Tuesday, December 11, 2018

Meet Canada's Largest Short-Seller?

Viktor Ferreira of the National Post recently wrote an article that caught my attention, CPPIB is shorting $750 million worth of EU stock, making it one of the most active short-sellers in Europe, data show:
The Canadian Pension Plan Investment Board has at least 23 short positions in European Union markets, covering more than $750 million worth of securities, making it one of the more active short sellers in the continent, according to data compiled by a German firm that tracks short selling.

According to a report prepared for the Financial Post by Breakout Point, a Dusseldorf-based firm that specializes in accumulating short-selling data from activist short sellers, publicly available records and BETA-funds, the CPPIB has nearly doubled the number of its disclosed short positions since last year, to 23 from 14. That places CPPIB 14th on the list of the most active short sellers in Europe by number of significant positions, according to Breakout Point.

“They are the only pension fund in the Top 20 and one of the very few such or similar entities in all of our short-selling records,” the report said. “They are the ones that stand out in terms of activity.”

Breakout’s tallies are based on short positions that involve 0.5 per cent or more of a company’s total shares. In European Union markets, all short positions that meet this threshold must be publicly disclosed, part of transparency measures that have been mandatory since 2012. Canada and the U.S. have no such requirement.

The pension fund may have other short positions in Europe that do not need to be disclosed.

CPPIB would not comment on its short positions or its European investment strategy. However, the board’s 2018 annual report said it employs both long and short positions as part of its broader market strategies, which take advantage of the fund’s long-term outlook to “buy and hold when others cannot and think beyond short-term volatility.” As of March 31, the pension fund said it had sold short more than $13 billion in securities altogether, still a small fraction of the $356.3 billion in assets it manages.

Among its disclosed European short positions, seven target German companies while another five involve companies in the U.K. and the Netherlands. CPPIB has one short each in Norway and Sweden — the two smallest markets in which it held shorts.

Their portfolio is balanced by sector, according to the report, with four short positions in construction and engineering firms and two in four other sectors.

Unlike other short sellers, CPPIB’s positions focus on smaller and mid-cap companies, the report said — the pension fund only has short positions in three companies with a market cap of more than $10 billion.

Using the current market cap of the 23 companies and the disclosed short position percentage, the Post calculated that the CPPIB’s disclosed holdings cover securities currently worth more than $750 million.

The specific companies in which CPPIB has short positions include British publishing and education company Pearson PLC. The company has a market cap of more than $12 billion and is the CPPIB’s largest short position at about $150 million, based on the Post’s calculations.

The second-largest position is in German Internet provider Wirecard AG, in which it is shorting $131 million worth of shares, or .54 per cent of the company. Colruyt SA, a Belgium-based supermarket retail chain, is the pension fund’s third-largest short.

Among CPPIB’s short holdings, only two companies — Aixtron SE, a German manufacturer of chemical vapour deposition equipment, and Fugro N.V., a Dutch company that provides geoscience solutions for construction and natural resources sectors — appear in Breakout Point’s list of companies in European markets with the highest short percentages. CPPIB’s other targets aren’t so popular.

The report does not offer a conclusion on whether the CPPIB’s strategies have been successful, but they do not fit the classic short-seller pattern.

“They do not come across as an opportunistic, in-and-out type of player,” the report said. “Their shorts are often rather long-term.”

At least two disclosed stocks have plunged since the CPPIB started shorting them. The CPPIB opened a 0.5 per cent short position in Talend SA, an American software vendor listed in Europe, on Oct 1. Since then, shares have fallen to €29 from €59. A position in Dutch delivery company PostNL opened on Nov. 30, 2017 also appears to have been a winner. The stock has fallen about 35 per cent since the short position was first opened.

However, Wirecard has seen a 400 per cent increase in share price since the CPPIB first opened a 0.57 per cent short position on Apr. 30, 2015, when prices stood at €38.97. Since then, the pension fund has altered the size of its position more than 44 times.

Shares of Wirecard, which was also targeted by activist short sellers who have since exited their positions, skyrocketed to a 52-week high of €199.30 in September, and closed Thursday at €130.10.
I wasn't surprised to read CPPIB shorts stocks, I was surprised it made the news and with such details.

In his comment, European Stocks Look Cheap, and for Good Reason, John Authers notes the following:
Europe was a popular “long” recommendation as this year dawned, out of a belief in mean reversion if nothing else. Europe’s stock-market performance, compared with the U.S.’s, has been terrible for more than a decade. Every time it seemed to be turning, as was the case a year ago, it reversed. This chart shows how the FTSE Eurofirst 300 has fared relative to the S&P 500 Index, in common currency terms, since the birth of the euro in 1999:

The U.S. might be expected to outperform Europe and command a higher overall price-to-earnings multiple simply because it’s home to so many powerful, high-flying tech stocks. But that has always been the case, and cannot exactly explain such persistent underperformance, particularly as Europe has continued to lag even as the big U.S. tech stocks have received a comeuppance.

European political risk is a factor, of course, but much of that risk is already reflected in prices. A greater issue is simply that European earnings momentum looks weak. Last year was the only year in the last decade when earnings failed to disappoint. We returned to that pattern in 2018, and the quants at SocGen suggest that the disappointment will continue.

As for valuation arguments, they are good, but not compelling. European stocks are cheap, all right, but we know the reasons why they should be inexpensive. The good news is that compared to its own history, and to the U.S., Europe does indeed look cheaper than usual. But the bad news is that it still doesn’t look cheap enough to make for a compelling buying opportunity. The following chart, also from SocGen, shows this:

It’s cheaper than average for the last 30 years, a period that takes us back to when the Berlin Wall was still standing and when political risks on several occasions looked greater than they do today. But it’s only very slightly cheaper than average, and could easily go lower. On this basis, the euro zone looks more like “fair value” than cheap.

The picture is slightly different when viewed against the U.S., which entered the year looking wildly overvalued and is still far more expensive than the euro zone. But again, on valuation grounds alone, the euro zone looks less than compelling:

During the horrors of 2009, and a couple of times when the euro zone’s sovereign debt crisis was at its worst a few years later, European stocks looked like compellingly good values compared with U.S. stocks — and then went on to prove largely disappointing. That is what happens when the corporate sector’s earnings stay so sluggish for so long.

There is a case for Europe, but a number of things need to go right. First, politics need to fall into place: no nasty surprise over the replacement for German Chancellor Angela Merkel, no intensification of unrest in France, a resolution over Italy’s budget, and an orderly Brexit. Second, the dollar needs to weaken. And third, the U.S. economy needs to underperform expectations next year. If the gloomier prognoses are right, then “short U.S., long Europe” might work for the first time since the first few years of the millennium.

It’s not out of the question, but on balance it’s unlikely. For the time being, the lazy bear on SocGen’s cover isn’t going anywhere anytime soon.
Now, I'm going to share a secret with you, when global investors are worried about a global recession, they flock to the biggest, most liquid markets in the world, ie. the US stock and bond market.

The other secret, which isn't a secret, is the Eurozone remains an abysmal mess, there is one bomb exploding after another. Whether it's Brexit, Grexit, Italexit, and now Frexit, there's always something going on in Europe and it isn't good news. These people can't get their act together, their union is hanging on by a thread and we haven't heard the end of it, not by a long shot.

All this to say, I'm fine with CPPIB shorting European stocks. If they can make money in their internal quant portfolio shorting European small and mid-cap shares, and sit and wait on their position, good for them.

I am however a bit surprised. You see a long time ago, when I was in charge of a $400 million portfolio at the Caisse allocating to directional hedge funds, I had L/S Equity funds, global macros, CTAs and short-sellers in my portfolio. I loved meeting with short-sellers, they're typically a cynical and skeptical bunch of people and that's why I got along fine with them.

Anyway, short-sellers really know their positions exceptionally well, they're highly intelligent (like Jim Chanos), they have researched every angle and when they have a strong conviction, they go for it. But they're notoriously lousy market timers and their portfolios are very volatile, so on a risk-adjusted basis, that's not where you will find the highest Sharpe ratios.

What else? Short-sellers typically short large-cap, liquid stocks, and they do this to manage their risk. So I was surprised CPPIB is shorting small and mid-cap European equities but unlike other short-sellers, CPPIB has the added advantage of being a pension fund with a long investment horizon and can stomach volatility in its short positions.

Still, check out shares of Deutsche Bank (DB), my number one short position in Europe, over the last five years (click on image):

Why bother shorting rinky dink small and mid-cap stocks when you could have easily put a one, two or three billion dollar short position on Deutsche Bank? Very liquid, very easy to short through a variety of ways.

Now, to be fair, maybe the folks at CPPIB are shorting it through derivatives so don't want to sound like a cocky, arrogant know-it-all here. I just find all this sector neutral, beta neutral quant mumbo-jumbo sounds fancy but in the end, I'm the type of guy who goes for the jugular when I have strong convictions on the long or short side (and that's why I've hit home runs and eaten my testicles a few times!).

Anyway, it's also important to note this particular European short portfolio represents a small slice of CPPIB's $356 billion portfolio and even the $13 billion overall short portfolio cited in the article is not that significant relative to the overall portfolio.

Also, CPPIB has an active lending program where it collects yield lending out securities it owns to other short-sellers (it's a bit complicated).

One final note to my friends at CPPIB. Forget European shares, focus on shorting some large cap US shares and my number one and two shorts over the next year or two are shares of Boeing (BA) and JP Morgan (JPM) which are due for a nice long selloff:

No rush, wait for a nice relief rally and then go for the jugular! And that's some free advice for all my readers, especially those of you waiting for a Santa rally.

This year's Santa rally is ugly, really ugly, and I'm not sure any relief rally is coming any time soon (maybe after the Fed meets). Speaking of ugly, did you see the spat in the Oval Office today? Never mind China, this very public debacle was enough to make the most cynical short-seller cry (watch below).

Monday, December 10, 2018

Michael Sabia's New Paradigm for Growth?

Michael Sabia, the president and CEO of the Caisse de dépôt et placement du Québec, wrote an op-ed for the Globe and Mail, Investors must help shift the paradigm of economic growth:
At the G20 summit here in Argentina, leaders made no progress in advancing a global agenda for economic growth. The final communiqué was a sad laundry list with little conviction on any point. The weekend’s so-called highlight was an ill-defined truce between the United States and China on tariffs, motivated not by the pursuit of the rational trade policy we need, but by the U.S. President’s immediate political need to keep his country’s economy buoyant in the face of growing headwinds.

The lack of accomplishment in Argentina reflects a broader trend: Governments – individually and collectively – are increasingly unable to respond effectively to many of today’s urgent issues. The world needs durable, sustainable, inclusive growth. It needs solutions on climate change. It needs infrastructure. But governments alone aren’t getting it done. It’s time for others to step up – not out of noble impulse, but because it’s in our interests.

To be clear, governments will always have a critical role to play in advancing prosperity and sustainability. But the complexity of our challenges and the constraints on our governments – including fiscal constraints – demand a new way of thinking. To find real solutions, there’s a role for a much broader group of players: businesses, not-for-profits, philanthropists, civic leaders. And, crucially, there is a role for investors.

Long-term investors such as the Caisse de dépôt et placement du Québec have a natural incentive to embrace this new opportunity. We understand that over the course of years and decades, our returns will be only as strong as the societies in which we invest.

Together, the world’s long-term institutional investors have more than $50-trillion under management. That’s enough capital to move the needle on the challenges that governments are just not going to solve on their own.

Take climate change: Consumers all over the world are altering how they think and act. Concern about climate is influencing their choices. As a result, companies are more focused on ensuring their brands are on the right side of the climate challenge.

We’re seeing innovation to reduce carbon emissions. We’re seeing new ideas and new technologies. And, among some of us, at least, we’re seeing a new way of thinking – an awareness that investing in the fight against climate change is an opportunity to do two things at the same time: serve as good stewards of people’s savings while also contributing to the transition to a lower-carbon economy.

Many persist in viewing climate change as a constraint – a drag on returns. They’re wrong. At the Caisse, we’re one of North America’s largest investors in wind power. We’re investing in solar power in India, and we’re earning E double-digit returns doing it. In Toronto, Chicago, Houston and Paris, we’re building a new generation of energy-efficient buildings – with substantial returns.

Another example is infrastructure. Investing in ports, transit systems, telecom networks – real stuff that connects people to jobs, and products to markets. Put simply: Investing in infrastructure may be the most powerful lever we have for the kind of growth that the world needs. But according to the World Bank, around the world, we are not spending enough to keep up with need, let alone opportunity. Each and every year, we come up short by $1-trillion.

Governments alone are not going to solve this problem. They are too heavily indebted. Global debt today is even higher than at the time of the 2008 financial crisis.

So, if governments alone aren’t going to build the infrastructure we need to bolster productivity and growth, who will? Long-term investors can and should. Let’s be clear: In the market environment that is likely to unfold over the coming years, long-term investors will need the steady, predictable, low-risk returns that infrastructure pays.

The challenge is to demonstrate that our commercial interests are not at odds with the public interest. The rapid transit project that the Caisse is building in Montreal serves as a proof point of what’s possible. Governments at all levels – Montreal, Quebec, Canada – defined the public interest, as they should. We designed a transit solution to serve that interest. The resulting system will serve 30 million people a year – carbon-neutral, from beginning to end.

There is no shortage of ideas capable of aligning the commercial and public interests. The Canadian Infrastructure Bank is one such idea. The infrastructure risk-sharing tools recently developed by the World Bank are another. We’re limited only by our capacity to think differently and creatively.

Building a global agenda for durable, sustainable, inclusive growth is a huge task. If we’re going to get it done, it won’t be by standing on the sidelines and urging governments to deliver. They can’t do it alone. More of us are going to have to get into the game. It’s in our interests. It’s vital that we do.
This opinion piece was also published in French in La Presse.

Michael's comment is spot on. Governments around the world are strapped, debt levels are even higher now than in 2008, so we need a new paradigm to finance durable, sustainable, inclusive growth and global pensions, sovereign wealth funds and other large institutional investors need to be part of the solution or else the world will be stuck in a long-term economic morass.

The problem isn't finding money. For example, Canada's pensions are among the most influential allocators in the world. Long-term institutional investors have more than $50 trillion to invest and help governments attain their objectives to transform and modernize infrastructure to bolster the economy.

The Caisse is trying to export its infrastructure model and if successful, it will be investing alongside like-minded long-term investors all over the world. The recent deal to co-invest in infrastructure alongside Colombian pensions is another step in exporting the model that has worked so well for the Caisse.

Michael only covers some of the advantages. Apart from promoting durable, sustainable, inclusive growth, if successful, this approach will free up a lot of government funds to focus on essential services in healthcare, education and other areas.

This is why it's high time we stop having overhyped G20 meetings that end up with watered down and meaningless communiqués and start taking the necessary steps to promote growth using all available channels.

You can sense the frustration in Michael's comment. I don't blame him. I wouldn't want to fly over to Argentina to come out of there with the same nonsense. Leaders basically squandered another golden opportunity to do something different to promote growth using the competitive advantages of long-term institutional investors.

And there is another pressing need. Climate change is an issue which is sparking support and outrage all over the world. Some think France’s protesters are part of a global backlash against climate-change taxes, but I believe these riots aren't just about cheaper gas prices, there is a real need for a new deal for the entrepreneurial age.

In other words, people are increasingly worried they can't make ends meet and while governments aren't able to act, all these social tensions are bubbling up to the surface giving rise to populist movements all over the world.

This is what worries Bridgewater's Ray Dalio and it should worry us all. Desperate people do stupid things, they start believing in charlatans who peddle dangerous and divisive ideas.

Sound familiar? This is what Michael Sabia is warning about in between the lines. The status quo is unacceptable, we need a new paradigm for durable, sustainable and inclusive growth, one which builds on the competitive strengths of long-term institutional investors.

And Michael is right, it's time we focus on opportunities, not just risks of climate change. This was what OPTrust's climate change symposium was all albout.

Below, Bloomberg’s Joe Sobczyk reports on the absense of China’s confirmation regarding the deal Trump claims he reached.

And Michael Sabia, the president and CEO of the Caisse de dépôt et placement du Québec, talks with Bloomberg's Erik Schatzker ahead of the Group of 20 summit in Buenos Aires. I would have liked to hear Michael's views after the summit but listen carefully to what he said.

Friday, December 7, 2018

Are Markets Going Haywire?

Hugh Son of CNBC reports, Markets are going haywire. Here's why these sudden moves are here to stay:
Wherever Mark Connors looks at markets, from stocks to currencies to oil, he sees signs of the unknown.

Equity investors got whipsawed this week during two rough and volatile sessions, but Connors, global head of risk advisory at Credit Suisse, had seen worrying signs long before that. A key technical measure he tracks, the correlation between the price of stocks and currencies, had broken down starting in April. That, along with sharp drops in the price of oil, point to one thing, he says: Uncertainty about the future as central banks around the world unwind programs that bought trillions of dollars of assets.

"We're seeing two of the biggest asset classes, stocks and currencies, exhibit a degree of uncertainty in their relationship in 2018 that we've never seen before," Connors said. "Crude just exhibited something very unusual in the context of the last 40 years."

The unwinding of central banks' programs a decade after the financial crisis brought economies to the brink is known as quantitative tightening. J.P. Morgan Chase CEO Jamie Dimon said in July that one of his biggest fears is around how markets would behave as central banks removed their unprecedented stimulus.

"If quantitative tightening continues, guess what's going to happen? More of this," Connor said, referring to unusually violent moves across markets.

Automated trading effect

Another factor in the speed of recent declines is the result of several important changes that have happened since the last financial crisis.

Automated trading strategies from quant hedge funds and the massive shift to passive investing have helped to remove liquidity from the system in times of panic, according to Marko Kolanovic, J.P. Morgan's global head of macro quantitative and derivatives research. He said in a September note that index and quant funds made up two-thirds of assets under management globally and the majority of daily trading.

So when investors begin to sell, as they did on Tuesday amid concerns over the state of U.S. trade talks with China, the moves were probably amplified by computerized trading strategies. Selling intensified that day after the S&P 500 fell below its 200-day moving average, a key technical measure.

Before the next trading session on Thursday, equity futures plunged, prompting the CME Group to halt trading more than three dozen times. Markets continued to slide: At one point the Dow plunged almost 800 points before recovering after a news report that the Federal Reserve may take a more cautious approach to future rate hikes.

SEC needs to look?

As experts grasp for explanations on these unnerving moves, some are calling for help. Billionaire hedge-fund manager Leon Cooperman, founder of Omega Advisors, blamed the U.S. Securities and Exchange Commission for allowing machines to dominate markets.

"I think your next guest ought to be somebody from the SEC to explain why they have sat back calmly, quietly, without saying anything and allowing these algorithmic, trend-following models to wreak havoc with what has, up to now, been the best capital market in the world," Cooperman said in a CNBC interview.

He and others have called for the reinstatement of the uptick rule, which restricted short selling to stocks that traded higher at least once between short orders. The rule was repealed in 2007, just in time for the financial crisis. Since then, during times of sharp distress, market commentators have wondered aloud why the rule went away.

John Nester, a spokesman for the SEC, declined to respond to Cooperman's comments.

"Uncertainty is here, and that means deleveraging into a market with reduced liquidity," Connors said. "Expect more of these exacerbated moves."
Don't worry, the SEC is on it, right after its employees finish watching porn (sorry, couldn't resist).

It's been another crazy week in markets. In fact, it was a terrible start to December for US stock investors as almost $1 trillion has been wiped from the value of stocks in just four days of trading.

At the close on Friday, the Dow tumbled more than 500 points, wiping out gains for the year to cap wild week on Wall Street:
Stocks dropped sharply on Friday, concluding what has been a wild week for Wall Street. A weaker-than-expected jobs report and China-U.S. trade tensions sent the Dow Jones Industrial Average lower by 558.72 points to 24,388.95 and erased its gains for the year.

At one point, the Dow was up more than 8 percent for 2018.

The S&P 500 pulled back 2.3 percent to 2,633.08 and also turned negative for the year. The Nasdaq Composite dropped 3.05 percent to close at 6,969.25. Shares of large-cap tech companies led the way lower. Facebook, Amazon, Netflix and Google-parent Alphabet all traded lower. Apple's stock also fell 3.6 percent — erasing its gains for the year — after Morgan Stanley cut its price target on the tech giant's shares, citing weakening iPhone sales.

For the week, the major indexes all dropped more than 4 percent. Thursday's session included a violent drop of nearly 800 points, followed by a strong rebound from those levels. This week was also the worst for the indexes since March.

Indexes fell to their lows of the day after the Wall Street Journal reported federal prosecutors are expected to bring charges against Chinese hackers allegedly trying to break into technology service providers in the U.S., another negative headline amid tense trade talks between the two countries.

The U.S. economy added 155,000 jobs last month. Economists polled by Dow Jones expected a gain of 198,000 jobs. Wage growth also missed estimates. But investors were torn about the data as it could signal fewer rate hikes from the Federal Reserve down the road.

"The report was solid, not great, but it is still enough to keep the pace on track," said Kate Warne, investment strategist at Edward Jones. She added, however, that volatility will persist as "investors are not sure about how much growth is slowing and are worried about U.S-China trade relations."

Investors worried about the U.S. and China striking a permanent deal on trade after news of the Huawei CFO's arrest broke. News of the arrest initially sent stocks down sharply on Thursday, but equities managed to recover most of their losses. This also came after President Donald Trump and Chinese President Xi Jinping agreed last weekend on a cease-fire to the ongoing U.S.-China trade conflict, which sent stocks sharply higher on Monday.

"You've gone from a period of zero sensitivity to headlines to a period of hypersensitivity," said James Athey, senior investment manager at Aberdeen Standard Investments. "We're now in a world where no one knows which way is up and which way is down."

Trade-related stocks like Deere and Boeing fell 4.6 percent and 2.6 percent, respectively. Caterpillar also dropped 3.75 percent.

Investors also grappled with fears of an economic slowdown this week. The yield on the 3-year Treasury note yield broke above its 5-year counterpart earlier in the week, a phenomenon referred to as an inversion. Historically, when short-term yields move above longer-term rates, it signals a recession could arrive in the near future. However, the more closely watched spread between 2-year and 10-year yields has yet to invert.

Bank shares fell broadly on Friday. The SPDR S&P Bank ETF (KBE) dropped 1.4 percent. Shares of J.P. Morgan Chase, Bank of America and Citigroup all fell at least 1.8 percent.

"Unfortunately, we still have to work through this volatility," said Tom Essaye, founder of The Sevens Report. "Between now and the end of the year, there are two big hurdles: First, the Fed needs to do a dovish rate hike. The market can't survive a hawkish surprise. Also, we need some semblance of calm on the global trade front."
Let me begin with something I stated last week when I discussed the Trump or Powell put:
Anyway, back to the G20 and the Trump - Xi dinner. I'd be surprised if there is a major positive announcement, however, Trump has shown his cards, he tracks the stock market very closely.

If Powell is now on the fence, it's up to Trump to do something on trade to ease fears in the stock market. He might say there will be no new tariffs on China as the US continues to negotiate trade with that country and that might be enough to lift Chinese and US shares higher.
It was enough to lift US and Chinese shares higher, for a day (Monday) before reality set in that there was no real progress made at this overhyped G-20 meeting. By Friday, after the arrest of Huawei's CFO, relations between the two countries had broken down again to new lows.

Markets are on edge for a lot of reasons. Trade tensions, higher rates, a slowing economy, the Fed, the plunge in oil prices, and the list goes on.

Earlier this week, Bloomberg reported Dmitry Balyasny is cutting at least 125 people from his multi-strategy hedge fund firm, about one-fifth of the total, as losses and client withdrawals erased $4 billion in assets.

When you start to see brand name top hedge funds like this one cutting 20% of its staff, you know these are brutal markets. The volatility is insane and moves in seconds based on Trump's tweets or what Peter Navaro or Larry Kudlow said.

It's insane. I was talking to a currency trader earlier today who openly questioned how these big hedge funds are making money in this environment. He said it's impossible. "If they cut losses and it comes roaring back, they look like idiots for not having any conviction in their trade. If they double-down and get slammed, they will suffer steep losses and face redemptions. Everything moves in nanoseconds, it's just nuts."

He thinks big funds are also selling their stock losers for tax loss reasons and that may be adding to volatility and also everyone is waiting to see what the Fed says on December 18-19 when they meet.

Will it be "one and done" or stay the course with three more rate hikes next year? In my opinion, the Fed needs to take a big pause here and just wait to see the lagged effects of all these rate hikes.

This week, one measure of the yield curve inverted and while investors shouldn't freak out, they definitely need to pay attention as it portends to a slowing economy and more financial volatility ahead.

In his Weekly Portfolio Strategy Incubator, Martin Roberge of Cannacord Genuity stated this:
The stock market entered the week up 6% from its November lows following dovish Fed talks and a US-China trade truce. From overbought conditions, markets have steadily declined this week and are flirting with recent lows again. One concern is the arrest of Huawei’s CFO which raises the risk that China retaliates on U.S. companies doing business in China. Also, the inversion of the 5yr/2yr note yield this week is sending a cautious message on the US economy, especially given the uncertainty surrounding the Fed’s rate-hike strategy. That said, today’s soft nonfarm payroll (more below) should calm fears and cement expectations of a “one-and-done” Fed hike on December 19. Elsewhere, OPEC and Non-OPEC countries delivered a much-awaited supply cut of 1.2M bpd. Also, earlier this week in Canada, the Alberta government announced a 325K bpd cut in production to curb the glut in Canadian oil. These announcements together lifted oil prices by ~$3/bbl this week. Overall, unless more visibility is provided to investors on the Fed and the US-China trade fronts, markets could remain volatile a while longer. As we highlighted in the December edition of the Quantitative Strategist, this is typical around the 10%-correction mark.
So where are stocks headed? Nobody really knows but I still maintain it's not bear market time just yet but that can change if stocks keep selling off.

A quick look at the one-year daily chart of the  S&P 500 ETF (SPY) shows we are closer to that worrisome death cross when the 50-day crosses below the 200-day moving average (click on image):

And while the 5-year weekly chart isn't as scary, it's not exactly bullish either given the negative MACD (click on image):

But don't fret just yet, it's not game over. Trump knows Christmas is coming, he doesn't want to see stocks getting slammed every day and will likely post a flurry of tweets this weekend to make stocks great again!

I'm being facetious but the truth is there's nothing great about stocks recently and Trump hasn't helped assuage fears of a trade war.

However, while stocks are getting slammed, US long bonds (TLT) are doing just fine and have helped buffer balanced portfolios from selloff in the stock market (click on image):

Remember what I've been telling you all year, namely, ignore the fools on television who think bonds are a terrible investment and hedge your equity risk with good old US long bonds!

Anyway, we shall see what next week holds, so far, the Santa rally looks like a non-starter but maybe the algos will change all that around next week.

Below, as the Dow tumbles more than 500 points, wiping out gain for the year to cap wild week on Wall Street, here's what three analysts say it says about the US's labor market and the state of the US economy.

And expanding on the first clip, Oppenheimerfunds CIO Krishna Memani joins CNBC's "Squawk on the Street" to talk about the economy and what's roiling the market.

Third, what Wall Street got wrong and why the Santa Rally is dead on arrival with Christopher Harvey, Wells Fargo Securities, CNBC's Scott Wapner and Bob Pisani, and the Fast Money traders, Pete Najarian, Tim Seymour, Karen Finerman and Dan Nathan (from Thursday afternoon).

Lastly, David Bianco, DWS Group CIO, Americas, and Thomas Tzitzouris of Strategas join 'Squawk Box' to discuss what the yield curve is indicating for the US economy.

Thursday, December 6, 2018

The Dirty Secret Behind Canada's Pensions?

Philip Cross, the former chief economist of Statistics Canada, wrote a comment for the National Post, The dirty secret behind Canada’s supposedly ‘successful’ public-sector pensions:
The large and growing gap between public and private sector pensions is arguably the most striking feature of Canada’s retirement system. Defined-benefit pensions — or DB pension plans — the most sought-after and valuable workplace pensions, are now found almost exclusively in the public sector. Eighty per cent of public sector workers participate in DB pension plans. Only 10 per cent of private sector workers can make the same claim.

The demise of private sector DB plans has been neither sudden nor surprising. Participation rates peaked in the 1980s but eventually the collapse of interest rates in the early 2000s made DB plans prohibitively expensive. They now cost more than most private sector employers are prepared to pay and more than most private sector workers believe the plans are worth.

The mystery is not why DB plans have disappeared in the private sector; it is why they have continued to flourish in the public sector. If private sector employers can no longer afford even modest DB plans, how can public sector employers afford much more expensive plans — plans with larger pensions, earlier retirement and full inflation protection? This is the question Malcolm Hamilton and I looked at in a new paper, “Risk and Reward in Public Sector Pension Plans: A Taxpayer’s Perspective,” being released Thursday by the Fraser Institute.

Canada’s public sector DB plans frequently cite the “Canadian Pension Model” — the manner in which they are organized, governed, administered, funded and invested — as the reason for their success. A recent World Bank study attributes the success of the Canadian Pension Model to superior governance, economies of scale, innovative investment practices, responsible funding, visionary leadership, high pay and other virtues too numerous to mention.

That Canada’s public sector DB plans have done a superb job for their members is undeniable. No one would question the plans’ success; but we do question the reason for their success. It is due to large public subsidies made possible by practices that are neither admirable nor virtuous: bad accounting, poor governance, imprudent risk taking and inadequate financial disclosure.

To be fair, the responsibility for many of these failings lies not with the pension boards who administer the plans but with the employers who sponsor them. The fault lies with public sector employers, usually governments, who fail to represent the public interest when it conflicts with the interests of their employees. This does not mean that our pension boards are entirely without blame. They have become enablers of and enthusiastic cheerleaders for a badly flawed pension system. They have grown comfortable with a success they do not understand.

The narrative advanced by Canada’s public sector DB plans raises a perplexing question. If innovative investment strategies abetted by good governance explain their success, why don’t private sector employers adopt the Canadian Pension Model and provide comparable pensions to their employees? Our answer is that Canada’s public sector DB plans do things that private sector DB plans are prevented from doing — for good reason. In particular, public sector accounting standards allow public sector employers to materially misrepresent the cost of their pension plans. Private sector employers are prevented by private sector accounting standards from doing the same thing.

Taking investment risk is a legitimate tactic, provided that those who bear the risk also reap the reward. This is not what happens in Canada’s public sector DB plans. Consider the plans covering employees of the federal government. Plan members, whose interests are ably represented by powerful public sector unions, are handsomely rewarded for investment risk taken by their pension plans and borne by the public. The public, whose interests are poorly represented by the federal government, receives no reward for bearing this risk. To be clear, public sector accounting standards permit, but do not require, the deceptive accounting practices that make this possible. Governments are allowed to properly account for pension costs; they simply choose not to do so. By making this choice they subordinate the public interest to the interests of their employees.

Public sector DB plans cite their independence from government as a key to their success, freeing them to pursue profitable policies outside the purview of politics. But this independence is a flaw, not a virtue, of public sector pension governance. The plans take investment risk to advance the interests of plan members while the interests of taxpayers, who ultimately bear this risk, are ignored. Outside the public sector this would usually be called moral hazard, not good governance.

The assertion that Canada’s public sector pension plans have discovered a formula that makes them a model for the world to emulate warrants serious skepticism. The exceptional feature of Canada’s public sector DB plans is not “world-beating” investment strategies or good governance. It is the ability to enrich public employees by shifting large, undisclosed investment risks to taxpayers without fair compensation. By our estimate, this provides an unacknowledged $22-billion annual subsidy to Canada’s public sector DB plans and, ultimately, to the members of these plans. This large public subsidy, not the virtues of the Canadian Pension Model, explains the plans’ success. Without it, public sector DB plans would be no more viable than private sector DB plans.
The Fraser Institute put this out, Risk and Reward in Public Sector Pension Plans: A Taxpayer’s Perspective:
The most striking feature of Canada’s retirement system is arguably the large and growing gap between pensions in the public and private sectors. Eighty percent of public sector workers participate in defined benefit (DB) pension plans. Only ten percent of private sector workers can make the same claim.

With the collapse of interest rates in the early 2000s, DB plans became prohibitively expensive in the private sector, yet they flourished in the public sector. If private sector employers can no longer afford even modest DB plans, how can public sector employers afford much more expensive plans—plans with larger pensions, earlier retirement, and full inflation protection?

Canada’s public sector DB plans frequently attribute their success to the “Canadian Pension Model.” A recent World Bank study identifies superior governance, economies of scale, innovative investment practice, responsible funding, and visionary leadership as important features of this model.

Without disputing the virtues of the Canadian Pension Model, we attribute the success of Canada’s public sector DB plans to large public subsidies made possible by practices that are neither admirable nor virtuous: bad accounting, poor governance, imprudent risk taking, and inadequate financial disclosure. Responsibility for these failings lies not with the pension boards who administer the plans but with the employers who sponsor them. These employers, usually governments, fail to represent the public interest when it conflicts with the interests of their employees.

The narrative advanced by Canada’s public sector DB plans raises a perplexing question. If innovative investment strategies abetted by good governance explain their success, why don’t private sector employers adopt the Canadian Pension Model and provide comparable pensions to their employees? Our answer is that Canada’s public sector DB plans do things that private sector DB plans are prevented from doing for good reason. In particular, public sector accounting standards allow public sector employers to materially misrepresent the cost of their pension plans. Private sector employers are prevented by private sector accounting standards from doing the same thing.

Taking investment risk is a legitimate tactic provided that those who bear the risk also reap the reward. This is not what happens in Canada’s public sector DB plans. Consider the plans covering employees of the federal government. Plan members, whose interests are ably represented by powerful public sector unions, are handsomely rewarded for investment risk taken by their pension plans and borne by the public. The public, whose interests are poorly represented by the federal government, receives no reward for bearing this risk.

Public sector DB plans cite their independence from government as a key to their success. We argue that this independence is a flaw, not a virtue, of public sector pension governance. The plans take investment risk to advance the interests of plan members while the interests of taxpayers, who ultimately bear this risk, are ignored. These practices are best described as moral hazard, not good governance.

This paper questions whether Canada’s public sector pension plans have discovered a formula that makes them a model for the world to emulate. The exceptional feature of Canada’s public sector DB plans is not “world-beating” investment strategies or good governance. It is the ability to enrich public employees by shifting large, undisclosed investment risks to taxpayers without fair compensation. By our estimate, this provides an unacknowledged $22 billion annual subsidy to Canada’s public sector DB plans and, ultimately, to the members of these plans. This large public subsidy, not the virtues of the Canadian Pension Model, explains the plans’ success. Without it, public sector DB plans would be no more viable than private sector DB plans.
You can read the full report here and the executive summary here.

The report is authored by Philip Cross, the former chief economist of Statistics Canada, and Malcolm Hamilton, a Senior Fellow with the CD Howe Institute and a retired pension actuary who spent 33 years at Mercer where he advised large pension plans in both the public and private sectors.

These aren't two hacks, these are two individuals with extensive credentials, experience, and knowledge of public and private sector pensions.

I'll admit, my first reaction was "why the hell are Malcolm and Philip writing a report like this for the Fraser Institute, a right-wing think tank funded by Canada's powerful financial services industry?".

Moreover, it struck me as if the Fraser Institute hired two big shots with great credentials to puncture holes at Canada's large pension plans.

Why would they want to attack our venerable public-sector pensions? Because their very success represents an ominous and existential threat to the private sector, specifically to our big banks and insurance companies peddling high-fee, mediocre mutual funds.

Below, I will share some thoughts of mine. I also shared this paper with other "big shots" who have a completely different take on things. I will update this comment once people respond, if they respond.

Anyway, Malcolm and Philip are very sharp. They rightly note the collapse of interest rates since early 2000 has spelled the demise of private sector DB plans and state the following:
The mystery is not why DB plans have disappeared in the private sector; it is why they have continued to flourish in the public sector. If private sector employers can no longer afford even modest DB plans, how can public sector employers afford much more expensive plans — plans with larger pensions, earlier retirement and full inflation protection?  
First, you should all be aware Canada has some excellent large private sector DB plans as well. I am thinking of CN's plan managed by CN Investment Division headed by Marlene Puffer and Air Canada's Pension Plan managed internally and headed up by Vincent Morin who I recently profiled here.

There are other great private sector DB plans all over Canada that are doing very well but in general, yes, they are becoming dinosaurs as the large public sector plans grow exponentially.

As to the question "how can public sector employers afford much more expensive plans — plans with larger pensions, earlier retirement and full inflation protection? ", Malcolm and Philip conclude it's all due to "deceptive accounting practices" by governments that do not properly account for pension costs.

By their estimate, this provides an unacknowledged $22-billion annual subsidy to Canada’s public sector DB plans and, ultimately, to the members of these plans, all on the back of Joe and Jane schmuck Canadian taxpayers who don't reap any benefits from the success of these plans.

Now, people reading this on the National Post are understandably upset. Steve Douglass comments:
Just to ensure that I understand, I read this article twice. My interpretation is that Canada's public sector DB pension plan has been enriched by the unauthorized swiping of $22 billion of taxpayers' funds. This interpretation, if I'm correct, doesn't make me very happy. It is one more in a seemingly never-ending stream of disappointments from a government which, once focused on serving the taxpayers, now views them as nothing more than a piggybank.
I totally understand, I'm a conservative guy when it comes to my personal economic views, so it's not surprising the conservatives reading this newspaper are thinking exactly what Steve Douglass and others commenting are thinking.

The problem? They're not reading the comment carefully and are not getting the full picture to understand how the success of these plans adds to government tax revenues over the long run.

I'm suspicious of the $22 billion figure Malcolm and Philip claim is an unacknowledged annual subsidy to Canada’s public-sector DB plans but will let experts take issue with their methodology.

What I do know without a doubt is the success of Canada's large DB plans is unambigously good for the economy and government tax revenues over the long run.

Go back in time to read a comment of mine citing a study on the benefits of our large DB plans. More people retiring with dignity and security, even if they are all public sector workers, means more spending on goods and services, which translates into more government revenues and a better economy.

So, even though I am an unwavering, unapologetic economic conservative in my views, it's a no-brainer for me that we need to enhance, promote and expand our large public-sector DB plans. It's smart retirement policy, it's good for the economy, and it's good for our tax base and will reduce the debt over the long run.

None of this was discussed in the report and that represents a serious deficiency which understandably is not in line with the intent of the authors and the spin the think tank funding them wanted to put on their findings.

What else? The authors ackowledge the immense success of Canada's large public sector DB plans but question the reasons behind it:

That Canada’s public sector DB plans have done a superb job for their members is undeniable. No one would question the plans’ success; but we do question the reason for their success. It is due to large public subsidies made possible by practices that are neither admirable nor virtuous: bad accounting, poor governance, imprudent risk taking and inadequate financial disclosure.
This is where I winced. Bad accounting, poor governance, imprudent  risk taking and inadequate financial disclosure?

Really? Have they read the annual reports of these large public-sector DB pensions in detail? There are sections on first-rate governance, accounting, disclosure up to wazoo on everything from investments to compensation, to you name it.

This is not the authors' area of expertise. For example, we can criticize Canada's large pensions for using leverage to juice their returns and maybe they should report levered versus unlevered returns, but make no mistake, they're not taking imprudent risks, quite the opposite, they're taking intelligent risks using derivatives and a AAA balance sheet they earned through years of great performance, not government subsidies.

The last thing I want to mention here is the problem isn't Canada's large public-sector DB pensions, the problem is that we haven't created more of them to respond to the needs of millions of workers in the private sector who are getting the big shaft, relying on mediocre, high-fee mutual funds in their individual retirement accounts.

That's the real crime going on, the dirty secret (not so secret anymore) at Canada's large financial services firms raking in billions on fees on the backs of unsuspecting retail investors who are getting screwed on their retirement over the long run.

This is the brutal truth on DC plans and this is why we need more, not less, large, well-governed public-sector DB plans to address the retirement needs of millions of Canadians falling through the cracks, facing pension poverty during their golden years as they risk outliving their savings.

Again, I welcome all responses to this comment and will update this comment to publish all of them either here or in a follow-up comment. Feel free to email me at LKolivakis@gmail.com and please be succinct and to the point. Thank you.

Below, an older clip from when I discussed America's 401(k) nightmare. As the default retirement plan of the United States, the 401(k) falls short, argues CBS MoneyWatch.com editor-in-chief Eric Schurenberg. He tells Jill Schlesinger why the plans don't work. Same goes for RRSPs so listen.

Update: A blog reader who doesn't want attribution sent me his thoughts which are favorable to the authors' findings:
The large pension plans remind me of GE, once a leader in offering great but boring manufactured products, with a very clear and narrowly bounded strategy. Then a clever management discovered their AAA balance sheet could make them a bank like financial player, and down that track they went, using capital markets, leverage and derivatives in pioneering ways.‎ All went well, and the management became celebrity like, and poster children for high executive compensation. I think you can see the parallels of where this is going.

The authors are simply ahead of their time in pointing out where moral hazard leads. The pension industry would be well served by a dose of humility, and more explicitly recognize the advantages it has enjoyed.

DB Plans are a great idea. But risk subsidizing has nothing to do with those merits. I think the authors real point is that the investment risks being taken are too high (for the system in total), and structurally encouraged. They are correct.
I thank him for sharing his thoughts and have received others and will receive others so I decided to follow up next week in another comment.

Wednesday, December 5, 2018

Beyond the Americans With Disabilities Act?

Rachel Withers of Vox reports, George H.W. Bush was a champion for people with disabilities:
George H.W. Bush, who died on Friday at age 94, was probably best remembered, legislatively, for his 1990 budget deal. But for many in the disability community, he is remembered for another bill passed that year: the Americans With Disabilities Act.

A monumental piece of legislation that prohibited discrimination against those with physical and intellectual disabilities, the act that Bush signed was seen as the equivalent of the Civil Rights Act for individuals with disabilities.

To better understand why Bush is remembered as a champion by many in that community, I spoke with Lex Frieden, a professor at the University of Texas Health Science Center at Houston, the then-director of the National Council on Disability, and one of the architects of the law. I spoke with him about Bush’s role in the legislation, which he began as vice president and signed into law as president.

Our conversation, which has been condensed and edited for clarity, follows.

Rachel Withers

Can you explain the legislation to our readers in a nutshell?

Lex Frieden

The Americans With Disabilities Act is in effect the Civil Rights Act for people with disabilities in the United States. It essentially says that discrimination may not occur on the basis of functional impairment or any other condition perceived to be a disability. The law was enacted in 1990 by President George Herbert Walker Bush. At the time it was passed in 1990, it passed the Congress — the House and Senate — by one of the largest majorities ever to pass a bill.

Rachel Withers

What were some of the practical flow-on effects?

Lex Frieden

Well, the law covered several important aspects of life. Essentially, it changed the paradigm of the way we look at disability from a medical diagnosis-oriented paradigm to one of function and accessibility. So it says that buildings and public places may not discriminate by having inaccessible facilities. ... So it’s not only people who are mobility-impaired or in wheelchairs that must be accommodated; it’s also people with hearing impairments, people who have sensory impairments, that are blind, people with cognitive or intellectual disabilities. And the law in that regard is pretty far-reaching.

In addition to the physical aspect of accommodation, there are also the social and interpersonal aspects of accommodation. So personnel need to be trained to interact appropriately with people who are disabled and must provide appropriate accommodation for them if they request it. And some of those accommodations are kind of subtle. For example: If a deaf person goes to check into a hotel, the hotel staff must be ready to communicate with them in an appropriate manner, and not just try to raise their voice to the deaf person.

The law also includes employment, and people with disabilities cannot be discriminated against in employment settings, either as applicants for a job or as workers, and the law covers a broad array of issues pertaining to employment. So it’s pretty far-reaching.

Rachel Withers

You’ve said that “George Bush will be viewed by people with disabilities and their families as the Abraham Lincoln of their experience.” Can you explain his role in passing this act?

Lex Frieden

In 1986, the National Council on Disability produced a report. That report recommended a law like the ADA and said that people with disabilities face discrimination in all aspects of life, and it should be addressed just as nondiscrimination laws for people of different gender, people of different race and color, people of different religious persuasions. So essentially, we recommended in that report that the ADA be passed to complement the other body of civil rights legislation we had already established in the United States.

At that time, we wanted to meet with President Reagan and share the report with him, hoping to receive his endorsement. But the meeting that we had scheduled was canceled because it was coincidentally occurring on the day the Space Shuttle Challenger blew up on launch. … However, the White House offered to enable us to meet a few days later with the vice president, who happened to be George H.W. Bush. We decided that was a good thing to do, that we didn’t want to wait to meet the president after that schedule was reorganized. So we met with Vice President Bush, who immediately understood what our objectives were and, in effect, endorsed our proposal.

Rachel Withers

And I understand that President Bush had previously lost a child with disabilities. How did that impact his interest in the issue?

Lex Frieden

I think it had a huge impact. When we met with the vice president in January 1986, he said at the beginning of the meeting that he and [his wife] Barbara had reviewed the report the night before. He ... said that they could both relate to it because of the child with a disability whom they had lost and because one of their children at the time was coping with disability issues. One of the Bush boys had a disability — pardon me because I can’t recall which one — but he had learning difficulties and they were concerned about that. He had difficulty reading, and I think later I learned that he had dyslexia.

Rachel Withers

And so after this first meeting, how did George Bush’s role in this legislation progress from there?

Lex Frieden

Well, when we left, the vice president said that he really understood and appreciated what we were trying to achieve and that he would report what he had learned to the president, to President Reagan. And he reminded us that he was just the vice president and said that if in the future he had more opportunities to help us promote the legislation, he would do so. And I think that was a sincere promise at the time, although I don’t believe that he at the time imagined that within two years, he [would be] elected president.

And at the time of his election, actually in the campaign, he had committed to supporting the Americans With Disabilities Act and stated so many times during his presidency until he was able to sign the law in 1990.

Rachel Withers

President Bush said in a 1994 speech that “Houston has had a profound effect on the ADA.” What was the city of Houston’s special role?

Lex Frieden

Well in the mid-1970s, there was a group of us who were relatively young people with disabilities, mostly wheelchair users, who got together periodically to discuss the frustration that we felt, the barriers that we encountered in trying to be independent and trying to be part of the community. And we started an organization called the Coalition for Barrier-Free Living and began to try and educate the public and authorities.

At the time, it seemed to us that they weren’t very responsive to the complaints that we made, to the recommendations that we had. So we began to engage in what now is fondly known as civil disobedience. And I think we were clever about it.

To give you an example, one morning the mayor of the city issued a press release and said that he did not believe enough citizens were using the public transit, and that therefore, on the following day he himself would be riding the bus from the city hall. And he encouraged everyone in Houston to get out and ride the bus; it would be free for that day. And we learned about that, and arrived at the bus stop in front of the city hall at the same time the mayor did. We had about 40 people in wheelchairs there waiting to get on the bus.

Of course, we knew that the bus had only steps; there was no way for wheelchairs to get on the bus. And so we surprised the mayor and surprised the press and there was a lot of coverage of the driver confused about how he was supposed to get all these wheelchair users on his bus, and it made for good media coverage.

Over the years, we continued to engage with the city until we began to see some fruits from our labor. The city applied for a federal grant in 1984 and received funding to match that, and built the first fully accessible community center. We were successful in getting the city to agree to purchase buses with ramps on them before the law required it.

So we had a fairly large effect. And of course, Mr. Bush and Mrs. Bush had a residence in the city. ... So the president was aware of all that; he was aware of the community center we had built. He was aware of all the accommodations the city has undertaken. So I believe that’s why he attributed that to Houston, in addition to the fact that I happened to be significantly engaged in the process of recommending and development to legislation.

Rachel Withers

Can you speak at all to how President Bush felt about the Americans With Disabilities Act as part of his legacy?

Lex Frieden

From time to time, I discussed that with him. And he understood that he would be remembered forever as the president who made people with disability a part of their community, the president who changed the face of America, and he was very proud of that. He considered that among some of his greatest accomplishments.

From time to time, he told me he felt like it was the best thing that he did. And then from time to time, I heard him make reference to other domestic legislation that he was responsible for, including the Clean Air Act, as being significant to his administration. So I think he was generally proud of what he accomplished as president, but he was always particularly proud of the ADA.

Rachel Withers

Did he ever speak of the ADA in terms of being a wheelchair user himself?

Lex Frieden

He did. You know, I asked him once if he realized the impact that he had for people with disabilities. He said he certainly understood it more now that he had personal experience with disability.
Rachel Withers

What is the next big legislative goal for the disability community at this point?

Lex Frieden

Well, I can tell you the next big challenge for the disability community. There are probably two.

One of them that anyone will tell you with the disability is getting sufficient enforcement for the law that’s already on the books. The ADA has had a huge impact on every sector of our lives. It has even been used as a model for international rules, the convention pertaining to disability. Yet employers continue to discriminate, people who are inspecting buildings fail to invoke the rules of access, private entrepreneurs ignore the ADA when they’re developing new business enterprises. And that issue pertaining to enforcement is a big issue.

There’s also, I think, a tsunami pertaining to disability among the baby boomers that we have in our society. There are 76 million people who were born between 1946 and 1964. All of those people are retiring now, they’re getting older, and as a person ages, they will most likely and naturally become disabled. They will lose their hearing or their eyesight, their vision, their memory, their mobility, whatever. Different things happen to different people, but aging is coincident with disability. And we are not prepared as a nation.

I don’t think there’s any society in the world that is prepared for the huge number of people with disability that are going to be in our community and who wish to be independent, not living in institutions but accommodated in the home that they’ve lived in most of their lives. So this a real challenge and I’m not even sure the disability community fully appreciate the significance of that challenge.
This is an excellent article and there is a reason why I'm alluding to it on a blog on pensions.

First, I fundamentally believe this is one of the most important pieces of legislation ever signed in the United States. It has profoundly changed the lives of Americans with disabilities and is all part of what President Bush called "a kinder, gentler nation."

Second, the way the article ends is sobering. While the ADA has had a huge impact, employers continue to discriminate against people with disabilities which explains why the unemployment rate of persons with disabilities is twice the national average and only 19% of persons with disabilities are employed.

But Lex Frieden is right to point out 76 million baby boomers are retiring, many face pension poverty, and many will also face some sort of a disability.

Businesses that don't adapt to this new reality are going to pay a heavy price. In my opinion, not hiring people with disabilities and not taking them into account is just plain stupid.

What else? On Monday, it was International Day for Persons with Disabilities. This year’s theme is “Empowering persons with disabilities and ensuring inclusiveness and equality” and the Royal Bank of Canada posted a comment on LinkedIn that caught my attention, Joel’s Story:
For as long as I can remember, I’ve wanted to go really fast. That I happened to use a wheelchair certainly wasn’t going to get in the way of that.

I was born with a spinal tumour. It was successfully removed, but it caused a spinal paralysis and severe scoliosis: meaning standing or walking would be incredibly difficult for the rest of my life. I spent much of my childhood in and out of hospitals and rehabilitation clinics. The most frustrating aspect of having surgeries was that it took me away from my true passion: sport.

Whenever I played a sport, I would forget about my wheelchair and the fact that I moved differently from classmates at school. Sport was pure fun. And it gave me the motivation to continually surpass my limitations. But most importantly it gave me the opportunity to experience inclusion—especially after I was introduced to wheelchair tennis.

Through tennis, I had the opportunity to spend time with some of the older athletes, all of whom used wheelchairs. I saw in them the things I wanted for myself: confidence, independence and dare I say…swagger. Wheelchair tennis truly gave me a sense of belonging and community.

From then on I was completely hooked into the life of a wheelchair athlete. I traveled the world independently, played countless tournaments and represented Canada at the Paralympics.

After winning a medal at the 2015 Pan Am Games, I retired from sport and joined RBC. As part of our Executive Communications team, I help shape perceptions of RBC’s brand, business strategy and role as a thought leader, supporting the communications activities of our CEO and Economics team.

Just as wheelchair sport gave me a sense of inclusion, I have had a similar experience as part of RBC REACH, our Employee Resource Group for Persons with Disabilities.

One of my priorities since retiring from wheelchair sport has been to elevate the conversation around disability in Canada’s public and private sectors. I feel incredibly passionate about the value persons with disabilities bring to the workplace. And I believe disability should be a greater point of focus for organizations when it comes to hiring and advancement of employees with disability, as well as the servicing of clients with disability, taking an inclusive design approach to developing and distributing products and services to enable better access.

In Canada, 41 per cent of persons with disabilities between the ages of 15–64 (both visible and invisible) are unemployed—and the percentage in other countries can be similar or higher. Important services, such as transportation and buildings, remain inaccessible for too many in this country. And this number will only grow as our country grapples with an aging population.

There are more than six million Canadians who identify as having a disability. This segment controls more than $55.4 billion in disposable income, $311 billion if we include their friends and family, according to Rich Donovan, a leading voice on the potential impact this relatively untapped segment of the population can have on our economy.

Certainly the proposed Accessible Canada Act will help remove some of the barriers and give important rights that Canadians with disabilities have waited on for so long. Corporate Canada must take a bigger leap and refocus efforts to enable persons with disabilities to make a direct impact on our nation’s future. If anything, it makes sense that a workforce should reflect the palette of Canada’s diverse population.

I realize that simply sharing my story cannot solve all issues faced by persons with disabilities. But I think it is incredibly important that we all speak up for inclusion and have more conversations about inclusion so that every individual has opportunities and access to the resources to reach their full potential.
I thought this was a great comment, one that is eloquently written and I urge all the leaders reading this blog to share it with their counterparts here and abroad.

We need to go beyond the Americans With Disabilities Act and the Accessible Canada Act and organizations need to actively target people with disabilities and hire them at all levels. It's not just the right to do from a moral and ethical perspective, it's the right thing to for the economy and it's the wise thing for businesses looking to increase profits.

But I also think Canada's large pensions and other large public and private organizations can emulate  RBC REACH, their Employee Resource Group for Persons with Disabilities.

It's all fine and dandy to state you don't discriminate against people with disabilities, but how about putting some teeth into it and start actively targeting them for hiring? Then and only then can you genuinely state you're practicing diversity and inclusion at your organization.

What else? This week on LinkedIn, I saw a comment, Really - Always Leave Office on Time (click on image):

I couldn't resist to comment:
I really wanted to give it a thumbs down. It starts off fine and quickly degenerates and becomes judgmental. When I worked at PSP and BDC, I was definitely not the first one there in the morning but always the last one to leave. Reason? Very easy. My disease (multiple sclerosis) was starting to impact my mobility, so I needed a lift in the morning from my father and at night. Since he often finished at 6:30 or 7 p.m., I waited and realized that work became MORE productive when everyone left the office and I can sit and focus instead of being called into useless meetings. I can also tell you Gordon Fyfe, PSP’s former CEO, was the last one to leave the office every night and sometimes would swing by and ask me if I wanted a lift home (we lived close to each other). All this to say, work-life balance is important but don’t ASSUME things, you don’t know what people are going through in life and why they’re staying late. Some people love coming in at 6 or 7 a.m., good for them, others like leaving late, it’s what works for them. We aren’t all the same, respect diversity.
Everyone at your office has something. It could be diabetes, cancer, heart disease or it could be an autoimmune disorder like Lupus, MS, Rheumatoid Arthritis, Crohn's Disease, something where symptoms are or aren't always visible. It could be depression or another mental illness.

The point I was trying to make is don't assume things, be more emotionally intelligent and realize we all go at a different pace.

Below, a brief clip on the making of the ADA. And former Canadian Prime Minister Brian Mulroney, who served during former President George H.W. Bush's term, delivered a tribute to his friend and praised him for his courage, principle and honour.

Lastly, President George W. Bush delivered the eulogy for his father, George H.W. Bush, on Wednesday and spoke about how they were raised, his loyalty to friends and his last phone call with him.

That was a beautiful eulogy, very moving tribute to a great father, husband, grandfather and president who did his part in making it "a kinder, gentler nation."