Vancouver Notes

The Old Station – back in April, it was, perhaps, twice as busy yesterday.

I popped across the Strait a couple of days ago to see my older son and do a bit of business. I had not been in Vancouver since January.

It was a beautiful day, a tiny bit of fog but it burnt off.

It is difficult to grasp, living on largely COVID free Vancouver Island, just how devastating COVID has been in other locations. Where I live we have lost some businesses but there are lots which continue. About half the people mask if they are in a store. The streets are busy.

I spent a lot of my younger life in a stretch of Vancouver known as South Granville. And that is where my son lives now. The key thing about this area is that it has dozens of low rise and some mid-rise apartment buildings. They range from a bit sad through very elegant, pre-WWII, multi bedrooms. The key thing about South Granville apartments is that they never, ever, come vacant. People know people, lists were kept by building owners and managers. Walking towards the bus on West 12th every single building had a “Vacancy” sign out.

I walked down Granville Street for a couple of blocks. This is a high end shopping area. 85% of the people on the street were wearing masks. There was about half the normal foot traffic. And, most significantly, at least a quarter of the storefronts were “For lease”. There were still plenty of stores open and the majority of them had a mask requirement for entry.

The Granville bus was empty enough that “social distancing” was not a problem. I was heading downtown and looking at the empty storefronts and the “liquidation” sales. But the shock was downtown Vancouver itself. The “Granville” entertainment (read many bars and clubs) has simply ceased to exist. There are few bars hanging on, but where there were 30 or so venues it looked to me as if there are now maybe 5. Vancouver has always had a homeless population and, sadly, a population of street addicts. When I was a kid there would always be a few of these people at the south end of Granville street. They largely disappeared after about 2000 as the area gentrified. Now they are back.

Going all the way downtown three things hit me. First, the absence of people. Noon, on a sunny, warm, October day normally would see hundreds of people on the streets, grabbing lunch, doing a bit of shopping: yesterday there were, at best, dozens. Second, the number of storefronts for lease and businesses which are no longer there. At a guess, a third of the businesses which lined Granville and Pender and Howe are gone. The third thing which struck me was the absence of “international students”. There are, or were, dozens of English language schools downtown – actually a little east of where I was – and part of the fun of downtown was seeing gaggles of students. They stood out against the ranks of the office workers. While there were only a few office workers, there were no foreign students at all.

At noon I turned up at a restaurant at the corner of Howe and Hastings. I waited outside for my lunch partner. I could see the restaurant owner hovering at his door. This is a restaurant where, normally, you pretty much have to line up for a lunch table. It was empty and stayed empty through our lunch.

After lunch I headed off to the old station. I always have a cigarette on the plaza just before the entrance to the station. It has a grand view of the mountains but also of the bright reddy orange cranes of the Port of Vancouver. On a sunny day the plaza will usually have a couple of hundred people having lunch or just sitting in the sun. It is a favourite spot for tourists to take pictures. Yesterday there were less than fifty (likely less than thirty, I didn’t count) people all well distanced. There were no tourists.

I walked down to the trains. Again, usually, there is a steady stream of people coming and going even at 1:00. I passed exactly one person coming up from the trains and the great hall of the station was, effectively, empty. As were the train, the bus and the return ferry.

Overall, while it was great to see my son and one of my favourite CEOs, it was the most depressing trip I have ever taken. I could not have imagined Vancouver on a sunny, warm, October day being dingy, but it was. Storefronts are the multi faceted eyes of a city. When they are dark, the city is dark at noon. People, in their thousands, are the life blood of a city. Without people a city, even a beautiful city like Vancouver becomes pale and anemic.

British Columbia has done well through COVID. We’ve done it without lockdowns or mandatory masking but not without huge costs. Most of those empty storefronts were occupied by businesses which are not coming back. The absent foreign students and tourists will only return slowly, if at all. The empty offices may very well stay empty either because the jobs they contained will vanish or because staying at home during a pandemic makes a lot of sense and COVID seems far from over.

In one way, Vancouver is better off than most cities because “downtown” is mixed use. Lots of people live in the condos which surround the business district. That will keep some of the businesses alive. But that is the only encouraging thought I had. No office workers, no foreign students, no cruise ship passengers, no tourists: it is difficult to see how Vancouver will ever recapture the vibrancy, the sheer vigor, it had when I was spending time there last fall.

Wonderful, complex things like cities and downtowns are also fragile. You cannot shut a city down without there being short and long term damage. Nor, I suspect, is there any good way to “restart” a city. You can rebuild a city after an earthquake or hurricane, but restarting is a very different challenge. Especially if the “shut down” was largely voluntary, as it was in Vancouver.

Whether COVID simply dies out or a vaccine is produced or therapeutics are invented which allow the thing to be controlled is a necessary, but not sufficient, condition for the healing of the city. What has been lost along with the businesses and the tourists, is a sense of trust and optimism. Those will take much more than an end to the pandemic to restore.

Market Timing the Surreal

Very smart investment gurus tend to agree: you cannot time the markets. That is, you almost never know where the top of a market is and it is nigh on impossible to pick a bottom.

Some go further and pronounce that picking individual stock or commodity is a fool’s errant and that simply “buying the index” is about the best you can do.

I tend to agree with this view except in the most extreme circumstances and then in only a few of those circumstances. For example, I don’t think the crash of 2008/2009 could have been predicted by any one who was not intimately familiar with the shitshow that was securitized mortgage lending and its implications for over leveraged banks. And, even per “The Big Short”, had you known all of that, the consequences for the overall market of what was essentially a banking crisis were far from predictable.

On the other hand, the bursting of the dot com bubble in March of 2000 was a matter of when not if and it was pretty obvious for at least a year before it finally burst. For a real bubble to form you need novice investors putting value on companies which have no earnings and you need people trading shares for the sake of trading. In the run up to the 2000 crash “day traders” were the new financial heros and people were raising a billion dollars to sell reams of copy paper or fifty pound bags of dog food online.

In the winter of 1928 Joe Kennedy, father of JFK and major stock market player, stopped to get his shoes shined. The shoeshine boy leaned in and said, “Buy Hindenburg”. Kennedy began unwinding his positions saying, “You know it’s time to sell when shoeshine boys give you stock tips. This bull market is over.”

I had a similar experience in late 1999 when a friend took out a mortgage on her condo to buy shares in the billion dollar online copy paper empire. She had a perfectly good job in retail garden supplies. Remembering Kennedy, I advised another friend that her Nortel was looking a bit overbought. As it happened she sold quite near the peak.

The 2020 equivalent of the shoeshine boy is the perfect storm is the free trading platform, robinhood.com. This is a nicely designed site where you can trade shares on your computer or phone. It has become very, very popular with younger, new investors. My late 1990’s day trading pals would have killed for this sort of interface and no brokers fees. It has spawned a whole host of reddit chats, twitter streams and countless YouTube videos on the excitement of swing trading. (One fun spot to watch Robinhood is the https://robintrack.net/leaderboard which shows which stocks the people on Robinhood are buying. It is a bit slow and buggy but a great front row seat.)

What is striking about the robinhood.com world is that it revolves around trading rather than any sort of “investing”. You hop into APPL in the morning, see if you can make a couple of bucks by noon and move onto the next thing. And Apple is a real, solvent, company.

Robinhood has been in the news recently because the herd has charged into the shares of a number of companies which are either in or near bankruptcy. Hertz Rent-a-Car dropped from $20 to $0.50 in three months as the market realized that with no travelers there would be no car rentals. Interestingly, we learn from robintrack.net that at $20 there were a little over 1000 users holding, as Hertz crashed the Robinhood users piled in, at $0.55 there were 44,000 and there are now 158,000. And many will have made money, lots of money, trading the gyrating price from $0.50 to back up to $5.00.

In the run up to the crash of October 1929, long after Joe Kennedy had pulled his money from the market, retail traders were coining it trading the “swings” on margin accounts. It didn’t matter what the company actually did, it was going up. The same “irrational exuberance” was a big feature in the dot com bubble.

Justifying the current trading frenzy are all sorts of snappy phrases, “You can’t fight the Fed” is a favourite. “V” shaped recovery is another. There is a sense that age of the dinosaurs, the Warren Buffets and the Carl Ichans is over, that fresh, app driven approaches to investing, and more importantly, trading have been unleashed.

The election and Presidency of Donald Trump created a sense that we had all stepped into an unanticipated world. At the best of times, Trump is unpredictable and the reactions to Trump are off the scale of normal political response. Then COVID and the huge economic uncertainty it has unleashed came crashing onto the stage. Then the George Floyd convulsion layered on another coat of unreality. In fact, surreality.

Day trading surreality seems entirely crazy but it is also a huge tell. Rail traffic has crashed but rails stocks are up, the US is officially in recession but the NASDAQ hit an all time high on Monday, all measures of the real economy are cratering but the stock markets are flying.

The thing about surrealism is that it depends on reality remaining fixed for its often intoxicating effects. Dali’s melting clocks are striking because they do not conform to how we know real clocks look and behave. Stepping away from a surrealist experience there is a snap back to reality. Sometimes you see that reality differently, but it is there nonetheless.

The Robinhood day trading, options fueled, herd investing suggests very strongly that a harsh, perhaps very harsh, snap back is pending. What triggers that snap back is unknown (and therefore impossible to time). It could be as simple a the closure of a bankrupt commercial mortgage fund or the end of banks mortgage deferrals. Whatever it is will be enough for retail investors to start liquidating their positions.

The lessons of the 1929 crash and the 2000 dot com bust were simple – get out early and be in no hurry to get back in. Right now the dinosaurs like Buffet and Ichan are sitting on stacks of cash. Just like Joe Kennedy was when Wall Street swan dived in October 1929. They got that cash by selling their shares to shoeshine boys and the bright lights at Robinhood.

A month later

I have not been writing much about COVID and its consequences simply because, day to day, very little changes.

I am very lucky. I live in British Columbia which has had among the lowest per capita case rate and death rate in the developed world. There are a variety of reasons for this first among them the provincial government’s decision to treat its citizens like grown ups. The government has shared its statistics, its models and its recommendations. It has issued very few “orders” nor has it locked down the economy. Social distancing, the ubiquitous plexi glass barriers at the cash tills, maximum occupancy to prevent over crowding are pretty much it in terms of required measures. No sit down dining in restaurants and bars closed. We are encouraged, but not required, to “stay at home”.

Yesterday there were only 15 new cases in the province. The curve has been decisively flattened. On Vancouver Island, where I actually live, there have been only 126 cases overall. There were no new cases yesterday.

The rest of Canada ranges from New York City levels of illness in Montreal to very little illness on the prairies and in most of the Maritimes. Ontario, particularly Toronto, has been hit pretty hard and has reacted with broad lock downs and fines for illicit dog walking or hoops shooting.

Right now, BC is coming back online in a phased way and I suspect most businesses will be operating with capacity restrictions by mid June.

Now the question is how much economic damage has the virus done.

While it is convenient for politicians and economists to think of the economy at the macro level with unemployment rates and money supply and such like, the actual economy is a vast set of tiny transactions and the habits which power those transactions. Before we can really talk about the effect of the virus on such lofty things as aggregate demand, we have to think about the very small scale exchanges of daily life.

To give one example: if a person who, before the virus, went to an office everyday is now working from home their web of tiny transactions will have changed shape – gas bought once a month rather than once a week, no dry cleaning, no Starbucks, no lunch in the food court. The question is whether, even if they keep their job, they will be going back to the office. Increasingly, the answer seems to be no as everyone from the Bank of Montreal to Facebook have announced that they are looking at leaving their workforce at home.

These sorts of choices – whether made by the individual, companies or governments radically and unpredictably change the economic balance in ways we will not fully understand for years. There is no way to model this sort of change because there is no way to predict what a shift to working at home will actually mean economically. Nor do we really have much ability to work through the ramifications of extremely limited air travel or fanless sporting events.

Now, add to these and countless other shifts in behaviour, there is also the uncertainty as to the rate of change in that behaviour. Air travel is, at the moment, very, very limited. Flights are cancelled, air crew furloughed, smaller planes deployed where possible. That happened at the beginning of April and is ongoing. It is not, directly, the result of government saying “reduce air travel” but rather a consequence of lockdowns and “stay at home” edicts. It is also a very rational response to the virus itself – who wants to sit in close quarters with someone who is asymptomatically infected? Will that change and if so how fast?

A lot of the day to day transactions of life require a background of general trust, a sense of confidence. You can flatten the curve, lift the lock downs and generally stimulate the economy with helicopter money but until trust and confidence are restored you are essentially pushing on a rope.

I suspect we are coming to the end of the first wave of the virus. A good, hot summer, may see the end of it. However, the possibility of a second wave, potentially worse than the first, cannot be dismissed. Which is just one more worry to pile on top of the profoundly out of kilter economy.

In many ways the biggest obstacle to economic progress is the very idea that we will somehow “get back to normal”. The fact is that there is no longer a “normal” to return to which means we will be going forward into a economy which we will be inventing as we go. Which might sound scary but, realistically, market economies have always invented their own futures.

BMW Electronics, coding and repair…Children grow up

Sam, my son, has opened his own Victoria BC BMW coding and diagnostics business.

I call him The BMW Whisperer.

Full computer set up, all the software needed to fix error/warning lights on E90, E46, E60 and E39. Five series and Three series and most other BMW models as well.

 

Round and Round the Mulberry Bush…

Pop goes the Weasel.

In olden times those down on their luck would pawn their coats or their tools on Monday and hope to redeem their pawn by Sunday when they needed to turn up in church properly attired.

Richard Fernandez, writing at PJ Media, talks about the musical chairs of the Greek Crisis:

Eventually the physical world starts to change to reflect the payments that have to be made to the players. Trade begins to contract, stores start to close and desperate individuals start to riot. In the naive days of the 20th century, when faith in angels and demons began to wane, it was fashionable to regard matter as primary. Wars were fought by burning actual buildings, killing physical people. But today we know that information has physical force. Computer programs, genetic instructions, memes — and financial data — are to all intents and purposes actual things, rather than airy nonsense.

Unfortunately we still live in a world governed by ancient 19th century Marxian ideas, where politicians regard information as infinitely corruptible, in a world where lies are not only common, but the stuff of power, the very sinews or privilege.  A financial crisis occurs when information goes so far out of whack with the physical world the music has to stop, and those without a chair must be booted off. belmont club

Greece is not a big deal. 2% of the EU economy. The entire place could sink into the Aegean and the world would be little worse off.

China is a bigger place. The factory of the world and its stock markets are in the process of collapse. A lot of companies which we have never heard of have shed 2.5 trillion dollars in market cap in the last three months. Unlike the Greeks, the Chinese have lots of hard currency with which to intervene and there is every reason to believe that the possibility of a Chinese crash will be averted. For now.

Infinitesimal interest rates and overbought markets are, at the moment, haunting the US, the UK, Europe, Japan and China. Fernadez thinks that “the players” have figured it all out and have comfy armchairs waiting when the music stops.

I am not so sure. The players have always counted on governments to step in when there is a cash crunch. When the derivatives have been drawn against busted counter-parties, when the “too big to fail” surprise us by failing. To date, that assumption has been true. It has been true because the governments have had the means – usually the printing press – to literally paper over the flaws in the system. At the moment the Greeks do not but the EU does and I suspect will. At the moment, the Chinese market is in free fall but the Chinese government has the cash to bail them out. But cash, however abstracted, is a finite resource. If you print more than your economy can sustain your cash begins to lose its value against real assets, against food, against bills of lading which must be settled on arrival.

The music is still playing and only the smallest children have been denied seats; but now the scramble is on to secure a seat for the next round.

The one thing which the world seems incapable of doing right at the moment is making more chairs.

Gone to Pot

A client of mine alerted me to tonight’s 5th Estate program on Pot Fiction. It is the full hour and worth watching for a variety of reasons. Here’s the link.

The point of the program is that, in Vancouver at least, the practical effect of Health Canada’s Medical Marijuana regulations is de facto legalization. And, in fact, the program does not actually deal with the effect of the injunction against those regulations which has meant that the regulations themselves are suspended until a case against them has been heard, likely all the way up to the Supreme Court of Canada.

Despite the fact that I don’t smoke pot – because if I do I will be asleep in approximately three minutes – I have long advocated complete legalization. Largely for libertarian reasons but also because the criminal law is essentially unenforceable. But the medical marijuana regulatory scheme interests me as a grand example of government getting something entirely wrong.

The original medical marijuana regulations allowed people to buy from a single supplier or grow their own or designate a grower. While the system was far from perfect, and found to be unconstitutional, it had the advantage of regulating with a very light hand. But, oh Heavens, there was “leakage”. Medical pot was not always only used by medical users. Yikes.

So Health Canada came up with a regulatory scheme which was going to licence grower/distributors and put the users and their growers out of business. Enter Big Green and a bunch of promoters who sold shares in publicly listed companies based on the new regulations. The promoters made a lot of money using a simple story: there were 45,000 medical pot users in Canada (projected to grow to 450,000 users in a decade) who each used about 3 grams a day and who would have no choice but to pay between $8 and $15 a gram for their “medicine”. You do the math.

To my not very great surprise, people used to paying $0 to $5.00 a gram did not rush to sign up. And, very quickly, at least in Vancouver, pot shops – for registered users only of course – began to spring up. Becoming a registered user was not tough. As the 5th Estate guy discovered, telling a naturopath a charming story about stress and sleep disturbance over Skype gets you your registration. At which point you are free to buy. (I note the 5th Estate did not ask the pot shop owners where they were getting their pot – which is a rather good question because it is certainly not from the licenced growers as they are not allowed to sell except by mail order.)

As anyone who has lived in Vancouver knows, the Vancouver Police Department has better things to do than bust dispensaries. Plus, given the injunction halting enforcement of the Health Canada regs, it is not obvious what they would bust the dispensaries for that would have a chance of getting past the Crown. But even if they did bust the dispensary and even if the Crown brought charges, it is pretty difficult to see how a judge could find a person guilty who was selling to a registered user.

The problem is that the boffins at Health Canada have not quite figured out that their regulations are assuming a world which does not exist. First, they assume that people want to smoke “legal pot”. That might be true if police forces were in the habit of kicking down doors to arrest people smoking pot at home but, I fear, that hasn’t happened in years. (It may occasionally occur as a means of harassment but the probable cause issue is usually sufficient to kick the charges.)

Second, the boffins assumed that “medical marijuana” would somehow be policed by the medical profession. While it is a happy thought, all that is needed are a few doctors, nurse practitioners and naturopaths who think pot is just fine for what ails you, to render the “policing” function meaningless. Given that there is very little evidence either way as to pot’s medical efficacy, putting the burden of policing on the medical profession was a non-starter from the get go.

Third, the idea of centralizing growing and distribution of a relatively easy to grow plant in the hands of a group of entrepreneurs was a forlorn hope. Why would Mrs. Smith give up her little personal grow op only to buy her arthritis pain reliever at five times the price from clever marketers? And why would people who were growing illegally stop when they now had a fool proof means of distribution.

The only way that the regulations – if they ever manage to survive judicial scrutiny – will work is if Health Canada can somehow convince the Vancouver (and many other city police departments) to enforce the Criminal Code in the face of wide spread public opposition. Health Canada’s regulations will only work if the cost of “illegal medical marijuana” is, by draconian enforcement, raised to the point where the legal alternative is cheaper. Which would mean a level of enforcement which far exceeded the scale of enforcement we saw in the 1990’s. Which is not going to happen.

Health Canada is in way over its head. It has 1200 pending licence applications and it has only managed to approve 17 of them. It’s regulations are suspended by a Federal Court injunction. Its rules saying that only dried smokable pot is legal have been struck down by the Supreme Court of Canada. It has never managed to provide guidance as to the conditions marijuana is indicated for and what dosages might be efficacious.

Meanwhile, people who want to smoke pot are running rings around the regulations and using them to have a “Get out of Jail Free” card on the off chance they are found “in possession”. Now the law is in disrepute with the public and, more importantly, the police, Crown and judges.

We have legalization through the backdoor.

Unregulated, un-taxed and entirely beyond the state’s control.

I’d call that a win.

Rebel, Rebel…

Ezra rides again.

http://therebel.media/

Now here’s the thing. Ez has published a magazine and put on a nightly TV show. He apparently has some backing. He has name recognition.

The question is whether he has taken the proper lessons from the fact that neither of these two operations were successful? A good rant once in a while in the style of Rex Murphy is grand;but there needs to a lot more than that.

Sun TV is dead

Word arrives of Sun TV’s demise.

I don’t watch TV so this is an abstract blow. I watched enough of Sun to know that I didn’t like it any more than I liked the Sun newspapers. It was certainly a dissident voice in the wasteland of Canadian television. But it missed Marshall Mcluhan’s point about television being a cool media. Worse, it lacked the vision which has driven Fox to the top of the cable heap.

Television is dying. Viewership is dropping, ad revenues are down. It’s dying because no one has time and no one wants to be talked at. Talked with, perhaps. My phone offers me a thousand and eleven news sources, raw video of events:the opinions I can develop myself.

Sun’s critical mistake – other than having the production values of community TV, was to miss how mainstream, lefty, media works. The opinion is embedded not overt.

I love Ezra and Brian Lilley. For five minutes at a time max. Which leaves 23 hours and change to do serious reporting, regional coverage, round tables, celebrity bs, culture, media, books and call ins. Plus serious business reporting when the market is open.

None of that happened. Or,if it did, no one knew about it.

Taking several million dollars and running a conservative flag up a pole is a worthy endeavour. Everyone at Sun deserves a heartfelt pat on the back. But the reality is that marketplaces decide what works and Sun TV never did.

It is encouraging that BCF noted that Ezra was sitting with Moses Znaimer at the Mark Steyn event. Znaimer is the smartest guy in Canadian television bar none.

Sun TV was an attempt to change the channel. It failed. The need remains but it has to be smart, slickly produced and Internet aware. Sun TV, whatever its ideological virtue, was ham handed, as slick as Brian’s do, and Internet poison. These are people from the dying newspaper business trying to revive the dying television business and it showed.

The market is never wrong… On to the next thing.

UPDATE:Lots of smart commentary floating around the Canadian net. Thanks to Blazingcatfur, Five Feet and Mark Steyn for linking.

Creating conservative media one needs to keep a couple of things in mind. Toronto is not Canada. No, really. The Internet is here to stay and it has changed everything. Real news leads, opinion follows. Conservatives are busy people. They will watch smartly packaged news and business reporting. The success of BNN demonstrates this. Television is dying so don’t be television…look to VICE as a model. Fixed costs are your enemy, freelancers your friend. There is a lot of underutilised studio space all over Canada. Slick production is about style, the 70’s are over. Technology let’s you shoot studio quality on a DSLR and edit on your phone. Use it or find someone who can.

Meetings

26. DON’T BRING YOUR iPADI’m not sure men should even own iPads, but I am positive they should not be at meetings. No computers should be. They’re a distraction and they say to everyone else there, “I’m not really here.” If you have to take notes at a meeting, bring a notepad.
http://takimag.com/article/how_to_get_rich_in_america_in_30_easy_steps_gavin_mcinnes/print#ixzz2hCQBv9ye

 

Flat out one of the best business articles I have ever read.

Go, enjoy, laugh.