War, Inflation and the Supreme Court
Host: Peter Haynes, Managing Director and Head of Index and Market Structure Research, TD Securities
Guest: Frank McKenna, Deputy Chair, TD Securities
In this episode, Frank McKenna, Deputy Chair, TD Securities, takes aim at the highly politicized Supreme Court now that the Republicans are holding a supermajority. How will a very right-wing agenda of reforms to climate change, abortion, and gun laws sit with the majority of Americans, and what does it signal about the Supreme Court? Frank also addresses potential land mines that could be triggered in the Ukraine-Russia war, and cites feedback from business leaders and politicians on the hot topic of inflation and the looming threat of a recession.
FRANK MCKENNA: The Constitution has been shaped and changed over a long period of time, as it should be. People who want to live in the past are trying to inflict their values on other people, not through jurisprudence.
PETER HAYNES: Welcome to episode 28 of our monthly TD Securities podcast on geopolitics with our guest, the Honorable Frank McKenna. My name is Peter Haynes. And I'll be your host for today's episode entitled "War, Inflation, and the Supreme Court." Before we get started, standard disclaimer. I want to remind listeners that this is a TD Securities podcast. And it's for informational purposes. The views described in today's podcast serve the individuals and may or may not represent the views of TD Bank or its subsidiaries. And these views, please, should not be relied upon as investment, tax, or other advice. Just before we get started in taping here today, I asked Frank what he thought of the questions I had sent through late last night. He said they were fine. And I'm yet to come up with a question for Frank that he has said he didn't want to answer. So we're going to go all around the map here today-- lots of very, very important topics. The world is changing before our eyes, more so than I can ever remember in my 53 years on this Earth. Frank, would you agree? I know you've got a few more years or a few more rings around the tree. Would you agree that this is a fairly wild time overall?
FRANK MCKENNA: Absolutely. You almost need a navigator to get through it. The world is just upside down, as we talk through these issues. This is not happening over the space of decades, as change usually happens. This is happening week by week. It's a whole new world we're living in, Peter.
PETER HAYNES: Yeah, and part of it makes me wonder whether it's like everything else. We just get to a conclusion a lot quicker in today's society, whether it's because of social media or other things. Information travels so quickly. And conclusions happen so quickly. But I'll tell you, no shortage of topics. And we're going to jump right in here. So a few months ago on this same podcast, we discussed the Supreme Court list of very controversial cases that were being heard in a what is now super majority right-leaning US Supreme Court. And so last week, we obviously, had a bombshell. And there have been others that have come out over the last few weeks. And there's a few more to follow. So let's focus on the Supreme Court and the most recent decision from last week, which admittedly we had a bit of a look at a month or so ago. And that's the striking down of Roe v. Wade. Where do we go from here on the abortion debate? And do you see any carryover to Canada?
FRANK MCKENNA: Let me start by saying this, because by the end of this podcast, a lot of people are going to want to head to the woods with a bunch of canned goods and hole up in a cabin. Before that, I want to say that in spite of all of the extraordinarily fractious and even threatening things taking place in the world, it is a good news world that we live in. And we did go through a pandemic of over two years in duration. And the resilience of the planet was on full display. Who would have ever thunk that we could basically hunker down and live indoors and be productive during that period of time? So to start with, there is a bit of good news out there. Roe v. Wade, look, I'm just going to directly wade in on that. And I don't think it matters which side of the debate you're on. I think we can all agree on certain things that are very, very concerning about this decision. First of all, it's not a Supreme Court of the United States anymore. It's a political court. And that in itself is a sad, sad thing. In fact, you may have seen polling in the last day or two showing that this court-- the approval rating of this court is the lowest it's ever been in recorded history, five points lower today than the worse level it had ever achieved before. So I feel sorry for Mr. Chief Justice Roberts. He's courageously tried to center the court more, to find a little bit more consensus. And instead, he's just being totally betrayed. That's really an important thing to say because you couldn't look at our court in Canada, Peter, or other courts around the world and pick out the political preferences of every judge and analyze the court in that way. In this Supreme Court of the United States, you can do that. It is not good news. Secondly, the Court arrived at this decision by breaking with precedent of some 40, 50 years. And that in itself is unusual in the United States. Usually change comes about over a long period of time with gradual changes in the jurisprudence. Not only is that unusual, but it only came about as a result of two of the judges, at least two of the judges on the Supreme Court of United States, lying, absolutely outright lying, in the course of their ratification hearings. And I'm speaking of Gorsuch and Kavanaugh, who said that they viewed Roe v Wade as established precedent and made it clear to Senator Susan Collins, and Lisa Murkowski, and Joe Manchin that they didn't have to worry on that account. Now, that might have been willful blindness on the part of the senators. They just didn't want to hear what was going to happen. But a lot of the rest of us knew what was going to happen. And this is the result of that. It's just a blatantly political decision. And I had a little experience with Mr. Justice Scalia, who was another arch conservative on that court. He was at dinner at our house in Washington with a few other judges and others. His wife was sitting next to me. And she got into her cups a little bit. Anyway, during the course of the meal, we had a good conversation. And I said, my God, you know, I'm amazed at how conservative your husband has become in the court. I'm surprised he ever got ratified. And she said, oh, we were pretty good at keeping all of that secret until he got ratified. And then the real Scalia came out. And it just gave me a little sense of the gamesmanship going on in putting these judges on the court. I'm just going to say two other quick things. Republicans and Democrats are playing by a different set of rules here. I give credit to the Republicans in that they know the fight they're in. They're bringing a gun to this fight. And the Democrats are bringing at most a knife to the fight. They're getting badly beaten. You'll recall that it was just three or four years ago when Obama had an appointment to fill with 10 months remaining on his mandate. And Mitch McConnell and the Republicans refused to let it go through the Senate on the grounds that we should not fill an appointment in the last year of an administration. And they filibustered and everything else, or threatened filibustering. And the Democrats folded like a cheap suit. Now, flash forward to Trump's end of term. And with eight weeks left, we lost Ruth Bader Ginsburg. And the Republicans threw a candidate into the nomination process with just eight weeks remaining, at which time Mitch McConnell said, well, those rules were for then. These rules are for now. So the Republicans just rolled over the Democrats on that, which is very, very sad to watch. And the other thing we need to note is that this is an extraordinarily anti-democratic process. The Republicans with 50 senators represent about 30% of Americans. The system is so jigged now to small states with disproportionate power, like Wyoming, and Montana, and all of these states. They've got the same power as New York State with 30 or 40 million people. And so with 30% of the voters, the Republican senators are essentially handpicking a Supreme Court to their liking. So bottom line is that we no longer have an objective Supreme Court of the United States. What we have is a political court. And these results are going to continue to be coming out. And we've seen it in campaign finance reform, political decision. We've seen it-- we talked about gun reform. We've seen it with respect to redistricting. This court has now become the primary agency of the Republican Party of the United States to maintain power. And that is a sad thing. And it would be a sad thing if it were a Democratic Supreme Court just as well.
PETER HAYNES: Do you think that the 14th Amendment, due process, any of these other long shot arguments that are being made out there, that there's any potential safe haven here? Or has that ship sailed with respect to particularly abortion? We'll get to some of the other cases in a moment.
FRANK MCKENNA: Yeah, I don't think there's any relief in any of that because these decisions are not driven by jurisprudence. They're driven by ideology. If you accept that a Constitution is a bit of a living, breathing thing, you can argue all kinds of ways in which a particular subject matter can be interpreted. But in this case, they're looking at this through an ideological prism only. And we've seen campaign finance reform, which before would have been acceptable looked at through the prism of freedom of speech. Gun control legislation-- they've gone from the right to bear arms, Peter, which you could argue means you should be able to carry a musket that well, to being able to carry semi-automatic machine guns, and to be able to conceal them on your person, and to be able to do that without background checks. And the end result of all of that is you can't even recognize what the founders may have intended. Theoretically, there's no reason why this wouldn't extend to a bazooka, which some might argue was necessary for them to be able to bear arms. And the next thing you know, you'll have a tank parked in everybody's yard because the Supreme Court will take it a little step further. So what we're seeing here is not something that can be fixed by jurisprudence. It can only be fixed with a change in the structure of the court.
PETER HAYNES: You mentioned living, breathing organism that the Constitution is. I want to read you a passage from the dissenter opinion in Roe v. Wade, which came out last week. Quote, "When the majority says that we must read our foundational charter as viewed at the time of ratification, except that we may also check it against the dark ages, it consigns women to second class citizenship," the dissenters wrote. The drafters of the original Constitution, quote, "did not perceive women as equals and did not recognize women's rights," the liberal justices wrote in the dissenting opinion. I know you mentioned it's a political court, Frank. But do you also believe that the Supreme Court is simply out of touch? And if so, what can be done to rectify this disconnect other than either packing the court, or, alternatively, waiting until some of the existing judges on the court pass on during a period in time in which the minority is in power?
FRANK MCKENNA: Well, the latter is a very, very long chance. You have somebody like Amy Coney Barrett who's probably in her mid-50s. And chances are, she'll be around for 30 more years. Gorsuch, Kavanaugh, they'll all be around for 25 or 30 years. So I don't think we're going to have much success that way. I think, at the end of the day, it may be after a year or two there'll be nothing left. It'll be a scorched Earth. They'll have pushed everything to the very limit. People like Mr. Justice Clarence Thomas, he's signaling almost that he'd like to take on contraception itself or go even further with some of these arguments that could get into some of the same-sex relationships. And all of this is leading towards a really polarized country in which battlegrounds are around social issues, instead of the very, very important economic issues that preoccupy everybody. So I just despair. I'm surprised the Supreme Court wants to throw such a political bombshell out there, then one on top of the other and on top of the other. And it almost seems as if they want to act as if they were elected. And they almost seem to accept the words of some duly elected senators and congresspeople that the Constitution is divinely inspired, which means it's really written with the hand of God and, therefore, incapable of change. But if that were the case, women still wouldn't have the full vote. And African-Americans wouldn't either. So the Constitution has been shaped and changed over a long period of time, as it should be. Every Constitution has to adapt to the circumstances of the day. And in this case, people who want to live in the past are trying to inflict their values on other people, not their jurisprudence.
PETER HAYNES: We touched on the gun ruling that came out recently as well about use of handguns. You made your point there for sure.
FRANK MCKENNA: There's an interesting aspect of that I have to point out. Part of the argument that was being made in the case of Roe v. Wade and abortion is, look, this should be put back in the hands of local authorities. Push it back to the states. And we'll respect their rights, fine. So in the case of the latest gun rule, it's the Supreme Court overruling a state and New York State 100-year-old rule against the right to open carry and basically said, no, no, you can't do that. You can't change the rules with respect to a Second Amendment argument. So there's a horrible inconsistency in their arguments. But I don't think they care about that because again, they're ideologically driven. And they want their personal beliefs to prevail, not necessarily a sound jurisprudential argument.
PETER HAYNES: And there's some correlation there between people that would argue against taking vaccines but then, also, want to protect the individual rights of an individual with respect to abortion. So it's amazing how contradictory some of these views are. It is, I think, ironic as well that this gun law change in the United States, the first time the Supreme Court's touched gun rules in 10 years, that literally weeks later, Canada bans the use of handguns. And while it did get some fanfare, really didn't get very much-- the exact same time as the Americans are at the Supreme Court broadening the use of handguns. And very regularly we're seeing these terrible tragedies, including the one in Texas involving so many children. So again, we're in very, very strange times.
FRANK MCKENNA: Peter, that does reveal a major difference in the two countries. And I'm not making a judgment. That's just fact. We've evolved differently. And in Canada, there's a respect for collective rights. There's a belief that, from time to time, individual rights have to give way to collective rights. In the United States, there tends to be much more reverence for the individual rights in spite of some of the best jurisprudence in the world. Statements like Oliver Wendell Holmes-- "The right to free speech stops when you yell 'fire' in a crowded theater." That just makes so much sense to me. But the problem we have is that our collectivity, I think, have accepted that some measure of gun control is acceptable. And so it's being passed. And so it is. But the majority of crimes in Canada, something like 70% or 80% of murders in Canada, are committed with guns smuggled across the border from the United States, where they buy guns with impunity at gun shows, a dozen at a time, and smuggle them over the border. And this terrible calamity in Nova Scotia that's in the news so much now, three of the guns came in from the United States of America that were involved in that atrocity. So the American problem is not just their problem. It's our problem too.
PETER HAYNES: And just a little side tidbit. I have a friend of mine who owns a gun store. And after the government banned handguns, he sold 2,000 in the span of a week. And he didn't have enough staff to be able to process the 30 minutes it takes to approve each one of the handgun applications. So you started to talk about collective versus individual rights. That's a great segue into my next point about the EPA, because I spend a lot of time in the world I live in day to day on market structure, where we argue about the individual rights of a participant versus the collective rights of the market itself. And this really does come down to some of the rules we would like to see changed in the markets, which are governed by an agency of the government, the FCC. There's a case being heard right now, which is West Virginia versus the EPA-- and we should hear results on that very soon-- that threatens to limit the agency's ability, the EPA that is, to reduce carbon emissions. And most pundits expect the court to rule in favor of the plaintiff. Quite frankly, there's no reason they won't based on what we've seen and what you've talked about. This particular case crashes, as I mentioned, into my day to day world because it questions the reach of government agencies in the US, such as the EPA, who have been granted, delegated authority from Congress to regulate industry. It seems to me like every day the SEC, in my world, is being sued because it has authority to write rules and regulate markets. And of course, when these rules threaten the profitability of a commercial entity, we end up with a lawsuit. The reason for delegating authority to a government agency is to put rule-making in the hands of experts rather than politicians. And yet, this current court seems predisposed to severely limit the reach of delegated authority. Does this concern you?
FRANK MCKENNA: Well, it concerns me very much and particularly as a Canadian that relies enormously on the good grace that relies enormously on the good graces of our friend and neighbor of the United States-- part of our economic survival-- it concerns me because we live in a world where we need guardrails. Unfettered attacks on rulemaking really are bad for everybody in the economy, even though an individual may win with their attack. But our free trade agreement with the United States protects a trillion dollars in trade, which has been to the benefit of both countries. But it's quite unpopular in many Republican circles because of the adjudication process, which puts decision making in the hands of the WTO on appellate courts. And many conservatives in the United States don't think that they should subordinate themselves to anything or anybody. And so we in Canada have to fight very hard to make sure those guardrails are there. And that's the same with the regulatory authorities you're talking about. There are a body of voters in the United States, or opinion makers, who don't want any kind of regulation at all that would impinge on their freedom of movement or freedom of activity. And almost invariably, the result of that is that somebody very big and very rich ends up prevailing over a mass of people who have no such protection. So I think it's unfortunate and wrong. Rules are designed to protect the greater collectivity. And do they go too far sometimes? Of course they do. And it's fine that you need to be able to try to deal with that. But the idea of living in a society without rules-- in this case, we've got two things coming together, which makes me believe that what you ordain to be the decision will be the decision. One, Republicans' disdain for federal overreach, if you like, or rulemaking, and, secondly, disdain for anything to do with environmental remediation or respect for environmental controls around the world. That's not true for all people of Republican faith at all. In fact, there are many who would have different views, especially at the estate level. But it's largely orthodoxy of an influential group of Republicans that we should just keep the environment, ESG, et cetera, out of all considerations.
PETER HAYNES: Well, I'm not a lawyer, Frank. But I have spent a lot of time reading DC Circuit Court of Appeals rulings. And the terms "arbitrary" and "capricious" show up everywhere. And so that's my-- my son wants to be a lawyer. So I'm sure he'll be able to teach me a few things, as you have over the years. But before we move on to some of the economic issues we need to worry about and the war, Biden's approval ratings are approaching the lows set by Donald Trump. And those were low. There's multiple explanations for this low approval rating. But the fact that Biden hasn't really figured out who he's trying to please-- is he pleasing the extreme left of his party, or is he trying to please the middle? At the end of the day, maybe he's pleased no one. And quite frankly, he's dealing with some cards from the previous administration that were dealt to him before he took the job. Do you think the Supreme Court rulings that have happened recently, which are out of touch with the majority of citizens in the United States, could help bolster the president and his party in the fall midterms? And what are the other factors that you think are driving Biden's poor ratings?
FRANK MCKENNA: Well, to your question first, I think only at the margins, suburban women and, generally, suburban voters would be the most hostile towards those two Court rulings. But I don't know if the Democrats are able to energize them with these rulings enough to overcome the natural tendency to vote against the incumbent party in midterm elections. Biden is definitely in a world of hurt. And this party is in a world of hurt. I personally don't think he deserves the knock on his own reputation. I think he's just a thoroughly decent human being trying to do a thoroughly decent job. But he's got a lot of things going against him. One, he's not been particularly adept politically at managing his own party. The left wing are really tearing the party apart, in my humble view. He's not able to build consensus within the party. So that's a big issue. He's allowed himself to be pushed around by interest groups who have been waiting for this time and just want too much, too quick. And then he's the victim of things beyond his control. He lives in a country where something like close to 40% of voters don't think he's a legitimate president. Now, it's pretty hard to do your job when a very large group of voters led by your-- the previous president have come to the conclusion that you weren't legitimately elected. I think if-- and I've said this before. Donald Trump, he'll have his supporters, distractors. Those people who love the Court that he's created will think he's the best president ever. There are others who won't. But if there's an evil, an evil above all others that I would visit upon him, it's the systematic undermining of the legitimacy of the office of president. I think that's a terrible, terrible precedent. And it's certainly caused Joe Biden a lot of weakness. So he's got all of that. The shambolic way in which they withdrew from Afghanistan wasn't pretty. He landed in the middle of the pandemic, one where the United States, because of the decisions of the Trump administration, not the Biden administration, probably lose as many as three times as many people to deaths as other parts of the world-- and I'm talking about, really, the Western world-- as a result of the approach they've taken and the management of the pandemic and the divisions within America around the pandemic. He landed in the middle of that. He landed in the middle of China basically closing the country down to deal with the pandemic-- that's really wreaking havoc on supply lines and that part of world trade-- and a war, a brazen effort by Putin to become Peter the Great and expand his empire, essentially bringing the world to the verge of food famines as well as high levels of inflation. And you just put all that together. And I would say for reasons probably more outside of his control than in his control, he's a very unpopular president leading a very unpopular party. And I think we'll see the results of that in the midterms.
PETER HAYNES: I know we had G7 meetings on the weekend. And you certainly get the sense that, particularly in Europe, they're watching closely that Biden may lose his grip on the country in the fall at the midterms. And this may hurt his ability to continue to really be the Western world's leader in terms of supporting Ukraine in the war against Russia. But as we turn to the war as a topic, it feels like there are a lot of potential landmine events that could innocently result in an escalation in the war. One of them, of course, is Article V and the risk of an attack on a NATO ally, or at least the perception of an attack on an ally. For instance, recently, there was some concern that Russia might retaliate against Lithuania, which is a NATO member, for blocking land transportation or rail transportation of goods to a small Russian territory called Kaliningrad, which does not have a direct border with Russia. And you really, I think, can think of it like Alaska to the United States. Do you fear that a rather innocent escalation of events in Ukraine may turn into something that makes the war get much worse?
FRANK MCKENNA: Well, there's certainly that danger because Russia are blowing off missiles all the time. And they don't seem to be particularly scrupulous about where they land. Just as we speak today, a missile landed in the middle of a shopping center and destroyed it with loss of life. What's happening is it's almost Stone Age in nature, basically, where you level every village and city in your path-- horrible. What's happening is nothing short of horrible. I think there is the danger of that, the danger of spilling over into Lithuania, as you've just talked about, or even into Latvia or Estonia or Moldova. That's a danger. I think maybe a bigger danger, even, is as the war drags on, experts are saying-- and I don't know if these experts know what they're talking about for sure. But a lot of experts are saying Russia is enjoying military success at the present in the Donbass. It's an area that has a lot of people sympathetic to the Russians. Anyway, it's an area in which they had a lot of troops, and they've been very successful most recently. They've cleared another city and taken it from the Ukrainians and are moving on even further. And so they're enjoying a certain amount of success. What experts are saying is that masks a structural weakness in the Russian strategy that, as the summer turns into fall, is going to play out. And that is that they do not have enough materials and they do not have enough men to sustain this war. And if they try to expand the battlefield, they are going to run into big trouble. Not only that, but you're seeing the Ukrainians starting to counterattack now in Kherson, for example, which was a very strategic location. And they're trying to open up better access to get their products out of their ports. And if they start pushing the Russians back in a number of those areas, with Russian morale low and with Russian military equipment starting to fall apart, you may see an army, Ukrainian army, motivated by success and with some of the latest weaponry in the world. I'm talking about artillery formations that can send shells out 40 and 50 kilometers into the distance with devastating effect, and suicidal drones, and ground-to-air missile protection systems. So we're talking about some very sophisticated weaponries being put in the hands of a highly motivated party against a dispirited, I would suggest to you, Soviet Union. At the same time, the Soviet economy is definitely suffering the effects of the sanctions, including the first default today since 1917 and export controls on gold, et cetera. So I think systematically, even though Russia has been holding its own in some ways, as we get further into the year, Russia may start losing ground. There may be a chance that this war turns completely around, in which case I think there's a lot more to fear from because Putin then-- it becomes a desperate man. Right now, I think he's an anxious man. There are things happening that I don't think he anticipated-- freezing of foreign reserves, SWIFT incoming so quickly, the level of solidarity of Western nations. I don't think he expected a lot of that. But if he gets in serious trouble, I would be very concerned. I've talked to I don't know how many world leaders-- presidents, prime ministers, people who have known Putin all the way going back 15 or 20 years. And they all say the same thing-- very dangerous, sociopathic, extremely smart, and extremely dangerous. And so that worries me more, Peter, the fact that Ukraine may end up win or start to win this war, in which case Putin would become a wild card. PETER HAYNES: And we always say we have to find-- you hate to admit it. But you do need to find to give him a way out that doesn't embarrass him with his own country if--
FRANK MCKENNA: Well, I think as that famous military philosopher-- was it Sun Tzu-- said, you need to leave a golden bridge for your enemy.
PETER HAYNES: Yeah. That is very true in today's world. Now, again, at this G7 summit over the weekend, there was some talk again about-- I don't really understand what they're saying-- about capping oil prices coming out of Russia. But obviously, one thing that's happened as a result of the war has been significant increase in profits for global energy companies. And I'm curious, Frank. Obviously, you have some exposure personally to the energy patch. We saw the government in Canada tax banks that made perceived outsized profits during the pandemic. And some countries, more recently, have moved to tax-excessive profits in the energy sector. Are you expecting Canada's government to push for new taxes on the local energy sector? And if so, is there any way that this could somehow be turned into a positive outcome?
FRANK MCKENNA: No, I do not think that they will tackle excess profits in the oil and gas sector. They've done this in the UK, as you know. There was a lot of popular support for it. And it got pushed. And in Canada, the NDP are pushing for it. The reason I don't think it will happen is that there is a major and extremely important to the country-- "negotiation" might be too strong a word-- understanding developing between the West and Ottawa about how to deal with carbon emissions. And the Pathways project pushed by the Oil Sands company has, effectively, laid out a way in which carbon capture, sequestration, and other measures can remove a lot of the carbon from our energy. And the government of Canada is participating in that with a very significant tax deduction. But a lot of capital is going to be required from governments and from the private sector-- massive amounts of capital. And I think the governments want to keep the energy companies motivated and well capitalized as we go through this process. And I think if we were to turn around and to lay a big and very offensive tax on them at this stage, that might throw a spanner into the hard work that's being done.
PETER HAYNES: There's been a real change in environmental discussion post the war, particularly around climate footprint, because it's gone from comment about carbon emissions to one of energy independence. And so I am curious, Frank. When you talk about carbon capture and some of the things that the industry is doing to try to improve its carbon footprint, do you get a sense that investors that you speak are going to invest in this type of required capital expenditure, or will they sit on the sidelines? And I'm thinking maybe specifically around the pension community, many of whom say they want to support transition. The question is, will they invest in that?
FRANK MCKENNA: To start with, you might ask, with the world so desperately in need of energy now, why we wouldn't be ramping up production. Our oil sands are the second or third largest source of energy in the world. Well, the fact is there is not enough regulatory or political certainty to invest in 20-year, 30-year projects. So that's a big constraint in Canada, and not only from the companies who are producers, but, I suspect, from the financial community as well. So I don't think you'll see big, new investments in those areas. I think pension funds and others will invest in the transition economy. The problem we have, Peter, is that we've just-- there's some terrible calculations have-- miscalculations have been made by people trying to hurry too fast and by well-meaning, but misguided, groups. I'm talking, really, about environmentalists and their allies who wanted to get to heaven without dying first. And it's just not working. And we see a good example of that in Germany, where 30% of their energy used to come from nuclear, which, I would argue, is a very green form of energy. It's certainly not a carbon-emitting source of energy. And yet it became-- after all of the other easier targets had been extinguished, it became in the gun sights of the environmental movement. And Germany went from about 30% nuclear to the point where it's down to close to 0% now. That 30% has been filled in with Russian oil, coal, and natural gas. I think that's just stupid. If one were to take your time and slowly transition from nuclear into a renewable economy, a sustainable economy, that I would go for, completely. But too many people have rushed out the door saying, let's cut off oil, gas, and everything else. And all of a sudden, we're sitting there with $100 oil because there's not enough of it. And it's in the wrong places on the planet. And that's just not smart. We're paying the price for a lot of silly decisions. I'll give you an example. Today, there's a lot of news around the German chancellor, Scholz, meeting with our Canadian prime minister, saying, I need help with natural gas. Can you help provide Germany with natural gas? And of course, Trudeau is saying, oh, yeah, we'll try to help you. Well, with respect, I call bullshit on that. We have lots of natural gas. We just can't get it to anybody. We're fighting to get it off the West Coast. We had about seven or eight LNG projects. Everybody's walked away from the environment in Canada because it's been so difficult. We're down to one. And trying to get gas from the big fields, like the Montney and everything, out to the coast, we've had to go through absolute total obstruction in spite of court rulings and everything else. On the East Coast, where there's-- Germany is saying we want gas to come from, we can't get gas from the West to the East Coast, not through Canada. You can't get anything through Quebec. So you would have to go down into the United States and drive your gas into the US and then get US gas and bring it up a small, little pipeline that we have along the coast of Canada. So Trudeau can nod his head and say, yes, we'd like to help you out. But we don't have the means to do that. We have one solitary LNG facility designed for import in Saint John, New Brunswick. It'll take three or four years to turn that around and make it an export facility if we could get gas. So Trudeau's honest answer to Scholz should be, just like you, Chancellor, we really screwed it up, shot ourself in the foot. And as a result, we really can't help you very much.
PETER HAYNES: Yeah. And unfortunately, the easy answer is the political answer, we'll see what we can do. And then nothing comes of it. Let's just finish up here, Frank, because, obviously, energy has led to inflation. And I was listening to our economist-- or TD Securities strategist earlier today talk about terminal interest rates and where the Fed will go to in July, et cetera. And I'm going to leave-- you and I will leave all that to the financial people that are good at that stuff. But let's talk about the business leaders and political leaders that you're speaking to. Do they have confidence that the central banks in the world are going to be able to rein in inflation through monetary policy alone, or do you think governments are going to have to really, really cut back in spending at the same time? Where are people at to avoid this runaway inflation that you'll remember from the early part of your business career and I remember from the early part of my life?
FRANK MCKENNA: I think that businesspeople are like all of us. We just don't know. We're hoping for a soft landing, so-called. But I'll tell you, it-- in order to engineer that, you're going to have to thread the needle. Did I say businesspeople are concerned about inflation? There's no doubt that they are. But what they're worried about just as much is that the only way that we can absolutely deal with inflation head on is to trigger a recession, either mild or moderate or even more serious. And I think businesspeople just don't know whether governments can pull it off and central banks can pull it off. We're in uncharted waters. We've just got 2 and 1/2 years with the pandemic. Massive amounts of money have been spent, which have been, in themselves, stimulative. But they've also drained treasuries. What firepower do we have left if we get into a recession to turbocharge our way out of it? I would say we're just in uncharted territories. People are worried about inflation. But they're also worried about the medicine to-- designed to try to stop inflation.
PETER HAYNES: I guess the positive, Frank, from a dealer perspective is I know the fixed income market makers love this kind of volatility. And it shows up in the bottom line of some of the banks, as I'm sure when we see them-- the US banks start to report in July, you'll see the trading revenues in the fixed income world are, I'm sure, likely going to be very positive. Well, Frank, something I'm not very positive on right now is the Blue Jays. So as of recording-- I know you're going to laugh about that. But as of recording, we're tied for third place with Tampa. We're behind the red-hot Yankees. And if you can believe it, the Boston Red Sox are ahead of us now. And they were left for dead in May. I left them for dead. I must admit, Frank, I feel there's more to be worried about with the Jays than happy about right now. And I'm starting with our rotation. Do you feel the same angst that I do?
FRANK MCKENNA: Yeah, totally. I think the team is really underperforming. To start with, on the offensive side of it, every player, I think, you could name, with the exception of Kirk, is underperforming their potential-- maybe Santiago Espinal. But otherwise, all the big guns are underperforming their potential. So they can't carry the team if the pitching isn't super. Our pitching is just too thin. Our relief corps, our middle relievers, our-- even our starting rotation now is starting to look thin. For a while, we looked great. But I think arms were fresh and there was lots of energy around, and so on. Now the only way we could win, I think, is we're going to have to get an arm or two. And we're going to have to get really hot bats. I also have to say this. And I love the guy. Watching him, he seems like he'd be a great grandfather, Charlie Montoyo. But I watched him get out-managed by several of the other managers they were up against fairly consistently. And so I don't think we're getting help there, particularly. But it would be wrong to just blame it on him. The bats aren't batting. And the pitchers aren't pitching. So I think the team is too good to stay this way. But right now, I'm a little despondent about my Jays.
PETER HAYNES: Yeah, we're in our wild-card spot. And there really isn't a lot of competition for that. But I don't feel-- heading into the playoffs won't be a particularly great way to get there, especially if it means you got a date with the Yankees sometime early in the playoffs. Our rotation is Spahn and Sain and pray for rain right now, which is Gausman and Manoah capable of getting us any outs. So they're going to have to do something. They're going to have to give up some of their capital that they've built in the minor league system if they want to somehow find a starting pitcher, like Luis Castillo from Cincinnati, who will probably be on the block and everybody says is going to the Yankees. So it will be very interesting. I don't like where we're at right now in a lot of ways. And even though Vladdy won Player of the Week last week or two weeks ago, there's something missing there. Something is different. And I can't put my finger on it. I was chasing more pitches. But I don't know, Frank. I love Vladdy so much.
FRANK MCKENNA: I do, too.
PETER HAYNES: But he's not the same.
FRANK MCKENNA: He's just not getting escape velocity or something. He's hitting a lot of balls hard, but he's not hitting them out of the park. And he's not hitting them with runners on base. There is definitely something missing there. And there's just no consistency. His numbers aren't horrible. But for him, he's underperforming. And Bichette's underperforming. And Springer's underperforming. And Teoscar's underperforming, and all of them. Now, there is hope. They've got three of the best catchers in the major leagues. Who'd have thunk it? I think this Moreno-- I think he's going to be special. He's one of the fastest player-- and he's a catcher-- one of the fastest players in the major leagues in addition to having a gun for an arm and a good bat. So he's a good one. There's a pitcher out in Vancouver, I'm told, that is lights out. Anyway, it's not enough.
PETER HAYNES: No, I agree. And it's not coming soon enough. Well, it's going to be fun-- dog days of summer here coming soon. I want you to enjoy yourself throughout the summer here. I'm sure you'll get back to New Brunswick, at least at some point. And we'll look forward to seeing you back in Toronto sometime soon, Frank. Thanks very much today. And we'll check in again in July.
FRANK MCKENNA: Thanks, Peter.
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Managing Director and Head of Index and Market Structure Research, TD Securities
Managing Director and Head of Index and Market Structure Research, TD Securities
Managing Director and Head of Index and Market Structure Research, TD Securities
Peter joined TD Securities in June 1995 and currently leads our Index and Market Structure research team. He also manages some key institutional relationships across the trading floor and hosts two podcast series: one on market structure and one on geopolitics. He started his career at the Toronto Stock Exchange in its index and derivatives marketing department before moving to Credit Lyonnais in Montreal. Peter is a member of S&P’s U.S., Canadian and Global Index Advisory Panels, and spent four years on the Ontario Securities Commission’s Market Structure Advisory Committee.
Deputy Chair, TD Securities
Deputy Chair, TD Securities
Deputy Chair, TD Securities
As Deputy Chair, Frank is focused on supporting TD Securities' continued global expansion. He has been an executive with TD Bank Group since 2006 and previously served as Premier of New Brunswick and as Canadian Ambassador to the United States.