Sunday, 6 November 2011

You Know It's Bad When...

When the big insurance companies start announcing big quarterly losses. Companies like Sunlife, and Manulife are reporting multi-million dollar losses,  a sign that there really isn't much to invest in these days. 

From the Calgary Herald:

Turbulent time for Sun Life

Shares of Sun Life hit their lowest level since the days of the 2008-09 stock market crash on Thursday after the insurer reported a $621-million third-quarter loss caused by marketrelated losses.
Sun Life generally maintains a dividend payout ratio - the percentage of profits paid out as dividends - of about 50 per cent. In reporting its third-quarter results late on Wednesday, Sun Life said it would take a charge of at least $500 million in the fourth quarter and said that its earnings sensitivity to movement in bond yields has increased.

So this isn't because of big payouts from natural or man-made disasters,  but an inability to turn big pools of money (the premiums we all pay) into some kind of revenues.  If they can't make money it's hard to see how the rest of us can.

Some stories that caught my eye over the last week (just started a new job so a little slack getting up new material up.. I will do better).  In one, Canada's agriculture minister who's leading the charge to ditch the Canadian Wheat Board, surprisingly says some good things about supply management (when he stops it will be time for dairy, poultry and egg farmers to worry). Another story that got very little attention: measurement of green-house gas emissions show huge increases.  A hard-ass business writer for the National POST is warning Canadians not to believe all the "energy super-power" hype. And Paul Krugman speaks honestly how the idea of government spending gets twisted depending on who's doing the talking.

Its beyond Big Brother, Ritz says of wheat board

Agriculture Minister Gery Ritz stands on Parliament Hill on 
Thursday. - Agriculture Minister Gery Ritz stands on Parliament Hill on 
Thursday. | Dave Chan for The Globe and Mail
Agriculture Minister Gery Ritz stands on Parliament Hill on Thursday.
The man who’s about to shake up the ground rules for 70,000 western Canadian grain growers believes that all farmers should be masters of their own destiny, free to choose how they sell the fruits of their labour.
However, Gerry Ritz’s farmer-knows-best philosophy also means that elsewhere in Canada, producers are still free to wall themselves off from competition in the sheltered dairy and poultry businesses.

Mr. Ritz, the federal Agriculture Minister and a former grain grower from Saskatchewan, is bringing an emotionally charged battle over the 76-year-old Canadian Wheat Board to the country’s farming heartland.
He’s hitting the road again – as he has since May – for meetings in western provinces to defend and explain changes the Harper government is making that will free wheat and barley farmers from the obligation to sell through the board for the first time since the Second World War.
The wheat board’s defenders warn these controversial changes will leave farmers to fend for themselves and consign a Prairie institution to the margins of the business – an organization that through massive sales volume helped build Canada’s reputation as a grain powerhouse.
Mr. Ritz, 60, said farmers are ready to take matters into their own hands, noting they’ve long marketed products such as canola by themselves and don’t need an agency that dictates and interferes in their lives.
“It’s beyond Big Brother. It is the Nightmare on Elm Street on every farm across Western Canada,” he said of the wheat board. He hastened to add that “some farmers feel comfortable in those constraints, having someone else do the marketing for them.”
But even as Conservatives prepare to liberate western farmers in the name of “marketing freedom,” – they refuse to reform the heavily regulated and sheltered dairy, egg and poultry industries, which have a major presence in Central Canada.
Mr. Ritz understands risk, having tried his hand at raising ostriches before entering politics. At one point, he and a partner had about 800 of the flightless African birds that can be sold for their meat or leather.
“I got some tremendously expensive boots, but boy, they’re beautiful,” he recalls.
The witty quip is standard Ritz, colleagues say: a congenial way of negotiating conversations with everyone from farmers to reporters.
The minister doesn’t recommend the exotic ostrich business for everyone. “We were in that situation where we had too much for a local market and not enough for an export market.”
Nevertheless, it was an example of farmers making their own decisions, Mr. Ritz says.
The Harper government needs to introduce even more free-market thinking in a changing world, agriculture and trade experts say.
They warn that Canada’s share of export markets for food is shrinking on many counts, and say the country needs to open up the dairy and poultry markets to win more access abroad. Hefty tariff walls protect these sectors from significant foreign competition, and production is limited by a command-and-control approach that sets prices and output.
John Weekes, Canada’s chief negotiator for the North American free trade agreement, warns that this country’s unyielding protection of its dairy and poultry farmers is becoming a major obstacle to wringing better concessions from trade talks.
“Increasingly, I think, our supply management policies ... hamper our ability to be able to negotiate trade agreements.”
Mr. Ritz rejects this, noting Canada negotiated a trade agreement with Switzerland, a big dairy producer, and that, regardless of supply management, the European Union sells far more dairy products to Canada than vice versa. “So how is our system a problem for them?”
Mr. Ritz said there’s a benefit for dairy farmers in the managed Canadian system where prices are set ahead of time – and it’s not one that the Canadian Wheat Board offered grain farmers. “The setting of your price guarantees you a profit.”
Mr. Weekes, who also served as ambassador to the World Trade Organization in the 1990s, said Canada’s resolute defence of supply management appears to have cost it a seat at major Trans-Pacific Partnership trade talks between the United States and eight partners.
“The United States is saying they are now focused on [the trans-Pacific talks] as their key trade negotiations objective and they’re talking about this as the new gold standard for trade agreements,” Mr. Weekes said.
“If it does become the new gold standard, we don’t want to have other countries such as Australia and New Zealand having better access to the U.S. market than we have under Nafta.”
Mr. Ritz said U.S. farmers, for instance, envy the stability of Canada’s dairy and poultry system.
“At the same time the Americans are slagging our supply-managed system, farmers down there are saying ‘Boy, we like the way that works.’ ... We’ve got stability. We don’t have to wait for government largesse.’ ”
He noted the Americans approved $450-million (U.S.) last year to backstop their dairy industry.
How much did Ottawa spend on backstopping Canadian dairy farmers?
“Zip,” Mr. Ritz said.

Greenhouse gases rise by record amount

Levels of greenhouse gases are higher than the worst case scenario outlined by climate experts just four years ago
Warning on greenhouse gases failure
Emissions from a coal-fired power station. The output of greenhouse gases has jumped by the highest amount on record. Photograph: John Giles/PA
The global output of heat-trapping carbon dioxide has jumped by a record amount, according to the US department of energy, a sign of how feeble the world's efforts are at slowing man-made global warming.
The figures for 2010 mean that levels of greenhouse gases are higher than the worst case scenario outlined by climate experts just four years ago.
"The more we talk about the need to control emissions, the more they are growing," said John Reilly, the co-director of MIT's Joint Program on the Science and Policy of Global Change.
The world pumped about 564m more tons (512m metric tons) of carbon into the air in 2010 than it did in 2009, an increase of 6%. That amount of extra pollution eclipses the individual emissions of all but three countries, China, the US and India, the world's top producers of greenhouse gases.
It is a "monster" increase that is unheard of, said Gregg Marland, a professor of geology at Appalachian State University, who has helped calculate department of energy figures in the past.
Extra pollution in China and the US account for more than half the increase in emissions last year, Marland said.
"It's a big jump," said Tom Boden, the director of the energy department's Carbon Dioxide Information Analysis Center at Oak Ridge National Lab. "From an emissions standpoint, the global financial crisis seems to be over."
Boden said that in 2010 people were travelling, and manufacturing was back up worldwide, spurring the use of fossil fuels, the chief contributor of man-made climate change.
India and China are huge users of coal. Burning coal is the biggest carbon source worldwide and emissions from that jumped nearly 8% in 2010.
"The good news is that these economies are growing rapidly so everyone ought to be for that, right?" Reilly said. "Broader economic improvements in poor countries has been bringing living improvements to people. Doing it with increasing reliance on coal is imperiling the world."
In 2007, when the Intergovernmental Panel on Climate Change issued its last large report on global warming, it used different scenarios for carbon dioxide pollution and said the rate of warming would be based on the rate of pollution. Boden said the latest figures put global emissions higher than the worst case projections from the climate panel. Those forecast global temperatures rising between 4 and 11 degrees Fahrenheit (2.4-6.4 Celsius) by the end of the century with the best estimate at 7.5 degrees (4 Celsius).
Even though global warming sceptics have criticised the climate change panel as being too alarmist, scientists have generally found their predictions too conservative, Reilly said. He said his university worked on emissions scenarios, their likelihood, and what would happen. The IPCC's worst case scenario was only about in the middle of what MIT calculated are likely scenarios.
Chris Field of Stanford University, head of one of the IPCC's working groups, said the panel's emissions scenarios are intended to be more accurate in the long term and are less so in earlier years. He said the question now among scientists is whether the future is the panel's worst case scenario "or something more extreme".
"Really dismaying," Granger Morgan, head of the engineering and public policy department at Carnegie Mellon University, said of the new figures. "We are building up a horrible legacy for our children and grandchildren."
But Reilly and University of Victoria climate scientist Andrew Weaver found something good in recent emissions figures. The developed countries that ratified the 1997 Kyoto Protocol greenhouse gas limiting treaty have reduced their emissions overall since then and have achieved their goals of cutting emissions to about 8% below 1990 levels. The US did not ratify the agreement.
In 1990, developed countries produced about 60% of the world's greenhouse gases, now it's probably less than 50%, Reilly said.
"We really need to get the developing world because if we don't, the problem is going to be running away from us," Weaver said. "And the problem is pretty close from running away from us."

 Terence Corcoran

The energy superpower that isn’t

Canada hardly rates a mention in Daniel Yergin’s new book
When a “global energy superpower” starts delivering tough talk to its potential customers, that superpower had better be sure that people will listen. It has also better be sure it is in fact a superpower; otherwise, it may find itself talking tough to the wind.
In recent weeks, Canada — a self-proclaimed global energy superpower — has been trying to throw its weight around over the Keystone XL pipeline, TransCanada Corp.’s $7-billion project to ship oil sands production from Alberta to Texas. In Houston on Tuesday, Natural Resources Minister Joe Oliver let the Americans know that Canada had other options. “What will happen if there wasn’t approval [of Keystone] — and we think there will be — is that we’ll simply have to intensify our efforts to sell the oil elsewhere.”
Canadian oil executives, who have a lot invested in the superpower notion, are also issuing aggressive-sounding statements aimed at the United States. A headline in The Globe and Mail Friday sounded like a threat: “Oil patch to U.S.: OK pipe or lose our oil.” The story didn’t quite back up the headline, but the sense was that Canada was developing alternatives and that China is the big alternative.
If this was intended to spook the United States into approving Keystone XL, it may not be the best strategy. Mr. Oliver said Canada would “simply” have to intensify sales efforts elsewhere. There will be nothing simple about getting oil to China. Pipelines to the West Coast will have to be built over First Nations territory and through wilderness controlled by foreign-funded environmental groups. Opposition to tankers is strong.
China isn’t at Canada’s doorstep. And the Communist regime in China knows that if the U.S. doesn’t want Canadian oil sands production, then Canada has no option but to sell to China. Becoming a global energy superpower will require better negotiating positions than are shaping up around the oil sands.
Another factor playing against Canada’s claims to global prominence is the rapidly changing world energy order. Most expert assessments foresee dramatic changes in supply, technology and prices, with very little favouring Canada. Shale gas and shale oil developments in other parts of the world, from the U.S. to China and Europe, suggest the world will have plenty of supply and low prices (see Lawrence Solomon in an accompanying commentary1). Where does that leave Canada’s relatively expensive oil sands?
While Canadian government and industry officials have a lot invested in the idea of energy superpowerdom, few outside observers share the vision. Canada barely rates a mention in The Quest: Energy, Security and the Remaking of the Modern World, Daniel Yergin’s new book on the world energy market. A few pages are devoted to the oil sands, mostly to review the high costs and technical difficulties. “As the industry grows in scale, it will require wider collaboration on the R&D challenges, not only among oil companies and the province of Alberta, but also with Canada’s federal government.”
Far more impressive for the world’s energy future will be the impact of shale gas and shale oil. The “shale gale,” as Mr. Yergin calls it, has already transformed the U.S. gas market and shale oil could be next. Since Mr. Yergin’s book was written, the shale revolution has swept Europe and is about to transform China’s energy market.
A new study from Douglas Westwood, Unconventional Gas World Production and Drilling Forecast, says shale gas and other unconventional sources could make up one-third of growth in gas production by 2020, reports the Petroleum Economist. The United Kingdom, meanwhile, is sitting on what is widely viewed as a massive shale gas reserve.
How do Canada’s oil sands stack up against the shale revolution? Energy Business Reports, in a study titled Oil Sands, Gas and Oil Shales Market, sees shale gas as an energy-market “game changer.” As for Canada’s oil sands, it concludes that: “Oil sands producers are operating in a narrow financial window that may be shrinking over time. They want to avoid reaching an oil price ceiling, like the one at US$147/barrel in July 2008 that contributed to the oil price collapse below US$40/barrel.… But they also want to be confident of an oil price floor — now estimated at US$65-US$95 per barrel — to justify such long-term, capital-intensive investments. Oil markets have rarely maintained such stability … ”
Gas, of course, is not interchangeable with oil as a commodity, at least not in the short term. Oil is still and is likely to remain the dominant fuel for transportation. But low gas prices generated by the shale revolution, and lower costs to produce shale oil, could keep oil prices below levels needed for profitable oil sands production.
Canada’s claims to global energy superpower status may be hard to maintain in the years to come. Even the United States, which Canadian officials once viewed as dependent on Canadian energy supplies, may soon be in a strong position to secure more of its energy needs at home and elsewhere at cheaper prices.
None of this is a sure thing. But it already seems clear that Canada’s political and corporate energy leaders do not have the upper hand in the new world energy order.


  • October 30, 2011

    Bombs, Bridges and Jobs

    A few years back Representative Barney Frank coined an apt phrase for many of his colleagues: weaponized Keynesians, defined as those who believe “that the government does not create jobs when it funds the building of bridges or important research or retrains workers, but when it builds airplanes that are never going to be used in combat, that is of course economic salvation.”
    Right now the weaponized Keynesians are out in full force — which makes this a good time to see what’s really going on in debates over economic policy.
    What’s bringing out the military big spenders is the approaching deadline for the so-called supercommittee to agree on a plan for deficit reduction. If no agreement is reached, this failure is supposed to trigger cuts in the defense budget.
    Faced with this prospect, Republicans — who normally insist that the government can’t create jobs, and who have argued that lower, not higher, federal spending is the key to recovery — have rushed to oppose any cuts in military spending. Why? Because, they say, such cuts would destroy jobs.
    Thus Representative Buck McKeon, Republican of California, once attacked the Obama stimulus plan because “more spending is not what California or this country needs.” But two weeks ago, writing in The Wall Street Journal, Mr. McKeon — now the chairman of the House Armed Services Committee — warned that the defense cuts that are scheduled to take place if the supercommittee fails to agree would eliminate jobs and raise the unemployment rate.
    Oh, the hypocrisy! But what makes this particular form of hypocrisy so enduring?
    First things first: Military spending does create jobs when the economy is depressed. Indeed, much of the evidence that Keynesian economics works comes from tracking the effects of past military buildups. Some liberals dislike this conclusion, but economics isn’t a morality play: spending on things you don’t like is still spending, and more spending would create more jobs.
    But why would anyone prefer spending on destruction to spending on construction, prefer building weapons to building bridges?
    John Maynard Keynes himself offered a partial answer 75 years ago, when he noted a curious “preference for wholly ‘wasteful’ forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict ‘business’ principles.” Indeed. Spend money on some useful goal, like the promotion of new energy sources, and people start screaming, “Solyndra! Waste!” Spend money on a weapons system we don’t need, and those voices are silent, because nobody expects F-22s to be a good business proposition.
    To deal with this preference, Keynes whimsically suggested burying bottles full of cash in disused mines and letting the private sector dig them back up. In the same vein, I recently suggested that a fake threat of alien invasion, requiring vast anti-alien spending, might be just the thing to get the economy moving again.
    But there are also darker motives behind weaponized Keynesianism.
    For one thing, to admit that public spending on useful projects can create jobs is to admit that such spending can in fact do good, that sometimes government is the solution, not the problem. Fear that voters might reach the same conclusion is, I’d argue, the main reason the right has always seen Keynesian economics as a leftist doctrine, when it’s actually nothing of the sort. However, spending on useless or, even better, destructive projects doesn’t present conservatives with the same problem.
    Beyond that, there’s a point made long ago by the Polish economist Michael Kalecki: to admit that the government can create jobs is to reduce the perceived importance of business confidence.
    Appeals to confidence have always been a key debating point for opponents of taxes and regulation; Wall Street’s whining about President Obama is part of a long tradition in which wealthy businessmen and their flacks argue that any hint of populism on the part of politicians will upset people like them, and that this is bad for the economy. Once you concede that the government can act directly to create jobs, however, that whining loses much of its persuasive power — so Keynesian economics must be rejected, except in those cases where it’s being used to defend lucrative contracts.
    So I welcome the sudden upsurge in weaponized Keynesianism, which is revealing the reality behind our political debates. At a fundamental level, the opponents of any serious job-creation program know perfectly well that such a program would probably work, for the same reason that defense cuts would raise unemployment. But they don’t want voters to know what they know, because that would hurt their larger agenda — keeping regulation and taxes on the wealthy at bay.

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