Gleanings II ~ 503 ~ Compliments of Nick Rost van Tonningen Posted by John on March 17, 2013
Some of you may expect me to comment on the Alberta budget. I shall be brief. There is little to comment on. No matter how much lipstick one puts on a pig, it remains a pig. A $6BN shortfall on a $38BN revenue base, no matter how it’s dressed up, is still a big bloody hole & a sign of world class fiscal irresponsibility. For most of the past three decades successive Alberta “Conservative” governments have spent money frivolously, & often irresponsibly (a young columnist in one of the local ‘rags’ just had a column on how, a few years ago as a vote-buying move, the MLA, who had both feet in the trough since long before the columnist was born & who since has retired with a million dollar golden handshake, had promised the 8,500 inhabitants of a small town in his constituency, a $40MM overpass, just two miles away from an already existing one on the same highway network, a project that might have gone ahead but for the government’s latest ‘financial crisis”). They have insisted on subsidizing the current generation’s lifestyle by eating into their patrimony at their children’s & grandchildren’s expense. And the present lot is no better in that respect, & no less vision-less, than its predecessors in the past three decades (with a fleeting, out-of-character exception in the mid 90’s). This government says it has a revenue problem & others, with more justification, that it has a spending problem. But the real problem is, & has been for a long time, that Alberta politicians don’t have a clue about what the world is all about and, like most politicians, but only more so, are shortsighted & gutless, & don’t have the balls to tell the Province’s denizens that, if they want services, they’d better be prepared to pay for them. Basta!
According to The Economist the major central banks are “experimenting with a shift in approach … alter the public expectations of interest rates and inflation and the economy …tolerating higher inflation … (and) bond investors have begun to price in higher inflation …(although) just how far each central bank is prepared to go is still uncertain” – central banks have joined the politicians in ‘rolling problems down the road”, which always ends in tears – I pity my grandchildrens’ generation who will end up paying for my generation’s excesses (see Exodus 20 :5).
In an article entitled The Bloom falls off Treasury Debt, the Wall Street Journal postulates that investors are starting to demand larger (risk) yield premiums than on “comparable securities of other wealthy nations” – if so, & the Fed remains determined to keep rates “extraordinarily low”, this can only mean one thing, over time it will have to start “eating” more & more of the Federal debt.
According to Moody’s the share of investment grade corporate bonds accounted for by those rated A3 or Baa has doubled since December 31st, 2007 to 62% of the total outstanding, thereby (significantly?) increasing the average risk profile of the nation’s corporate bond portfolio.
With the IEA in the van, some people dream of fracking turning the US into an oil exporter, & others that oil self-sufficiency will eliminate America’s current account deficit. Both overlook the fact that fracked wells have unusually high depletion rates (65% in the first three years isn’t uncommon). And here’s more news of the “cold shower” variety : one US investment bank says that in the last decade the energy component of the payments’ deficit has just been 30%-50% of the total & that it would take a doubling of domestic oil output (& a US$95 WTI price), or a doubling of natural gas output (& a US$8 price) to just wipe out that part of the deficit. Furthermore, that a continuation of the present growth trends will reduce the current account deficit by just US$45BN/year (i.e. by < 10%).
With the stock market at-, or near, all-time highs, insiders are selling shares in their own companies with great abandon, while often those very same companies have active “buy-back” programs (that enable insiders to get a good price. While insider buying has always been a better leading indicator of where a company’s stock is headed than insider selling, there have been many, often spectacular, instances in which heavy insider selling in a combo with buy-backs have been a harbinger of stocks heading for the crapper.
Long-term unemployment (out of a job for a year or more) is bad, not just because of the human misery it causes as people lose benefits, & progressively lose work place skills, but also, & more importantly in a societal sense, because many employers see long-term unemployed as ‘damaged goods’ & prefer to hire those with recent employment histories. A chart in a recent Economist of the long-term unemployment situation in a dozen OECD member countries is illuminating. For it shows that, between the Fourth Quarter of 2007 & the Second Quarter of 2012, in only three of its 12 member countries covered the ratio of long-term unemployed to the total number of unemployed declined in only three countries : Germany (from 58% to 46%), the Netherlands (40% to 35%) & Slovakia (75% to 66%). The others were Ireland (48%/63%), Greece (49%/58%), Italy (45%/55%), Spain (20%/42%), France (40%/41%), Japan (36%/38%), Britain (22%/37%), the US (10%/30%) & Canada (7%/12%)
I have never had much use for John Baird, Prime Minister Harper’s favourite ‘pit bull’ & stand-in to accompany Mrs. Harper to social events he wants to avoid, and currently Canada’s Foeriegn Minister. He validated my assessment of him on March 8th when I attended a gathering for him. For he said in the same sentence that “the Keystone is our priority” & that “we need to diversify the markets for our oil” (I never had the chance to ask him how he reconciled those two) &, after the event, rather than “working the room” as a good politician would, he stayed put & let the fawning acolytes come to him. And he further validated it five days later in Hongkong when he told an audience that opening up Asian markets for Canadian oil was “a priority” for the government of Canada. One problem I have with his attitude is that I long ago learnt that in investment, & most other human endeavours, one can only have only one objective, all else by definition being constraints (something the world’s central banks are increasingly ignoring – the Bank of Japan’s new Governor said he is contemplating increasing the number of its objectives from two to three!) – so all the effort Ottawa puts into promoting the Keystone comes, & must come, at the expense of the effort it can make promoting the alternatives. And my second problem with him is that in this day & age of an all-pervasive media, Tweeting & the Internet, politicians can no longer, as Sir John A. Macdonald, Canada’s first Prime Minister, was wont to do, stand on a farm wagon in one town & tell people one story & later that same day to tell a conflicting story to a different crowd in another town, ten miles down the road. With someone like him representing Canada abroad, it’s small wonder that, as one-time Prime Minister Jean Chrétien recently opined, “Canada has lost stature internationally”.
Air Canada, Canada’s biggest & flag carrier airline, has a $4.2BN hole in its pension fund. In 2009 it got some funding relief but the hole has gotten bigger since. And that relief will expire next year. So it has asked for more of the same, suggesting it be allowed to pay in $150MM a year for ten years towards making good the shortfall, not entirely unreasonable so since, when interest rates start rising again, so will the discount rate applied to its future pension liabilities, thereby shrinking their PV. And the government agreed, with some minor tweaking : they must contribute a minimum of $150MM/year, but the term has been shortened to seven years during which the average annual contribution must be $200MM. And then it imposed restrictions over & above that : increases to executive compensation must be limited to the rate of inflation, no special bonuses can be granted, management incentive programs must be constrained & it cannot pay dividends or engage in share buybacks. A gold star for Ottawa!
Zhang Zhuoyuan, an economist at the Chinese Academy of Social Sciences, says that 90+% of all government officials oppose the idea of property taxes because they are big property owners themselves – property taxes would be an economically more sensible & socially potentially less disruptive revenue base for municipalities than having to depend on land sales. This is the kind of deeply-entrenched, self-serving resistance to change among the apparatchiki that will retard, if not frustrate, the much-needed reforms that Beijing may attempt to orchestrate (although it has one means of overcoming it that, alas in some respects, western democracies lack, namely the ability to have a few ringleaders sentenced to long prison sentences, or death, on trumped-up charges.
There is talk in China that more migrant workers than expected didn’t return to their jobs following the New Year’s holiday – so wage-inflation cost pressures will likely continue to escalate in its Eastern industrial “heartland”. And as to the reason why, there are two possible reasons. More job opportunities are opening up in the hinterlands, or the workers have decided that the extra money doesn’t compensate for the working conditions. Be that as it may, they have likely acquired skills while away that will benefit their home community. Meanwhile the country’s passenger vehicle market was off to its fastest start in three years with wholesale deliveries up 20% YoY in January & February to 2.84MM (while in India they were down to 498,914, even though in January industrial production grew at nearly twice the expected 1.3% rate).
In December Russia agreed to sell 4 Amur-1650 diesel submarines to China & in January followed that up with one to sell it 24 of its latest model SU-35 long range jet fighters. If these deals materialize, they it will be the first Russian sales of offensive weapons to China in a decade, & its first-ever sale to China of more powerful weapons systems than India possesses .
Given the sudden interest in the Jesuits, who have long been regarded by many in the Church as “a little too practical, too independent & too powerful for their own good”, generated by the election of the first-ever Jesuit Pope, the following historical tidbits may be worth of note :
-the 1814 Norwegian constitution banned them from that country (along with Jews & other monastic orders), a ban only revoked in 1956, & they were banned from Switzerland in 1847 following the Sonderbund War (a brief civil war prompted by seven Catholic seeking to secede), a ban not lifted until 1973;
-the Yad Vashem Holocaust Memorial in Israel that honours the “Righteous among the Nations”, i.e. non-Jews who saved the lives of Jews during the Holocaust, contains the names of no fewer than 14 Jesuits;
-the Jesuits have long been big on education; to this day their efforts in this field are guided by the 1599 document that goes by the truncated name of Ratio Studiorum;
-in the late 1500’s Jesuits founded the Japanese city of Nagasaki & ruled it for a decade as a Portuguese colony that served as an entry point for Portuguese imports. And in 1945, when an atomic bomb was exploded there, two-thirds of all Japanese Catholics still lived there;
-eight Jesuit priests are said to have lived in a house in Hiroshima in 1945, one mile of the detonation point of its atomic bomb, the only one in the district not to be flattened by the blast, & to have survived unharmed & to have lived normal lives thereafter (which some have compared to the Bible story in Daniel 3 about three men ordered thrown into a furnace by Nebuchadnezzar, only to survive unscathed.
GLEANINGS II – 503
Thursday March 21st, 2013
INSIDE THE RING : ASIA PIVOT THREATENED (Washington Times, Bill Gertz)
-National security officials & the Pentagon are voicing growing concerns the second Obama Administration will jettison its still relatively new “pivot” policy (to increase its military muscle in the Western Pacific & Eastern/Southeast Asian regions) which had much upset Beijing, especially the component known as the “”Air Sea Battle Concept” that aims to achieve more integration of, & cooperation between, the US Navy & Air Force in the region.
-Their reasons for their doing so include the following :
-a senior Chinese official who recently visited Washington was purportedly told it plans to do so as part of a more conciliatory approach to China – while possibly ‘misinformation’ floated by the Chinese, it would fit John Kerry’s ‘dovishness’;
-the Administration hasn’t said much about revelations China has for years been conducting cyberespionage attacks on the US, some of them traced back quite convincingly to an entity associated with the People’s Liberation Army;
-its lukewarm support for its Asian allies in their territorial disputes with China & its low-key approach to Prime Minister Abe’s recent to Washington;
-the departure from the State Department of Assistant Secretary for Asian Affairs Kurt Campbell, the pivot strategy’s godfather; and
-Admiral Samuel J. Locklear, Head of Pacific Command, telling lawmakers recent budget cuts & the sequester have undermined his ability to implement the pivot.
Abandoning it would continue the erosion of the US’ superpower status started under Bush 43, & drive its Asian allies into being ‘bear hugged” by the Dragon.
LIKUD TO LAPID : NIX DEMANDS OR WE GO TO HAREDIM (JP)
-On Thursday March 14th Likud sources said that, if Yair Lapi, the leader of the centrist Yesh Atid party, doesn’t back down from his “exaggerated” demands Netanyahu will have to launch “rapid fire” coalition negotiations with the haredim parties (to whom he had already been talking for two days). But a Yesh Atid source said its insistence on getting the Education Ministry is not just about portfolios but about Israel’s future image and ‘the Education Ministry determines that’. In recent days the coalition negotiations have stalled on three things : Yesh Atid’s insistence on the getting the Education Ministry &, Naftali Bennett’s push, after losing the Finance Ministry to Yair Lapid & falling one short of the four ministries he had targeted, for the Chairmanship of the powerful Knesset Finance Committee (that Likud wants for one of its own),. This has caused cracks to develop in the 33 Knesset seat Yesh Atid/Bayit Yehudi/Kadima that Netanyahu is trying to exploit.
I scrapped my earlier, longer, & now prophetic, comment for the sake of space. It said Netanyahu faced a double deadline, and he, the master of divide & conquer, had met his match & was bluffing a weak hand (for a coalition with the haredim wouldn’t have the votes & give Tzipi Livni too much power). The only thing I am retaining is that Bennett, by stating publicly that, while he consults rabbis, he doesn’t take orders from them, made a bold statement for a practicing Orthodox Jew, broke a two decade-long tradition & upset some of his Zionist followers.
LAPID, BENNETT VICE PREMIER TITLES STALL COALITION (JP, Halav Harkov)
-After the “final” coalition agreements were signed on March 13th, a last minute hitch occurred when Lapid & Bennett learnt from the radio that Netanyahu was welching on his promise to give them both the largely honorific title of being his Deputy (this will be the first time in 50 years there will be no such designation). Netanyahu told his followers that by retaining both the defense & foreign affairs portfolios, the party had retained control of “the most important ministries, the areas of responsibility that let us manage the country (which is pure bluster since Lapid will be Finance Minister & Bennett did end up getting the chairmanship of the Knesset Finance Committee – that must approve every government expenditure- for his party), & that it would have a majority in Cabinet.
Despite his bluster Netanyahu is seriously weakened. The new 22-member Cabinet (down from 30 in the old government) is expected to be sworn in on Monday March 18th, two days before Obama is supposed to visit. It will have eight representatives from Likud, five from Yesh Atid, four from Yisrael Beitenu (Lieberman’s party), three from Bayit Yehudi & two from Hatnuah, Tzipi Livni’s party. Lieberman will not be formally part of it unless & until the criminal charges against him are dealt with; in the meantime, Netanyahu will act as his own Foreign Minister & the Department will be run on a day-to-day basis by the Deputy Foreign Minister. Bennett will have the industry, trade & labor portfolio (whence he can direct subsidies to those he favours) & act as Public Diplomacy Minister (with a mandate to convince the world there is no settler problem), and his party will have two other ministries and the Knesset Finance Committee. Lapid & Bennett forced the creation of an 1,800 quota on the number of ultra-orthodox young men who can be exempted from military service (up from the 400 that Lapid had targeted but only a fraction of the 7,000 that each year turn 18). This will create financial hardships, if not outright bankruptcies, for the yeshiva schools & caused one ultra-orthodox politician to call it “a revolution in Israeli society” that would be strongly opposed & that would force young ultra-orthodox men to “join the work force rather than learning”. Lapid did secure the Education portfolio for his party, as well as undertakings to have a universal draft law in place before even the 2013 Budget & a core curriculum for all Israeli school children within 2½ years (although it remains to be seen whether these will be worth the paper they are written on), to create a ‘Housing Cabinet’, chaired by himself as Finance Minister (that will enable him to implement Yesh Atid’s program plank for more rental housing), & to hike benefits for Holocaust survivors (of whom his late father had been one. By and large, despite his party having fewer seats than Yesh Atid, Bennett may have fared slightly better than Lapid; for he got ministries that will help him further his agenda, as well as the Knesset Finance Committee, whereas, while Lapid got Education, he also got stuck personally with Finance & got a few promises from Netanyahu that may not materialize. If there is any agreement on anything at all among observers, it’s that this will be by far the most settler-friendly government in Israeli history. The Minister of Defense has a great deal of influence over settlement construction & the new (Likud) incumbent Moshe Ya’alon has been critical of his predecessor, Ehud Barak, for ‘dragging his feet on the construction of settlements’ , while his Deputy is a settler himself. Bennett himself is, in his own ministry, in a position to boost the settlers’ case The new (Bayit Yehudi) Housing & Construction Minister in 2011 was named in a poll ‘the most pro-settler MK’ & is a strong supporter of the ‘Greater Israel’ movement (that wants to just annex all of the lands of Judea & Samaria, i.e. the West Bank, & get it over with, an idea that Bennett is not averse to either). And in the opinion of Zahava Gal-On, the Head of the far-left Meretz Party, “the economy will (now) be totally subordinated to continuing the extensive financial benefits the settlers enjoy at the expense of the rest of Israeli society.” While some people believe that the internal contradictions between Likud & Bayit Yehudi are so profound that the government will soon be deadlocked or fall apart, one political analyst quoted Israel’s Founding Prime Minister, David Ben-Gurion, in saying “this is a government that for its survival, to a large extent, will depend on its ability to avoid decisions on core issues.”
PERES URGES ARAB INTERVENTION IN SYRIA (Daily Star)
-On March 12th, in the first speech by an Israeli Head of State to the European Parliament in almost three decades, he called for Arab intervention “to stop the massacre” in Syria, saying “the free world cannot stand by when a massacre is carried out by the Syrian President against his own people … It breaks all our hearts.” But he also explained that intervention by Western forces would be perceived as “foreign interference.”
In politics, more perhaps than in any other human endeavour, the choice is often between two unpalatables.
EGYPT WILL NOT SIGN ‘EMERGENCY’ IMF LOAN (Daily Star)
-Egypt is seeking a US$4.8BN loan from the IMF to stave off a balance of payments crisis. But it has been stalled for months because this would entail committing itself to emergency measures that would lead to more political unrest. While the IMF said on March 4th that in the interim Egypt could get cash via its RFI (Rapid Financing Instrument) facility that can provide financial assistance to those with an urgent balance of payments’ need where a full-fledged economic program isn’t feasible due to “fragilities”, an idea the Finance Ministry was said to be studying, while Cabinet spokesman Alaa el-Hadidi, said on March 12th that Egypt would not sign such a loan (presumably since it would entail a ‘loss of face’). Meanwhile Egypt says it has come up with alternative to the ‘conditionalities’ proposed by the IMF for a full-fledged loan. Instead of raising the sales tax on 25 commodities it would do so on only six, incl. alcoholic- & non-alcoholic beverages, cigarettes, iron, & cement, increase the basic income tax exemption to 12,000 Egyptian pounds (US$1,780) from the IMF’s 9,000, only gradually hike fuel prices for energy-intensive industries, & ‘cap’ the budget deficit for the current year at 10.9% (whereas it is headed for 12.3%), & at 9.5% next year.
The whole situation is a cluster-f^&*. Capital is bleeding abroad. The economy barely, if at all, grew in 2011, in the Fourth Quarter of 2012 GDP was up just 2.2% YoY &, on a per capita basis, has flatlined since the fall of Mubarrak. All this creates insufficient employment growth, & hence political unrest, in a country in which the average age is 24.3 years & the fertility rate, at 2.70, way above the replacement rate. An IMF team is supposed to come to Cairo, but nobody there knows when. The IMF says it hasn’t received Egypt’s alternate plan. President Morsi called for a four-stage election to start in April & end in June, but on March 7th an administrative court suspended them after complaints about their legality (a decision he appealed on March 7th, which appeal will be heard on March 17th). Meanwhile, knowing an election is coming the Salafis (who, with 25% of the seats are the second-largest party in the current Parliament & have been the Muslim Brotherhood’s junior partner in the Islamist government) have gone after the Brotherhood hammer & tongs, accusing it, & President Morsi himself, of weak government, power grabbing & patronage, with a number of them having resigned from posts in government & in the President’s entourage. They have been frustrated by the Brotherhood that. according to al-Jazeera, considers itself the father of the nation whom all “should not disobey … (and) should [always] support …, even if he is wrong”. So they want to energize their voter base & put daylight between themselves & the Brotherhood, to the point they are rumoured to have even made overtures to the National Salvation Front, the main secular opposition party .
AHMADINEJAD LAMBASTED FOR TRIBUTE TO CHAVEZ (WSJ, Farnaz Fasihi)
-He declared a day of national mourning for him & wrote in his letter of condolences to Venezuela that he would be resurrected with Jesus Christ & Imam Mahdi (Shia Islam’s prophesied redeemer) to save humanity & bring justice to the world. This prompted almost universal condemnation & charges of sacrilege from clergy, officials & ordinary people, especially since the question of which mortals return with imam Mahdi on Resurrection Day is one seldom discussed, even among the most senior Shia clerics.
He will be gone by summer, His successor cannot help but be less of a clown. But it remains an open letter his as yet undetermined successor will be better or worse in real terms.
THE DRAGON GETS A BEAR HUG (The Hindi, Vladimir Radyunin)
-Once Russia sold China SU-30 MKK jet fighters that were no match for the SU-30 MKIs it had sold to India. But the Amur-1650 submarines it proposes to sell to China are far more silent & powerful than the Kilo class submarines the Indian Navy has (that have 30+year-old Russian technology). India’s SU-30 MKI jet fighters will be no match for the SU-35s, & China getting the latter throws India’s plans to buy French Rafale jet fighters into a cocked hat; for the Deputy Head of Russia’s top defense think tank says the SU-35 radar is so superior to that of the Rafales that they can lock on them before the latter are even know they’re there.
-The Russian Air Force itself is only just now getting its first SU-35s. While the Russia-China deal only involved 24 planes, when China first bought SU-27s it also only bought a few while ending up with over 200 of them & their ‘knock-off’ J-11s. And, while the Russian arms manufacturers see the China sale as a tit-for-tat for the Indian arms sales lost to US-, European- & Israeli competitors, the Russian strategic community is nervous about selling such advanced weapons systems to China. For in the past they illegally copied such systems & then marketed the knock-offs to third countries at prices the Russians couldn’t compete with. In fact some of them have called for halting all arms sales to China, with one of them saying “We should stop selling them the rope to hang us with.”
In a not dissimilar fashion, during the 1930’s, freighter after freighter steamed Westward under San Francisco’s Golden Gate bridge, bound for Japan & loaded to their Plimsol lines with scrap metal that a few short years later came back to haunt the US during WW II
IRELAND SELLS FIRST 10-YEAR BONDS SINCE BEFORE BAILOUT (Business.etc.)
-It targeted 3BN Euros-worth, got bids for 12BN & took down 5BN at a lower-than-expected 4.15% (vs. 3.70% on its benchmark eight-year bond). The last time it sold a ‘long’ bond, in September 2010, it had to pay 6.023% for eight years.
By comparison, the ten year yields on German-, French-, Spanish- & Italian bonds were 1.48%, 2.10%, 4.77% & 4.90% respectively. Ireland may not be there yet, but is turning the corner!
PARLIAMENT FLEXES MUSCLES : TOUGH TALK FOR EU BUDGET (Der Spiegel)
-Under pressure from Germany & Britain the 27 EU leaders, at a special summit last month, agreed to a first-ever reduction in a budget proposed by the EC, that for 2014-2020; whereas the latter had proposed 1TR Euros, the leaders cut that by 40BN Euros. But on March 13th the EU Parliament rejected the cut 506-161, with 23 abstentions. The December 2009 Lisbon Treaty provided for a bigger role for this, the only democratically-elected (albeit typically with a low voter turnout) institution in the EU, & its leaders appear to have taken this as an opportunity to bare their teeth & boost their influence in the EU’s decision-making process & power structure. The EC now must seek a compromise.
They not only rejected the budget but also made a number of demands designed to further enhance its role in, & control over, the policy making process.
THE DEMONS ARE ONLY SLEEPING (The Mirror, Jason Beattie)
-Luxemburg PM & EU ‘Man about Town’ Jean-Claude Juncker said on March 12th that anti-German feelings across the Continent have “chilling parallels” to the run-up to WW I, & he warned another war was not an impossibility, saying “”the demons have not gone away – they’re only sleeping, as the wars in Bosnia & Kosovo showed … I am chilled by the realization of how similar circumstances in 2013 are to those 100 years ago … too many countries are returning to a regional and national mindset.” And he told a German magazine (Der Spiegel) “The way some German politicians … lashed out at Greece when the country fell into crisis has left deep wounds … I was … shocked by the banners of protesters in Athens that showed the German Chancellor in a Nazi uniform … The Italian election was also excessively anti-German, and thus un-European … I see obvious parallels with regards to people’s complacency … in 1913 too, many people believed that there would never again be a war in Europe” (because the economies of the Great Powers were thought to be so intermeshed as to make them unable to afford military conflicts.
The war bit may be a bit over the top but he is absolutely right when he warns of the growing trend towards regionalism & nationalism. Daniel 2 : 41 applies “as you saw the feet and toes partly of potter’s clay and partly of iron, it shall be a divided kingdom …” : the Eurocrats’ rule was top-down & focused on the facade, rather than its underpinnings.
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