Wednesday Night #1441

On the eve of Lord Mayor Peter Trent’s return to that office (he is to be sworn in at noon on Thursday), the evening started with the award of OWNs to Wanda Potrykus and Sam Stein, whose faithful participation in Wednesday Night dates back to the early years.

The economy and the dollar
Canada can’t have it both ways. A cheap Canadian dollar won’t help the U.S. economy to recover and if it doesn’t recover it won’t be able to buy anything. Better to have a more expensive currency and a recovering U.S. economy
Fred Langan‘s interview with Dennis Gartman, author for some 30 years of the Gartman Letter, stimulated discussion of the rise of the loonie against the U.S. dollar, which is causing much hand wringing and fear, most probably warranted.  Apart from the fact that both currencies are known as the dollar, and the dependence of the Canadian economy on that of the U.S., the nature and depth of the problem would be better understood if other variables were taken into account.  Perhaps we should introduce more nuanced terminology – “expensive” and “inexpensive” replacing “strong” and “weak” –  looking at the monetary considerations in terms of international competitiveness. Prior to the introduction of the euro, the Deutschmark was a ‘strong’ currency, but this did not restrict impressive export figures.  For example, as the U.S. dollar loses value as compared with Canadian currency, there has been little if any change in value of the Canadian dollar relative to the Euro, reflecting the fact that Canada doesn’t sell in other markets. We should bear in mind that the real economy aspect of the Canadian dollar is based on commodity markets and petroleum prices.
The inevitable conclusion is that the U.S. is in an inflationary period, a situation that is not matched in Canada where the Bank of Canada interest rate is currently as close to zero as it can realistically get. But the efficacy of monetary policy made in Canada is questionable.  Speculators purchasing Canadian dollars in anticipation of a continuing trend exacerbate an already difficult situation.  While this perspective provides a plausible explanation, it does nothing to change the effect of the falling U.S. dollar on the Canadian economy through falling profits of exporters to the U.S.
We cannot lose sight of the problem in the U.S. – all the liquidity that has been created. But as long as unemployment figures – a lagging indicator – are unattractive, it appears inevitable that Americans are headed for more inflation. The only way Canada can avoid the problem is to allow the dollar to float up. The policy conundrum for Canada is whether we are prepared to take the heat from the exporters and try to avoid as much inflation as we can. Commodities have little value-added, therefore Canada must look to diversification, both in terms of markets served and goods and services sold.
The fact is that the world economy needs a healthy U.S. economy and there are signs that the rest of the world is trying to reflate the U.S. economy. [Update:  In Dollar’s Fall, Upside for U.S. Exports]

Bombardier – an exemplary company
Today’s news that Bombardier has just won a 383 million USD contract to supply electric locomotives to Italy underlines serves to emphasize the importance of diversification of products and into foreign markets.
As Canadians, we sometimes feel that our manufacturing sector is disappearing in favour of the exploitation of our commodities, but in some areas of technology we are doing exceptionally well.  Bombardier’s complementary high speed surface transportation and C-series fuel-efficient (22% reduction), low carbon emission aircraft dominate their field.  The (100-110 seat) market for the C-series is huge;  worldwide some 8-9,000 aircraft will need to be replaced in the next five to six years.  The great advantage of the C-series over its competitors lies in the fact that it represents a totally new advanced technology giving Bombardier a twenty to thirty year head start over its U.S. and European competitors. The only competition that Boeing or Embraer might offer would be based on old technology. Only a Canadian $1.25  dollar could work against Bombardier and even that would not overcome their advantage as a parallel (ground and air) transport provider.
There have been recent reports of investigation of natural gas as an aircraft fuel. The weight of the containers required works against this idea, along with the fact that current cost of aviation fuel is relatively cheap compared to whatever new fuels might be developed, however investigation continues [Update:  On 18 October,  a Qatar Airways flight from Doha to London made history by being the first commercial flight powered by fuel derived from natural gas.]

The market
The stock market has risen by sixty percent since March- “a sling-shot recovery”; no equivalent rise has been  observed since the 1930s.  However, it is difficult to say at this point, whether the recovery, especially in the United States, is sustainable and vibrant. The recovery to date is primarily financial, not real. There is double-digit unemployment in a number of U.S. states. We don’t seem to have learned anything. The theory is lacking – is it good to save, or is it good to spend?  How is the debt going to be paid?
The question is what kind of revenue growth will there be a year from now?  Earnings should continue to be good for a time (compared to the recent period when nobody was selling anything), and prices are expected to continue to rise, most probably, however, not at the same rate in the next year as it has in this.  The consumer has stopped spending and the rate of savings has increased.  One Wednesday Night investor suggests that it is important to look at volumes of sales. There is some concern that continuing unacceptably high bonuses funded by government bailouts exaggerate the true extent of   the recovery.

Healthcare Reform in the U.S.
The most important development was last week’s announcement of the favourable review of the plan by the Office of the Budget. It now appears increasingly evident that with the fading away of the rhetoric, the proposed health care reform bill will be passed by Congress in one form or another, although the public option is in doubt – at least for now. (Incredibly, it appears that some of the opposition to the public option is based on the reasoning that if it were allowed, then everyone might chose it.)  Behind the scenes, it is all coming together.  It would appear evident that everyone should be covered at reasonable cost but this is not the objective of the current U.S. system.  At some point, somebody has to sacrifice and few if any appear willing to do so.  It does now appear that ultimately the system will improve.

Afghanistan policy
With his apparent victory in the Medicare debate, President Obama has once again demonstrated an incredible aptitude for bringing those with opposing views together, but even the most optimistic do not see him able to withdraw gracefully from Afghanistan in the immediate future, even if the alternative is to commit the estimated five hundred and fifty to six hundred thousand troops necessary to achieve victory in Afghanistan.
Obama’s mandate is reasonably thin and he cannot afford to either confront the military or open himself to conservatives’ criticisms. Americans generally view the Bailout and stimulus as Obama initiatives (not the Bush crisis), and healthcare reform as further evidence of creeping government takeover of the economy. They are not now ready for the president to create yet another initiative and he does not have the political capital at this stage to withdraw in apparent defeat. In two years time, as the stresses of this year’s policies fade in people’s memory, it is possible that public opinion will be more accepting of the inevitability of letting go in Afghanistan.
Finally, there is the very real concern that the U.S. cannot deal with Pakistan and its porous border, and does not want to see a nuclear power at the mercy of the Islamists.

The Greek elections
The solid, majority victory  of the Panhellenic Socialist Movement (PASOK) under Prime Minister George Papandreou ran counter to what has generally been happening in Europe (the Right successfully running on progressive programs borrowed from the Left) and also to recent history in Greece of coalition governments.  Mr. Papandreou, son of a former Prime Minister and an economist like his father, will also serve as Minister of Foreign Affairs.

There are very promising developments for the New School of Athens, following the recent trip of Kimon and Ion Valaskakis to Denver to meet with the founder of the Arsenault Family Foundation, whose motto is Peace Through Governance. Unlike most of the foundations with which we are familiar, the Arsenault does not accept any unsolicited proposals and seeks out beneficiaries.  Mr. Arsenault, a pacifist, is a French Canadian and McGill graduate. There is at least one component of the plans building up to the Athens IV event that may be of particular interest to Wednesday Nighters – a look at the Canadian model, what we do right and what we do wrong. More on this soon.

 T H E  I N V I T A T I O N

Congratulations to our two Wednesday Night authors, Frédéric Laurin and Wayne Larsen, on their successful book launches last Thursday. Two very different publications; each is entertaining, well written and informative. Great Christmas presents!
The BIG NEWS is, of course, the award of the Nobel Peace Prize to President Obama by the committee formed of 5 Norwegian politicians who, as Stratfor wryly puts it, represent the full spectrum of Norwegian political thought. The pundits have had a field day and we expect no less from our faithful Wednesday Nighters. Our own view – and a number of others, as summed up in the (NYT) Weekend Opinionator: Does the Nobel Hate America? – may be found on our website
Less controversial (as Tony Deutsch accurately predicted) is Monday’s announcement of the winners of the Nobel Economics Prize, whose “work sits at the boundary of economics, law and political science, and tackles different questions to the ones that economists have traditionally studied.” Thus, they can bear no blame for what current theories may have wrought in the market place. Their concentration on aspects of economic governance would clearly indicate commentary from Kimon and Tony, along with our other colleagues interested in either discipline (is governance a discipline?). The Globe & Mail has a sympathetic profile of Elinor Ostrum
The U.S. and much of the world media is preoccupied by the Healthcare debate, so we are grateful to Robert Creamer and the HuffPost for drawing our attention to the fact that “Later this week, Congress begins consideration of a package of measures that would serve as a first step in re-regulating and hopefully shrinking the American financial industry. This battle has not attracted as much attention as the critical fight over health care, but it is just as important for the well-being of everyday Americans.”
For the climate change deniers among us – and you know who you are – you may be interested in the list at the end of William Marsden’s Gazette piece Climate of Distrust of some significant weather anomalies detailed in the UN Climate Change Science Compendium 2009. We do note that climate change has totally failed our Tony whose bucolic sojourn has been reduced by the onset of cold with its unfortunate effect on water supply.
On a happier note, do check out what Richard Branson is up to with his Carbon War Room
Afghanistan is on our minds as President Obama and the administration wrestle with the problem. Frank Rich of the NYT has raised many of the issues that have troubled us in his column Two Wrongs Make Another Fiasco – we admit to being influence by our recent reading of Charlie Wilson’s War, especially the Epilogue, which underscores the same questions of unintended consequences that Frank Rich raises. Further complicating the decision making are recent reports and interviews with administration and military officials suggest seven months after U.S. President Barack Obama deployed 17,000 U.S. troops to support the war in Afghanistan and bolster the nation’s civil institutions, many of those institutions remain in a state of dysfunction. Afghans frequently turn to a shadow Taliban court to administer justice, while the nation is so dangerous that aid workers cannot usually work outside the capital. Those agencies within the government that are operational are plagued by rampant corruption. The New York Times
And on related note, it is reported that the Taliban better financed than al-Qaida and relies on a wide range of criminal activities to pay for attacks on U.S. and coalition forces in Afghanistan.
We have been remiss in congratulating our former and future Mayor, Peter Trent on his acclamation. Congratulations also to our new Councillor, Victor Drury, who did not wait for acclamation, but was already doing his door-to-door rounds to meet his constituents – a welcome change from our previous invisible representative.  Please note: David Johnston has an excellent piece on Acclamations: A failure of democratic process? – Government statistics may suggest otherwise, which presents an original analysis of the difference between rural and suburban citizenship.
We are delighted that Peter has committed to a thorough review of the troublesome/troubling arena development. A propos, we commend the Westmount Independent for their excellent coverage of the arena issue, although we still dislike their PDF format which requires lots of scrolling.  
In what we hope is an unrelated issue, we draw your attention to the recent critique of Infrastructure Canada. An audit of Infrastructure Canada shows the department is overworked and understaffed. More than half the workers are said to be unqualified. The department is overseeing CDN$38 billion in infrastructure spending. The report by the Public Service Commission of Canada shows Infrastructure Canada is struggling without managerial direction. OH JOY!