Rod McQueen's Blog, page 42

Oh, Canada

For years I've been struggling to understand why Americans are so much better at so many aspects of life than Canadians. After all, we have drawn on the same pool of immigrants and we are both democracies with excellent education systems. Canadians even have a few advantages such as a universal health care system and a safer environment. 

To be sure, we both have problems. The U.S. has a racial divide. We have native Canadians who are routinely ignored even when they're murdered by the hundreds. But we should also have the same opportunities as Americans do to grow, invent things and do well.

In a few pursuits, you can easily name dozens of Canadian successes in the U.S. or globally including comics (Jim Carrey, Martin Short); singers (Shania Twain, Justin Bieber); actors (Christopher Plummer, Mary Pickford) and writers (Margaret Atwood, Alice Munro.) But these are all entertainers. I used to think that we had so many successful songsters because of the Canadian content rule requiring airplay. While that may have been helpful, it no longer matters. Today's stars are made by social media. The singer who won the most Junos Sunday night, Kiesza, started with one hit, Hideaway, that led to more than 200 million views on YouTube.

But where are the dozens of Canadian business leaders, jurists, academics or inventors with international reputations? Even The Netherlands, with a population that's half of Canada's, has as many Nobel Prize winners as we do. I've come to the conclusion that too many Canadians are just plain lazy. You can count the number of Canadian-based global manufacturing firms over the last 150 years on the fingers of one hand. Sweden has that many right now. This country began with British and French interests killing beavers to make hats for London gentry. We've lived off our natural resources ever since. Send iron ore to Cleveland or bitumen to Texas for the more difficult value-added portion. That way we don't need to act or think for ourselves. That's no way to spend a life. Or 33 million lives. 

 

House of Cards

Plot spoiler – I'm at Episode Ten of Season Three of House of Cards, so stop reading now if you don't want to learn about the disappointments ahead. The first thing that went wrong was that Frank Underwood all but disappeared in the first two episodes. Rather than command the screen for 85 percent of the time (or whatever the exact number was) he went absent for long stretches. Doug Stamper, his henchman in the two earlier seasons, dominates airtime as he fights his way back to health after we thought he'd been murdered. I don't care that much about his recovery and rehab. Other characters, such as Remy, have been eviscerated. He was deft and all things evil as a corporate lobbyist buying off Members of Congress. As chief of staff to the President, he's become banal. And what's this hangup he has for Jackie Sharp, who goes from tart to loving stepmother without a blink. None of this counts as character development.

But the biggest disappointment is the relationship between Frank and Claire. The former partners-in-crime have turned into just another cold, failed marriage. One episode ends with the two of them at loggerheads and I thought, at last, this is going to become like Mr. and Mrs. Smith when Brad Pitt and Angelina Jolie – both assassins – tried to kill each other. But at the beginning of the next episode, we see Claire and Frank renewing their vows. It's a flash forward, then we wander through the month leading up to the ceremony knowing that the troubles are soon over. Ridiculous!

And that's the main problem with this season – too little dramatic tension. During the first two seasons, I'd watch an episode and, when it ended, let out a sigh and realize that I'd been holding my breath throughout. Not this year. Another failing is that replacement characters are not given much of a chance to shine. The new White House correspondent is no Zoe. Members of Congress don't have any good lines. Most of the members of cabinet are not even introduced. Freddy, the loveable barbecue guy, becomes an invisible White House gardener.

Any story has only four elements: plot, character, style and structure. In the first two seasons, Frank won every battle. Now he loses tussles, some of them to Russian President Viktor Petrov, the only new character with any heft. Petrov is perfectly cast and has the same dead KGB eyes as his real-life role model, Vladimir Putin. When you change the plot that much, you change the main character. Even when Frank double-crosses his own wife, he doesn't have that same conniving nature as in the past. As for style and structure, there are too many individual writers creating episodes so it doesn't hang together from one to the next. 

But maybe we shouldn't be surprised. When you try to build a house of cards, eventually they all fall down. 

They spill more than we drink

I should have known when I read the title of the study, Mortgages or Margaritas, which choice Jamie Golombek, managing director of CIBC Wealth Advisory Services, would take. With RRSP season about to wrap up next Monday, readership on the thorny question Golombek was addressing – pay down the mortgage or invest your money in a balanced portfolio – was bound to be high.

Surveys have shown that three-quarters of Canadians favour paying down debt but Golombek says that "when interest rates on debt are low, the short-sighted objective of getting out of debt now may actually negatively impact your long-term retirement savings." Golombek's thesis is that when the rate of return on investments exceeds the rate of interest on debt, investing in an RRSP or a Tax Free Savings Account makes more sense than paying down the mortgage quickly.

Who could disagree? But all of his examples assume mortgage rates of 3 percent and an annual return on investment of 6 percent over a thirty-year period. Mortgage rates are very unlikely to remain that low for that long, but more important, a long-term 6 percent annual return is not easy for an individual to attain. When Claude Lamoureux ran the Ontario Teachers' Pension Plan, he used to tell me that 6 percent was the best he could expect in the long haul even though Teachers' has hundreds of people picking stocks and running the numbers.

I recently met with the wealth advisory branch of a competitor to Golombek and their ten-year rate of return was 6 percent – before fees. After fees it was 5 percent. So I emailed Golombek and asked what his prognosis looked like at 5 percent. "The numbers don't look as good," he admitted. "The examples were meant to be directional." He pointed me to a report he'd done in February 2013 where he did use a 5 percent return but the charts aren't comparable to those in the current study. What is clear, however, is that the difference between paying off the mortgage and saving at 5 percent is nowhere near as advantageous as it is at 6 percent. 

Maybe all this should be no surprise. Golombek works for a bank. A bank makes money when a client does both: take time to pay off a mortgage AND invest in the market. In this case, it seems like mortgages for the client and margaritas for the bankers.

I walk the line

Regular readers of this blog will be aware that I like Justin Trudeau. I have said he is well versed on policy and is an excellent retail politician. Many people who know me well are incredulous that I could support a Liberal after working for Robert Stanfield. But as Trudeau himself said, when we met and I told him I 'd worked to defeat his father, "So, you're a Progressive Conservative." Exactly. And our current prime minister is anything but.

Truth be told, I'm a Pearsonian Liberal and actually worked for the Liberals during the 1963 federal election. A bunch of us high school students walked the 20 miles from Erin to Guelph one Saturday in support of Liberal candidate Ralph Dent. (He lost to the incumbent, Alf Hales.) When I was hired to be Stanfield's press secretary in 1970, I had never even voted for the PC party. They were looking for someone with media experience, not a partisan, but I quickly came to admire Stanfield's wit and wisdom.

Whether I was returning to my roots, or just had enough of Harper, I was drawn to Justin Trudeau and his views. He was, after all, the first major politician to denounce the Parti Quebecois plan to banish religious headgear.

Oh sure, there were the early mistakes. Dropping the f-bomb in a speech, expressing "a level of admiration" for China, and accusing Harper of whipping out our CF-18s "to show them how big they are." But all were relatively innocuous, even if they came with a certain regularity.

I was out of the country for the latest faux pas, welcoming Eve Adams to the Liberal Party. What a fiasco. Adams had nowhere else to go after riling everyone in the Conservative Party. So why did Trudeau join her at the announcement news conference, all but declare her the Liberal party's nominee in the riding of Eglinton-Lawrence, and assign her some top campaign help? So much for Trudeau's previous declaration that he would let the locals do the picking. 

If no one on his staff told him that his public support for Adams was a bad idea, then his staff is woeful. If they did tell him, and he didn't listen, then his political judgment is sorely lacking. So far, voters are either forgiving or not paying attention. Polls have the Liberals either tied with or ahead of the Conservatives. But as far as I'm concerned, many more stupidities like the Adams endorsement and I won't be walking in Justin Trudeau's election parade.

The cho$en few

Stephen Poloz was appointed Governor of the Bank of Canada in June 2013. The Canadian dollar has been declining against the American dollar ever since. Could this collapse have anything to do with the fact that Poloz, who worked at the central bank earlier in his career, came back to the bank following almost 15 years with Export Development Canada, his final two years there as CEO?

Let's see, what does Export Development Canada do? Why they finance, insure and generally grease the wheels of exporters seeking to sell their goods abroad. And what have exporters been complaining about during the last few years? They wanted desperately to get back to the halcyon times of 2002 when the C$ was worth a piddly 64 cents U.S. That meant our exports were cheap when sold in the U.S. and Canadian manufacturers enjoyed an artificial boost against competitors from other lands. 

By 2007, the C$ was above par, and lazy Canadian exporters were apoplectic. Their advantage was gone. Things had improved for them slightly by the time Poloz was appointed Governor when the C$ was worth US95 cents. And then, mirable dictu, with an exporter at the helm of the Bank of Canada, the C$ started to fall to the point where it is now hovering around US80 cents.

Oh, thank you Governor Poloz, for maneuvering the value so well. Your last interest rate cut sent the C$ – already suffering from falling oil prices – down even more. And with all the talk of another rate cut in March or April, the C$ has been further destabilized. 

Moreover, in addition to newly exuberant exporters, Governor Poloz would also like to please Prime Minister Stephen Harper. With an election due no later than this October, the governor would like to help out the ruling party by getting the economy into higher gear using lower interest rates. With lower rates and a falling dollar, his former colleagues and benefactors at EDC as well as his political bosses are happy and the Governor can expect praise from both.

The rest of us, forced to buy imported goods at higher prices because so much of what we consume is made elsewhere, don't seem to matter a whit in this monetary equation. Nor do any of the major players seem to care about the higher rates of inflation that will almost certainly result and further reduce our purchasing power. 

Imagine, all this public policy effort for the precious few manufacturers left in Canada. Makes you feel kind of humble. Or had.

A life of giving back

Canada has lost not just a giant in the business world but a cultural maven and generous philanthropist with the death of Joe Rotman. I can't think of another corporate leader in Canada today who was so dominant across such a wide range of activities.

His life was a classic case of entrepreneurialism where you see a field that needs expertise and investment, you calculate the risks, then step in. Starting in the unusual world of oil futures, Rotman also became involved in oil and gas exploration, real estate and venture capital. In 1987 he launched Clairvest which in turn backed other peoples' ideas, the riskiest business of all because you're often betting on the jockey, not the horse. In that regard, Rotman was a great judge of character, not just the numbers on some term sheet.

As if that weren't enough to set him apart from his contemporaries, Joe and his wife Sandra collected modern art with a passion and an eye for talent. He also shared his wealth with the community and the nation at a level matched by few others. His lead gift to the business school at the University of Toronto long before such donations became de rigeur has meant that the Rotman School of Management had the heft and the wherewithal to build a faculty that has placed it number one in Canada most years on the prestigious Financial Times rankings. His other philanthropic interests included a broad range of enthusiasms that stretched across the life sciences, brain research, and innovation.

With Joe Rotman, life was never just about him, it was about his family, his community and his country. But his greatest strength had nothing to do with what he did with his life or his money. It was his sunny disposition. I've never known a happier man. I will miss seeing his smile. 

A woman of substance

Jalynn Bennett, a pioneering business executive and one of the warmest people I've ever met socially, has died at 71. Her combination of brilliant insight and self-deprecation was a delight to behold. 

After graduating from Trinity College in 1965 with a degree in economics she was forced to do what many well-educated women did at the time, take a lowly secretarial job. In her case, she worked at Manufacturers Life Insurance Co. (Manulife) where CEO Syd Jackson recognized her prowess. Within twenty years of joining the firm she was a vice-president and among three female executives reporting to Jackson, a high-water mark for women that few firms have matched since. Her recent board roles (CIBC, Rexel Canada Electrical, Teck Resources Ltd.) set a public standard in a country where half the boards have no female directors at all. 

When the men-only lunch clubs, York and Toronto, decided to finally open their membership to women in the early 1990s, Bennett was their first choice. But the change did not come without friction. Speaking against her at the special meeting called at the York Club was her own uncle, Len Lumbers, Chairman of Noranda Manufacturing. The resolution passed, Bennett became a member, and she held no rancour against her relative for his stance. 

I ran into Bennett in 2009 in her beloved Nova Scotia where she summered. We were all on line waiting for the annual Folk Art Festival in Lunenburg to open. She had just read my book on Manulife, and although she was long gone from the place, I was pleased to learn she thought what I'd written was accurate. She immediately homed in on one of my favourite moments in the book, where I took off my shoes and socks and placed my naked feet on the manicured putting-green grass that surrounds the head office on Bloor Street. 

Bennett laughed with enjoyment at my so-called reverential sensation. She always went to the heart of the matter.

Whither the wind

I like John Tory. I voted for John Tory. And I sure am happy to see the backside of Rob Ford. But I wonder: do we know who we're getting as mayor with John Tory? A breath of fresh air or same old same old.

In his first few weeks in office, Tory has sent both signals. He's talked about getting rid of gridlock, working with all members of council, helping the homeless, in fact there's no matter too small for John Tory to tackle. On the big issues, however, I sense backsliding, a direction you don't like to see in someone this early in their elected term.

(I hereby declare a conflict of interest. Maybe ten years ago he and I talked about my helping him as a ghost writer on his memoirs. The idea went nowhere and he still hasn't written them. He would say that he's added several interesting chapters in the intervening time.)

In the seven weeks since John Tory was sworn in, he's already broken two of his major election promises: no hike in TTC fares and keeping property tax increases under the rate of inflation. In both cases, the infraction is minor. Fares are up 10 cents, and the tax hike is only 0.15 per cent above inflation. Still, there's a principle involved, and he at least bent it.

Moreover, Tory's much vaunted support among Liberals at Queen's Park is doing him little good. Provincial funding for Toronto is falling at the same pace as ever. Backstopping low interest rates on a loan hardly qualifies as a big boost.

No one, certainly not a politician, is ever what they seem. The question for the days ahead is this: How far will John Tory stray from the man we thought he was?

Unnatural gas

Everyone has been enjoying the fall in the pump price of gasoline. I saw signs in Hamilton today for 81.9 cents a litre, down 34 percent from $1.24 a year ago for regular. The price of a barrel of oil has fallen even further, from US$110 a year ago to US$50 today, down 55 percent. The full extent of the drop in the world price has not yet reached the consumer but at least it's heading in the right direction.

Natural gas prices have not been behaving in the same friendly manner. My Enbridge bill arrived today with a notice saying there had been a change in price. I fully expected a reduction, given all that I'd been reading, but no, it was yet another increase. I'm now paying 36 percent more per cubic meter than I did last year at this time despite the fact that natural gas inventories are at a 28-month high and wholesale prices are have fallen 36 percent during the last twelve months. 

According to the U.S. Energy Administration Information, American households will see their natural gas bills drop this winter compared to last winter. Not in Canada, at least not in my house. My consumption hasn't markedly changed but my total payments to date are up 24 percent year-over-year.

What the explanation is I do not know except to say that the Ontario Energy Board (OEB) must be a spineless, non-functioning entity. The OEB appears to blindly approve whatever increase the natural gas distribution companies request. Doesn't the OEB do any of its own research about the market? The whole thing is reminiscent of the cozy relationship between lobbyists and Members of Congress where each side is integral to the other when it comes to legislation.

The gas companies claim that they don't make any money on the gas, the profits come only on the $20 monthly customer charge. Don't make any money on the gas? How can that be when they buy low and sell high? 

 

The problem with Canadian retailing …

... is Canadian retailing, not price disparity with the U.S. Ottawa has ordered a study of price differentials on consumer products between two countries. I've spent the last 10 days in the U.S. and I can't say I notice much difference on food or pharmacy products, two large categories. To be sure, gasoline in the U.S. is 20 per cent cheaper and the savings are even greater on beer and wine. Twelve bottles of Corona cost $14.99 in the U.S. versus $24.95 at The Beer Store. But higher gas and alcohol prices are caused by government taxes.

To be sure, the collapse of the Canadian dollar is playing hob with some prices. For this we can blame Stephen Poloz, who left the Export Development Corporation to become Governor of the Bank of Canada, then promptly drove down the dollar to help Canadian exporters at the expense of Canadian consumers.

For me, price is not the problem. The major difference between the two countries when it comes to retail is service. I was in Staples a few days ago looking for a composition book. The one I wanted was not available in the store but they said they could ship it to me. I ordered three for a total cost of less than $9. They arrived next day via UPS. Who in Canada is going to ship by courier for free, so fast, on such a modest purchase?

Or how about Macy's where there was no apparent discount but the clerk took 15 per cent off my purchase then found a coupon for a further 10 per cent. Got a furniture delivery? There will be the day-before phone reminder, a call 30 minutes in advance of the expected arrival, then a day-after 'How was everything?' follow-up.

I watch prices, of course, but I love service more. I had emailed Clarks consumer service department in Canada a month before Christmas asking where in Toronto I could buy a specific winter boot. I finally got a response today. If I'd been living in the U.S. I can almost imagine the sales rep showing up at my door the day after my query with several choices in my size.