Saturday, April 28, 2007

Internecine Battle Looming in Ottawa

It’s not my fault......this statement of denial does clearly conclude it was someone's fault as these grossly mislabeled "unintended " consequences can not be easily who is Flaherty pointing the finger at? Is he pointing up or down? Is he blaming Stephen Harper or Kevin Lynch? Kevin Lynch or Stephen Harper? Who knows, David Dodge may very well have been the first casualty of this internecine battle that must be brewing within Ottawa. Perhaps the equivocal testimony that Dodge gave at the Public Hearings wasn't to Flaherty’s sufficient liking. Dodge is now holding an empty hand as a result, namely severely damaged reputation in the eyes of many Canadians who for the first time expected something from his office and meanwhile no contract extension even though that was what he was clearly lobbying for in public a short two months ago as he extolled the virtues of working beyond 65.

No doubt the lines are being drawn in Ottawa between those defenders of the civil service whose battle cry is "if we were incompetent, we wouldn't admit to it" and those bold elected statesmen who proclaim; "its not my fault" as it pertains to the $35 billion Income Trust Scandal.

Does this leave you with the impression that there are a dwindling number of people in Ottawa who want to admit to being architects of the TFP? Right up there with being the architect of the NEP. Slightly different outcome however. The NEP attempted to nationalize our energy sector through misguided interventionism where the TFP will achieve the opposite result through benign neglect and a fundamental misunderstanding of how capital markets work within the DoF....perhaps better renamed as the DuF....don't understand finance.

Friday, April 27, 2007

Fables and Foibles

Killing the Golden Goose

In an April 26 newsletter from RBC Capital Markets, slamming the Conservatives' Trust Tax, they make the apt comparison to the old fable about the Golden Goose.

A man and his wife had the good fortune to possess a goose which laid a golden egg every day. Lucky though they were, they soon began to think they were not getting rich fast enough, and, imagining the bird must be made of gold inside, they decided to kill it in order to secure the whole store of precious metal at once. But when they cut it open they found it was just like any other goose. Thus, they neither got rich all at once, as they had hoped, nor enjoyed any longer the daily addition to their wealth.

Parallels with the Trust Tax are clear. Deferred taxes held in RRSPs were not included in the flawed analysis of tax leakage. The reason given was that these tax dollars where not available now. As Jim Flaherty said, "I cannot, and I will not, fund today's programs from tomorrow's revenues."

But by killing the sector with punitive taxes and limits on growth, there will actually be less tax revenue, as trusts are bought out, leveraged-up and moved to foreign tax jurisdictions. The end result is a shortfall, and guess who will have to make it up?

Flaherty keeps spinning his "tax leakage" fairy-tale but the threads are beginning to unravel. It's becoming obvious that this is pure fantasy, concocted out of wishful thinking and skewed figures, as more and more respected analysts like RBC Capital Markets and CIBC World Markets are saying.

Well done Mr Flaherty. It seems your goose is cooked.

Pork Barrel Politics

You would think that after the Tories rode the Sponsorship Scandal into power they would be extra, extra careful not to start handing out cash to Conservative-friendly organizations lest they be basted with the same brush.

You would think so, but then along comes Bev Oda, and the odious scent of sponsorship is once again in the air.

As Heritage Minister, Ms Oda has been soliciting suggestions from her caucus members to "provide examples of community activities in your riding that you feel should be receiving federal funding." The questionnaire was found by the NDP after it was left behind in a meeting room on Parliament Hill. Oops, guess you should have put that paper in the recycling bin.

Not only does this represent the setting up of a pre-election slush fund, it's also another example of Harper's ideology-driven approach to policy, rather than merit-based. The usual procedure, according to the Canada Council of the Arts, is to set the criteria first, and then invite submissions. Instead, no criteria exist other than that the cash be distributed to Conservative ridings.

It's lucky for Ms Oda that everyone was so focused on the Afghan detainee scandal, trying to keep up with conflicting information that changed by the hour. With that as a diversion, she was able to slip out a back door in the House of Commons. Hope she didn't let it hit her on the way out.

Thursday, April 26, 2007

Of blackouts and bluster

Stephen Harper has a new mantra: speak loudly and cary a big black pen. The shouting is to prove what a strong leader he is. The black pen is for all the embarassing documents he doesn't want you to see.

First it was the Dept of Finance and their "redacted" documents that supposedly proved tax leakage.

Now it's reports of Afghan prisoner abuse with all the information about torture hidden by the now familiar black markings.

Anything, it seems, with bad optics is fair game for government censors.

The problem is, the blacking-out is itself bad optics. It speaks of Soviet-style state censorship and doesn't play very well to those who still believe in democracy and pesky things like the Access to Information Act, or the Geneva Convention, or Canadian-owned companies.

Well, Mr Harper, despite all the blacking out -- your true colours are beginning to show through.

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Wednesday, April 25, 2007

Harper's Blockbusting

There's an old technique in real estate called "block-busting." Here's how it works. You buy the cheapest house on a street and allow it to become run-down. In fact you actually help it to deteriorate. Get the worst possible tenants you can find, fill it with low-lifes, cockroaches, repair nothing, all for the purpose of a) destroying its value; and more importantly b) destroying the value of all the neighbouring homes.

Once that happens you buy up these neighbouring homes, one by one at bargain prices and gradually acquire the whole block for development.

Does that remind you of anything? The systematic destruction of the value of income trusts maybe?

Now that income trusts have been devalued by the punitive 31.5% tax and limits on all future growth they are ready for the "developers" to move in.

Developers like the government's own pension fund.

Yes, you read that right. The Public Sector Pension Investment Board is buying out an income trust called Thunder Energy at a real bargain. The reason it's such a bargain of course, is because of the government's own policy. The same government whose pension plan will now profit from this policy.

Starting with their purchase of Telesat from BCE, which they will own as the economic equivalent of an income trust, to their anointed role as an “eligible” member of the consortium bidding for BCE (anointed by former Director General of Tax Policy and current CEO of BCE, Michael Sabia) to their purchase yesterday of “on the ropes” energy trust Thunder Energy.

Conflict of interest?

Oh, no - not according to Public Sector Pension Investment. "Of course, as investors we are not called upon to formulate government policy...but we do have to make assessments of the potential impact of these various forces and factor those assessments into our investment decisions....The government is also formulating exceptions for PSP Investments from certain provisions of the Access to Information Act."*

It's all very arm's length we're assured. Except that on the end of that arm, is a finger... and the finger is dipping into the pie.

What kind of democracy do we live in, when Canadian investors are robbed of $35 Billion in assets which are then transferred to US private equity or private and government pension plans?

Mr. Harper, we all remember your election advertising. It wasn't all that long ago. Just when were you actually planning to "stand up for Canada"?

*Risk and Inequity: Canada's Largest Pension Plans and the Future of Income Trusts

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Tuesday, April 24, 2007

Canadians must trust

The following text is from a letter dated November 24, 2006 from Stephen Harper. This form letter would have gone to virtually hundreds of thousands of Canadians. Only took the PMO 24 days to get their “messaging” straight. It couldn’t have been very successful, because here we are talking about it some five months later. I know it did nothing for me:

Dear Mr. Fullard:

Thank you for your e-mail message regarding the government's decision on income trusts. I am pleased to have this opportunity to respond.

I understand your disappointment with this decision. We recognize that Canadian investors, including many pensioners and seniors, have made important investments over the years and benefit from the current income trust structure. However, Canadians must trust that their government is watching out for them and is upholding the values that define us, like fairness. They expect us to fix problems, right injustices and close loopholes.

There is more to this letter. I have yet to read it. I got hung up on the concept of “Canadians must trust”. Canadians must trust? What could that possibly mean? Well I guess there are three possible interpretations:

(1) Trust by edict. Is Harper telling us that we must trust him as a form of commandment? A form of edict? This is a very plausible interpretation of Canadians must trust, since we have received nothing that supports any of the five provisions of the enabling legislation, the Ways and Means Motion . Where is the analysis that supports tax leakage? This was the cornerstone assumption behind this policy. Furthermore Harper has chosen to ignore all the recommendations of the Finance Committee. I guess Canadians must trust, it is our solemn duty. More enforceable than solemn pledges evidently, since Harper never delivered on his never tax trusts pledge. He actually said it enough times that people believed him. Hard to believe that will ever occur again, any time soon. Therefore, trust by edict is Harper’s only hope going forward.

(2) Trust by default. Or is Harper simply saying that he is taking our trust for granted. Might have applied to some Canadians at the time of the last election, but you have to think this game is quickly coming to an end. Whatever currency this approach may have had has long since been dispensed. Would you really buy a used car from this guy? Flaherty? Lying and deceiving is seldom a successful long term strategy with an educated electorate in the age of the internet.

(3) Trust by action. This is obviously the high end interpretation of trust. Problem is it has to be earned. It can’t be blithely taken for granted, nor can it be dictated. This is a not a plausible interpretation under the circumstances.

I am looking forward to reading the balance of Harper’s letter that justifies his broken promise and $35 billion of capital decimation. I am really curious what he had to say about the impending foreign private equity takeovers and the hollowing out of Canada. I wonder whether he foresaw the takeout of BCE? He must have, we were predicting these events within the first week of November. I am sure he had reassuring words to say about why it is that average Canadians will no longer be able to hold income trusts in their RRSPs, whereas pension funds can hold the economic equivalent of trusts, free of any new tax. I am looking forward to learning more about the dogmatic distinction he draws between public and private trusts. All of this will reveal itself once I have established what Harper could have possibly meant by Canadians must trust. I know one thing for sure, it wasn’t by his actions.

I trust he will know what I mean.

By the way, what tax loophole is he talking about? I am not aware of any tax loophole. I had the same question for Flaherty at the Public Hearings. He thought that walking away in a huff was a suitable response.

Trust me, it wasn’t.

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Monday, April 23, 2007

Reality comes knocking on Flaherty's door...nobody's home

Well it was only a matter of time before reality came knocking on Flaherty's Door...problem is nobody's home. Knock as hard as you might, still no answer. Not surprising as the lights aren’t on. Ring the door bell and all you hear is “Its not my fault”.

Let’s be honest, our Finance Minister demonstrated that he has the creativity of a gnat in dealing with the income trust file. About the same ethical foundations as well. Well I am sorry to say that the capital markets have a slightly more formidable level of creativity when a situation is created that is so ripe for the picking and so easily exploited for their financial benefit. Much like the relentless flow of water downstream. Or is it upstream where the real opportunities lie? Remember that non-existent MLP market that Flaherty was trying to hoodwink us about back in November? You know, the $480 billion non-existent growing and vibrant MLP market that has a penchant for all things “energy”. The one that Herold Energy Investment Outlook wrote about on February 5, 2007 in their publication under the headline Canadian Trusts’ Loss is US MLP’s Gain? Well here it is. As if it weren’t big enough to start with, now the MLP market is even getting bigger with the launch of a new energy buyout fund that will look to acquire “long-lived, low-decline oil and gas assets.” Worth noting that the press release makes mention of Canada. Do you think there are any acquisition candidates for this MLP in Canada? Do you think there are any “ opportunities to substantially increase the valuation of Pioneer’s proved reserves due to the valuation differences” to be found in Canada?

That’s why I was knocking on Flaherty’s door......still no answers....the lights are out.

Maybe Flaherty is out of town helping Pioneer with its roadshow to market this new offering.

He always wanted a job on Wall Street like certain of his admired colleagues in Finance.

Pioneer Plans to Form Two Master Limited Partnerships

DALLAS--(BUSINESS WIRE)--Pioneer Natural Resources Company (NYSE:PXD) today announced that its board of directors has approved a plan to form two new publicly-traded master limited partnerships (MLPs) which will own interests in long-lived, low-decline oil and gas assets.

It is anticipated that the first MLP to be formed will initially acquire an interest in a portion of Pioneer’s long-lived proved developed oil, gas and natural gas liquids reserves in the Spraberry field in West Texas. Pioneer expects to file with the U.S. Securities and Exchange Commission (SEC) a registration statement for the initial public offering of units of this MLP during the third quarter of 2007 and that the offering will be made during the fourth quarter of 2007. Approximately $250 million of these partnership units are expected to be offered to the public, subject to market conditions.

It is anticipated that a second MLP will initially acquire an interest in a portion of Pioneer’s long-lived proved developed gas reserves in the Raton Basin field in southern Colorado. Approximately $250 million of these partnership units are expected to be offered to the public during 2008, subject to market conditions.

At the close of the initial public offerings, Pioneer will be the general partner of each of the MLPs and hold a majority ownership in the units of each of the MLPs. Pioneer will continue to operate and own a partial working interest in the assets that will form the MLPs.

The purpose of the MLP offerings is to create vehicles that would: provide Pioneer the opportunity to substantially increase the valuation of Pioneer’s proved reserves due to the valuation differences between MLPs and Pioneer; allow Pioneer to more effectively pursue the acquisition of reserves through joint bidding with the MLPs; and afford Pioneer an opportunity to sell its proved reserves to the MLPs and apply the proceeds (including the proceeds from the initial offerings) to fund low-risk opportunities and share repurchases, while maintaining financial flexibility.

This news release shall not constitute an offer to sell or the solicitation of an offer to buy any securities. Any offers, solicitations of offers to buy, or any sales of securities will only be made in accordance with the registration requirements of the Securities Act of 1933 or an exemption therefrom.

Due to limitations imposed by U.S. securities laws, Pioneer will not be holding a conference call to discuss the content of this release.

Pioneer is a large independent oil and gas exploration and production company, headquartered in Dallas, Texas, with operations in the United States, Canada, South Africa and Tunisia. For more information, visit Pioneer’s website at

Saturday, April 21, 2007

Do I smell something burning?

Yesterday was a great day for Income Trust investors. Liberal finance critic John McCallum held a town hall meeting in Toronto, in the old Stock Exchange building, an appropriate place for the meeting. About 300 people gathered on the old trading floor to listen and share their views. There were some real heavy hitters present, from Bill Graham and Senator Jerry Grafstein, to businessman and philanthropist Seymour Schulich.

John McCallum vowed to make Income Trusts and election issue. "We will fight this!" he said to great applause.

The next speaker was Seymour Schulich. "I'm here for one reason only. I'm mad as hell!" He also added "I've never seen capital destruction on this grand a scale in the whole 42 years I've been around this industry."

Then the mic was turned over to the audience and lots of angry investors made their views known.

Finally, Senator Jerry Grafstein called upon CAITI's founder and CEO Brent Fullard to say a few words. "Let me start by saying, don't get me started" said Brent. He went on to speak about CAITI's efforts and to denounce the Harper government's stubborn refusal to admit they've made a mistake. A $35 billion mistake.

The media were in attendance, and there was some great coverage on BNN's Squeezeplay. In fact, that leads me to the title of this entry. Towards the end of the segment, Kevin O'Leary remarked that the IT issue is still on the front burner, and sniffing the air he said "I think I smell something burning. Is it Flaherty?"

Could be....

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Thursday, April 19, 2007

Holy Accountability Batman!

Remember the infamous "redacted documents"? The ones supplied by the Dept of Finance to prove Flaherty's claims of tax leakage? The ones that have all the numbers blacked out? The ones that have been around the internet a few million times?

Well, it turns out that even these heavily censored documents are too sensitive for public eyes, and the Dept of Finance has asked Calgary financial analyst Gordon Tait and others who received them to send them back!

That's right, these documents are so embarassing, oops I mean "secret", that they are to be returned to whence they came. I wonder if it would be okay if we emailed them back?

I have just one question about this. Is this the same "New Government" that was going to be all about accountability and transparency? Hmmm.... it seems pretty transparent to me that it's more about secrecy and hiding the truth.

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Monday, April 16, 2007

The Bold and the Beautiful

Driving along Toronto's QEW you can see CAITI's latest "Spectacular" billboard. With a photo of Harper, Flaherty, and the infamous blacked out documents, the headline Lie. Conceal. Fabricate. Pretty much sums up Conservative policy on Income Trusts.

Now that spring weather is here, it's time to hop in the car and check out a CAITI billboard near you! Location, location, location!

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