The Obama Presidency

 

When Senator Obama was running for president, one of the concerns highlighted for me by someone smarter than me was that he had never before actually run anything in his life. He had never been in the position of being responsible for an income statement and balance sheet. His single greatest accomplishment was writing a book…about himself.

He then decided to run to be the chief executive of the planet’s biggest income statement and balance sheet. Unless one has been in that role, even on a small scale, one just doesn’t know whether they’ll have the capability to make the necessary decisions, ask the right questions and have the correct judgement to be a CEO.

President Obama has been described to me by an American friend (retired USAF Colonel who lived most of his early years overseas and then built up and sold a plastics business with 700 employees) who voted Obama the first time as going from America’s Commander in Chief to America’s Commander in Confusion.

If you’re interested in US politics this thorough New York Times article may be of interest.

http://www.nytimes.com/2013/12/01/us/politics/inside-the-race-to-rescue-a-health-site-and-obama.html?ref=business&_r=1&

 

The policy of administration

For regular readers of this blog, you know that I take a great interest in politics – particularly in Canada and the US.  I also really enjoy English humour especially in the form of the Yes, Minister / Yes, Prime Minister and Fawlty Towers.

I think that those of you with similar interests will enjoy this vignette.  I’m afraid it might be closer to the truth than any of us would like!

Hand on hot stove = pain

In the interest of full disclosure, I do believe that government has a role in society.  Protecting property rights, enforcing the law and keeping our borders secure are some of the most important functions.  However, manipulating the economy, owning businesses or running businesses are not functions government is equipped to do well.

I have been very disappointed that over the course of this economic unwinding the press (some of it well respected) and so-called “free market” economists have jumped on the Keynesian bandwagon with such great fervour.  It seems that everywhere I turn there has been a newspaper or an economist arguing for a big stimulus and a fast stimulus.  

My disappointment has been a bit muted more recently because some pundits are beginning to question the size and effectiveness of the American stimulus package and our more modest “made in Canada” version.  

As we are all now well aware, the American mortgage market got way out of hand with people taking on debt that they had no ability service.  Then these debt obligations were being packaged up, securitized and resold on the basis that, because these sub-prime mortgages were distributed piece-meal through these securities, the risks were mitigated.

You’ll see a previous post of mine (read it here) where I outline, from my perspective, the cause of our current malaise.  History aside, fundamentally we had people borrowing money they couldn’t afford to pay back.  They were banking (pun intended) on their real estate rising in value in perpetuity.   They took risks that were far too big – they were excessive.

Now the aberration of the current stimulus package, with the Troubled Asset Relief Program (“TARP”) leading the way, is that it is ultimately going to promote excessive risk.  The US government has put $45 billion each into Citigroup and Bank of America instead of letting them die.  By propping up these failed enterprises, the US government has sent the loud and clear message that business can take massive risk and reap the rewards (bet big, win big) and, at the very worst, come out even if things go south.  

The government has removed the down side of risk. 

Think about this in terms of a poker game.  If players know that worst case scenario was to come out even then they would always bet huge sums on risky hands.  Without the potential to lose their entire float, there is no incentive for a player to think about the potential reward or loss in light the risk he is taking.  This is the same behaviour we will begin see from private enterprise like US banks and auto makers.

Scarcity and incentives are two tenets of economics.  We all make decisions to invest, save or spend our money.  If we remove incentives created by risk then that it is not hard to see how our decisions will be distorted.  

When kids put their hands on a hot stove there is a repercussion.  Similarly, there must be repercussions for a failing business.  There must be pain.

This blog in 2009

I am writing this blog because I wish to stimulate conversation and learn from others.  My goal is that through this conversation I will become a better investor and help others become better investors.

While this blog will be primarily about investments and investing, I will also post on administering wills and estates and on politics.  I’ll write about planning and administering estates because I have some experience as an executor.  I’ll write about politics because the ubiquity of governments has caused them to affect most everything in our lives.

1)      Investing and the economy: Managing investments effectively impacts so much in life (retirement, children’s education, independence, bequests).  I have managed my own portfolio for about eight years, have had joint responsibility for a second portfolio and act in an informal advisory capacity for a third portfolio.  I’m not an investment advisor, but have long taken a keen interest.  Through conversations in this blog, I hope we all become better investors (even if you’re Prem Watsa or Warren Buffet you can improve), become financially independent sooner, retire earlier and leave more money to our beneficiaries.

2)      Administering estates: Administering an estate is a tough and sometimes thankless job.  There are the legal and administrative pieces, which are important, but there are also the wishes of the deceased and personalities and emotions of the beneficiaries which must be respected and managed.  I’m going to use my experience as a co-executor for two estates to write about some the challenges and pitfalls and, hopefully, offer some suggestions on how it can “be done right”.

3)      Politics: Whether we like it or not, decisions made by our political leadership can have significant influence on our own personal decision making.  Government policy will affect investment decisions and will affect how estates are structured.  For this reason, I will use this blog to write about politics in Canada, the US (because it directly affects Canadians) and in British Columbia (because I live in BC).

I plan to post regularly and up to three times weekly.  I hope you enjoy it, I hope you contribute to it and I hope you get some benefit from it.

The Liberal coalition

Some have suggested that by not supporting the Liberal, NDP and separatist coalition in Ottawa, Canadians are saying its “illegal” or “unfair”.  Some have said we in Canada don’t belive in majority rule, democracy or in decision making through deliberation.  

I don’t agree and here are some thoughts on why.

In Canada we really haven’t had more than 50% of the popular vote support the winning party since 1917 (yes there have been interregnums like Brian Mulroney’s 1984 victory), I don’t believe that by expressing opposition to the coalition assembled by the Liberals, Canadians are indicating it is “illegal” or “unfair”. Certainly this Canadian believes it to be shameful – not unfair, not illegal, but shameful. 
What the Liberals did was give the Bloc Quebecois, a party created with the purpose of breaking up this great country, a veto power over the federal government. And they afforded this separatist party that influence simply as a result of the Liberal’s intrinsic believe in themselves as Canada’s natural governing party. 

None of energy, the environment, the economy, the crumbling health care system, the wars abroad or anything else excited the Liberals enough to threaten to fall a government or to form a coalition. What did get them into a froth? The prospective elimination of taxpayer subsidies of political parties in form of a $1.95 for every vote they secured. 

This coalition is a manifest representation of the Liberal Party’s fervent and excited need for power. 

Canadians believe in responsible government which requires the confidence of the House of Commons – parliament. This confidence in and of itself infers that a majority of the lower house must support the government. It is a characteristic of the first past the post (FPTP) system that permits a party to form government with the support of the majority of parliamentarians and not the majority of the people. Just because we have FPTP does not in and of itself suggest Canadians do not believe in majority rule.

Canadians believe in hiring people, letting them get on with their job, rewarding them for success and reprimanding them for failure. Our system has an inherent job review every four or five years (or every three years in the case of Jean Chretien). Do a bad job, get fired. Do a good job and, maybe, get re-hired. In between, get to it

As an electors we want to have confidence in the people we elect. If we are constantly called up to “deliberate” then why even elect a government? Just leave the bureaucracy in place and have all policy decisions made by internet polls. That is the ultimate decision by deliberation.

Now, I have long preferred the American system of checks and balances – particularly when one party is in the White House and another holds the majority (not a super majority) in Congress. Even though he is the most powerful man in the world, the US President has far less direct power there than our Prime Minister. Through the PM’s power to appoint and fire his cabinet, appoint and fire heads of crown corporations, appoint judges all over the country and, effectively, to push policy through without recourse is too much power in the hands of one man. 

England’s Prime Minister is somewhat less powerful because his or her caucus appoints or fires the leader (and I understand that the leader representing the majority of the lower house and has its confidence becomes the PM). This ensures that the party leader and, in the case of government, the PM must keep their caucus onside.

The disappointment that this Canadian feels toward the parties that didn’t vote for Harper’s economic update is not sparked because they didn’t support him. My disappointment, and disgust, materialized firstly because of what the Liberals, NDP and separatists were voting against (subsidies for themselves) and how they were proposing to express their non-confidence (giving the separatist party veto power over a proposed coalition government).

The coalition that the Liberals put together provides a veto to the BQ and the BQ’s purpose is to break up this great country of ours.  This unacceptable for Canada. 

There are some very bright, well read and articulate people suggesting that, because of the machinations in Ottawa, Canadians believe the coaltion to be “unfair” and “illegal”.  Many of their arguments are throught through very well and communicated in very convincing ways.  

However, I think they are drawing some broad conclusions that are wrong.  Canadians believe in democracy, responsible government and a commitment to run our country that is in the best interests of…our country. These interests do not include giving veto power to separatists with the avowed goal of breaking up our federation.

My take on the recent political machinations in Canada

I see a light at the end of Canada’s political tunnel. Unfortunately, it’s a train coming at us.

The Liberals, NDP and Bloc signed an accord that would see the Liberals and NDP forming a minority coalition government for a period of thirty months. The Bloc would hold the balance of power with no formal participation in government, but with a commitment not to vote against the government on confidence measures for a period of eighteen months. The cabinet would be comprised of eighteen Liberal and six New Democrat MPs.

Not only was Harper’s inclusion of party subsidies in his discussion on our fiscal circumstance poor judgment, it was poor government. Canada has been living in an insulated economic bubble, but with oil prices dropping and the US consumer not consuming, reality is quickly setting in for her. Tiny subsidies of political parties have no place in a discussion of our economic strategy. Notwithstanding Harper’s mistake, what the merry band of Dion, Layton and their separatist sidekick are doing is an atrocity. We have tremendous economic instability. Adding this to the mix only creates more uncertainty (look at what the Canadian markets have done thus far this week).

What Dion and Layton are proposing is to replace a party that has formed government after winning in accordance with our first past the post system with a government which will appoint a prime minister who will serve only five months (Dion steps down in May). A government that will stand only with the support of a party which has, as its primary purpose, the objective of breaking up the country. This is nothing more than a power grab by the Liberals. They are the heaviest drinkers of the “Liberals as Canada’s naturally governing party” kool-aid. I’m afraid they’re drunk.

I was impressed with Harper and, on balance, still am. However, Canada needs political leaders that are focused on Canada and not on themselves. This is particularly important at this point in our economic history.

At the moment I’m disappointed in all of them.

What should Stephen Harper do now?

My take is that he needs to do three things:

(1) He needs to present a budget on January 26th/27th that shows the Canadian people he has a handle on the economic crisis, has accounted for sufficient stimulus.

(2) He needs to campaign hard between now and then and show the Canadian people that, if the government does fall on the 26th or 27th, the decision in respect of who forms government should be made the people and not by a back room deal comprised of the Liberals, the NDP and the separatists.

(3) He needs to do everything he can to drive a wedge into the coalition. There are numerous Liberals whose support of the coalition is very soft. He needs to show them that getting into bed with the separatists is bad for Canada. Moreover, he needs to show that the coalition would, ultimately, be bad for the Liberal Party (which is what the Liberals have shown themselves to care most about).