Gleanings II – 475SP Compliments of Nick Rost van Tonningen August 27, 2012) Posted by John on August 27, 2012

Quote of the month : “Unfair as it may be, an investor should … expect an attempted inflationary solution to their (governments’) debt problems in almost all developed countries over the next few years and even decades.” (Bill Gross, Co-CEO of Pimco). The US is currently funding 30+% of its budget with borrowed money, & Japan 40+%. Between the two of them they account for roughly 30% of global GDP, & anyone who fails to perceive this spells trouble, … big trouble, is several bricks short of a load.

The latest crop report is that 51% of the US corn crop is suffering from the effects of “extreme” or “exceptional” drought conditions. But that’s old news. But it also says that 48% of the soybean crop is now in a similar predicament (which has started to negatively affect both total crop & yield/acre, forecasts) and that is real news since until recently it was thought the soybean crop had been significantly less affected. And what could give corn- & soybean prices a real fillip later this year is the fact the grain traders are known to have taken orders for more of these grains than are likely to be available, with the price effect thereof aggravated by the possibility that, as their prices rise, farmers will become reluctant to sell in the expectation that time is on their side. To make matter worse the NOAA (National Oceanic and Atmospheric Administration) is forecasting the drought may through October which would further complicate the movement of US grains to world markets because lower water levels in the Mississippi River system have already started to affect barge traffic-, & carrying capacities-, therein.

The OECD recently issued a report Environmental Outlook to 2030 that forecasts that by 203047% of the world’s population will be living in areas of “high water stress” (which al-Jazeera says will increase the risk of “water wars” (Man can live without food for as long as 60 days, but without water for only five), a risk that will be heightened by the fact that the impact will weigh heaviest on those least able to afford it : in the OECD the number of people affected will rise by only 20% & in the BRIC countries by 30%, but in the rest of the world, incl. Mexico by 50%).

In Europe the yields on the better quality souvereign bonds have gone negative. But banks must continue to buy them for liquidity-, & regulatory-, reasons. But investors in bank paper continue to demand, & get, positive interest rates. So the banks are getting negative spreads on their securities business which they are trying to compensate for by jacking up the rates on their commercial loans. In other words, while the central banks are pursuing an “easy” monetary policy, the commercial banks pursue a “tightening” one; so they operate at cross purposes to each other.

According to the World Gold Council demand for physical gold was down 26% QoQ in the Second Quarter as weaker retail demand in India & China for gold bars & coins more than offset a 63% QoQ/138% YoY increase in demand by central banks to 158 tons (up from the previous record highs of about 140 tons in the First & Third Quarters of last year), with the People’s Bank of China remaining a major, albeit by no means the sole, acquisitor of the yellow metal.

Last March the IJC (International Joint Commission), the body that monitors trans-boundary environmental agreements affecting the Great Lakes, made public a study on the water levels in them (that in Lake Huron, for instance, this year is almost two feet below its long-term historical summer average). It came up with a whole bunch of reasons for this but only very, very indirectly pointed the finger at the biggest boogeyman of all in this issue , the ‘great, big sucking sound’ as US states syphon off water from them at a greater-than-sustainable rate – once again people chose to ignore the critical difference between a “stock” & a “flow” : there may be a whole lot of water in the Lakes but its drainage basin, & hence the annual ‘replacement rate’, is relatively small.

Mark Carney, in a first-ever address by Bank of Canada Governor to a labour union audience, castigated Canadian corporations for sitting on hundreds of billions of, what he called “dead”, cash which he said they should either put to work or pay out to their shareholders in dividends. He pooh-poohed the idea they were doing so because of economic uncertainties & out of concern that another financial crisis may be in the offing, saying they could count on central banks to ensure that the latter wouldn’t happen – this seems like an uncharacteristically stupid statement by a very smart man. “Trust me” has long been the last refuge of a scoundrel (which, despite his Goldman background, he is not) & high level assurances that certain events won’t happen have far too often in the past been disproven by subsequent events & often have been an indication that the senior officials making such claims feel powerless to keep them from happening.

An NYT editorial on August 21st trashed the GOP platform draft being circulated for its August 27th – 30th National Convention in Tampa, Fla. as “ being more aggressive in its opposition to women’s productive rights & gay rights than any in memory … (its call) for constitutional amendments banning both same sex marriage and abortion … (being) mean-spirited and intolerant … (but it) represents the face of Republican policies in 2012.” And it says “it is farther out on the party’s fringe than Mr. Romney ventured in the primaries … (and) hews … closely to the views of his running mate, Paul Ryan, and the powerful right wing.” – meanwhile organizers worry that tropical storm Isaac may turn into a hurricane that could hit the Tampa area during the convention (a worry since proven groundless since it is taking a more Westward track & likely to will pounce on New Orleans seven years to the day after Hurricane Katrina.

In 2007 China’s GDP was US$3.5TR & America’s US$14.1TR. Four years later, in 2011, the former was US$7.3TR & the latter US$15.3TR; in other words, the former had grown by 109% & the latter by 9% (for those who wonder how this squares with their reported GDP growth rates, GDP growth is measured in real-, & GDP itself in current-, dollars; so the differential reflects both higher inflation-, and GDP growth-, rates in China than the US (as well as the stronger yuan).

In the past decade the volume of student loans outstanding in the US has tripled to almost US$0.9TR while tuition fees have gone up only about 75%. There are now about 40MM Americans with student loan balances, one in seven of whom is struggling to keep his/her loan current. Leading the pack are law students, almost 90% of whom have student loans – this is another aspect of middle class American families trying to maintain a higher standard of living than is warranted by their incomes by going deeper in debt (although this type of borrowing hopefully will have a payback in-, unlike that to buy cars or other consumer durables which borrows from-, the future.

It may be a harbinger of things to come that workers at a Caterpillar plant in Joliet, Ill. agreed, after a 3½ months’ strike, to having their wages frozen for the next six years & that the Ontario government is about to freeze its teachers’ salaries for two. And yet, ahead of a showdown with Canada’s Big Three automakers’ branch plant operators, the Canadian Autoworkers Union (CAW) says the employers should be grateful for the concessions workers made in 2009 to help the companies through their darkest days & thus have no ‘moral right” to demand more concessions, and that workers must now be rewarded for the concessions they made then. And then there is the Clerical Unit of Local 63 of the ILWU, a few hundred workers handling the paper work for the freight moving through the ports of Los Angeles & Long Beach, America’s largest. They have been without a contract for two years & are now about to go on strike even though their US$40.50 hourly wage rate (with overtime) yields many of them US$100,000 annual incomes on top of a benefit package valued at US$63,000/year, incl. a comprehensive health care plan worth US$41,000 per family, four to seven week’s holidays and retirement with full benefits after 10 years of service.

Horsham, Penn.-based Toll Brothers, is a leading US builder with operations in 50 markets in 19 states that specializes in building homes with price tags North of US$500,000. In commenting on its latest, twice- as- large-as-expected quarterly earnings it said that “We are enjoying the most sustained demand we’ve experienced in over five years … the housing recovery is being driven by pent-up demand, very low interest rates and attractively-priced homes … With an industry-wide shortage of inventory in many markets, we are enjoying some pricing power.” – a “green shoot” arguing against the need for a QE3 program?

Golda Meir, Israel’s Prime Minister during the early 70’s once purportedly exclaimed in exasperation ‘Moses dragged us for 40 years through the desert … to bring us to the one spot in the Middle East that has no oil’ (which was even then not quite true; for it was known even then that, like the US in the Bakken, significant reserves of oil shale & shale oil underlay its territory (for which, however, long neither the price structure nor the technology existed to allow its profitable exploitation). But recently it has been proven that Moses had just tested her patience. For after years of exploration & drilling with little, if any, success, things have turned around with a vengeance for Israel. First as much as 1½ BN bbls was found to lying under Rosh Ha’Ayin, ten miles East of Tel Aviv. Then ‘elephant-sized’ paydirt was struck offshore, mostly in the form of gas, in the Levant Basin, fifty& more miles West of Haifa. And most recently it has boasted about having bigger oil reserves (on land in shale) than Saudi Arabia (although only a small portion thereof may be recoverable). The Levant must be the only place in the world where a floating LNG terminal is being built (by the Israelis) with its own on-board air defense radar system. These discoveries may help explain Netanyahu’s recent, more aggressive stance vis a vis Iran : it may not just be driven by a security threat but also by a desire to pin back the ears of the government of a major oil-producing country.

That’s the good news (except possibly for long-term oil price ‘bulls’). The bad news : this could cause even more friction in a region already anything but friction-free. While it might be problematic if the Rosh Ha’Ayin field were to extend across the border into the West Bank, that would be nothing compared to the potential discord inherent in the overlapping territorial claims in the Levant Basin by Israel, Lebanon, Syria & Cyprus (and possibly, at the margin, Gaza) that may be further aggravated by the fact that any boundaries that eventually may be agreed to could straddle specific pools, prompting accusations by country X that country Y was producing oil and/or gas that wasn’t rightfully theirs to produce. Then at a global geopolitical level Israeli & Cypriot plans to export gas to Western Europe are not pleasing either Russia or Turkey, the former because Moscow would see that as undermining its markets in-, & the latter as a threat to its plans to become a ‘bridge’ in the movement of Central-Siberian gas to-, Western Europe

In the three months ended July 31st, 2012 global consumer prices are estimated to have risen at just a 1% annualized rate. But higher food & energy prices are now expected to quadruple that rate during the three months ending October 31st. And any such increase in inflation will weigh far heavier on people in the emerging economy-, than the developed-, countries because in the former the cost of food accounts for a far greater share of the average household budget – so this will increase the likelihood of social unrest in many emerging economy countries.

Those excited about rare earth metals may want to keep in mind, where lithium is concerned, the existence of the Salar de Uyuni salt flats in Bolivia. With a surface area of 10,582 sq. kms. (4,086 sq. mi), i.e. greater than, among others, Delaware or Rhode Island, Puerto Rico, Jamaica & Lebanon, it is the world’s largest salt flat, 25x the size of the Bonneville Flats in the US. It is home to the lion’s share of the world’s lithium reserves (anywhere between 45% & 70%, depending on the source). And the cost of producing lithium there here will be low; for not only is labour in Bolivia cheap, much of the lithium in place is contained in a brine that can be accessed by simply punching a hole through a few meters of salt & pumping the fluid to the surface to extract the lithium. But the government doesn’t want foreigners involved in the exploitation of this resource & has been operating a 1,200 tonne/year pilot plant there with plans to ramp production up to a 30,000 tonne annual rate (at which point it would be producing about 25% of the current demand & would be well-positioned to help meet the expected doubling in the global lithium demand by 2020)- even at a 60,000 tonne annual rate it is estimated to have 15,000+ years of reserves).

A propos the flow of Africans to China referred to in Gleanings II – 472, there has recently also been a outflow of prominent Africa-born ‘footballers’ (‘soccer players’ in North America) from Europe to, of all places, China. Ivory Coast native Didier Drogba left Chelsea for Shanghai Shenhua, Nigerian-born Yakuba Aiyegbeni Blackburn Rovers for Ghuangzhou, & Malians Frederic Kanoute & Seydo Keita Sevilla for Beijing Guoan & Barcelona for Dalian Aerbin respectively. While public interest in China for local football/soccer has been low due to a long history of match-fixing, there. are hundreds of millions of avid fans in China of European footbal/soccer teams, in part due to the presence of China-born players on a number of them. So the owners of the various Chinese football/soccer clubs must be betting that having stars from Europe on their teams will rekindle interest in the local product. Why else would Zhu Jun, the 75%-owner of Shanghai Shenhua (& founder of the Nasdaq-listed The Nine City online gaming & gambling concern), be giving the 34 year-old Drogba a three year contract, purportedly worth US$350,000 per week, to play for crowds that typically number 10,000 in a stadium that can seat 33,600 (even if he is one of the most valued players in the game & in 2010 made Time’s list of the World’s Most Influential People for having helped to restore peace in the country of his birth). But Drogba would be well-advised to heed the old saying that “He who sups with the devil needs a long spoon”; for Zhu Jun has a long history of financial problems, & of arbitrarily & haphazardly dealing with his team’s managers & players.

Rogers Communications is about to lay out over one billion dollars to gain 75% ownership of Maple Leaf Sports & Entertainment Ltd. & thereby of three underperforming sports franchises, hockey’s Toronto Maple Leafs (35-36-10), basketball’s Toronto Raptors (23-43) & soccer’s Toronto FC (5-11-4). Given the Westward shift of the point of gravity of the Canadian economy, the precarious fiscal situation of the Ontario provincial government & the prospect for generally lower growth & more competition for consumers’ discretionary spending dollars, only time will tell how wise an investment decision this will turn out to have been. Right now it looks like a better sell than buy.

GLEANINGS II – 474SP

Monday August 27th, 2012

ARGENTINA’S FARMERS CUT WHEAT PLANTING (FT, Jude Webber)

• With the worst drought in half a century having hit the US farm belt, commodity markets are watching crop reports from the Southern Hemisphere. So it was not good news that dry soil conditions caused Argentinian farmers to plant only 3.6MM hectares of wheat this year, down 20% YoY, thereby reducing its wheat export potential over the next 12-18 months.

To make matters worse, Australia expects only a 24.1MM tonne crop in the 2012/13 crop year, down 18% from last year’s record 29.5MM tonnes, due to dry conditions at planting time &, more recently, frost damage in two key states. On the more positive side, Canada exports more wheat than either & in Western Canada the outlook is for a good, if not excellent, wheat crop with the latest Statistics Canada forecast being that Canada’s wheat harvest this year will be up 6.9% to 27MM tonnes, the second-largest in sixteen years..

ARCTIC DRILLING A HUGE RISK (AP)

• Greenpeace & the World Wildlife Fund on August 14th made public a study by at Moscow-based think tank that assessed the risks of an oil spill in the Russian Arctic’s Pechora Sea, where Gazprom has a huge drilling platform called Prirazlomnaya about 1,000 kms. East of Murmansk. It concludes that a sizable spill would within 20 hours contaminate protected areas & nature preserves on the nearby shore & islands (while it would take emergency crews at least 72 hours to get there), and that a 10,000 tonne (7,000 bbl.) spill over five days would contaminate half a million square kilometres of water. GasProm, of course, disputed these findings, saying the platform’s design “incorporated the latest technology in offshore oil drilling” and “more than” satisfied all environmental and safety standards, while environmentalists argue there are no true & tried tested technologies to deal with oils spills in, & especially under, ice.

Russia ain’t known for the quality of its environmental & safety standards. Thus AP reported last year that, largely due to crumbling infrastructure, harsh climatic conditions (& drunk operators?) at least one percent of Russia’s oil output (i.e. 5MM tonnes/35+MM bbls) is spilled each year.

STARVING THE FUTURE (NYT, Charles M. Blow)

• China last year graduated 1.14MM people from STEM (Science, Technology, Engineering & Mathematics) programs, compared to the US’ 496,000, by 2030 expects to have 200MM college graduates, more than the entire US labour force, & by 2020 plans to enrol 40MM children a year in pre-school programs, i.e. 50% more than today), to give 70% of all children three years of pre-school enrolment, double enrolment in higher education & make sure that no child drops out of school for financial reasons. And by 2020 India expects to be graduating 20MM people a year from high school,. 5x as many as the US.

• By comparison, half of all US children get no pre-school at all & 25% of them have chronic health problems that may interfere with their capacity to learn, and in 2010 22% of US children were living in poverty, up from 17% in 2007 & over one-half of all US post-secondary students drop out before completing their course of studies. Instead of preparing our children to compete in the future with well-educated foreign job seekers, since the end of the recession in mid-2009 we’ve lost 300,000 jobs in education, and surveys show that six out of 10 teachers have students who regularly come to school hungry, with a majority of them expecting their number to in-, rather than de-, crease. In this environment the Republican Vice-Presidential candidate Paul Ryan wants to cut US$133.5BN over 10 years out of SNAP (ala the food stamp program) & Rep. Todd Akin, who is running for the Senate in Missouri & recently made the news because of his … eh … unorthodox views on the biological aspects of rape, wants to the National School Lunch Program terminated.

This is another instance when dunces advocate throwing money at a problem even though it has been shown time & again that doing so at a problem caused by bad management & poor priorities just creates a bigger mismanaged situation. America has lost much of its sense of drive & destiny at the family level, & all of it in the body politic, and unless & until this is addressed & dealt with, all the money in the world won’t put Humpty Dumpty back together again. Sorry!

THE CASE FOR A NEW GOLD RUSH (G&M, Martin Mittelstaedt)

• Erste Group, an Austrian Bank, has been producing bullish annual forecasts of gold prices since 2007 & correctly so, given gold’s surging fortunes in the past five years. Its 120-page report this year says that its price is likely to hit US$2,000 within the next year, & eventually US$2,300, i.e. match its early-80’s high in inflation-adjusted terms, due to concerns about government deficits & central banks having to engage in more inflationary money printing to fund them and/or in a futile attempt to prop up their economies. Furthermore, that, given the global financial system’s instability, this forecast could be “on the conservative side”. And it takes issue with Warren Buffett’s criticism of gold “lack of industrial use, … of intrinsic value” & his questioning of the reasonableness of buying gold, saying he makes a critical error in missing the connection between gold & money, & thus compares apples & oranges, and that his negative view on gold applies equally well to the US dollar which “has no intrinsic value, no industrial use, and does not pay any interest.” (to speak of)

• The bank says that, while one of the big questions facing investors is whether the global economy faces higher inflation, or deflation, both would be bullish for gold since “In times of inflation tangible goods are the preferred asset class, whereas in deflation it is cash. Gold is liquid, divisible, indestructible & easily transportable. It also has a worldwide market & and there is no default risk. It is thus cash of the highest quality.” And that, while investors are as pessimistic about gold mining stocks as they were four years ago during the financial panic, gold miners are in far healthier shape now, with stronger balance sheets, higher free cash flows, less debt & rising dividends, all of which will eventually drive their prices higher (although they have let their costs get out of hand; thus the cost of the Pascua Lama Gold project of Barrick, the world’s largest gold producer, in the past several years has more than quintupled from US$1.5BN to US$8BN).

And gold mining companies’ managements are caught between higher costs on the one hand & on the other shareholder pressures to pay higher dividends even if that means the companies will have less money available for developing new mines, i.e. short-term gain for long-term pain.

BUFFETT’S MOVE TO END BET ON MUNICIPAL SWAPS RAISES RED FLAG (WSJ, S. Ng)

• Investors are flocking into municipal debt while Warren Buffett is getting out. Five years ago Berkshire Hathaway bet that over a dozen states would keep on paying their bills on time when it acquired US$8.25BN in credit defaults swaps (insurance-like contracts to make good any defaults on the underlying securities) from Lehman’s ashes. But recently he closed out that position, suggesting he has concerns about state finances..

A hedge fund manager who personally owns Berkshire Hathaway shares, says “he is getting out while he can”, which, in & by itself, is a reflection on his view of state finances.

BACK TO WORK (GRADUALLY) (FP, Eric Lascelles)

• While all attention is focused on the supposedly wilting global economy & the risks in financial markets, the US is slowly back on the road to recovery. Housing starts & home prices have quit slumping. Bank credit is growing again, at the fastest pace since the credit crunch. Even the labour market is subtly recuperating. The latter observation may seem odd, since new hiring seems to have slowed down & the real unemployment rate is 11%, rather than the official 8%, when the effect of discouraged, no longer job-seeking workers is included, and, while 4MM new jobs have been created since the recession’s nadir, almost half the number lost prior to that, population growth means 7MM more need to be created. But there are five reasons to talk about the economy starting to heal itself :

• 21 consecutive months of job creation – across a relatively broad range of states, sectors & companies, and in recent months of an unusually high quality;

• companies have largely quit laying off workers – layoffs are now running below, & job openings are nearing, ‘normal’ levels;

• hiring intentions are decent – all seven hiring intention surveys we follow show ‘normal’ levels & American workers have improving job market expectations;

• a variety of obscure labour market indicators are OK – use of temporary workers is up 11% in the past year, workers at goods-producing firms are working longer hours & work stoppages are rebounding after a long period of relative quiet; and

• manufacturing & construction, the two sectors that shed most jobs, are experiencing plummeting unemployment rates as workers switch their line of work in ways conducive to labour market recovery & greater productivity.

• So things are getting better even though it will be a long time before the labour market will have fully healed itself, possibly the end of the decade. But progress is being made.

These observations come from the “Buy” side of the market, the Chief Economist at RBC Global Asset Management. If correct, they, & changing attitudes towards personal saving, may help transform the instant gratification/entitlement generation’s outlook on life to a healthier one with scaled-back short-term expectations & a longer time horizon.

MASSACHUSETTS SENATE CALLS FOR CONGRESS TO PASS LAW REVERSING CITIZENS UNITED DECISION (Masslive.com, Robert Rizutto)

• In the week of July 23rd it passed, 35-1, a resolution calling on Congress for a Constitutional Amendment reversing the Supreme Court decision granting corporations “personhood” in election spending on the grounds that limiting it was a violation of First Amendment rights’. Although this still needed to be approved by its House of Representatives in the dying days of its current session, it mirrors what six other state legislatures (California, Hawaii, Maryland, New Mexico, Rhode Island & Vermont) & 68 municipal governments have already done. In 2010, & again a few weeks ago, House & Senate Republicans blocked attempts to limit this ruling, saying this would unfairly benefit Democratic donors.

Citizens United is a far right-wing group that, in the run-up to the 2008 primaries, was limited in its ability to screen a movie trashing Hilary Clinton. This led to Citizens United vs. Federal Election Commission under which, in 2009, the Supreme Court’s 5-4 decision opened the door to PACs using unlimited corporate funding to directly promote the cause of any candidate right up to election day in any way they wanted while saying anything they chose to.

ROMNEY’S RUNNING MATE DEFINITELY NO SARAH PALIN (CBC News, Neil Macdonald)

• For the second election running, the GOP Vice-Presidential candidate is far more interesting than the Presidential one, & for the same reason : Republican hardliners are even more contemptuous of Romney than of “McLame” four years ago (while they see both as having similar appalling records of political moderation, Romney lacks military credentials).

• Ryan is no Palin. While the latter was a telegenic but vacuous airhead, Ryan is a rara avis in modern politics, someone willing to tell voters the ugly truth about the state of their nation, who has crafted a fiscal plan to start the “adult conversation” that even some Republicans admit the nation needs but are too craven to start themselves. But for conservatives the most thrilling part of Ryan’s plans are his tax cuts. But while he proposes tax cuts in a country in which income tax rates are already the lowest in the Western world, he doesn’t pretend they would spur so much economic growth spending cuts wouldn’t be necessary.

• Ryan is cut of a more honest cloth than either Reagan of Bush & is unwilling to borrow needlessly. Starting in 2023 he would convert Medicare, which now provides almost unlimited health care for Americans 65 years of age & over, into a voucher program paying for basic care insurance only. And he would take a chainsaw to Medicaid that does the same for indigent Americans (many of them non-white, of course) & cut the rest of government (incl. defense?) drastically. But he would still nit be able to balance the government’s books until the mid 20’s.

• The reason why Romney and most politicians are so mealy-mouthed about fiscal solutions is that they understand the two-facedness of the US electorate : while they like to see themselves are rugged individualists, in reality they are just as addicted to government programs as Canadians, or Europeans for that matter. They want spending cuts provided the government doesn’t take away their entitlements or cut the military (that between them account for one-half, or more, of the government budget).

While by naming Ryan, Romney may have prompted the adult conversation to get underway, it may well be too late for that; for with every passing day the likelihood of a “train wreck” grows.

NSA CHIEF : INTERNET “AT GREAT RISK”, NEEDS DEFENSE SYSTEM

(NBC News, Devin Coldewey)

• The annual DEFCON hacking conference is a world famous event, the attendees of which often engage in unquestionably illegal activities, like break into the security of government agencies. The National Security Agency (NSA) is perhaps the world’s largest & most invasive intelligence & security agency in the world. Nevertheless, on July 27th the current Head of NASA, Keith Alexander, addressed DEVCON with a two-fold message. While sort of praising those assembled by saying “Sometimes you guys get a bad rap. From my perspective, what you’re doing to figure out vulnerabilities in systems (before the Chinese do?) Is great”. But he also warned the Internet was “at great risk from exploitation, disruption and destruction” & said tracking its traffic is a massive task NSA needs help with.

• According to MIT’s Technology Center NSA already has a prototype Internet monitoring system in place, with 17 defense contractors participating & internal alarms that, if tripped, relay that information automatically to NSA. Alexander applied this more broadly, saying the Internet should be like a toll highway with “EZPass” cars travelling unhindered but suspicious traffic identified & tracked. And he sought to reassure his critics that NSA’s sole interest is to investigate threats from abroad & to enroll the hackers present in this effort, saying they should be helping from the inside, not just take potshots from the outside.

For many people the appeal of the Internet, in a world increasingly over-regulated in which personal freedoms are ever more infringed upon, is its untrammeled, Wild West-like nature; so the last thing they want is to have it turned into a toll highway look-alike. Since the days of the Troyan Horse the saying has been “Beware of Greeks bearing gifts” & long experience with government promises, & the subsequent routine breaking thereof, has created a broadly-based cynicism with respect to any government official who says “Trust Us” (not to abuse the faith we’re asking you to place in us).

OTTAWA’S FORMULA FOR FISCAL INSANITY (NP, John Ivison)

• Politicians always talk about ensuring tax payers get value for money, but “talk the talk but don’t walk the walk’. Thus in Canada at the federal level in Canad spending on office space is geared to total salary costs. For every $!00 spent on salaries, $13 can be spent on office accommodation. So if salary costs go up (& they did by almost 22%, to $31.1BN, between 2007 & 2011), spending on accommodation can increase at the same pace, even if there is no need for more space. And there isn’t : the government already has millions of square metres of unused space & will have more when it completes its current building program (among others, it is currently building six new buildings in the National Capital Region & DND is about to take over the former Nortel Campus in suburban Nepean. Of the 7+MM square metres of property the Public Works Department manages nationwide, over half is in the Region where the government has sixteen buildings sitting 50%, or more, empty.

A ten year freeze on all departmental spending on accommodation, incl. penalties owed for lease breaking, would have at least three, potentially very positive, consequences, It would send a message to landlords & public sector unions alike. It would rationalize the use of office space by federal public service managers. And it would put a crimp in empire building.

CANADA ISN’T READY FOR THE WORLD (G&M, Michael Byers)

• The World, a 196 metre ship but basically a $13MM luxury condo complex will soon put the lives of its over 400 passengers & crew at risk by transiting, with permission from Ottawa, Canada’s Northwest Passage, where Canada’s search & rescue capabilities are wholly inadequate. Voyages by smaller, ice-strengthened “expedition” cruise ships have already demonstrated the risk of doing so, especially from “growlers”, small chunks of exceptionally hard ice that lie low in the water & thus are hard to spot; thus a few years back the Canadian-owned ms Explorer sank in the Antarctic after striking a growler but in a calm sea no lives were lost. Shallow waters & a lack of good navigation charts pose another danger : in 1996 the German-owned ms Hanseatic ran aground near Gjoa Haven, Nunavut but the weather cooperated & all passengers were rescued in a week, & in 2010 the US-owned mv Clipper Adventurer ran onto an underwater ledge near Kugluktuk, Nunavut, but once again the weather was good (& a Canadian icebreaker was two days’ sailing away). A third danger lies in the unpredictable & extreme Arctic weather. Gale force winds & seven metre waves are not uncommon & will tear a grounded vessel apart, leaving those aboard, many of whom would be elderly, little choice but to take to the life boats in a storm-tossed, near-freezing sea.

• Canada’s Arctic search & rescue capability consists of Cormorant helicopters that are stationed 2,500 kms. away (while they seat 30 passengers, they have a range < 1,400 kms), 50 year-old, & often not available for maintenance reasons, Hercules aircraft that unlike the Cormorants cannot hoist people aboard (& need landing strips) & aging icebreakers (that are ‘on station’ only during the May-November ‘window’). Meanwhile traffic through Northwest Passage traffic is growing apace : while in the century ended in 2006 there were a total of 69 transits, there were 18 in 2010 & 22 last year (& it likely won’t be long before cruise ships carrying thousands of passengers will start using it).

Canada’s claims on “our” share of the Arctic are meaningless if we aren’t prepared to assume the responsibilities of ownership (which in this case means a seriously robust search & rescue capability). Already China has an icebreaker, the Xuelong (that recently traversed the Arctic Ocean North of Russia from the Pacific to Iceland), that is bigger than any Canadian or US icebreaker (it’s half as big again as the flagship of Canada’s icebreaker fleet, the 45 year-old Louis St-Laurent). And it has started building an icebreaker fleet, the first of them to be launched next year. So if Canada doesn’t get the finger out, as traffic through “our” Arctic grows, before long China may permanently have one or more icebreakers on station in Canada’s Arctic, with Canada powerless to do anything about it.

NO JAIL TIME FOR EX-MOUNTIE (CP, Vivian Luk)

• In October 2008 off-duty RCMP Corporal Benjamin (Monty) Robinson was driving his two young children home from a Halloween party after consuming five beers, when he hit & killed a 21 year-old motor cyclist. He then left the scene to “drive his kids home” &, while there, gulped down two quick shots of vodka “to steady his nerves”, before returning to it. On July 27th he was given one month of house arrest & eleven months of supervision by a probation officer. The victim’s family wasn’t happy.

• The judge ruled his drinking the vodka was deliberate, to mislead crash investigators, saying his RCMP training had taught him that this would mask the effect of the alcohol he had consumed earlier (in fact, during his trial one witness testified that, at a party a few months before the accident, he had been telling people to do exactly that, have a quick couple of drinks in a nearby bar when involved in an accident while DUI). During sentencing she also noted his conduct caused one to lose faith in the “protect and serve” police mantra, especially since he had shown no remorse nor acknowledged any guilt. But she had taken into account the fact that he was a first offender & that as a former police officer he would require protective custody if given jail time.

If I had been the victim’s father, the first thing I might have done would be to buy a gun, not to kill him, but to take a leaf out of the IRA in the olden days & ‘kneecap’ him. As not mentioned in the media ‘peg’, Robinson is an Indian & in sentencing him the judge said she had followed the Supreme Court’s ‘guidance’ that Indians deserve special consideration due to the abuse their parents’ and/or grandparents’ may have suffered in the past at the infamous ‘residential schools (even though his band is relative well-off & there had been no evidence presented of residential school attendance in his family). Robinson recently resigned from the RCMP before it could dishonourably discharge him, as it had planned to do after having had him on leave without pay status for years. But there is more to this story. He was one of the four officers who killed a poor, confused, non English-speaking Polish immigrant in the Vancouver International Airport several years ago by tasering him multiple times within a minute of first coming in contact with him because he was threatening them, supposedly well-trained policemen, with …….a stapler. But he may, & hopefully will, yet get his comeuppance since he & his three confrères still face perjury charges in criminal court for having lied through their teeth while under oath (& rather stupidly so since a bystander’s mobile phone video of events had gone viral within minutes of the event, despite the camera having been seized by the RCMP) at the public inquiry into the man’s death. But the greatest irony of all is that the senior officer who was in charge of the RCMP in British Columbia when this blemish, & many others, besmirched the force’s escutcheon, was subsequently named the force’s Commissioner by Prime Minister Harper. Canadians can only hope that his choice was motivated by a belief that the best way to fix a mess is put the guy in charge who knows most about it, rather than by a lack of more meritorious candidates within the force.

QUALITY QUESTIONED AFTER BRIDGE COLLAPSES (NYT)

• Just nine months after it opened, a 100 metre-long section of the eight-lane, 15.4 km-long Yangmingtan Bridge in Harbin plummeted 30 metres to the ground, killing three people & injuring five more. This bridge is one of three built over the Songhua River in the last four years & the sixth major bridge to have collapsed in China in the past year (which officials blame on overloaded trucks).

The official explanation is self-serving & delusory. And the really important aspect of this event is not that it happened, for there is a great deal of shoddy construction in China, but that the regime tolerated a storm of criticism from Chinese Internet users.

SHIFT IN FOCUS FOR CHINESE AID IN AFRICA (NYT News Service, Jane Perlez)

• China’s aid to Africa has been ramped up in the past decade as it became a supplier of oil (from Sudan & Angola) & copper (from Zambia & the DRC). But its critics say much of this ‘aid’ benefitted China more than the African people (e.g by using Chinese-, not local-, workers in building infrastructure projects). Even South African President, Jacob Zuma, after praising China, warned “Africa’s past economic experience with Europe dictates a need to be cautious when entering into partnerships with other economies.”

• On July 18th President Hu told African leaders, in Beijing for the Fifth Ministerial Conference of the Forum on China-Africa Cooperation, China will lend US$30BN in Africa in the next three years for infrastructure & agriculture projects, twice the amount earmarked in 2009 at the Fourth Ministerial Conference. And it seems to want to adopt a semblance of a more grass roots’ focus by training 30,000 Africans, providing 18,000 scholarships & 1,500 medical personnel, and by creating programs to improve drinking water quality & protect forests. Li Xinfeng, an African Studies scholar at the Chinese Academy of Social Sciences says “Before … China had more of an attitude ‘We’ll give what we want to give you’, but now the aid is more focused on African needs.”

Beijing is reacting to some Africans saying “Chinese colonialism” is worse than the British variety ever was by spending a few dollars on ‘hearts & minds”-type endeavours. And the West will live to regret its lack of foresight with respect to Africa. Sub-Sahara Africa’s appeal for China lies less in its extractive resources, for it can get, & is getting, those equally, if not more, conveniently elsewhere, but in the one thing less, if at all, available elsewhere, namely people : in the next few decades, sub-Sahara Africa’s population will double & account for much of the projected global population growth, thereby laying the foundation for rapid economic growth and providing a source of cheap labour for Chinese companies as their domestic labour pool ages and becomes better educated & more costly. What has gone largely unnoticed in the West is the growing presence of Chinese workers in sub-Sahara Africa (there are now over 1MM of them, the lion’s share of them working on China-funded projects) & the growing return flow of Africans to China (a pioneer among whom was Mark Ndesandjo, President Obama’s half-brother, who, with an Executive MBA from Emory University, has since 2002 been living in Shenzhen, across the border from Hongkong, making his living teaching English & consulting). At last report the city of Guangzhou, 75 miles Northwest of Hongkong & not far from Shenzhen, had an influx of 200,000 Africans in the past decade, currently growing at a 30+% annual rate, many of whom live in a one kilometre square area in its Xiaobei neighbourhood which the locals pejoratively refer to as “Chocolate City”. While mostly engaged in facilitating the flow of consumer goods from China to Africa, & to a lesser extent in the other direction, they also relish their physical security (except from the local police since their status is often uncertain, if not illegal, &, as their numbers have waxed, the authorities have become more hawkish about enforcing foreigner-unfriendly laws, especially since the Chinese don’t much care for Africans, & vice versa).

CHINA’S ‘UNWANTED’ SINGLE WOMEN FEEL PRESSURE TO WED (AF-P)

• A 2010 survey by the government-backed China Women’s Federation found 180MM single men & women in China, incl. hundreds of thousands of, mainly urban, educated & financially independent women commonly referred to as Sheng Nu (i.e. ‘unwanted’ because of a cultural tradition they should be married by age 27 at the latest). Wu Di, a sociologist who recently published a book on the issue says that young people today work very hard & have few places to meet outside of work, and that, while traditionally the Chinese have taken the attitude one should “make do” in marriage (it “has never been synonymous with happiness”), the new generation of women don’t want to ‘make do’ & don’t see the point in lowering their standard of living by marrying. On the other hand, many don’t want to disappoint their parents either; so the singles club business is booming (in convenient locations offering a wide range activities to enable women to meet prospective husbands).

The long-term consequences of the one child policy are starting to bite, accelerating the aging of China’s population & reducing its economic trend growth rate. First, female foetus abortions & infanticide lowered the size of the nation’s potential ‘breeding herd”. Then came women’s resistance to public pressures, as in Shanghai, to have more than one child. And now there are hundreds of thousands of (upwardly mobile) young women for whom a child is not a priority (especially if that involves a less-than-perfect husband). To complicate matters still more, over the years the authorities have enforced the one child policy less strictly among the ethnic minorities, thereby over time eroding the massive numerical dominance of the Han Chinese.

BABY SURROGATES DRIVE PETCARE BOOM IN CHINA (EJ)

• Wang Xingru is 39 years of age & a legal officer at a state-owned company. She & her husband have spent 5,000 yuan (US$780) on a one year-old toy poodle, & then another 288 yuan (US$45) on a fur trim, perm & pedicure. She explains “We don’t want kids because ,,, it is too expensive and tiring … and I don’t want to be a full-time housewife.”

• The pet care market in China is now worth US$1.8BN/year (vs. US$53BN in the US), and the number of veterinary hospitals in Beijing has gone from one to 300 since 1992.

The one-child policy in time will prove to have been a case of ‘short-term gain & long-term pain’.

STRESSED-OUT DOGS NOW THE NORM (Sunday Telegraph, Jasper Copping)

• A study of 1,300 dogs in the UK found that eight out of ten exhibited behavioral problems like “hyperactivity”, “phobic behaviour” & “separation anxiety”, with vets warning of similar problems emerging in cats, rabbits & even birds, and treating pets for other conditions like sleeping problems, anxiety, anorexia, self-mutilation, stress & depression. So now Eli Lilly is expected to come to market with a Prozac-type drug for pets next year.

Behavioral problems are in 90+% of the cases caused by bad, over-indulgent pet owners, many of whom simply don’t, or don’t want to, understand that pets are pets, with relatively few generations of genetic selection & engineering in their backpack, something which money-grubbing small-animal vets are only too happy to take advantage of.

PHILIPPINES REAFFIRMS DISPUTE WITH CHINA (AP)

• In his annual State of the Nation address President Benigno Aquino said the Philippines won’t back down in its dispute with China over the Scarborough Shoal in the South China Sea & that his country’s military will soon get dozens of new aircraft & ships for maritime defense. This came after a standoff last April between vessels from both nations that resulted in the Philippino vessels leaving & the Chinese vessels staying.

While both countries claim the shoal & the sea bed around it, the Philippines’ likely has the better claim but China the greater military muscle (& now ‘right of possession). Beijing has been upping the ante in its exaggerated territorial claims game in the South China Sea by installing small military units on the various rock outcroppings it is claiming. Its recent territorial aggressiveness likely is an attempt to mobilize public support against external ‘threats’ & divert the hoi polloi’s attention away from its domestic problems in a ‘transition of power’ year; for while the seabed under this & other disputed areas may overlay major hydrocarbon reserves, the China Daily just announced China has the world’s largest shale gas reserves.

SUDAN’S LAST HOPE IS GOLD (Reuters, Ulf Laessing)

• When South Sudan went its own way last year, the Khartoum regime lost 75% of its oil income. So it started claiming as ‘export fees’ more than what the Juba regime said it was entitled to of the oil the land-locked South had to ship to world markets via a pipeline across Sudanese territory to Port Sudan. This prompted Juba to just shut down its oil wells, creating a US$1.4BN hole in Khartoum’s budget which it now hopes to fill by exporting US$3BN-worth of gold, much of it produced by its more than 250,000 artisanal gold miners.

Sudan may sit on Africa’s largest gold reserves. But in the short run, it’s output, not reserves, that matters. At current prices, it takes 60 tonnes of gold to make a US$3BN value; in 2011 Sudan produced 33.7 tonnes, so achieving its target would require nearly doubling gold production in a single year. Even accepting at face value the regime’s claim that by early April US$603MM worth of gold had been produced, it would still be falling 20% short of its target. The Hassai (open pit) gold mine is the country’s largest. It is 60% state-owned (with the other 40% owned until recently by TSE-listed La Mancha Resources but since sold to Egyptian billionaire Naguib Sawiris). Last year it produced 121,000 ounces of gold (almost 4 tonnes) but LaMancha’s “guidance’ for 2012 had been this would decline by one-sixth this year because, like many artisanal miners, it had recovered the easy-to-recover gold & would have to start developing deeper veins. While, the government hopes for (& needs) quick cash, new gold mining projects typically take three to five years to come on stream. China is both Sudan’s largest creditor & the major buyer of its oil; so it has reason to be worried that South Sudan going its own way & cutting off the flow of its oil to Port Sudan, thereby affecting Khartoum’s ability to service its debt & pay for new imports. Four months ago, the Kenyan government announced that London-based Tullow Oil, the same company that found oil in Western Uganda in 2006, had struck high quality light oil at relatively shallow depth (3,500 ft) in the Turkana region of Northern Kenya, close to its border with Uganda & South Sudan (& since then TSE-listed Africa Oil has found more of the stuff). This may help justify Beijing funding & building a pipeline across Kenya to the Indian Ocean to carry Kenyan, South Sudanese &, possibly Ugandan, oil to world markets. As for those interested in human rights, they have reason to be concerned that Khartoum’s desperate need for money will cause it to trample even more than it already is claimed to have been doing on its people’s human rights & that longer term, as often the case, the presence of oil in the region will benefit many people, but not the locals.

BIOWALL AT COLLEGE LIBRARY MORE THAN “PRETTY PLANTS”

(G&M, Brenda Dalgleish)

• The atrium at the library of the Progress campus of Toronto’s Centennial College has a four story-high wall of lush tropical plants, aka a “biowall”, that serves as an air filtering system since the micro-organisms in it ingest harmful pollutants, such as formaldehyde & volatile organic compounds (VOCs) produced by tobacco smoke, furniture, household cleaning compounds, personal care products, oil & gas combustion and even people themselves (this chemical stew is the main reason the EPA a decade ago ranked indoor air pollution as one of the top five threats to public health since people spend 90% of their lives indoors).

• The benefits of a biowall include :

• appearance – it looks nice & brings nature indoors;

• air quality – the micro-organisms that live on plant roots consume noxious gases;

• ambient sound – the water dripping continuously down the biowall & through the plant roots creates pleasant background sounds;

• rooftop water use – they work best when they recycle rooftop rainwater; and

• energy savings – biowalls improve air quality to the point where the system requires no more than 20-30% of the normal outdoor air intake of a traditional building thereby significantly reducing heating/airconditioning costs.

One more slight bit of evidence that the future lies on living with Nature, rather than trying to control & dominate it, as we have believed we could do for centuries.