A Leader Must Know How to Seem

Although I and others have been critical of Prime Minister Stephen Harper’s slow-going on conservative issues while in office, he remains the strongest choice among Canada’s party leaders to steer the country through the current economic crisis. Harper’s problem in recent days, however, has been one of style.

Harper has been pilloried for his lack of empathy (by Bob Rae of all people, who both feels and causes voters' pain). But on the numbers and the facts, much of what Harper has suggested – Canadian banks remain relatively solvent, there are bargains to be had in the stock market, etc. – is probably correct. So what if he lacks the ashes and sackcloth his rivals prefer? Leadership, however, is not solely quantifiable. A leader must know how to seem.

A remark can be truthful without being helpful. This is a rudiment of politics. Harper is a trained economist and, as a politician, he is a very fine economist. With all the bedside manner of a gout-ridden Scottish surgeon, he has told the country the facts in clinical terms. But what Canadians are looking for is heart. The country wants a leader who cares and, as polls shift away from Harper, voters are less in search of sober assessments than a hug.

As to that, Harper has famously packaged himself in casual, cozy vestments by the fireplace and, in the heat of this crisis, NDP Leader Jack Layton has said, "Now we'll finally see what's under the sweater." Indeed, on October 14, we will discover if a sweater-vest is to Stephen Harper as a wetsuit was to Stockwell Day. Liberal Leader Stephane Dion, meanwhile, has criticized Harper as "out of touch." But Dion is out where the buses don't run – and hybrid buses, at that. Carbon taxes and green shifts and environmental hocus-pocus are off the agenda for the moment. Canada is entering a difficult economic period. The country needs a leader with a serious, comprehensive approach. Stephen Harper is that fellow. Who cares if he can't cry?

Voting involves making imperfect choices. So, in order to assess Harper’s ability to address economic concerns, we must contrast his philosophy and track record with those of the other leaders on offer.

Displaying the scattershot indignation that has been a hallmark of the socialist movement since its inception, Layton is eager to be angry. He is like a heat-seeking missile with a moustache, screeching across the sky in search of a target, from bank regulations, to tax cuts, to corporations, to George Bush. But his economic policy merits the same criticism that physicist Wolfgang Pauli gave a muddled paper: “It isn’t even wrong.” Layton has blamed the market meltdown in the United States on Bush-style tax cuts – as though decades of bad mortgages bundled into shaky securities, which caused this mess, had the first thing to do with lower taxes.

As for Dion, until recently, the worst that could be said about him was that he is friendly and misguided. But his outbursts at opponents and reporters during the campaign have surrendered his ivory tower high ground as the befuddled professor. This is unhelpful, as the world has no shortage of angry environmentalists.

Incumbency can be both a blessing and a burden. For this reason, despite his opponents’ shortcomings, it is the Prime Minister’s lack of empathy that is driving the polls.

But practical prescriptions should matter more than personalities. As just one example of what a prime minister might do to alleviate the current crisis, he could reduce or eliminate the capital gains tax. 14 of 30 OECD countries have eliminated capital gains taxes altogether, and capital gains cuts have been shown to be self-financing. They increase tax revenue, as the money spent on preparing and paying taxes is instead invested into the economy. Despite Harper’s foot-dragging toward meaningful tax cuts, he is far more likely than Layton or Dion to take such a positive step. Such free-market thinking is what we need now.

Stephen Harper is not warm and cuddly, and his attempts to appear so may be unsettling, but he is the right leader for this difficult time.



theo@theocaldwell.com

Theo Caldwell, President of Caldwell Asset Management, Inc., is an investment advisor in the United States and Canada.

Two Tenets, Two Truths

The crisis that is affecting financial markets around the globe finds its basis in two tenets that have been fundamental to the American way of life since the dawn of the Republic. To wit, everyone has the right to own a home and everyone has the right, within the confines of the law, to make as much money as possible. These are not ignoble sentiments; indeed, America has become the world’s largest economy and most powerful nation – lifting much of the world from poverty in the process – through innovation and commerce that is made possible by private ownership and free markets.

But when these fundamental beliefs are stretched to absurdity, in defiance of common sense, the results can be dire. In this case, mortgages were for decades granted to people who could not afford them. Financial institutions, meanwhile, saw opportunities to make slightly more money than they could through other investments by bundling these ill-considered loans together into Mortgage-Backed Securities (MBS). The rest is history.

First, to the matter of home ownership: In 1977, President Carter signed into law the Community Reinvestment Act (CRA), which stipulated that mortgage loans should be given to a broader base of Americans, including and especially those with lower incomes. The CRA was strengthened by President Clinton in 1995. Clinton’s Secretary of Housing and Urban Development, Andrew Cuomo, was forceful in demanding that lenders, as well as the government-sponsored agencies that backed them, Fannie Mae and Freddie Mac, give mortgages to as many poor and minority applicants as possible. It was mandated that unemployment and welfare payments be included as legitimate income for mortgage eligibility. Lenders found themselves scrambling to ensure they had enough CRA mortgages on their books to avoid lawsuits or charges of discrimination. The priority was carried into the early part of this decade, with President Bush boasting that more Americans owned their own homes than ever before. The good intention, of course, was to let everyone own part of the American Dream, regardless of their socioeconomic status. The unfortunate result, however, has become a matter of global concern.

The way in which this national miscalculation became a worldwide phenomenon is that mortgage-backed securities were purchased en masse by banks and financial institutions in numerous countries. When the American real estate market declined, mortgages went into default and MBS notes lost their pricing. By purchasing MBS paper, financial institutions had been hoping for slightly higher returns than could be achieved through more conventional securities. Whoops.

Americans have always been protective of their property and rights. As others have observed, these are folks whose forefathers rioted because the British put a tax on their breakfast drink – and it wasn’t even coffee. But somewhere in that justifiable urge to acquire and own according to diligence and talent, some room must be left for caution.

The simple lessons are these: Do not lend or borrow what cannot be repaid, and do not risk your entire financial well-being for a slightly higher return.

America is a good and resilient country. Capitalism is, as Churchill described democracy, the worst system in the world, except for all the others. Difficult as the present crisis may seem, we will get through this. Let us hope that government and citizens alike have learned what they should.



theo.caldwell@sunmedia.ca
Caldwell is President of Caldwell Asset Management, Inc.

Tories' losing fight in T.O.

Every federal election season, citizens of Toronto are treated to a sight more hopeful than the first robin of spring. That is, Conservative candidates and their supporters suggesting that this time -- this time -- they will finally break through and win seats in the city.

"The Liberals and NDP are strong in our riding," they say, "so there is room for us to come up the middle if they split the vote." It is endearing to see such optimism, but it has little basis in reality.

How about no: You're not coming up the middle, or in from the side, or around the back. You are going to lose and like it.

But this does not mean Toronto's Conservative candidates do not have a valuable role to play. In fact, it can be liberating for these locals to know that they can speak their minds without endangering their Commons seat. Such candidates can be the most effective in exposing key members of the Opposition.

Consider former NDP Ontario premier Bob Rae, now the Liberal MP for Toronto-Centre. There are myriad reasons why Rae deserves a public talking-to from a Conservative opponent, but Sir John A. Macdonald himself could not unseat this once and future socialist.

If Rae is soundly defeated in debates or pushed into making intemperate remarks that gain national attention, however, that could prevent him from becoming prime minister and doing the same damage to Canada that he did to this province.
If Conservative candidate Chris Reid can accomplish this, even in defeat, he will have served his country well.

Likewise Deputy Liberal Leader Michael Ignatieff, who will almost certainly be re-elected in his riding of Etobicoke-Lakeshore, can and should be exposed for his boundless personal ambition and retrograde positions. Whatever this man says and does in his local campaign -- especially if it is something egregious or all-too-truthful -- will catch the public eye and remain a matter of record for years.

In this way, the work of Ignatieff's Conservative opponent, Patrick Boyer, could come in handy if and when Ignatieff becomes Liberal leader.

The world over, urban centres are safe havens for left-wing politicians, and Toronto is no exception. If you hold right-of-centre views and wish to be elected to office in Canada, the adage is, "Go West, young man" (or perhaps to the Maritimes, or even some parts of Quebec).

The steadfastness and optimism of Toronto's Conservative candidates ought to be admired. They will not win, no matter the success of the national campaign, yet they press on in the face of this reality.

HE'S NO BRIAN
Certainly, some point to internal polls and pie graphs as proof that the glory days of the Mulroney sweeps can be repeated. But Toronto's ridings have been gerrymandered since then and, to borrow a phrase, Stephen Harper is no Brian Mulroney.

If local Tory campaigners can advance free-market, responsible policy ideas while forcing their opponents to make mistakes, they will have done well.

Congratulations to Toronto's Conservative candidates for their courage, and here's hoping that despite the odds, they can seize opportunity.

'Conservative' in name only

For Canadians who embrace environmentalism, confiscatory tax rates and comprehensive government programs, the October 14 federal election offers an embarrassment of riches. Folks who believe that meaningful tax cuts are overdue, however, and that Prime Minister Stephen Harper has neglected his specific promises as well as conservatism in general, have fewer options. To wit, the former group has at least four parties to vote for; the latter, none.

Admittedly, Harper’s Conservative government has been in minority status since being elected in 2006, necessitating multi-party consensus to legislate. Indeed, perhaps this is Canada’s longest-standing minority government precisely because its movement toward conservative ideals has been glacial. But the fact remains that campaign pledges, such as leaving income trusts untouched and sticking to fixed election dates, as well as long-standing principles, like significant income tax cuts and reforming the CBC, have gone unfulfilled.

Lest we forget how this campaign started, it was the Harper government that opted to force an election, even after legislating the date of the next vote for October of 2009. Fixed election dates have been a tenet of the Conservative Party and its antecedents for at least a decade, but they abandoned that principle because they see a temporary advantage.

This government has moved to eliminate income trusts, which allow corporations to pay out earnings to unit-holders before paying taxes, despite repeatedly and explicitly promising to leave them intact.

Tax rates have yet to come down from the stratospheric range Canadians have endured for generations. A government cannot call itself conservative while citizens are still surrendering half their income in taxes.

And what about the CBC? Should Canadian taxpayers still be shelling out more than a billion dollars a year for a supposedly public broadcaster with a line-up that includes Jeopardy and Wheel of Fortune? A true conservative would tell the CBC to buy its own vowel, but what is Harper’s plan?

In discussing these issues with several members of Harper’s cabinet and caucus, I have found their reactions range from apologies for the slow progress to outright denials that commitments were broken or that conservative ideals have not been served. It is this latter response that is particularly disconcerting.

On taxes, for instance, their talking points seem to be that the GST has been cut, as promised, reducing the federal government’s haul by billions of dollars, and Tax Freedom Day, that glorious dawn when Canadians stop working for the government and start working for themselves, comes earlier.

But the point of tax cuts is not to reduce government revenue. The idea is that giving folks the freedom to spend and invest their own money, rather than handing it over to the government, spurs economies and leads to higher tax revenues. Myriad examples, from North America to Europe to Asia, bear this out, but do Canada’s Conservatives believe in the concept? How can we know? Certainly not from their record.

On income trusts, they say that circumstances changed since they committed to leave them alone. But the point of making a promise is that you keep it even when it is difficult.

The issue isn’t even whether income trusts are good for the economy, or whether corporate taxes foregone would have been made up by personal income taxes and foreign investment. The point is, one thing was said and another was done. It is not the end of the world, but it’s a fact. More important, what does this say about the Harper government and how it would legislate with a majority?

On fixed election dates, they claim that pledge was only applicable to majority governments – such a by-the-book technicality might strike hockey-minded Canadians as a “chintzy call” – and, since the Liberals would probably have forced an election this fall anyway, this broken promise doesn’t count.

As to the CBC, they see it as a sensitive issue at election time, so they become refreshingly mute.

The question becomes, then, if those who hold conservative views cannot find much reason to support Stephen Harper’s party, where else can they take their votes?

Harper is helped by having opponents who would dissolve the fabled wall between church and state by making the religion of environmental druidism the law of the land. Beyond the Liberal and Green parties, Harper is facing straightforward separatists and unreconstructed socialists. Harper is probably the best leader on offer but, as comedian Dennis Miller might opine, that is like being the smartest kid in summer school.

For years, Harper’s handlers have been unsure as to just how to package him. They have fluctuated between having him glare out at voters from campaign posters to the most recent incarnation, which has him sitting by the fireplace in comfortable clothes, discussing what it’s like to be a dad. It’s a shift from scaring children to talking about them. But shooting a steel blue gaze straight into the camera is not leadership, nor does donning a sweater-vest evince character. For all the image-making, he remains an enigma.

Fundamentally, Canadians still don’t know what to make of the man who has been their Prime Minister for almost three years, or what to expect if he is re-elected. If Harper does have a Hidden Agenda, as his detractors claim, it is hidden even from those who would be his supporters.

On specific issues including income trusts and fixed election dates, Harper’s government has not been straight with the voters, and on bedrock conservative principles like meaningful tax cuts, it has been absent. These are not unforgiveable transgressions but, if the Conservatives are returned to power, they should start living up to their name.




theo@theocaldwell.com - Theo Caldwell, president of Caldwell Asset Management, Inc., is an investment advisor in the United States and Canada.

Obama's joke hold

“I like a man who grins when he fights.” –Sir Winston Churchill

Now that Republicans have wrapped up their National Convention in Minneapolis-St. Paul, nominating Sen. John McCain and Gov. Sarah Palin for president and vice president, Democrats are wondering why their man, Sen. Barack Obama, has not opened up a wider lead in the polls. 2008, after all, is supposed to be a Democratic year. Perhaps the problem is the Obama campaign’s lack of humour.

After the 1996 presidential race, when defeated Republican candidate Sen. Bob Dole began to show flashes of his natural sense of humour in public, he was asked why he had spent the campaign acting like one of the angry apple trees from The Wizard of Oz, demanding of the American people, “How would you like it if someone picked something off of you?” Dole replied that voters do not want to elect a comedian to be their commander-in-chief, and he is correct. But a candidate’s sense of humour is less about being an unbearable yuckster than having the ability to laugh at one’s self. And the laughter, or lack of it, in a campaign is symbiotic between the person whose name is on the ticket and the folks who support him.

The impenetrable humourlessness of the Obama campaign is being noticed by the American people, even if they have not yet put it into words. But this serious, self-important tone did not begin when Obama first decided to stick his chin in the air like Mussolini while giving speeches (“Did you read THAT? He compared Obama to a dictator! The attack machine rolls on!”). Rather, the unbearable earnestness of his advocates was part of the project from the beginning.

In this topsy-turvy world, it is comforting to have some certainties. One of them is that, if you criticize Obama in the public square, no matter how substantively on any issue from taxes to trade, you WILL get letters. And they will not be notes of the “having a good time at camp” variety. You will be accused of racism, fascism, ignorance, ugliness, and poor grammar. The rage, you will find, is completely disproportional to questioning a capital gains tax hike or wondering aloud just what a “community organizer” might be. And there is no room in the indignation for some sense of humour about “The One.”

To the extent Obama does laugh at himself, it is that insufferable sort of Teacher's Pet faux-deprecation about how he is too doggone dedicated or, when he dares, some silliness about having big ears or "a funny name." But his unbecoming self-regard is not so much about cracking wise as a style of speaking that suggests someone should be copying down his words and dividing them into verses.

It is often said that when Americans elect a president, they are inviting him into their living rooms for the next four years. It would be irresponsible for folks to spend all that time watching comedies, since these are dangerous times in a dangerous world. But for Obama, a touch of humour, and humility, might not go amiss. Voters prefer candidates who can tackle serious issues without taking themselves too seriously.

From oilman to energy oracle

“You’ve got to think huge.”

This is T. Boone Pickens’ summary of his plan to reduce America’s dependence on foreign oil. The famed oilman spoke to a small number of Republican delegates and Congressmen gathered in Minneapolis-St. Paul for the GOP’s National Convention this week, and he laid out a massive proposal for the future of energy.

Pickens is worried that every year, the United States spends $700 billion on foreign oil and if current trends obtain, $10 trillion will leave the country in the next decade. This is both a big-picture economic crisis, and a daily dilemma for Americans trying to put fuel in their cars and heat their homes.

Pickens’ “think huge” philosophy is born of the fact that the situation is urgent and, practically speaking, no single solution can solve the problem. New battery technology will be great but, Pickens observes, a battery cannot move an 18-wheel truck. Nuclear power could provide more than the 20 percent of America’s energy that it does today, but approvals and logistics would delay the first new reactor coming online for at least a decade. Moreover, the inability of reactors to run much below full capacity means they would have to be supplemented by sources that can adapt to usage levels, such as clean coal.

So, Pickens says, America should do it all: drill for oil domestically, develop wind, solar and nuclear generators, build a new transmission network to move power where it’s needed, provide incentives for renewable energy production and alternative fuel vehicles, and use natural gas for transportation. This last step, Pickens believes, will start reducing America’s dependence on foreign oil immediately and will cut imports by 38 percent within ten years.

Every president since Richard Nixon has promised to move America toward energy independence, but the percentage of its oil that the U.S. imports has risen from 24 percent in 1970 to 70 percent today. Pickens has shared his ideas with Republican presidential nominee Sen. John McCain, as well as his Democratic counterpart, Sen. Barack Obama, and he feels the federal government can take a leading role in the marketplace. “I would like the new president to say that any cars purchased by the government will be natural gas vehicles. That would send a message.”

Pickens is quick to draw a distinction between importing oil from Canada as opposed to the Middle East, saying, “From friends, it’s okay.” It is the 63 percent of America’s oil imports that come from non-North American sources, including unfriendly regimes, that have him concerned.

He believes Canada has larger reserves than Saudi Arabia, but notes that the expense of extracting from the oil sands means the price of crude needs to be at least $85 a barrel for producers to maintain a 15 percent profit margin. Costs notwithstanding, Pickens predicts Alberta oil sands production will shoot up from current levels to 5 million barrels a day.

As to his credentials, and the ups and downs of oil exploration, Pickens says, “I don’t care who you meet in the next ten years, you will not meet anybody who has drilled as many dry holes as I have. I know about looking for oil. I have looked for oil in Africa, the North Sea, Australia, Canada. I’ve been around the world and I’ve found a lot of oil.”

Asked how the United States could have gotten itself into this energy muddle, Pickens begins by pointing to elected officials who should have seen it coming: “It’s a lack of leadership. We didn’t have the leadership in Washington that said, ‘We have to develop alternatives. We have to do something different.’”

But he is circumspect in assigning culpability, recognizing that all citizens have a duty to foresee and address threats to their nation: “My wife said, ‘If you’re going to blame them, why wouldn’t you blame yourself? You understood it, and you didn’t do anything about it.’ And so I thought, well, that’s true. We’re all to blame – all of us.” So, Pickens is putting his money where his mouth is, harnessing his hard-earned wealth to make America a better place.

Since July, Pickens has been buying advertising time and taking to the Internet to introduce Americans to his ideas. Television commercials and websites tell some of the story, but when a fellow is proposing something as revolutionary and comprehensive as Pickens’ plan, you need to look him in the eye and hear him talk it out. Of initial reaction to his campaign, Pickens laughs, “There were three articles written, saying that I’d lost my mind.”

“I’m an American, I want the best plan for America."

But Pickens is sane and sensible, combining civic duty with a record of accomplishment to create a cogent and credible point of view. He is eager to hear what folks think and to defend his positions, and he has enthusiasm for other people’s ideas. Pickens admits that his might not be the best possible solution, and he welcomes improvements: “I’m an American, I want the best plan for America. If we have a better plan, I’ll go for it.”

He has critics on both sides of the aisle, including Democrats who bristle at his calls for more domestic drilling, and Republicans who resent his insistence that drilling alone cannot solve this problem. But to those who dismiss his plan, Pickens has a pithy reply: “What’s yours?”



theo@theocaldwell.com - Theo Caldwell, president of Caldwell Asset Management, Inc., is an investment advisor in the United States and Canada.

GOP faithful energized by Sarah Palin

ST. PAUL, Minn. -- When Republican presidential nominee Sen. John McCain selected Gov. Sarah Palin of Alaska to be his running mate, America took notice.
For Democrats and media pundits, Palin's experience and family life have been the source of consternation and obsession.

For Republicans gathered here in Minneapolis-St. Paul for their National Convention, however, Palin's addition to the ticket has given a jolt of energy to the campaign.

At 44, Palin is the youngest governor in Alaska's history and the first woman to hold that post. More particularly, she is the first woman to run on a Republican presidential ticket. But Palin's gender is only one of the reasons that the mere mention of her name generates rousing applause among the GOP faithful gathered here.

Having lost the confidence of their base -- and with it, control of Congress in 2006 -- Republicans have been on the lookout for leaders who can bring the party back to its stated principles: Low taxes and spending, accountability and responsible government.

As a governor who vetoed 13% of her state's budget, saying no to $234 million in pork-barrel and earmark spending in the last year alone, Palin is just such a Republican.

Critics point out Palin has served as governor for less than two years, and was previously a mayor and city councillor of a small town. Folks are fond of saying that a vice-presidential nominee needs to be a credible president, and it is true that the second-in-command needs to be ready to step in if the president becomes incapacitated.

But the fact is Palin is not running for president and America will be voting, or not voting, for John McCain to do that job.

If you really want to press the point, however, Palin was in her fifth year of elective office when Democratic presidential nominee Sen. Barack Obama was elected for the first time to the Illinois State Legislature.

Moreover, as a former mayor and current governor, Palin is the only person on either party's ticket with executive experience.

She understands energy policy, having served as chairwoman of both the Interstate Oil and Gas Compact and Alaska Conservation Commissions. And from a foreign policy perspective, considering the events in the former Soviet Union of late, it matters at least a little that Palin oversees the only state that neighbours Russia.

Put another way, there is at least as much experience at the bottom of the Republicans' ticket as at the top of the Democrats'.

When this election is over, we will know whether McCain's pick of Palin was the masterstroke enthusiastic Republicans believe it to be, or the cosmic booting his critics claim.

Historically, vice-presidential nominees do not sway all that many votes. But, as we are so often reminded, this is an election like no other, and with a 72-year-old Republican presidential nominee facing a Democratic counterpart who has spent only three years in the Senate, vice presidential picks matter in 2008.

Some say this contest will be decided by the 18 million voters who supported Sen. Hillary Clinton during the Democratic primaries. How many of them will support the first female Republican nominee for vice president?

Will the GOP base and independent voters turn out to elect a revolutionary ticket with a message of reform, or will scrutiny of McCain's second-in-command find her wanting? One way or another, Sarah Palin is the checkmate.