Philippe Couillard's Printemps Quebecois and the Great Rout of 2014

Not to mime Chaucer's own Canterbury Tales in his praise of April 

         Whan that Aprill with his shoures soote

                  When April with its sweet-smelling showers

         The droghte of March hath perced to the roote,

                 Has pierced the drought of March to the root,

         And bathed every veyne in swich licour

                 And bathed every vein (of the plants) in such liquid

        Of which vertu engendred is the flour;

                 By which power the flower is created;

but we all churn the images of the poet during our daily walks to office, plant, school, play and home. We revisit the same images metaphorically in conversation about the politics of the day, of the weeks and months, and of coming years. The imagery is universally present. Yet, notwithstanding how admirable the bard's prowess in designing one of Quebec's spoken languages, and unraveling the season's mystery-Quebec politics, and the recent Quebec electoral results makes for equally majestic reading during this 'Cruellest of Months'. Even stern Tom Eliot would agree that Marois' short-lived minority government ended with a 'bang' and not a 'whimper' for most Quebecers.  In this sense, we relive the ambivalent April of Eliot and Chaucer in the oxymoron character of political life, its " bitter sweet" season:  but never more poetically than in the Fall of one Government and Rise of a new National Assembly controlled by a Liberal majority. 

In tune with Chaucer's best and brightest, This Liberal Majority should promise Quebec

growth and health as Nature renews its own commitments during this Spring. 

In marked contrast to Nature's glory, a quote attributed to Abraham Lincoln serves best as to the reasons for the Parti Quebecois' Great Rout of 2014 

"You can fool all the people some of the time, 

and some of the people all the time, but you cannot fool all the people all the time."  

Quebecers have had enough of vacuous and pompous rhetoric. Contrary to some media coverage-most Quebecers rejoiced in dismissing the gratuitous  platform of a waning and unenlightened political Party minority while Quebec citizenry endured the dismal woes and dire pangs of economic misfortunes. 

Quebec leads the country in public debt notwithstanding the highest tax imposition rates in the country. It tops the migration list with most departures, staggers in growth and straddles with respect to trade.

Earth's young history has had a Prague spring, a Chinese Spring and an Arab Spring, and who knows how many more unsung springs. For some of us less ambitious in scope, but more resilient to the caveats of Quebec Politics-we can finally acclaim a blooming Quebec Spring greeted by Nature and Nurture's  'sweet showers'. Similarly, as far as Quebec Politics goes, when it rains it pours and yesterday's Parti Quebecois debacle was a predictable downpour given the unfounded policy options and sham debates of the party's platform. 

Unfortunately, it left the 2014 National Assembly with two incumbent members of and a newly elected MNA from the riding of St Jerome, m. PELADEAU, whom some would caricature as the Teflon Kid. With the presence of the  Messrs. Drainville, Lisee, (exit Bureau-Blouin branded as Kid Kodak) and Peladeau, the opposition in the National Assembly has reduced its status from tolerable to mediocre. Its brightest members, with the exception of Mme Marois, all defeated. Honest Parti Quebecois women and men, again with the same exception, suffered the slings and arrows of outrageous fortune that ensued from ill-founded social and economic platforms framed by a vacuous group of aspirants and opportunists who placed personal vanity before Quebec's future. 

Attributed to Mark Twain, the following offers the appropriate wit in their regards: 

"It is better to keep your mouth closed and let people think you are a fool 

than to open it and remove all doubt."

One presumes History confirmed the wit.

As a result the defeated PQ women and men, again excluding the same Marois, deserved no better than a rout, and with the Party's remaining four above-mentioned should expect nothing better in the future...

The fate of the Parti Quebecois lies in the hands of ex-MNA Kid Kodak and the Teflon Kid, and the two feuding amigos. 

For this majority Liberal Assembly, led by a talented Philippe Couillard,  to sustain momentum, it must rally around economic issues, and put aside social and political irritants.  It must stop the emigration wave and momentum that is plaguing Quebec demographics. It must abandon the idea that balanced budgets are solutions to financial stability; it should assume with resolve the need to create deficits if necessary- dislodging the unsupported myth that deficits harm an economy and a society. US economic policy for over half-century has instances showing the contrary. US economic policy since 2008 shows quite the contrary. Look South, not only for wisdom but for vision after failure.  

Premier Couillard must establish coherent regional initiatives that put people to work. Invest heavily into education, biomedical research and development and infrastructure to support and promote preventive medicine, and eliminate the bottlenecks and impasses that contaminate the health system and undermine the social and economic fabric of Quebec society.   This new Government should propose improved benchmarks that contain a measure of competitive resolve and realistic visions, calibrated by Quebec's resources and expectations, and desire for innovation.  

There is no expectation to be the best  first time around; there is a need to show that we are on the way to becoming the best!. That will attract immigration and retain citizens; Fiscal and industrial initiatives must be supported by expansionary fiscal policy at the individual and corporate level.  Quebecers are an innovative people; our society and our government must provide the appropriate ecology for innovation. 

It was and is now time for economic innovation and action, and the mandate of this Liberal Victory should focus on the economic future of Quebec society. Philippe Couillard's Liberal Majority cannot repeat the omissions of its predecessor.

Is the Euro-Area Collapsing?

Over the last week, there are three significant Euro-Area activity figures that merit the market's consideration.

September's Eurozone's industrial production dropped from a previous August +1.3% to -1.9%
September's construction production dropped from a previous months -0.4% to -1.3%;
New Industrial Orders for the four largest populated economies-Germany, France, Italy and Spain all dropped significantly to -4.4%, -6.2%.-9.2% and -5.3% respectively. For the reverent, the United Kingdom NIO's dropped to -1.9%.

Well, shuttered factories are not privy only to the UK; they seem to be the prospect of industrial Europe, especially if one considers that levels of capacity utilization in manufacturing is slipping everywhere with the exception of an anomalous month in United Kingdom.

Evidently, once investors realize that the longer term confidence required to justify purchasing Eurobond securities is not justified by output figures from the region's business sector, then even if your brand name is Germany, and even if the rating agencies mark you tops,  it won't help keep yields down. Germany is as susceptible to being dumped as is Italy and its next candidate France which witnessed its yields increase, and its yield gaps widen against the German counterparts. There is no Immune Boutique in this Shopping Mall. There isn't any vote of confidence for Germany; rather it signals that investor concern is becoming pandemic within the Euro-Area and no sovereign, especially a non-sovereign issuer, is immune. But the contagion on the financial front is not as great a deterrent in our opinion as the rapid weakening and dampening of economic activity within the area. Germany can certainly pull out, or welcome the unstable members' exit, but it can't deter the oncoming economic slowdown that will devastate its own regional economies.

The ECB is a lame-duck if Mr. Draghi continues to endorse without challenge its constitutional mandate. Signor Draghi deve sospendere 'Price Stability',  which is a moot predicament at the moment, and with the help from two oversea friends, act to stabilize the yield curves. The New Normal advocated by financial and portfolio managers should not be higher unemployment and softer growth, it should be lower Returns on Investment. The structural adjustment required by the global economy in order to survive the extending contagion of below-quality investments is to realign investor expectations in view of  de-stabilized and riskier investment scenarios.

Obviously, this goes contrary to the grain of conventional investment lore: the riskier the target, the higher the yield! Unfortunately, when available resources are numbered, and quality contaminated, there's not much choice. You buy into the mess,praying for a cure, or seek quarantined shelters. Are there any? You run to gold? Does anyone care? To SF, Yen or some other resource-constrained sovereign? Price those economies out of the market and over time, the original predicament only changed hands.

What is becoming clearer is that there are only a few viable Backstops in this Global economy, and the Classic is the United States Treasury, with a little help from a friend.

To the United States Treasuries-of course, and at most probably quasi-zeros, or cash the portfolio. If the latter is the soundest judgement  of the wise and enlightened investors, then why wait for the storm; shelter yourselves now.

How will the markets end? Not with a tumble but a crumble. The EU will fall apart unless Draghi and some confreres show their stuff...change the discourse from financial narratives about controlling deficits and imposing guarantees to a discourse with fiscal narratives about job creation, stabilizing growth engines and stimulating aggregate demand. Mr. Draghi will need support from Mr. Bernanke and gang. He knows it and the United States know it.