Monday, July 5, 2010

What influences will drive WC fund investments?

The AWCBC Congress was held last week in Halifax. This event is held every two years and brings together delegates from all the Canadian workers’ compensation boards and commissions. Are such gatherings worth the cost and effort? In this case, the program content certainly made this a good investment for those who could attend. There were many great sessions presented by many experts but the highlight for me was the first address.

The keynote speaker, Jeff Rubin, provided an unscripted, succinct, insightful, provocative examination of the trends that triggered the recent world recession and will undoubtedly impact us in the years to come. Since workers’ compensation systems in many jurisdictions manage large investment funds to pay benefits to workers injured in the past, his insight was extremely important. He correctly predicted the run up in oil prices in the last decade and convincingly links that price climb to the financial turmoil that followed.

Where are we heading? Rubin believes we are at or near peak oil so the world consumption of oil will shift. North America will use less; China and India will use more… much more. You and I will learn to love mass transit, cycling and living in or closer to home. The Hundred Mile Diet will become more fashionable out of simple, practical economics: the cost of fertilizer and transportation will make bringing food from farther away more expensive. As oil hits $150 a barrel, papayas from Mexico will be too expensive for much of the Canadian market. He notes that as the price of oil ford to $100 a barrel, the cost of making steel will make domestic production once again competitive with anything China can deliver to the North American market.

What does the recent BP gulf disaster mean? Rubin acknowledges the devastation on the people and the environment. Ultimately, BP will pay the price and that may mean the end of BP. Fundamentally, however, Rubin thinks the markets—not regulators—that will make deep-water oil an uneconomic risk. Will anyone who buys BP’s deep water assets be able to afford the insurance for another disaster. In a way, the BP fiasco has pushed a lot of ‘reserves’ effectively out of reach.

As oil increases in price, the Canadian dollar will rise. There will be ups and downs but the general direction for both appears to be upward.

If what Rubin has to say is true, the world we live in is indeed going to get a lot smaller... and the implications for investments, employment and labour are huge. Add to this the demographic changes and the future will be very different than our past.

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