Wednesday Night #1508

The State of the Union
When Barack Obama was elected President of the United States, he was likened to John F. Kennedy.  Whereas this is undoubtedly true, at least superficially, two thoughts come to mind, the first being how, in the long run, President Kennedy might have ranked had he not been assassinated.  The second is the personal observation of the scribe that since the presence of television in our lives (and to a lesser extent, computers), with the striking exception of the “little guy from Shawinigan,” we tend to elect politicians more for their appearance and debating skills than politics.
In his State of the Union address, the President, a great orator, attempted to put a positive spin on a less than satisfactory situation.   It was more a statement of what has to be done than a visionary statement, great but really empty oratory.
An interesting aspect of the State of the Union address was the President’s determination to veto earmarks, that is, unacceptable legislation embedded in acceptable, positive legislation.   This may prove to be a difficult objective to attain. [The Harper government has been quite successful in avoiding debate on controversial legislation by embedding it in budget bills or others that are subject to votes of confidence.]

The economy
The bond market, not doing that well, is ten times the size of the stock market, not a good situation.  Their seventy-three trillion dollar debt appears frightening, but the U.S. will survive as ultimately, inflation reduces the impact.  How high inflation will rise is impossible to predict.  The one fear expressed by some Wednesday Nighters is that Europe ‘s problem be replicated in North America.
Some financial gurus are cautious about the stock market over the next few months, urging cash conservation.  According to these seers, housing prices will continue to drop in the U.S. for a further five months.  Over the next few months, it is suggested that it is recommended that cash be conserved.  As for the housing prices in the U.S., another five months of continuing lower home prices is anticipated. In Canada, except for Vancouver, which geography has squeezed between the mountains and the ocean, the housing market has peaked
The Chinese and Indian markets have not done that well.
As for commodities, when one looks more long term at commodities including oil, copper, inventories are higher than they were five or six years ago, so something has to give.
Dividends have been low, and should be considered a message from the bond market.   As long as the banks don’t lend more in  Europe, U.S. and partly in Canada, growth in the economy can be expected to be anaemic.

Terrorism: the suicide bombing at Moscow’s airport
If the point of committing a terrorist attack is to sharpen the public image of the perpetrators, the purpose of the recent suicide bombing of Moscow’s Domodedovo International airport remains a mystery.  Although it has been attributed to Chechens, the obvious purpose of terrorism is to terrorize and when the message is anonymous, its purpose has been lost. The point is that the target has to be in sync with the objective of the terrorist and in this instance that makes no sense.
This is not just a Russian problem; it could happen anywhere.  If, in fact, the perpetrators were Chechens, it is probable that the objective was more religious than political.

Aviation security
Some commentators have made the point that the recent relative success of aviation security has turned terrorists to bombing airports.  Here passengers, “meeters and greeters” mingle, the latter passing through the lobby unscreened.  Israel, known for the best aviation-related security in the world, consistently recommends meticulous (sometimes intrusive) individual screening of passengers, but that would prove to be impossible to implement in larger international airports because of the massive numbers of people involved.  The same holds true for the terrorist bombing in London’s underground.

The Arab/Middle East world
The Mediterranean region remains unstable.  In Tunisia unemployment is horrendous, the economy not good.  In Egypt, huge numbers of people are on the edge of survival – non survival;  there are people on the streets.  The situation is very volatile and President Hosni Mubarak may not survive.  Should Egypt fall to Muslim fundamentalists [if, indeed they are responsible for the increasing tensions], the genie would be out of the bottle, and peace in Israel impossible.  If the dominos fall, one country following the other, the outlook for the world is serious and western nations that have supported autocratic regimes will have to quickly re-think their policies. [Obama administration could still get it right on Egypt]

Food prices and world hunger
A number of countries depend on food-aid but contributions have not increased and prices have risen.  Part of the problem is that food is being converted to fuel contributing to hunger in an increasing segment of the world population.  Prices can also be adversely affected by  tsunamis, floods and other natural disasters but also exacerbated by the rising food prices due to government setting or permitting the setting of minimum prices of agricultural products. Finally, there is the increasingly important effect of speculation in the commodities markets   Rising food prices are causing problems in many developing countries, especially this week in  Tunisia, Algeria and Egypt where traditionally, providing cheap food to the masses is part of an unwritten pact between Arab dictators and their people. Since the 1950s, authoritarian Arab regimes have committed to distributing subsidised food staples such as bread, milk and eggs to their populations in exchange for political quiescence. [Arab Regimes Fear Bread Intifadah]
Agricultural quotas, distribution problems, minimum prices, portion of price sometimes siphoned off by the ruling family, the conversion of grains to fuel and the growing market in genetically modified organisms all potentially add to the problem.
In Canada, Eugene Whalen was the first Agricultural Minister to restrict agricultural output, thus raising prices of agricultural produce in Canada resulting in today’s increasing criticism of the agricultural marketing boards. But it is in  developing countries that rising food commodity prices have the most devastating effect.  Thanks to natural disasters there is currently a food crisis around the world.  Where there are no further natural disasters, what it often boils down to is distribution in developing countries.   In many developing countries, food prices are kept low through subsidies,  providing disincentives to more  efficiency in agriculture.  A great breakthrough was believed to have occurred in India when food transport between provinces ceased to require a permit.  The European Union has imposed all manner of restrictions affecting international trade in foods.  In the U.S., the sugar industry is subsidized.   Farmers, traditionally, have used pressure to keep up prices.  There are many issues but it is certain that a free market would cause prices to fall.

Nuclear energy
Global warming and the steadily diminishing reserves of fossil fuels  make the search for alternative  energy sources even more urgent.  The obvious logical response would be nuclear energy.   Sixty-six new nuclear plants of which twenty-four in China, are or have been built.  In contrast, none have been built or planned in the U.S.  There is a lot of interest around the world, not much in Canada, in making small nuclear reactors, ideal for Canada’s developing far north, but not much is happening here.

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The Prologue

As we await the State of the Union Address tonight, we are struck by the nostalgic pieces recalling JFK‘s elegant Inaugural Address, and the atmosphere that prevailed fifty (!) years ago. In contrast, we have Mr. Harper’s celebration of the fifth anniversary of the Conservatives’ accession. Scott Feschuk’s Reading between the lines of Harper’s fifth anniversary speech is a caustic, but perhaps not totally exaggerated review of a speech that no media we have seen have deemed worthy of reprinting, or even linking to. While we do not expect President Obama to emulate the lyricism of JFK – neither the occasion, nor the message is appropriate – we can certainly anticipate a more animated delivery than that of Mr. Harper, along with a better-fitting suit (and a tie!).

NB: Worth reading is the Stratfor Piece: Obama’s State of the Union and U.S. Foreign Policy painting a realistic but gloomy picture of U.S. options in Afghanistan and Iraq.

The captains of industry and of ships of state, along with the assorted flotsam and jetsam associated with the World Economic Forum, will be watching the State of the Union from Davos prior to plunging into their debates on the state of the world (business) the next morning. According to the WEF website “the Annual Meeting will convene under the theme Shared Norms for the New Reality. This reflects the foremost concern of many leaders – namely, living in a world that is becoming increasingly complex and interconnected and, at the same time, experiencing an erosion of common values that undermines public trust in leadership as well as future economic growth and political stability.” A noteworthy initiative is the Risk Response Network set up in recognition of the growing number of simultaneous situations, including natural disasters that wreak havoc on the economies and health of entire regions, that require global response/alleviation.

The past week’s events underscore the need for such global attention. Although the headlines refer to the political and socioeconomic conflagrations, starting with Tunisia’s Jasmine Revolution and already spreading to Algeria and Egypt, one of the most important underlying problems is the rising cost of food, an issue that President Sarkozy is addressing  in his G20 capacity Sarkozy Calls for G-20 to Regulate Commodities, Price Swings [We are not sure about his choice of Russian President Dmitry Medvedev to help study the role of derivatives in commodity-price swings. In any event, President Medvedev has his hands full right now after the devastating bombing of Moscow’s Domodedovo Airport.]

A couple of relevant news items:
Governments throughout the developing world are implementing a variety of measures – such as price caps, export bans and new rules designed to soften commodities speculation – in a bid to curb rising costs for food. The head of the UN World Food Programme said Monday that countries that fail to address surges in food and fuel prices risk not only economic, but political, instability. The Wall Street Journal (1/25) , Bloomberg (1/24)
and
Speculation in international agricultural markets could lead to drastic swings in the prices of food that, in turn, could lead to riots like those seen in 30 countries in 2008, according to several dozen world agriculture ministers. “We don’t want to accept this speculation on agricultural commodities, which undoubtedly enriches a lot of people but which impoverishes the rest of the planet,” said French Agriculture Minister Bruno Le Maire. Bloomberg (1/23) , BBC (1/24)

As though this were not enough to worry about, the situation in Lebanon Hezbollah Chooses Lebanon’s Next Prime Minister is hardly promising and nor is that arising from the leak by Al Jazeera of The Palestine papers which will doubtless cause further problems for any peace talks.

Far more serious – and we await the comments of such distinguished alumni as Catherine Gillbert, Katherine Waters, Gerald Ratzer and Pauline Frost – is this startling news Sponsor pulls out of Oxford and Cambridge skiing trip after students strip off in the snow  [The accompanying photo doesn’t look that scandalous to us, but the rest of the article gives  more than adequate justification for the sponsor’s withdrawal ].