Wednesday Night #1340

7 November 2007

It’s a very mixed and quite bleak bag this week, with the crisis in Pakistan dominating the international news, along with seemingly concurrent violence in Afghanistan (See also) In Pakistan the opposition centers around Judge Iftikhar Chaudhry, who after refusing to ratify General Musharraf’s order suspending the country’s constitution, warned the President that he would not be deterred from launching a fresh struggle to restore the constitution and the rule of law.
This is all very embarrassing for the U.S. which has for years supported General Musharraf and now doesn’t see a way out of the quagmire.
There’s another incipient quagmire lurking in the Turkish/PPK fight. One Wednesday Nighter comments: “What George doesn’t understand is that unless his support is concrete, the Turks will act and leave him holding the bag”. In support of that comment, we point to the report that “Mr. Bush declined to say how the United States would respond if Turkish forces entered northern Iraq, dismissing it as a hypothetical question that, he said, Mr. Erdogan himself had asked.” If it was so hypothetical, why would the Turkish PM have asked it?
Crude oil and gold prices surged to fresh highs today amid renewed dollar weakness as investors sought refuge from a second wave of credit turmoil attributed to “The [mounting] threat of fire sales of mortgage-backed securities [as] rating agency downgrades have pushed complex debt vehicles into technical default. The prospect of forced sales of assets comes as a US Treasury-backed plan for a “superfund” to stabilise troubled credit markets appears to have stalled.” At this stage, amidst all the gloom and doom, we must introduce a note of levity, directing you to the brilliant “Long Johns” discourse (thanks to David Mitchell OWN) on the subprime and banking crises.
A story to watch Boone Pickens seems well on his way to launching a 328-mile, $2.2 billion pipeline to transport water from the Texas panhandle across the prairie to the suburbs of Dallas and San Antonio. The project has many critics, both of its intent and the devious methods employed to get it started.
On a recurrent topic, the rebuilding of New Orleans continues to be bedeviled by delays and bureaucracy, “Intricate, inflexible and open-ended, the process seems to value perfect paperwork over speedy resolutions, local officials say, and requires endless haggling over every acoustic ceiling tile and paper-towel dispenser.”
Close to home, we first congratulate Ginette Sauvé Frankel on her victory in Sunday’s election for English Montreal School Board commissioner in District 7. Ginette is delighted and tells us that turn-out was 18.3%, more than twice the voter turn-out in 2003 (8.5%) and well above the province-wide 7.9%. That’s the good news. The bad news is the dismal turnout for School Board elections overall which has Education Minister Courchesne vowing to make changes, especially in communicating the role and importance of the school boards and M. Dumont calling for the abolition of school boards, (not to mention the Liberal government), declaring he wants to force an election on this issue.
We are curious about the selection of Me Hubert Lacroix as the new head of CBC/Radio Canada and note the terse announcement from Minister Josée Verner which is not exactly a glowing endorsement.We look forward to any facts or theories from Wednesday Nighters.
And finally, as today is World Food Day, we feel compelled to comment on Food, Nutrition, Physical Activity, and the Prevention of Cancer the report that resulted from an examination of some 7,000 studies published since the 1960s. When taken in combination with all the other nutrition/healthcare advice with which we are assaulted daily, not to mention the warnings NOT to eat a number of foods because they are endangered, we have decided that only the Daily Mail “Don’t eat or drink, it makes you ill” has it right. If anyone has another solution, please let us know.
Meanwhile, we do not plan to overturn the Wednesday Night tradition of wine with food for thought.

The Report

Another Wednesday Night author
Margaret Lefebvre OWN announced with great pride the launch today of No Limits, the inspiring story of the great skiing twin sisters, Rhoda and Rhonda Wurtele who are now 85. Conceived by Margaret’s husband and Wednesday Nighter Ron Walker as his gift to the twins, he presented the first copies to them at noon today at an event at the Twinski Club.The book, which has received rave reviews from William Weintraub (who particularly cites its value as a social history of Montreal) and Dick Pound, is being sold online by Zeeba Books

Do we need School Boards? Mario Dumont doesn’t think so
As has historically been the case, the low turnout of voters in recent local school board elections raises questions about the utility of school boards, their cost to the community as well as the role of the Ministry of Education. Related issues include the relationship between the funding of education and the value of real estate, to what extent curricula should be standardized and the rationale for universal suffrage in the election of school boards as opposed to eligibility restricted to parents of current students.
On reflection, the answer to some of these questions is clear. It appears obvious that a highly educated population is an asset to the entire population and should be funded and created by the population. Centralization ensures uniform standards and the inter-school mobility of students, but local school boards ensure the availability, where required, of such specific services as music, art, social workers, bussing, as well as other local issues.
The argument regarding school boards is not that different from the one regarding municipalities. The best government is the one closest to the people being served – and also the most efficient financially
On the surface, if one considers the detailed planning that is currently done by the provincial government, the elimination of School Boards would seem logical, but on reflection, it would be more logical for the Ministry of Education to continue to set the criteria, monitor and manage the results, but place the burden on the school boards and individual schools to manage the means of achieving them, thus permitting a broader source of innovative thinking to permeate the system. Top-down management, unfortunately, remains the hallmark of governments, but the level and quality of education is undoubtedly one of our greatest natural resources.
Another question that created quite heated debate is the rights of non-citizen residents who pay school taxes – and may also have children in the system. Why are they not allowed to vote in an election that is not (ostensibly) political? Taxation without representation is unjust to some of us from a country that fought a war of independence on that issue
Education is not designed for your children; the purpose of public education is to prepare an educated population [to the benefit of all society]
Public education is about the future of Québec
The debate is whether we are managing for means or managing for results. Managing for means assumes that the brainpower resides with the Ministry (of Education), but if we are managing for results, then we must look to the body closest to where the action is to achieve the better results
Are we educating for separation?
The recent abolition of school boards in New Brunswick has since been reversed with the appointment of a commission, which has not really been successful. They are currently in the process of returning to an electoral system.
An obliquely related Québec glitch in the school board debate is the fallout from the quiet revolution. In the effort to francisize the education system, electors have been shifted from the English to the French School Board list, an error soon to be corrected for the permanent list, but with no possibility of redress at a future date.

The KIP(P) model
There are some improvements to schools and curricula being introduced in the U.S. mainly through Charter public schools. One outstanding success story is the KIP (sometimes KIPP) or Knowledge is Power program in 57 schools and expanding, which not only offers real attention to individual student’s needs, requires lots of homework and commitment on the part of parents (seems like coming full circle for those of us who grew up a half-century ago), but also is measured by academic success of the students. [Note: the family behind Gap Inc has donated generously to the program and it is also supported by Bill Gates] Is it too much to hope that Québec schools might at least look at this model? Westmount High is an outstanding example of application of many of the KIP principles in our area.

The world economy
With the chilling winds of late autumn, blithe bliss in the financial world has, as predicted by some Wednesday Night gurus, changed to worry. In a continuing attempt to stave off inflation, the United States, still running on borrowed money, is lowering interest rates, the Canadian dollar, thanks to high commodity prices is reaching historic heights, neither a reassuring sign.
Never have I seen such volatility in the markets. Global markets are rightly nervous. We have seen greed and fear going head on today
Chil Heward shared some of the thinking from his strategy team who have recently spent time in China and Southeast Asia where the great growth is going to happen. Reminding us that their view over the past two years has been expect the unexpected, he emphasized that this has been particularly appropriate during the past two months.
China, for many years, converting its continuing large trade surplus into U.S. treasury notes, is now taking steps to diversify into different currencies while slowly inching the value of the Yuan upwards. With its own fear of unemployment it is important for China to regulate the rate at which the value of its currency rises. The almost guaranteed rise in the value of the Yuan might make the purchase of that currency an attractive investment, but the Chinese banking system being virtually indistinguishable from the government of China, there is really no vehicle for trading in the Yuan.
In North America, particularly in the United States, as a result of questionable loans, hedge funds and derivatives, the banks are headed for difficult times. The ABC Paper problem continues to worsen with resultant cuts in pensions. The U.S. dollar continues to fall against the Canadian, dollar, the pound, the euro and the Yen. We appear to be back in the 1970s with the increasing price of silver, gold and petroleum.
Oil was close to $100/bbl today. What happens if hedge funds who have been in oil since $60 decide to lighten up?
Forecasters are no longer talking $100 – they are talking $150-$160 as demand from China is expected to be staggering
With the exception of the U.S., the forecast for 2008 is good everywhere, with good growth in emerging markets and impressive earnings. The world is awash with liquidity. The outlook for 2008 is favourable with investment opportunities continuing, especially in Southeast Asia, where Developing economies are ‘distinctly accommodative’.
The problems in the global credit markets are expected to take two to three years to resolve. Write-downs are inevitable. The United States will not implode unless China is unable to cope with its current serious growing pains, an unlikely scenario. The question is: can China keep the ship afloat while the U.S. is grappling with its problems. If they can, then the world economy is in good shape.
The world is very supportive of the United States economy and the falling dollar has had positive effects for U.S. exports. The Federal Reserve will cut rates aggressively and soon.
Today in Canada the stock market is grossly over-weighted in energy and resources, banks are over-valued, there’s virtually no retail trade other than Canadian Tire. Food companies are doing very well because they are beneficiaries of the exchange rate. We simply cannot continue the growth that we have enjoyed thus far in the Canadian stock market. Retail prices can be expected to plummet in the short term (the next six months). The $1.10 U.S. dollar is unsustainable. How much disruption and how long can it last?
Central Banks have been flooding the system with liquidity – sooner or later that money has to go somewhere. We do know that increases in money supply eventually result in inflation. Then they will have to reverse themselves and we will see high interest rates and falling stock markets – not a cheerful picture
Asset allocation is key to successful investment strategy today
Warren Buffett recently stated that there are no more bargains left in China … there has been a bit of a bubble on China and bubbles have a way of bursting
Next year, China is expected to have a current accounts surplus of $450 billion – an imbalance of gargantuan proportions
China’s problem relative to its economy is far bigger than the problem of the U.S. relative to its economy
The price of Gold is, in a sense, the barometer of the economy. At its current price, gold is within thirty to fifty dollars of the expected inflation threshold, beyond which, some Wednesday Nighters, would have some concern for the economy. If gold goes down, nothing will fix the U.S. economy. The hedge funds are holding a lot of gold – what will they do?

China & Environment
Statements made earlier in the evening about the creation of some 20 new cities in China are cause for alarm. If 5% of the carbon dioxide produced in the world comes from cement production, it sounds as though any hope of curbing carbon dioxide production is doomed. Pictures from Beijing show appalling smog levels, but the government is only likely to do anything about the smog levels is if there is an impact on GDP. In an economist’s terms, clean air is a public good and thus, while everyone expects to enjoy it, individuals are unwilling to do anything about it.

The living conditions of seniors
The government commission on: The living conditions of seniors- a social issue that is the responsibility of all Quebecers, is anxious to hear from seniors on matters that include, but are not necessarily limited to healthcare. The Minister has scheduled a special session to take place in Dorval on Friday morning, November 16th, in order for individual English-speaking seniors (also care givers, families, etc.) to tell the panel what is their experience and what recommendations, other than obvious healthcare and social services, need to be included in the final report in order to improve seniors’ quality of life. Topics might include taxation, transportation, banking services, companion animals, etc. The panel wishes to stress the idea that being a senior is NOT about being sick. Presentations are not expected to be lengthy briefs.
Wednesday Nighters are urged to consider making a presentation and/or circulating this information to others who would be interested.