Power And Dollar

Obama’s Nafta leak denial and Harper’s Mission Accomplished


Obama denied he back tracked the NAFTA through his economic adviser to Canadian diplomats.  Canadian Prime Minister Harper promised to investigate how this information got leaked – not denying that it happened.  The second part is the key.  So, Harper got what he needed: he discouraged the most anti-NAFTA candidate of the 2 Democrat candidates to have a conversation.  In fact, Harper got what he expected: Obama said he did not mean it.  

Now, why the leak?

Harper wanted to establish the fact that “Obama does not mean to re-negotiate NAFTA”.  Harper thought it was very likely that Obama would win Whitehouse.  Harper then decided to push Obama to promise that he would not because Obama has no chips to bargain back at this moment (one can only bargain when at strength).  That is why Harper said no, you do not want that.  On top of that, Harper wanted to make sure no one is getting away with it.  So, he decided to leak it.  Of course Harper expected Obama to deny it.  And so, an investigation ensured, which will drag on.  And this investigation will produce the result to the effect that “yes, it actually happened” with whatever memo, audio or video files necessary to put in front of Obama, if he ever one day decides to negotiate NAFTA.  That’s right.  This investigation will not end until Obama says “let’s re-negotiate.”  Harper just did not trust a much stronger neighbour, especially someone he did not even meet.  And Harper will not have much chips by then.   Harper got his Obama promise.  And he will have something to show for it before the Americans’ TV, just in case.  

This later package is what makes Harper feel comfortable about the promise.   Harper’s mission is accomplished.


March 10, 2008 Posted by | america politics, canada, canada economics, canada politics, Current Affairs, obama, politics, US politics | Leave a comment

Canada Unemployment Data and $$

Ignore the Arbor story.  Ignore the NAFTA leak probe story.  They may provide some content for talk shows, but they matter not to anyone’s pocket money.  

On 2008.03.05, Toronto Real Estate Board published the sales record for 2008.02.  The result is “respectable”.  Today, StatsCan published the employment/unemployment figures, +43k jobs, higher than the +3k jobs from Bloomberg’s pooled 21 economists.  Immigration policy continues to favour home building industry.  Reading these 2 news would lead anyone to think that Canadian housing market should continue to do well.  Therefore, buy more builders’ stocks. 

You may want to read the news more carefully before you hit the confirm button.  Ontario is the leader of the pack.  Some losses are in manufacturing, but still a positive for Ontario.  A lot of white collar jobs to offset the manufacturing jobs.  And the majority of the growth comes from home building jobs.  And this is where my caution is. 

Does Canada truly have the domestic demand for the housing sales?  Canada is having a decade long housing boom, especially Toronto.  Canadian economy is heavily dependent on US.  The Canadian balance sheet is risk averse to US that everything, including Canadian elections depends on US trade.  

The job growth in building industry is a time lagged data.  A lot is purchased.  Then a building permit, blue print, etc.  This is a long time.  While the sales is slowed, the building process has to continue.  It may slow down, but it has to continue because the cost of stop is worse (the builder still has to pay for interests).  However, sales may be low or even at a loss, at least the builder can minimize the loss when compared to costs of inaction.  Furthermore, a builder can control supply: they can simply sell 2 units at a time.  Note that this is a luxury that only the supply side can afford and is denied to the demand side.

In the short term, meaning within a half a day trading period, or 1 day trading period.  Stocks will of course do well in TSE.  However, institutions will go over the figures.  A retail investor like you may not be able to afford that kind of work.  So, be very careful.  Do not jump on this opportunity to buy.  If you wish to sell, well, you can get a few extra % of gain based on today’s rally sentiment.  

This affects the Flaherty vs McGuity feud a little bit.  It makes McGuity the argument that “Ontario is trouble” weak.  However, McGuity can find reasons to say what provincial policies made it work and to discredit “lowering corporate tax” becomes a no-use medicine.  Anyway, this is immaterial until election time.  Sit back.

March 7, 2008 Posted by | canada, canada economics, canada politics, Current Affairs, economics | 2 Comments

Who wants to re-negotiate NAFTA in Canada?


NDP’s Layton wants to negotiate NAFTA.  Conservatives says they want to negotiate too.  Well, that seems like the country can get some consensus since the left most and the right most parties agree. 

Not so fast.  Harper says it would be a mistake for the Americans to renegotiate.  This is a warning.  Harper actually does not want to renegotiate.   No, this is nothing ideological.  He is being very practical.   Harper is Albertan, but he is not reckless to lose his next election.

You would want to initiate negotiation only when you are at strength.  Harper is only saying I dare you to negotiate: discouraging Americans from negotiation.  Oil is at $100 USD / barrel.  Canadian dollar is about at par.  Why aren’t Canadians at strength?

Who needs the other partner more?  The one who needs more of the other is at disadvantage and has less chips on the bargaining table.  Canada continues to have more than 3/4 of its exports going to the States.  This factor alone is a good start. 

Oil? Sure America is dependent on Canada to sell.  Is Canada selling to anyone else though?  And, remember America secured Iraqi reconstruction contracts?  Remember who got the drilling rights?  How much royalty will they have to pay for the Iraqi oil?  Oil price may fluctuate.  But please do not doubt the supply of oil going to the States. 

If Canada truly wants to re-negotiate NAFTA more to their liking, then the first thing to do is to broaden its own customer base: export products to other countries; reduce its own external political risk.   

International negotiations are to secure their national interests.  Negotiators are responsible to their domestic constituency.  Fairness is about the best deal your chips can buy, not about balancing your gain versus their gain.

March 3, 2008 Posted by | america politics, canada politics, Current Affairs, politics, US politics | , , , , , , | Leave a comment

Is “laissez-faire” outdated? Is government participation anti-free market?

“Harper government’s style caught in time warp, McGuinty says”Globe And MailKAREN HOWLETT AND STEVEN CHASE From Wednesday’s Globe and MailFebruary 20, 2008 at 4:26 AM EST

http://www.theglobeandmail.com/servlet/story/RTGAM.20080220.wmcguinty20/BNStory/FrontCanadian federal government thinks Ontario is “lack of vision” and is the one responsible for the sluggish Ontario economy.  Ontario provincial government thinks the federal government’s idea of more tax cuts (business tax cuts) would save the province is “in a time warp”.  Why? 

The federal government is employing the most traditional economic thought that says do nothing is the best government.  And therefore, the best and only tool for affect market behaviour is taxes.   

Ontario government is saying: Not only is business tax cutting not the only tool, but also not the best tool in this case.  Worse yet, it is no longer an effective tool.   

The first question that sets them about is:

Is tax the only tool to improve the economy? 

If taxes were the only tool, then it is the best tool.  So, let’s look at this first.  The government can also make laws to make the market behave in a certain way.  For instance, Chretien made government matching fund to RESP.  And that created a huge investment market for RESP funds.  That is a good example.  Government can purchase more Canadian made low emission buses to drive down the manufacturing costs and therefore to be in an exporting competitive position.  The counter example of this is snow bird.  The aviation/aerospace industry of Canada got killed because the snow had no contracts.  So, government can do things other than taxes. 

The second question:Is tax cutting the best tool?

Depends on the problem and the objective.  Obviously, if the problem is inflation, then cutting taxes would make it worse.  So, what is the problem with the Ontario economy?  Currently, the manufacturing is having problems.  The currency is high.  Well, you cannot help this one and this will continue for quite a while.  Ontario goods are competing against China and India.  Well, that means product upgrade.  In this situation, business tax cuts can help.  And there are other ways to help.   

Many manufacturing owners will have to liquidate their assets in the years to come due to retirement.  New generation of business owners may not set up shop here.  Why: they are immigrants from China and India.  And they are capable of managing their assets overseas.  So, this would undercut the tax effectiveness right away.  “If China/India can produce those goods, why do it here?” they would ask.  If anyone is to manufacture products here, these goods must be higher grade products that they cannot produce in China/India.  High technology is an answer.   

Does Canada have these technologies?  How can Canada develop new technologies?  That is already something Canada or Ontario government can do.  The government does not need to develop the technologies.  The government can create an environment where the brains can get to work on the technology development.  For instance, can patent filed easily?  Does the province/country have strong intellectual property laws?  Is graduate education student friendly? I.e. can students afford to go to graduate school?  Notice that they are the actual assembly workers in technology development in a lot of cases.  If the students have to work to pay for tuition anyway, why not let them have part time jobs available only to the students? And campus jobs for full-time students’ income tax free?   

Does Canada have enough demand for the goods? Even Canada may have tax cuts, there could be no demand for the goods.  To create demand, the tax cuts should be placed on the personal income tax, especially in the form of increasing personal exempt is the most effective way of creating demand across the board.  And the government can reduce the need of welfare if it is to increase personal exempt.   

How can Canada develop more demand overseas?  Flag follows the trade or trade follows the flag?  The government, in international trade as well as in any aspect of its function, is to protect the interests of its citizens.  A do-nothing attitude in international trade is to do nothing to protect the interests of Canadian citizens.  What is the government to do in promoting international trade?  Market Canada.  Canada is brand.  What can one say about a Canadian product?  Or, can anyone name a Canadian product?  A lot of people can name French products, say about the French product.  Have Canadian governments to introduce Canadian firms to new overseas opportunities?  For instance, with all the infrastructure projects going in India and China, which Canadian financial institution participated in their financings? 

Stock exchange (or futures exchange, options exchange, etc) are also important financial infrastructure.  Have governments of Canada tried to promote the Canadian exchanges?  Ever US implemented SOX and other regulations in SEC, banking and other financial industries, doing business in the states is getting more and more expensive.  So expensive that London got more IPO than NYSE in 2006.  Why can’t Canada get a share of that pie?  Canada is definitely cheaper to get listed, close to US, where the main and ultimate market is.   

Toronto/Vancouver are good points from North America to fly to a lot of major Asian cities because they take less time in the airport to fly, and they take less flying time to those Asian cities.  And these 2 cities take about 1 hour to reach a lot of North American cities as well.  This is a unique quality to be an institution’s HQ: cut down travel cost between the executives and their highest potential market.  Yet, Canada does not have a lot of HQs. 

Is the Canadian market a competitive market?  Only a competitive market can create competitive products.  How many monopolies or oligopoly markets in Canada?  Airlines, bookstores, landline telephones, cable TV, gas, electricity, intra city transits, cell phones, banks are all either monopolies or oligopolies. 

Media content is another business Canada needs to stress on.  This is one way not only to define a Canadian brand, but also a revenue source.  This is the dark time of the USA brand.  And Canadian media content compete in the English language market.  So, this is the time to be aggressive.  Are there Canadian film-nights in foreign campuses?  Who markets them?  Do Canadian companies how to market them overseas?  Or are they relying on some American content distributors?   

There are a lot of things that can be done.  All of them are not related to business tax cuts.  

February 20, 2008 Posted by | canada politics, Current Affairs, politics | , | Leave a comment

Manley is getting warmed up


Why did Manley accept to head Afgan panel chairmanship?  Harper wanted to see the divide in the post Dion Liberal leadership contest.  Manley did not want to participate in the last leadership contest since Martin’s contest was too bitter and it would have been difficult for Manley to unite the whole party anyway.  That open race gave Canada Dion.  If Liberals continue to stay weak, Dion will be out after the coming federal election, whenever that is.  And it is only then could Manley go for a contest.  For that reason, Manley has stayed with his private law practice in Ottawa. 

However, Manley was not out of politics.  He was already preparing for the next round.  He cultivated his clientele properly.  He enlarged his donor base.  He continues to reward his supporters in order to oil/maintain his political machine. 

The fact he accepted the panel chairmanship was an indication that he wants to stays current in the TV box so that voters will not see him as outdated, as voters would see Sheila Copps as outdated, should she choose to run for leadership again next time.  Even today, many people may already find Sheila Copps outdated, but not really so for Manley, although Manley has more white hair than Copps.

Harper “may” make Manley a super envoy means Harper already thinks Manley would accept the position, whether it was communicated between the two is another business.  After all, even if they did not communicate personally fact to face, they had been MP together for a long time.  If they did not know each other that well, there are enough people to serve as the go between.  So, this mutal understanding is immaterial.  The fact remains that there is a great certainty the buyer and the seller have met.  The dealing probably is still on the pending status and not closed.

The next question to ask:

Why would Harper want Manley?  Why wouldn’t he reward some of his allies?

One: maybe Harper prefers fighting Manley, thinking Harper would be in an easier position to beat Liberals if Manley were in charge.  Manley, ideologically, is a little more right than some of the Liberals, especially in the environmental issues.  Manley’s donor base is the traditional Liberal type.  This is a clear advantage to Harper.  An elitest right wing/middlepath party cannot compete against a populist right party because public funding for election has rubbed off the benefit of being financially elitest.  Public funded election is about head counts.  Election without public funding is both head counts and dollar counts.

Two: Harper wants to see a divide after Dion.  Harper wants to see a bitter fight within the Liberals.  Harper may not be too concerned if Manley is a better politican than Harper.  Harper may simply be thinking that the divide would weaken Liberals greatly and make the good Manley (however/what this good is) ineffective. 

Did Harper see Manley vs. Rae? Manley vs. Ignatieff?  Manley vs. Kennedy?

Harper probaly would not have been concerned with Rae.  Time will take care of this problem already, however good Rae is.  Kennedy?  Harper may think the loss of Dion may weaken Kennedy as well since Dion does not represent an interest as much as an ideal (and some Quebec tradition).  Besides, Kennedy means the left would get very crowded and leaving more space to right for Harper to take.  Harper should be fairly comfortable with that.  Harper was probably thinking about Manley vs. Ignatieff or Manley vs. unknown.  Harper wants to strengthen Manley so that there will be a long lasting, bitter, trench warfare among the Liberals for the years, just like Chretein and Martin. 

February 20, 2008 Posted by | canada politics | , , , , | 1 Comment

Gore and Dion

Part 1:

Part 2:

Part 3:

December 17, 2007 Posted by | canada politics, Current Affairs | | Leave a comment