Rob Ford Smokes Crack, Stephen Harper, Blackberry, Energy, Mining: Canada in Decline

There are times in a nation’s evolution when the sum of current events signifies an inflection point has been reached. Usually, by the time such a point is noticed, it is in the rear view mirror. Such might be argued to be the case now for Canada. After the winter olympics of 2010, which might be reflected on as a high point in the status and pride of Canadians the world over, we appear to have gone into a nosedive on a wide range of fronts.

In the first instance, our political theatre has mutated from conservative run-of-the-mill polite partisan back-stabbing to a much more absurd form of almost Fascist, in-your-face “we’re gonna do what we’re gonna do whether you like it or not”. Starting at the federal level, the stench of abusive expense reporting that started off as a case of self-serving senatorial excess has grown into an RCMP-investigated scheme perpetrated by the office of Prime Minister Stephen Harper to obscure the fact that the PMO’s office quarterbacked an RBC loan for Senator Mike Duffy to repay ineligible expenses. Why would they do that?

Harper’s Nazi-esque intolerance of media scrutiny is part and parcel of the Man We Elected. If our other choices weren’t quite so unacceptable to the controlling business lobby, there might be a shred of hope for an adequately muscular foil to the conservative locomotive, but such a contender is not yet in sight. Trudeau youthfully waffles on key platform points, while the NDP is relegated to its perennial tertiary role in every province.

Rob Ford Digs In

As if the Federal shenanigans weren’t enough to cock an eyebrow over media reports, we have perversely and simultaneously the municipal Political Theatre of the Absurd starring Rob Ford as the embarrassingly tenacious Mayor of Toronto. This crack-smoking, brandy swilling lout who specializes in burning bridges and acting like its all part of some cunning script has made Toronto the laughingstock of major cities around the world. Even Jon Stewart couldn’t resist what is unarguably irresistible grist for the one-liner humour mill.

But what appears to have been a mis-conceived plot to get Rob to go away quietly, the announcement by the Toronto Chief of Police that Yep, there’s a video, and Yep, looks like the Mayor is smoking crack in it has not had the intended effect of inducing Ford’s resignation. Nor has the video been released, which is surely the straw that must break even Rob Ford’s considerable back.

Instead, Rob calls into his own radio show pretending to be Somebody Else while his brother calls for the police chief to step down over his apparent bias against the mayor. Leak the video, for God’s sake, and harpoon this lampoon before we get ourselves another Marion Barry, who was busted after being video-taped (this was in 1990), did six months in jail and then got re-elected to first council then back to mayor of Washington D.C. The voting public in the United States is very responsive to a back-from-the-impossible-brink-of-extinction story of redemption, and I’ll bet Torontonians are no different. The serial comedy apparently continues…

Canadian Business on the Ropes

And then there’s Blackberry. (NASDAQ:BBRY) (TSE:BB).

After the most flamboyant display of apathy-born-of-arrogance on the parts of founders Mike Lazaridus and James Balsilie saw the former world leader in smart phones tumble to world goat of smartphones, the company is rapidly descending into scrapyard price range. A ham-fisted buyout feint by Prem Watsa’s Fairfax Financial Holdings Ltd. (TSE:FFH) to staunch the haemorrhaging of BlackBerry’s share price has now been withdrawn even as other bids – including one put together by Mike Lazaridis with Cerberus Capital Management L.P. evaporate, the CEO is kicked curb side and replaced with another, and the share price peeks over the edge into the abyss. Another spectacular Canadian technology firm destroyed y complacency and arrogance. (Remember Nortel?)

Enbridge and the Northern Gateway Boondoggle

It’s always been my impression that the smug Canadian Upper-Canada-College-schooled establishment of Canada who are our own burgeoning Fascist Neo-Con shadow government have fallen victim to the success resulting from Canada’s natural economic formula of massive resource-rich territory divided by small population, perceiving it to be instead a result of their own staggering genius.

But as the banking community that underwrote the establishment of Canada as world’s largest oil reserve country thanks to the endless bitumen deposits now flounders for a way to get that to market by boosting pipelines, railways and LNG terminals, thinking and patriotic Canadians need to ask themselves:

“Do we really need to rush to develop every single possible drop of hydrocarbon wealth now? Or should we demonstrate real leadership by advocating a conservative, future-cognizant, natural-ecology-respecting pace of hydrocarbon development that ensures a stable economy now and into the distant future?”

I can already hear the sneering “socialist” and “tree-hugger” accusations that are the knee-jerk responses of the otherwise vacuous repertoire of said smug establishment.

But here’s the reality: Despite Enbridge’s (TSE:ENB) (NYSE:ENB) advertising-borne assurances that the only way to keep the Pacific Coast pristine and natural is by building pipelines and LNG export terminals up and down it, there’s some pretty substantial evidence to suggest that oil prices will soon follow gas prices downward. As well, given the history of shipwrecks on the west coast of North America, its pretty safe to say that if 5 LNG plants load an average of 1,000 LNG ships per year, there is a statistical CERTAINTY that a percentage of those vessels will meet with disaster. Assurances to the contrary notwithstanding.

But even economically, as Frack Mania front-loads the world’s petroleum reserves dramatically, analysts are calling for $70 oil by next year. Consider the break-even cost per barrel of bitumen to oil of ~$70, why-oh-why would we rush to support marginally economic hydrocarbon production with capital intensive and environmentally destructive marginally economic oil transportation and export infrastructure?

Despite the fact that automobile use in emerging countries will easily consume any increase in the annual 86 million barrels a day we already burn, that may not be the case if we start transforming to electric and hydrogen-fuelled solutions on a large scale in the next 10 – 20 years.

A massive build-out of coastal hydrocarbon export infrastructure might find itself rusting and oozing into the turquoise waters off British Columbia at great financial and environmental loss as demand for hydrocarbons is finally reversed.

Resource Exploration and Production: Dying on the Vine

And finally, lets look at the sorry sorry state of the Canadian resource sector.

Exploration investment has withered, and in no way can that be attributed to commodity prices. Copper is still $3.40 a pound, gold is still $1,300 and ounce, and iron ore is still above $130 per tonne. So why is the TSX Venture Exchange still sucking hind teat at 60 percent lower than in March 2011?

The two primary reasons are the structure of the Canadian resource financing model, and the other is the direct subsidization of neighbouring U.S. equity markets through government capital and credit fabrication. In a nutshell, the Canadian game is rigged in favour of institutions first, Canadians second, and foreign investors last.

The wildly popular flow-through tax credit structure gives any Canadian investor a hugely discounted cost basis for investing in exploration relative to a foreign investor. I’m not saying it should be stopped. On the contrary, it should be extended to foreign investors as well, and recouped through taxation on production.

But I also think the big banks in Canada are interested in pulling the rug out from underneath the independent investment banking sector by yanking all of their funds from Canadian resource investment funds in an effort to starve out as many small players as possible – a strategy that is working like a charm.

I think the attitude of the Smug Class is that this industry will have a better win rate if managed by them, which I have no doubt it will. But in doing so, Canada will have destroyed its status as the original underwriter of 60% of the world’s producing resource assets.

That might have already happened.

At any rate, the opportunity for Canada to create a sovereign wealth fund of its own to support its own industries as well as diversify Canada’s participation in other industries and other nations is before us. If the government was smart, it would act now – decisively – to rejuvenate resource exploration, rethink the buildout of hydrocarbon export infrastructure that will transform Canada into an economically vulnerable and ecologically compromised petro-state, and above all – get its political houses in order.

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
More Info...

[email protected]

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.