Smoot Hawley Revisited

Excellent article in The Economist last week revisiting the circumstances that led to the famously controversial, Tariff Act of 1930 (aka the Smoot Hawley Act) that increased protectionist tariffs in over 900 items just as the world was collapsing into a global depression. The political "groundswell" for the tariffs began - poignantly - during the 1928 election campaign, only to be introduced in the House in March 1929. The battle in the Senate was - apparently - plagued by rampant pork barreling from both parties. Neither had yet developed the strong ideological positions on international trade which they now hold. But by the time the Senate approved the legislation in March 1930, the flush of the boom came to roost as the bust really took hold. (image courtesy The Economist: Willis C. Hawley, a Republican Congressman from Oregon, and Reed Smoot, another Republican Senator from Utah)


















[Editor: I found it quite comforting that much of the commentary on how the legislation developed and unfolded was recounted from Canadian academic research1 published in the "no nonsense" (as some surely are) Journal of Economic History - Dec 1997.]

Footnotes:
1) “Trade Wars: Canada’s Reaction to the Smoot-Hawley Tariff” by Judith McDonald, Anthony Patrick O’Brien and Colleen Callahan. Journal of Economic History, December 1997.

Wasilla AK - home to Governor PALIN

In my web wanderings I found this news item in the Fairbanks AK News Miner newspaper - discussing why how the Governor has quietly moved the state seat of government from Juneau to Anchorage AK. A comment for that item mentioned that you couldn't even drive there!

That got me thinking, so I asked Google Maps to tell the driving route. Here it is.


View Larger Map

Personally, it seems way too hard. 1900 miles drive to Prince Rupert, then 400 miles by car ferry? Why not 1) turn right at Whitehorse and go through Skagway AK? I have done that road in the dead of winter (right by Lac Laberge) and it was still (barely) open. That would be about 800 miles. Even 2) driving to Haines AK would seem possible, but maybe not in the winter. This is only 750 miles. It would seem crazy that there wouldn't be a regular weekly ferry to Anchorage.

Flying would seem simpler but much more dangerous. In 1990, I flew into Wrangell AK (named after Russian Governor who negotiated the Alaska Purchase for Russia in 1867), and then by helicopter up the Stikine River to the Eskay Creek Gold Mine (now part of Barrick Gold Corp ). This rich orebody was a mountaintop. We next travelled up to Fairbanks AK to see what has become Fort Knox Gold (now part of Kinross Gold Corp.) and then flew over to Nome AK, home to a large coldwar air force base, to visit the Red Dog Mine which was owned at the time by Cominco Ltd. - now Teck Cominco). While in Fairbanks, I recall being shown the "hydraulic1" mining that they still allowed in many of the rivers! That trip was the modern equivalent of a visit to the Klondike!


Footnotes:
1) Hydraulic gold mining is just a modern update on the "placer" mining technique used during the regions Klondike Gold Rush of 1898. It involves pumping river water through high-pressure hoses, eroding the riverbank and channeling the sediment through a sluice gate system. This holds a series of graduated fine mesh screens to extract the gold nuggets and dust from the sediment. Environmentally - it is a disaster!

Chart of Gold + Silver ETF (Dec 22,2008 Monthly)

Spotlight on failure in MADOFF disaster

The unraveling of the how the disaster occurred continues.

Apparently, a former assistant director of the office of compliance inspections and examinations in Washington at the SEC named Eric Swanson left in 2006 and in 2007 married Bernie MADOFF's niece, Shana Madoff.

Other personal connections are surfacing.

NY Times Tuesday Dec 16. "A Vienna bank, Bank Medici, became the latest major institution to acknowledge it was a client of Mr. Madoff, saying it had $2.1 billion invested with him. Institutions and individuals have now reported losses of more than $20 billion."

Other "Red Flags" are not that convincing to me, as the first 4 could equally apply to all Wall Street managers. For me the most telling is the rampant nepotism at MADOFF. There is a certain "intellectual Darwinism" that occurs in Money Management, in fact it should be embraced and it sends a troubling message when ignored by hiring your own kids. Now perhaps 1 or 2 of the MADOFF sons/daughters were pretty smart and skilled in the investment business, but not ALL OF THEM CAN BE. If they are THAT talented, Dad should help them fund their own enterprises outside of his operation. I see the same problem arose at Noel's Fairfield Greenwich Group.

The most important flag was that a very small accounting firm did the audit of a $17 bn fund! Come one now that is taking "friendship" (as I presume that would have been the response if queried") way too far. Another was this apparent reply to the question "why don't you charge fees?" in a May 2001 MAR/Hedge column, "Madoff Tops Charts; Skeptics Ask How". Get serious.

My previous "breaking" post on MADOFF.

Madoff Fraud

It is almost beyond belief - US$50 billion for upto 4 years!

Bernard L. Madoff's fraud is almost big enough to give "a Ponzi scheme" a bad name. The fact he was "turned in" by his 2 sons almost makes it read1 like a segment of TV sitcom "Arrested Development". The question on everyone's mind? How such an incredible manipulation so large, (itself suspicious as Madoff's firm reportedly only had US$17 billion last January) could have happened and been undetected for so long. This truely was a master stroke as it would have required massive complicity or gross incompetence by someone. The NYT has reviewed some client statements and notices without finding anything extraordinary, unless they were all completely false (I note that they were not custodial account statements, but brokerage account statements, itself a potential red flag as it is not common for brokerage account to segregated such accounts.) Another issue was the murky division of "trading from safekeeping" functions so activity can be properly audited. Madoff reportedly operated on the 17th floor, separate and distinct form the market-dealing/making operations below.

Among one of the largest effected is HSBC Bank who gave Madoff a $1 billion mandate. It is noteworthy that many of the investors were very large and sophisticated clients who would have been wise to any obvious fraudulent behaviour. Apparently there were rumours of some problems with Madoff in 2001 and a number of investigations were undertaken but nothing was found. The fallout will be to shake the confidence of many private money-management clients in their managers and raise the volume on demands for greater oversight of Wall St. from the SEC and other regulators.


Footnotes
1) In Season 1, the family patriarch George BLUTH (played by Jeffery TAMBORE) is arrested for SEC fraud.

Backward Contango?

This is the "Winter of our Discontent" and the wheels are coming off.

First this, The Manipulation of Gold Prices which was quickly followed by - Gold in Backwardation. Two thoughtful pieces which attempt to explain the whiplash inducing behaviour of Gold prices over past few weeks in the context of Central Bank "expectations management" and a CFTC "Collusion Conspiracy".

Then, Treasury Sells $30 Billion of Four-Week Bills at Zero Percent - 13:48ET and, Treasury Bills Trade at Negative Rates as Haven Demand Surges - 14:03ET

The Stock Markets tank. Never did I ever, ever believe I would see U.S Tbills trade at zero yield! This is historic - Gravity has been repealed!

"The Treasury Department will sell $28 billion of three-year notes tomorrow (Current BM YTM 1.12% dn 0.103) and $16 billion of 10-year notes (Current BM YTM 2.65% dn 0.089) on Thursday." (As noted in Accross the Curve I can't understand why the Treasury didn't hit every one of the $126bn in bids - I mean why hold back? Are you serious or just pretending. Also that bidders only got 82% "fill" of their "zero" bid is confounding - who took the other 18%?)

We live in strange times! Everyone wants to sanitize their YE Accounts is reason given, but it may just be the wall of Treasury bills flooding Wall Street with no where else to go. No lending is taking place anyways. It's a Government take-over of lending AND borrowing.

ADBE US$23

Now this is interesting. The other day Adobe Inc. (US$23) announced layoffs and reduced Revenue expectations but due to favourable Income Tax refunds bumped-up EPS forecasts for 4Q08.

The 600 layoffs are in the developer ranks - which given ADBE just released it Creative Studio 4 package is not altogether surprising - as even before the merger with Macromedia, both of these companies were "programmer rich" environments. Now that 2 years have passed since that merger and 2 upgrades have been completed, that "software consolidation" has probably been accomplished.

Yet what really caught my eye was this at ZDnet.com - "With 256-bit encryption, Acrobat 9 passwords still easy to crack". How is that possible? Well as Dancho Danchev explains, you are only as strong as your weakest link and in Acrobat 9, despite doubling the encryption level from 128 to 256 bit, they dumbed down the process so it is easier to do a brute-force crack! Why bother with an upgrade like that?

Anatomy of Insider Disclosure (X, C$22)

Here is a stock I recently bought, TMX Group (X - C$22)1













... and here was Announcement in the Financial Post today.










I bought when the insider (the company) was buying - which considering their business, is always a calculated risk for this stock. As soon as the buy-back was finished (at around $27), the stock dropped to C$23 and currently is at $22. Depending on where the market goes from here, are dividend cuts next?

[Update: 08DEC2008 - In an interesting development after the markets closed today, the NYSE was reported to be in talks to acquire/merge with Deutche Bourse.]

Footnote:
1) TMX Group owns and operates the Toronto, Montreal Stock and B.C and Alberta based Venture Exchanges, including all trading and clearing of all stocks, options and financial futures.

Oil becoming the realm of despots

With global multinational TOTAL SA, scuppering any hopes that it might wade into Calgary and pickup Nexen Energy Inc. the gloom is starting to spread. Most "traditional" (read as our American cousins) multi-nationals have "iced" their Oilsands plans in the last few months. Today StatOilHydro ASA did the same, postponing development of it planned $16bn Heavy Oil Upgrader just outside Edmonton. (see chart WTI US$/bbl - courtesy Oilnergy Inc.)

West Texas oil fell more than 6% on yesterday (Dec 4) to its lowest level in nearly four years in response to further bleak economic data that could spell a deeper decline in global energy demand. U.S. light crude fell US$3.12 to US$43.67, the lowest since Jan.5, 2005. London Brent crude fell US$3.16 to US$42.28.

The price decline has been shocking. Since the meltdown began in ernest in August WTI has dropped from US$110 to below US$50.

Here is a list of the number of Oil Sands projects that have been shelved.

CITI never sleeps (and how!)

A fresh panic embroiling Citigroup reached a fever pitch on Friday as the stock dropped below $4 on heavy volume. It is now worth $20bn down from $250 bn a year ago. The unraveling spread across the market renewing concerns about the financial crisis.

A solution seems likely to be brokered before markets open Monday or all hell will break-loose, the only unknown is what it will look like.

Ben Stein1 has written some thoughts on what the future now holds, and I think he has it spot-on (refer to my comments here about the Paulson flip-flop and here about the effects of debt-deflation in this recovery) - indeed "this time its different" may not be overstepping the truth. He believes that at this precarious point, letting the Big3 go bankrupt would send the wrong signal and fear would be unleashed making a recovery even more long and painful. I heard basically the same idea on Friday from a few oil market pundits. The feeling is that without a Big3 bail-out WTI will see $30 before it stops, otherwise $40-50 should be it. There is a small amount of sense in this argument but that maybe all it takes.

Footnotes:
1) For those who don't know, I am a big fan of Ben Stein who despite being a Democrat has called alot of Henry Paulson's antics for what they really are - panic attacks! Ben's father was Herbert Stein PhD - Chair of the Council of Economic Advisers from 1972-74 under Nixon and Ford.

Diamond Mines in NWT

(Ekati Open Pit Mine - courtesy BHP Billiton)






In 1991 Chuck Fipke began the final chapter in his geological odyssey by staking the first claims for a large scale diamond mine in Canada's NWT with Dia Met Minerals Ltd. This sparked the NWT "diamond rush" - the largest mineral staking rush in North American history. Eventually this open pit mine was named EKATI and in 1991 was acquired for development by BHP (now BHP Billiton). This was the first mine to go into production. It is both an open-pit and underground operation. It supplies 3% of world diamonds (6% by value)

(Diavik Mine - courtesy Diavik Mining)













The next diamond mine discovered was "kimberlite pipes1" extending underneath a lake, Lac de Gras - about 300km NE of Yellowknife NWT - and was developed by Diavik Mining in a joint venture with British/Australian mining giant Rio Tinto plc. Production of diamonds began in January 2003 and Lac de Gras now produces 8 million carats annually. BHP Billiton launched a much anticipated takeover for Rio Tinto in January 2007, but was rebuffed. In February 2008 that offer was repeated as hostile and is still "under discussion".










(Underground Mining Equipment at Snap Lake - courtesy De Beers)











By 2005, a third mine was developed by former South African diamond giant De Beers at Snap Lake - an more traditional underground mine. The mine reached commercial production in Spring 2008, and is now ramping up to full production expected by 2008FYE. It will produce 1.4 million carats per year for the next 20 years.

Recently (Nov 8, 2008) Snap Lake announced that they would reduce operations by 10% in order to reduce diamond inventory's at De Beers until supply aligns with lower demand due to the global slowdown.

[Update: 2008 Nov 27, BHP Biliton as anticipated has dropped its bid for Rio Tinto due to collapsing commodity prices, global economic meltdown and onerous EU Competition Panel requirements.
Update: 2008 Nov 24, "How a Rogue Geologist Discovered a Diamond Trove in the Canadian Arctic" By Carl Hoffman WIRED Magazine Online. An excellent article. It draws alot of material from book about Fipke's discovery of Lac de Gras and sugsequent founding of Dia Met Minerals Ltd's in a JV with BHP.]

Footnotes:
1) Kimberlites is the name given to particular geological material that typifies diamond ore. Kimberly was the region in South Africa where Cecil RHODES and his company De Beers discovered the diamonds that made him immensely rich.

Redemption Day

Nov 15 was Redemption Day - the last day of a two week window (Nov 1-14) that traditionally many hedge funds established to allowed clients to redeem funds once per year.

It is anticipated that a tsunami of selling will hit the markets next week (although, assuming that indications have been streaming over that time the funds could have been pre-positioning for liquidation of their portfolio holdings.) It doesn't help that the Auto sector is on the ropes and that Congress will soon retire and not resume until after Obama's Inauguration on January 21, 2009.

Some pundits believe this will mark the bottom to the selling panic. I believe this is close to the mark, but to re-phrase Churchill "It is the end of the beginning, not the beginning of the end"1.


Footnotes:
1) Actual quote "Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning." from speech given after the British victory over the German Afrika Korps at the Second Battle of El Alamein in Egypt (1942-11-10). My father was actually wounded in the preparations (May 1, 1942) to the First Battle of El Alamein (July 1-27, 1942) after running over a land-mine on his motorbike. He was in the reconnaissance group at the time but he never gave me an idea what he was doing at the time. In fact he avoided speaking about his wartime experience except to sadly note how many of the men in his platoon went on to die while he had lived, which I always attributed to a survivors guilt or perhaps some embarrassment about how a stupid mistake may have led him to drive over a land-mine.

Paulson Flip-Flops and Markets TANK!

Almost as soon as Treasury Secretary Henry PAULSON opened his mouth this afternoon - the already shaky market started to tank. GE was one of his casualties - despite it being known that GE Financial would tap the Fed's TARP.

Alex Merk, president of Palo Alto Calif.-based Merk Investments, a mutual-fund firm, said that market participants were frustrated with Paulson's communication skills and changing tactics.

"He's been flip-flopping on every plan and it doesn't look like he has a plan," Merk said in an interview.

According to Merk, the rescue plan is failing to get banks to lend money, and that holders of mortgage assets who had been hoping to sell to the government at a good price have now seen these hopes dashed.

Risible, but Paulson now intends to "rescue" consumer finance companies like GM Acceptance (now owned by GE Financial) and VISA from their car loans credit card debts? This is beyond belief.

Markets are holding their breath in anticipation of G20 meeting in Washington DC this weekend Nov 15. Results expected - zilch. For the record, Mr Bean is a respected authority on banking and credit - here were his comments a few week ago when the crisis broke.

Coal + Oil melts Canadian Markets

Canadian stocks were obsessing about the meltdown of Teck Cominco - dn 24% to $C6.63 and change, but oil stocks were also responding to failing price of crude despite last weeks comments by IEA.

Those gloomy projections were dismissed by OPEC at conference in London UK today. OPEC holds alot of sway in the marketplace and many hope they will save us from ourselves and cut back on production. I suspect this may be false hope or wildly misplaced optimism as I am reminded here that the last time OPEC attempted to "calm" the market was April 1998, when cuts of 1.8 million barrels a day were proudly announced. From that point, the crude price continued to fall for another 14 months, slumping by a further 32 per cent and breaking US$10. The "usual suspects" with OPEC (Venezuela, Libya, Iraq and Nigeria) could not be trusted to keep there word and leaks were rampant. Let us hope for more solidarity this time around.



[Update: Thursday Nov 20, 2008 was another brutal meltdown S&P500 752 dn 54 and TSX Comp 7724 dn 765 and WTI US$40.42 dn 5. The VIX was 80.86 up 6.6. For reference, the meltdown last week on Wednesday Nov 12 the S&P500 closed 852 dn 46 and TSX Comp 8922 dn 502 and WTI was $59]

NO, We can't

Now that the Coronation is over OBAMA will have to start lowering expectations. So, the new cry will become "No, we can't" and then it will slowly dawn on Americans that the OBAMA rhetoric was merely an illusion. Certainly, he will be able to deflect this charge as the legacy of damage left over from the previous administration, but that won't last more than 4 years. Sooner or later the miracle of OBAMA shall wilt.

The New President + "Yes We Can" Speech

Thank god it's over.

I was very impressed with the whole campaign.

McCain did great and he delivered a most moving concession speech, generous in spirit and thought. Palin was an inspired choice and I am thrilled that she is now on the national stage. I am very proud of both of them. President-elect Obama's speech was also inspirational. Martin Luther KING Jr is also smiling down upon us, certainly his words were echoing from the podium in Illinois.

Popular Voting 52% vs 48% - was not bad and far from the route that was predicted but of course the Electoral College count was pretty close to expected.

Million, Billion, Googol or Boon Doogle

Given the Global Financial Meltdown this idea by Russell CROWE didn't seem half bad (also a little unkind - I mean he didn't vaporize the banks). And his calculation was right but he failed to get the "translation" correct. Giving US$1 million to 300 million Americans would be US$300 TRILLION (or US$300 x 10^12) or the same as 429 x $700 billion in U.S Government Bail-Out Packages! 1

But he is not alone as many people have trouble with such BIG NUMBERS - and for good reason. In America and Global Financial Markets, these are the definitions that count.

• a Million is 10^6 ( 1,000,000) = 1,000 x 1,000
• a Billion is 10^9 (1,000,000,000) = 1 thousand x 1 Million
• a Trillion is 10^12 (1,000,000,000,000) = 1 thousand x 1 Billion (or 1 million x million)
  

But this confusion is well placed as before American-dominated finance invaded Europe, the common scientific usage for large numbers in the UK and Europe typically considered one Billion = 1 Million-Million or 10^12 (1,000,000,000,000) and 1 Trillion = 1 Billion-Billion or 1o^18 (1,000,000,000,000,000,000). Both are 1 order of magnitude larger than common parlance used in the U.S Financial Markets.

Such fascination with large number concepts has a rich history. The ancient Greeks largest term was a Myriad (or 10, 000) but Archimedes was attributed to introducing the term a Myriad-Myriad (100 million or 10^8) when he tried to estimate the size of the universe. This tradition continues to this day in the name of the remarkablly sucessful internet search engine company, Google Inc. - it's name derives from the term Googol which refers to 10^100 as invented by American mathematician Edward Kastner.

Footnotes:

1) Table shows Total Obligations of the U.S Federal Government as $67.3 trillion at April 30, 2007. As such, Mr. CROWE's $1 million plan would represent 5x the combined total obligations of the U.S Government. This is clearly insane and unsustainable.

2) Source: Grant's Interest Rate Letter - July 25, 2008. These figures are drawn from various sources by Grant's, but there is no single disclosure source (that I know of). Components can be found referenced here: A) Total U.S Public Debt o/s - Dec 2007, www.treasurydirect.gov Public Debt Reports: Monthly Statements of the Public Debt. B) Federal Employee & Veteran Benefits, U.S Dept of Health & Human Services - Note 12. Federal Employee and Veterans Benefits: At September 30, 2007, the actuarial present value of accumulated plan pension benefits was $7,575 million, of which $578 million was not vested, and the liability for medical benefits was actuarially determined to be $697 million. C) Expected Expenditures for Social Security. The projected actuarial deficit in the OASDI Trust Fund over the infinite future is 3.2 percent of taxable payroll (1.1 percent of GDP), or $13.6 trillion in present value terms. Current deficit is $4.3 trillion (in 2007). D) Expected Expenditures for Medicare, U.S Dept of Health & Human Services - Note 11. Entitlement Benefits Due and Payable, footnotes refer to "Medicare benefits payable consists of a $35,063 million estimate ($36,628 million in FY 2006) by CMS Office of the Actuary of Medicare services incurred but not paid as of September 30, 2007." E) Ginne Mae Guarantees: na F) FHLB Liabilities: na G) Fannie and Freddie MBS & Liabilities: na H) FDIC Insured Deposits: na

Healthcare Myth - Who is better?

Healthcare has always been a "sacred cow" in Canada during past elections - and usually it comes down to assertion that "we have the best in the world" while pointing to massive infrastructure investments like the Mazankowski Alberta Heart Institute which is being completed at the University of Alberta here in Edmonton.

Liberals and NDP politicians usually take a "Don't Touch" attitude to any debate about Healthcare that quickly polarizes into support for a Public or Private delivery system. Such an attitude truly does not reflect what has been happening in the healthcare system for decades. It is not monolthic and it has been evolving and adapting - and very well - to a "mixed" environment for years.

The (infamous) Shouldice Clinic, Catholic Orders, Dentistry, Pharmacy, Testing Labs etc. - all of them are mixed public/private healthcare operations which have been accommodating, sharing and thriving in the existing Healthcare system. Such public/private partnerships have not weakened the provisions of Universal Healthcare under the Federal Canada Health Act as many insist.

Yet this much should be very clear, the Federal Conservative party has no intention of revoking Universal Heathcare. However any party in power that is honest must admit that fiscal responsibility demands the current model needs study (without revoking the laws of gravity). Given the massive financial resources needed, we have to get past solutions constrained by ideology.

Even in the US election, Barak OBAMA has indicated he favours "importing" some aspects of the "Canadian Universal Healthcare Model" into the US in order to serve those 47 millions Americans who cannot afford private coverage.

Yet is the Canadian Model "better"?

• The 47 million figure in the US maybe misleading. For many of these uninsured it is a temporary condition due to unemployment, retirement, disability or critical illness - and the true figure is likely half that representing 7.9% of the population.

• StatsCan estimated that 1.7 million Canadians or 6% of the population - could not find a Family Physician an in 2007. Without a family physician they cannot access primary care or elective surgery referrals. Is this not the same thing as not having Healthcare insurance?

The Fraser Institute has working on comparing benchmarks of performance in Canada with the US - and here are some of their conclusions. One cold hard fact of Canadian superiority usually is that Americans spend 55% more per capita on Healthcare - yet consider:

• Americans have 327% more MRI units and 183% more CT Scanners per capita.
• Americans receive 100% more inpatient surgical procedures per capita.
• American wait-times are lower across the board for most common hospital procedures.
• American has more doctors and nurses per capita.
• American hospital facilities are newer and more modern.
• Americans have greater access to more ground-breaking drugs (even experimental) and procredures.
  

Conclusions:

1. Just like zero% unemployment is unrealistic in a large, dynamic economy, there may always be a certain percentage of the population who can not reasonablly access Healthcare for good (and unsinister) reasons. So while 100% coverage makes good politics, it may not actually be a realistic benchmark. Perhaps 95% would be better.
   
2. Americans pay more per capita but receive greater "value" - as defined by faster testing, better procedures and more effective pharmacololgy. Given the similarity of practice models and mobility between our two countries, the amount they pay may not be too different to what the similar services would cost Canadians.

This debate is not over.

Russia market meltdown due to... KGB?

Diane Francis notes that the shutdown of the Russian Stock market has more to do with the Vlad (the impaler) PUTIN's nostalgia for the "good ole days" - than Lehman Bros & Wamu's financial meltdowns.

This flags the result of a "financial market referendum" on the Georgian Invasion - among other things. Military support provided to Hugo CHAVEZ in Venezuela. Declaration of aggressive boundary disputes in the Arctic - which will challenge Canadian Sovereignty. Continued agitation in Ukraine Parliament which just disolved and distribution of Russian "passports" to large native russians in Sebastopol - the Black Sea port city and home to Russian Fleet. Russia similarly distributed passports in South Ossetia in order to provide it with a justification for the invasion in August.

Francis also writes "Moscow actually thinks it's a super power, but economically size-wise it's about as important as Alberta, or Norway. It's a tiny economy with an attitude and lots of oil and nobody will help the Ruskies."

That is only partially true. At the time the wall fell in 1991 Russian oil production was struggling at 5-6 mb/d. It is now (2008) at 13.5 mb/d and domestic demand is at most 4.5 mb/d. That leaves excess supply of almost 9 mb/d or 3-4 times Alberta (3.5 mb/d) or Norway(2.5 mb/d). That said, it would not generate enough cash to run a Superpower of the size Putin clearly intends to resemble.

Sins of Commissions or Omissions

Today Aug 23 (tomorrow is the last day of the Beijing Olympics) is the 1st Anniversary of the Asset Backed Commercial Paper (ABCP) meltdown in Canada. And it looks like the end is finally in sight as most retail holders voted and approved the bailout package. Only Corporate (such as Robert Friedland's First Dynasty Mines, is a holdout as $200+ million in proceeds from an equity financing were placed in ABCP prior to project approval - but there is no sympathy for the devil) and large Institutions remains as holders.

Soon after this story broke I found myself wondering how some of these retail investors could sleep with themselves at night. In the old days, before the new cyber-sins were invented, sins fell into two categories; Sins of Commission - things you did but shouldn't have and Sins of Omission - things you didn't do but should have.

Yet, in every market cycle Financial Advisor's learn the wages of these sins the hard way.

Clients are often disappointed to learn that they can't get unlimited returns without undertaking higher risks. But for those truthful enough to reveal the truth are often fired for doing so or replaced by someone else who tells the client what he wants to hear.

There is lots of blame to go round when individual investors claim - as I have read in the past year - that 1) a retail investor placed 100% of his widowed father's home sale proceeds because ABCP had higher much yields that comparable GIC's or TBill's. This fellow acknowledged going against his advisors advice but still wants to be compensated!

HELLO! What was he thinking!

Redux Ross Perot

It has been some time since Ross Perot uttered that famous "great sucking sound" quote about the effect of the U.S/Canada Free Trade Agreement during his ill-fated run for the White House in 1992. In alot of ways he reminds me of the great Yogi Berra.

What brought him out of active retirement was probably pronouncements of support for another Texan, T. Boone Pickens’ and his public proposals for wind-based energy policy. But no matter, from a different perspective here is ZDNet's take on Mr. Perot's recent activities.

Magna Charta: Welcome Back, Ross Perot by ZDNet's Tom Steinert-Threlkeld -- So, EDS is gone (again), subsumed by HP. But, lo and behold, H. Ross Perot is back, just in time for the presidential elections. Now, you can view his slides about the dangers of the federal deficit and debt online, any time you want. Or, hear him posit that the only silver lining [...]

To exert some influence over the upcoming US election is the most obvious, and who can dispute that US Federal Debt is now $9.4 trillion (versus $4 trillion when Perot railed against it in 1992) or that the US Federal Debt is now accumulating at the rate of $1 billion per day (and the FNMA/FMAC bailout have not yet been finalized!). I predict his next famous quote will be:

It’s one thing to promise me free candy forever, but where are you going to get it?

Also nothing beats Ross Perot reciting the Pioneers Creed:

The cowards never started, the weak died on the way and only the strong survived.

Perot is correct when he says that Bush’s fiscal irresponsibility will handcuff the next president by limiting his options. On July 28, 2008 the WhiteHouse Office of Management and Budget stated that it had revised the budget deficit projected for fiscal year 2009 to a record $482 billion from only 6 months earlier.

p.s In order to comprehend these VERY LARGE numbers I refer you to this post - a "visual aid" to help my daughter understand the "Age of Earth". Make that last "square" a "cube" (by adding a third "100 cell" dimension - with each cell representing a 1 million cell cube) and THIS NEW SUPER-CUBE equals 1 Trillon! The U.S Federal Debt is therefore represented by almost 10 SUPER-CUBES. Sobering, n'est pas?

Illustration of LARGE NUMBERS

In helping my daughter with Gr 8 Science this past year she did "Rocks". Among the stats she was expected to learn was the "age" of Pre-Cambrian rocks. I am not a "creationist" but 600 million years is a BIG number and it started me thinking of how to illustrate it for myself, her and perhaps others!

So, here goes. (Remember, it has been just over two millennium's since the Death of Christ). I hope it helps!