I'm old enough to remember each stage of mankind's space exploration -- Sputnik 1, Leika and Belka, Telstar, Yuri Gagarin, Alan Sheppard, Mercury/Gemini/Apollo, the ISS and so on. Like a lot of people of my age, I get a bit sad when I contemplate the fact that the great age of space exploration ended more than three decades ago, when the Apollo moon voyages stopped. At a time of cold war tension, the space race was a very healthy and beneficial competition between the superpowers. Today's efforts seem picayune in comparison.
Still, I hadn't realised just how bad things had become until I saw the accounts of the NASA-sponsored rocket launch that went badly wrong just seconds after blast-off in Virginia earlier this week. Strapped for cash, NASA has been privatizing its efforts, so the ill-fated launch was in fact being carried out by a sub-contractor called Orbital Sciences. And as Wolf Blitzer told the world the day after the explosion, the rocket they were trying to use was a forty-year old one from the former USSR! In fact, it was of a type that the folks at Baikonur (that was the USSR's Cape Canaveral) had experienced all sorts of launchpad problems with all those years ago -- so many problems that the rockets were deemed unserviceable, and were ordered to be scrapped. For whatever reason, this didn't happen, and so these many years later Orbital Science pitched up, bought them and offered them to NASA.
Wolf Blitzer didn't seem bothered by this startling revelation. In fact, he almost saw it as a plus -- blame the Russkies! After all, he pointed out, there aren't a lot of US-made rockets out there that NASA and its sub-contractors could buy instead. Really? The US military doesn't seem to be suffering from a shortage of rockets, and it seems unlikely in the extreme that they're procuring theirs from Russia, China or anywhere else. Back in the heyday of the space program, there was an enormous amount of cross-fertilization between NASA and the military. Whether for financial or security reasons, it appears this is no longer the case.
Blitzer and his expert panelists agreed that this week's setback will not stop NASA's outsourcing efforts, because it's so much cheaper than doing everything for itself. It's not clear how you make that calculation when NASA's entire payload was incinerated less than 100 feet above the launch pad, on the very same day that a Russian supply ship to the ISS made an uneventful trip. But if he's right, then anyone with a stash of the UK's old Blue Steel and Blue Streak rockets, which never seemed to get higher than the launch gantry without exploding, might finally be able to cash in.
Thursday, 30 October 2014
Wednesday, 29 October 2014
QEDead
As expected, the US Federal Reserve announced today that it will end its quantitative easing program (well, sort of -- more on this below), in view of the continuing improvement in the US economy. It emphasized that it would not consider raising interest rates for a "considerable" period of time, but also hardened its rhetoric slightly by removing the adjective "significant" from its description of the degree of slack in the labour market.
This piece by the BBC's Robert Peston is a bit rambling and repetitive, but it's not a bad summary of what we know about the good and bad achieved by half a decade of unprecedented money creation. As Peston notes, fears that QE would set of a bout of unbridled inflation have proven unfounded. At the same time, hopes that QE would get the US economy back on its feet have been agonizingly slow to materialize. Companies have been reluctant to take advantage of exceptionally low borrowing costs to increase investment, while banks have been equally unwilling to extend fresh credit than the Fed and other central banks had hoped.
It's perhaps worth reminding ourselves here that central banks (and governments) have in effect spent the past five years trying to get banks to suck and blow at the same time -- providing credit to finance business expansion while aggressively getting their own balance sheets back into shape. As last week's news out of Europe suggests, this latter process is still not complete, with a couple of dozen institutions still failing to meet capital requirements.
Despite the Fed's cautious optimism, there's still a real risk that the US could find itself in another bout of stagnation if growth continues to slow in China and fails to recover in Europe. If that happens, asset prices, which have certainly been boosted by QE even if the broader economy hasn't, would come under pressure. This loops us back to the point in the first paragraph, that the Fed has only "sort of" ended QE. The program may be over, but the Fed's balance sheet stands at a staggering $3.7 trillion, eight times larger than it was before the QE purchases started. Nobody seems to have much idea what to do about that, but if the Fed can't begin the process of shrinking its balance sheet fairly soon, how much room to maneuver will it have when the next crisis rolls around?
This piece by the BBC's Robert Peston is a bit rambling and repetitive, but it's not a bad summary of what we know about the good and bad achieved by half a decade of unprecedented money creation. As Peston notes, fears that QE would set of a bout of unbridled inflation have proven unfounded. At the same time, hopes that QE would get the US economy back on its feet have been agonizingly slow to materialize. Companies have been reluctant to take advantage of exceptionally low borrowing costs to increase investment, while banks have been equally unwilling to extend fresh credit than the Fed and other central banks had hoped.
It's perhaps worth reminding ourselves here that central banks (and governments) have in effect spent the past five years trying to get banks to suck and blow at the same time -- providing credit to finance business expansion while aggressively getting their own balance sheets back into shape. As last week's news out of Europe suggests, this latter process is still not complete, with a couple of dozen institutions still failing to meet capital requirements.
Despite the Fed's cautious optimism, there's still a real risk that the US could find itself in another bout of stagnation if growth continues to slow in China and fails to recover in Europe. If that happens, asset prices, which have certainly been boosted by QE even if the broader economy hasn't, would come under pressure. This loops us back to the point in the first paragraph, that the Fed has only "sort of" ended QE. The program may be over, but the Fed's balance sheet stands at a staggering $3.7 trillion, eight times larger than it was before the QE purchases started. Nobody seems to have much idea what to do about that, but if the Fed can't begin the process of shrinking its balance sheet fairly soon, how much room to maneuver will it have when the next crisis rolls around?
Monday, 27 October 2014
First, do no harm
Kaci Hickox, the nurse who wound up as the first victim of New Jersey Governor Chris Christie's mandatory ebola quarantine, wasted no time in lawyering up and threatening to sue over her "inhumane" treatment. It's not yet known whether Christie's decision today to allow her to spend the rest of her quarantine in Maine will change her mind. In the meantime, the pros and cons of the quarantine rules imposed in Illinois and New York state as well as New Jersey, and firmly opposed by the White House, are getting plenty of airplay.
The case against the quarantines is spelled out in this Slate piece by Josh Voorhees. The argument is basically twofold. First, there's no reason to think that quarantining asymptomatic individuals who've been in contact with ebola patients will do anything to reduce the risks of a larger-scale outbreak within the US. Second, if the threat of being quarantined on returning home deters doctors and nurses from traveling to West Africa to deal with the outbreak there, then controlling that outbreak and preventing it from spreading further will become much more difficult.
Those are important points, and certainly Voorhees is convinced by them. However, it seems harsh to conclude, as Voorhees does, that the states that are imposing these quarantines are doing so for political rather than medical reasons. Consider this quote from Kaci Hickox: "We need to be careful about letting politicians make medical decisions". That would be easier to argue if the decisions made by medical professionals in recent weeks had been better. The second nurse to come down with the virus in Dallas, after treating the patient from Liberia, saw no reason not to fly to Cleveland and back during the incubation period for the disease. What makes this so worrying is that she contacted the CDC for advice and was told to go right ahead. Voorhees mentions this case but says airily that the CDC now admits that may have been a mistake. Indeed so, and it's the sort of mistake that prompts politicians like Chris Christie to take draconian steps like the mandatory quarantine.
Then there's the case of the doctor now under treatment for ebola at Bellevue in New York City. After returning from a stint in West Africa, he resumed his normal routine, riding the subway and going bowling, even though he started noticing signs of fatigue and lethargy. He only presented himself at Bellevue when he developed a fever. Again, this is not the kind of astute medical decision to inspire Gov. Christie et al to leave things to the professionals.
The fear that quarantines will deter medical professionals from going to Africa to tackle the ebola outbreak there is a real one, but there's a flipside to that too. If doctors and nurses are allowed to re-enter the US without any quarantine and the result is a sudden spread of the disease within the US, the almost inevitable response will be for the Federal Government to focus all its efforts on eradicating the disease at home, rather than allowing even more professionals to travel to West Africa and risk becoming infected. That would be in nobody's best interest, especially not West Africa's.
It remains to be seen whether the three states that have imposed these restrictions will bow to Washington's wishes and rescind them. On the whole it seems unlikely: having taken the initial step, no Governor is likely to take the risk of changing his mind and then seeing the disease get loose within his jurisdiction. Until the promised ebola vaccines are rolled out, heavy-handed measures like quarantines will remain part of the story.
The case against the quarantines is spelled out in this Slate piece by Josh Voorhees. The argument is basically twofold. First, there's no reason to think that quarantining asymptomatic individuals who've been in contact with ebola patients will do anything to reduce the risks of a larger-scale outbreak within the US. Second, if the threat of being quarantined on returning home deters doctors and nurses from traveling to West Africa to deal with the outbreak there, then controlling that outbreak and preventing it from spreading further will become much more difficult.
Those are important points, and certainly Voorhees is convinced by them. However, it seems harsh to conclude, as Voorhees does, that the states that are imposing these quarantines are doing so for political rather than medical reasons. Consider this quote from Kaci Hickox: "We need to be careful about letting politicians make medical decisions". That would be easier to argue if the decisions made by medical professionals in recent weeks had been better. The second nurse to come down with the virus in Dallas, after treating the patient from Liberia, saw no reason not to fly to Cleveland and back during the incubation period for the disease. What makes this so worrying is that she contacted the CDC for advice and was told to go right ahead. Voorhees mentions this case but says airily that the CDC now admits that may have been a mistake. Indeed so, and it's the sort of mistake that prompts politicians like Chris Christie to take draconian steps like the mandatory quarantine.
Then there's the case of the doctor now under treatment for ebola at Bellevue in New York City. After returning from a stint in West Africa, he resumed his normal routine, riding the subway and going bowling, even though he started noticing signs of fatigue and lethargy. He only presented himself at Bellevue when he developed a fever. Again, this is not the kind of astute medical decision to inspire Gov. Christie et al to leave things to the professionals.
The fear that quarantines will deter medical professionals from going to Africa to tackle the ebola outbreak there is a real one, but there's a flipside to that too. If doctors and nurses are allowed to re-enter the US without any quarantine and the result is a sudden spread of the disease within the US, the almost inevitable response will be for the Federal Government to focus all its efforts on eradicating the disease at home, rather than allowing even more professionals to travel to West Africa and risk becoming infected. That would be in nobody's best interest, especially not West Africa's.
It remains to be seen whether the three states that have imposed these restrictions will bow to Washington's wishes and rescind them. On the whole it seems unlikely: having taken the initial step, no Governor is likely to take the risk of changing his mind and then seeing the disease get loose within his jurisdiction. Until the promised ebola vaccines are rolled out, heavy-handed measures like quarantines will remain part of the story.
Thursday, 23 October 2014
Coming home to roost
It would appear that Stephen Harper got the direction of causation backwards. Earlier this month, when he committed Canada's military to a combat role against ISIS/ISIL, the Prime Minister asserted that it was necessary for Canada to join its allies on the front lines in Iraq and Syria, to prevent terrorism from spreading to home soil. The authorities are not yet being definitive on the motives behind this week's despicable and cowardly murders in St-Jean-sur-Richelieu and Ottawa; however, given what we know about the perpetrators -- two troubled young men who were recent converts to Islam -- it's all but certain that they were motivated by anger at Harper's decision.
As conservative governments go, Harper's Tories are something of an anomaly. Most right -wing governments will gleefully slash social programs, but tend to leave intact or even boost funding for activities that they see as core functions of government: a strong military, and a tough approach to law enforcement at home. The Harperites, however, in their deficit-slaying zeal, have taken the axe to those things too, leaving the military and the security services chronically underfunded.
That's why Canada's initial pledge of "up to 65" military training personnel to work with the Iraqi Army turned out in practice to be just 29 soldiers. It's why Canada's contribution to the air campaign against ISIS/ISIL consists of six thirty-year-old CF18s -- and it's why it may be necessary to send eight aircraft, to allow for cannibalization of parts as the planes become increasingly hard to maintain. In the international arena, Canada's foreign policy under Harper's direction is bellicose rather than belligerent -- Harper may talk the talk, but he's left the armed forces in a position where they can't walk the walk.
Lack of funding may also explain why this week's attacks were able to happen. The Canadian intelligence agency, CSIS, has a list of about 90 individuals who are perceived as domestic terrorist threats. Both of this week's killers were on that list*, but the agency lacked the funding to keep them under anything like proper surveillance. The only step that had been taken was to revoke their passports. This may have stopped them from traveling to Syria, but that simply meant that they carried out their homicidal urges closer to home.
There's more. The shooter in Ottawa was able to march right into the Central Block of the Parliament buildings. A couple of years ago, the Harper government was warned that security on Parliament Hill was scandalously lax -- it's much harder to gain access to most private office buildings than into the heart of the Canadian government. For budgetary reasons, nothing was done to beef up security in response to those warnings. As a result, the shooter got a long way into the building before he was shot, not by one of the security guards who belatedly appeared, but by the normally ceremonial Sergeant-at-Arms, a retired military man now being hailed as a hero.
None of this is meant in any way to pin the blame for this week's atrocities on Harper: that blame lies only with the two murderers who carried out the attacks. But it seems hard to deny that Harper's obsessive deficit cutting has left Canadians more vulnerable than they need to be. Harper has today pledged expeditious steps to tighten domestic anti-terrorism efforts. Too late, alas for Corporal Nathan Cirillo of Hamilton and Warrant Officer Patrice Vincent of St-Jean-sur-Richelieu. RIP.
* Update/correction, 24 October: It now turns out that the Ottawa killer was not on the CSIS/RCMP priority watch list, which has precisely 93 names on it. However, he was a "person of interest" to the security services, and when he applied for a passport recently, they stalled the application out of fear that he planned to travel to Syria.
And a puzzling and sad note: his mother is a senior public servant in the Immigration Department. She had lost contact with her son for five years or more. Then, just a week ago, he showed up in Ottawa and they had lunch together.
As conservative governments go, Harper's Tories are something of an anomaly. Most right -wing governments will gleefully slash social programs, but tend to leave intact or even boost funding for activities that they see as core functions of government: a strong military, and a tough approach to law enforcement at home. The Harperites, however, in their deficit-slaying zeal, have taken the axe to those things too, leaving the military and the security services chronically underfunded.
That's why Canada's initial pledge of "up to 65" military training personnel to work with the Iraqi Army turned out in practice to be just 29 soldiers. It's why Canada's contribution to the air campaign against ISIS/ISIL consists of six thirty-year-old CF18s -- and it's why it may be necessary to send eight aircraft, to allow for cannibalization of parts as the planes become increasingly hard to maintain. In the international arena, Canada's foreign policy under Harper's direction is bellicose rather than belligerent -- Harper may talk the talk, but he's left the armed forces in a position where they can't walk the walk.
Lack of funding may also explain why this week's attacks were able to happen. The Canadian intelligence agency, CSIS, has a list of about 90 individuals who are perceived as domestic terrorist threats. Both of this week's killers were on that list*, but the agency lacked the funding to keep them under anything like proper surveillance. The only step that had been taken was to revoke their passports. This may have stopped them from traveling to Syria, but that simply meant that they carried out their homicidal urges closer to home.
There's more. The shooter in Ottawa was able to march right into the Central Block of the Parliament buildings. A couple of years ago, the Harper government was warned that security on Parliament Hill was scandalously lax -- it's much harder to gain access to most private office buildings than into the heart of the Canadian government. For budgetary reasons, nothing was done to beef up security in response to those warnings. As a result, the shooter got a long way into the building before he was shot, not by one of the security guards who belatedly appeared, but by the normally ceremonial Sergeant-at-Arms, a retired military man now being hailed as a hero.
None of this is meant in any way to pin the blame for this week's atrocities on Harper: that blame lies only with the two murderers who carried out the attacks. But it seems hard to deny that Harper's obsessive deficit cutting has left Canadians more vulnerable than they need to be. Harper has today pledged expeditious steps to tighten domestic anti-terrorism efforts. Too late, alas for Corporal Nathan Cirillo of Hamilton and Warrant Officer Patrice Vincent of St-Jean-sur-Richelieu. RIP.
* Update/correction, 24 October: It now turns out that the Ottawa killer was not on the CSIS/RCMP priority watch list, which has precisely 93 names on it. However, he was a "person of interest" to the security services, and when he applied for a passport recently, they stalled the application out of fear that he planned to travel to Syria.
And a puzzling and sad note: his mother is a senior public servant in the Immigration Department. She had lost contact with her son for five years or more. Then, just a week ago, he showed up in Ottawa and they had lunch together.
Monday, 20 October 2014
The evil of three lessers
Watching the Toronto mayoral election from our safe vantage point on the south side of the lake has been a depressing experience, so thank the Lord there's only a week to go until polling day. It's hard to believe that a city of almost three million people is likely to elect one of the gruesome threesome who are leading in the opinion polls.
The best-known of the three is probably Doug Ford, who replaced his younger brother Rob on the ballot paper when Rob was diagnosed with an unusual form of cancer. Doug appears to have maintained his brother's support in the so-called "Ford Nation" (basically angry suburbanites) but has been unable to widen his appeal, if the polls are to be believed. His politics are virtually identical to his brother's -- "respect for taxpayers", implausible promises to build subways all over the place -- but he doesn't have Rob's odd likability. If you need a mnemonic to tell the Fords apart, then there's a rhyming one that will do just fine: for Rob and Doug, read Slob and Thug.
Doug also shares with his sibling an effortless, almost reflexive mendaciousness, even when lying serves no particular purpose. One example from the campaign will have to suffice. Responding to suggestions that he and his brother were borderline racists, Doug announced that this couldn't possibly be the case because his wife was Jewish. This came as a surprise to his audience -- and to his wife!
Close to Doug Ford on the ideological spectrum is John Tory, whose surname sums him up pretty well. If Doug Ford is new money (his father founded a successful manufacturing company). then Tory is old, establishment money. He's had a checkered career in business -- some successes but also one large failure -- but an entirely unsuccessful one in politics, having suffered several rejections when he's attempted to seek office in the past,
Tory's one and only notable campaign platform is a plan to build a commuter rail line dubbed SmartTrack to relieve Toronto's chronic congestion problems. It will be quite remarkable if this scheme propels him into office. For one thing, it's not really his idea: the Province has already announced plans for a much larger electrification of Toronto's regional rail network, including the lines Tory wants to use for SmartTrack. For another, to the extent that Tory has tweaked the Province's ideas for his own scheme, the changes are all for the worse. A quite pointless adjustment to one end of the route is almost certainly impossible to construct, especially in the 7-year timeframe Tory is promising, and his proposed financing technique (TIF or tax increment financing) is basically a shell game.
Opposing these two worthies from the left of the political spectrum is Olivia Chow. She started the campaign with a deep reservoir of voter goodwill, based on her long service on city council and the recent loss of her well-liked husband, the former Federal opposition leader Jack Layton. By virtue of a dithering, unfocused campaign and an occasional inability to make herself heard, she has squandered most of that support, and looks likely to finish behind both Tory and Ford on voting day.
One disappointment in watching Chow has been her lack of grace in dealing with her opponents. Again, one example will suffice. At one of the innumerable debates among the candidates, the moderator asked each participant to say something nice about one of their opponents. The other candidates managed this well enough, praising one another's commitment to the city, work ethic and such. When Chow was asked to say something positive about John Tory, all she could come up with was "he has an expensive suit and a very full Rolodex".
When the campaign started (back on January 2!!), there were some promising candidates in the field. Many have dropped out because of the expense of running such a long campaign and the difficulty of competing with the Ford family circus. There's one excellent candidate I'd be voting for if I were actually in Toronto (a left-leaning lawyer named Ari Goldberg) but the winner is going to be one of the three profiled above -- probably John Tory. Does Toronto deserve better? It's hard to argue that -- you tend to get the politicians you deserve. But it surely needs someone better.
The best-known of the three is probably Doug Ford, who replaced his younger brother Rob on the ballot paper when Rob was diagnosed with an unusual form of cancer. Doug appears to have maintained his brother's support in the so-called "Ford Nation" (basically angry suburbanites) but has been unable to widen his appeal, if the polls are to be believed. His politics are virtually identical to his brother's -- "respect for taxpayers", implausible promises to build subways all over the place -- but he doesn't have Rob's odd likability. If you need a mnemonic to tell the Fords apart, then there's a rhyming one that will do just fine: for Rob and Doug, read Slob and Thug.
Doug also shares with his sibling an effortless, almost reflexive mendaciousness, even when lying serves no particular purpose. One example from the campaign will have to suffice. Responding to suggestions that he and his brother were borderline racists, Doug announced that this couldn't possibly be the case because his wife was Jewish. This came as a surprise to his audience -- and to his wife!
Close to Doug Ford on the ideological spectrum is John Tory, whose surname sums him up pretty well. If Doug Ford is new money (his father founded a successful manufacturing company). then Tory is old, establishment money. He's had a checkered career in business -- some successes but also one large failure -- but an entirely unsuccessful one in politics, having suffered several rejections when he's attempted to seek office in the past,
Tory's one and only notable campaign platform is a plan to build a commuter rail line dubbed SmartTrack to relieve Toronto's chronic congestion problems. It will be quite remarkable if this scheme propels him into office. For one thing, it's not really his idea: the Province has already announced plans for a much larger electrification of Toronto's regional rail network, including the lines Tory wants to use for SmartTrack. For another, to the extent that Tory has tweaked the Province's ideas for his own scheme, the changes are all for the worse. A quite pointless adjustment to one end of the route is almost certainly impossible to construct, especially in the 7-year timeframe Tory is promising, and his proposed financing technique (TIF or tax increment financing) is basically a shell game.
Opposing these two worthies from the left of the political spectrum is Olivia Chow. She started the campaign with a deep reservoir of voter goodwill, based on her long service on city council and the recent loss of her well-liked husband, the former Federal opposition leader Jack Layton. By virtue of a dithering, unfocused campaign and an occasional inability to make herself heard, she has squandered most of that support, and looks likely to finish behind both Tory and Ford on voting day.
One disappointment in watching Chow has been her lack of grace in dealing with her opponents. Again, one example will suffice. At one of the innumerable debates among the candidates, the moderator asked each participant to say something nice about one of their opponents. The other candidates managed this well enough, praising one another's commitment to the city, work ethic and such. When Chow was asked to say something positive about John Tory, all she could come up with was "he has an expensive suit and a very full Rolodex".
When the campaign started (back on January 2!!), there were some promising candidates in the field. Many have dropped out because of the expense of running such a long campaign and the difficulty of competing with the Ford family circus. There's one excellent candidate I'd be voting for if I were actually in Toronto (a left-leaning lawyer named Ari Goldberg) but the winner is going to be one of the three profiled above -- probably John Tory. Does Toronto deserve better? It's hard to argue that -- you tend to get the politicians you deserve. But it surely needs someone better.
Thursday, 16 October 2014
Climbing the wall
Global equity markets have been scaling the proverbial "wall of worry" for the last couple of weeks. Most major indexes are in or close to correction territory (falls of 10 percent or more), with the gains for the entire calendar year to date wiped out in the space of just a few sessions.
Looking around the world, maybe it's hard to be surprised by this. Sanctions on Russia, in response to the crisis in Ukraine, are weighing on already-weak European economies; ISIS/ISIL is threatening a conflagration in the entire Middle East; there are signs that the momentum in the Chinese economy has waned, which will inevitably rekindle fears over the solvency of the country's financial system; and now there's ebola, which could deliver a major hit to global growth if it were to get loose in one of the major economies.
Only the last of these is really new, however, and should not prove to be a major drag on growth unless the health authorities in the developed world really are as inept as they've seemed at times in the past couple of weeks. (Yes, we do mean you, Texas Health and the CDC). The other negatives have been known for many months, and yet markets had continued to move ahead regardless, until just recently. So what is it that's changed?
The factor that many analysts are choosing to focus on is the fall in oil prices. As an explanation for the current weakness, this needs to be treated with caution. Although the IEA has revised its crude oil demand forecast down slightly in recent days, it still expects demand for the year as a whole to be higher than a year ago. The signs of slowdown in the global economy are not so severe as to suggest that the anticipation of falling oil demand is behind the price weakness. Rising oil production, especially in the US, seems to be the root cause.
Is this really a negative for the US and other countries? It may weigh heavily on the share prices of oil companies (and it's potentially damaging for the oil patch here in Canada, with its abundance of expensive-to-produce crude), but it's a boon for the profitability of truckers, airlines and a whole host of other energy consuming sectors. And it's an even bigger boost for consumers, who are likely to see lower prices for gasoline, natural gas and even groceries in the coming months, which should stimulate real consumer demand.
If energy is not the main negative, then we're left to assume that the key factor may be the looming removal of monetary stimulus in the US and elsewhere -- what one analyst in the linked article refers to as "monetary morphine". The rise in equity markets in the past couple of years has always seemed out of line with the underlying strength of the global economy, fuelled by cheap money rather than real optimism about the outlook.
The big question now is whether the fall in equities will spook the Fed and other central banks into halting or even reversing their plans to unwind monetary stimulus -- a "Yellen put", if you will. The even bigger question for the longer term is whether failing to return monetary conditions to something more normal will set the stage for a rerun of the 2008 financial crisis, or something even worse, not too far down the road.
Looking around the world, maybe it's hard to be surprised by this. Sanctions on Russia, in response to the crisis in Ukraine, are weighing on already-weak European economies; ISIS/ISIL is threatening a conflagration in the entire Middle East; there are signs that the momentum in the Chinese economy has waned, which will inevitably rekindle fears over the solvency of the country's financial system; and now there's ebola, which could deliver a major hit to global growth if it were to get loose in one of the major economies.
Only the last of these is really new, however, and should not prove to be a major drag on growth unless the health authorities in the developed world really are as inept as they've seemed at times in the past couple of weeks. (Yes, we do mean you, Texas Health and the CDC). The other negatives have been known for many months, and yet markets had continued to move ahead regardless, until just recently. So what is it that's changed?
The factor that many analysts are choosing to focus on is the fall in oil prices. As an explanation for the current weakness, this needs to be treated with caution. Although the IEA has revised its crude oil demand forecast down slightly in recent days, it still expects demand for the year as a whole to be higher than a year ago. The signs of slowdown in the global economy are not so severe as to suggest that the anticipation of falling oil demand is behind the price weakness. Rising oil production, especially in the US, seems to be the root cause.
Is this really a negative for the US and other countries? It may weigh heavily on the share prices of oil companies (and it's potentially damaging for the oil patch here in Canada, with its abundance of expensive-to-produce crude), but it's a boon for the profitability of truckers, airlines and a whole host of other energy consuming sectors. And it's an even bigger boost for consumers, who are likely to see lower prices for gasoline, natural gas and even groceries in the coming months, which should stimulate real consumer demand.
If energy is not the main negative, then we're left to assume that the key factor may be the looming removal of monetary stimulus in the US and elsewhere -- what one analyst in the linked article refers to as "monetary morphine". The rise in equity markets in the past couple of years has always seemed out of line with the underlying strength of the global economy, fuelled by cheap money rather than real optimism about the outlook.
The big question now is whether the fall in equities will spook the Fed and other central banks into halting or even reversing their plans to unwind monetary stimulus -- a "Yellen put", if you will. The even bigger question for the longer term is whether failing to return monetary conditions to something more normal will set the stage for a rerun of the 2008 financial crisis, or something even worse, not too far down the road.
Friday, 10 October 2014
Go figure!
The wild monthly gyrations in Canada's employment data continue. StatsCan reported today that the economy added 74,000 jobs in September, almost all of them full time. This was a much stronger result than most experts had predicted. However, the erratic nature of the employment data over the last several months, together with growing fears over the outlook for the global economy and commodity prices, warrants caution.
The most bizarre aspect of the previous month's employment report was StatsCan's claim that about 98,000 private sector jobs had been lost, the most for any single month in the history of the data, with an offsetting and equally unprecedented leap in self-employment offsetting most of the loss. Guess what? In September, StatsCan estimates that 130,000 private sector positions were created. Neither the August nor the September data seems to bear any resemblance to what can be observed in the economy -- there have been no major layoffs, but equally no big plant openings either.
It still looks as though there may be something amiss in StatsCan's data collection, or perhaps its seasonal adjustment techniques. Q3 is normally the time of the auto makers' model year switchover, which sometimes leads to workers being furloughed, but that wouldn't account for the reported jump in self-employment in August, which was largely reversed in September.
Unreliable data make it difficult for even the most plugged-in experts to forecast the future, and one such has today announced that it's throwing in the towel: the Bank of Canada! Governor Stephen Poloz has announced that the Bank will be dropping its "general market guidance" -- the use of terms like "easing bias" or "tightening bias" -- in the belief that doing so will help to reduce market volatility. Poloz's predecessor, Mark Carney, was big on guidance, but his attempts to introduce it at the Bank of England have backfired quite badly.
From now on, the BoC intends to lay out its analysis of the economy and let market participants draw their own conclusions. In principle this sounds like a good thing -- economists and analysts will have to examine the economic data, rather than carrying out an exegesis on Gov Poloz's pronouncements. It's a bit unfortunate, however, that the Bank is unveiling this new approach at a time when faith in StatsCan's data is as low as it's ever been.
The most bizarre aspect of the previous month's employment report was StatsCan's claim that about 98,000 private sector jobs had been lost, the most for any single month in the history of the data, with an offsetting and equally unprecedented leap in self-employment offsetting most of the loss. Guess what? In September, StatsCan estimates that 130,000 private sector positions were created. Neither the August nor the September data seems to bear any resemblance to what can be observed in the economy -- there have been no major layoffs, but equally no big plant openings either.
It still looks as though there may be something amiss in StatsCan's data collection, or perhaps its seasonal adjustment techniques. Q3 is normally the time of the auto makers' model year switchover, which sometimes leads to workers being furloughed, but that wouldn't account for the reported jump in self-employment in August, which was largely reversed in September.
Unreliable data make it difficult for even the most plugged-in experts to forecast the future, and one such has today announced that it's throwing in the towel: the Bank of Canada! Governor Stephen Poloz has announced that the Bank will be dropping its "general market guidance" -- the use of terms like "easing bias" or "tightening bias" -- in the belief that doing so will help to reduce market volatility. Poloz's predecessor, Mark Carney, was big on guidance, but his attempts to introduce it at the Bank of England have backfired quite badly.
From now on, the BoC intends to lay out its analysis of the economy and let market participants draw their own conclusions. In principle this sounds like a good thing -- economists and analysts will have to examine the economic data, rather than carrying out an exegesis on Gov Poloz's pronouncements. It's a bit unfortunate, however, that the Bank is unveiling this new approach at a time when faith in StatsCan's data is as low as it's ever been.
Wednesday, 8 October 2014
You don't say!
The IMF is warning that low interest rates pose a potential threat to global financial stability, and hence to the entire global economy. In its Global Financial Stability Report, the Fund frets that low interest rates are leading investors to take on greater risks as they search for higher yielding assets. As a result, it believes that prices "in virtually all the major asset classes are simultaneously stretched". Consumer prices may not be rising, but then they weren't a decade ago either, when the Greenspan Fed allowed itself to believe that there was no harm in persisting with cheap money policies. We know how that ended up.
The Fund isn't just waking up to this, of course, but its warnings are definitely becoming a bit more urgent, if not yet panic-stricken. As a number of central bankers and others have admitted in the last couple of years, it was all very well and good to slash rates and pump money into the system to prevent an outright collapse, but nobody gave any real thought to how all of this would be unwound. There's no sign even now that any of the main central banks has a firm plan. The Fed has set the ball rolling by halting its QE program, but it's unclear whether Ms Yellen and her colleagues will continue to stay the course if the recent pullback in equity markets becomes more pronounced.
The US, UK and others have been happy over the years to brandish the IMF's advice like a cudgel at countries whose policies they disapproved of. It will be instructive to see whether they will be equally keen to follow its advice, now that they themselves are the ones coming under criticism.
The Fund isn't just waking up to this, of course, but its warnings are definitely becoming a bit more urgent, if not yet panic-stricken. As a number of central bankers and others have admitted in the last couple of years, it was all very well and good to slash rates and pump money into the system to prevent an outright collapse, but nobody gave any real thought to how all of this would be unwound. There's no sign even now that any of the main central banks has a firm plan. The Fed has set the ball rolling by halting its QE program, but it's unclear whether Ms Yellen and her colleagues will continue to stay the course if the recent pullback in equity markets becomes more pronounced.
The US, UK and others have been happy over the years to brandish the IMF's advice like a cudgel at countries whose policies they disapproved of. It will be instructive to see whether they will be equally keen to follow its advice, now that they themselves are the ones coming under criticism.
Monday, 6 October 2014
ebollocks
The fact that there's a man close to death from ebola in a Dallas hospital is all Uncle Sam's fault. Mark Steyn says so, so it must be true.
America's favorite right-wing Canadian blowhard blames the situation on US border security. In his view, those cheery folks that you meet when you enter the country are too busy looking out for Kinder Surprise eggs and illicit bagpipes (really!) to spot a real threat like ebola when it's staring them in the face.
Except it wasn't staring them in the face, was it? When Thomas Duncan approached the immigration desk at Dulles, he wasn't showing any symptoms, and he wasn't yet infectious. Steyn comes up with all sorts of other reasons why he should have been refused admission, but truth to tell, he presented as a perfectly normal traveller on a routine family visit. For much the same reason, you can't really blame United Airlines. There was no reason to turn Duncan away when he checked in for his transatlantic flight in Brussels.
Texas Health Presbyterian hospital in Dallas, well that's another matter, though the startling incompetence or negligence shown there doesn't seem to trouble Mark Steyn. That's surprising, because a few years ago, when the SARS outbreak took a nasty toll in Toronto, Steyn was quick to blame the medics. Well, not the medics exactly: Steyn blamed Canada's "socialized" medical system for creating the conditions in which SARS could spread within the supposedly hygienic walls of a hospital. But Texas Health Presbyterian isn't "socialized", of course, so Steyn has had to direct his vitriol elsewhere, and it's the poor old border agents who are getting it in the neck this time.
Steyn's not the only one going gaga over ebola. CNN, never shy about spreading panic, rigged out a shouty doctor named Gilbert Mobley in a hazmat suit and sent him into the terminal at Atlanta airport before interviewing him on air. Mobley baldly accused the Center for Disease Control of lying about the risks the virus poses to Americans. Bizarrely, he claimed that dealing with the Thomas Duncan case had overwhelmed the health authorities in Dallas, before warning darkly about how bad things could get if ebola spread to a third world country such as Mexico.
That's no doubt true in theory, but is it sufficiently likely in practice to justify scaring people? The number of people travelling between the affected countries and Mexico or anywhere else in Central America must be microscopically small. Thomas Duncan made a deliberate choice to travel to the US when he knew he had come into contact with ebola, on the assumption (wrong, as it now appears) that he'd have access to good medical care there if he in fact came down with the disease. It's unlikely he, or anyone else back in Liberia contemplating a similar journey, weighed up the merits of flying to Mexico City or Guatemala City instead.
CNN was careful to advise its viewers that Mobley is not an expert on ebola. No surprise there: those good folks are putting their own health on the line in an effort to get the disease under control, so they're far too busy to take part in distasteful stunts at the world's busiest airport.
America's favorite right-wing Canadian blowhard blames the situation on US border security. In his view, those cheery folks that you meet when you enter the country are too busy looking out for Kinder Surprise eggs and illicit bagpipes (really!) to spot a real threat like ebola when it's staring them in the face.
Except it wasn't staring them in the face, was it? When Thomas Duncan approached the immigration desk at Dulles, he wasn't showing any symptoms, and he wasn't yet infectious. Steyn comes up with all sorts of other reasons why he should have been refused admission, but truth to tell, he presented as a perfectly normal traveller on a routine family visit. For much the same reason, you can't really blame United Airlines. There was no reason to turn Duncan away when he checked in for his transatlantic flight in Brussels.
Texas Health Presbyterian hospital in Dallas, well that's another matter, though the startling incompetence or negligence shown there doesn't seem to trouble Mark Steyn. That's surprising, because a few years ago, when the SARS outbreak took a nasty toll in Toronto, Steyn was quick to blame the medics. Well, not the medics exactly: Steyn blamed Canada's "socialized" medical system for creating the conditions in which SARS could spread within the supposedly hygienic walls of a hospital. But Texas Health Presbyterian isn't "socialized", of course, so Steyn has had to direct his vitriol elsewhere, and it's the poor old border agents who are getting it in the neck this time.
Steyn's not the only one going gaga over ebola. CNN, never shy about spreading panic, rigged out a shouty doctor named Gilbert Mobley in a hazmat suit and sent him into the terminal at Atlanta airport before interviewing him on air. Mobley baldly accused the Center for Disease Control of lying about the risks the virus poses to Americans. Bizarrely, he claimed that dealing with the Thomas Duncan case had overwhelmed the health authorities in Dallas, before warning darkly about how bad things could get if ebola spread to a third world country such as Mexico.
That's no doubt true in theory, but is it sufficiently likely in practice to justify scaring people? The number of people travelling between the affected countries and Mexico or anywhere else in Central America must be microscopically small. Thomas Duncan made a deliberate choice to travel to the US when he knew he had come into contact with ebola, on the assumption (wrong, as it now appears) that he'd have access to good medical care there if he in fact came down with the disease. It's unlikely he, or anyone else back in Liberia contemplating a similar journey, weighed up the merits of flying to Mexico City or Guatemala City instead.
CNN was careful to advise its viewers that Mobley is not an expert on ebola. No surprise there: those good folks are putting their own health on the line in an effort to get the disease under control, so they're far too busy to take part in distasteful stunts at the world's busiest airport.
Wednesday, 1 October 2014
The cost of ebola
CNN is giving its customary wall-to-wall coverage to the news that a man in a Texas hospital has been diagnosed with ebola. He was turned away from the hospital when he presented himself showing symptoms, even though he told the nurse he had recently arrived from Liberia. He was only admitted when he arrived again in an ambulance several days later, much more seriously ill.
How, Wolf and Anderson are asking, could this possibly have happened?
Well, here's one possibility. The poor man is a Liberian national. If he couldn't make it past the triage nurse, could it have been because his credit card was found wanting?
Hope I'm wrong.
How, Wolf and Anderson are asking, could this possibly have happened?
Well, here's one possibility. The poor man is a Liberian national. If he couldn't make it past the triage nurse, could it have been because his credit card was found wanting?
Hope I'm wrong.
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