Alibaba Storms Wall Sreet

Twenty years ago, a young Chinese entrepreneur named Jack Ma set off for Seattle, U.S.A.  to find customers for his new business.  Ma, trained as an English-as-a-Second Language teacher, had established a Chinese/English translation service which he believed could capitalize on the increasing trade between the West and China.  A friend in Seattle demonstrated a young computer network called the internet.  Ma punched in the search terms for "Chinese"  and "beer"  but came up with nothing - no sellers, no buyers.  Then Ma's entrepreneurial vision took hold of his imagination.  He dumped the translation service and visualized a world-wide network linking millions of buyers and sellers in all areas of human commerce.  Ma's first attempts failed, but in 1998, he founded Alibaba -named after the woodcutter in the  "Arabian Nights" tales who stumbled across the secret cache of jewels hidden away by 40 thieves.

Today, Alibaba is a web sensation.  Last year the company handled sales of goods worth $250 billion - more than Amazon and eBay combined.  In contrast to Amazon and eBay which operate a single platform for buying and selling goods, Alibaba offers numerous sites for different transactions.  Essentially, Alibaba operates in 3 major areas.  The first and most profitable so far is alibaba.com, a marketplace where businesses can trade with each other.  This site has become a gateway for companies around the world to deal directly with Chinese manufacturers.

The second site, Taobao, pairs private sellers and businesses with Chinese consumers.  Today, Taobao controls 80% of China's ecommerce retail market.  As China's middle class continues to grow and disposable income rises, Taobao's profitability is expected to skyrocket.

The third major division of the Alibaba empire is Alipay, a payment network used by millions of sellers and buyers to complete the transactions.  Just to give you an idea of how big Alibaba is, last year it delivered 5 billion packages to Chinese consumers.

But Jack Ma is not content to be the "ecommerce king of the Chinese Marketplace".  Last week, he said "In the future, we will be judged by how much progress we make in the world".  His sights are now set on Amazon's and eBay's own backyard - America!  Ma plans to raise U.S. $21 billion through an IPO (Initial Placement Offer)  to American investors - both individuals and institutions.  Then, Alibaba  will list on a U.S. stock exchange.  Whether or not American investors embrace the new kid on the block remains to be seen.  But with Jack Ma's track record, I wouldn't bet against him.

NATO Spins A "WALE" Of A Tale

The North Atlantic Treaty Organization (NATO) talked tough at their summit in Wales, U.K.  this week but fell short on action.  President Obama, for example, thundered:  "I support Ukraine's sovereignty, independence and territorial integrity and its right to defend itself!".  But he refused to honour Ukraine's request for antitank/antiaircraft weapons to fight the thousands of Russian regular soldiers who have poured across the border into Ukraine.  The result?  Outgunned, Prime Minister Poroshenko called for a cease-fire to stop the bloodshed.

Vladimir Putin must be chuckling in his borscht, astonished by the West's weakness.  He now openly talks about "statehood"  for a "New Russia"  stretching over large areas of eastern Ukraine, and a land corridor running from Russia along the Ukrainian coast to Crimea.

NATO also failed to announce tougher economic sanctions against Russia.  It did agree to set up a "rapid-reaction" force of 4,000 troops.  Great.  But why not also redeploy the thousands of American soldiers under NATO command in Germany to Poland and the Baltic States?  This would send Putin a clear message - lay off our allies (Poland, Latvia, Estonia, Lithuania)  on your western border.

Once again, the West has missed an opportunity to stop Putin's vision of a "Greater Russia".  He now holds all the aces.  The only question is who will be his next target?

British Imans Condemn Islamic State - A Good Beginning

For the first time since Jihadist fighters began their campaign of terror and murder in Iraq and Syria, British Imans have issued a fatwa (religious decree)  condemning British Muslims fighting alongside Islamic State extremists.  Six senior Islamic scholars signed the fatwa which describes the young British citizens as "heretics".  This follows an upgrade of Britain's terror threat from "substantial"  to "severe", meaning intelligence agencies agree an attack is "highly likely"  somewhere in the home island soon.  Sheik Muhammad Shahid Raza, head Iman at Leicester Central Mosque said the fatwa was very significant:  "Many scholars from diverse theological backgrounds are supporting it so it carries a lot of weight.  I hope our young people will listen to what we are saying...  Isis is a poisonous ideology".

This is a good first step which hopefully will be followed up with fatwas from around the Muslim world.  And, hopefully, those condemnations (if they come)  will be followed by condemnations from our own intellectuals and politicians in the West.  The fact is that too many Westerners are blinded by misguided beliefs in "moral relativism"  - that each religion or culture is equal and should be able to practice its values without interference.  Otherwise, how do you explain feminists turning a blind eye to female genital mutilation, gender segregation, no education for females, women as second class citizens - as practiced by many Muslims worldwide, not just IS.  How do you explain gays/lesbians more concerned with transgendered washrooms than Imans who preach jail or death to all homosexuals.  The list goes on.

To be fair, Christianity once treated women as inferior to men and many Christians still treat homosexuality as a "sin".  But the enlightenment and liberal thought over many centuries cured the violence in Christianity (Spanish Inquisition, Salem Witch Hunts, the Crusades etc.)  and eventually led to the separation of Church and State.  That must happen to Islam.

But for now, the current reality is a murderous cancer eating through the Middle East, helped by misguided Western volunteers who will soon return home to incubate these cancerous cells in the very core of the Western world.  It must be "chemotherapied" out of existence.

And before you call me a racist or "Islamophobic", remember - the true religion of Islam does not justify any of the barbaric acts we see on social media.  True Islam has been hijacked and perverted by radical monsters who have been transformed into a cancer in the human genome.

UBER Takes on Taxi Establishment

What happens when an innovative upstart takes on the status quo?  Conflict!  History is full of examples from democracy replacing the rule of kings to velcro replacing shoe laces.  A few years ago, a young start-up company called UBER  based in San Francisco looked at the existing taxi cab business model world-wide and said "We can do better".  They developed an application for smart phones that would match customers with qualified drivers screened by the company.  Bingo!  Simple.  Fast.  Direct.  Cheaper.  Use the app and get a car when you want one.

So UBER  Technologies Inc.  set off to conquer the world.  They now operate in 40 countries and are highly regarded by both customers and drivers.  But not by the status quo.  Ever since the first gasoline powered taxi cab picked up its first customer in Stuttgart, Germany, 1897, the industry has covered itself in protective regulations and high-priced taxi permits.  The latest conflict between the old and the new came to a head in Germany last week when a Frankfurt court ordered UBER to cease its operations in that city.  The case was brought forward by Taxi Deutschland which argued that the company did not have the necessary permits to carry passengers under German law.  UBER shot back:  "We believe innovation and competition is good for everyone, riders and drivers.  You cannot put the brakes on progress".

Considering the fact that European taxi permits can cost up to 200,000 Euros ($287,000 U.S.)  each, it's no surprise the old order was upset.  In fact, regular taxi drivers have staged protests against UBER in Berlin, London, Paris, Madrid and many smaller cities.  The company also faces lawsuits in America, South Korea, India and Britain.  To complicate the issue, UBER has the support of 2 big investors - investment banker Goldman Sachs and Google. These players have deep pockets and a vested interest in UBER's success - Google for the booming market in apps for smartphones and Goldman Sachs for the company's growing popularity and profitability.

So the war continues.  A spokeswoman for Taxi Deutschland said:  "We're not afraid of our adversary because the law is on our side.  Goldman Sachs and Google can pour as much money in as they want but even UBER has to abide by the law".  The company responded with a legal appeal of the Frankfurt court decision to close its operations.  Then in a blog post to its loyal customers and drivers, the young upstart rallied around its battle cry - "KEEP CALM AND UBER ON".
To be continued.

The Rise of China As A Maritime Power

While the world's attention is focused on the Middle East and Ukraine, a potential hot spot develops in the Far East.  China has long-standing disputes with its neighbours, Japan and Vietnam, over islands in the China seas.  Strategically, these small territories are important to China's maritime trade.  China's economic dynamism depends on seaborne imports of raw materials and seaborne exports to countries around the world.  Historically, China has a claim over all waters in the China Sea, Yellow Sea and East China Sea.  The Chinese call them the "near seas", meaning China's seas; and the government in Beijing wants to ensure they remain China's "sphere of influence".

To Achieve that goal, China is embarking on a massive naval build-up, including aircraft carriers and anti-ship missiles called "carrier-busters".  Across the East China Sea, Japan is quietly expanding its navy to meet the Chinese challenge.  Currently, the American navy holds an overwhelming balance of power;  but this could change over the next few years, particularly with the American reluctance to engage in a "deterrent"  foreign policy.  In previous blogs, I have profiled China's territorial claims and counter claims from its neighbours.  For now, keep both eyes on the Middle East and Vladimir Putin, but keep China's territorial ambitions in the rear view mirror.

The Truth About Tax Inversion

Barack Obama calls Burger King a "tax deserter"  because the company plans to relocate its headquarters to Ontario, Canada.  What the President doesn't tell voters is that all income generated by restaurant sales in the United States are taxed at the current American corporate tax rate.  What Burger King saves is tax on world-wide sales outside the U.S. - that income will be taxed at the lower Canadian rate.

There are 4 very important lessons in these facts.  First, most big corporations are international in scope - why should income from foreign sales be taxed at the higher American rate?  In fact, all companies, not just Burger King, have a duty to their shareholders to maximize investor returns through all legal means possible.  If they didn't, they would fail in their duty and the stock value would fall.

Second, the real winner in all this is Canada.  What a windfall - new tax revenue for roads, schools, hospitals etc.  And this didn't just happen by accident.  For 20 years, both Liberal and Conservative governments have diligently lowered corporate AND individual tax rates through good governance - keeping budget deficits relatively low, cutting back on the size and scope of government, and NOT running up an enormous national debt like America's 18 Trillion Dollars.

Third, America desperately needs tax reform.  The current code is so convoluted, complicated and confusing that no one understands it.  Simplify it, take out whatever "loopholes"  you like, but remember that every respectable economic study concludes that lower taxes eventually generate more money for government coffers.  Sounds like a contradiction - lower taxes and get more money - but it really works.  Why?  Simple- companies and entrepreneurs have more money to invest and consumers have more money to spend.  That's called economic growth.

Fourth, socialists like President Obama have got to wake up to the fact that we live in a competitive world.  Instead of all this nonsense talk about "tax deserters",  "the top 1% don't pay their fair share",  "occupy Wall Street"  etc., focus on the real issues.  Hire advisors who understand economics and business, who can expand on the points raised above.  Warren Buffet didn't put $3 Billion into the Burger King / Tim Horton's deal because he wanted to betray your trust, because he converted to naked capitalism or because he changed his social values.  He did it because it's a good business deal with visionary management and a solid, forward-looking business plan.  Finally, Mr. President, check out your union supporters' pension plan.  Bet you $10 you'll find Burger King's and Tim Horton's shares in the portfolio because they are profitable and thereby contribute to the overall value for members.  Good luck.

Memo To Ukraine: Follow Poland's Lead

Up to the collapse of Soviet communism in 1989, Ukraine and Poland lived behind the same Iron Curtain, under the same tyrannical boot.  With independence, however, they took separate paths.  Poland was lucky.  Its Finance Minister, Leszek Balcerowicz, (later governor of Poland's Central Bank)  had to transform the country from a centralized, collectivist mess into a free market, entrepreneurial economy.  He knew reform could take one of 2 routes - sudden change he called "shock treatment"  or slow, incremental change.  He said:  "Bold action had little chance of success but incrementalism had no chance of success, so, a very risky option is always better than a hopeless option".  Within a year, Mr. Balcerowicz permitted inefficient state firms to go bankrupt, filling the void with visionary entrepreneurs;  he reduced government spending;  he opened up international trade and he pegged the zloty (currency)  to the American dollar, thereby lowering inflation.  At first, it was difficult - the concept of free markets was foreign to the Poles;  but eventually it worked.  Today, Poland has the fastest growing economy in Europe and it's a member of both NATO and the EU.

Ukraine, unfortunately, took a different path.  Corruption is an integral part of both government and the private sector;  government control is pervasive;  inflation is hyper;  and the black market (underground economy)  drains taxes away from social programs and infrastructure.  However, if newly elected President Petro Poroshenko can resolve the current crisis with Vladimir Putin, he then has a chance to duplicate Poland's economic miracle.  After all, he is a very successful business mogul;  in fact, one of the richest people in Ukraine.  They don't call him the "Chocolate King"  for nothing.

Putin Strategy Revealed - A Land Corridor To Crimea

Czar Vladimir Putin sees weakness as an opportunity to strike hard and fast.  Witness his response to German Chancellor Angela Merkel last weekend in Kiev, Ukraine when she said that there must be a negotiated settlement of the conflict and that Europe had no plans to escalate the economic sanctions against Russia.  Vlad the cad immediately sent over 1000 Russian soldiers and heavy artillery into Ukraine to support rebel forces (according to a NATO official).  But what about Barack Obama, the most powerful man in the world?  Unfortunately, the President may carry a big stick but has a very limp wrist when it comes to using it.  His response to the Russian attack was to wag his finger, saying "countries don't act this way in the 21st century".  Huh?  Oh yes they do.  But more importantly, Mr.  Obama refused to give the Ukrainian military small arms, antitank and antiaircraft weapons.

Yesterday, rebel forces took the coastal town of Novoazovsk on the Sea of Azov (which opens into the Black Sea).  This puts them within striking distance of Mariupol, the regional capital, and only 300 kilometres from Crimea.  Clearly, President Putin wants a land link with that new member of the Russian federation (forced annexation, February, 2014).  Road transportation would end Crimea's isolation, allow him to reinforce Russian garrisons in Crimea directly from the homeland and provide an outlet for Crimean products, much cheaper than air sea transportation.

Meanwhile, countries like Poland, that border Russia are very nervous about Putin's future plans.  Polish Foreign Minister Radoslaw Sikorski called the Russian invasion of Crimea an act of war and added:  "There's the American saying - if it looks like a duck, quacks like a duck, then it is a duck".  He wants NATO to build permanent bases in Poland to act as a deterrent to Russian aggression.  Latvia and Estonia have sizeable Russian minorities so they worry that Putin could use the same rationale used in Ukraine - we're moving into your country to "protect"  ethnic Russians.

One big advantage these countries and others have over Ukraine is their membership in NATO.  Next week, NATO will hold a summit in Wales, U.K.  Will this alliance stand up to Vlad the Punisher?  To be continued.

Tim Hortons and Burger King: A Merger That Fits Like A Good Hockey Glove

Yesterday, I covered the tax benefits to Burger King in the Tim Hortons merger.  But what's in it for Tim's?  Some Canadian nationalists and socialists (the New democratic Party - NDP)  are screaming OH NO !  Don't let the American giant squash an iconic Canadian Brand that sells 8 of 10 cups of coffee in Canada!  Already, NDP industry critic Peggy Nash has condemned the merger:  "We want to make sure those jobs are protected as well as ensure that the Tim Hortons brand and the Tim Hortons experience continue to be part of our Canadian society".

Calm down everyone, the Canadian icon and Canadian pride are quite safe.  The fact is both companies will continue to operate under their own business models and their own Brand Names.  For Tim Hortons, the merger enhances access to the American market - a market T.H. has been trying to crack since 1985, without much success.  For example, Burger King has extensive real estate holdings in America.  Tim Hortons could move into Burger King locations and set up combination restaurants, much like same-location KFC and Taco Bell.  Or Burger King could sell Tim Hortons coffee and doughnuts in-house.  Whatever the combination, the opportunities to co-market are extremely attractive for both Brands.  Now Tim Hortons can really give its competitors like McDonald's and Dunkin' Donuts a run for market share.

Another appealing prospect for Tim Hortons is the fact that Burger King operates in 79 countries.
What an opportunity for international expansion!  Right now, T.H. has locations in the Middle East - United Arab Emirates, Qatar, Bahrain, Kuwait and Oman.  But apart from its struggling restaurants in the U.S., that's it.  Now with the merger, a whole new world opens up - what a great opportunity for T.H.  to become a major player on the world scene!

Tom Pirko, president of a food and beverage advisory firm (Bevmark LLC)  said:  "Americans are so chauvinistic.  They tend to think, 'Oh, an American company bought or is merging with a smaller Canadian company.'  The reverse is true here.  The real power in this deal lies with the Canadian side".  So all you nay-sayers, stand aside, and watch Canada's entrepreneurial spirit catch fire!

P.S.  Tim Horton was a professional hockey player and as we all know, Canada is hockey and hockey is Canada!  Go Canucks!

"Inversion" - The Tax Loophole Strikes Again! Burger King "Marries" Tim Hortons

Hot off the press - Burger King and Canada's Tim Hortons are in merger talks.  If the deal holds, it will create the third-largest fast-food restaurant chain in the world.  (18,000 restaurants)  So what's the motive?  For Tim Hortons, according to company sources:  "A key driver of these discussions is the potential to leverage Burger King's worldwide footprint and experience in global development to accelerate Tim Hortons growth in international markets".  For Burger King, it would move the Miami headquarters to Canada, a lower-tax jurisdiction.  (America has the highest corporate rate in the Western world)

This move will draw heavy criticism from the Obama administration, which as I explained in an Aug. 16th blog, is trying everything in its power to stop U.S.  corporations from dodging the American tax-man.  Perhaps someone could interrupt President Obama's golf game and suggest he simply lower tax rates to a more competitive level.  Problem solved.

Target Misses The Bullseye: "Retail is Detail". Chapter 2

The age-old maxim "Retail is Detail"  rings as true today as it did 100, 200, 500 years ago.  To be successful, a retailer must offer consumers a good first impression.  Target Canada, an offshoot of the American parent Target Corp., completely missed the mark and drove customers to the competition.  So what went wrong?  First, Target Canada failed to offer Canadians what they expected - the American experience.  Most of Canada's population lies within driving distance of the U.S.   border;  many had frequently visited Target stores there.  But when Target opened its doors north of the border, many familiar brand-names were missing.  Secondly, Target Canada could not develop an efficient supply chain - leaving many stores with empty shelves and angry customers.  Thirdly, the company opened 124 stores in 2013, before evaluating consumer response.  With hindsight, said John Mulligan, Chief Financial Officer, "it would have been wiser to open 5 - 10 Canadian stores in 2013, giving us more time to gauge consumer appetite.....We bit off way too much too early".

So where does Target go from here?  One analyst said the company should "cut its losses"  and sell-off its Canadian outlets.  Michael Exstein of Credit Suisse First Boston wrote to his clients:  "Target took a vast risk with Canada, entering the market with a large-scale operation, apparently under the assumption that the retailer could only win...... This decision has proven to be costly, in terms of capital investment ($6 billion)  and continued losses".  But other analysts take a longer-term view.  They point out Wal-Mart took 3 years to reach profitability in Canada.  Wal-Mart also stuck it out in Germany and South Korea for 8 years before giving up and shutting down those operations.  Home Depot tried for 6 years to make inroads in China before admitting defeat.  So now Target Canada is at a crossroads - stay or go.  At the moment, the evidence points to giving it a good shot.  At least the company recognizes the problems.  It knows that if it can just duplicate the American model, it will succeed.  Hopefully, it's not too late to win back customer loyalty.  Just get the "detail"  right this time.

The Prime Minister of Britain Speaks the Truth - August 16, 2014

"The creation of an extremist caliphate in the heart of Iraq and extending into Syria is not a problem miles away from home.  Nor is it a problem that should be defined by a war 10 years ago.  It is our concern here and now.  Because if we do not act to stem the onslaught of this exceptionally dangerous terrorist movement, it will only grow stronger until it can target us on the streets of Britain.  We already know that it has the murderous intent.  Indeed, the first Isil-inspired terrorist acts on the continent of Europe have already taken place....

We are in the middle of a generational struggle against a poisonous and extremist ideology, which I believe we will be fighting for the rest of my political lifetime.  We face in Isil a new threat that is single-minded, determined and unflinching in pursuit of its objectives.  Already it controls not just thousands of minds, but thousands of square miles of territory, sweeping aside much of the boundary between Iraq and Syria to carve out its so-called caliphate.  It makes no secret of its expansionist aims."

Mr. President: "Get Your Teeth Into The Job"

In an August 10th, blog, I sent "kudos"  to President Obama for his decision to launch airstrikes against the Islamic State (ISIS).  Well, good start, now get the job done.  Keep it up - bomb these fanatics straight to "Paradise"  and bypass the painful process of suicide bombers, more 9  11's,  London Undergrounds, social media beheadings etc. etc. etc.  But instead of Churchillian "the world must pull together"  speeches, Mr. Obama sounds like a school teacher:  "no faith or religion teaches people to murder innocents".  What?  Of course, no religion teaches that - unless fanatics pervert and twist their religion into a genocidal ideology out to destroy the world as we know it, and replace it with a homogeneous Islamic Caliphate cleansed of all infidels and apostates.  Imagine the end game - the whole planet under the black and white Jihadist flag.

And, Mr. Obama, what's all this talk about American support dependent on Iraq electing an "inclusive"  government?  Look at the bigger picture.  British, Canadian, German, American, Australian etc. etc. etc.  recruits flocking to join the Islamic State army don't give a flying fig if Iraq does or doesn't get an "inclusive"  government.  Their target is much bigger - EARTH!  This army, though relatively small in numbers, is an international force - they (and others who follow)  will eventually want to go home and when they do, they will want to see their black and white flag flying over the White House, 10 Downing St.  and all other capitol buildings in the world.

Not putting American "boots"  on the ground is understandable and reasonable.  But, Mr. President, study your intelligence sources.  They estimate that ISIS has 30 MI Abrams tanks and howitzers that are either self-propelled or towed behind trucks.  These weapons gave the Islamic State the advantage over the Peshmerga in recent battles.  In addition to these American weapons captured from the Iraqi army, the terrorists have Russian- made equipment:  vehicle-mounted anti-aircraft guns called ZPU-4 and DSHK heavy machine guns mounted on trucks.  Then there are the shoulder-fired rockets.  These are your targets Mr. President, forget about a unified Iraq, use your F-18's and destroy them now!  Worry about Iraq's political future later.

On television, Mr. President, you said ISIS is a "cancer".  How right you are.  But don't forget one indisputable fact abut cancer - either you kill it or it will kill you.  Go get 'em

*Below is a Canadian propaganda poster, circa 1943, showing Adolf Hitler up a tree, about to come crashing down - thanks to the persistent efforts of a symbolic Canadian beaver.

Putin And The Polish Apple

Poland loves its apples.  In fact, there are more than 60,000 apple growers in the country and Poland is the #1 apple exporter in the world.  But along comes Vladimir Putin with the Big Stick - not to shake the Polish apple tree, but to beat Ukraine until it gives up Crimea and the eastern provinces.  His plan works in Crimea but stalls in Luhansk.  The International community rallies around Ukraine;  sanctions on the Russian economy get tougher - but Vlad the Punisher fights back with a counter-punch.  One, two - No more Polish apples allowed in Russia!  On no!  Half of Poland's exported apples go to Russia.  What to do with the surplus?  Slowly but indomitably a whisper from the past is passed from ear to ear and builds to a crescendo.  "Solidarity, solidarity"  - SOLIDARNOCZ - that clarion call from 1989!  That call to arms for Poles to throw off the Communist chains - free themselves from Soviet tyranny!  Unite brothers and sisters!  Together we can restore our freedom, our honour and our pride!

That spirit of independence was broadcast across the nation through the popular newspaper "Puls Biznesu"  (Pulse of Business) :  "Stand up to Putin, eat apples and drink cider".  And it's working.  Television celebrities, pop stars, authors, classical actors, politicians, and thousands of their countrymen and women are taking to social media, posting apple-biting selfies on Facebook and Twitter.  Vodka sales are dropping as people turn to apple cider.  And most importantly, Poland, now free from the straitjacket of Communist Central Planning, can diversify into other markets.  Entrepreneurs and government negotiators are looking to America, Asia and the Middle East to pick up the slack.

It will take time, maybe a season or two, to put those new trade relations into place but eventually they will provide a more secure outlet for Polish apples and other products - leaving Vladimir Putin shadow-boxing in the ring all by himself - which is exactly where he belongs.

Wal-Mart Returns To "The Human Factor"

For 2 years, Wal-Mart, the world's #1 retailer, increased self-checkout systems in its 4,000 American stores.  Executives viewed this move as a step forward into modern technology and convenience.  To their horror, the company found that more and more shoppers bypassed the new system and clogged the staffed check-outs.  Apparently, "human"  cashiers were necessary to deal with more complicated and time-consuming transactions, such as shoppers who used coupons and price matching.  Queues grew, customers were angry and for 7 straight business quarters, in-store traffic fell as shoppers turned to Wal-Mart's competitors.

Now in an attempt to woo back shoppers, the company has come up with a "check-out promise"  marketing campaign.  Cash registers will be fully staffed from the day after Thanksgiving in October to the end of the Christmas peak season.  Duncan MacNaughton, Wal-Mart's chief merchandising officer said:  "We feel good about price and having the top gifts of the season, so the next priority is about getting customers in and out of the stores quickly.  Taking the possibility of waiting in long lines off the table will attract more people into stores."

Another complaint about the retail giant is that too many items are out of stock:  shelves are often empty of product - another irritant costing the company money and customer loyalty.  To address this problem, Wal-Mart has beefed up its delivery systems, expanded overnight shelf-stocking and hired more "quantity control"  employees.

Both of these initiatives are further evidence how Wal-Mart retains its #1 position in the highly competitive retail market.  It never lost sight of the old adage - "Two eyes on the consumer, one eye on competition".  As Doug McMillan, Chief Executive Officer, recently told investors:  "We must run stronger stores everywhere we operate, with better merchandising, in stock levels and quality service".

If Sam Walton were alive today, he would be proud to see that his creation was living up to his 1962 motto:  "Focus on something the customer wants, and then deliver it."

Ukraine Calls Putin's Bluff

Just 4 months ago, it seemed that eastern Ukraine would secede and form a pro-Russian separatist state called "Danetsk People's Republic".  After taking Crimea with a combination covert operations and a mock referendum on separation, Russian president Vladimir Putin looked ready to repeat the strategy in eastern Ukraine.  But today, all bets are off.  The Ukrainian army and foreign mercenaries are pounding rebel positions into submission.  The Russian force of 45,000 massed on the border seems content to simply watch the action.  All the rebels' key political and military leaders have fled the country and scurried back to Mother Russia.  Alexander Borodai, self-proclaimed "Prime Minister"  of the separatist republic - Gone.  Igor Girkin (nicknamed "Strelkov", meaning "shooter"),  the former Russian secret service operator who led the successful takeover of Crimea, then moved North-East to command the rebels - Gone.  Foreign journalists on the scene now report a cloud of anarchy descending on the region.  One Russian commander reportedly said:  "Our entire political and military command has left;  as soldiers, we will stand our ground, but it is becoming hard".  With the removal of law and order, thuggish bands of mercenaries roam the countryside, abusing civilians and looting.  The dream of Novo Rossiya or "new Russia"  is fast fading into the twilight of defeat.

Of course, all of this could turn around if President Putin orders in the Russian army, but that possibility seems more and more unlikely.  Why?  First, wealthy Ukrainian oligarchs, supported by the government, raised volunteer battalions to fight in the east.  Second, Ukraine elected Petro Poroshenko, himself an oligarch and staunch supporter of the West, as President and Commander of the armed forces.  Poroshenko refused to be intimidated by Putin's sabre rattling and ordered the "charge".  Third, separatist leaders could not rally enough local people to join the cause and fight.  This left the rebels with no reserves to call up.  Fourth, Russia faced enormous international condemnation when the Malaysian airliner was shot from the skies.  And fifth, international sanctions are starting to bite the economy and to hit rich Russian oligarchs in their "bottom line".  Even Russian polls show a drop in public support for military intervention.

So now, all eyes are on Vladimir Putin.  Will he launch an attack or will he call off the dogs of war?  My money's on withdrawal.

Black Pete Gets A Facelift

On the July 26, 2014 blog, "What's In A Name", I criticized so-called harmless traditions like the "Golliwog"  in Britain, "Redskins"  in America, "Black Pete"  (Santa Claus's helper) in Holland etc.  My critique was based on 2 facts:  1) these caricatures provoke painful memories in today's generation about the injustices done to their ancestors.  2)  They are based on a history of violence, racial discrimination and human degradation.  For these reasons, I said these caricatures "should be cast out of the culture forever".

I'm happy to report that the Amsterdam mayor and city council have revealed plans to overhaul the image of "Black Pete".  Usually, Santa Claus's sidekick is portrayed in parades and local festivals by white actors wearing blackface makeup, dark red lipstick and frizzy hair.  Now, his appearance will be changed to make him look like a "chinmey-sweep", covered in soot from going down chimneys to deliver presents for children.

Hopefully, other Dutch cities will follow this progressive lead;  but for now - Kudos to Amsterdam!  You've done the right thing!

"Inversion": Another Tax Loophole

Four years ago, a bunch of Wall street lawyers took a cycling tour through Southern France - but it wasn't just to sample du vin, dine on le canard a l'orange and flirt avec les jeunes filles.  No, they had a grander purpose in mind - saving their corporate bosses from American federal income tax.  They called it "tax inversion"  and here's how it works.  An American corporation buys a smaller foreign company in a country with a lower tax rate.  It adopts the foreign address as its "corporate headquarters"; which of course is simply cosmetic since the real executives and operations stay in the U.S.  Through this legal tactic (loophole), companies can protect their overseas profits from the American taxman.  At the heart of this clever scheme is the huge gap between corporate tax rates in the U.S.  and other countries.  In fact, the American rate at 35% of profits, is the highest among all developed economies.  (Britain is 21%;  Ireland is 12.5%)

Last month, President Obama called these companies "corporate deserters", "unpatriotic", "not paying their fair share".  Of course, with the national debt approaching $18 trillion, he would love to close this loophole but he can't get legislation passed through a divided Congress.  The Republicans say don't call us unpatriotic - this "inversion" scheme wouldn't have started in the first place if the Democrats lowered taxes to a reasonable level - then our companies would stay home.

So the deadlock continues while the exodus gets worse.  Between 2011 and 2013,  16 large American corporations moved their tax  bases offshore (according to the Congressional Research Service).  So far this year, another 14 inversion deals have been struck - and more negotiations are in the wings.  But President Obama is fighting back.  Last week, the Treasury Department said it would use existing laws to stop further defections by "meaningfully reducing the tax benefits after inversions takes place".  What this really means is unknown but we're all aware of the power of big government and the scandalous bulldog behaviour of the IRS (Internal Revenue Service)  when it targeted "conservative" groups in America.  No one wants the taxman after him / her.

Case in point is Walgreens, the giant pharmaceutical chain.  It negotiated the purchase of Alliance Boots, an international pharmaceutical chain headquartered in Switzerland.  But the decision to buy was made simply on the merits of it being a good takeover.  Then it dawned on Walgreens - hey, if we do this deal, we can move headquarters from Chicago to Switzerland and save a ton of tax!  Until reality set in.  What about our customer base?  We could be accused of being tax cheats!  So last week, Walgreens sealed the deal on the Boots takeover, but HQ would - remain in Chicago.  Greg Wesson, Walgreen's Chief Executive, said the company could have faced a "consumer backlash" and jeopardized its relationship with the federal government - their biggest customer.  (Through its Medicare and Medicaid programs, Washington purchases millions of dollars of Walgreens products every year)

Even if the 4 year-old inversion program loses popularity, other Wall Street lawyers will concoct other loophole schemes to save their clients income tax.  It's the nature of the beast.  Why doesn't President Obama simply endorse a competitive tax system that encourages U.S. firms to invest in America and stay in America.  The economy would grow faster, workers' incomes would rise and the government would get more tax revenue.  Ah, if only the president had studied economics instead of Constitutional law.

"Who Are These People? What Do They Want?"

On the morning of Sept.  11, 2001, I got up as usual at 5 a.m. PST to go to work.  I waited for my carpool downstairs and switched on the T.V. (CNN) at 5:50 a.m.  A reporter shakingly said an airplane had crashed into a building in New York.  Over and over they showed the plane hitting the building (8:46 a.m.  their time).  Then, right there in front of my eyes - another plane crashed into a building (9:03 a.m. EST) - but that's impossible!  How could 2 planes crash!  I called my carpool inside - over and over we watched the impossible.

Over the next few days, information leaked out - something about terrorists?  Freedom fighters?  What?  The common thinking was - Ok, Ok - track down these crazy psychopaths whoever they are and just get rid of them.  But I thought "Who are these people?  What do they really want?".  Then a bigger picture began to emerge.  President Bush talked about a "war on terror".  He and British Prime Minister Tony Blair warned about " Weapons of Mass Destruction"  that could reach London in 45 minutes.  What?  I was working in London at that time and I read about this claim - especially from BBC journalist Andrew Gilligan who had interviewed an "anonymous" UN weapons inspector.  This whistleblower said the claim (45 minutes) was a lie.  But when his identity was revealed, Dr. David Kelly,  committed suicide (or did he?).  Four months prior to Dr. Kelly's death, Iraq was invaded. Big mistake.  But I still couldn't figure it out.  Who are these people?  What do they want?

On July 7, 2005, I was on the London underground going to work.  Then terror struck again.  And again.  The questions.  Who are these people?  What do they want?

Flash forward to August 2014.  I can't find words to describe the barbaric atrocities - the genocide - committed by the Islamic State of Iraq and Al-Sham (ISIS), but I have noticed the world is beginning to wake up.  Even the Pope, a man of peace, urges the international community "to take action to end the humanitarian tragedy now underway".  His ambassador to the United Nations went further:  "Maybe military action is necessary at this moment".  As far as my questions - Who are these people?  What do they want? - I don't ask them anymore.  We don't have the final answers but the puzzle is slowly being pieced together - the dots are beginning to reveal a clearer picture.

For a comprehensive, unique, perceptive analysis of the real issue, I urge all of you around the world to read an article in Canada's National Post newspaper,  August 14, 2014.  It's called "The Battle of Our Century", by father Raymond J. de Souza.  Here is a sample:  "It is not a war between religions, and not a war between Islam and Christianity.  It is a theological war in Islam that has lethal consequences for all those it touches, including non-Muslims......The unspeakable brutality taking place in ISIS - controlled Iraq, offers a clear picture of one option.  It is powerful and growing, manifesting itself in both Sunni and Shia forms in parts of the Islamic world.  Its defeat will require from within Islam a century - long struggle involving theology, politics, social and cultural reform and sheer military power..... When the 21st century began with the carnage of September 11, it was tempting to ignore that a bloody new century had begun.  Thirteen years into the jihadist century, it can no longer be ignored".

Tolerance Has Its Limits Part 5: The Trojan Horse returns

In my previous reports on Muslim extremists who took over the governance of schools in Birmingham, Bradford and London etc., government action indicated that the threat was over.  Now, 5 head teachers have come forward in Birmingham with a warning that a "second layer"  of extremists are still plotting to take over state schools in the city.  Of the 5, only one remains in her job;  three were ousted and one is on "stress"  leave.  One of the heads, Saeeda Bano, said:  "There are still many things that need to be addressed.  I would not want any other teachers to have to go through what I have been through.  This really does need to be stopped".  Another head teacher, Bhupinder Kondal, walked away from her job 6 months ago, but she will soon be reinstated following the forced resignation of the board of governors.  She detailed how governors "cancelled Christmas, urged pupils to memorize the Koran and told me to remove all the urinals in the school because it was un - Islamic for boys to urinate standing up".  Head teacher, Kevin McCabe, concluded:  "the stress of trying to manage a school where you know the governing body is working against you is impossible".

Meanwhile, other extremists are promoting an ISIS - style interpretation of Islamic law on the streets of Britain by trying to ban people from listening to music, dancing or mixing with the opposite sex.  In Birmingham, for example, every year Muslims celebrate the end of the holy month of Ramadan and the arrival of Eid with music, dancing and feasting outside Asian shops and restaurants.  On July 27th, extremists disrupted the festivities by chanting and waving home - made banners at the crowd.  One banner said:  "Say no to satan.  No music.  No dancing.  Do not let the devil take away the deeds you struggled so hard for this Ramadan".

In London, extremists confronted women going to a family festival to celebrate the Bangladeshi new year.  They warned them not to attend, saying the event encouraged "sin",  "fornication"  and "drug - taking".  Last week, a flag resembling the black and white ISIS flag was flown over a housing estate in east London.  It was taken down the same day.  Ghaffer Hussain, managing director of Quilliam, a counterextremism think tank, said:  "It's very alarming that UK - based extremists are now seeking to import an ISIS -style interpretation of Islam and impose it on British citizens.  Banning music and dancing is completely unacceptable in a modern democracy and goes against all British values".

Of course, all of this evidence is anecdotal and by no means a tidal wave of extremism.  But it will be interesting to watch what impact future ISIS success in the middle east will have on fringe elements in Muslim communities in the U.K.  and other parts of the world.  Stay tuned for more.

President Obama Does The Right Thing

Three days ago, President Barack Obama ordered the first American airstrikes against ISIS in Iraq since the end of the war in 2011.  His long - term policy has always remained constant:  the region must sort out its own problems, America can't be the policeman of the world, America should not use military force.  But now, circumstances have changed.  Words like "genocide" and "humanitarian catastrophe"  describe an extreme situation unlike any other Mr. Obama has confronted.  Television images show 40,000 men, women and children (Yazidis)  isolated on a mountain with little food or water;  hunted down like mad dogs by men with no conscience and no mercy.  Christians persecuted for their religious beliefs.  Women taken as slaves.  Pictures of mass executions rippling through social media around the world.  And no end in sight.  He had to do something.

Even the President's language is different.  Prior to 2014, he rarely used the term "terrorists", preferring to soften the meaning with euphemisms like "militant", "radical".  On August 9th, on television, he referred to ISIS (or ISIL) fighters as "barbaric terrorists".  Some of the President's advisors reminded him of the genocide in Rwanda where 500 - 1 million Tutsi were killed by Hutu militants.  The world stood back and watched in horror, but did nothing.

Then there is the worry about the ability of the Kurdish military forces (the Peshmerga) to hold the ISIS hoard.  Despite their bravery and loyalty, on Aug. 6th they fell  back from the strategically important Mosul Dam.  And finally, the realization that ISIS won't be satisfied by simply establishing a small "Caliphate"  and settling down to a normal life under Shariah law - their vision is much grander.  In the words of John Kerry, U.S. Secretary of State:  "President Obama has been unequivocal that he will do what is necessary when it's in our interests to confront ISIL and its threat to the security of the region and to our own security in the long run".

So the first air strikes have destroyed artillery positions and food and water are being air - dropped to the refugees in the mountains.

Good for you, President Obama.  You've shown leadership that our allies will follow.  The coalition will succeed!

ISIS: The Borg Descends on Planet Earth

In the Popular television series, STAR TREK, the universe is threatened by an unstoppable rolling cube called THE BORG.  It's purpose is simple and non-negotiable - assimilate every living organism into the collective.  And now THE BORG has reached earth in the form of ISIS;  the Islamic State in Iraq and al-Sham.  It's current target is the Middle East where it threatens to obliterate the Christian population in northern Iraq and 40,000 Yazidis, a minority religion who have lived in Iraq for thousands of years.  However, unlike the fictional Star Trek Borg, victims are given a choice:  convert, die or leave.  But option 3 seems to be a non - starter, since when people do begin their exodus to "freedom", they are still hunted down.  So that leaves 2 real choices.

In the land already occupied, ISIS proclaimed a Caliphate - their version of an Islamic empire.  Confiscated properties are given to supporters.  Ancient symbols of infidel religions are destroyed.  ISIS jihadists are sent to other parts of the region to destabilize political and economic life and soften them up for invasion.  Young supporters from Britain, Canada, Germany etc. etc. etc. send messages back home inviting friends to join them in the great crusade for a world - wide Caliphate.  Gruesome videos and photos accompany their invitations - beheadings, torture, bullet in the brain - as enticements to sign up for this "righteous"  adventure.

Opponents of these Barbarians are putting up a good fight but they need help.  Gradually, the rest of the world is waking up to the global threat of this plague (just like the Ebola virus).  Anyone who believes  ISIS will stay out of Europe, America or anywhere else in the world is living in a fantasy land.  Tune in tomorrow for the first wake - up call and remember, you can't negotiate with the BORG

"The Customer's Always Right"

Change in retail marketing, sales and distribution is the life-blood of successful small  businesses and giant mega - corporations.  Take Amazon.com, for example.  In order to avoid expensive bricks and mortar stores in high rent urban/rural locations, Amazon built an on-line sales empire that is the envy of the world.  Apart from a dazzling number of products and services, Amazon pioneered customized content for shoppers.  Using data about customers' purchase history, their location, occupation, age etc.;  Amazon will pop-up similar products or related items of interest.  So if someone bought the epic movie " Dumb and Dumber", the company may offer "The Three Stooges"  or "Kiss Me Stupid"  or some other I.Q. popping blockbuster.

In a bid to compete with Amazon,  Wal-Mart U.S.A ( the world's biggest retailer)  is rebuilding its website to offer more personalized features that will enhance its customers' experience into the internet shopping world.  Last year, Wal-Mart reported a decline in business at its mega-store locations;  but a 30% increase in e-commerce sales.

The bottom line for Wal-Mart is total customer service, savings and satisfaction in any format the customer wants.  This "one-stop shop"  concept was summed up by Simon Rodrigue, vice-president of Walmart.ca:  "It's not about an e-commerce channel or about a store channel anymore.  It's really about the customer in the middle.  If they want to buy online, if they want to buy on the phone, if they want to buy in store, we want to make sure we're serving them".

Change and competition in a free market - what a great combination for success!

Beyond Fair Trade - Partnerships To End Poverty

When I was teaching business in London, England a few years ago, some of my students asked about a relatively new concept called Fair Trade.  Downstairs was a Starbucks coffee house.  I knew they sold a brand of "Fair Trade" coffee, so I arranged a talk with the manager.  She told the students that Starbucks sourced coffee from farmers in developing countries under the auspices of Fairtrade International.  The idea was simple - the organization established a fair price (higher than market value); the company paid the farmers;  and consumers paid a little more for a cup of coffee branded "Fair Trade".  It was a win, win, win - the company acted in a socially responsible way, the farmer got higher than market prices and the consumers did their bit in fighting poverty in the developing world.

Today, the Fair Trade concept has been adopted by other corporate giants, at least when it comes to coffee.  Oana Branzei, an associate professor at University of Western Ontario put it this way:  "There is no coffee shop that is not a social enterprise.  Look at Starbucks and the way it competes by promoting the care it takes in sourcing and its social missions.  Now even McDonald's and Tim Hortons are trying to play up their connection to farmers.  Coffee is a small statement people can afford to make about who they are as responsible consumers".  Sustainable sourcing is also becoming an important part of "Fair Trade"  branding promoted by multinational corporations.  Kraft Foods, for example, highlights its connection with coffee farmers in the developing world in its "Respect the Bean"  advertising campaign for Nabob, one of its most popular brands.

While sustainability and price are key components of Fair Trade, some entrepreneurs have extended these concepts into a new level - business partnerships.  In 2007, Doi Chaang Coffee Company was launched in Vancouver, Canada in partnership with Doi Chaang village in northern Thailand.  The Thai villagers own 100% of the operation in Thailand and 50%  of the Canadian company.  Farmers are responsible for planting, cultivating and exporting the coffee to Vancouver where the beans are roasted and distributed internationally under the Doi Chaang brand name.  The company also has 400 branded coffee shops in Thailand (24 corporate - owned, 376 franchised).  According to John Alexander Darch, one of the entrepreneur - founders:  "The village gets 50%  of net profits and an elected body invests those funds into infrastructure.  They've built a road, brought electricity and water into the village;  they now have a dentist, supermarket, a farmer's bank, a hospital and a daycare".

The success of this business model is found in consumer response.  Since launching 7 years ago, the Canadian operation has grown 25%  each year.  Consumers know that 50%  of what the company earns goes to the farming community that grows the beans.  What a great example of social justice actually working in a real business setting.  No handouts here.  Everybody works, everybody benefits.  What a great business model for the future!  And not just in coffee!

President Obama Takes An Ax to The Golden Arches

For the last 50 years, the Franchise business model has proven to be a powerful, practical and profitable partnership between entrepreneurs and parent companies.  Franchisees independently make all the daily business decisions - hiring, firing, wages, hours, compliance with government employment regulations etc. They invest money into their local business;  they take all the risks and they reap the profits.  Franchisors, having established a profitable brand with a widely recognized logo, charge a licensing fee and ongoing royalties.  The success of this business model is well established in every country in which it operates.

In the United States, for example, there are 750,000 franchise outlets employing about 8 million people.  Now, that model is under threat.  Last month the National Labour Relations Board, (N.L.R.B.)  appointed by President  Barack Obama, directed that fast - food giant McDonald's be named as "joint - employer"  in dozens of unfair labour practice complaints made by workers employed at the company's Franchises.  (90% of McDonald's restaurants).  If this ruling holds and sets a precedent, the entire Franchise business industry model could be completely gutted.

Here are the consequences.  Franchisors would be responsible for reviewing thousands of job applications at the local level.  They would have to be consulted on wages, benefits, rest breaks, overtime and hundreds of other working conditions now handled by local Franchisees.  The added costs of joint management would inevitably be passed on to the Franchisees who in turn would have to increase prices to consumers.  The end result?  Layoffs, closures, fewer new investments, falling bank loans, economic downturn.  Great.  Just what we need during this period of slow economic recovery.

So how did it come to this?  For the last 30 years, the National Labour Relations Board has operated under a legal precedent set by a 1984 decision;  TLI, Inc and Laerco Transportation.  The N.L.R.B. ruled:  "To establish joint employer status there must be a showing that the employer meaningfully affects matters relating to the employment relationship such as hiring, firing, discipline, supervision and direction".  Clearly the Franchise model does NOT establish joint employer status.  So what prompted the N.L.R.B. to change its position now?  The answer is union power.  The Service Employees International Union (SEIU), with a long history of organizing workers in the service industries has lobbied the N.L.R.B. for years to make companies "joint employers"  with Franchisees.  Last year, the SEIU submitted a brief to the N.L.R.B. specifically arguing that fast - food Franchisors should be deemed joint - employers.  Bingo!  Success!  The Lobby union wins!  (They also funded Barack Obama's election campaign).  Of course, McDonald's will challenge this decision both at an N.L.R.B. hearing and if necessary, the courts.  But it should never have come to this in the first place.  The case for the current Franchise model was succinctly put by Andrew Puzder, Chief Executive Officer of CKE Restaurants:

"Franchisers and their franchises are not joint employers, and the NLRB is defying reality by pretending otherwise.  Many budding entrepreneurs got their start as franchisees, and millions of young Americans have gained their first work experience in franchise restaurants.  The Obama administration does not have a stellar record for encouraging business growth or economic vitality.  Killing a business model that has been such an American success would be one of the administration's most misguided moves."

My advice to President Obama:  Tell your appointees in the N.L.R.B. to stop this madness!  Remember what grandma said:  "If it ain't broke, don't fix it".

Don't Cry For Yourself, Argentina

If you default on your mortgage payments, you may be able to renegotiate a new deal with the lender to restructure the debt and your payments.  If you can't reach a deal, the lender will foreclose and you lose your house/land.  That's the risk you took when you signed the contract.  simple.  Straightforward.  But if you're a country like Argentina, you may be able to spin the default into a political advantage.  Here's what happened.

Back in 2001, Argentina defaulted on $100 billion owed to foreign investors.  A new deal was restructured that gave new investors a terrific interest rate advantage and a guarantee to repay the $100 billion principal.  Argentina also agreed that the contracts to pay interest and principal would be governed by U.S. law.  This gave investors an added sense of security.  Fast forward to 2014 when Argentina defaulted on a $539 million interest payment.  President Cristina Kirchner cried poverty;  most investors accepted a repayment of principal at 30 cents on the dollar.

But Paul Singer, a hedge fund manager from New York, refused to go along with the deal.  Under the terms of the 2001 restructured contract, he took Argentina to an American Federal Court...... and he won.  The court ordered Argentina to repay the entire $1.5 billion owed to Mr. Singer's fund.

President Kirchner refused to pay and tried to spin Paul Singer's victory into a "war"  against Wall Street and the evil "vulture funds"  run by "foreigners".  she said, "We've become a viable country again.  That's why they want to bury us".  All this hysteria against "money - grubbing capitalists"  has gained traction with some Argentinians.  Television news media show demonstrators marching through the streets of Buenos Aires in support of President Kirchner standing up to these foreigners.  But they fail to see 1)  Argentina has the money to make the interest payment ($539. million)  2)  the total debt of $100 billion is not due yet  3)  Argentina has a weak economy, inflation is running at a rate of 40% and their currency is heavily devalued (since last August, for example, the Argentine peso has lost 40% of its value against the Canadian dollar).  Default now will only further reduce investment and lead to more downward pressure on economic growth.

In my view, all this hysteria and phoney outrage is simply a way to distract the Argentinian people away from economic reality.  Regardless of whether this is true or not;  the government has clearly spooked foreign investors and companies from doing business in that country.  My advice to Cristina Kirchner is to do the right thing and pay the debt and by the way, don't distract the people by invading the Falkland Islands - again.

New Zealand The Next Oil Giant? What? Are You Mad?

Ah, New Zealand!  Emerald-green islands set in an azure-blue sea........Beautiful, serene, exotic, home of the "Lord of the Rings"  and ..... isolated!  So why is Norway's biggest oil producer, Statoil ASA mapping seabeds off the coast of New Zealand and sending out a seismic - exploration vessel later this year?  The answer is Simon Bridges, New Zealand's Resource Minister.  He looked at their economy, dominated by sheep, dairy and tourism, and decided to develop the massive ocean seabed surrounding the islands.  In 2009, New Zealand published a white paper "to explicitly position the government both domestically and internationally as highly supportive of the development of our petroleum resources".  Bridges traveled the world to pitch his country to petroleum explorers.  He hired oil experts from Oklahoma and Texas to lure foreign producers to New Zealand's distant shores .......... and he succeeded!

So what is Simon Bridges' secret?  Simple.  The industry changed.  Prior to 2009 -2010, oil companies focused on emerging nations like Angola, Indonesia, Nigeria.  They got great government contracts, weak regulations and low - cost labour.  For awhile it worked but in recent years, violence, government demand for more royalties and competition from state - owned oil companies cut into profits.  Here are a few examples:

-  Shell invested heavily in Nigeria's Niger Delta but in 2006, militants attacked Shell facilities.  They kidnapped executives and workers and blew up pipelines.  That violence still exists;  Shell sold $1.8 billion in assets

- In Libya, Italian oil company, ENISPA has been hit by violence.

- This year, Chevron sold its Chad assets.

-  Exxon has sold projects in Iraq and Indonesia.

The list goes on.  Now Big Oil wants stability.  Now their focus is on the Organization for Economic Cooperation and Development (OECD)  which is made up of the world's richest economies.  In 2013, oil giants - Exxon, Shell and Chevron spent 66% of their exploration and production budgets in OECD countries.  Shell Chief Executive, Ben Van Beurden said, "It would be good if the majority of our cash flow came from OECD countries because they carry little political risk."  First - world governments have been quick to seize this economic opportunity.  In May, 2014, Britain created tax incentives to encourage offshore exploration.  Shell and Exxon now have projects in the seabeds of Eastern Canada, supported by both provincial and federal governments.  Chevron is spending more money in Australia as part of its shift away from Angola and Nigeria.

And as for New Zealand?  the last word goes to Pal Haremo, vice-president of Norway's Statoil ASA:  "We like the very attractive commercial regime that has been established in New Zealand and their very stable political regime".  Simon Bridges should be proud.

President Putin Stirs The Pot In Latin America

A midst the chaos in Ukraine, Vladimir Putin is extending his influence in America's backyard - Cuba.  During his visit to Havana, two weeks ago, Putin signed an agreement with Raul Castro in energy, industry and trade;  and both leaders opened talks that will lead to a Russian military base in Cuba.  They also signed a space cooperation agreement to allow Russia to set up its Glonass navagation stations (Russia's equivalent to GPS).  Now, President Putin is negotiating with Venezuela and Nicaragua to establish naval bases in those countries.  Not since the Cuban missile crisis in 1962, has Russia posed such a threat to America's sphere of influence - Latin America.  And with Putin's continuing flagrant disregard for Ukrainian sovereignty, Western countries have every reason to be worried about this rogue nation.

For these reasons and the international outrage over the destruction of Malaysian flight 17 last week, the U.S. and Europe have tightened the screws on the Russian economy by issuing stronger sanctions yesterday.  These new measures hit Russia's banks, oil industry and military.  If they work, Russia's already sluggish economy will contract even more.  Western business interests will continue to leave, banks will call their loans, Russian oligarchs will suffer a decrease in wealth and the Russian people will feel the pinch in their employment and pocket books.  Will this tightening economic squeeze push Putin and the Ukrainian separatists to the negotiating table?  Possibly.  But remember Putin the man - he does not like to lose and his personal popularity in Russia has soared since the annexation of Crimea and arming the rebels in eastern Ukraine.

In a July 30th editorial, the Wall Street Journal put it this way:  "As Ukraine's military counteroffensive pushes back the rebels, President Putin now faces a choice - cut losses and drop the rebels, or ramp up support and possibly send in the real Russian army....... it was the very specific fear of a widening war in Europe that prompted Germany and other EU countries to act (by issuing stronger sanctions yesterday).  However, the best way to prevent that is to help Ukraine defend itself
 from a Russian attack by providing it with weapons".

Stay tuned for future developments and keep an eye on Russian expansion into Latin America.

Can The Government Spend Your Money Better Than You?

Should a government balance its budget or borrow money to finance economic growth?  President Barack Obama has grown America's national debt to over 17 trillion dollars.  That's 17 thousand billion dollars.  Like all left-wing politicians, he claims that government spending produces a multiplier effect - a dollar spent produces more than a dollar's worth of economic output.  And here's a bonus- with today's low interest rates, the cost of borrowing and paying interest on the debt is at an all time low!  (They never talk about the day when interest rates return to normal levels or how many generations it will take to pay off the debt.)

Another left-wing assumption is that the government will spend the money more effectively than private sector businesses.  In my experience, both in and outside government, that assumption is simply false.  My view, of course, is only anecdotal.  So, take a look at "Large Changes in Fiscal Policy:  Taxes versus Spending", a study conducted by Harvard University professor, Alberto Alesina.  He analyzed "stimulus spending"  in industrialized countries from 1970 - 2007.  The result - increased government spending based on borrowed money actually reduced economic growth.  For more proof, look at the central planning system used by the Soviet Union under Communism.  The fact is the U.S.S.R.  collapsed under the dead weight of inefficient, wasteful system of government control.

An impartial investigation of any government with a balanced budget will show a healthy opportunity to reduce corporate and personal income taxes.  That's how to stimulate economic growth.

What's In A Name?

Two weeks ago, a Dutch court ruled that one of Santa Claus' helpers, known as "Black Pete", was a negative stereotype of black people.  His thick red lips, fuzzy hairdo and black-face make-up, the court said, perpetuated a racist caricature that should not be tolerated in modern society.  Critics argue that "Black Pete" is a harmless fantasy figure, loved by children for generations - besides no harm was intended.  Banning "Black Pete" is political correctness gone mad they say.  Across the English Channel, another "beloved" character, the "gollywog" doll is also under threat.  Created in the late 19th century Victorian era, this rag doll had white-rimmed eyes, fuzzy hair, a clown smile and black skin.  It's popularity went well into the 1970's and even today, you'll find it in many toy stores in the English-speaking world.  Again, critics defend this cute children's toy - it's harmless, it's been around for 150 years, it's part of our heritage.  As far as I'm concerned, both "Black Peter" and "gollywog" should be cast out of the culture forever.  The argument that they weren't meant to be offensive is ridiculous - look at the period when they were born.  Even fifty years ago, black people around the world were commonly felt by Europeans and North Americans to be inferior to their white brothers and sisters in every way imaginable.  This ingrained, generational racism has gradually disappeared over time (In 2013, an English chef who used the term "gollywog"  in front of a black colleague was ruled guilty of racial harassment by the Court of Appeal.  The judges agreed that the term was inherently racist.)  but the vestiges linger on, all in the name of tradition and "We don't mean to offend".  Look at any movie from any Western country prior to 1950 and you'll see racial stereotypes - acceptable, normal - from "Stepin Fetchit and "redskin" in America to Gunga Din in Britain to "Black Pete" in Holland.  Check out the 1951 American "epic" - "When The Redskins Rode".  If you really want to experience what it's like to be the victim of racial stereotyping read "Equiano Travels " by Olaudah Equiano.  It was published in 1789 (the year of the French Revolution)  and it's still in print or on the internet.  Equiano, a slave transported to England, educated, treated like a "curio"   by polite society, wrote about his first look at a slave ship and white men when he was a child:  "When I was carried on board, I was handled and tossed up to see if I were sound by some of the crew.  I was now persuaded that I had gotten into a world of bad spirits and that they were going to kill me.  Their complexions too differing so much from ours, their long hair and the language they spoke.... I fell motionless on the deck and fainted.  When I recovered a little I found some black people about me.  I asked them if we were not to be eaten by those white men with horrible looks, red faces and loose hair."

So what's in a name?  If you or your ancestors had ever experienced racism, subtle or blatant, you intuitively recognize the hurt, the pain, the memories.  As for the rest of us, look up the meaning of the word "empathy".

India's Double Barrelled Foreign Policy

Yesterday, Japan joined India and the U.S. in joint naval exercises in the Pacific Ocean.  The invitation by India for Japanese inclusion was motivated by the deepening relationship between newly elected Prime Minister Narenda Modi and his Japanese counterpart Shinzo Abe (profiled in last blog).  Both men recognize the challenge of Chinese territorial and maritime ambitions in the region.  For Japan, the challenge is to hold on to remote islands in the Pacific Ocean claimed by both China and Japan.  For India, the dispute is over land in the Himalaya Mountains (China and India went to war in 1962 over their Himalayan border)  and China's growing presence in the Indian Ocean, seen by India as their "sphere of influence".  The result - closer political and military ties between India and Japan.  Analyst Uday Bhaskar, a former Indian naval officer, said:  "It is a reflection of the new strategic environment where there is a degree of unease in India over Chinese activities.  To deal with the rise of China, India is now seeking to shape the environment by building collective capability".

But India's Japanese alliance is only one part of the story.  On the surface, all of these competing national interests sound ominous - oh no!  Not another conflict in the making!  However the mitigating factor is trade which can be a great peacekeeper.  For centuries, China and India have held deep-rooted trade connections.  And that relationship appears to be strengthening as China has reached out to Prime Minister Modi to expand trade and business ties.  In fact, both countries have just signed a deal for a new development bank to challenge the Western - dominated World Bank.  Such a bank would ease the flow of goods between the 2 countries and give them the autonomy to develop a common economic zone in the region.

Analyst Raja Menon at the Institute of Peace and Conflict Studies put it this way:  "India is hedging its bets by taking its relations with both China and Japan forward.  This is smart diplomacy".

Japan's New Amphibious Marines

Under the Constitution of 1947, Japan was prohibited from developing an aggressive military.  Fears of a return to Japanese Imperial conquests in the Pacific, South East Asia and China from 1931 (Manchuria) to 1944 (India / Burma)  prompted the American victors of World War 2 to allow a restricted Self-Defense Force - but one that was only in support of the U.S.  army and navy that still occupy bases in Japan today.  With the build-up of Chinese naval forces in the region and disputes over remote islands claimed by both Japan and China, the current Prime Minister has come up with a clever twist on the term "defense", one that many critics claim violates the constitution.  Prime Minister Shinzo Abe was elected in 2012  He knows that if China occupied disputed islands, he would have to persuade the Americans to lead the charge to re-capture them, with Japanese forces in a supporting role.  Given the understandable reluctance of the United States to engage in another military mission, Prime Minister Abe reckoned the islands would be lost forever.  So he worked out a plan.

Japan is training a new amphibious fighting force modeled after the U.S.  Marine Corps.  Recruits learn how to swim long distances wearing flippers, they practice landing from naval vessels and they jump from helicopters in scuba gear.  Mr. Abe said:  "We have a number of remote islands in Okinawa.  It is increasingly important for us to build up a capability where we can respond seamlessly to incursions that fall short of full-blown military conflicts".  By developing its own amphibious force, Japan might be able to defend remote islands on its own, without asking young American marines to die defending Japanese soil.

Within 5 years, the amphibious force will total 3,000 troops.  But Prime Minister Abe's plan has angered China, which says Japan is simply reverting back to the pre-World War 2 "glory" days when the Imperial Forces fought for a Pan-Asian Empire ruled by Japan.  Are we watching the development of a new world hot-spot?  Of course, no one knows for sure - but all the elements are there - stay tuned for more.