Ottawa Senators

The Senators will not be relocating to LeBreton Flats, now that their agreement with Trinity Development Group has failed.

See here....

https://mewetree.blogspot.com/2018/11/melnyk-and-ottawa.html

As noted, I think Melnyk likely gave up on this initiative when he discovered that he was not going to be permitted to put a casino at the facility he owns in Stittsville, Ontario.  I think he needed the money that would have generated to pay for his part of the LeBreton Flats development.

He now says that the Senators will look for a different place in the city core of Ottawa to put his new facility. I live in Ottawa....there is no such place.

And so....

I think Melnyk has been quietly exploring moving this team to Toronto with Maple Leaf Sports & Entertainment and the NHL for years.  

Melnyk would need to buy out the MLSE monopoly on NHL hockey within 50 miles of Toronto, but the economics for a team moved from Ottawa to perhaps north of the 401 would be so good that I suspect there is a number they would accept to sell their rights. If Melnyk could move the Senators to Toronto, the value of the team would at least double, and he would never have a revenue problem again.

Stay tuned.....

Market Update

What’s going on?

Economics…

Interest rates have risen, and while there is a pause, more increases are supposed to follow.

The US unemployment rate has increased from 3.7% in November to 4% in January.  The difference represents 500,000 fewer people in the workforce.

Trump has continued his trade war with China.

The USA is borrowing over $1 Trillion this year – with no end to the borrowing in sight.

GDP growth in the USA in the fourth quarter of 2018 has been revised down from 2.5% to about 1.7%.

The USA is becoming a retail apocalypse, with chain after chain closing their doors, forever.

Housing bubbles are starting to burst – Canada, Australia, China.

Brexit is almost upon us…with no deal.

Politics…

Venezuela has experienced the greatest refugee migration in the history of that continent.

The USA and China are likely heading for a confrontation in the South China Sea.

Trump will try to solve North Korea again – this gambit is risky in the extreme.

France continues to be rocked by turmoil.

Trump may be about to face the Mueller Report, that could also rock his presidency.

And yet, the S&P 500 is up about 20% since it reached a bottom in December, 2018.  It is within striking distance of its early 2018 high of 2872. The CNN Greed and Fear Index, which hit a low of 2 out of 100 in December, is now at 70 only eight weeks later. It is “Buy, Buy, Buy!” all over again! 

But who is really buying?

Central banks worldwide bought government treasuries and other assets like mortgage-backed securities for almost a decade after the Great Recession in 2007 – 09. They started selling these assets in mid-2018 at the same time that most of them started raising interest rates.

The effect of this twin policy of dumping assets and raising rates had a significant negative effect on prices.  Bond prices fell, meaning the yields on these assets rose which pulled investment from the stock market back to bonds at about the same time that the buy-back splurge prompted by Trump’s tax cuts was coming to an end (NB - We now know that the market was pumped last year almost exclusively by companies buying back their own stocks.)  

This caused a massive pull-back in stock prices last fall which put many pension funds in the USA into a dire situation, as they had invested heavily in equities instead of bonds owing to the very low returns that bonds paid for about a decade – some face insolvency and their pensioners face destitution. Many prognosticators, including Trump, called for central banks to stop raising rates as a result of this fall in the prices of equities.

You can see the relative economic chaos that we have right now. While the US economy is “booming”, cracks have started to appear and many analysts are predicting a 2020 recession – just over 10 months from now.

And so, again, who is buying stocks?

Central banks have continued selling assets, although the head of the US Fed – Powell - has indicated that the rate of increase in interest rates will slow. 

Query – Are central banks taking the cash the receive from asset sales, and using it to buy equities?  This would kill two birds with one stone – 1. get assets off their books, while 2. preventing a further drop in the stock market and impending problems with the US pension system.  

That would be a great solution, except that buying equities would mean they may have even more assets on their books…so all they would really be doing is pumping the value of the stock market to ward off pension fund insolvency, just as the Japanese Central bank has done for years now.

We know the central banks have increased their purchases of the “barbarous relic” recently, which no one saw coming. Is central bank buying of equities really so far-fetched...especially if what they are doing is allowing pensions funds to get out of equities and back into bonds now that rates have moved up? 

But if true, what does that say about “free markets”?

In short, there aren’t any.

Mueller Update

Here is a great article on what may come next from Mueller.

https://www.wired.com/story/mueller-russia-probe-trump-wrap-up-scenarios/

Barr was made Attorney General to shut down the Mueller probe, and I would have to think that Barr has quietly told him to wrap it up. Nonetheless, I think that some more indictments are coming before any report, whatever form it may take. This would include a charge of Lying to Congress against Trump Jr., and one would think a possible charge of Conspiracy Against the USA against Trump Jr., and Kushner stemming from their June, 2016, meeting with Russian representatives.

But maybe not. As noted here before, to prosecute these people one of either Manafort, Kushner or Trump Jr., who were the Trump representatives who attended that meeting, would have to testify against the others.  Mueller thought he had Manafort...then he did not.  Without a witness to testify about what these meetings were really about, it is hard to see how he will make out conspiracy charges.  Even if Mueller knows everything about "what" they did from electronic surveillance, he needs a witness to testify as to "why" they did it and he does not appear to have one.

I would think that Mueller will pass off a range of other investigations relating to Trump's real estate and other endeavours to other prosecutors when he closes this file. I think this means that Trump will go prison after he is no longer the president, but that could be six years from now.

Finally, I continue to wonder about Hope Hicks.  She was in the know regarding all of the main activities as Trump's closest confidant. Does Mueller have one more surprise in store?

Biafra

I met a fine gentleman from Biafra recently, who asked me to do a blog on Biafra. I agreed...here it is. 

Note - there appears to be a significant amount of propaganda regarding Biafra. I'll try to keep this strictly factual, leaving out any value judgements. 

The first thing you need to know is that Biafra is an old nation. European maps from up to 500 years ago record the existence of Biafra, with this reference repeated for the next four hundreds years. Biafra was also treated as a nation in international law by other nations. For example, in 1827 the British signed a treaty with the king of Biafra for control of some small islands to facilitate trade.

The second thing you need to know is that Biafra was incorporated into the state of Nigeria when the British formed that state of Nigeria out of what had been the Northern Nigeria Protectorate and the Southern Nigeria Protectorate in 1914. As was the practice at the time, the populations of these protectorates, including the Biafrans, were not consulted regarding this development.

The Northern portion of Nigeria is predominately Muslim, and the Southern portion, including Biafra, is predominately Christian. Nigeria is the most populated country in Africa, with some 190 million people, of whom about 70 million live in what would have been modern day Biafra. 

This Muslim-Christian nation appears to have been fraught with difficulty since Nigeria gained independence from Britain in 1960. This includes numerous massacres, assassinations, military governments and coups, discrimination and general discord. The fact that Nigeria has oil wealth, and former colonial powers and others have seen fit to interfere in the internal politics of the country to secure access to this oil wealth, has exacerbated these divisions.

The culmination of this discord was a declaration of independence by Biafra on May 30, 1967, and a civil war that lasted about two and a half years, resulting in the defeat of Biafra, and its forceful re-incorporation into the state of Nigeria.  

In terms of its violence and horror, this civil war ranks with the worst of such wars since the end of the Second World War.  Estimates of civilian deaths, largely from a Nigerian blockade that kept food and other supplies out of Biarfa for years and caused mass starvation, range as low as 500,000 to as high as 3 million, with the most usual estimate being just under 2 million people out of a population of some 15 million in 1967.

To put these deaths into perspective, consider that the Khmer Rouge killed between 1.5 to 3 million people, or about 25% of the population of Cambodia between 1975 and 1979. The Vietnam War cost an estimated 1.3 million lives. The French war to oppose Algerian independence cost about 1.5 million casualties. Finally, losses from the Bangladesh war of independence range from 300,000 to 3 million people. The attempt by Biafra to separate from Nigeria therefore spawned one of the bloodiest wars of the second half of the twentieth century. The vast majority of deaths were those of Biafrans.

Nigeria became a nominal democracy in 1999. The first relatively free election happened in 2007. The development of political freedom has permitted the evolution of a peaceful movement devoted to Biafran independence called MOSSOB or Movement for the Actualization of the Sovereign State of Biafra.  This group has a Biafran government in exile as well as Biafran shadow government. Other pro-independence groups have also been formed, and there have been mass protests. These movements and groups appear to have wide ranging support.

These groups have been harassed and their leaders have been arrested by the Nigerian government. There have been extra-judicial killings and accusations of massacres.

I will not comment beyond this as I am not qualified to do so, other than to say that history teaches that peaceful means have no legitimate response other than negotiation and accommodation.  

Blue Jays, 2019!

The seasons starts March 28th!

Some suggestions for the Blue Jays this year.

1. Let Biagini stay in the bullpen. He had a 3.06 ERA in 2016, when he was last used only as a reliever.  Since then, his ERA has ballooned as the Blue Jays tried to turn him into a starter. It didn't work - let the man do what he does well.

2. Stretch out the Starters. Use six starters this year for the first two months, then shorten to five starters once the Jays know who is actually ready. Let the starters try to stay healthy, especially after the plague of injuries they had last year - Stroman and Sanchez seem fragile, so use them as if they are fragile. The Blue Jays' young arms should be brought on carefully, and there are some huge questions regarding some of these starters, so take a few months to ease into the season. The Rays changed how teams use pitchers last year. Continue the revolution.

3. Consider Trading Morales. I like the guy, and think he can still add some value. But he is not the future of the Blue Jays, and if the ownership group has no problem eating contracts in trades - see Tulo and Martin - they should consider adding Kendrys Morales to this house clearing as well, clearing up room for whoever will become the team's next regular DH.

4. Trade Devon Travis. He has value and could garner interest.  The Blue Jays have loads of infielders now - five legitimate infielders once Guerrero Jr. is called up. Travis has run out of time to secure his position as a franchise players for the Blue Jays owing to injuries - in four years, he has played less than half a season a year. Wish him luck, and say goodbye, and look for another reliever.

5. Leave the Future in the Minors. The Blue Jays have some very good prospects. There is no reason to bring these guys up before they are 100% ready, because there is no way that the Blue Jays will beat either the Red Sox or the Yankees and make it to the playoffs this year. Recognize that we are in a two to three year rebuild, and take the time to develop players properly.

I would be delighted with a record of 81-81 this year.

Go Jays Go!!

If We Were Serious

So, what if we were actually serious about stuff?

Climate Change – We are destroying this planet. If we were serious about addressing this, we would abolish the use of coal as a fuel source right now. We would forbid any use of 100% fossil fuel-powered vehicles within ten years, allowing hybrids for perhaps a decade after that, then abolishing the use of any fossil fuels in transportation vehicles thereafter. 

We would also set aside public investment cash and provide tax incentives for conversion of auto manufacturing from fossil fuel vehicles to clean technology vehicles, perhaps requiring that a certain percentage of vehicles that are sold here must also be produced here. We would require that industry reduce their use of fossil fuels by 5% per year, every year for twenty years, until they used none whatsoever. At that time, the use of fossil fuels as an energy source by anyone, anywhere would be illegal.  

Finally, we would set aside an investment fund for Alberta to assist that province with moving from a fossil fuel powered economy, to whatever may come next.

Fentanyl Crisis – This stuff kills three to four times the number of people who die in car accidents every year. If we were serious about stopping this parade of death, we would immediately forbid the production and sale of this murderous opioid by anyone, anywhere – it does way more harm than any good it could possibly do, and other pain control medications are readily available.  

We would charge anyone caught with enough Fentanyl to traffic it for profit with an indictable offence, punishable by a minimum sentence of five years in a federal penitentiary.  Anyone caught actually dealing this stuff with the result being the death of another person, would be charged with criminal negligence causing death, with a minimum sentence of fifteen years in a federal penitentiary.  

We also need a publicity campaign directed at these people – do the crime, and you will do the time. Drug addicts should be able to benefit from a new, massive, national effort to treat their addictions, including very wide-ranging and readily available recovery programs and facilities.   

Other than Fentanyl, which is likely not safe in any amount, we should decriminalize all hard drugs, treating addiction as a health issue not a criminal issue. Finally, we would sue Big Pharma for recovery of all the health costs associated with their murderous concoction.

Debt – We are heading for bankruptcy both at the government and personal level. If we were serious about addressing the fact that public debt in Canada is now 110% of GDP, while private debt of citizens is now about 175% of GDP (…the highest debt ratio on planet earth on a private debt to GDP ratio), we would balance the federal and provincial budgets within 24 months, and start running small surpluses.  

We would also allow for a debt swap - citizens could replace high interest private sector debt with low interest public sector debt so that, for example, private credit card debt could be exchanged for lower interest debts owing to the Crown. This should be subject to a requirement that the citizen in question not take on any more net private debt than they had prior to undertaking the swap. 

This proposal means that the Feds would have to buy this private debt, but it could then negotiate reductions in the related interest rates with private sector financial institutions. This swap would not include mortgages which are secured against property and which are already heavily insured by the CMHC. 

At the same time, and for those who will get into financial difficulty, we would ease the bankruptcy laws to allow citizens to get out of debt more easily, in a way that is planned and predictable – this is coming anyway; we may as well plan for it. 

Note that some of these initiatives will drive private lenders bonkers, but they are the ones who have lent way too much money to way too many citizens, and these institutions are going to lose tens of Billions of dollars in the looming recession anyway. Many of these institutions will become insolvent, and will seek public sector support to stay afloat…we may as well get ahead of this by making resolving this situation as palatable as possible for everyone.    

Further, we would also double the amount that citizens can save in their tax-free savings accounts so that new savings may offset their older debt. We would increase funding for post-secondary education, to reduce the future debt burdens of today’s students. We would raise the minimum down payment on the purchase of a home to 15% where the mortgage will be insured by CMHC to reduce the accumulation of new mortgage debt.  

Finally, we would require reporting of all private debt on income tax returns, and anyone who has more than 200% of their income in debt would face a small surtax designed to limit any future borrowing.  

Child Porn – This may be a silent epidemic. If we were serious about this, we would mandate a ten year prison term for anyone caught watching this after a set and publicly disseminated cut-off date before which they could delete this from their computers and stop accessing the horror sites associated with it.  

Anyone caught producing this should face a mandatory twenty year prison term in a federal penitentiary – there would be obvious exceptions for people taking pictures and videos of their kids. 

Anyone caught viewing this on their computer or elsewhere, or producing this would be barred from being within three meters of a child under the age of 16 for the rest of their lives, and they would never be permitted to access the internet unsupervised ever again, even after serving their prison sentences. We would also make this an international crime – if you view it or produce it anywhere on earth, Canada’s laws cover you.  

We would massively fund police efforts to trace and combat this, including allowing police to access personal computers both via incursions from the Internet, and by attending freely at homes and simply seizing computers they suspect of having this stuff on them. We would massively ramp up support for children caught in this vile web, including a new publicity campaign to stop this. Finally, we would ramp up psychological treatment of the perpetrators, many of whom were themselves abused. We need to stop this cycle.

Gun Violence – Our youth and others are being gunned down with increasing regularity. This is leaving citizens feeling unsafe in a way that they have never felt unsafe before.  

Addressing this is simple – allow the cops to access any home or auto and simply seize illegal firearms. There could be no charges from such actions as it offends rights against search and seizure, but once the illegal guns have been seized, it is not as if anyone will be able to sue for their return. Much of the violence is gang related – the cops likely know who is in the gangs and who likely has guns. Seize their guns and save their lives, and the lives of others.  

Match this with a campaign to move youth away from the gang-banger culture, to one where they may grow to lead normal, productive lives. 

The answers are clear.  Where is the political will?

  

From The Greatest Generation to The Liquidation Generation

"Ladies and Gentlemen, step right up...the greatest asset liquidation in human history is just around the corner!!"

The Baby Boomers started retiring 10 years ago. This means they are supposedly going from 100% of working income to perhaps 50% - 60% of their previous income in retirement.

I have already noted how this phenomena will be a 20 - 30 year drag on economic growth, as economies struggle to expand at the same time as the largest demographic cohort in the West is reducing its net yearly expenditures. I have "eye-balled" a net reduction in GDP of about 4% per year by 2030, below what would have been the case but for this phenomena.

"But wait! There is more!!"

The Boomers have most of the wealth in the West, and this is mostly tied up in real estate.

"Rest assured friends!! This is a generation that is not about to take a 40% - 50% reduction in their living standard without a fight! My friends...take a look at our newest financial invention...the reverse mortgage!"

You see, Boomers can take out mortgages against their main assets and live off their equity, hoping to pass away before their equity finally runs out. While this may allow them to add say 10% or so more to their yearly expenditures in retirement, it also leaves a massive problem to their progeny.

In short, when the Boomers pass away, they will be leaving assets to their children and others that already has mass debt pledged against it to banks and other financial institutions.

This will leave their progeny with a difficult decision - do they keep the assets, and assume responsibility for the debt that is secured against it - typically a mortgage - or do they sell the asset, pay of the debt, and distribute the cash to the Boomers' Beneficiaries?

"Most will sell - after all, who want's to take over grandpa's mortgage?!!"

And here is the problem. 

This decision process will be repeated by literally tens of millions of beneficiaries, because the Boomers are borrowing like drunken sailors in order to try to live close to the same level they lived at while they were working.

In Canada, there are already over $200 Billion in reverse mortgages, and we are just getting started. This is close to all the cash that is held in reserve by the Canada Mortgage and Housing Corporation as insurance against mortgages that were placed on homes where there was only a 5% to 10% down payment.

"So here is the rub, friends...as Boomers pass away, and their debt-ridden real estate assets are dumped on the market by their beneficiaries who will not want to take over the Boomer's mortgages, house prices will plummet!!"  

We are not talking about a small amount of real estate here - it might turn out to be 1/4 to 1/3 of all private real estate in the entire country.

"And so, there is More! When this happens, beneficiaries are in for a shock!"

After selling the family home and paying off the mortgages secured against those homes, because everyone else will be doing this, thereby causing prices to fall....there will be almost nothing left for them after the mortgages are paid off!

And so, we are going from The Greatest Generation, to The Liquidation Generation.

For the record - I am a Boomer.

"Approved!"