R. H. Mark Mawhinney

My thoughts on business, politics, economics and life in general.

May 27, 2009 9:58am
May 27, 2009 9:55am
Mar 6, 2009 8:37am

Maria Bartiromo or Jim Kramer won’t pay for my losses

I am not a regular watcher of Jon Stewart’s show. In fact, I don’t think I have ever watched more than five minutes at a time. However, the following vignette was sent to me last night by a friend who is an investment advisor with a major firm. I enjoyed it and thought you might too.


Using his own dry humour and some clips from business media over the last eighteen months (including notables like Kramer and Bartiromo) he illustrates the folly of taking business talking heads as being experts with their fingers on the pulse of all investment matters.

About eight years ago I decided to take on responsibility for management of my investment portfolio. This doesn’t necessarily mean managing an account and executing trades, as I do. But it does mean not acceding an understanding of what one owns and why.

There are lots of suspect investment managers and brokers who, frankly, don’t know anything more than how to sell. But there are also lots of investment advisors who know what they are talking about and always work toward their clients’ best interests.

This topic of understanding one’s portfolio and choosing their advisors is of some interest to me. I will write more on it in the future.

Mar 2, 2009 11:54am
Mar 2, 2009 11:48am


There is not much good news being published in the stock and bond markets these days. While I have no idea when the current economic malaise will subside, I do have hope that we are closer to the bottom than the top (although I don’t believe I am able to time the market, so I don’t try).

As a class B shareholder of Berkshire Hathaway stock I haven’t been been totally insulated from market meltdown. I was pleased, though, to see that while the S&P 500 was down 37% in 2008, Berkshire was down “only” 9.6% for a difference of 27.4%.

Since 1966 there are only five years where the S&P has come out ahead of Mr. Buffett. Let’s hope Berkshire keeps up this trend even when the Oracle retires.

Feb 22, 2009 2:13pm

The Stimulus Bill – it’s about government growth, stupid

"It’s the economy, stupid" was a popular phrase during President Bill Clinton’s first run for the White House when he challenged President George H. W. Bush in 1992. Fast forward to 2009 and Congress has passed a $787 billion "stimulus" package that is supposed to create jobs and invest in America’s future.

Government has this nasty habit of passing “temporary” legislation. In Canada our 1917 Income War Tax Act is a classic example. This was a temporary national general tax on personal and corporate income (the first in Canada) meant to help fund Canada’s costs associated with World War I. Last time I checked this temporary tax is still imposed – every two weeks for most people.

Last week the US Congress passed a 1,073 page “bi-partisan” (243 House Democrats, 57 Senate Democrats and 3 Senate Republicans) stimulus bill as a one-time jolt to the US economy. If we are to believe one of President Obama’s chief advisors, David Axelrod, this bill is the answer to all of America’s woes. It will create jobs. It will invest in infrastructure. It will save the US from the brink of depression. It will prove that President Obama is the world’s saviour.

The Wall Street Journal ran a piece this weekend which detailed each category and associated amounts of spending under this bill. After printing the 38 page article, (I read better off of paper than the computer screen. I do re-use paper where it is possible), I spent some time sifting the data to determine how much of the $787 billion is actually meant for investing in America’s future and how much is going to “temporarily” expand the size of government.

These are important distinctions. I’m not generally a supporter of government intrusion or bail outs, but if it is accepted that government is going to provide stimulus (and it is) then the stimulus should be in the form of capital investments and not ongoing program expenditures.

Capital investments in roads, railways, telecommunications infrastructure, satellite communications, hospitals etc. will provide long term benefits. Ongoing programs will do nothing more than permanently expand the size of America’s government.

In broad strokes, I’ve defined:

Investment as capital expenditures that invest in plant and infrastructure.
Programs as spending that will either need to be cut once the tap is turned off or be maintained by the government in perpetuity (remember Canada’s temporary 1917 Income War Tax) with increased taxes.
Tax adjustments as anything that provides a deferral of tax (not actually a reduction), acceleration of write downs (not really a tax deduction), tax credits (refundable and non-refundable) and tax reductions.

Here’s a summary of how this bill spends taxpayers’ money:

Programs: 43%
Tax adjustments: 34%
Investments: 19%
Research: 3%
Repairs and maintenance: 1%
Oversight: 0.3%

Aside from the concept of a government stimulus, the thing that concerns me the most about this huge government stimulus is that 43% of the money (almost $332 billion) is allocated to programs that will be anything but temporary. Once the stimulus runs out, the US government will either need to keep funding these programs or the people they employ will be out of work.

Only 19% of the stimlus is marked for investing in America’s future. If this were truly a “job creation” program and not a “government expansion” program, I propose that none of this misplaced stimulus would be for programs and all of it would be alocated to rebuilding US plant and equipment.

I haven’t performed the same analysis on Canada’s recent budget, but am interested in seeing any research that you may have done.

Feb 22, 2009 1:57pm
Feb 7, 2009 2:15pm

Should bank executives` pay be pegged to that of the US president?

Barack Obama will make $400,000 this year as President of the United States. Some are arguing that as part of the bank bailout, auto maker bailout, everybody who’s taken too much risk bailout, the government should peg senior executives’ pay at companies that take TARP funds to no more than the President’s remuneration.

I have referenced a January 30, 2009 post from http://dealbreaker.com that does a decent job of breaking out the president’s total remuneration. Not knowing residential rental rates in downtown Washington DC, I don’t know that I agree with the $100 per sq. ft. he quotes for use of the White House (he’s also made the mistake of counting the whole house at 55,000 square feet where, to be fair, he should only be including the residence’s square footage – the rest is office and ceremonial space).

Notwithstanding this, Dealbreaker’s post clearly shows that while POTUS is only paid $400,000 to run the world’s largest and most successful nation, his total remuneration package is very healthy. With this in mind, I don’t know that the US government should be benchmarking its TARP recipients’ senior executive pay to POTUS!


Feb 2, 2009 12:00am

Hand on hot stove = pain

In the interest of full disclosure, I do believe that government has a role in society. Protecting property rights, enforcing the law and keeping our borders secure are some of the most important functions. However, manipulating the economy, owning businesses or running businesses are not functions government is equipped to do well.

I have been very disappointed that over the course of this economic unwinding the press (some of it well respected) and so-called “free market” economists have jumped on the Keynesian bandwagon with such great fervour. It seems that everywhere I turn there has been a newspaper or an economist arguing for a big stimulus and a fast stimulus.

My disappointment has been a bit muted more recently because some pundits are beginning to question the size and effectiveness of the American stimulus package and our more modest “made in Canada” version.

As we are all now well aware, the American mortgage market got way out of hand with people taking on debt that they had no ability service. Then these debt obligations were being packaged up, securitized and resold on the basis that, because these sub-prime mortgages were distributed piece-meal through these securities, the risks were mitigated.

You’ll see a previous post of mine (read it here) where I outline, from my perspective, the cause of our current malaise. History aside, fundamentally we had people borrowing money they couldn’t afford to pay back. They were banking (pun intended) on their real estate rising in value in perpetuity. They took risks that were far too big - they were excessive.

Now the aberration of the current stimulus package, with the Troubled Asset Relief Program (“TARP”) leading the way, is that it is ultimately going to promote excessive risk. The US government has put $45 billion each into Citigroup and Bank of America instead of letting them die. By propping up these failed enterprises, the US government has sent the loud and clear message that business can take massive risk and reap the rewards (bet big, win big) and, at the very worst, come out even if things go south.

The government has removed the down side of risk.

Think about this in terms of a poker game. If players know that worst case scenario was to come out even then they would always bet huge sums on risky hands. Without the potential to lose their entire float, there is no incentive for a player to think about the potential reward or loss in light the risk he is taking. This is the same behaviour we will begin see from private enterprise like US banks and auto makers.

Scarcity and incentives are two tenets of economics. We all make decisions to invest, save or spend our money. If we remove incentives created by risk then that it is not hard to see how our decisions will be distorted.

When kids put their hands on a hot stove there is a repercussion. Similarly, there must be repercussions for a failing business. There must be pain.

Jan 28, 2009 12:00am

Customers are partners, not adversaries: WestJet versus Air Canada

This post is on customer service because of an email I recently received from WestJet. I’ve appended it below.

As a valued Guest, we would like to remind you that you currently have a credit which will expire on the date listed in the above subject line.

You can use your credit to book a flight for yourself to visit friends and family, or you can surprise a friend or relative by transferring your credit to them. Please contact our Sales Super Centre in Calgary at 1-888-870-6258 prior to the expiry date if you’d like to use or transfer your credit.

With over 45 North American and Caribbean destinations to choose from, planning your next trip has never been easier. Visit westjet.com for more details. Your credit can only be used to book flights and is not eligible to book packages with WestJet Vacations.

If you have already used your credit, we thank you for choosing WestJet, and look forward to seeing you again soon!

Bob Cummings, Executive Vice President

Guest Experience & Marketing

This is the second time WestJet has contacted me to remind me of credits I had forgotten. Last time the company actually phoned me. WestJet could have just let the credits expire and it would have been fully justified in doing so. However, by being proactive, the company sends me the message that it cares about me as a guest and is looking out for my best interest.

WestJet “gets it”. The company understands that customers matter. It understands that the only rules that are important are those that help your customers come back over and over again. It understands the big picture. In this case, it “spent” $100 on my credit, but by doing so ensured that I will continue to be loyal to the company (and I fly back and forth between Prince George and Vancouver almost every week).

Conversely, Air Canada, WestJet’s main competitor in Canada, took the following approach when “retiring” some Aeroplan points from my father.

My father did a lot of domestic and international business travel when he was professionally active. He often paid full fare for first or business class seats. He had been loyal to Air Canada since the 1960’s – even when being pressured by colleagues to fly Canadian Airlines, WardAir (in the day) and WestJet. Over time he accumulated a lot of Aeroplan points, so when he received a statement notifying him that a large portion of his points had been “retired” he was, naturally, surprised. When inquiring with Aeroplan, they simply notified him that rules had been sent out to him and that, had he read them, he would have known that unused points are eventually retired.

It was his fault for not reading the rules. Aeroplan was right, no doubt. But I too was at fault in respect of my credits with WestJet. Both credits were sitting there on my account and I just had not used them. But instead of letting my credits expire, in accordance with its rules, WestJet was proactive. Air Canada’s Aeroplan was not.

WestJet’s approach has had the benefit of creating a collegial relationship with me. Air Canada’s approach creates an adversarial relationship. What I now find is that I give WestJet a lot of slack when it is running late, has equipment problems, makes errors etc. etc. That is because I know the airline cares about me and looks out for me. I do not afford Air Canada that latitude.

I do not blame Air Canada’s front line employees, but I do blame Air Canada’s management. Management creates the culture and empowers its staff. It does this by espousing a system of beliefs and by setting boundaries.

It may sound a bit glib, but providing exceptional customer and guest experiences is not that hard provided that an organization has a clear system of beliefs (“without our guests we would not exist, therefore, we believe in making every experience with our company a positive one”) and easily understood boundaries (“we are never permitted to blame customers”).

The system of beliefs should permeate the entire organization. It is a feeling, it is a culture and, developed and deployed properly, becomes a non-negotiable for every member of a company’s team – from the CEO to the janitor.

Setting boundaries and then letting your team operate anywhere within those boundaries permits creativity, entrepreneurship, empowerment and fleet footedness. Let them loose to do what they think is right. The CEO of the hospitality company I consulted to put it best when he said, “if it feels right then it probably is – so do it”. He was able to provide this freedom in part because we had clearly defined boundaries and a terrific system of beliefs.

Here is to WestJet’s continued success and growth. Let’s hope more companies are able to follow the example it sets

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