Guest: Frank McKenna, Deputy Chair, TD Securities
Host: Peter Haynes, Managing Director and Head of Index and Market Structure Research, TD Securities
Frank McKenna, a proud Canadian, shows his true passion for Canada in Episode 44 first defending Canada in its diplomatic dispute with India over the killing of Hardeep Singh Nijjar, a Canadian Member of the Sikh diaspora in Surrey, BC, then arguing against Alberta's potential separation from CPP and finally championing the partnership between The Federal Government and Indigenous communities for the soon to be finished Trans Mountain Pipeline. Frank believes Canada's actions are enough following the unfortunate incident during Ukrainian President Zelensky's parliamentary visit in Ottawa that has now been politicized in both Canada and Russia and he touches on the impact of a U.S. government shutdown. The pod finishes up with Frank asking, perhaps rhetorically, for more cheerful topics next month – we make no promises.
This podcast was recorded on September 27, 2023.
FRANK MCKENNA: An extraordinarily, extraordinarily troubling event, I think you'd have to say. Why did Trudeau say this when it was clear that they weren't ready to make an arrest at that stage?
PETER HAYNES: Welcome to episode 44 of Geopolitics with the Honorable Frank McKenna. My name is Peter Haynes, and I get the pleasure to host this monthly podcast series from TD Securities. People often ask me about how much Frank and I prep for these podcasts and how many run-of-show meetings we need to get each episode done. And quite frankly, people don't believe me when I say I send Frank the questions the night before taping. He answers them the next day without question or debate, every one of them. Frank, it really is an honor to sit in this chair and be able to grill you relentlessly each month.
FRANK MCKENNA: Well, it's an honor to be able to be grilled relentlessly every month, Peter.
PETER HAYNES: I've got a lot for you this month, and a few surprises, too, that you weren't expecting. I know you once said we should try to do this show where I don't send you the questions in advance, and I'm not comfortable doing that. But I am going to throw a little curveball at you a little later here, see if it's in the zone and you can hit it. We'll get to that a little bit later. Let me start with a quote, though, Frank, from Jamie Dimon from yesterday. "Geopolitics is the biggest risk to the global economy. War has polarized the world, with Ukraine the epicenter of geopolitical risk." And we certainly know that there's a lot to talk about here today, and I think he's accurate in his assessment of what's driving markets and what's driving the world right now. So just before we get to that, though, Frank, a little while back, you sent me an email with the heading, quote unquote, "my new best friend." And a picture was attached. So when I clicked on the picture, it was a picture of you and Pascal Siakam of the Toronto Raptors sitting side by side and smiling. Can you tell our listeners why Pascal is your new best friend?
FRANK MCKENNA: Yeah. Well, it's probably a bit of a stretch to say he's my new best friend, but I'm involved in a project to try to create digital literacy in the province that I come from, the province of New Brunswick, and in fact around the world. Put some personal money into it and raised over $50 million, and it's getting a fair bit of attention. And one of the people who found out about what we were doing was Pascal Siakam. And he wants exactly the same thing for his home country, the Cameroons, as we're trying to do for New Brunswick. And that is create a higher level of digital literacy, more robotics, more computer science, just more innovation in the economy, using modern tools to communicate, modern tools to have a more efficient economy. And so we talked, and he wanted to meet for lunch. We met for lunch. So he's contributed $100,000 towards improving digital literacy in the Cameroons. One of our benefactors who works closely with our institute has put another $100,000 up, and we now have $200,000 all to bring digital literacy to the Cameroons. And we have a bead on some millions of other dollars which might be used for digital literacy in the Cameroons and/or other countries around the world that are in pretty urgent need.
PETER HAYNES: That's a great story. And it's great that you guys were connected. And I must admit, selfishly, when I heard that you were partnering with Pascal, all I could think about was that must mean he's not being traded for Damian Lillard, which is being talked about in the press right now. So hopefully he sticks around.
FRANK MCKENNA: I have no inside knowledge on that, except to say he's one extraordinary human. Being a basketball player, that's a great thing, but this is a person who is absolutely dedicated to the poorest people of his country. And he learned his lessons well at his parents' table, and I just take my hat off to him.
PETER HAYNES: It's always nice to hear the human side of these professionals that we cheer for all the time. And we'll be cheering for Pascal Siakam in a Raptors uniform here in a few weeks. Pascal Siakam is a proud member of the African community from Cameroon. And Frank, you and I are both proud Canadians. But we're also insecure, as Canadians, in general. And that particularly is the case when it comes to the perception of our country in the eyes of the rest of the world. With that in mind, I don't think it's been a very good month for Canada at all. So let's unpack some of the issues that have Canada in the spotlight I'm sure that it wished it wasn't in. Level-set the facts, and I want you to correct me if I get anything wrong as far as here. Canada, with the help of its Five Eyes security partners, uncovers evidence that the Indian government may have ties to the murder of a Canadian citizen and prominent member of the Sikh community in Surrey, BC, a gentleman by the name of Hardeep Singh Nijjar. Nijjar had been vocal in his support for a separate Khalistan state for Sikhs in India. Canada raised the matter privately with the Indian government, both in advance of the G20 summit, which coincidentally was held in India, as well as in person at the summit. When he returns from the summit, Canada's prime minister, Justin Trudeau, then goes public with these allegations in a speech to Canada's parliament. India rebuts the Canadian allegations, and the two countries subsequently start a tit for tat row, expelling diplomats, halting visa applications, exchanging barbs, canceling trade agreements. Frank, how did this spiral out of control so quickly, and why did Prime Minister Trudeau go public before being able to provide concrete evidence?
FRANK MCKENNA: Well, Peter, there's going to be a lot to unpack here, but it's important, so we're going to take a bit of time. And Canada went out of its way to try and be respectful towards another major country in the world about this information. Our intelligence services raised it with Indian intelligence services. It was raised at the diplomatic level well before the G20. And as a courtesy, the prime minister spoke to Prime Minister Modi about this at the G20, well before it went public. The result of that was certainly not flattering to Canada, but again, that's a price we pay sometimes for being a Boy Scout. Modi dressed Trudeau down publicly, not referring specifically to the assassination, but referring to the fact that we harbor what, in his words, are terrorists on our soil. I don't have to tell you because we've talked about this at various times, various broadcasts-- one man's terrorist is often another man's freedom fighter. And we'll talk about that later today. But so anyway, Modi dressed down Trudeau publicly. Trudeau ended up coming back home, had a parliamentary session, and ended up revealing publicly that the government of India was suspected of being complicit in the murder of Nijjar, which amounts to an extraterritorial assassination. I mean, an extraordinarily, extraordinarily troubling event, I think you'd have to say. Why did Trudeau say this when it was clear that they weren't ready to make an arrest at that stage? Well, he did this because-- again, this gets into the politics of the situation-- The Globe and Mail had the story and were about to break it. Steve Mason and Robert Fife of The Globe and Mail have-- I call him a traitor, they would call him a source within [? CSIS ?] who leaks information to them. They seemed to have this story, were about to go public with it. And if that were to happen, Trudeau would be caught, so I have some sympathy for him here, he would be caught flailing around, having to deny or support the story. If he denies the story, it's an outright lie. But on the other hand, if he does nothing, it shows that he's impotent. And this falls right in the face of the last few months, where the Chinese government has been accused of intervening in Canadian politics, and Trudeau has not said anything about it publicly, and he's been lambasted and is now the subject of a public inquiry as to how much foreign interference there was in Canadian elections. I think what we're going to find out is that perhaps the Indian interference will be at a higher level, and maybe even some other countries, than the Chinese. So Trudeau is put in an absolutely no-win situation. Either he goes public with this news or this news is made public, and people are saying, why wouldn't you be upfront with the Canadian people and tell us what you know? And now he's in the situation, of course, where we live in a rule of law country, where justice proceeds at its own pace, and it's hard to know whether indictments will actually be issued and at what point. I do know a massive amount of evidence has been collected, I won't get into that, but a massive amount of evidence has been collected, subpoenas issued, warrants issued, et cetera, et cetera. So that's the major part of the story, but there are other parts of the story that are worthwhile talking about, as well, because it reveals the rather troubling world we're in. And that is the reaction of allies. All of our major allies were informed, I believe directly by the prime minister, in fact, of what had taken place, an extraterritorial assassination being alleged. The response has been tepid. Other countries have all tut-tutted about it but have not done anything to change their relationships with India. And as we might expect, they're kind of hoping the whole thing will go away. And this reveals the kind of world that we're living in right now. Khashoggi, of course, was an enemy of Saudi Arabia, and he was basically cut to pieces at the embassy, the Saudi embassy, in Turkey. The rest of the world did a lot of tut-tutting, but it was only a couple of years later that President Trump of the United States at a G20, the first person that he proceeded to hug and embrace was the crown prince, who had been directly implicated in the death of Khashoggi. In Canada's case, we made the mistake of tweeting that a human rights violation was taking place against a Canadian citizen in Saudi Arabia, and for that, we got put in the penalty box for five years. And when we looked around for our friends, there were none of our friends there. And then, of course, we know about the two Michaels situation, where we had two Canadian former ambassadors jailed in China for several years for doing absolutely nothing wrong. In fact, we were caught doing a solid for our friend the United States in executing on an outstanding warrant which they had issued for a Chinese citizen, and nothing was done to help us out. So it simply serves the point which I think we all know well. In this world of ours now, there are no friends, only interests. If you need a friend, get a dog, because nobody else is going to be around to help you out. So that is the second part of the story. And then the third part of the story is that Trudeau is not completely blameless in all of this. We have wanted the Indo-Pacific to be an important strategy for us. We had wanted to pivot away from China and put some emphasis on that. We had wanted to have a trade mission to India. But Trudeau's personal relationship with Modi has sometimes gotten in the middle of that. And the biggest thing that gets in the way of that is domestic or diaspora politics. There is a group of Sikhs who want an independent state in Khalistan in India. You can imagine how India would feel about that, the same way we would feel about Quebec trying to separate and create an independent state in Quebec. Our response is, look, we support a one India policy, but we are a rule of law and order country, and we cannot stop citizens from having lawful demonstrations or respecting their rights to say what they wish. Unfortunately, India does not agree with that. They think that we should be clamping down harder. They think that we support and condone these separatists. And they're very, very angry about it. And the final straw on top of all of this is that there is a large Sikh community in Canada, the largest Sikh community, I believe, outside of India. And they're in a number of very vulnerable political constituencies. And they're hotly contested parts of the country. And the government of Canada and the other political party is walking on eggshells in wanting to respect our commitments to India, but also in not wanting to go too far in angering the Sikh diaspora. So you get all of these forces together, and it's created this seething cauldron, which has resulted in Canada being in such a difficult position on the world stage, and with a very large, friendly trading partner, India.
PETER HAYNES: Well, you've given me about 100 different directions to go in. And I'm going to go in the direction where you said we would come back to this idea that Canada is harboring terrorists. So Nijjar had been designated as a terrorist in India. And India accuses the Canadian government of harboring terrorist Sikh separatists. There's been a lot of quotes. And I'll use the one from the Indian minister of foreign affairs, Arindam Bagchi. And he said Canada has a, quote unquote, "growing reputation as a place that shelters religious extremists," and that it's a country, quote, "that needs to worry about its international reputation." I want to ask you, Frank, is there any lingering effect of the Air India issue in 1985? And if you're the Canadian government, how do you react to these strong statements about harboring terrorists?
FRANK MCKENNA: Well, first of all, it's not true. India is throwing up a huge smokescreen here. I have to stand up for my country here. In fact, the last Indian statement was the Canadian Airbus or the Canadian plane flying the prime minister was full of cocaine, and then that prime minister wasn't seen out of his room for two days, and asking people to draw the connection. I mean, this is just extraordinarily slanderous and disgusting behavior, but India is fighting back, and they're fighting back not playing by the Marquess of Queensberry rules. What we had wanted was for them to engage and cooperate in the investigation. That's not what we're getting. And of course, India's got a lot to lose on the world stage, as well, a lot of face being associated with this. So they are fighting this tooth and nail. I don't think it's true that we tend to be a country that harbors terrorists. Again, I'll repeat, one man's terrorist is another man's freedom fighter. We have people here from Syria. We have people here from Libya. We have people here from Afghanistan. We have people here from all over the world that have fled other countries as a result of foreign wars, and they would certainly be enemies of that other country's government. But to call them terrorists, I think on Canadian soil, I think that would be a big stretch. We're a big, multi-ethnic country. We have a big diaspora from various communities. You could argue that our Ukrainian diaspora are enemies of Russia. And they are. We have 1.3 million Ukrainians here. And you could argue, of course, that the Sikh diaspora wanting an independent state of Khalistan would be enemies of the Indian government. But we are a freedom-loving country with very hard-fought and well-established charter of rights. And I don't think Canadians are prepared to give up those cherished principles of allowing people the right of free expression. There are times when I think that we could be more assertive. Just be honest with you, I think that we should be really assertive in India and saying, look, we are on your side on this. We agree with the one India policy. We do not support separatists in India whatsoever, under any circumstances. I think we could be perhaps much more categorical with respect to some of those statements. I also think that we should make a point of assertively telling people who come to Canada to leave your fight behind. If you choose to come to our country, you come here and become a Canadian citizen with Canadian values, and don't bring your foreign war to our country.
PETER HAYNES: So I was speaking to our colleague and Washington expert, Chris Krueger, asking him what kind of buzz there was in Washington around this particular issue. And he said there was virtually none and that they were too tied up looking inward, with all the different issues around Washington's shutdown and debates and everything else, to be paying attention to this. So you referred to them as interests-- i.e., all of what we thought were our allies are really just interests right now. And those interests are looking out for their own best interests, and not being critical of India. So let's talk about the interests of Canada. I saw some email traffic from some of the Canadian equity analysts at TD Securities about potential longer-term impact if this row with India continues, including less investment in Canada by Indian companies, less tourism by Indians, and even less students coming to Canadian universities. And that contributes a significant amount to the Canadian GDP. Do you believe any of these risks to be material and, in fact, potentially longer-term issues?
FRANK MCKENNA: Well, they would only be material because the Indian government would decide they want to escalate this dispute. In actual fact, we have a good trading relationship now, and a respectful one. They're our 10th largest trading partner. We do over $9 billion a year of trade with them. Some provinces, Saskatchewan, in particular, over a third of their exports go to them, which is probably why the premier of Saskatchewan, Scott Moe, has been much more vocal about India than other premiers. Where the rubber really meets the road, in many ways, is with the international student population. 40% of the international students in Canada are from India, over 300,000. And they provide an extraordinary source of financial backing to a lot of our universities across the country. So that would be a big loss. But we also have huge investments in India, which I don't think India particularly would want to [? lose. ?] The Canada Pension Plan is a major player there. I believe Manulife is. I know that we have Fairfax, which would be a major player there. Brookfield is the largest single alternative asset manager in India, with billions of dollars of investment. We have a lot of Canadian investments in India supporting very, very important relationships. So I would hate to see business suffer as a result of this political fight that we're having at the present time. My hope would be that cooler heads prevail and that we agree that we follow the evidence and respect where the evidence leads us.
PETER HAYNES: There is obviously a couple of scenarios here. One is that the evidence doesn't prove true or it's hearsay, and that Canada really is left with egg on its face. And alternatively, the evidence is irrefutable, like it was in the killing of Jamal Khashoggi. And in this scenario, how does this thing play out? If India is suffering some diplomatic embarrassment, they're going to lash out and try to, as you say, provide more smokescreens and defer or try to deflect to other issues. How does this play out, and on what timeline?
FRANK MCKENNA: Yeah. I'm hoping that the security services involved will recognize the need for urgency. And they seem to have assembled a vast amount of evidence in a short period of time, so hopefully shortly. There's always the chance that, as in the case of Air India, where we'll be able to largely identify the perpetrators, but may not be able to assemble evidence, which is necessary to obtain a conviction in a court of law. That's a risk. And we'll have to deal with that, if that's the case. I suspect, if the evidence is irrefutable, the link to India is airtight, that India will not accept responsibility, that they will obfuscate. They're not alone in doing that. You've seen airplane downed over Croatia a number of years ago from Russian missiles, and no doubt about how it all took place, but there's also no accepting of responsibility. And similarly, if you look at almost every situation of a similar nature around the world, the offending country just tends to want to obfuscate and throw smoke up and try to create enough ambiguity it cannot come back on them politically. And that's what we will see here. I don't think that we would ever see a situation where India simply stands up and says, look, clearly this happened. It shouldn't have happened. It happened without authority, or whatever the case might be, and we will accept responsibility. That, in my view, is not going to happen.
PETER HAYNES: I was amazed at the stat that nine in 10 Canadians didn't know anything about the Air India crash from 1985, or bombing. It's amazing how sometimes these various issues in Canadian history, or in history, just don't get well socialized or well understood. It was obviously not a good day for this country. Let's move on to another not so great day for this country. And that was the day win Ukrainian President Zelenskyy spoke before Canada's parliament last week. Should have been a celebration of unity and support for Ukraine. And the Speaker of the House, Anthony Rota, brought what he thought was a special guest onto the floor while Zelenskyy was there, a 98-year-old World War II veteran by the name of Yaroslav Hunka who had fought for Ukrainian independence against Russia. Hunka received, I think, two standing ovations in Parliament before it was determined later that he fought for Nazi Germany. This prompted Russian state media to jump all over Canada, and just arguing again they're fighting against the Nazis. And just about every other major news organization in the world made it a headline story. Now what, Frank?
FRANK MCKENNA: Again, mea culpa, mea culpa. And that's already been done. The speaker's apologized, and gone beyond that and he's resigned. And all kinds of other people have issued apologies. It was a mistake. The bottom line, it was a mistake. But the reason it's been elevated to a status of such profile is for two reasons. One, it leads right into the current political narrative in Canada, highly competitive political environment involving the Liberals and Conservatives, with the Conservatives on the attack and Trudeau on the defensive on a lot of issues. And this is just another issue to put Trudeau on the defensive, number one. Number two, it also plays into a very controversial narrative around Ukraine. And that goes to Russia's justification to invading Ukraine, which is the constant reference to Ukraine being a Nazi country, led by Nazis. And that seems to be the rallying cry whenever you need to rally Russians, is to call somebody a Nazi. So it really bleeds into that narrative, as well, which is why it takes on some international symbolism. Remember that Chrystia Freeland, our minister of finance and deputy prime minister's grandfather, was accused of being a Nazi in Ukraine. Now, that's been denied, but the fact that allegation was made tells you just how demeaning a word that is in the current context. And again, we have to realize-- and this is not to condone any side at all in this debate-- that we're getting back into a very confusing period of history in the Ukraine. Ukraine really had enemies on all sides. The Germans were their enemies and the Russians were their enemies. And at times, they were confused as to whether they should be fighting the Russians or the Germans. Determining who were the bad guys and the good guys is something the history books haven't necessarily been able to sort out yet, so it's not surprising that we haven't been able to it out, as well.
PETER HAYNES: So are you confident that this one will go away? Like, this Rota gentleman had an impeccable record, from what I could tell. You may know more. But he made a mistake. There's an argument that prime minister should have suffered or taken more responsibility for allowing it to happen in Parliament. Is this just going to go away quietly, do you think, Frank, or is this one going to get carried on?
FRANK MCKENNA: This will go away. Now, ultimately, it may mean the prime minister adds an apology, or somebody else, but it doesn't really matter. The opposition parties, they just want some blood on the floor on this. Once they get that, do some more squirming, it'll go away. This is a 98-year-old gentleman. It was a mistake that he was ever honored in the House. It was an error by the speaker, on the speaker's part. He's fallen on his sword. I'm not sure you can get much more blood out of this stone.
PETER HAYNES: Yeah, I'm with you. Let's move on to another headline-grabbing story coming out of the west of Canada. And this is in particular in the province of Alberta. And that relates to the long-awaited release of a provincially-sponsored study of the impact of Alberta separating from the Canada Pension Plan. This topic was a platform item for Premier Danielle Smith as she was running for re-election. Really comes down to the recent demographics in Alberta, that local citizens feel that they are contributing disproportionately more than they should be to the CPP. The report that was commissioned by the government from a firm called by the name of LifeWorks is the culmination of a lengthy study on the pros and cons of a separation of Alberta from the CPP and the creation of a separate what they're calling APP, or Alberta Pension Plan. And it contains some very inflammatory headlines. For instance, the study shows that, as of a theoretical exit in 2027, 53% of the assets of the CPP belong to Albertans, yet Albertans represent only 15% of representative population. With these base assumptions intact, the report will argue that both Albertan workers and employers will see a substantial reduction in contributions, at least currently, to an APP. And that's estimated to be $5 billion in the first year alone. Now, the next step is to take this to the citizens to vote on. That's what they've agreed to do as a government. It's a complex and tricky topic to navigate. Prior to the release of this report, the general population of Alberta was not really in favor of a split, based on polling. But the numbers released may be compelling, even if they're misleading. People that I know who are familiar with the language involved in a provincial split say that there's so much gray in the process and the calculations and assumptions made are deterministic. For instance, upon the exit in three years, because you have to give three years lead time and then there's all kinds of other caveats associated with that, upon exit in three years, does the province get a proportionate share of the existing CPP Investments, like a slice of Highway 407, or does it get cash? And who pays for the disposition costs of the assets that are needed to generate the big transfer check? That was a long-winded explanation, but I think it's important for background, and I'm knee-deep in looking at the details of this. But in your experience, Frank, given the complexity of this topic, what's the best way for experts on the other side of the ledger, the con side, to debate, to refute the LifeWorks report?
FRANK MCKENNA: I just find this an incredibly sad discussion to have. It's sad for the country. It's sad for me personally because I've been involved in the CPP now throughout my political life and signed on to the latest iteration of it. And all of us thought we were doing a good thing, including the premier of Alberta and all the other premiers, and doing something that was right for Canada. The gauntlet that's being thrown out here is far and beyond bigger than CPP. It's basically a challenge to accounting ledger federalism. Let's basically just divide the country up based on who put what in and what value it has. I don't have to tell you, Peter, because you're in my business, CPP is one of the great success stories not just of Canada, but of the world. When I go around the world, one of the things that people speak about with huge admiration is the governance of our pension plans, and the integrity associated with that governance and the success associated with that governance. And by the way, the other thing you hear when you go around the world is what a great country we have. In fact, I saw a poll just this week indicating that, in a poll around the world, Canada is considered the second greatest country in the entire world, trailing only Switzerland, which, of course, is a very, very small country. We've got a huge asset, Canada, and a huge asset, CPP, all of a sudden under attack in a way that I think is highly irrational. If we take Alberta at their word that they should get 53% of the assets, even though they put in only 16% of the contributions, then we should allow the same privilege to, let's say, British Columbia and to Ontario. You know, if Ontario uses the same formula and takes their money out, that's the end of CPP. It's all over. Is that what we want for Canadians? How do we feel in the country about portability? Do we want to be able to go from province to province? Do we want the hundreds of thousands of people who work in the oil sands to continue to be able to work out in the oil sands from Atlantic Canada, contributing to Alberta's welfare and still enjoying the benefits of CPP? I think we do. I think most Canadians want a real country. And if not, well, you know, let's sit down and rip it up and take the assets and divide all the assets amongst themselves. Because if you want to get into it, Peter, you get into all kinds of other issues that are on the table as we speak. What about carbon capture and sequestration? I'll tell you, in New Brunswick, I ain't got no carbon being captured or sequestered. And so that massive tax break worth tens of billions of dollars is all accruing to the benefit of Alberta. What about orphan wells? I haven't seen an orphan well anywhere in downtown Toronto. They're all in Alberta and Saskatchewan. They're getting the benefit of billions of dollars of tax credits. I'm a supporter of all of those investments. I'm simply saying I never sat down when those investments were made and said, wow, this is good for Alberta, it's not good for me, I'd like my share back. So I think it's a terrible, terrible mistake that we start dividing the country in that way. We challenge enough with the province of Quebec that I think at times doesn't recognize the majesty and the strength of living in Canada, of being a recipient of equalization and enjoying Canada's reputation around the globe. But if that were to extend to other provinces, after a while, Canadians may simply ask the question, why is it worth it all? Why are we fighting about all of this? Those who want to go their own way, go. Those of us who want to stay and create a country, let's create a country. And I'd be one of those who would fight like hell to create a great country out of the people that are left. So I don't think the province of Alberta will go this way. I don't think the public of Alberta are disposed this way. I just really, really am angry that a premier of Alberta would use such an inflammatory issue to create public opinion in her province that is going to be so hostile towards the rest of Canada. I just feel it's a sad day for all of us.
PETER HAYNES: It's so complicated, too, Frank. I went through the report in detail, and I'm speaking to some of my friends in the pension industry, as well. I can't reconcile how they arrive at the 53% of the assets number. It appears as though they feel that, given their contribution rate is so high, that they have a right to a higher proportion, if not all of the investment income that's been earned by the CPP over the past, in particular, the last five to 10 years, where there's been a parabolic increase in the amount of investment income that's being earned. Because all of the assumptions are all based on how much money goes to Alberta on day one. It's everything. There's another report out, research study, an academic study by a professor by the name of [? Tombe ?] from the University of Calgary, came out the same day. His assumption is only $125 billion, or only 25%, is the right to Alberta, some number like that. It's a lot lower. So it changes the entire dynamic. So I'm with you, Frank. I wish this issue wasn't being front and center. I'm a proud Canadian, and we keep talking about that issue. And hopefully, the citizens of Alberta will recognize, and there'll be a proper debate and an understanding of the assumptions being made, how perhaps unrealistic they are, and at the end of the day, this issue will get put to the back burner. So there has been some good news here in Canada, Frank. There was a ruling that came out that allows a route change on a short portion of the Trans Mountain Pipeline that's nearing completion. And that was near Kamloops. This paves the way for us to get this pipeline done here in Canada and to expand the pipeline, or twin it. You've talked for years on these podcasts about the need to get our Canadian crude to tidal water. And this project, while it's well over budget and long overdue and now owned by the federal government, is about to make that happen. How important is this development? And what about the pushback from the ESG crowd that expanding pipelines will simply prolong reliance on fossil fuels?
FRANK MCKENNA: First of all, I thought the decision was a triumph of common sense. Secondly, we'll only get our first dollar of capital out of that pipeline when the last dollar of capital gets put in. The quicker it gets into service, the quicker we can go about repaying Canadian taxpayers and dealing with other issues. And thirdly, to people on the other side of it-- and I'm one of those people on the other side of it-- if you were to tell me that, if we cannot get that half million barrels of oil a day to market that the world is going to be short 500,000 barrels of oil a day and that's going to make the world a greener place, I would find that quite an interesting argument. But it's a lie. It's just not true. If we don't get 500,000 barrels to market, first of all, we will get them to market. We might send them by train or we might send them with huge discounts into the United States, and they end up pocketing tens of billions of dollars of Canadian money. Or if not, Venezuela ramps up production, or Nigeria or Saudi Arabia or someplace, and simply displaces our barrels with those barrels from some other country. It's crazy to think that our barrels are going to reduce the amount of carbon being produced in the world. On the other hand, our barrels, if we do what I believe that we're going to be doing, dedicate a huge amount of money and incentive and science to creating the cleanest barrels in the Earth, in the world. I think that those barrels will end up creating an improvement in the technology available to the rest of the world as how to go about doing it. So I can stand here as somebody who I'd like to think of as a pretty passionate environmentalist, saying that this is exactly the right thing to do and the right way to go, and good on us. It also creates another source of income and wealth for Canadians, which allows them to do things that Canadians want, whether it's dental care or pharmacy care or better income support. So just on all of those points, I'm glad that we're going to be getting to a commission date as quickly as possible.
PETER HAYNES: Frank, just some procedural issues here-- the government has said that once the oil is flowing, they want to privatize Trans Mountain, and there'll be continued ownership of the asset by Indigenous groups. What is the expected timeline of a potential privatization, if I have that fact correct? And how do you expect that would actually play out?
FRANK MCKENNA: Yeah, so that's an interesting question, one that's been dogging this project for years. And I've been privy to a bit of the discussion. The challenge is this. When is maximum value achieved? I would argue maximum value is achieved when the first barrel of oil is produced. That's when you know what the parameters of the market are and what the project has cost you. So I think the government of Canada to transact prior to that is probably shorting the opportunities for bigger returns. And I don't think that would be fair to Canadian taxpayers. So that's one issue. So in terms of timing, that's when first oil comes. Secondly, the process is going to be complex as of necessity. I do believe it's good to have First Nations involved in pipelines, and they should be having equity in that and a lot of other resource projects. Then you get into the issues of how that's going to be financed. Is that going to be financed by the Canadian taxpayer? Is it going to be financed by financial institutions? Is it going to be equity? Is it going to be debt? We need to figure that out. And then who are the participants? I know that the right and title holders who are along the path of the pipeline feel that they should be the primary beneficiaries. And I would tend to see the logic in that argument. But there are First Nations communities all across Canada who believe they're entitled to ownership, as well. So how do you figure out which communities and which members of those communities are going to be participants? What's the legal structure going to be? And what's the governance structure going to be? We can't have a governance structure in which, in order to talk to a person on the other side, you need to have a meeting of 500 different communities, and maybe conflicting representation within that community. So those are all issues that can be sorted out and need to be sorted out, but it's not a trivial undertaking working on the Indigenous ownership piece.
PETER HAYNES: Well, that is definitely, given that we're coming to hopefully a conclusion here by the end of the year, certainly something that I'm sure will get talked about on this podcast in the future, especially early in 2024. So Frank, I'm going to finish up. This is where I said I was going to throw you a little bit of a curveball because there are so many topics going on right now. This might be the busiest geopolitical month since we've started this podcast, in terms of number of different topics. So what I'm going to do is I'm going to give you six or seven different options of topics, and you can choose whichever one you want to comment on. OK? So the first one is, earlier this week, British prime minister Rishi Sunak walked back some aggressive ESG targets for its government, including the end date for transition to electric vehicles and use of gas boilers for households. That's issue number one. Number two, fiasco from Doug Ford's government here in Ontario, which had some turns since we last spoke. The next one would be pronouns, which are a big issue across the country right now. You could talk about the government shutdown in the US and the potential for that. You could talk about the fact that Stephen Schwarzman from Blackstone suggested there might be a surprise candidate, the citizens of the US are sick and tired of old presidents, and that someone may come along here, and your thoughts on whether he has a point there. You could talk about Robert Menendez and the suggestion that he was involved in some illegal activities in the state of New Jersey, or you could even talk about the second Republican debate for its leadership. There you go. Which one of those do you want to talk about?
FRANK MCKENNA: Do I only get one?
PETER HAYNES: Yep, only one, because otherwise, we'll be on for two hours.
FRANK MCKENNA: Of all of those, the most consequential is the shutdown on the US government. And I think we're careening towards that cliff. The Senate is going to be putting a package together, a kind of a salvation package. Senator Rand Paul putting a hold on, it can't even get to the floor until about Saturday. And by that time, we'll be headed into the shutdown. And then, of course, it's got to pass the House. And as long as you've got these MAGA holdouts, I'm not even sure it'll pass the House. It's the usual drama. We see it all the time. But the odds are, at this stage, that we will see a shutdown of the US government. It will not be 100% shut down. Maybe 30% of funded activities will be shut down. But at this stage, I would say the odds are headed towards that. Lots of drama will play out in the meantime. Why is this important? It's important because, one, it's going to weaken the US economy if it were to happen. Probably weaken GDP growth, probably have an effect on policymakers. Secondly, it's going to blind decision-makers. They're not going to have the kind of data they need to make decisions. Thirdly, I think that it does demean the US in the eyes of the world. And fourthly, it's just further evidence of the massive polarization in the United States right now that's making it uncomfortable for people.
PETER HAYNES: Yeah, hopefully cooler heads prevail here. And that's a process that just-- it's hard to explain when you're outside the United States. So I should mention for our listeners that you will be on stage at our conference on November the 2nd, our annual Market Structure and Portfolio Management Conference. You'll be on stage side by side with Chris Krueger. And that'll be very interesting because you guys will be able to debate some of these topics and dig in a little bit more. And there's lots on the plate. So we have to finish up with baseball, as we always do. There's five games left in the Jays' season. I was at the game last night, which we lost 2-0. Not exactly happy about it. One of the other publications-- it might have been ESPN-- had us at a 95% lock to make the playoffs. So I'm going to go with the oddsmakers, and I'm going to assume that we will make it and end up in a three-game playoff from Tampa starting next Tuesday. Where do we go from there, Frank?
FRANK MCKENNA: To start with, I guess I believe that we'll make it, but I'm not as confident as the oddsmakers. We're up against some very good pitching.
PETER HAYNES: Yeah.
FRANK MCKENNA: And quite frankly, I'm not impressed with the creativity of the Jays when it comes to manufacturing runs. I don't see that. And I'm worried about Romano and his arm. These ninth inning rallies are pretty painful to watch. But having said that, let's say we're going to make it. It looks like it will be Tampa Bay. I actually like our chances there. I think we've proven that we can play nose to nose with Tampa Bay. And they've got a huge loss in their pitching staff now gone for the year, and they've got a few other injuries there that might make this a good time for us to be playing Tampa Bay.
PETER HAYNES: I'll go with you that we have a really good chance in Tampa Bay, and then it's wide open from there. But I'll ask you the final question here, Frank. Given what you just mentioned about Romano and your concerns in the ninth inning, I was going to ask you, would you go to Jordan Hicks or somebody else to close the games right now? I'm not confident in Hicks. I'm curious if you'd be ready to make that move. That's a big move if you do it.
FRANK MCKENNA: I think you're making a franchise decision if you do that. Romano's your man. I think you have to stick with him. That is assuming that he doesn't have something physical wrong. If he's got this fingernail issue and that impedes his ability, well, that would give you an excuse to go somewhere else. But I'm more confident in Romano than I am in Hicks.
PETER HAYNES: Well, Frank, let's hope we're still talking about baseball next podcast. And we've got lots of other topics here which I mentioned at the end that might still be issues to talk about next month. So Frank, thank you again on behalf of all of our listeners, and I look forward to chatting again next month.
FRANK MCKENNA: OK. Thank you. Next time, let's have more good news and less anguish. This was painful.
PETER HAYNES: I agree, and especially because of how much of it was related to Canada.
FRANK MCKENNA: Yeah.
PETER HAYNES: Thank you for listening to Geopolitics. This TD Securities podcast is for informational purposes. The views described in today's podcast are of the individuals, and may or may not represent the views of TD Bank or its subsidiaries. And these views should not be relied upon as investment, tax, or other advice.
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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.
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.