Mirvish's new turkey

Everyone in the Toronto area knows Honest Ed's, but it's not so well-known outside the city.  The venerable cheapie department store is like the love child of Walmart and Barnum and Bailey's.  Can't quite visualize that?  Fortunately for you,  you don't have to:

"Honest" Ed Mirvish passed away in 2007, leaving quite a legacy for the city.  As well as his ramshackle emporium, he had a couple of restaurants and a couple of theatres: an old one that he rescued from the wrecking ball (The Royal Alexandra), and one he built, the Princess of Wales.  That name will give you an idea of its age, which is important for what follows.  Mirvish was also a great philanthropist; most famously, he gave away thousands of turkeys at his store every Christmas.

The Mirvish empire has now passed into the hands of his son, David Mirvish, who seems to see his role in life as busting up everything his late father built.  It's just been announced that Honest Ed's, plus the surrounding blocks that the family also owns, is up for sale.  Not as a going concern, of course: it's all but certain to be snapped up by a developer and torn down so that another ghastly condo development can be stuck in its place.  The Mirvish family is almost certainly correct in judging that the time for something like Honest Ed's has passed, but it will still leave a big hole in the city's psyche when it goes.

But that's not the half of it.  David Mirvish also wants to build a giant three-tower condo development downtown, and in order to do that, he wants to tear down the relatively new Princess of Wales theatre.  When I say giant, I mean it: the towers would, if Mirvish gets his way, be 80 stories tall.  And they'd be designed by Frank Gehry, in the nightmare-inducing style that he's already used to blight cities around the world.  Can't quite visualize it?  Unfortunately for you, you don't have to:

Gehry is a Torontonian, so it's a bit surprising that he hasn't been asked to inflict one of his excrescences on his home city before now.  (He's 84, so time may be said to be running short).  City council has yet to approve the plan, which goes way beyond the height and density regulations for the neighbourhood, but Mirvish is offering an inducement.  If the plan is approved, he'll graciously make his personal art collection available for public viewing.  Considering his taste in architecture, that's an offer I'd find very easy to refuse. In the meantime, that low whirring sound you hear is probably Ed Mirvish, spinning in his grave.

Bank of England edging toward the exit door

Minutes of the Bank of England's recent MPC meeting were released today (Guardian coverage here).  Since new Governor Mark Carney has already instituted a policy of issuing press releases immediately after MPC sessions, the minutes have less import than they used to.  However, markets have taken note of the fact that the decision not to expand the Bank's QE program was unanimous; two members of the 9-person committee who had previously favoured further such easing voted with the majority (and Carney) this time.

As the minutes noted, the Bank sees recent trends in the UK economy as "broadly positive", so the decision not to undertake more QE is no surprise.  That said, the Bank is concerned that Gilt markets are pricing in too much policy tightening, and the minutes therefore reiterated the post-meeting statement  in saying that the main onus on policymakers was to ensure that "stimulus was not withdrawn prematurely".

So the Bank of England is now in the same position as the Fed, clearly preparing to "taper" QE but still trying to figure out how and when to start the process. Some time in August, the Bank is due to present its ideas on "forward guidance" of market rate expectations.  Considering the skittishness of fixed income markets (though, very strikingly, not equity markets) about the whole prospect of reduced monetary stimulus, Carney and his colleagues are going to need a surgeon's touch.

Canada's house party: is it all over?

There's a well-argued opinion piece in today's Toronto Star, making the case that the Canadian housing market is overpriced and ripe for a correction.  The author, Adam Peterson, is described as a "residential real estate investor"; he's Canadian but he lives in New York.

Peterson joins an extensive list of people making much the same call, among them: Steve Eisner, one of the protagonists of Michael Lewis's "The Big Short", which describes how he made millions from shorting the US housing bubble half a decade ago; Matthew Yglesias at Slate; and the ubiquitous Paul Krugman. Peterson's angle on the story is that while a correction is unavoidable, it may in fact already be under way, but in slow motion, unlike the sudden implosion that was seen in the US.  Canadians should hope he's right.

I agree with most of what Peterson has to say, but think there are a few points of clarification that need to be made, particularly for the benefit of non-Canadians.

The first point is that the bubble is largely confined to two areas of the country: greater Toronto and greater Vancouver.  Those are Canada's largest and third-largest cities, so this is not to downplay the severity of the problem.  However, many of the country's large cities, places like Winnipeg or Windsor or Halifax to name just a few, are showing no real signs of a bubble.  Even in the bucolic area where I live, less than two hours drive from Toronto and in the heart of a major area for vacation properties, house prices are moderate by international standards.

Second, in common with many other commentators on the Canadian housing scene, Peterson expresses puzzlement that although the number of houses getting sold in major markets is falling, prices are continuing to rise.  I don't find this puzzling at all: it's a direct result of the way that house price indices are compiled (and a warning about why all such indices need to be treated with caution).  Steps taken by the federal government to rein in the housing market, by requiring banks to seek a 25% deposit from buyers and cutting the maximum term of mortgages to 25 years from 30, have inevitably weighed heaviest on first-time buyers.  To the extent that transactions in the lower price ranges have been drastically curtailed,  house price indices, which are generally crude averages of completed sales, naturally move higher.  Needless to say, such a rise is not a sign of a healthy market.

Finally, what about those federal government measures to rein in the market?  Peterson is generally positive about the way the authorities are "facing the problem head on", and it's certainly true that the government and the Bank of Canada have tried to stay in front of of the problem.  At the same time, Peterson notes that Canada's home-price-to-household income ratio is now very close to 5:1, the level that triggered all the problems in the US, which might be taken to suggest that attempts to clamp down on bank mortgage lending have not gone far enough.

It's a real balancing act.  Homebuilders are warning that any slowdown in construction could cost the economy 150,000 jobs, which may be true, but should perhaps be weighed against how many jobs would be imperilled if a sudden housing collapse caused the entire banking sector to freeze up (or worse).  Canada may have avoided some of the worst excesses that led to the problems south of the border -- no NINJAs here -- but the sheer importance of the housing sector in the national economy means there's very little margin for error.

Weather vain

Hell hath no fury like a global warming evangelist scorned.  The science columnist at Slate, Phil Plait (who I still think should be a food columnist) has launched another tirade against someone who dares to question the scientific consensus about anthropogenic climate change.  Plait always avers that he writes these polemics more in sorrow than in anger, but he sure seems to enjoy whupping unbeliever ass.

Plait's target this time is Matt Ridley, the author of "The Rational Optimist", who recently published a column on climate in the WSJ.  Ridley isn't even a climate change denier per se, but he has the temerity to question some of the more extreme conclusions reached by some of the experts.  However, his biggest sin, in Plait's eyes, seems to be that he quotes from other climate change skeptics, rather than from the "peer reviewed research" that Plait endorses.  Of course, Plait rather snidely notes,  there isn't much peer reviewed research that denies climate change.  That may have something to do with the growing and rather unsavory evidence that anyone who dares to voice doubts about the consensus is highly unlikely to get tenure anywhere.

Plait and others of his ilk seem genuinely unable to understand why non-scientists would doubt the supposed scientific consensus.  How about this?  Scientists have managed to frame the debate in such a way that they can't possibly lose it.  Last year in Toronto there was record-setting summer heat and a near drought.  The cause: climate change.  This summer Toronto has twice seen major flooding, with the one-day rainfall total last Monday setting a new record.  The cause? Well, meteorologists are saying we can't directly blame climate change, but since they add in the next breath that we can expect more such events in the future, it seems they don't really mean it.

Drought: climate change.  Flood: climate change.  I'm no expert on the significance of carbon dioxide levels in the atmosphere (neither is Phil Plait, by the way -- he's actually an astronomer), but when the experts claim that the same supposedly well-understood phenomenon can cause two such diverse outcomes, I confess I get a bit suspicious.

What's more, if the weather is quite normal, well, apparently that's consistent with the models too.  After all, climatologists say, they've never claimed that climate change would happen in a straight line.  And that's just as well, because as this NY Times story relates, right now global warming isn't happening at all.  Not since 1998, in fact, and that despite the fact that carbon dioxide levels are still rising.

Scientists are casting around for an explanation, but seem unwilling to reconsider their basic thesis, even though they never predicted this plateau would occur.  Look guys, we can accept that you can't extrapolate from one year's data, or maybe even two or three years.  But fifteen years does start to look a teeny bit like a trend, wouldn't you say?  So please go a bit easier on Matt Ridley or anyone else who asks you to think again in light of new evidence.  I thought that was the scientific method, but then again, I haven't been peer reviewed in ages.

Making his Mark early

As this BBC article suggests, Mark Carney has had a good first week in his new job at the Bank of England.  Having impressed the media by turning up for work by 7 am on Monday (normal starting time in the City of London, by-the-bye) and travelling by Tube rather than limousine, Carney has wasted no time in setting a new tone for the Bank's relationship with the markets.  Whether substantive policy changes will follow remains to be seen*.

Carney has begun to introduce to the UK a practice well known to followers of Canadian monetary policy: "forward guidance" of fixed income markets.  In the past, the Bank of England normally made statements on the days of its monetary policy committee (MPC) meetings only if it had changed interest rates.  Otherwise markets had to wait for release of the minutes of the MPC, several weeks after the event.  And since rates were usually adjusted only in those months when the Bank had a new Quarterly Inflation Report to inform its decision making, this meant that markets had a long wait between meaningful policy pronouncements by the Bank.

The Bank of Canada, by contrast, has always issued a statement immediately following the end of its policy meetings.  A few years ago these were often pretty perfunctory things, but under Carney they became increasingly substantial, and provided markets with real insight into the Bank's thinking as it evolved.  This is what Carney will now try to do at the BoE.

As for the actual guidance provided to the markets, here is the key paragraph from the press release:

At its meeting today, the Committee noted that the incoming data over the past couple of months had been broadly consistent with the central outlook for output growth and inflation contained in the May Report.  The significant upward movement in market interest rates would, however, weigh on that outlook; in the Committee’s view, the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy.

What the Bank is saying is that the forward path of official interest rates implied by the Gilt yield curve is higher than the path that the Bank sees as probable. Gilt markets, in common with bond markets in other countries, have sold off in response to central bankers' hints that ultra-low rates and quantitative easing will soon be reined in.  That rise in market interest rates is itself serving to curb the growth outlook, making higher official rates less necessary.  This sort of feedback effect will always complicate efforts to provide guidance to markets, given the hair-trigger reactions of fixed income traders.

The Bank's press statement gave a boost to UK equities (and further weakened Sterling) as investors pushed back the expected date for an end to monetary policy accommodation.  This was undoubtedly the Bank's intention, but it remains to be seen how long the present level of stimulus can safely be kept in place.  The recent data flow in the UK has generally been positive, and growth data for Q2 are expected to show that the economy expanded by around 0.5% from the preceding trimester.  Carney is going to face some tough decisions as the months go by, but it looks as though he is going to do his best to avoid blindsiding the markets when he makes them.  That's good.

* Or insubstantial ones.  One development in his first week that might have made Carney pine for Ottawa was a spat over the design of the next series of UK bank notes, which habitually feature portraits of important Britons.  A group of feminists is angry that there will be no portraits of women on the new notes.  Apparently HM the Queen, whose picture has been on every note and coin minted in the UK for the past six decades, doesn't count.    

Rob Ford and the media

Blog readers outside Canada, and maybe even those outside Ontario, might be starting to forget about the alleged drug scandal that seemed set to topple Toronto's oafish Mayor, Rob Ford, a few weeks ago. Led by the Toronto Star, the media were trying to track down a video that supposedly showed Ford smoking crack cocaine and uttering a variety of racist and homophobic epithets.  That video never did appear, and the scandal fell off the front pages.

However, just as things seemed to be quietening down, Toronto police staged a massive series of dawn raids, known as Project Traveller, that appeared to center on people and homes in some way associated with the mystery video.  The press were, naturally, all over this like a rash, but were stymied yet again when police Chief Bill Blair declined to confirm or deny that the Mayor (or the video) was linked to the raids in any way.  The Chief argued that any matters related to the raids should only become public at such time as the matter went to trial -- which could be many months hence.

The Toronto Star, in particular, was furious with Chief Blair.  The major media outlets then got together to approach the courts to argue that release of the warrants and other materials that enabled the raids to take place was in the public interest.  A judge has now ruled that partial versions of these materials should be made available to media lawyers at the end of August, with the Crown prosecutors obliged to provide an explanation of their reasons for any sections they choose to redact.

Begging the Star's pardon, but it's not really difficult to see why the police wanted to keep a lid on things.  The Star's relentless lust to be judge and jury on all matters affecting Ford is liable to make it very difficult for the Mayor to get a fair hearing in court, if it ever comes to that.

Back in March, the Star accused Mayor Ford of groping a woman at a function he was attending in his official capacity.  Ford denied it vehemently, and there were no witnesses.  However, one of the Star's resident harpies, Heather Mallick, penned an absolutely disgraceful article in which she accused Ford and found him guilty as charged.  The evidence?  The look on the faces of Ford and the gropee in a picture taken at the event, and Mallick's entirely personal view of how the two parties to such an incident would behave.

If the matter had ever come to trial, Ford's defence counsel would have been able to keep any woman who had seen that issue of the paper off the jury.  But it never did come to trial: the police have a rather higher evidentiary standard than Heather Mallick does, and it emerged that the gropee had been defeated by Mayor Ford in a couple of elections, raising the possibility that she might have had a hidden agenda. The story sank without trace within a week.

Given the Star's rabid anti-Fordism (the groping story is just the latest among many it has blazoned across the front pages), there can be little doubt that the paper would go completely over the top if it emerged that Ford and the video were connected to the Project Traveller raids.  As far as Ford himself goes, that might not matter too much anyway.  The main court of opinion for him should be the Toronto electorate:  he faces re-election in November 2014.  However, the Star's blunderbuss approach might well make it much harder for the police to secure convictions against the dozens of lowlifes and ne'er-do-wells they picked up in the raids, which would be a much more serious matter.

An enduring irony in all this is that Ford's support base actually seems to solidify the more the media attack him.  The Mayor is a boor and a fool and he ought by rights to be unelectable, but the Star and the rest of the media might just saddle Toronto with him for a second term.

Let the squawking begin

EU finance ministers have reached a deal on how future bank rescues will be handled.  The operative term is now "bail-in" rather than bailout:  creditors and shareholders get hit first, and then depositors with holdings of more than the insured limit of 100,000 euros.  That's right -- the recent rescue deal for Cyprus, which was absolutely positively not going to be a template for other countries, is turning out to be exactly that.

It can't be long before other countries adopt similar policies.  Canada, for example, included provisions for a bail-in arrangement in its budget earlier this year, though details supposedly remain to be negotiated.

As I've written before, I don't have a big problem with this.  The logic of setting limits on depositor protection insurance is surely that amounts above the insured limit are at risk in the event of a bank running into trouble.  However, it was very clear at the time of the Cyprus deal that a lot of people were, or at least affected to be, unaware that holding deposits in a bank made them creditors.  As and when the EU deal moves toward implementation -- which could take a very long time, as national governments now have to negotiate with the European Parliament -- expect a rising level of public indignation.