Wednesday Night #1645 with Peter Berezin

On October 22nd, at a 5  à 7 held at the University Club, Kimon will  launch Buffets and Breadlines, subtitled Is the World Really Broke or Just Grossly Mismanaged, the first book of his forthcoming trilogy. Details to follow.

Ron Meisels gave a well received lunch-time talk on Monday at the University Club on The Seven Deadly Sins of Investors. He divides investors into two camps: those who hire a manager because they don’t know what they know and those who manage their own portfolios because they don’t know what they don’t know. Group One with a manager whom they will never fire is somewhat hopeless, so after identifying the three deadly sins of those investors:   he continued with well reasoned advice for Group Two, including the need to gamble, e.g. calculate what you could lose and accept that loss if it happens.

They never look at their portfolio, on the grounds that If I don’t look at it, I don’t have a loss

BCA Research Report
While the monthly reports that Peter writes are not for distribution beyond BCA’s clients, there’s now a BCA Research blog available to the public [the current header features a poll on the likelihood of Larry Summers or Janet Yellen becoming the next head of the Fed – not surprising as Larry Summers will deliver a  keynote at the 2013 New York Investors Conference].

A global baby boom?
The developed world is on the leading edge of a baby boom, even greater than that which followed the end of World War II.  In many countries including the United States, births already exceed the replacement level.  The number of baby boomers giving birth (and at a later age) is rising.
This claim is based on several facts including cohort fertility rates that have been rising beyond replacement; the children of the baby Boom generation (echo baby boomers) are now having children of their own. At the same time, those women who have postponed having children until they reached their thirties are now  bearing children. UN statistics support the claim, indicating that a 2.5% rise in the number of births – the first rise since the 1950s. While the UN’s view is that this is a temporary phenomenon,  it would appear that the higher birthrate is a function of greater affluence.
The historic correlation between rise in incomes and fertility rates is changing.  Peter’s own view is that it is the start of a lasting trend that is also influenced by gender equality. A third – and more controversial  factor is the  evolutionary, or perhaps hereditary/genetic, influence leading to larger families.
The economic effect of such a trend would be to eliminate the concerns about the aging population, entitlements, Medicare, social security. Arguably, counter trends could be  the diminishing  number of traditional heterosexual marriages,  the rising inequality and concurrent shrinking of the middle class. However, there is a positive correlation between the increase in women’s income and equality and data also strongly indicates that countries with largest numbers of children born out of wedlock  have highest fertility rates. [Note: there is a cultural and sociological dimension to this argument that is extremely interesting and includes public policy such as parental leave, daycare, etc. as exemplified by Scandinavian countries] Among the factors that may militate against increased fertility rates and/or have unintended consequences for society is the increased cost of raising and educating children encouraging moves to suburbs, impact on city centers and school systems.  We should be cautious as the margin of error of the forecasts is very high.
The down side is the global rate of population growth with concomitant  pressures on the environment, food supply and leading to massive migration with political and sociological and geopolitical implications.

Children are no longer considered ‘inferior goods’ , but are verging on becoming  Veblen goods (a group of commodities whose demand is proportional to their price), or status symbols – see  Brangelina.

Syria
Three questions should be addressed:
– Was a heinous crime committed and who should be punished? The heinous crime is undeniable, but it is not only the chemical weapons attack(s), it is the civil war that has lasted over 2½ years, has caused the deaths of over 100,000 people and the displacement of millions. Is one form of death more punishable than another?
– Western analysts keep making the same mistake. The wars in the Middle East and North Africa are not wars between Democracy and Tyranny. The war in Syria is between Hezbollah and Al Qaeda. The worst case scenario would be that the chemical weapons fall into the hands of  Al Qaeda. This is not in the interest of the Russians or the U.S.
–  Why should the United States be judge, jury and punitive agent ? Why should the U.S. Congress decide what should be done?  We have to ask ourselves, in light of the slowly declining global impact of the United States and the  apparently inevitable ultimate rise of China as a super power, is the world prepared to yield authority to one super power? The answer must be in a  solution brought about through some form of  global governance.
It should be remembered that former UN Secretary-general Boutros Boutros-Ghali advocated the creation of a UN million-person volunteer standing army.
Wednesday Night was intrigued – perhaps even puzzled – by the recent  BCA GPS report that stated that Syria didn’t matter. Peter points out that while it is of deep concern from a humanitarian point of view,
it doesn’t matter to the markets. However,

Public policy should not be guided by what is best for the S&P Index.

While the Russians appear to offer a solution to all problems, there is much expert commentary that indicates that identifying, sequestering and destroying the Syrian store of chemical weapons – in the middle of a raging civil war – is at best a challenge.
There is an alternative to a military strike – overt support for the break-up of Syria into constituent parts, including a Kurdish state (which would make Turkey unhappy). Wednesday Night has often bemoaned the fact that one of the gravest errors made in the post-Ottoman era was the division of the constituent parts along geographic rather than ethnic lines.  It might not have worked any better than the manner in which it was actually done, but one must wonder if it might not have been less worse.
Conclusion, despite the recognized difficulty of neutralizing the chemical weapons, the solution proposed by the Russians is no doubt the best available and will at least have the effect of limiting any future use of them by Assad’s people. Obama has been excoriated by the pundits, none of whom has a better solution, but in fact, he has shown humanitarian concerns and a willingness to accept a solution offered by the Russians, even if it costs his public image. Or, has he simply looked at the current situation in Iraq and decided that better the dictator you know than his replacement by a number of factions who are engaged in merciless and never-ending civil war.
Israel is mostly interested in Syria insofar as how it affects its own interests and like the U.S., would be more pleased, or perhaps less displeased, with Assad in power, especially without chemical weapons.

The wars in the Middle East and North Africa are not wars between Democracy and Tyranny.

The Quebec Charter of Values
The Charter of Quebec Values has little if anything to do with religion, or secularization – and everything to do with stirring up a population which otherwise was not upset. It is a calculated political strategy aimed at the francophone hinterland which has little contact with, or knowledge of, Quebecois who are not de souche – including Anglophones. This is the population that, according to the polls, gives 66% support to the Charter initiative.
It is noteworthy that a number of immigrants from French-speaking countries (Algeria, Haiti, French West Africa) are considered as pur laine and more importantly, have embraced the notion of an independent Quebec. They can be seen on programs like Tout le monde en parle.
After the last referendum, many took comfort in the belief that a new generation of Francophones would grow up to have an outward looking view of the world. Many did – and many of those have left Quebec for greener pastures, leaving behind those who are inward looking and lack the same opportunities.
Prior  to the current century, a popular youth conundrum was: `When is a door not a door?’ ; the answer, of course being, ‘when it is ajar’.  In Québec, the current equivalent appears to be, When is a Cross not a religious symbol? – the response, of course being, when it hangs in the National Assembly or stands on top of Mount Royal.  The current Québec governing party apparently does not recognize the similarity between the banning of the turban in football matches and wearing a religious symbol on one’s body.  As for wearing the hijab when voting, one has the choice between voting or not.

It’s all about one percent – if the last referendum was lost by one percent, then the PQ calculus must be that if we can get the one percent who voted against us to move out of the province, we have won!

[Update: Lysiane Gagnon joins the Wednesday Night consensus that there will be a provincial election before Christmas: Et si tout cela avait été calculé ? Si l’idée de lancer sur le Québec cette grenade qu’est la Charte des valeurs n’était qu’un plan pour permettre au PQ d’obtenir un gouvernement majoritaire ? … Si la « majorité silencieuse » le suit, le gouvernement ira en élections début décembre en se présentant comme le champion du « peuple » face aux « élites ».]

The markets
Bull markets started in 2009.
Demographics have always affected the stock market.  The market is surprisingly positive, better than anticipated, so we may not experience a period of adversity, but a rise for the next six months.   In Toronto, the Banks and energy stocks are finally coming alive.  The markets reached new highs in Toronto and New York.
Price-earnings ratios are continuing to rise.  There are a number of international opportunities. In China and Russia stock markets look good.  If, as is probable, oil prices continue to rise, Russian stocks looks especially attractive. European and Chinese stocks are cheap. Emerging markets and Africa have interesting opportunities.

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 P R O L O G U E

Our good friend Peter Berezin will be with us to review the September BCA Forecast and Analysis, with its special report on The Coming Baby Boom In Developed Economies – some highlights:
– The entry of the Millennial generation into their prime childbearing years, along
with the recouping of births that were postponed both due to the recession
and by the decision of many women to delay having children until their thirties, will drive the first leg of this new baby boom.
– Continued progress in creating more family-friendly labor market institutions in developed economies, increased gender equality, rising incomes, as well as cultural and possibly genetically-driven shifts in the composition of populations towards more fecund individuals will all power the second leg of the baby boom.
On Emerging Markets: The near-term outlook for global risk assets is rather murky. Sentiment in a number of markets remains stretched, earnings growth has been tepid, and turmoil in the EM universe has cast a pall over the global economic outlook.

9/11 – a date that no matter what joyous events are associated with it  – will forever be engraved in our memories and hearts with images of the two magnificent towers, encased in billows of smoke, and each in its turn, collapsing oddly gracefully to disappear from the skyline. We were deeply moved by 102 Minutes that Changed the World , the two-hour documentary that  aired on Sunday on CBC (and again on September14) being reminded yet again of the terrible consequences of the reaction of the Bush administration.
A timely reminder in light of the debate over what to do about Syria.

As we write on Monday evening, President Obama is engaged in a round of television interviews, aimed, we are told, at shoring up Congressional support for US intervention in Syria. However, he also admits that Military strike ‘absolutely’ on hold if Syria gives up chemical weapons stockpile, which leads to the most intriguing development of the day/week. It seems that there might be a breakthrough on the issue of chemical weapons.
Russia urges Syria to cede control of chemical arms
(Reuters) – Russia urged Syria on Monday to put its chemical weapons under international control in the hope that this would avert U.S. military strikes over an alleged gas attack, and President Bashar al-Assad’s government said it welcomed the proposal. … Russia, which is Syria’s most powerful ally, appeared to seize on an idea voiced by U.S. Secretary of State John Kerry, Kerry: Syrian surrender of chemical arms could stop U.S. attack even though the American swiftly made clear he had not been making a serious offer. [Or was this a very clever ploy – after all, he knew that the Syrian FM was in Russia for talks – ? We will never know – nor should we.]
IF the US administration can swallow its pride, welcome this initiative, and allow Russia’s Putin to take credit for acting on Mr. Kerry’s words, there might be some light at the end of the tunnel and the world might be able to concentrate on longer-term goals of solving the humanitarian crisis and even brokering peace among the various factions currently at war with one another.
Russia also wants to avoid all-out military intervention; its major concern is to secure its present military presence in the port/military base of  Tartous and any future point of gas transit from there. (For more on the importance of Syria in the global natural gas picture, see The Great Gas Game over Syria)
Here’s another thought:
President Obama’s Brilliant Strategy No One Seems To Recognize
As the media interprets recent events as Obama’s march to war, America and the world falls for it hook, line and sinker. Say what you want about Obama but he is a very smart man. He would never ask permission he did not need from Congress to launch a strike on Syria unless he knew beyond a doubt he could get it. That is if his real intentions were to actually carry out military operations. But why on earth does it appear he wants this war?
Meanwhile, the U.S. might consider parallel action as suggested in A Better Syria Option: Cyber War

Pipelines
Mr Harper is pressing the U.S. hard on the Keystone pipeline issue. The media report  Harper offers Obama climate plan to win Keystone approval that  he has sent a letter to President Obama formally proposing “joint action to reduce greenhouse gas emissions in the oil and gas sector,” if that is what’s needed to gain approval of the Keystone XL pipeline through America’s heartland. It may work according to the brilliant and detailed analysis The President and the Pipeline — The campaign to make the Keystone XL the test of Obama’s resolve on climate change, by Ryan Lizza of the New Yorker.
Meanwhile, the timing of Joe Oliver’s visit to Washington to lobby on behalf of Keystone appears particularly unfortunate in light of the mega developments on the international scene.

Japan
In early August, there was disturbing news that the damage to the Fukishima Dai-ichi nuclear plant had reached emergency proportions — leaks from pipes and concerns that water was seeping from damaged reactor buildings into the ground. In a measure viewed as countering concerns that would affect its bid for 2020 Olympics, Japan now proposes to build a gigantic subterranean ‘ice wall’ to stop the leaks of radioactive water. While there are skeptics, the IOC was apparently not among them as Japan has won the bid to host the 2020 Olympics, but as Reuters is quick to point out Japan Olympic win boosts Abe, but Fukushima shadows linger while Al Jazeera underlines Fukushima’s financial fallout

Quebec
The National Post trumpets that Quebec ‘values charter’ details to be released Tuesday morning after days of debate – those days of debate are nothing compared to what will follow! A propos Mme Marois, we highly recommend Paul Wells entertaining – and accurate – post Pauline Marois: Protecting Quebec against the fate of England
Three additional must-read items on this topic:
Beryl Wajsman: The “Values Charter” – A different perspective
Pearl Eliadis: Why the Charter of values is bad for Quebec, Canada, and the world
Quebec is once again threatening to appeal to heritage and “values” and to disconnect “values” from rights.
Lise Ravary: Quelques pages d’histoire anglaise…

Miscellaneous
A fascinating turn of events, given Wednesday Night’s association with the late Knut Hammarskjold
Dag Hammarskjold death: UN ‘should reopen inquiry’
(BBC) A commission looking into the death of former United Nations Secretary General Dag Hammarskjold has recommended that the UN reopen its investigation.
Mr Hammarskjold’s plane was travelling to Congo on a peace mission in 1961 when it crashed in Zambia.
A UN investigation in 1962 failed to find the cause of the mysterious crash.
The commission said there were significant new findings, and that the US National Security Agency might hold crucial evidence.
Harvard Business School Case Study: Gender Equity – fascinating experiment in social engineering at HBS
When the members of the Harvard Business School class of 2013 gathered in May to celebrate the end of their studies, there was little visible evidence of the experiment they had undergone for the last two years. As they stood amid the brick buildings named after businessmen from Morgan to Bloomberg, black-and-crimson caps and gowns united the 905 graduates into one genderless mass.
But during that week’s festivities, the Class Day speaker, a standout female student, alluded to “the frustrations of a group of people who feel ignored.” Others grumbled that another speechmaker, a former chief executive of a company in steep decline, was invited only because she was a woman. At a reception, a male student in tennis whites blurted out, as his friends laughed, that much of what had occurred at the school had “been a painful experience.”
Please stop defending the word ‘like.’ It, like, still has no place
… Nor am I convinced that the addition of like to a sentence creates a pause the way an “uh” or an “um” does: Like-filled sentences can be just as fluid and rapid-fire as any other; indeed, teenagers’ speech often seems faster to me than others’. It’s a real stretch to try to convince me that this style generates greater clarity or comprehension – particularly as we’ve all just come through a couple of weeks of hearing recordings of Martin Luther King’s speeches all over the media. That anniversary was bad timing for the pro-like crowd.
And a more frivolous item:
Chanel as collateral: Hong Kong firm gives handbag-backed loans
HONG KONG (Reuters) – In designer-obsessed Hong Kong, keeping up appearances can be hard on the pocketbook. One company has an answer: cash-strapped shoppers can get money quickly by pawning their Gucci, Chanel, Hermès or Louis Vuitton luxury handbags.
Yes Lady Finance, a mortgage brokerage, offers loans within half an hour of up to 50 percent of the new bag’s value, giving customers four months to repay at an interest rate of 4 percent.
If the client fails to pay back the loan, the bag is sold by the company’s retail arm Milan Station Holdings Ltd at one of its second-hand designer stores.