America

Monbiot is right

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CM has a soft spot for George Monbiot. Almost a decade ago he wrote about the Climategate scandal which showed the corruption within climate science. Monbiot suggested along the lines, “if you cut the average climate activist in half you’d discover most had little more than a passing grade in a liberal arts degree”. He, of the left himself, was in a sense kicking his own side for continuously trying to gloss over things they don’t want to admit. Monbiot believes that winning arguments requires proper debate, not making more noise to drown out dissenting voices. So it was refreshing to read his take on the famous G-7 picture of Merkel eyeballing a recalcitrant POTUS. Monbiot wrote,

There was much rejoicing this week over the photo of Trump being harangued by the other G7 leaders. But when I saw it, I thought: “The stitch-ups engineered by people like you produce people like him.” The machinations of remote elites in forums such as the G7, the IMF and the European Central Bank, and the opaque negotiation of unpopular treaties, destroy both trust and democratic agency, fuelling the frustration that demagogues exploit…Trump was right to spike the Trans-Pacific Partnership. He is right to demand a sunset clause for Nafta. When this devious, hollow, self-interested man offers a better approximation of the people’s champion than any other leader, you know democracy is in trouble.

It is a powerful point. CM has made the argument for years that the ‘people’ are getting fed up with leaders who do little more than feather their own nests for the future. So when voters put people in power that promise to put words into action is it any wonder we have the political upheaval we do? It is amplifying and with good reason.

The Italians didn’t like it when the French and Maltese took potshots at their newly elected leaders stopping and turning around refugee boats which were election promises. The Austrians are through listening to the bullies from Brussels lambasting them for deporting radical imams and their families as well as closing militant mosques. While the EU elites may have celebrated Macron’s victory they still overlooked Le Pen managed twice the vote Front National had ever received. The Hungarians are tired of being told they must take their quota of asylum seekers even if a referendum showed 98.4% were against it. Even Merkel got a stiff uppercut from the largely socialist leanings of Germans with the catapult of the anti-EU AfD to the second largest party. It isn’t just Europe either.

Canadians are tired of being told they must comply to compelled speech laws. They gave Trudeau a precursor of their anger last week by voting in Progessive Conservative Doug Ford Jr. as Ontario Premier. He annihilated Liberal Kathy Wynne so badly her party can’t even serve in parliament. While liberals were complaining Ford won it for being a white heterosexual male they overlooked that most constituents which gave Liberals 15 years to show something were sick of being taken for mugs. They’re exhausted being told by governments how they should live their lives and tired of policies that ensure endless misery if they fail to comply.

Even liberals in America can’t shake off TDS. By way of example, in the run up to the Democratic primaries in Maryland, 46% see getting rid of Trump as the highest election priority, with the usual progressive values of slashing crime (Baltimore highest crime in US), tackling opioid abuse (3rd highest rate of addicts), climate change and affordable healthcare registering less than 11% combined.

The irony of today’s political sphere is that the very politicians that are so fearful of the next election would romp home were they to actually listen and represent their citizens rather than let the likes of a Trump force them to wake up. CM has often been criticized for supporting Trump as a beacon of righteousness. Monbiot described why better than CM ever could – he is an absolute necessary evil to wake the world up from its slumber of feckless bureaucrats who only have their own interests as priorities. Despite all of the vulgarities, the glass jaw and vanity he is spooking incumbency.

Maybe $10m p.a. talkshow host Bill Maher expresses the absolute desperation of the left. Instead of coming forward with a raft of policies that would make Trump’s look utterly at sea, the best idea is to wish shared misery on Main St via a deep recession to achieve it. With leadership and depth of policy like that, Alec Baldwin’s 2020 campaign at the very least will field the collective audiences of Robert DeNiro, Samantha Bee and Sally Field as the purveyors of the behaviours we should aspire to.

Priorities, priorities…

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Maryland (MD) – 2018

  • High school graduation rate: 87.6% (12th highest)
  • Public school spending: $13,075 per pupil (19th highest)
  • 8th grade NAEP proficiency: 34.7% (math), 37.4% (reading) (11th highest).
  • Adults with at least a bachelor’s degree: 39.3% (3rd highest)
  • Adults 25-64 with incomes at or above national median: 61.6% (2nd highest)
  • Violent crime 4.72/1000 residents (national average 4.0/1000) (9th highest)
  • Crimes per square mile 57 (national average 31.9)
  • Baltimore, MD most dangerous city (out of biggest 50) in America.
  • Opioid death rate 29.7/100,000 (3rd highest) – national average 13.3/100,000

Good to see where things are ranked among the worst, Democrats wish to put the least focus and vice versa. Rather telling. Where is the focus on healthcare and climate change? Even more telling.

F*ck Trump?

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Would DeNiro have got the same rapturous applause at the Tony’s for saying “F&ck Trump” if it were held this evening? Most likely answer is yes. Hollywood and the liberal mainstream media outlets can’t wipe the bitter taste from their mouth that the man they despise so much has done something not seen since Reagan and the fall of the Berlin Wall. While details of any negotiations are sketchy it is without a doubt a milestone in history.

They say “it takes one to know one.” Even if it holds true that both are narcissistic madmen, that’s what it took to achieve these talks. This is the power of unpredictability. Unlike the gutless and all too predictable diplomacy of recent decades, expediency has not been put before principle. It took a horses’s head in the bed to make Kim realize that he must reform. Better to do so on terms that are in his favour than face military reprisals. Sometimes being the most powerful military in the world has its advantages. After all Al Capone said, “I grew up in a tough neighborhood where I learnt you could get much further with a kind word and a gun than just a kind word.”

How political elitism has been exposed since he took office. While Trump has had a volatile revolving door in his own administration, how telling to see the smiles wiped off the face of G-7 cronies. Instead of working for the greater good of constituents they seem insistent on padding future careers in bodies they have set up for life outside politics. Spineless and literally “brow” beaten.

Unconventional, brash, rude, petulant, moody or whatever else the liberals want to rightly or wrongly categorize Trump as, DeNiro would be well advised that the global audience witnessing Trump shaking hands with Kim are probably overwhelmingly applauding the President indirectly saying “F*ck DeNiro”

Will liberal media go back to reruns of Stormy Daniels or admit they have been so wrong?  Expect belittling articles downplaying the significance of these talks. Whatever they scribe the script for the 2020 re-election is already written, even if Bill Maher gets his wish for a recession.

Xi and Trump summit In Singapore

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On May 25th, CM wrote after the spat between Trump & Kim, “It will be China sending Kim back to the meeting table with Trump because it will ultimately be managing the protectorate after any peace is signed for its own geopolitical aims. China does NOT want US friendly forces on its border. Best keep the buffer by getting Kim to accept a lesser deal where he gets to keep his life. For a man in his early 30s he can either choose to go down fighting or see out his days with the embezzled billions and bevy of beauties in his concubine.

Shouldn’t the fact that China provided Kim Jong Un with a “private” jet to get to the summit speak volumes about who his interests represent? While the US State Dept might quibble over minibar expenses at his hotel in Singapore, President Xi is showing he’s truly behind the outcomes from North Korea’s side. The Chairman is but a puppet.

China only wants reunification if that means US Forces leave the South. That is unlikely to be on the cards so Kim can de-nuclearise and clutch to the bosom of Xi.

As CM wrote back in August 2017, China will turn North Korea into a puppet state. Kim knows it is best to hitch his wagon to the world’s most ruthless regional power in coming decades. He only needs to bear 6.5 years of Trump. President Xi will be around for decades.

The repeated folly of the 外人 boss in Japan

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Several weeks back a foreign private equity firm asked what was CM’s opinion on gaijin (foreign) bosses in Japan. The answer was along the lines that an overwhelming majority end up failing for two main reasons:

1) failure to speak the language/understand the culture to a sufficient level and

2) thinking what has worked overseas will automatically apply in the domestic market.

Carlos Ghosn of Nissan-Renault fame could probably go down as one of the few that got it right. In his case Nissan was out of ideas, options and was prepared to listen to its new masters. Michael Woodford of Olympus fame was the other stand out gaijin CEO whose fate was cut short by a board coup after the Englishman uncovered massive fraud.

Sony under Sir Howard Stringer was different. Sony was not a cash strapped basket case on life support like Nissan was so the internal feudal structures could comfortably survive. The urgency to implement drastic change was not deemed an imperative. Stringer had no real command of culture or language and as such the machine below him functioned more or less as it wished. It is no surprise to see the man under Stringer is now the CEO and one can be sure almost all of the staff hitched their trailers to Hirai.

A chat with one of the Japanese dealers of a European auto marque last week highlighted the problems of gaijin bosses without sufficient cultural cut through. The company is struggling to compete with rivals who are simply leaving it for dust. The OEM has had 4 sales heads in the space of 2 years, For a country that prides itself on long term service, promotions based on tenure and stability, it was not a surprise to see the local staff keep their heads down. Why bother engaging with the new boss on what problems exist. Best stay silent. With any luck he’ll be gone and the next person will arrive and we can restart the game.

Yet these foreign bosses ask, “why don’t the local staff engage?” To the locals it is a simple matter of surviving til the next gaijin boss lands. Many gaijin bosses wonder why the Japanese staff spend a lot of time in glass rooms without them. They’re formulating the group responses which they think the boss wants to hear. Many seek to buy time. It is collective rationing on a life-raft.

The Japanese staff invariably prefer security over risk taking, So there is little incentive to be risk takers, even if some staff are bilingual. It isn’t a criticism but an acknowledgment that they don’t trust gaijin bosses. It isn’t even a reflection on the gaijin boss per se. Culture matters. If a gaijin boss can’t converse in a tongue that shows a commitment to understand cultural norms the likelihood of the message being conveyed (not withstanding another layer of translation) is almost pointless.

Another dealer mentioned that it has had the dealer margins recently slashed in favour of volumetric targets before bigger incentives kick in. While such strategies may excite the hungry salespeople outside Japan, the local sales teams here openly admitted the strategy change has had the opposite impact in terms of motivation. One sales member said, “dame, dame, dame!” (Dame = bad). He said it will more than likely mean that they push for selling cheap, low-end, low-margin product just to eat.

The irony is that if the OEM raised the initial margins for the dealers they would feel a margin of safety which would be seen as a way to sell even more bikes because they like the idea of predictability. The added pressure sedates not seduces. The dealer will likely struggle to the point of bankruptcy before trying radical maneuvers. The problem for the OEM is that reversing the strategy will create even less trust between dealer and OEM because it will highlight the lack of understanding. Gaijin strategies don’t apply.

The CEO of one American auto brand here has been crushing it for almost a decade. A gaijin with a mastery of language, culture and an understanding of the marketplace. In a decade, sales have quintupled and likely go up another 20% this year. Why? The dealer relationships are rock solid. They are treated as family. There is dialogue and communication and there is a shared sense of responsibility. If times get a little tight, the HQ makes accommodations so both end up in a win-win situation. In short – Trust!

The aforementioned European make effectively says that “you better make space for all the new cars coming your way next month” The dealers feel there is no relationship. The OEM seems totally dismissive of dealer issues. No matter how tough the market the OEM has no sense of loyalty to the dealers. That makes them feel uncomfortable about leveraging up or taking risk. They balk at buying too much stock because there is little to no flexibility.

Many gaijin CEOs need to know that when in Rome, do as the Romans do. Yet too many foreign bosses come in with the mentality they can swing the locals to their way of thinking. Usually that learning process occurs after realizing that hiring natives who speak their language doesn’t necessarily buy the skills they thought would help ram home the strategies that have worked in other countries.

While all the efficiency, profitability and success metrics make sense from a shareholders perspective, the local staff want security, longevity and shared accountability. The gaijin bosses that try to force Western norms before addressing the concerns of staff will find that both parties will have less of both desired outcomes.

A wise fund manager once said about Japan – “it isn’t capitalism with warts, but communism with beauty spots!” The sooner gaijin bosses understand that they will benefit from the collective strengths of the land of the rising sun.

Harley-Davidson needs a major overhaul

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Harley-Davidson (HOG) is the classic case of a divine franchise. While still the world’s largest maker of cruiser motorcycles, it is being swamped by new competition. HOG’s EBIT performance has slid for the last 4 years and is even below the level of 2012. BMW Motorrad, KTM AG, Ducati and Triumph are all growing unit sales and profits. HOG has a very defined product line whereas its competitors are flush with sports, adventure, cruiser, heritage, cafe racers, scooters, off road and much broader engine sizes.

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The further complication is that the Japanese are getting their act together. Honda is targeting over 20mn units in 2018 (mainly driven by emerging Asia). Honda has received rave reviews of its new CB1000R which should keep the fires burning. Several years ago, Yamaha introduced a budget cruiser called the Bolt but HOG responded with a competitively priced bike made in India which showed the desperation of a strategy where it doubted its brand power. Kawasaki has a 12 month waiting list on its Z900RS cafe racer which is a replica of the 1970s classic. Kawasaki has no interest playing in scooter markets and remains focused on its core larger bore segmentation.

Yamaha and Kawasaki have gone down the path of profitability than pure unit growth while Suzuki is the real laggard, lost in me too group think product. Honda has had a real resurgence in product which harks on its history. Honda now has 75% market share in Indonesia, 72% in Vietnam, 80% in Thailand and 82% in Brazil. Only 28% in India. Still, the market share, resale and brand power in Asia no maker will usurp them for decades. Put another way, the risks associated with dethroning Honda in Asia by a dealer channel push would be astronomically high. Yamaha has the other 10%.

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Profitability is starting to look much rosier for the Japanese too. Even Suzuki has managed to pull itself out of loss.

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Sadly for HOG, 1Q 2018 has shown even worse numbers. Global unit sales were 7.2% down on the previous year and 12% down at home.  Japan and Australia were soft. Looking at the strategy it looks like throwing spaghetti at a wall and hoping it sticks. It looks like some consultant has rattled together some funky catchphrases.

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HOG’s problems are simple. It is not listening to customers. When grandson of the founder, Willie Davidson, took over the reins after the near bankruptcy under AMF stewardship in the 1980s, the company really consulted customers and worked out they wanted more reliability and capability. It delivered. Sadly HOG is hanging on by its fingernails on brand alone today. The Polaris-owned Indian brand is coming up with excellent product lines which have all of the cachet of HOG given it was its fiercest competitor in the 1930s.

HOG’s product line up is relatively stale in terms of real innovation. While the Milwaukee 8 engine is a very good start and the Fat Bob is a proper philosophy change, the rest of the line up needs major revamp. At the moment it seems the brand is stuck in an echo chamber.

In closing Harley’s are a cult. There aren’t many brands where customers are prepared tattoo it to their bodies. In all the bikes CM has owned, the Harley had 10x the number of people wanting to ride on the back vs the rest combined. Yet it goes to show that brand only goes so far. Product still matters.

 

Japan’s Defense White Paper 2017 – Chinese military jet incursions up 30-fold in 10 years

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Should Japan just close its eyes? The Japanese Air Self Defense Force (JASDF) has had to scramble jets almost 3x a day to intercept Chinese PLAAN aircraft flirting with Japan’s sovereign borders according to the 2017 Defense White Paper. Since 2007, the JSADF has seen an almost 30-fold jump in activity. With respect to the disputed Senkaku Islands, the PLAAN and PLAAF have been operating drones “inside” Japanese sovereign territory. While Japan can take some comfort with the US Forces stationed throughout the country, China’s increasing belligerence in the region is obvious.

With respect to China, the JMoD wrote,

China is believed to be making efforts to strengthen its asymmetrical military capabilities to prevent military activities by other countries in the region, denying access and deployment of foreign militaries to its surrounding areas (“Anti-Access/Area-Denial” [“A2/AD”] capabilities), and recently, pursuing large-scale military reforms designed to build its joint operations structure with actual combat in mind. In addition, China is rapidly expanding and intensifying its activities both in quality and quantity in the maritime and aerial domains in the region, including in the East and South China Seas.

In particular, China has continued to take assertive actions with regard to issues of conflicts of interest in the maritime domain, as exemplified by its attempts to change the status quo by coercion, and has signaled its position to realize its unilateral assertions without making any compromises. As for the seas and airspace around Japan, Chinese government ships have routinely and repeatedly intruded into Japan’s territorial waters, and China has engaged in dangerous activities that could cause unintended consequences, such as its naval vessel’s direction of fire control radar at a Japan Maritime Self-Defense Force (MSDF) destroyer, the flight of fighters abnormally close to SDF aircraft, and its announcement of establishing the “East China Sea Air Defense Identification Zone (ADIZ)” based on its own assertion, thereby infringing the freedom of overflight.

In the South China Sea, China has continued to take unilateral actions that change the status quo and heighten tension, including large-scale and rapid reclamation of multiple features, establishment of outposts there, and their use for military purposes, based on China’s unique assertions which are incompatible with the existing international order, and has made steady efforts to create a fait accompli. In addition, a Chinese fighter is alleged to have flown abnormally close to and conducted an intercept of a U.S. Forces aircraft. These Chinese activities represent serious security concerns of the region encompassing Japan, and of the international community.

For this reason, China is urged to further increase transparency regarding its military and enhance its compliance with international norms. It is a key task to further strengthen mutual understanding and trust by promoting dialogue and exchanges with China, and make further progress on measures to build trust, such as measures to avoid and prevent unintended consequences in the maritime domain.”

Sadly Japan is unlikely to get the answers it wants to hear. So as trivial as submitting to Chinese pressure to change an in flight magazine map might seem to many, the bigger picture is what is happening on the security front. As Churchill once said, “you cannot reason with a tiger when your head is in its mouth!