The World In a (Cracked) Nutshell: Things Happen

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Picture used with permission from William Reid of www.northernpecans.blogspot.com

Investors and people in the business world need to be aware of world events and the impact they have on their business outcomes. Recent events of which we should all be aware are:

  • The Russian-Turkish Rivalry
  • The Apparent Steadying of the European Economy
  • The Death of Supreme Court Justice Antonin Scalia
  • Prison Riot in Mexico City
  • The Northwards Spread of the Vika Virus
  • Trade Dispute between Russia and Ukraine
  • Rapid Changes in the Syrian Civil War
  • Economic, Security and Political Developments in Central Africa
  • Growing Civilian Casualties in Afghanistan
  • The Weakening of the Indian Rupee
  • Growing Stresses between North and South Korea
  • Poor Performance of Japan’s Economy
  • The Persistent Decline of Oil and Gas Prices
  • American Political Chaos

Some of these are of more concern to some of us than others – it all depends on the nature of our investments and business interests. Let’s look at these and their impacts. It is through politics that events will have their greatest impact on business and investment clients.

American Political Chaos

American politics is becoming increasingly chaotic because fewer and fewer people identify with either of the two, dominant political parties, but are now “independents.” These “Independents,” however, cover the entire spectrum of politics from far right to far left. In my neighborhood alone, which is majority Democrat by voter registration, I know voters who are not affiliated with either the Democratic Party nor with the Republican Party who have not registered as members of a party because (1) the Republican party is too far to the left for them; (2) the Democratic Party is too far to the right for them; (3) The Republican Party is too far to the right and the Democratic Party is too far to the Left; (4) the Republican party and the Democratic Party are both too far to the right; and (5) The Republican Party and the Democratic Party are both too far to the left. Many of these “Independents” are not registered to vote at all, because they don’t think they should have to declare their party preferences when registering. At the same time, they say they are angry because they have no voice in the selection of candidates. Many of the Independents, many of the Republicans, and Many of the Democrats are angry at both major parties, are angry at the government in Washington because they feel it does not represent them or serve their interests, and so they’re “Mad as Hell and aren’t going to take it any more.”

This has resulted in a primary campaign in which the front-runner in the Republican Party is an outsider to the political process, Donald Trump, who, until recently, was a Democrat and espoused Liberal positions, but who now has the backing of a large swath of the conservative Republican voters. On the Democrat side, the establishment candidate, Hillary Clinton, has the vast majority of convention delegates so far but is running neck and neck with “Democratic Socialist” Bernie Sanders, who is supported by the leftists in the party and the young voters in the party. For much of his political career, Bernie Sanders was a card-carrying official of the Trotskyite Marxist (with overtones of Maoism) Socialist Workers’ Party, but he then became a Democrat and proclaims himself a “Democratic Socialist.” It seems that the younger generation of voters has given up on capitalism, thinks Socialism is the most equitable economic system, and hates banks and big business. We will not know for sure how the Independents will vote until the November elections, but it is not impossible that the election will be between Trump and Sanders.

How does this affect investment and business? If Sanders wins, but the House and Senate remain Republican-controlled, there will likely be a standoff between the White House and Congress and the government will do very little. This means that business can proceed to do its own thing, and investors can invest without fearing a change in the regulatory environment. If Trump wins, and Republicans retain control of the House and Senate, there is likely to be a reform of regulation to promote business and investment. In either case, investors and businesses will likely not suffer at the hands of the US government, despite the present political chaos in America.

The death of Justice Scalia foretells a standoff in the Supreme Court, now evenly divided between liberals and conservatives. Republicans in the Senate seem poised to prevent President Obama from being able to appoint a successor to Scalia, saving the seat to be filled by an appointee of the next president.

In Mexico prison riots were sparked by battles between the Zetas cartel and the Gulf Cartel. The resulting fires spread to a number of areas of the prison. 49 people were killed. Conditions in other prisons in Mexico’s overpopulated prison system threaten to spark more unrest. The inability of the Mexican federal and state governments to reduce the influence and control of drug gangs over broad swaths of territory causes increasing concern. Continuing flows of migrants from south of Mexico through Mexico into the United States continue to raise flags, particularly political flags, in the US, where Republican candidates pledge to stop illegal immigration and Democrat candidates pledge to legalize it.

Middle East (West Asia)

Tensions between Turkey, which seeks the ouster of the regime in Syria, and Russia, which is actively supporting the regime with a military presence and military action in Syria, remain one of the major flashpoints in the world and the one flashpoint that could bring two nations to war with each other. Syria has already shot down a Russian jet that strayed over Turkish territory (but they shot it down over Syria). For the immediate future, Syria will remain the front line between Turkey and Russia.

Russia has desired for centuries to establish control over the Bosporus, which has been under Turkish control since the Turkish Sultan conquered Constantinople and renamed it Istanbul. Turkey has the ability to close the strait and keep a significant Russian fleet bottled up in the Black Sea. Turkey and Russia have fought wars against each other periodically for the past 300 years. The current tensions between Turkey and Syria are much deeper than just the issues involving Syria, but are not likely to provoke a conflict. If they come into conflict over Syria, however, each might take advantage of that to try to make gains in the Black Sea and Baltic areas. Russia’s entry into the Syrian conflict seems to have taken Turkey (and a number of other interested countries) by surprise. We all seem to have forgotten that nature abhors a (power) vacuum – and that when one exists, someone will fill it. Turkey has a number of potential conflicts along its borders other than Syria. Within its borders is ISIS, definitively an enemy of the regime. The Kurds in northeastern Syria and northern Iraq are seen by the Turks as enemies. Refugees streaming across Turkish borders from Syria and Iraq are a problem for Turkey if Europe will not let them go from Turkey into Europe. Because of the myriad crises along Turkey’s borders, Turkey is not in a strong position to intervene decisively in the Syrian conflict. Russia is likely to bog down in Syria, finding itself unable to withdraw without its withdrawal causing the collapse of the Assad regime. If other Middle Eastern States start to take an active role in Syria, the conflict could widen dramatically. Jordan, Saudi Arabia, Egypt and Israel are all affected by the Syrian Crisis and might be tempted to take an active role. Russia and the US have agreed to a cease fire, but must convince the various rebel and Islamist groups in Syria, and the other interested parties, to engage in a cease fire for it to become real. If a cease fire is not achievable, an active conflict between Russia and Turkey, or between either and other states in the Middle East, could have profound impact on investors and businesses around the world.

The agreement reached last week by Saudi Arabia, Russia, Venezuela and Qatar to freeze oil production at current levels helps to prevent further declines in oil prices, but will not reverse the trend because the current global oversupply in oil is partly the result of those levels of oil production. Of course, the dramatic increase in American oil production is also a significant contributor to global oil price declines, but the “free market” in the US will cure that factor by causing a reduction in US oil production. Oil drilling in the US is now dramatically reduced, with fewer than 10% as many rigs operating now compared with a year ago. While oil will remain at low levels until the surplus of stored oil is absorbed, eventually the market will right itself. In the mean time, there may be buying opportunities for investors interested in buying shares of companies whose share prices are depressed below the real value of the companies. It is also an opportunity for oil speculators who are positioned to buy oil and hold it until prices recover. This will have the effect of removing oil from the market and hastening the recovery of the oil market.

South America

The Venezuelan opposition is stepping up its efforts to oust President Nicolas Maduro from office. Possible conflict between the opposition and Maduro’s supporters could impact oil production in this important contributor to the world’s supply of oil. Until recently, it was difficult to determine the state of Venezuela’s economy because Venezuela has no independent official statistical agencies, but it is clear that Venezuela’s Socialist economy is in full collapse, having shrunk by 10% this year alone with inflation threatening to reach 700%.

Argentina, similarly, has been a significant unknown, with the official statistical agencies controlled by allies of the previous Argentinian government, skewing the results of their analysis to support the positions of the previous government. Now that President Mauricio Macri has taken office, he has moved to restore the independence of these statistical agencies. This has led to statistics that reveal the true inflation afflicting the Argentinian economy.

Bolivians are voting in a referendum on lifting term limits for the Bolivian presidency, which could risk the rise of a Marxist dictatorship in that country.

In the midst of all of this the Zika outbreak is moving northward. However, the fear of microcephaly may be overblown, because not all areas infected with Zika have similar rates of microcephaly. Scientists suspect that the combination of the Zika virus with certain insecticides used in certain areas may be causing local epidemics of microcephaly.

Central and South Asia

In Afghanistan, civilian casualties are continuing to rise even as Afghan forces, led by US Special Operations forces make gains against the Taliban and ISIS in Afghanistan. The level of civilian deaths was the same in 2015 as in 2014, but the level of civilians injured was the highest since civilian casualty records began in 2009. The Afghan government says that in areas of fighting, an increasing number of civilians is choosing to flee their homes, and that both death and casualty levels would be higher if they had not “chosen” to do so. This could affect the economies of other nations if the current conflict spreads into Pakistan.

In India, the Rupee is weakening, despite having been a much stronger currency than many of its emerging market rivals over the past two years. Last week, the Rupee approached an all-time low against the US dollar. The drop in the Rupee seems to be the result of falling levels of investor confidence in the global economy, as well as a response to some troubling economic data that emerged recently in India. India’s economy may continue to slow in the first quarter of the year, providing risky buying opportunity for adventurous investors.

East Asia and Pacific

Increasing tensions between North and South Korea, bolstered by the largest joint military and naval exercise by South Korean and US forces, give rise to concern. In the South China Sea, rising tensions between the conflicting territorial claims of the nations bordering that sea are primarily due to the expansive claims by China over virtually the entire sea. China has been building islands on which it places military-capable runways in the middle of the South China Sea, in order to bolster (and defend) its territorial claims. This risks increasing nationalism on the part of Japan, the Philippines, and South Korea, all of which are increasing their investments in their military forces, in particular in their navies. While actual conflict appears only a remote possibility, the increasing militarization gives rise to concern. Here again, is the operation of the vacuum principle. In the face of military weakness on the part of the United States, local powers are seeking to fill the power vacuum. In the meantime, Japan’s economy continues to struggle to generate growth. In the fourth quarter of 2014, it expanded just 0.5%, but shrank by 0.4% in comparison with the fourth quarter of the previous year. Domestic factors were the largest reasons for the poor performance of the economy. The real estate sector remained weak and consumer spending levels were disappointing. Export markets remained weak in the face of weak external demand. This places more pressure on Prime Minister Shinzo Abe to undertake more stimulus measures. While there may be buying opportunities in Japanese shares, it may be some time before they recover value. The Chinese Yuan will remain highly visible. Despite concerns over China’s economy, the Yuan is stronger than most of its emerging market rivals. This encourages Chinese companies to outsource rather than to build new capacity in China, which further stalls the Chinese economy.

Africa

Boco Haram, Al Qaeda, ISIS and affiliated groups in Africa continue to provide a source of political and economic instability. Nigeria faces significant economic and security problems. After taking office last year, President Muhammadu Buhari has taken significant steps to revive Nigeria’s economic and political stability, and to reduce the levels of unrest and corruption. Oil prices have fallen dramatically, which has harmed the oil-dependent national economy and dramatically reduced government revenues. Although Nigeria has mounted a strong military campaign against Boko Haram in the northeast, this has failed so far to bring an end to the Boko Haram threat to Nigeria.

The Central African Republic recently underwent the second round of voting in its presidential election. This round pitted former CAR prime ministers Faustin Touadera and Anicet Dologuele against one another. Both candidates promise to bring peace and stability to the republic and to restore the economy, but their ability to do so in the face of the Boco Haram regional threat is questionable. Boko Haram has mounted attacks in a number of central and western African countries, making foreign investment keep its distance.

In northern Africa, the failed nation-state of Libya dominates the area by spreading instability, terrorism and uncertainty. Libyan oil, once a significant supplier of Europe’s fuel needs, flows only intermittently, with ports often controlled by terrorists. No solution for Libya in particular (and northern Africa in general) appears in the offing. Egypt is taking a stronger role, but likely lacks the ability to exert power to bring ISIS and related groups in northern Africa to heel, despite having largely quelled the Muslim Brotherhood within its own borders. Islamist extremism is still strong in Egypt, and stronger in pockets of northern Africa like Libya. This is unlikely to change in the absence of any likelihood of a defeat for ISIS in the near future in Syria and Iraq.

Europe

We look at Europe last, because Europe is on the receiving end of the consequences of what is going on elsewhere in the world. The United States is as well, but it is a player of little influence as long as it tries to “lead from behind” and so it is a contributor to the instabilities that are impacting the Europeans rather than simply being a recipient of their consequences.

A major trade spat has developed between Russia and Ukraine. Two weeks ago, Russia prevented more than 150 trucks from Ukraine from travelling through Russia on their way to Kazakhstan. The Ukrainian government responded by banning Russian trucks from crossing Ukraine on their way to other countries. Economic ties between Russia and Ukraine have become significantly worse since the free trade deal between Ukraine and Europe took effect last month.

Despite the troubles between Russia and Ukraine, the economies of Central Europe in general have continued to grow, driven by high domestic demand and growing demand for exports from Central Europe in West Europe. Poland, the regions largest economy, grew by 3.6% year-on-year in the fourth quarter, continuing its impressive rates of economic growth. Hungary Slovakia and Romania also experienced impressive rates of growth in the fourth quarter, thanks to those countries strong manufacturing sectors. Poland has backed Ukraine in its recent trade dispute with Russia, which could inflame tensions between Poland and Russia.

The European economy in general remains stable. It is not known how it will respond to a possible (but unlikely) withdrawal from the European Union by the United Kingdom. What is more likely is a weakening of the voice of Europe in British affairs. All in all, we can expect a steadier European economy. The domino-effect crises that have occurred over the last six years have dominated the picture, ranging from the Greek economic collapse to the struggles of all the southern European economies. Despite the continuing problems in Greece, most of the news out of Europe over the past year has concentrated on the region’s slow and steady recovery from the struggles. Although the results from Europe have been unspectacular, they are much better than previous years and give the impression of steadiness, if not growth. The four largest economies outside of Eastern Europe grew by between 1% and 2% on a year-on-year basis, ranging from 1% in Italy (a good performance compared with recent history) to 1.9% in Britain. Countries that have taken steps to boost competitiveness (Spain and Eastern Europe) show growth rates in excess of 3%. This news is dampened somewhat by the fact that Greece and Finland remain in recession that are likely to continue in 2016. Overall growth in the European Union in 2015 was 1.8%, a better performance than in recent years. The British “motto” of World War II comes to mine: “Keep calm and carry on.”

Summary

So, we have just described the State of the World in a nutshell – a cracked nutshell. Nuts in cracked nutshells can leak crumbs out, reducing the size of the nut, and the nut itself is more likely to spoil. Our nations’ leaders need to concentrating on un-cracking the nut rather than on saving the contents, because they can’t save the contents while the nut remains cracked. Without global security (a coherent nutshell), the global economy itself cracks up. While there will always be trouble spots in the world, the task of the world’s leaders is to keep them contained so they don’t spread. In the absence of American exercise of power, the wildfires are spreading rapidly, and the global economy threatens to crack up along with the nutshell. Many are the times I have cracked the kernel of a walnut when attempting to crack only the shell and extract the kernel whole. It is time to restore security to broad swaths of the world, and there is no one capable of doing it but the United States. If we do not do it, we will suffer along with the rest of the world.

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Key Financial Regulations To Monitor

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Fourth quarter 2015 was a hard precursor to 2016 both in capital markets and financial corporate governance. Highly volatile commodities and equities markets, an overall slowing of economic growth and a cooling of tech business growth have left the investing landscape bearish. In addition, corporate governance of major financial and business institutions showed signs of increased shakiness; in 2015 HSBC took the governance world by storm with tax evasions, Bank of America and Citi continued to fail bank stress tests and capital requirements and JPMorgan’s stock has significantly underperformed analysts’ expectations. We now open the year 2016 with an SEC fraud charge against the entire executive management and Board of Superior Bank for overstating loan performance. In this light, 2016 will be a year of continued US Federal Reserve and Securities and Exchange Commission (SEC) financial regulation.
It is noteworthy to mention that the US Federal Reserve may raise rates for 2016. However, in this outlook we have decided to focus on specific regulatory requirements linked to the Dodd-Frank Act of 2010 and to Securities and Exchange Commission rules that will also shape the regulatory framework of financial institutions and corporations for 2016.Key regulations are as follows:

Capital Requirements and Asset-Liability Management:
The Dodd-Frank Act of 2010 has clearly stipulated capital requirements for financial institutions, of which systematically important financial institutions such as Bank of America and Citibank have failed within the past two years. For assurance that banks are better capitalized, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) plan to enforce further Basel III agreement factors, requiring higher leverage ratios and a larger liquid asset base. The Financial Services Roundtable, a top US Financial Service advocacy group, has cited the Net Stable Funding Ratio as the standout rule which banks will need to apply for asset-liability management to comply with Basel III requirements. The upside to continued monitoring of capital reserve requirements is financial stability. The downside is, of course, further dampening of bank earnings growth.
Single Point of Entry and Source of Strength:
In 2015 regulators called for stronger resolution strategies of 12 major banks operating in the US, to ensure that if these financial institutions needed to be liquidated there would not be significant strain on US financial stability. The Federal Reserve and FDIC have demanded that bank holding companies be able to be resolved within themselves as well as for all subsidiaries. Ten out of the twelve major banks have opted for the Single Point of Entry (SPOE) resolution strategy under Title I of the Dodd-Frank Act of 2010. Under this strategy, banks will rely on the holdings company as the major “source of strength” for all operating subsidiaries, before FDIC intervention. Sharon Haas et al. of Columbia Law School’s Corporate Governance Program explain that SPOE is different to the Bridge Bank resolution strategy, by which the bank automatically goes into receivership under the FDIC. The Financial Services Roundtable has stated that regulators will seek a firm implementation of the source of strength stipulation for banks in 2016.

Stress Testing and Risk Management For Non-Bank Financial Institutions

The non-bank financial industry is of equal importance to major banks as systematically important financial institutions. In 2015, the SEC played a major role in setting risk management parameters for investment funds, mutual funds and ETFs. Under 2015 amendments to the Investment Company Act of 1940, the SEC stipulates more stringent liquidity risk management, requiring set minimum cash and liquid asset quotas based on the fund’s net assets, with a three day time to liquidation. In addition, the Financial Services Roundtable cites more implementation of stress testing, securities disclosure requirements and qualified standard of conduct from investment advisors on all investment company types for 2016 via the US Department of Treasury’s Financial Stability Oversight Council (FSOC) in conjunction with the SEC, under Section 913 of the Dodd-Frank Act.

Executive Compensation And Clawback Policy

In 2015 the SEC majority voted to implement firmer requirements with regards to executive compensation within financial institutions and major corporations, in cases where the financial institution displays significant noncompliance with financial reporting standards. SEC Rule 10D-1, based on Section 954 of the Dodd-Frank Act, requires a corporation that seeks financial recovery due to an accounting restatement for compliance purposes to seek recovery from both current and former executive management who obtained “excess incentive based compensation” over the course of prior three fiscal years. Public companies are thus required to file a detailed clawback recovery policy with each 10-K. In addition to a stronger enforcement of SEC Rule 10D-1 in 2016, the Financial Services Roundtable cites a need to have a stronger enforcement of Dodd-Frank Section 956, which requires regulators set specific standards to “prohibit salary arrangements that encourage “inappropriate risks.”” To date a final draft on executive compensation guidelines for banks has not been produced; however, with the implementation of the claw back policy we expect to see more examination of executive remuneration by regulators in 2016.

Commodities Income and Payments To Governments

This SEC regulation is non-financial institution related. Regulations on tracking the income flow of oil trading are now a highlighted part of the regulatory landscape, given the commodities markets climate as well as the geopolitical nature of commodities trading. The SEC has proposed a rule to enforce Section 1504 of the Dodd-Frank Act, which requires “issuers that extract natural resources” to specifically delineate all payments, transactions and income made to the US government and to foreign governments for any commercial development of commodities. Elizabeth Ising et al. of Gibson Dunn & Crutcher LLP via Harvard Law Corporate Governance explain that all resource extraction issuers are required to publicly file an annual report stating all government payments, with only case-by-case country exemptions. This disclosure would be required of all holding companies and subsidiaries under the issuer. In addition to payment amounts, all fiscal years when payments were made, as well as the actual geographical areas linked to these payments will be mandatory to disclose. In a geopolitical atmosphere of terrorism funding linked to oil and commodity trading, it is most acceptable to see strong SEC commodities income disclosure requirements for 2016.
Sources

Haas, Sharon et al. 2015. “PwC discusses Resolution: Single point of entry strategy ascends.” The Columbia Law School Blue Sky Blog.

Hatch, Robert. 2016. “10 Regulatory Issues the Financial Industry Is Watching in 2016.” Financial Services Roundtable.

Ising, Elizabeth et al. 2015. “One More Time! SEC Seeks to Re-Adopt Resource Extraction Disclosure Rules.” Gibson Dunn & Crutcher LLP. Harvard Law School Forum on Corporate Governance and Financial Regulation.

Ising, Elizabeth et al. 2015. “SEC Propses Rules Regarding Clawbacks.” Gibson Dunn & Crutcher LLP. Harvard Law School Forum on Corporate Governance and Financial Regulation.

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Success and Ego – Two sides of the same coin?

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I believe there is a very thin line between success and ego.  You cross that line and you could be in big trouble. You straddle the two variables carefully and your upside has no limits.
So what have I learned in life to manage both and use them to the best of my capabilities?

Let’s start with the ego part…

Everyone has an ego. It’s rare that people these days are devoid of it.

Ego is nothing but an attachment to a wrong image of yourself.

When you start identifying yourself with your academic achievements/failures, a successful/failed career or even with the image that you are a benevolent/kind person or bad or perverted, that is ego. People generally think that success leads to ego. But on the contrary, ego leads to both superiority and inferiority complex.
It is not the ego which is bad, but the impact which it has on our personality that makes it disastrous. When you start seeing the world through these spectacles, you are full of yourself and this makes you a very proud person or you feel worthless when you are in the company of successful” people.
In my opinion, Ego is the false impression on a person’s mind that forces him/her to believe that he/she is superior to others by pulling curtains over the fact that we all, made up of same matter, will eventually end up in the same earth.  In simple words, ego is not you but what you think yourself to be. It’s an image, not the object (you) and we all know the images are virtual.
So, if we don’t identify ourselves with these labels, then what do we identify ourselves with? What would make us ego-less?
This was the question I pondered upon for while for which I got the answer one day. The answer I got was from a daily spiritual television show.
When we identify ourselves by the roles we play, there is either a high or a low feeling attached to it. Instead if we identify ourselves as beings (which they called the soul, in the T.V. series) playing the roles of a student, a professional, a kind person, then there would be no superiority present in this state and ego would collapse. The same applies when you feel inferior. It is the “being”, playing the role of an inferior person. So ego-less stage is going from being role conscious to soul conscious.
Since this concept has always helped me to be stable and centered in my daily life, I now never jump with euphoria or somersault when I experience high success or I never go suicidal or into extreme depression when things are not in my favor.
I still have a long way to go to become ego-less… At least, I know now that I am on the right track.
Now moving to the success part…
In my dictionary, Success is living a life that gives you satisfaction as well as happiness, irrespective of how much you earn or how popular you are among the folks.
I know that in a world where there is cut throat competition for earning money and fame in order to be recognized as a successful person by the society, my definition may seem somewhat naive. But I have seen rich people craving for little happiness and have heard about the insanely famous celebrities craving for real friendships. Many of them are successful in the eyes of society but they are not happy. If that’s the scenario, what’s the use of such success? No doubt, money is important but earning money and running after it are completely two different things. And I am glad that I now understand the difference.

So what has ego to do with success? How does it creep in? 
When you achieve something and think that it’s you who own the whole credit for your success, you give way to ego. If being grateful is not your nature, success will surely get to your head. Your parents fed you; your teachers taught you; your friends- good ones supported you and false ones taught you lessons. And when you succeed, you forget how they helped you to become who you are, eventually ending up in a false belief that you did it all by yourself.
Ego is the sister of ignorance. You may have a high IQ and may be a gold medalist in academics, but that knowledge has nothing to do with wisdom. You may be an experienced person in your forties, but again the age has nothing to do with maturity and wisdom.
Remember that all the matter in this universe, including you, is made up of atoms. These atoms come together and create a new life. And then one day the whole pattern falls apart (which we call death) to put an end to that life in order to create a different one. We live, we die and born again. This is a cycle of changes. And this life which we are proud of is a journey with only change being the constant. Whether you accept or not, we are always changing, bit by bit. So when you yourself will not stay alive forever, how can you take the guarantee of the success you achieve?
People feel superior to others because they assume that what they have will stay with them till eternity. Almost everybody knows this, but very few accept it. With the acceptance comes the wisdom. And wisdom never lets ego creep in.
What should you know to avoid it?
If you are for example a girl and think that you are so pretty and being friends with an unattractive /rural girl may tarnish your image or better to say lower your standard, remember that life’s so uncertain. Those acid attacks, cases of fire and other mishappenings can knock your door anytime without your permission, thus, stealing from you your priced possession. So be humble.
If you are holding a high status in society and consider that as the reason to feel superior to the rest, I can give you the web links of great celebrities whose stardom ended in a flash. So be humble.
If you escape everything, there will be another devil waiting for you whether you are at the top or at the foot of a mountain. That devil is none other than LOVE. Trust me, it will shatter your nonsensical ego to the pieces and will not free you from its claws till it succeeds in teaching you the lesson of humility.
Just remember that time changes, situation changes and so does the life. Never take anything for granted. Nothing belongs to you because you can’t escape death. Whatever you have will end with you in the grave.  Enjoy what you have. Dream what you want. Work for passions and get that damn thing what you yearn for. But don’t look down upon anyone. The rich and the poor- the ugly and the beautiful- you and me- all are humans. Be humble.
If I have to sum up my answer in a line, I will say : It’s not success, but you- your ignorance- that builds ego. Avoid it.
Share your thoughts…

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When Will We Stop Blindly Pissing Away Money Down the R&D Rat Hole?

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Let me start by saying that I am a physicist and have been involved with many of the leading U.S. research facilities over the years — Los Alamos National Laboratory, Sandia Laboratories, just to name two.  I also directed the Socrates Project under the Reagan administration.  So the quick knee-jerk reaction to the title that “I don’t understand research and development or the value of technology” holds no water at all.  Please don’t even try to argue this point.
Research and development (R&D) does not equate to a competitive advantage in the marketplace or on the military battlefield.  Knowledge for knowledge’s sake is a worthwhile pursuit.  Totally agree.  But it is conceptually flawed and detrimental to the objective — being competitive — when companies and governments use the need to increase economic and military might as justification for higher expenditures on R&D.  But yet this is the rapidly rising battle cry among the leading thinkers in Congress, the Pentagon, academia, think tanks, and the press — “Raise R&D funding levels, and America’s future will be secured.”  How so far from the truth.
One highly critical set of decision makers who suffers from this R&D is the key to competitiveness thinking is the leadership in the office of the Secretary of Defense.  But this was all avoidable.
In the late 1980s, I “assisted” in writing legislation that would force DoD out of this R&D is the key to competitiveness thinking.  As a member of the intelligence community, working directly with the U.S. Congress was considered a hanging offense.  But I was willing to risk it because I foresaw that DoD thinking in this manner would lead to the massive dilemma that DoD is now at a loss to address — the rise of China as a military threat and the almost total erasure of U.S technology leadership on which our military strength is based.

The legislation mandated that the Secretary of Defense develop and present a Department of Defense technology strategy to Congress every year.  It was a process that would force DoD out of its R&D is the key to competitiveness thinking.  The legislation passed, and for all intents and purposes, lies dormant and unexecuted to this day.

But let me go back to the beginning of the story — The Socrates Project.

Throughout the 1980s, I was the Director of the Socrates Project within the U.S. intelligence community.  I also initiated the program.  The Socrates Project had a two-fold mission.

1/ Utilize the full range of intelligence to determine the true underlying cause of America’s declining economic and military competitiveness, and then 2/ use this understanding to develop the required solution.  We were fully successful in both aspects of our mission.

What we determined (and covered in our last blog but is worth restating) was that the cause of the decline was America’s shift from technology-based to finance-based planning that began at the end of World War II.

In finance-based planning all decision-making is based upon manipulating the acquisition and utilization of funds, and the final measure of success is how well we optimized the fund exploitation to achieve the objective — generating a profit.

In technology-based planning, the foundation of all decision-making is the outmaneuvering of the competition in the acquisition and utilization of the technology.

How effectively an organization or a country outmaneuvers the competition in the technology exploitation fully dictates the level of other resources and how they must be utilized to generate a competitive advantage.  The other resources include but are not limited to manpower, natural resources, time and funds.

Where technology-based planning starts with the foundation of maneuvering in technology for a competitive advantage that then dictates the rest of the business plan, finance-based planning leaves technology exploitation, which dictates competitive advantage, to chance.  The manipulation of funds, which is the focus of finance-based planning, often leads counter to generating a true competitive advantage in the marketplace or the military battlefield.  The finance-based planning organizations of the U.S. pride themselves in being highly effective in what equates to rearranging the deck chairs on the Titanic.

What is competitive advantage?

All competitive advantage is a matter of satisfying the customers’ needs better than the competition, where the customer needs are defined from the customers’ perspective and covers the full range of their needs.  This goes for both commercial and military competitive advantage.  If you are not excelling at satisfying one or more customers’ needs, no amount of slick marketing, branding, or financial optimization — Financial shell games — matters.  The organization is going to die.  Or in the case of DoD, be totally ineffective.
Outmaneuvering the competition in the acquisition and utilization of technology is a multi-faceted, fluid, on-going chess game played with the technologies of the world.  Winning at this technology chess game requires a technology strategy.  When I use the term “strategy,” I am not using the simplistic, conceptually flawed term that is traditionally passed off as “strategy” in the business community.  Strategy is not the same as a vision statement, a target list of products or services, a road-map, an exercise in consensus building, or glorified trend analysis that really belongs at the racetrack.
In the case of a technology strategy, the limited resource is technology, where technology is properly defined as any application of science to accomplish a function.
A technology strategy consists of a coherent set of offensive and defensive technology acquisition and utilization maneuvers.
The set of technology acquisition maneuvers consists of the full range of means to acquire the technology that the organization requires, and prevent or hinder the competitor from acquiring the technology that it requires.  At some points in time, the technology strategy may be executing maneuvers to acquire technologies for the organization, while at other times, it will be executing maneuvers to retard the competitors from acquiring technology, and at other times it will be doing both.  Research and Development (R&D) is just one of the mechanisms in the full set of technology acquisition maneuvers.  But when this one mechanism is used, it is both very precisely and accurately targeted and is done in a systematic coherent process interconnected with a full range of precisely planned offensive and defensive acquisition and utilization maneuvers.
Just executing the one mechanism of R&D is extremely costly and highly ineffective for generating and maintaining a competitive advantage.
The U.S. using R&D as the sole means to address technology exploitation for a competitive advantage makes it a one-trick-pony knuckle-dragging Neanderthal event next to a modern agile fighter with a full range of fighting techniques and weapons at his disposal.   The Neanderthal may get in one or two good hits, but the modern fighter will consistently outmaneuver him until he is fully exhausted, and then he is simply and unceremoniously eliminated.
So, from Socrates’ intelligence-based view, who was the modern agile fighter?
It was then and now has developed into the China we know today.  China was executing very aggressive, highly coherent countrywide technology strategies that, if left unchecked, were guaranteed to enable China to evolve to sole super-power status faster than any country in history.
It was seeing the utter futility of the DoD R&D approach to technology exploitation, and China’s aggressive technology strategies that caused me to risk my neck and career to draft the legislation that would transform DoD into the agile, multi-faceted fighter needed to ensure our military super-power status and contain China’s aggressive technology-based strategies for military, economic and political dominance.
The legislation passed but has never been executed. Since then, as we all can see now, China has gone from barely being on the Pentagon’s threat radar and even then only because of its massive manpower and communist government to, by some people’s estimates, being the #1 threat to the U.S. with that threat rapidly growing by the day.
Is R&D important?  You bet it is — We have some of the best researchers and research facilities in the world. But R&D is only effective when it is a coherent element in a complete, holistic technology strategy to achieve and sustain competitive advantage.
We need to stop being the Neanderthal before it’s too late.  We must evolve or expire.

By Michael C. Sekora – Past Director of the Socrates Project, President of Quadrigy, Inc. affiliated with Operation U.S. Forward

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The Activist Investor: A True Ally of Corporate Governance

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Activist investors: Publicly listed companies fear them. Corporate governance pundits generally do not trust them. Retail investors quietly applaud them, and most laymen do not understand them. However, it is clear that in today’s complex corporate world, we need them. Activist investors may be the only players in the game that can effectively “Occupy Wall Street”.

We have entered the twilight zone when it comes to corporate governance. The zone where many Boards bury their head in the sand when it comes to breaches in compliance, as in the case of HSBC and the tax evasion scandal of February 2015. Certain Boards passively bow to the dictates of executive management, throwing all accountability on the corporation-as-entity, with no individual responsibility. All other stakeholders, from shareholders, to suppliers, to workers, to humble taxpayers are left to peck at what is left of net worth after the share price dives, and are left to fork out money for regulation and reconstruction.

To be fair, in the recent past activist investors have been noted for short-termism. Short-termism is the process by which an activist fund may coerce target companies to conduct strategies that may yield high profit in the short term, but that may be detrimental to company performance in the long term. For instance, it is common practice for activist funds to demand significant reduction in Research & Development activities; yet, R&D is needed for long term competitive and innovative advancement. Most activist fund activity increases the stock market price of the target company. However, best practice professionals argue that the temporary increase in share price is misleading and cannot offset long term business hazards that occur if the activist investors short the target company’s stock. There is truth in this belief. However, we need to take a closer look at activist investors’ strengths when it comes to financial strategies and business growth.

Bernard S. Sharfman in his Columbia Business Law Review article Activist Hedge Funds in a World of Board Independence: Creators or Destroyers of Long-Term Value does an excellent job of delineating the benefits of shareholder activism and Board governance. The author’s main premise calls for an integral approach to investor activism in Board decision making, as opposed to the present “Authority Model” that exists within Board and executive management’s line of communication, a model that excludes shareholder participation and creates a passive acceptance of managerial decision making as ultimate, without proper analysis and foresight. Poignant highlights from Sharfman are as follows:

  • Shareholder activism can be defined as “any action(s) of any shareholder or shareholder group with the purpose of bringing about change within a public company without trying to gain control.” – In its essence, shareholder activism is more inclined to correct core business discrepancies before the market reads any sign of trouble via share volatility.
  • Value investors such as Warren Buffett are lauded in the industry while activist investors such as Carl Icahn and the Vanguard Group are called out for short-termism. However, Sharfman clarifies that while value investors cannot practice activism based on their own long holding period strategies. In reverse, activist funds impede their own shareholder wealth creation if they have long holding periods, since their strategies are based on intervention.
  • Since most activist fund strategies are based on intervention, activist investors can be viewed as financial engineers that can offer very timely and effective financial restructuring advice to a Board. Such advice may not come from executive management caught in day to day operations and so may not have an adequate view of the broad financial picture. It sounds humbling, but in reality it may work to a company’s advantage to have a short-termism in financial engineering from an actual shareholder.
  • The threat of a proxy contest may be the most important weapon the activist hedge fund has in its arsenal to effect change. While activist investors have become notorious for proxy contests, the authors found that only 13% of hedge fund activism resulted in proxy contests. Thus, the simple idea of a proxy contest may be enough to spark strategy change at the Board level.
  • The Board of Directors must have a strong outside director composition to allow investor activism to work in a positive fashion for long term company performance. A non-executive director stronghold on a public board gives the Board more authority to listen to both the dictates of activist investors and executive management, and so allows broader decision making for company strategic direction.

Consider activist investors as the best devil’s advocate. A company can hire an independent consultant to assist the Board in setting strategic direction; however, an activist investor literally has more to lose with company profit at stake! And these investors are the savviest investors in the industry – as bullying as their tactics may seem, they are top financial engineers that can truly structure profitable companies. Many companies are embracing the activist investor style of C-Suite leadership. The Vanguard CEO William McNabb has advocated forming a “Shareholder-Director Exchange” to have clearer communication between activist investors and Boards, to facilitate such financial engineering and prevent negative market reads in a proactive manner. Former Texaco CEO and Director of Abbot Laboratories Glenn Tilton further encourages public boards to be one step ahead of shareholder activists in terms of strategy and risk management expertise. Prevention is better than cure.

Carl Icahn has defended his position as activist investor, saying “I look at companies as businesses, while Wall Street analysts look for quarterly earnings performance. I buy assets and potential productivity. Wall Street buys earnings, so they miss a lot of things that I see in certain situations.” Activist investors challenge companies’ core competencies. However, they challenge Wall Street’s investing myopia as well. Devil’s advocates they may be, yet the activist investor may well be the true change catalyst for practical, no frills, efficient corporate governance.

Bebchuk et al. 2015. “The Long Term Effects of Hedge Fund Activism.” Harvard Business Law Discussion Paper. Columbia Law Review. Pages 1064 – 1154.

Harvard Business Review. 2015. “Your Board Should Think Like Activists.”

Sharfman, Bernard S. 2015 “Activist Hedge Funds in a World of Board Independence: Creators or Destroyers of Long-Term Value.” Columbia Business Law Review. Pages 103-139.

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