Ontario and Quebec Unite:

The verbal jousting between new Alberta premier Alison Redford and Dalton McGuinty, third term Premier of Ontario, goes deeper than the ink on paper. For thirty eight years that I have lived in Canada, economies of the West and Ontario have consistently gone in opposite directions. When oil price is high, Alberta prospers but the manufacturing in Ontario suffers a double whammy of higher energy cost and rising Canadian dollar. The situation is more extreme these days because the up cycle in oil prices has lasted longer than usual. It shows no sign of turning and the misery in Ontario’s industrial heartland is acute.

Federal governments in the past represented Central Canada more than the West and they tended to follow policies which alleviated Ontario’s plight, often at Alberta’s expense. Current government in Ottawa has a strong Western bias and under the guise of supporting free enterprise it is being singularly unhelpful to the suffering workers in Central Canada.

Not only are the leaders of current Federal government short-sighted, they are guided by crazy extreme ideology borrowed from the Tea Party types south of the border. It would be foolish to expect them to work in concert with Ontario to improve the situation. Only option for Ontarians, other than mass migration to Alberta and Saskatchewan, is to join Quebec and start a campaign for Central Canada separation from the Federation. Separation movement in Quebec has been regaining strength lately and it would have a better chance of success if the two largest provinces with similar economic interests skip over the language barrier and work together to form a strong industrial union whose prosperity would not be constrained by Petro-currency of the blue-eyed sheikhs.

Return to Gold Standard:

Kelefa Sanneh (New Yorker, February 27) mentions in passing Republican hopeful Ron Paul’s wish to return the U.S. dollar to gold standard. There can be no doubt that since the abandonment of gold standard, the Central Banks have flooded the system with new money to create a false sense of prosperity. Unfortunately, mountains of cash have led to the situation where manipulating money is far more rewarding than using it productively and the traders at Goldman Sachs make billions even when the economy is in disarray and unemployment is in double digits. Sustained development over long term needs a financial system where money is made by inventing and making useful products, not by shuffling it around. In this system the banks use the money deposited with them for loaning to profitable enterprises and they don’t have much left for trading on risky ventures. Ignoramus on economic and political matters though I am, I do believe that if all the money that has been pumped over last thirty years to keep the economy ballooning were soaked up somehow and future oversupply constrained by instituting some standard for printing new money, the cycle of bubble and collapse will be eliminated.

Stocks ‘R Us:

The financial media is full of reports on what pension and hedge funds and their managers are doing with their money implying that the readers should do the same. I am afraid that in this field just as in most others, what works for giants does not necessarily work for dwarfs. There are things one can do with a billion dollars, like buy enough shares in a company to push the management around, which most investors can’t do. On the other hand, a small investor places small bets in a larger field and has more flexibility.

Investment philosophy and goals depend on the size of investment. Big hedge funds and pension funds can not consistently grow by 10 percent but a small fund can. That is because a patient investor with a few thousand dollars can buy shares of growing companies that trade infrequently for a couple of dollars which would never be on the radar of a billion dollar fund. For example, investors who bought a few thousand shares of Boyd Collision or Intertape Polymer a year or two ago have quadrupled their money. Such gains easily offset losses in investments that do not work out.

Big funds relate their performance to the market indices while an ordinary Joe saving for his retirement merely wants his investments to stay ahead of inflation after taxes year after year. It is no consolation to an average investor that the TSX lost more in a bad year. There is no rationality when the spectre of deprivation in old age looms. When general markets are falling, a small investor wishing to minimize the losses in the portfolio should stay away from darlings of large traders. Preference for ‘income’ over ‘growth’ stocks reduces the volatility in the portfolio because steady income stabilizes the price to some extent and makes up for small drops in price when they occur.

An investor must be aware of the political and economic winds that are blowing. While local calamities like earthquake or floods do not have a significant lasting impact, a major war or a long recession can be disastrous. However, before you sell all your stocks and stack your dollar bills under the mattress, remember that most disasters, including economic ones, eventually bring inflation and the best way to stay ahead of inflation is to own carefully selected relatively indestructible assets.