Category Archives: in the news

Potash Protected.

The Canadian government has decided to block the takeover the Potash Corporation of Saskatchewan by the Australian company BHP.  Potash is used to make fertilizer, you can find lots of information from any major news source.  The premier of Saksatchewan made a special visit to Ottawa to make sure that the sale of the company was blocked.  You see, the provincial governments have the power to regulate and tax resources in each province but only the federal government has the power to block the sale of a private company to a foreign interest.  And they did. They stopped that sale cold.  Last I heard the offers for the hostile takeover were far below the market price for the shares and way below the peak of the company’s shares before the all the badness in 2008. The numbers we are talking are something along the lines of $135 offered, $145current value and over $200 peak.  These are all numbers I am just pulling from memory at the moment but I can assure you they are close to the real figures.  So the offer that was on the table was blocked by the government before it could even be rejected by shareholders, which I am guessing it would have been. 

Wait, did I say shareholders?  Why yes I did. You know shareholders, the people that own the company.  I guess you see where I am going with this.  It is not for the government to decide if a company should be sold to a foreign interest or not, it is up the owner(s) of that company.  Canada needs to decide what kind of economy we are running here.  Are our markets open to foreign investment or not? We can’t start picking and choosing deals at random. If we are going to be protectionist then we need to set up some guidelines.  The reason given for blocking this sale was that it was not a net benefit to Canada.  Sorry, it seems to be popular to write it “net benefit” to make sure that it is clear that not a single journalist knows what the hell that means anymore that you or I.  There was a lot of debate on the issue and the most common objections I read were:

–          Loss of tax revenue

–          Loss of jobs (this is totally invalid since the mineral still needs to be extracted here, it’s not an IT company)

–          It is a strategic resource.

There has not really been much elaboration on any of these points but most have pretty automatic arguments built in. Sorry, I forgot the big one.  This is not a net benefit to Canada.

Are they saying that the bid wasn’t high enough?  Did they do a cost benefit analysis and one outweighed the other?  They must have. What would push the benefits over the tipping point for them to allow this type of sale?  Are there different levels of net benefit for a natural resource versus say a car company or a technology company?    Does the percentage of the world’s supply that we own play a factor? Why potash and not oil, nickel or any other resources? These are all things that we need to answer.

I would like to take a trip back to a subject that was popular in June.  G20 summit, I wrote about it then so please go read that post too.  At the conclusion of any major summit of this nature there is a declaration released from all of the countries that attend.  Toronto was no different.  I think I linked to it in the past but here it is again.

I would like to draw attention to the portion of the document starting at section 35 (page 7 in the PDF). This is the section entitled “Fighting Protectionism and Promoting Trade and Investment”. Now I realize that the guy that had to type up this document, me, and a few journalists that were forced are the only people that read this release but we really need to think about what it says and what it means for our policies. 

“…we renew for a further three years, until  the end of 2013, our commitment to refrain from raising barriers or imposing new barriers to investment or trade in goods and services…”

I fully supported the G20 summit. You need to have conferences like that to get things done.  There were some issues with the execution but overall I think it was a good thing.  My problem is that we spent a billion dollars talking to other countries about the greatness of open economies, the wonders of mobile capital and how protectionism in this financial crises will not help anyone and then we do the exact opposite.  Supporters of this decision to block Potash will say that it does not constitute a new policy, and that we are not setting up large barriers, that it is a one-time thing.  It could be a one-time thing, but no one knows because the true reasons have not been released.  Seems like the commitment we made in that document doesn’t hold much weight once the polls start turning against the idea. 

Maybe in the next few days the reasoning for this action will be released. Of course, if in a week the bid from BHP is doubled and the deal is approved, we will know exactly what the issue was.  This was actually just a elaborate bargaining tactic before the final sale was closed.

Edit: typos.

Currency Affairs Follow-up.

So apparently the Bank of Canada has what they believe is a better way to compare exchange rates than I do. This article mentions it. The Canadian-dollar effective exchange rate index (CERI). You can get a complete rundown on how it works here. The basic idea is that it puts weights on our exchange rates with other countries based on the amount of trade with we do with them and it gives you a picture of how the Canadian dollar is doing overall. You will see the results of their formula in the article. The results as I see them are the same. Since 2009 our currency is up, even it is down in the last few months. The economist in the article seems pessimistic; I would not call the dollar “weak” based on their results or mine.

This just in…kids don’t like school.

http://www.cbc.ca/health/story/2010/08/16/wifi-students.html

So this story on CBC today discusses a group of about a dozen parents in Barrie that want Wi-Fi turned off in their children’s schools.  They claim that the Wi-Fi is making their kids sick. You can read the article for the symptoms they are claiming only occur at school and then go away at night and on the weekends. I am pretty sure most people reading the story probably thought the same thing.  Kids that feel drowsy and sick at school then totally fine on the weekends?  Strange!  It must be the Wi-fi.  Now, I will agree that there is very litte evidence for or against the argument that Wi-fi causes sickness in kids. The problem of course is that Wi-fi is everywhere you go now. It will be in your house from your neighbour’s router, it is in malls, libraries, everywhere!  Oh don’t forget that the cordless phone in your home runs at 2.4 Ghz which is the same as many Wi-Fi routers.  Until I see more evidence I call BS.  Also, I believe I can spot the twelve kids least likely to grow up learning about technology at home.

On a side note I think that CBC.ca should have to show a change log on their stories.  They post at story in the morning and then edit it throughout the day. Sometimes they end up taking out quotations or changing the information contained in the article. I noticed changes to this story from the time I read it this morning and when I read it again this evening.  Then I noticed it had been edited at 6:12pm.  Not sure I like that.  They should maybe get the story straight first and then post it.  It might be hard to post a whole new story each time they acquire new information but they should still post a list of changes/edits.

Ontario Online Casinos – Place your bets!

The government of Ontario has announced that they plan to have an online gambling site up and running by early 2012. Atlantic Canada is thinking the same way and BC recently launched its own online gambling site called www.playnow.com. It seems like something that we should talk about.

Is a government run online gambling site a good thing? We will try to address both sides of the answer.

Against:

There are a number of studies that suggest that a large part (70-90%) of gambling revenues from casinos and lotteries come from just 10% of the people that play.  This of course means that the entire system is setup to take money from the small percentage of people that are likely addicted to some form of gambling. The government is knowingly taking money from the citizens that it should be helping.

People use their money to gamble in the hopes that they will somehow strike it rich without having to work hard for it. They forget that the best way to be better off is to save, get a good education and work hard. The pipe dream of hitting it big becomes their main focus. This kind of falls in line with the encouraging addiction idea but I thought I would include it.

If we encourage people to gamble, gambling addiction will become a larger problem and we will end up paying more to solve the gambling related problems. More theft, addiction counseling, etc.

For:

The government runs lotteries, which are gambling. Slot machines, horse racing, bingo, all gambling. Online casinos are just another form of gambling. It is not a new thing for governments to make a profit from this vice. The only reason they have not done it up to this point is because the government moves slowly and online gambling is a relatively new phenomenon. People are going to gamble online regardless of whether the site is hosted in Belize, England or Canada. The government might as well get its cut of the market.  Having the government run the system also allows regulation and it reduces the likelihood that people get ripped off by shady foreign sites. People are doing it anyway so why not regulate and tax it.  

The rest:

The BC site was the first one in North America to legally offer online gambling. Everything before that was illegal or hosted in other countries.  I don’t think it is any coincidence that it launched soon after the American government passed a bill that would allow online casinos to open in that country. Remember when we opened the casino in Windsor and then they opened a casino in Detroit soon after?

 A poll on the CBC website is currently showing as 21% for and 79% against the idea of government run casinos in Ontario. It does remind the reader that it is not a scientific poll.  With those kind of numbers I can’t imagine there will be much demand for the site. It will likely close down soon after it opens due to lack of interest.

Oh, I almost forgot to mention, don’t try going to that site in BC because it crashed soon after launch due to the servers being overwhelmed by the traffic.  They are in the process of upgrading it so that it doesn’t crash right away when they re-launch it.

Ontario residents currently spend about $400 million each year on online gambling.(I saw this number on a number of news sites but couldn’t find a single outlet that cited the source. Go journalism) I am all for our government taking part of that untapped revenue stream and using it for government programs.  People are addicted to cigarettes but the government sells them and taxes them.  Alcoholics exist, but the government sells booze and taxes it. I don’t see this as being any different. I don’t do any online gambling currently but I will login to this site when it for a bit when it launches just to show my support and maybe play a few games. You know, make some money. See I have this system…

Edit: typos

Canadian Census 2011. It’s not the size of your form…

(May 7th, 2011 edit)
I am getting Google hits on this story from people looking for the penalty for NOT filling out the mandatory Canadian census form so I will add the actual penalty here:

3 Months in Jail and a $500 fine is the maximum penalty for not filling out the Candiand manditory census form.

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(Everything past this point is the original post) 

The government is replacing the mandatory census forms with a short mandatory form and a long household survey.   First let’s look at the forms. 

Household survey for 2011:

http://www.statcan.gc.ca/survey-enquete/household-menages/pdf/nhs-enm-quest-eng.pdf

Long form from 2006:

http://www.statcan.gc.ca/imdb-bmdi/instrument/3901_Q2_V3-eng.pdf

Short form from 2006:

http://www.statcan.gc.ca/imdb-bmdi/instrument/3901_Q1_V3-eng.pdf

The first thing we should notice is that the long version from 2006 is 40 pages with 61 questions. The short version from 2006 is 5 pages with 8 questions.

The new household survey for 2011 is 35 pages with 66 questions. There will still be a mandatory short census in 2011 which is about the same as the old short form.   

So in 2006 everyone had to fill out the short form of the census and the long census form was sent to one in three households.  They had to fill the form out in its entirety under threat of legal action. When asked about how many people had been jailed for not filling out surveys Clement (the minister in charge of all this) declined to answer the question. I was not able to find any stats on this and I imagine the number is somewhere around 0.

In 2011 everyone will still have to fill out the short census form and now one in five households will be sent the household survey to fill out.  There is no obligation for them to fill out this form.

I am having a hard time thinking of a single valid reason for the government to make this change.  So far they have used a very carefully set of rehearsed lines to backup their decision.  The party line is that Canadians should not be criminalized for failing to complete the census and that the questions were invasive.  There was even an anecdote offered that one immigrant started crying because they feared they would be deported if they did not fill out the forms properly. Anecdotes about single members of the population are always a great way to get around the fact that what you are saying has no real merit.

Jack Layton proposed that the government simply remove the threat of jail time for failing to complete the form. He figures the threat is “bogus” anyway so the government should scrap it.  He even volunteered to introduce amendments to the Statistics Act.  Seems like a reasonable thing to do.  I would likely alter that idea a bit however.  Remove the threat of jail time but add some type of fine for not completing the form if you are given one.  Now I am not sure how they would enforce this fine, maybe they withhold your GST rebate that year or maybe they just remove more money from your income tax.  It seems like if they were able to track the process well enough that they could threaten people with jail, they could easily fine people instead. 

Another idea would be to send the long form to everyone and make it totally voluntary. If you were only sending it to 1 in 3 people before I would guess that at least that many would end up filling it out and sending it in anyway.

You could make it available online so more people would be willing to quickly fill it out online. Of course I can see a tech support nightmare ensuing. Not to mention the security and access control… never mind I don’t trust the government to pull that off correctly before 2011.

I have not spoken about the head of StatsCan resigning and I won’t today but that has to be a good indication that this is a bad idea. 

Again, I see no good reason to change this process. They could of at least lied and said it was going to “Save us billions and help save the economy!” or something along those lines. Not to sound like a paranoid nut case but is it possible that they want less accurate stats so they can push through their policies based on weaker interpretations of those stats? I won’t go down that road. 

I am going to keep an eye out for a valid explanation for this move from the government but for now let me state that I am against the change.



Holy Shit! Tax!

Tomorrow is July 1st! HAPPY BIRTHDAY CANADA!  In order to celebrate we are going to implement a new style tax in Ontario.  HST. Harmonized Sales Tax.  Noone ever likes to hear the words “new tax” and the words usually cause people to go into a foaming-at-the-mouth tirade against whatever current government is implementing it.   In some cases however the idea behind the tax and all the steps that have been implemented with it are not entirely obvious to all the people the new tax will affect. 

Let’s go over the main idea behind the tax and why the government thinks it is a good idea. The main idea is that it decreases the amount of tax that companies will pay on input goods, the materials they use to make other goods and then resell.

That is, there will only be tax on the value added.   This means goods that firms use as inputs all become cheaper. Where they used to have to pay tax on everything they used to make their products now they don’t. What this means is that all goods become cheaper to produce.  When goods become cheaper to produce they become cheaper for the consumer.  This is not a short tem effect, meaning that it is going to take some time to kick in. This is probably what has people the most upset.  All they see is that some things that they only paid one low tax or no tax on before now have the full 13% of the HST.  Being upset is understandable, that is why the provincial government lowered everyone’s income tax last year and why they are sending out checks to people.  You get more if you are a family versus an individual.  The natural reaction to this is to say there is no way the firms are going to pass the savings onto the consumers!  Maybe not right away, but they will. That is the nature of a firm, to maximize profits.  Let’s drop a little game matrix down here and we’ll take a look at the likely outcome.  Let’s make some assumptions before we start. These assumptions help us to simplify the model.

  1. There are only two firms that make jewellery, Phil’s Gold Shop and Dalton’s Gold Shop.
  2. Customers know the price of items at both shops at all times.
  3. There is no collusion between the firms

So what we are saying is that if one firm lowers their price then all the customers will go to them to purchase goods..  This is going to be a hyper quick lesson on basic game theory. (The only kind I know) Please look at this table.

 

 

 Dalton

 

        Phil

 

Keep

Lower

Keep

6,6

0,10

Lower

10,0

5,5

 

We see the possible outcomes for the two jewellery companies when they either keep their prices high or drop them as their costs drop.  Notice that if one firm drops their price even a small amount they capture the entire market.  The first number is the profit Dalton makes and the number after the comma is what Phil makes in each set of circumstances.  The units don’t matter. So here is the quick reasoning that Phil might go through.

  • If Dalton keeps his price high and Phil keeps his price high they each make 6.
  • If Dalton keeps his price high and Phil lowers his price then Phil makes 10 and Dalton makes 0.
  • Phil is better off lowering his price if Dalton sticks with the high price.
  • If Dalton lowers his price and Phil keeps his price high then Dalton makes 10 and Phil makes 0.
  • If Dalton lowers his price and Phil lowers his price then each will make 5.
  • Phil is better off lowering his price if Dalton lowers his price.

When the best choice in both cases is the same this is referred to as a dominant strategy. This is the strategy that the firm will use.  Phil will lower his price. It is easy to see that Dalton will do the same.

I do realize that this is a very simple model but it is with simple models that we can begin to understand why certain elements of the market react the way they do on a larger scale. If there was collusion between the firms and they both kept their prices high then yes, they would make more money and prices would be higher but if just one person lowers their price (remember in the real world there are many more firms in each market) then it triggers a whole series of prices drops until firms are back to making normal levels of profit but with the lower cost of inputs.  This means prices go down. Lower input costs normally mean that firms hire more workers as well, but thats a whole other graph that I won’t show here.

The HST is obviously a vastly more complex issue but there are lots of places to read about it and I try to keep things a little different around here.

G-G-G-G-G20!

The G20 summit/protest is over now and everyone is still trying to sort out what was accomplished.  I think the number one thing that everyone will notice about the news coverage is of course that police cars were burned.  Protestors set fire to police cars! That was the number one story coming out of this weekend.  As always the media focused on the few bad people at the protests and spent very little time discussing the tens of thousands of peaceful, legitimate protestors that showed up. They also did not spend a lot of time discussing the outcome and final declaration made by the summit attendees. 

Let’s deal first with the protestors since that seems to be the main focus of nearly all media attention. We will need to clarify right away that the famous term “black bloc” should not be capitalized. It is a protest tactic, not a specific group.  A bunch of people dress all in black so that they are difficult to tell apart. They mingle in with peaceful protestors and then break away at points to cause damage to property belonging to people they feel are destroying the environment or hurting the dolphins or oppressing them or whatever. They can then rush back into their large group and again be difficult to distinguish from the others.  Once they feel like they have smashed enough windows they all mass together and remove their black clothing, switch back to standard clothing and disperse into the rest of the crowd. All in all, a pretty effective tactic. They smashed a lot of windows and at one point lit a police car on fire, there might have been two burning police cars, not sure.  Anyway, no one knows what they want and everyone assumes they are just punk ass kids that want to smash things. From what I have read the idea is that in order to get the attention of people that only care about money you need to destroy the things they own and cost them money. 

The problem I have is that so many people are looking at these videos and saying that the police left these cars to burn and that for a billion dollars in security that there should have been police there to prevent this.  Many think these were bait cars and some even think that the people smashing them were undercover police officers. The famous “agent provocateurs”. I have no doubt that the police placed plain clothes officers in with many of the crowds, there were even a few videos of them breaking cover to grab the main trouble makers.  What I doubt is that the police burned their own cars. I have no proof either way so I guess there is not much to debate here.  Please don’t message me with the video of the Surete de Quebec officers posing as anarchist at past summits, I have seen it and I have no problem with what they were doing. My guess about what happened is that the police knew where these violent protesters were going, and that maybe they did leave those cars there. It sure became the focus for a lot of the most violent troublemakers.  The police kept the people that felt like smashing things contained in a certain area and allowed them to do their thing.  If they had gone in with shields and batons the violent people likely would have scattered and been much harder to control. Seems like a pretty good tactic by the police. 

As always the problem with the few violent protestors is that they over shadow the people there with legitimate concerns. 

This is what a real protest looks like.

A mass of people showing their views in public, peacefully.  I sure don’t agree with a lot of things in that video but they sure know how to protest properly. (On a side note:  Canada is saying that our foreign aid cannot be used for abortions? What the hell? We settled that issue years ago)  Notice how none of them are yelling things like I am a peaceful protestor. I am being peaceful! and the police are leaving them alone.  Now go look at any of the videos online of what people perceive to be over zealous police.  Hear anything similar in every single one of them?  The people that were getting arrested, for the most part , were in the wrong places.  Places they chose to be however. Not too much sympathy there.  I will admit that there are likely some people that got arrested that shouldn’t have but that will be sorted out. 

I will talk about the final declaration released from the summit tomorrow most likely. I will also try to wrap up the other bits of information I have left hanging in the past posts very soon.

More on BP and the gang

Today a U.S. Federal judge overturned the moratorium on deep water drilling. The moratorium had been put in place by U.S. president Barack Obama shortly after oil began spilling into the Gulf of Mexico.  This is a calm response to a situation which has been understandably causing a lot of people to react quickly to a situation which is highly emotional.

The moratorium called for 33 exploratory wells to that were being drilled in the gulf to stop at their next safe stop point. It also halted any new drilling permits from being issued for any deepwater wells, that is anything below 500 feet of water.

The problem with this type of action of course is that the government has no authority to impose this type of moratorium.  It is similar to many things outlined in Obama’s recent address to the nation.  Two other things that stand out right away are that the government is going to stop BP from paying out a dividend to stock holders and that they will have BP hand over 20 billion U.S. dollars immediately to an independent organization that will deal with paying out compensation to victims of the disaster. BP agreed to both of these things but did not need to.  I imagine BP did these things because if they didn’t they would have looked worse (somehow) than they already did.  BP and all of its subcontractors, so far, have not been accused, let alone convicted of breaking any laws, nor have they been cited for breaking any safety violations.  I am not saying that BP is not responsible for this mess but we have to maintain a level head when dealing with the outcome. 

Right now the limit on personal liability from the spill is something ridiculously low like 75 million dollars.  Right away a proposal was drawn up to increase the limit to 10 billion dollars.  Luckily, cooler heads prevailed and the bill was defeated.  They wanted to punish BP for the Deepwater Horizon spill but I imagine they finally realized they were not sure how this would affect the other 3800 wells in the gulf.  That’s right.  Last I check there are over 3800 wells in the gulf.  North America is thirsty for oil and we need to get it from somewhere right? Right now approximately 0.02% of the wells in the gulf are spilling oil. I guess everyone is fine driving their SUVs around with the oil being pumped out of the other 99.98% of the wells.  We have to remember that anything that the government does is going to affect all those rigs, and all the people that work on them or support them and everyone that buys what they produce.

One nice thing in the Obama address was that he hinted that he might use this to try and get people back on the green energy bandwagon. It was going pretty good there for awhile , then there was the whole recession thing.  I really hope this is a wakeup call to everyone to rethink how we get the energy we use.  I am not entirely sure people are making the connection between the oil spewing from that pipe into the ocean and the cars they drive to work every day. This would be the perfect time to try to get them to listen.

It will be interesting to see how cooperative BP is after the well is capped.  I am guessing that their PR department is basically saying to give in to any reasonable demands until the pipe is capped.  Then they can step back and as people start to forget about this and they can start to push back on the government a bit.  Oh, that PR department is probably also telling their CEO to shut the hell up.  Once the pipe is capped people will start to forget about this a little.  New seasons of American Idol and Survivor will start and everything can get back to normal. The front page of CNN will eventually scale back its coverage to a single link, something like “Gulf Update” or something along those lines. BP will still pay for the cleanup of course, but they can afford it. From what I understand they had about 40 billion US in extra cash each year so even if they dedicated 20 billion a year for the next few years they are still good to go. 

Oh, do you want a long term stock tip from me as a totally unqualified stock advisor?  Buy BP stock soon and hold onto it.  They are not going anywhere. The stock is sitting at $29.68 right now. It will likely go down a bit more until the pipe is actually capped, I expect it to rise soon after that and in the long run it should return to a value somewhere over $50.

This was a long one, thank you for reading.

Blowout Prevention. Billowing Pollution. The BP situation.

So the oil spill continues.  The blowout and sinking of the Deepwater Horizon occurred on April 21st, 2010. BP is scrambling to get the leak plugged but it seems more and more likely that the relief well, which should be complete in August, is going to end up being the final solution. On February 5th, 2010 BP submitted to the National Energy Board of Canada a document asking for the review of a policy it currently has in place.  You can see the submission here. Currently if someone wants to drill in the Beaufort Sea they are required to have the ability to drill a second relief well in the same season. They must be able to show what their plan is to get equipment in place and to create a second well within the same drilling season. This way you couldn’t run into the disastrous scenario where a blowout occurs, the oil spill begins and then the ice becomes too thick and you can no longer access the well to repair the damage. The oil spill would then continue until the next drilling season.   In the document BP explains all the wonderful things they will do to prevent a major oil leak that would not require a relief well.  If you want a good read try paragraphs 20-50.  They explain how amazing BP are at preventing oil spills based on all their experience in the Gulf of Mexico.  Blowout preventers, high safety standards, well trained staff and other things are all listed as ways that an oil leak would be prevented.   It’s too bad that the southern coast of the US had to be covered in oil before anyone realized this is all total bullshit.

Shock and Awe

There is only one way to describe my reaction to the Oliphant report that was released today. A total lack of  surprise.  The Oliphant commission was investigating the dealings Brian Mulroney had with Karlheinz Shreiber shortly after Mulroney’s time as Prime Minister of Canada ended. I will admit that I only read the executive summary of the report but I think this part of the report does a good job of describing the conclusions.

“The conduct exhibited by Mr. Mulroney in accepting cash-stuffed envelopes from Mr. Schreiber on three separate occasions, failing to record the fact of the cash payments, failing to deposit the cash into a bank or other financial institution, and failing to disclose the fact of the cash payments when given the opportunity to do so goes a long way, in my view, to supporting my position that the financial dealings between Mr.  Schreiber and Mr. Mulroney were inappropriate.” 

There you have it. Something that anyone with half a brain could have told you is now officially confirmed.  I guess it is good that this is now on the record and now they can enact new rules to prevent this kind of thing in the future.  It just does seem like something is lacking with this conclusion to the whole situation.  The wording of the statement is telling too.  It could easily have read “accepting cash” or “cash filled envelopes” but instead “cash-stuffed” was used. Definitely makes it sound worse. 

You can read the whole report at the official website. I doubt this is the last we will hear of this.