleared the way for investors to sue them & others for hiding the risks in securities linked to sub-prime mortgages. 

This is likely to be of greater benefit to supposedly sophisticated big players who had, but didn’t use, the resources to do due diligence than to Mom & Pop investors 

OUR ONE-PARTY DEMOCRACY (NYT, Thomas L. Friedman) 

∙ We now have for all intents & purposes a one party system; for on energy/climate- & healthcare issues the Republicans with few exceptions are content to sit on their hands, hoping President Obama will fail. More’s the pity; for the more he must depend on his own party to get legislation passed, the more more left-of-centre the outcome will be. 

The puzzling part is how Obama c.s allowed others to gain control of the public healthcare agenda.  

GRADING THE HEALTHCARE SPEECH (NW, Katie Connolly) 

∙ Here’s how President Obama measured up on the six key issues we identified earlier :

∙ Counteract “death panels” with simple, memorable points - while he adequately tackled  the most pervasive healthcare lies head-on, he didn’t come up with a catch phrase with the emotional potency of “death panels” - B+;

∙  Explain how reform will help the happily insured - he clarified they won’t have to change & talked about the consequences of not undertaking reform - A-;

∙  The public option - he explained that without it competition & accountability would suffer & that it would in no way affect the already insured - B+/A-;

∙  Tell Congress what should be in the bill - Public option aside, he called for no denials for pre-existing conditions, a fee on insurance companies on their most costly plans, protection of Medicare & a commission to examine waste - A;

∙  Bring back the campaign - the jury is still out;

∙  Inject his race-speech mojo into the health-care speech - While his speech wasn’t the game-changer his race speech had been, it was about as close to it as a speech on healthcare policy could hope to be - A- (mojo = magic touch). 

While his speech will appeal to his base but won’t move the vitriolic radio hosts & others opposing reform, the real question is how it will play out with the majority Americans in neither camp & the ‘Blue Dog’ Democrats in Congress?  

OBAMA’S KEY TO PROSPERITY : LESS SPOCKY, MORE ROCKY (NYT, Maureen Dowd) 

∙ Trying to be a different kind of President, he has lost sight of political realities. Sometimes you must keep your foot on your opponent’s neck & sometimes it’s good when people fear you. Discourse is OK, but when the other side fights dirty, you’d better get angry before it’s too late. For now, without pro-active leadership, the Democrats have reverted to their habitual self-destructive scrapping (& the Republicans to theirs, being mean-spirited & shameless, attacking big government, conveniently overlooking their own track record). 

Effective leadership in politics is a matter of an iron fist in a velvet glove. 

HEALTH REFORM BECOMES WINDFALL FOR INSURERS (G&M, Barry McKenna) 

∙ Heavy lobbying by the health insurers has turned reform into a potential windfall for them. Subsidized coverage for the 47MM now uninsured will grow their client base, more Medicaid will benefit them since they administer it for the states, preventative care programs will benefit their subsidiaries in that field & making health insurance more affordable by lowering the minimum coverage ratio to 65% will cut their costs. Robert Laszewski, a former health insurance executive now with the Alexandria, Va.-based consulting firm Health and Strategy Associates estimates the insurance industry could benefit from this by $600+billion over the next decade. The only potential fly in the ointment, he says, would be a ‘public option’. 

A public option would be the only real bit of reform; much of the rest is just more downloading of costs from the private- onto the public sector. 

OIL SANDS PROJECT AT STAKE IN NORWAY VOTE (CP, Bob Weber) 

∙ In 2007, Statoil-Hydro ASA, two-thirds owned by the government of Norway, paid $2.2BN for an oil sands lease in Northeastern Alberta & has since spent  more money developing it. But this investment is controversial among Norwegians who pride themselves on their environmental awareness, five of the country’s seven political parties believe it was a mistake & on August 30^th Norway’s largest newspaper editorialized that Statoil shouldn’t profit from Canada’s refusal to meet its commitments under Kyoto, and that it & the government were involved in a “collective denial of responsibility” for oil sands emissions.  

Since 2005 the country has been run by a coalition of three centre-left parties. But if the Monday September 14^th parliamentary election were to result in a return to power of a centre-right coalition, instructions will likely soon go out to its representatives on the Statoil Board to vote against any continuation of its involvement in the Alberta oilsands.  

LIFE SENTENCE LONGEST EVER GIVEN TO DRUNK DRIVER (CP) 

∙ On September 9^th Mr. Justice Michel Mercier of the Quebec Superior Court sentenced to life in jail an “incorrigible” repeat drunk driver who in October 2008, after a night of binge drinking, had mowed down, & killed, a wheelchair-bound mother out walking her dog.   

The 57 year-old had, prior to his latest drunk driving episode, 18 drunk driving convictions on his record (& a total of 114 criminal convictions) without ever being sentenced to more than 15 months for drunk driving, since he ‘he had never hurt or killed anyone’. A newspaper editorial compared his drunk driving to “playing Russian roulette with the gun pointed at others” & compared the various lesser penalties for his drunk driving over the years as merely “the cost of doing business.”  

DEFIANT ISRAEL APPROVES SETTLEMENT EXPANSION (AF-P, Marius Schattner) 

∙ On September 7^th, days before the next visit by Obama’s Special Envoy for the Middle East, George Mitchell, the Israeli Cabinet approved the building of 455 new homes on the West Bank (even though warned by the US & the EU against doing so). Mahmoud Abbas said it now will be useless for him to meet with President Obama & Prime Minister Netanyahu during the UN General Assembly session later this month, his chief peace negotiator, Saeb Erekat “This further undermines faith in the peace process, and the belief that Israel is a credible partner for peace”, his spokesman “We will not go back to the negotiating table before a halt to the settlement building” & the Israeli anti-settlement Peace Now group “these building approvals transform any peace process into a political farce.” But settlers blasted it as “not enough”; one of its representatives said “We are extremely disappointed ... I’m ashamed of the attitude of the government, which is not resisting American pressure” & a member of Netanyahu’s Cabinet “The Americans don’t run this country, Israelis do.” 

The Americans may not run Israel, but it benefits greatly from Washington’s financial magnanimity & political forbearance. The settlements on the West Bank & in East Jerusalem, home to 10% of Israel’s Jewish population are illegal by international standards. At some point Obama & the EU must fish or cut bait : force the Israelis to face reality or lose credibility in the Arab world & beyond. 

GERMAN FAT CATS GET LEANER (EJ, Business Browser) 

∙ In 2008 the average total compensation package of the CEOs of the 30 DAX benchmark companies declined by 20% YoY to the equivalent of C$3.6M; worst-hit was the Deutsche Bank’s CEO whose bonus evaporated, cutting his compensation by 90% YoY to C$2.2MM. 

Rather unlike the North American situation. 

CLIMATE DEAL IS ‘IN THE BALANCE’ (BBCNews, Richard Black) 

∙ According to UK Foreign Secretary David Milibank there is a “real chance” next December’s UN Summit in Copenhagen to prepare the ground for Kyoto 2.0 won’t reach agreement. For the developing countries stand firm in their belief that, since the industrialized West grew rich through intensive fossil fuel use, it must now take the lead in cutting emissions &  hasn’t done enough in that respect, nor to help them deal with the impact of climate change. 

This is akin to a dispute among those on a sinking ship as to who should lower the life boats. 

JAPAN’S MOVE TO CLEANER CLIMATE BREAKS ‘LOGJAM’ FOR UN MEETING (AF-P) 

∙ Denmark’s Climate &  Energy Minister Connie Hedegaard believes Japan’s September 7^th announcement of a 25% target cut in its greenhouse gas emissions could be a game-changer in Copenhagen in December : “everybody has been waiting for everybody else to move in the negotiations ... the strong message from Japan is exactly what is needed.” 

This announcement came before Japan’s new Prime Minister was even sworn in and, while it acts on one of his campaign promises, overrules dire warnings by Japan’s bureaucrats that such a tripling of the Aso government’s 8% target would “ruin the economy”.  

A NEW CHAPTER OF BUBBLE FICTION (G&M, Bruce Wallace) 

∙ Washington was shaken when, prior to the election,  the US-educated Mr. Yukio Hatoyama mused that Japan’s future was tied to Asia (i.e. China), rather than the US; for it has long taken it for granted that it would ever be its most important ally in Asia & the world.

∙ The last Japanese politician to try & challenge the old order was Junichiro Koizumi who, upon becoming Prime Minister in 2001, sought to do so by, among others, by sending personally-written weekly emails to 1.6MM subscribers combined musings on various topics with inspirational messages on the need for change. In 2005 he  saved the LDP from defeat by  running against it with the slogan “Change the LDP, Change Japan” but, unable to surmount the Japanese deep-seated discomfort with the idea of change, was pushed  out the following year, illustrating the difficulty of overcoming 1,500 years of tradition.

∙ The Democratic Party’s leadership is deemed ill-equipped to operate Japan’s opaque power-sharing government machinery put together over half a century by the LDP, the bureaucracy & the corporate sector. While it has promised to take spending control away from bureaucrats, its lack of experience may make it more, not less, bureaucrat- dependent. With the national debt at nearly 2x GDP, it will have little fiscal elbow room. His hope to become the prime minister who will lead Japan out of its post-war order into the 21^st century, will in the end depend largely on whether the Japanese public really wants, & is prepared for, change or whether its vote was a nostalgic plea for a return to ‘normality’.   

His detractors call him ‘charisma-challenged”, make fun of his hair-do & decry his inexperience. But on his father’s side he is a fourth-generation politician : his great-grandfather was Speaker of the House of Representatives, his grandfather a Prime Minister, his father a Foreign Minister, his  brother a minister in the outgoing Aso government & he himself was elected in 1986 to the House of Representatives as a Liberal Democrat (leaving the party in 1993).  

CHINA’S OIL GIANT BORROWS BILLIONS TO EXPAND ABROAD (Reuters) 

∙ The CNPC (China National Petroleum Corp.) announced it had secured a US$30BN five-year loan ‘at a favourable interest rate’ from the China Development Bank (in what one analyst called a ‘diversification of the risks of foreign exchange reserves’). 

State-owned CNPC controls PetroChina, a now listed company, into which it spun off its operating assets a decade ago, & shares in its exploration & development activities as an equal partner.