Thursday, 26 February 2015

FIFA: Farcically Incompetent Football Administrators

Soccer is the world's most popular sport; nothing else comes close. But the various federations that run the game are astoundingly incompetent and, by all accounts, venal to the point of outright corruption. Worst of all is the global governing body, FIFA, which has been run for years by the odious Sepp Blatter and his cronies. Let's take a look at some of what they've been up to lately.

The Women's World Cup is to be held this year, right here in Canada.  It's going to be played on plastic grass, which is wrong and potentially hazardous. If Canada couldn't provide stadia with real grass for the event, it shouldn't even have been allowed to bid. let alone have emerged as the winner. There are, of course, soccer stadia with real grass in Canada -- Toronto's purpose-built BMO Field for one -- but the tournament has been banished to smaller cities with artificial pitches.  Some of the world's top female players tried to take the issue to court, on the reasonable grounds that nobody would ask the men to play their World Cup on plastic turf, but the case went nowhere.

FIFA never quite seems to be able to take the women's game seriously. It's not that long ago that the aforementioned Blatter opined that the best way to increase the game's appeal would be for the players to wear shorter shorts. Well, if Sepp is planning to pitch up in Canada this summer for a good ogle, he's likely to be disappointed. If the women have any sense, they'll be wearing leggings so as to reduce the risk of turf burn.

Meanwhile, over on the men's side, it's now known that the 2022 World Cup, awarded in highly suspicious circumstances to Qatar, will be played in November and December, the traditional July timing being impractical due to the extreme summer heat in the Gulf.  This will require all of the world's major domestic leagues to take a lengthy time-out in the middle of their seasons; indeed, given that players will probably have to commit to international duties for about two months, it will probably disrupt the previous and following seasons as well. Nice one, Sepp!

Of course, FIFA may face another problem before it even gets to Qatar. The 2018 World Cup is set to be held in Russia, like Qatar the beneficiary of a highly dubious selection process.  Some politicians are already musing about boycotting the event, or even moving it, to punish Moscow for its alleged involvement in the fighting in Eastern Ukraine.  Nothing in Blatter's past suggests he cares in the slightest about the behaviour of host countries, but he and FIFA could find themselves scrambling if any of the major European soccer powers start to put the pressure of for a change of venue.

Ah FIFA. Disrespecting the women's game, messing up the men's. And laughing all the way to the bank as they do so.  

Tuesday, 24 February 2015

Fed tells Congress: "not yet"

In her semi-annual Humphrey-Hawkins testimony to the Senate (she gets to do it all over again for the House on Wednesday), Fed Chair Janet Yellen indicated that interest rate hikes are still some months away: the central bank is going to remain "patient".  Some members of Congress, especially on the Republican side, are concerned that the Fed may wait too long, only to have to push rates up quickly if inflation rears its head.

It appears that the recent decline in the headline inflation rate, thanks to the collapse in energy prices, has emboldened the Fed to stand pat for a little longer. Over in London, Bank of England Governor Mark Carney recently signalled a similar outlook for UK monetary policy, and as there is zero prospect of rate rises at any of the other major central banks -- the BoJ, the ECB, the RBA -- it looks as though we will be waiting until after mid-year to find out whether anyone really knows how to unwind the stimulus that's now been in place for well over half a decade.

The fact that the Fed is using the low headline CPI as a key justification for standing pat is a little worrisome. Ms Yellen's predecessor-but-one, Maestro Greenspan, was notorious for casting around to find new inflation measures to justify his own predilection for low interest rates.  Remember the ECI (employment cost index)? Or how about the core personal consumption expenditure deflator? Greenspan relied on both of these, and many others besides, at one time or another. In the meantime he applied unnecessary monetary stimulus to the economy, leading to the disastrous consequences that unfolded from 2007 to 2009.

It's unlikely that Ms Yellen is making the same mistake. At the same time, it's hard to avoid the thought that if you really could achieve solid growth with low inflation simply by opening the monetary spigot as wide as possible, somebody would have figured that out years ago. These are extraordinary times, and it's unlikely that getting back to "normality" will be easy or predictable.  Ms Yellen correctly noted that the US employment picture has improved on all fronts since her last appearance before Congress.  Even so, wage pressures remain under control, largely as a consequence of the drastically reduced bargaining power of American workers. There's no imminent suggestion that that's about to change -- though WalMart's decision to boost the pay of all of its "associates" may have a ripple effect -- but it's certainly a key area of risk that the Fed will need to monitor closely.

And what does this mean for Canada?  Bank of Canada Governor Poloz is widely expected to cut rates again next month, and that prospect, together with Ms Yellen's generally upbeat take on the US economy today, is putting the Canadian dollar under renewed pressure. The rapid falls in gasoline prices that we saw a couple of months ago are already starting to reverse themselves, and the currency's sharp decline will add to price pressures at the consumer level in the coming months.  The Bank has warned that headline CPI might slip into negative territory in the spring, but it's unlikely to stay there for very long. Even so, and especially with an election coming in October, rate hikes in Canada are likely to lag the Fed by many months.  

Saturday, 21 February 2015

Greek tragedy

You don't say, Alexis!  Greek PM Alexis Tsipras has warned his fellow citizens of "real difficulties" ahead, despite the short-term deal agreed with Eurozone creditors (mainly Germany) on Friday.  Tsipras told the nation that the deal "cancels austerity", but this is far from the truth.  The whole agreement could unravel as soon as Monday if Tsipras's government fails to come up with a fresh list of reforms that must be approved by the Eurozone.  Even if that hurdle is crossed, the extension to the existing bailout package is only for four months, so the pressure to find a long-term solution will ramp up immediately.

Tsipras is facing a tough time selling the deal to the Greek people because he campaigned on putting an immediate end to the creditor-imposed austerity that has crushed the economy, cutting real GDP by more than 25 percent. In truth, this was a promise that was never in his power to deliver. It takes two to renegotiate a debt, and there was little incentive for the Eurozone (i.e. Germany) to go along. Any real concessions would quickly have brought other heavily-indebted nations (Portugal, Spain, maybe even Italy) to the table looking for similar relief. While the "nuclear option" of reneging on the debt was theoretically available (and still is, if the negotiations go nowhere), the consequences of such a move for the Greek economy would have made the country's current problems seem like a golden age.

The uncomfortable truth is that Greece should never have been allowed to join the Eurozone in the first place. It was only allowed to do so because it misled the ECB about its compliance with the so-called Maastricht criteria that were meant to ensure that key economic indicators, notably inflation and public sector deficits, were converging with EU norms. It's worth remembering that it was assisted in concealing the true level of public debt by big US investment banks, who put together some sophisticated (and no doubt very lucrative) swap transactions to conceal the real numbers.

All of that said, there can be little doubt that austerity, particularly to the brutal extent imposed on Greece by its creditors, was precisely the wrong medicine at the wrong time. Now that the economy is prostrate, Greece's debt burden is even more unmanageable than it was before the crisis began.  No doubt all sides will put their best efforts into striking a long-term deal in the next four months, but behind the scenes, both Greece and its creditors will be busy preparing themselves for the possibility of the dreaded "Grexit".  

Wednesday, 18 February 2015

Irrational exuberance, Canadian style

True story: sitting in a doctor's waiting room last week, I spotted a headline on a the front cover of Canadian Business magazine: "The housing collapse begins". I picked the magazine up and started to read about how the market in Vancouver was starting to implode, with Toronto soon to follow.  All kinds of economists weighed in on how this was the beginning of the end for the overvalued Canadian housing sector.

Then something struck me as being amiss, and I looked at the date on the cover: October 2012! Truth is, despite the big-print headline and all those confident economists' prognostications, that collapse never actually happened. Indeed, in the two markets identified all those months ago as being closest to the edge -- Vancouver and Toronto -- home prices have gone ever higher, outpacing the rest of the country.

It seems more than likely that the divergence in performance between those two cities and the rest of  Canada will continue for a while yet. Although the latest national home price data show that prices nationwide are up by a bit more than 3 percent year-on-year, that number is entirely based on strong advances in Toronto and Vancouver.  Excluding those cities, prices are actually slightly lower than at this time last year. Moreover, sales activity is slipping, with particular weakness seen in Calgary and Edmonton as the impact of falling oil prices starts to be felt in the producing provinces. A surge in new sales listings in Calgary points to further price declines in the coming months.

What does this mean for Bank of Canada policy? Business economists, who to a man and woman failed to predict the Bank's rate reduction in January, are now confident that it will cut rates again in March.  And they may well be right, but I have yet to hear a convincing explanation of why the Bank thinks that further monetary easing is helpful.

As long as oil prices stay depressed, the housing market in Alberta (and Saskatchewan and Newfoundland) will not recover, regardless of where borrowing costs go. At the same time, the markets in Toronto and Vancouver, which even scarily complacent Bank of Canada Governor Stephen Poloz admits are seriously overvalued, will continue to race ahead to even more unsustainable levels. In fact, as this article reports, that's already happening in the Toronto region.

It's getting harder and harder to see a happy ending to this story. The Canadian economy is looking anaemic compared to its neighbour to the south, and the fact that the Alberta housing market has been walloped so quickly by the fall in oil prices provides a clear warning of what could happen elsewhere in the country in the event of an adverse shock.  Expectations that the housing bubble in Toronto and Vancouver can be gently deflated, which never did seem altogether realistic, are dwindling even further as the Bank continues to pump more air into the bubble. It would be no exaggeration to say that the market in those cities is displaying irrational exuberance -- and we know how that plays out.      

Wednesday, 11 February 2015

Science 101

Earlier this week one of the weather guys over the river in Buffalo, where they know a thing or two about snow, was musing about the problems they're facing in Boston. There has been so much snow in Beantown over the last two weeks that the city is running out of places to put it, so they're thinking of dumping some of it in the ocean.

Of course, said Buffalo guy, they have to be careful about that because of all the road-clearing chemicals that have been ploughed up with the snow, "especially sodium chloride".

Well, quite. It certainly wouldn't do to make the sea salty, would it?

Tuesday, 10 February 2015


Prime Minister Stephen Harper has moved quickly to fill the gap in his Cabinet left by the abrupt departure of Foreign Affairs Minister John Baird -- and he's tapped my own MP, Rob Nicholson, for Baird's job. Nicholson moves over from the Defence Department.

I've spoken very briefly with Nicholson just the once, while waiting in the checkout line at a supermarket. He seems as lot more suave than the abrasive Baird, but he's not the perfect replacement.  He doesn't speak French, which has always been a sine qua non for the post in the past, what with French being both the traditional language of diplomacy and one of Canada's official languages.  His unilingualism has prompted Quebec Premier Couillard to express his disappointment at Harper's choice.

Still, Nicholson's role will not be to indulge in any serious diplomacy, but rather to shout slogans fed to him by Harper's sinister backroom cabal. It probably doesn't matter what language he does that in.

Meanwhile, in a further sign that the Tory re-election effort may be running into trouble, one of the party's MPs, Eve Adams, defected to the Liberals on Monday. Ms Adams seems to be, shall we say, a bit high-maintenance, and Justin Trudeau may come to regret taking her on board. However, she joins an ever-expanding group of current Tory MPs who have hastened to make themselves unavailable for re-election this year. It's hardly a vote of confidence in Harper's ability to win a fourth term in office.

Friday, 6 February 2015

Incompetence roundup

Just a few drops from the seemingly bottomless well of sloppiness and woolly thinking that seems to afflict business and economics reporting...

* This morning it was reported that US employment posted yet another strong gain in January. (Canada's employment picture improved too, by the bye).  So what was the scrolling message on one of Canada's news networks at mid-morning? "US UNEMPLOYMENT ROSE LAST MONTH".

* A few days ago there was a fairly long, prominently-placed piece in the Toronto Star business section about the weakness in the Canadian dollar.  The reporter cited recent forecasts from Morgan Stanley and HSBC, calling respectively for the loonie to fall to 60 cents and 64 cents US.  Oops! Yesterday, in a little box about the size of a postage stamp on an inside page, the Star issued a correction: actually, Morgan Stanley is forecasting a low of 71 cents; HSBC, 74 cents.

* A local TV station last week featured a report about a looming shortage of skilled construction workers.  According to the reporter, 25 percent of such workers are due to retire in the next decade.  Well, let's see. If the average construction worker enjoys a 40-year career -- which might be on the high side, considering the rigors of the trade -- then the percentage that can be expected to retire in any ten-year period is....hold on while I break out my slide rule.....25 percent! So what exactly is the story here, and why didn't the reporter question this before going on the air?

I know that the traditional media are under pressure these days from the internet and social media, and are cutting back on staff numbers as fast as they can. I also realise that mistakes of the kind I'm quoting here are not by any means confined to the business section. (Need proof? The print edition of Saturday's Toronto Star included an article on the TransAsia air disaster that said the plane had "crashed into a reverend"!)  But if  newspapers, in particular,  are going to become less and less reliable in delivering hard information, their spiral into complete oblivion can only accelerate as readers desert them in droves.