Wednesday Night #1882

Peter Berezin was felled by the nasty coughing flu that has been circulating all winter. However, his economic analysis was replaced by Peter Hall‘s discussion of the work of the Société Québécoise de L’Infrastructure, an organization with which none of us was familiar. Their mandate is to oversee the planing and execution of the Quebec government’s requirements in terms of office requirements, major government developments (e.g. the Quebec Hospital Centre)  and, as we understand it,  generally put some order in the hitherto scattered approach of the various ministries and agencies of the government.
Peter joined the board in December. He remains a board member of LCC Foundation and emeritus member of JMSB Board and Council member for World Sailing. He was admitted to the Québec Sailing Hall of Fame in November.
The evening was further enlivened by Sandy Wolofsky‘s entertaining description of her recent [ad]venture introducing new immigrants to the great Canadian sport of skiing at Chantecler. The day was a huge success, thanks to many sponsors and donors and she admitted that her greatest surprise was that it was not only the children who demonstrated considerable agility by the end of the day.
Wednesday Nighters were enthralled and insisted the program MUST be continued and expanded over the coming year – why not across the nation?

P R O L O G U E

As always, it is a joy to welcome Peter Berezin and to benefit from his world view.
Highlights from his most recent Q2 2018 Strategy Outlook:

• Global growth has peaked, but will remain firmly above trend for the remainder of the year. The composition of global growth is shifting back towards the U.S.
• As often happens in the late stages of business-cycle expansions, asset markets have entered a more volatile phase. A global recession is likely in 2020.
• Equities: The correction is nearing an end, which will set the stage for a blow-off rally into year-end. For the time being, favor DM over EM stocks, Europe over the U.S., and value over growth. The “real” bear market will start next year.
• Government bonds: Global bond yields will trend higher over the next 12 months, but will begin moving lower by the middle of next year as recession risks mount. Over the long haul, yields are going higher – much higher.
• Credit: Spread product will eke out small gains relative to government bonds over the next 12 months. Spreads will blow out as the recession approaches. Investors will be shocked to learn that a lot of what they thought is investment-grade debt is really junk (or worse).
• Currencies: The U.S. dollar will bounce before resuming its bear market next year. The yen could weaken slightly against the dollar in 2018, but will hold its own against most other currencies. Energy-sensitive currencies such as the CAD will outperform other commodity currencies.

In view of assorted political developments, there will surely be many questions regarding his take.

Gerald Ratzer may remind us that Tchaikovsky’s 1812 Overture premiered in Moscow in 1882 which would offer a suitable segue to events surrounding a) the investigation into the poisoning of Sergei Skripal in the beautiful cathedral town of Salisbury and b) the Russia probe in the U.S.

A propos the former, we encourage you to read Jeremy Kinsman’s astute analysis in Open Canada, Russian expulsions: ‘If there was ever a time for diplomacy, this is it’
Jeremy argues: “If ever a situation called for diplomacy, this is it. Effective “diplomacy” does not mean avoiding confronting facts in order to appease an adversary. It means deploying them in private to detoxify a crisis. Once it is communicated that Putin cannot continue as he has without real damage to Russia’s interests, there needs to be agreement for new rules and a roadmap for going forward, bearing in mind new technologies have new vulnerabilities to novel attacks.”
And, with this in mind, who is “the diplomat” to do it? Jeremy suggests “Emmanuel Macron relishes tackling intractable problems; he is probably the candidate with the most stature at this time.”

Current confrontations between the leaders of the U.S. and China/Russia/North Korea (to name a few) bring to mind the (in)famous Gunfight at the OK Corral of 1881 and the aftermath in the American Wild West of that era. Gerald reminded us last week of some of those events, asking who was Billy The Kid? (He might have stumped more people had he asked who was William Bonney.) But, brutal as they were, those gunfights were deeply personal and did not involve entire populations of innocents.

We are dismayed and worried by the continuing -and continuous- belligerent noises emitted from the White House. The tariff war between the U.S. and China (see U.S. escalates China trade showdown with tariffs on $50 billion in imports is now cloaked in a self-righteous U.S. declaration of trying to force changes in Beijing’s intellectual property practices, but we wonder how much Donald Trump cares about IP (unless it affects the trump brand) and why he is choosing to do this at a time when  the U.S. needs China’s cooperation in reining in North Korea.

Meanwhile, Bloomberg posits that the Trump administration is hoping to pull off a quick win for NAFTA by aiming for a provisional pact as early as next week reasoning that “a conditional deal on Nafta 2.0 would be a victory for the president just months before midterm elections in Congress that will shape the rest of his term. American lawmakers and business groups want the U.S. to stay in the pact, which Trump has threatened to quit.” Before getting too excited about this apparently positive development, the authors caution that such an agreement in principle “would likely stop short of a formal agreement the three countries could sign, let alone embark on the arduous process of seeking approval in their respective legislatures.” Canadian reaction is cautious.

What is all-important is that this move, as will be everything else over the next eight months, is framed in light of the mid-terms.
Is this an element of the cycles that Ron Meisels follows so closely?
Investor Fears of a Democratic Win in November Could Help Democrats Win in November
Stock market performance is one of many variables that could at the margins have an impact on the midterm elections this November. … in the 16 quarters that make up any four-year period, it’s the two preceding midterm elections — in which the party controlling the White House almost always loses some ground — where losses are concentrated. Clearly investors have come to anticipate political problems for the party controlling the White House. But when that White House is occupied by a president who has all but treated the stock market’s performance as a referendum on his leadership, you might expect significant erosion in the markets to have a greater-than-normal impact on the president’s party.

Whatever else happens, we can be assured of continuing turmoil generated by the occupant of the White House. With the most recent firings and reversals of positions, the signs are that “Trump is increasingly defiant and directing his administration with the same rapid and brutal style he honed leading his real estate and branding empire. He is making hasty decisions that jolt markets and shock leaders and experts — including those on his own staff. Some confidants are concerned about the situation, while others, unworried, characterize him as unleashed.” {‘Tired of the wait game’: White House stabilizers gone, Trump calling his own shots)

And Canada has been the beneficiary as Canada 150 research chairs draw scientists fleeing Trump, guns and Brexit

Speaking of elections, Tony Deutsch reminds us of the elections in Hungary this Sunday. The European Politico offers comprehensive coverage (Hungary’s election: The essential guide) of  developments throughout the campaign pointing out that while “Prime Minister Viktor Orbán was widely expected to cruise to a fourth term next Sunday, he has faced a surprisingly tense and bruising campaign in which spying allegations, fake news, leaks, counterleaks and corruption scandals have all featured.”

Congratulations to John Curtin on the completion of his oeuvre ‘Why the Jews’. This interview “Documentarian John Curtin Tries To Resolve The Question Of Why Jews Have Been So Successful” in NY Blueprint (of which we had never heard before) gives a good overview. The world premiere is in New York on Friday; Montreal launch is on April 28 during the Blue Metropolis Bleu Festival.

We will not use this as a lead-in to events in the Middle East – there needs to be an entire evening devoted to that topic – but we would call your attention to the visit of M.B.S. to the U.S. In particular the New Yorker profile The Ascent: A Saudi prince’s quest to remake the Middle East” and his declaration that Israelis Have Right to ‘Their Own Land’ “Instead of seeing Israel as an enemy, Prince Mohammed has come to view the Jewish state as an attractive regional economic and technological hub as well as a potential partner in the kingdom’s cold war with Iran. And part of that is recognizing Israel’s right to exist, preferably in the context of a peace deal with the Palestinians.” His subsequent declaration that Iran’s Supreme Leader ‘Makes Hitler Look Good’ fits nicely with the Trump administration stance against the Iran nuclear deal. As might be expected Al Jazeera is not thrilled: MBS’s Israel remarks’ timing ‘absolutely worst ever’ – Saudi crown prince’s comments come just days after killings of 17 Palestinians by Israeli forces during peaceful march.

As Canada gears up for the 2018 G7 summit in Charlevoix, Céline Cooper‘s piece in Open Canada examines  whether grassroots concerns ever catch the ear of G7 members, in particular that of the host country? With meetings already underway ahead of the Quebec summit, she  looks at the behind-the-scenes efforts to influence the group’s agenda. The students of Pearson College UWC had a unique opportunity to deliver their views to the G7 Sherpas last month – see G7 Personal Representatives of Prime Ministers and Presidents Meet at Pearson