Guest: Frank McKenna, Deputy Chair, TD Securities
Host: Peter Haynes, Managing Director and Head of Index and Market Structure Research, TD Securities
Episode 46 covers a lot of geography. We start with a review of recent victories by conservative leaders in Argentina and Netherlands, which Frank believes is part of the natural pendulum swinging opposite incumbent center-left leadership amplified by Trump-related populist rhetoric. We spend a lot of time in Canada, first discussing Canada's position on the wrong side of NATO's defense spending targets and then with respect to the Liberal Party's recent Fall Economic Statement, in which the Government's target of "modest" deficits will be brought into question. We finish the Made in Canada discussion on more Alberta grievances, this time with respect to the legality of Federal net zero targets for Canada's electricity-grid. After Canada, Frank updates us on the thawing India-Canada relations; whether the Israel-Hamas war is contained; then ending on a positive note with a discussion on improving US-China relations.
This podcast was recorded on November 27, 2023.
PETER HAYNES: Welcome to episode 46 of Geopolitics with the Honorable Frank McKenna. My name is Peter Haynes, TD Securities, and I get the pleasure to host this monthly podcast series where I'll be drilling Frank McKenna with questions about geopolitical issues from around the world. And it'll be like ping pong here.
So look forward again, Frank. I hope you're doing well. Are you in Toronto right now, or are you east?
FRANK MCKENNA: I'm in Toronto right now. And in fact, I'm just trying to figure out how I handle the upcoming snowstorm because I'm supposed to be heading out in the same direction as the snow is coming in.
PETER HAYNES: Well, that's always a challenge, especially if you get yourself rooted somewhere and not able to get home, so hopefully your travels will be safe.
Riley, who is our expert multimedia person that helps us out and makes sure all these podcasts sound great, is with me here today. And Riley and I were traveling to Orlando a couple of weeks ago where we were at a TD Securities offsite. I know you were unable to make it for scheduling reasons.
But while we were down there, I was, of course, at the bar having a drink, and a gentleman came up to me and introduced himself and said, I really like those Frank McKenna geopolitics podcasts that you host. And this person's based in our Singapore office, so we're getting lots of exposure, Frank, around the world here, for better or for worse.
So speaking of around the world, our focus over the past few episodes has been on Washington, more recently on Israel, and of course on the Russian-Ukraine war. But there really are some other geopolitical hotspots and trends that are worth noting.
And one that I've been paying attention to, as I'm sure you have as well, is the concerning trend of far-right political leaders winning national elections. So we've seen recently in Argentina Javier Milei, who is a former well-known personality within the country who's got some fairly radical views.
I guess he's going to be introducing his, quote, "shock package" to parliament or cabinet in the next little while. And then more recently in the Netherlands by Geert Wilders, who's leader of the far-right Party for Freedom. What do you make of these election results?
FRANK MCKENNA: Well, almost everything in politics is reaction or reaction, almost a fundamental law of physics. So we often see the pendulum swinging sharply, usually based on events that have triggered a certain amount of antipathy with the electorate.
We should start and say that Argentina's been on a low simmer for a long, long time. Back in the early part of the century, Argentina was one of the 10th wealthiest countries in the world, and at various times, it was rated as the country to keep an eye on.
None of that came to pass. In fact, it's gone the other way. And now Argentina is not listed as a developed country anymore. It's a developing country in chronic economic crisis. And Argentina is going through an economic crisis right now, and I think that's what led the public to hold their nose and vote for Javier Milei.
So what are some of the things that he's talking about doing? First of all, dollarizing the economy. And secondly, I guess-- well, there's a lot of outstanding things that he wants to talk about. I was going to say outrageous, but it depends on how you view those. He was also going to eliminate the Argentine central bank.
So I'm going to just start with the first one because in every case where the pendulum swings, it usually swings back a bit as well. In terms of having the US dollar replace the peso, having been in Argentina somewhat recently, I can understand how people feel about inflation. I found that on the street, I could get three different prices for the peso. If you had American dollars, you could do just about anything with them.
First of all, it requires Congress. They have to amend the Constitution, and Milei's party only has a third of the seats in Congress, so huge concessions and negotiations have to take place. Secondly, you're putting your economy in the hands of the US Federal Reserve, which means that if the US Federal Reserve is exposed to an oil shock or some other shock, it reverberates right into Argentina without any control at all. And people will have to wonder how comfortable they will be with that.
And thirdly, in order to do this, you need a lot of US dollars. And that's been rated as being in the range of $35 to $50 billion US, and Argentina just doesn't have that money at the present time. So we'll see. It's going to take years for this to transpire, and we'll see how much water is in the wine.
There's some other areas where his views are radical. Climate change, he's a climate change skeptic. He thinks the climate change is taking place but is not caused by humans, and so he's a real skeptic on that.
He attacked the Pope, which is a tough thing to do in Argentina because the Pope, of course, is from Argentina. But he's already pulled his horns in on that. He attacked the Pope for being a Communist, but he talked to the Pope as recently as 24 hours ago and has invited the Pope to come to Argentina in 2024.
He said that he would freeze all economic relationships with China and Brazil, which are two of the top customers for Argentinian products. He's now backtracked on that and says he would maintain trade relationships with those two governments.
He's also said he would eliminate gun laws completely and that he would criminalize abortion. So some very, very radical ideas, but already we're seeing a certain amount of backtracking. And it's interesting that he is in Washington this week, meeting with the IMF and meeting with the US Treasury branch to talk about some of his ideas.
So radical solutions for a country that is in a lot of trouble, and we'll see how it all turns out. In the case of the Netherlands, the situation is somewhat similar. A different stimulation, in this case. I think it's a really sharp reaction to immigration. Geert Wilders, who's a longtime politician in the Netherlands, finally broke through to become the lead candidate to form the next government.
Very anti-immigration, very anti-Muslim, almost virulently so, and he's a Europe skeptic and is talking about having a so-called "Nexit" referendum on Europe. He's anti-Ukraine as well, quite pro-Putin. He's another climate skeptic. He wants to keep coal and oil generation open and start shutting down solar and wind.
So those are all from the far right, all of those ideas. But again, he does not have a majority in the Netherlands. He would have to form a coalition. All of the coalition partners would be much more moderate than this. So you'll see a certain amount of water in the wine as well in the case of the Netherlands.
So again, in every situation, there's a reaction to something taking place. In Sweden as well, we're seeing a reaction to immigration. And we're seeing right wing movements in Italy, where Meloni is more right wing and was quite pro-Putin, but again has become very pro-Ukraine forming a government.
And we're seeing the rise of right wing parties and forces in Germany and France. It's the pendulum swinging. And normally, there's some moderation and more extreme views. But most of the leaders we've talked about have patterned themselves after Trump, and that is a bit of the direction the world is going in at the present time.
PETER HAYNES: Well, you mentioned one of Wilders' positions with respect to Ukraine, and that is to pull back Netherlands' support. With the focus of the world's attention moving to the Gaza Strip over the past couple of months, it feels like the Russia-Ukraine really is the forgotten war.
I'm wondering, Frank, are you worrying that atrophy towards this war will threaten Western world support for defending Ukraine, when you have leaders like Wilders and Orbán and others in the EU who are arguing that if Donald Trump gets elected, it's really going to be the EU left supporting Ukraine? Are you concerned about dwindling Western world support for defending that country?
FRANK MCKENNA: Yeah, I am. I think there is Ukraine fatigue that's creeping in, and I think that we're seeing it even in North America, in the United States. Even though it's widely supported by the Democratic party, the Republican party is fractured on this issue, with the Republicans in the Senate having a majority in favor of Ukraine aid, but quite a large [INAUDIBLE] opposed to it. And in Congress, prevailing moods seems to be, in the Republican party, anti-Ukraine aid.
So they will end up making a compromise. The package that's before them is a large one, and I suspect there's going to be some moderation in it. But there's no doubt that support in the United States is now fracturing along political lines, and we're seeing people start registering their opposition to any further aid.
And of course, the attention that's being put on the Middle Eastern conflict is also a distraction from the Ukraine, and the Republican party is in full-throated support of more aid to Israel, whereas the Democratic party is somewhat fractured on that front, even though the president, I think, has been a very strong supporter of Israel throughout.
But we're seeing a bit of this in Canada as well, where we've got a diaspora of Ukrainians of almost 1.3 million, and we've had almost universal support. But in a recent vote on a free trade agreement with Ukraine in the House of Commons, the Conservative party voted en masse against that deal. Their argument was that it contained some support for carbon taxation, which they oppose.
But The Globe and Mail and other journalists have all exposed that as a bit of a fig leaf. It looked like it was really a bit of raw meat being thrown to the base. And so that's a worrisome situation as well.
So to answer your question, I am concerned because the problem doesn't go away, and that is Russian's expansionist goals. And if they can march through the Ukraine, there are a number of other countries in their path as well that would be worried. So I think it is a worrisome trend, and hopefully it will not result in diminution of badly-needed aid to Ukraine.
PETER HAYNES: I believe it was one of the Ukrainian military leaders who referred to the state of the war currently as a stalemate, and that's concerning and makes you wonder how you get out of a stalemate.
And if the stalemate ends because Donald Trump becomes the leader of the United States and shuts down the US support and leaves the EU on its own, and then the EU fractures and next thing you know, Ukraine is on its own. That's not a really positive potential outcome for Russia, as you say, just kind of rolling through the rest of Ukraine.
What would-- if I was to give it odds there, Frank, what kind of odds do you have of that potential scenario playing out?
FRANK MCKENNA: Well, certainly if Trump were elected president a year from now, I suspect that would play heavily in Russia's favor. In fact, I think that's what they're banking on. But in the meantime, this is chewing up a lot of Russian resources as well. It's not just a loss of treasure, but it's a loss of human lives, and it's cost Russia enormously in terms of its prestige in the world.
And after a while, people just get tired of being impoverished and of being in a declining economy because of ambitions of their leader, which they don't always understand. And Ukraine, on the other hand, is fighting for their lives. They've experienced genocide before, and they're not prepared-- they're going to fight. Every man and woman is going to fight until the last person is standing.
So I think that both sides will continue to fight. The motivation is different on each side. Ultimately, this will end up being resolved. Wars, like strikes, always are resolved when both sides have paid a high enough price, and it wouldn't be surprising if some type of frozen conflict were the result, with perhaps the lines not moving very much.
But in the meantime, we have to get through a winter, and there's no doubt that that's going to be a painful winter for the Ukraine. But it's also a painful winter for Russia because Ukrainians now have weapons that are striking right into the heart of Crimea and reaching as far as Moscow. And I don't think Russians are going to being on the defensive.
And at some point, there'll be pressure on Putin as well to try to get this resolved, so it's hard to know what the resolution will be. But you can be sure it'll involve some type of territorial integrity for Ukraine. It'll resolve some compromise on NATO membership and EU membership and may even involve peacekeeping forces.
We don't know, but at some stage, when the price just becomes too much to bear for the two parties, there will be a resolution.
PETER HAYNES: Well, certainly, this topic of the Russian-Ukraine, support for Ukraine, will be front and center at the NATO meetings, which I believe are taking place in Europe this week. In fact, our Minister of Foreign Affairs Mélanie Joly I believe will be representing Canada at that meeting.
There was a feature article on Joly in The Toronto Star this past weekend, and in that article, she mentioned that Canada will be putting up more money for defense, and that's a number that-- that ratio of defense spending per GDP seems to be a lightning rod for where Canada stands, relative to other NATO members.
But the fact is that Canada's military is, quote, "strained and underfunded," and yet at the fall economic statement, which came out-- or economic update, which came out last week, the liberal government actually cut defense spending. So Frank, how do we circle that square?
FRANK MCKENNA: Well, first of all, we have to be a little bit careful about how we count our contributions. I recall being in Washington, and we had a very significant commitment in Afghanistan. And it cost us a lot of lives and a lot of treasure.
And the Americans often would tell me, you Canadians deserve more credit than you get. You're fighting in Kandahar province, which is the toughest fighting. You're fighting without any caveats, and you're extraordinarily integrated with our forces.
By contrast, many of the other allies that might be spending as much as we would-- but they had caveats, such as they're not allowed outside of their compounds, or they can't carry offensive weapons, or all sorts of other things that kept them out of harm's way. So we were right in the thick of the fight all the time, so one has to be a little careful, I think, on how you count.
But your question is an appropriate one. The government is, I think, signaling now that they're going through a period of relative restraint. I've talked to the new Minister for Treasury Board who has made it clear to me that her intention is to be very disciplined in the expenditure of taxpayers' money, which I think deserves praise.
And so the government is signaling this fall that all of government is going to be experiencing some reduction in the budgets which they have available. I think in the case of Defense, to directly answer your question, it's a short- and a long-term thing.
In the short term, the Defense Department is going to be going through some of the same budget restraint as the rest of the government. But in the longer term, there will be an increase in expenditures in defense.
And Defense Minister Blair spoke at the Halifax Security Forum this past week and committed Canada to increase spending on defense, but argued that he will make sure they spend it on the right things, things like munitions, training, et cetera, and there will be a diversion potentially away from some of the other defense spending.
That will come about as a result of the defense policy update, which is expected in the spring, and that will be the springboard for a government decision around expanded defense spending.
PETER HAYNES: Do you think, Frank, that we open ourselves up as a country to say we're playing with the numbers a little bit when we're going to talk about how we're spending our money on the military versus the actual raw number, which seems to be what NATO is focused on?
FRANK MCKENNA: Yeah, I think we do end up getting a bit of criticism for that. That would be accurate. I think we have exposed ourself a bit on perhaps not meeting or even appearing to be trying to meet the targets set by NATO.
PETER HAYNES: While these targets are difficult to meet right now, as you mentioned, the statement from the finance minister when she gave her fall economic update was that all the areas of the government would be seeing some cutbacks, as you just mentioned, for the military.
Going back to-- and I know that Chrystia Freeland, who was our minister of finance, was pushed on this post the actual release of the fall economic update. What she was pushed on specifically was her mention that they are going to be running a $40 billion deficit in 2024, if I have my numbers right.
And this kind of doesn't jive with the mandate that was put in place when Trudeau was elected back in 2015, where he used a term, we'll be running modest deficits. And I think this number is getting beyond what was considered to be a modest deficit.
Also, Freeland had indicated that she was promising to lower the deficit to GDP ratio, which will be extremely difficult to do, if we do, in fact, have somewhat soft landing or even a hard landing in the economy here right now. So Frank, how is the minister going to be able to thread this complex needle and ensure that Canada's perceived strength in terms of our economy and our country and our currency remains strong?
FRANK MCKENNA: I think this is a terrific question not only for you to ask me but for us to ask ourselves as Canadians because the fall update had some good news and bad news. And I guess on the good news side, there was a recognition that we need to deal with housing, and we need to deal with it in a dramatic way. And there was a very significant commitment to various means of stimulating housing in the country, which is important.
On the bad news side, there was really no particular measure introduced to increase productivity in Canada, which tends to be one of our chronic weaknesses as a country. Even though our growth continues, it doesn't increase per capita. We've got a growing population. So while our country is increasing its generation of wealth, it's not increasing it per capita, and falling behind other countries, in fact. So that's a weakness in the budget.
And just on the bad news side, but also on the inevitable news side, the government recognized that we have to pay the piper. And by that I mean, we have to recognize that all that money we borrowed during the pandemic, we have to start paying it back. And we have to start paying it back with higher interest rates.
And all of those people, including some reputable economists who were arguing a few years ago, look, we should borrow profligately because interest rates are so low, it's almost irresponsible to borrow, I think somehow or other failed to realize that interest rates don't always stay low, and at some point, you have to pay that back.
I'm of that really old fashioned school now, I guess, in the world, in believing that we should be much more responsible fiscally and not be borrowing from our children and our grandchildren. So I think the budget was a realistic recognition that interest rates are a lot higher now and that the debt service costs are getting to be considerably higher than were forecast some years ago.
The government, though, did undertake to do something which I think is profoundly important, and that's re-establish a fiscal anchor. That fiscal anchor starts in 2026. In a little way, it's like Saint Augustine, when he said, Lord, make me chaste, but not just yet.
So the fiscal anchor doesn't kick in for a couple of years, but that will have us-- that will have us in the direction of maintaining deficits below 1% of GDP. And so that's pretty significant, Peter, because if we follow that fiscal discipline, we should be on a good path.
So for a fiscal conservative like me, this is not the ideal situation. But realistically in the world, Canada's actually doing quite well. And there's an article-- and I'm surprised that the government doesn't do a better job of tooting its horn.
There was a wonderful article in The Globe a week or two before the fiscal update. Its headline, which country's finances are in better shape, Canada or the US or, in fact, Europe? And the conclusion of Tony Keller, who wrote this article, after looking at a lot of international data, is that Canada comes out on top of both Europe and the United States, and it's not even close.
And in Canada, it shows that Ottawa will be running a small primary surplus this year and then larger surpluses in the years to come. And the US is projecting a primary deficit of 3.3% in 2023, and it barely falls in the years going out. The US deficit is some 2 trillion a year and with no relief in sight, and Europe's not doing much better.
So we have earned ourselves a bit of running room, I guess, here as a result of some of our fiscal discipline in the past. So all of that to say that even though our situation is not where a lot of us would like it to be, it is better than a lot of other countries around the world. And if we respect the fiscal discipline that was forecast in the fall update, it will start getting in pretty good shape down the road.
PETER HAYNES: This isn't a topic for today's podcast, Frank, but it is something that I've been spending a lot of time on, and it kind of was prompted around the whole CPP Alberta potential split, and that is the productivity numbers that you referred to earlier.
As you may be aware, the federal government has been meeting with Canadian pension funds over the past few months to discuss productivity and the belief that if those Canadian pension funds that you have spoken so well about in the past were to invest more of their assets in Canadian companies, that would help our productivity, ease that productivity gap.
But of course, as soon as you ask the pension funds or essentially handcuff the pension funds and tell them where to invest, you immediately take away those freedoms that you've extolled in the past are the reason why we have such successful pension funds.
And I know that the funds have really been pushing back, as they should, I think, against the federal government because I'm not sure that's the way that we're going to solve our productivity gap, is to tell our pension funds or have the UK tell their pension funds, you've got to own domestic companies, whatever that is.
So that's a complicated topic. And another aspect of that, Frank, that I've been spending a lot of time on is this, what is a Canadian company in the context of an investment? Because most Canadian companies that are based in Canada have most of their revenue coming from the US, if they're global in nature.
And now what we're finding, unfortunately, and this is a really bad trend, is those Canadian and UK and Swedish and Japanese companies all want to list in the US because of a perceived value gap and a perceived uptick in their value. So I think our federal government, on that particular topic, has a real challenge because it is difficult to ask these funds to invest more in a Canadian market, let's say, that is shrinking in size and relevance and breadth. So have you had many conversations with folks around this whole question of pension funds owning more Canadian stocks?
FRANK MCKENNA: Peter, it's just exploded over the last several weeks. Bill Robson has been working on this at CD Howe, and it's being discussed in Ottawa and discussions have been held with the Maple Eight, et cetera. So it's really exploded.
And in fact, I had a think tank out of the country this weekend, and I was surprised to find that this was one of the major topics of conversation, some of the participants being people involved in the finance industry having quite strong views on it.
It's a subject for a different time because there are a lot of dimensions to it. Somebody pointed out to me that the Caisse de dépot in Quebec actually do fulfill that kind of a mandate that some people want, and it actually is quite successful and quite an additive to the Quebec economy. Others would make the argument that that's not the appropriate role for pension funds.
I do know this. Our pension funds are the best in the world. They enjoy the best reputation. I think their governance has the most integrity. And whatever we do, we do not want to lose that. So that's one.
Secondly, the government of Canada has got to be very careful that they don't start looking like total hypocrites on this because the fact is, in Canada, it's extraordinarily difficult, aside from public equities, to find anything to invest in. We do not make available the kind of assets that are made available in other countries.
We don't have airports that are privatized. We don't have ports that are privatized. In large measure, we don't have highways that are privatized. We don't have water and sewage that are privatized. Major public undertakings are all carefully guarded under-- by governments, one because we are not bad enough off that we need to go to other markets for money, and secondly because our unionization in Canada is very pervasive and there's strong resistance to any kind of privatization.
So in large measure, outside of public equities, if our pension funds want to invest in Canada, they're not going to find much to look at. And I blame the government of Canada and provincial governments and municipal governments for that because they simply aren't prepared to look at that as an option for funding. So governments have to be a little bit careful here about not being hypocrites.
PETER HAYNES: OK, so Frank, just final question for our listeners that are outside of Canada and in the US and in Singapore. Just a reminder, our next election would be in 2025. If you're guessing, Frank, do we make it until 2025, or do we see the government dissolve prior to that? What's your guess?
FRANK MCKENNA: I think we make it. It's a bit of a Gordian knot. Neither party has advantage by going to the polls because both would probably be wiped out electorally if an election were held in the near future.
Unless something dramatically changes in the political calculus, both parties are probably better off going to the end of-- to the end of their time. That will only change if something dramatically changes in the political landscape, and it's hard to forecast what that would be at the moment.
PETER HAYNES: Political calculus, a term that you just used a second ago. There's a lot of political calculus going on in Alberta right now, and I know we've spoken at length in some of our recent podcasts about the province of Alberta's grievances with Ottawa.
They're probably the catalysts behind things like criticism of equalization payments, the potential for a separation from the CPP, and other policies that are placing the province at odds with the rest of Canada. We know that one of the new levers, controversial new levers that Alberta's Premier Danielle Smith put in place is the so-called Alberta Sovereignty Act.
This is legislation that remains in drafting stage and was quite controversial across the rest of Canada, thinking, hang on a second here. We have a supreme court and federal rules that are put in place here, and all of a sudden, Alberta is going to pull out of those decisions if they think that they're somehow being harmed.
So regardless, Smith announced over the weekend, even though this legislation remains in drafting stage, that she is going to enact or invoke the so-called Sovereignty Act for the first time to defend Alberta against the federal government's policy to achieve a net zero electricity grid by 2035. How will this dispute play out?
FRANK MCKENNA: It'll play out in court. There's no doubt the Sovereignty Act is in very disputed territory. Constitutionally, you get some people, like retired judge of the supreme court John Major thinking that it probably passes constitutional muster. You've got other constitutional scholars who say that it doesn't.
And in fairness to the Danielle Smith government, she has said that the Sovereignty Act will respect the Constitution of Canada and the Supreme Court of Canada and its opinion on constitutionality. So it's subject to constitutional interpretation by the Supreme Court of Canada. That's where I think it'll end up.
But it serves her purpose, for that to be the case. She's got a real problem that we realistically have to recognize, and that's that she's got a deeply divided province between, I'd say, more moderate forces and hard right forces, between rural constituents and urban constituents.
And it's a very difficult coalition. I watched Jason Kenney, who's a very, very capable political leader, fall under the weight of that obligation to try to balance those forces. So she's trying to balance those forces and keep her support.
So she, in some cases, has real grievances that I would acknowledge. In other cases, I think they're contrived grievances in order to protect her political base. The government of Canada, in my view, is doing a very poor job of defending itself and articulating its ambitions.
In actual fact, the government of Canada has a story to tell in Alberta, which they don't tell. They own a pipeline that's probably worth $35 for $40 billion that is really almost uniquely dedicated to the Alberta resource and is going to add enormous value to the Alberta economy.
If you consider another 500,000 barrels of oil getting access to markets and the reduction in the differential that will go with that and all of the money that that results in accruing to producers and to the provincial treasury, the Orphan Well Fund that's been funded by Ottawa.
We're now probably $10 billion plus in tax concessions for carbon capture and storage. None of that goes to Prince Edward Island. It's all dedicated to Alberta and to some extent Saskatchewan. And the hydrogen policy in Canada, which is largely designed to take into account Alberta interests.
Government of Canada I think has a good story to tell, but they're not telling it in Alberta. And as a result, the grievances that Alberta has, some legitimate and some less legitimate, tend to take center stage. So it'll resolve itself ultimately through good, old-fashioned horse trading, I hope.
But also some of this will be processed out, as we would say. In public life, it'll be put into a constitutional challenge, which will probably consume a couple of years. And during that couple of years, usually the fires burn out and more rational discussions take place.
PETER HAYNES: What's the government's reluctance to want to be on the ground in Alberta, telling their story?
FRANK MCKENNA: I think there's a political reason because they don't want to be perceived, in Quebec, particularly-- some other parts of Canada, as well, but in Quebec, particularly-- as being at all soft on climate issues. There are parts of Canada who would love to see the oil sands shut down.
And so when massive amounts of money are scheduled for tax concessions to clean the oil in the oil sands, that might be good in Alberta, but it's not very good or doesn't play very well politically in other parts of Canada.
So I think there's a political reason for it. I don't accept that political reason. I think reasonable Canadians will accept reasonable arguments. But secondly, it's just a resource issue. There are only a couple of members elected on the government side in Alberta, and they're elected in the urban constituencies.
There are really no rural liberal members out there and really no leading figures out there who can articulate a position strongly. It used to be many years ago, you'd have somebody like Anne McLellan, who's the deputy prime minister and extraordinarily articulate, and she would do that job. But now there really isn't anybody.
PETER HAYNES: Well, Frank, I'm going to switch gears here into BC, let's say, or at least an issue that at one time was very important in BC and remains the case, and that was the dispute between India and Canada.
And the reason that Canada and India are having a dispute is because Canada had suggested that the Indian government was behind the assassination of a Sikh separatist leader in BC. Recently, Indian officials have been quoted as stating that there appears to be some thawing in the relations between the two countries, which obviously had gone ice cold.
And then add on top of that the Financial Times reporting last week or the week before that the US government had thwarted an attempt to kill a US citizen of Sikh descent and had warned the Indian government about its potential involvement in that plot.
How does this new news coming out of the US impact Canada's dispute with India? And admittedly, I'm only reading what I'm reading in the media. It's all conjecture, based on what I've seen in the media.
FRANK MCKENNA: I think that it fortifies Canada's position. It tells the world we're not alone and that there's substance to our allegation. And by the way, Canada's known about this for some time, so it was part of its calculus in proceeding publicly with the allegations.
So I think that probably will provide some comfort to the government and to Canadians that there was merit in our grievance. But your question is a little bit differently, about relationships thawing, and that is, in fact, happening.
I think it was Mark Twain-- somebody who's listening might correct me, but I think it was Mark Twain who said the art of diplomacy is saying, there, there, nice doggie, until you can get your hand on a big rock. And put it another way, it's in playing for time.
Diplomacy always works best when the red heat is taken out of an issue. And so two months later, the heat has been taken out of this issue. Diplomats are working very, very hard on this, on lessening the impact, on the emotion.
If you note, Peter, trade does not seem to have changed at all. We continue to have a very strong trade relationship with India. We've some 300,000 students here. All of those students are still here, so nothing has really changed on the ground. And that's as a result of having the time for diplomacy to do its work.
And gradually, the heat is being taken out of this issue. And it should stay out of it, and things should continue to improve. Unfortunately, until charges are laid, and at that time, things may-- depending on the fact situation on the ground, et cetera, et cetera, that may result in the dispute getting red hot again.
But for now, I would say that the dispute is a little bit on the back burner. Diplomats are working hard. Businessmen are doing what they do, which is doing business. Students are doing what they do, which is studying Canadian universities.
PETER HAYNES: Well, that's good. Let's hope that that continues, and that we can manage, as a government and as a country, to work through the thorny topic of if, in fact, there is evidence that the Indian government was involved and that comes out in an actual charge, then we can make it through that process without too much of a hiccup again.
Over the past weekend-- I'm just going to finish on two quick topics here, Frank. Over the past weekend, during an agreed-upon temporary ceasefire between Hamas and Israel, there was an exchange of dozens of hostages and a window where aid was able to make its way into Gaza. And I know there's talk of extending that brief ceasefire a couple more days.
With where the war is at currently, Frank, in your opinion, are we past the point in which you were worrying that other countries would become involved and that the war would somehow cascade into other areas of the Middle East?
FRANK MCKENNA: No, not completely. I still think we've got a lot of war ahead of us. I hate to put it that way. There will be several more days, which is in the interest of both sides, for hostages to be released. But Israel is not going to stop prosecuting this war.
They have been very strong in their conviction that Hamas must be eliminated as a threat to Israel, and I believe public opinion is strongly supportive of the government of Israel on this. So they will continue to do that, and Hamas is going to continue to want to eliminate the Jewish state. And so that hasn't changed at all.
I think that there's been extraordinarily good diplomacy taking place in getting hostages released and also in trying to deescalate the tensions in other countries in the region. And so far, that is working. We've not seen other countries becoming involved.
But there's always the chance for an accident, and that's why I'm hesitant to say that this dispute is being confined to Gaza. There's always a chance for accident. There are attacks being made almost daily on the US military from Houthi rebels in Yemen. Hezbollah is attacking almost daily, and those attacks have been repelled, against Israel.
But something terrible could happen. You might get a missile get through from Hezbollah in Lebanon and fall on Tel Aviv or Jerusalem. You might get a massive loss of life event. A warship, United States warship might be hit. Syria might do something stupid.
There is always the potential for something to happen. You've got some adults working hard in the room. Qatar seems to be really stepping up and punching way over its weight. Saudi Arabia I think is trying to calm things down, and Egypt is in an uncomfortable position, and as is Jordan, but I think they're all doing their best.
So I think the most likely outcome is that this dispute stays confined, but there is always the potential for a major accident to happen. And if that were to take place, all bets are off. And remember, in many ways, the [INAUDIBLE] a lot of the tension in the Mideast remains, and that's Iran and its ambitions to obtain a nuclear bomb.
And Israel, especially after seeing what's happened with Hamas, will be absolutely resolute in its conviction that Iran cannot have an atomic weapon, which would result in Israel being held hostage. So if Iran continues to try to purify its ability or improve its ability to make a bomb, Israel will be involved in a major military operation against Iran, and that will also involve the United States.
So that is not the centerpiece of what's taking place right now, but it's not gone away, either, and that would be a much larger and much bloodier event than the one that we're going through at the present time.
PETER HAYNES: Well, we have to pray that doesn't happen. Finally, it does feel-- when we talked about earlier about temperature going down a bit between India and Canada, it also feels like the temperature has gone down a little bit between China and the US. And that follows President Biden's recent meeting with Chinese President Xi in San Francisco. What do you want to see next to feel confident that the relationship between these two superpowers is on more solid footing?
FRANK MCKENNA: I think it's terrific that you've called that out because we talk about all of the bad things going on in the world. This is a really good thing. This is a remarkable event indicating that both sides know that they need to deescalate the tension.
And just as an aside, at some point, I think more in the history books than at present, President Biden will be given some credit for significant accomplishments. Obviously, the very large climate change program that he introduced through the Inflation Reduction Act, the CHIPS Act, the infrastructure legislation, modest gun control. These are all significant accomplishments.
But bigger accomplishments, including keeping NATO together to prosecute the war in the Ukraine, being a steadfast ally of Israel in the face of a very divided America, and deescalating tensions with China, these are all very significant accomplishments.
And even though they don't reflect at all in the polls in the United States, they will in the history books. So I thought it was a big event. And to your question, the major indicator of progress is going to be the COP28 conference coming up in Dubai in the coming days.
If China demonstrates that it's a determined partner in dealing with climate change issues, that will be a huge step forward as well. And right now, indications are that China may be prepared to make that step.
PETER HAYNES: OK, we'll watch with keen interest. Just before I let you go, Frank, next week is the general managers meetings in Nashville for baseball. Pretty much everybody is waiting on what Shohei Ohtani will do, where he will sign. What is your best guess on where Shohei lands? And do you think the Blue Jays have any sort of a chance?
FRANK MCKENNA: Where he lands, I don't know. It'll be a big-- it'll be a big market, a team with a lot of money. I don't think he'll land in Toronto. Management has been making noises about getting him. I think they're just-- I think that's just for show.
Quite frankly, management in Toronto hasn't demonstrated to me the resolution to make that kind of a deal. And the owners seem to be prepared to allow us to have a team that's never good enough to win at all and never bad enough to rebuild.
After some of the deals that we've made in the last year or two, I'd be a little concerned about the kind of price that we would pay for Ohtani. Would it make a difference? It would be make a huge difference, but we need more than one player to rebuild this team, I'm afraid.
PETER HAYNES: Well, it could be argued he's two players, but he won't be two players next year. And I will predict that he will end up taking a deal somewhere that is way more about the qualitative factors than the quantitative factors, whether that's in Seattle, because that's where he spends his summers, or whether that's in, I don't know, Boston, because they have another Japanese player already on their team.
I think we're going to find that the qualitative factors-- which is why I'm not ruling the Blue Jays out because of the demographic of Toronto. It's just such an incredible city and so diverse with such a great culture for foreign countries.
So I won't rule Toronto out. It appears as though we're supposed to be a big market team. You've seen the pictures of all the seats being thrown out of the old Rogers Centre, and they're replacing them with the new luxury seats in the 100 level, where they're going to charge a lot more to go to the games in the future.
So I'm not ruling the Jays out on this. And if for somehow, we caught his attention for qualitative reasons, I'm not going to blame our management if it doesn't happen, but I don't think there's any reason why we shouldn't be at least taking a crack at it. And hopefully, Frank, we're in on some of these free agents. We've got a lot of holes to plug here, after all the players.
FRANK MCKENNA: I so much hope that we go after him or some other big free agents. But I don't know. Sometimes, to use the Chinese proverb, I think we're a big dog that acts like a small dog. Drives me nuts because we're a big market team. We've got our whole nation behind us. And I think the fans deserve it, a quality team and 100% effort on the field every day.
And I'm a little jaded at the moment. I was just so disappointed at the end of the season last year, and then I watched some of our star players carrying other teams all the way to the World Series-- our former star players. So color me cynical at the moment, but I live in hope, and I can't wait for spring training.
PETER HAYNES: Maybe I should have waited another month to bring the Blue Jays up with you. So you're still in pain here, clearly. Well, look, Frank, we'll be chatting again just before the holiday season, and I look forward to that. And for now, thanks again for all your views. I know we said before we got on this pod, there's never a shortage of topics, and that's certainly the case this month. Thanks again.
FRANK MCKENNA: Thank you.
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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.