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Can Putin Survive?

By George Friedman

There is a general view that Vladimir Putin governs the Russian Federation as a dictator, that he has defeated and intimidated his opponents and that he has marshaled a powerful threat to surrounding countries. This is a reasonable view, but perhaps it should be re-evaluated in the context of recent events.

Ukraine and the Bid to Reverse Russia’s Decline

Ukraine is, of course, the place to start. The country is vital to Russia as a buffer against the West and as a route for delivering energy to Europe, which is the foundation of the Russian economy. On Jan. 1, Ukraine’s president was Viktor Yanukovich, generally regarded as favorably inclined to Russia. Given the complexity of Ukrainian society and politics, it would be unreasonable to say Ukraine under him was merely a Russian puppet. But it is fair to say that under Yanukovich and his supporters, fundamental Russian interests in Ukraine were secure.

Jobs in Ontario

added emphasis ours

Three Case Studies

The H.J. Heinz Company built its first factory located outside the US in Leamington Ontario in 1909. It became their second largest factory. They closed the plant in Feb. 2014 and sold it to an investor’s group (Investor group to acquire Ontario Heinz plant) in May 2014. This followed Warren Buffet’s acquisition of Heintz, taking it private through his company Berkshire Hathaway. Such privatizations are generally followed by pruning or consolidating marginal and unprofitable operations. As Global News notes in Buffett keeps word, Heinz strikes ‘fair’ deal with Ont. ketchup workers:

A soaring loonie in recent years has made plants across the country ripe for cutbacks or closures by multinational firms who can easily shift production to cheaper regions. More than 30,000 factory jobs were lost in Ontario alone in 2013.

We would note that during the plant’s 104 year history, the Canadian dollar has been as high or higher on several occasions and the plant was not shut down then. The key issue is the second point – there are many regions in the US where labour, taxes, energy and regulatory costs are lower than in Ontario. Further to this, Blackburn  News reports in Heinz Plant In Leamington Closing that:

The letter says the decision is not a reflection of the commitment of employees or quality of product, but primarily based on excess capacity in its North American manufacturing system. Leamington Mayor John Paterson says consolidation and efficiency are the reasons he’s been given from Heinz for the closure.

The second case is that of the 89-year old Kellogg Co. plant in London Ontario. The company announced its closure in Dec. 2013 as noted in Canadian Business (The province is partly to blame for Kellogg’s plant closure in London, Ont.: Mike Moffatt). The article points out several reasons for the plant closure:

On the surface it would appear that at least some of the lost London production went to Belleville, Ont., thanks to a $9.7-million interest-free loan in 2008 from the province and $4.5 million in additional provincial funding in 2011 … from higher wage employees in London to lower wage employees in Belleville

With the U.S. population gradually moving south and west, Ontario lacks a geographic advantage when it comes to mass consumer manufacturing. … Ontario’s transport-cost competitive advantage over areas such as the U.S. southeast and Asia diminishes, making those areas more attractive due to their lower labour costs.

It would appear that in the Kellogg case, economics favoured moving production from an old London facility to a new Belleville plant. London may be marginally closer to markets in the south and west but both have good rail and road links to the US. That leaves labour costs as the other Belleville advantage. The Winsor Star summarized the reasons (Kellogg, Heinz plant closures part of a trend) for the closure of Kellogg and other agribusinesses as:

the fallout of corporate consolidation, changing consumer tastes, labour costs and government regulations that have conspired to create a $6.5 billion trade deficit in the Canadian food processing industry.

“When the Heinz owners, for example, see a plant operating at 30 per cent of capacity, it’s an easy decision to absorb that production elsewhere, shutter a plant and save millions of dollars,” said Boecker. “There’s a great deal of global competition in every marketplace and anytime there are dollars to be saved, those are relatively easy decisions.” Economies of scale also play a role in production decisions, he said.

integration of the North American economy left Canada with little more than branch plant status and a decline in capital investment made some Canadian plants less competitive.

The final case is the closure of the Unilever Brampton plant

under construction

Fix, Build or Burn


A Tale of Two Cities

In rural Southern Ontario we find two towns about 3 km apart. The first is the town of Jarvis located in Walpole Township, Haldimand County, in the agricultural heartland of Southern Ontario. The second is the town of Townsend also in Haldimand County, created by the government of Ontario  in 1976. The purpose short essay is to compare two  towns geographically closely located, one that evolved naturally and one that was created by a central planning authority.

Update on the Canadian Housing Bubble

When we were doing our monthly update of Tracking Canadian House Prices, we found (Teranet - National Bank House Price Index  -  Communiqués, research tab, Economic News, click for more information) a link to a monthly 2-page newsletter that Teranet publishes for the National Bank Financial Markets. It had a graph that showed the marked divergence between the Teranet house price index for Canada and the Case-Schiller house price index for the US. Through research we found a comparable graph shown in Figure 1 (multiple source attributions shown on the chart).

Figure 1. Canadian and US house price indices.

We took this graph from an April 29 newsletter from Otterwood Capital Management titled: Canadian housing crash? Not yet. Otterwood’s argument is that the strong Canadian housing market is a product of a strong economy (more or less) that is a product of a recovering American economy. One might infer the reverse from this: a US in recession would drive Canada into a recession which would pop the Canadian housing bubble.

RE: Eric Crouse’s essay, “Israel and the Hard Truth of Security,” July 10,

This essay is Paul’s response to the article Israel and the Hard Truth of Security that appeared on the Bayview Review. We present Paul’s essay reprinted by permission of Paul and from The Bayview Review. See the links at the end for direct access to the rest of Paul’s work. The essay follows.

This essay is brilliantly timed so as to be read as “UN Secretary-General calls, “With Gaza on knife’s edge, for restraint, urges parties to avert ‘full-blown war.’ ” (, July, 13, 2014) – which, being translated, means that the world is again demanding that Israel surrender its right of self-defense against its terrorist neighbours. Dr. Crouse has put his finger on the reason why Israel always wins its wars, at enormous cost, and invariably loses the peace that follows these wars. He proposes that this cycle can be broken, but only if Israelis finally take to heart the central message of the life and work of Vladimir Ze’ev Jabotinsky (1880-1940.)

Inside a Silo

Zero Hedge posted an article today titled  BP’s Latest Estimate Says World’s Oil Will Last 53.3 Years. The article states (emphasis ours):

BP’s annual report on proved global oil reserves says that as of the end of 2013, Earth has nearly 1.688 trillion barrels of crude, which will last 53.3 years at current rates of extraction. This figure is 1.1 percent higher than that of the previous year. In fact, during the past 10 years proven reserves have risen by 27 percent, or more than 350 billion barrels.

In Jeopardy Question: This Body of Water Determines the Fate of the Modern Day Anasazi, we stated:

We are linear deterministic thinkers. Another description of our thought processes is that we think in “silos”. Broad dynamic networks of independently acting agents are beyond our ability to model and rationalize so we simply ignore them.

This is a classic example of “silo” thinking. This is a linear projection of future reserves based on a figure for the current rate of extraction projected to the point where the reserves are exhausted. What are totally ignored are the feedback loops that will affect extraction decisions.Certainly the cost of the next barrel extracted will not be the same as the cost of the last barrel extracted.  Certainly demand will not stay constant, affectingh both price and extraction decisions. But the feedback loops that Gail Tverberg speaks of (read Oil: Primary Energy Source for the Human Social CAS) will affect extraction costs and decisions long before the last barall is reached. In facct, society as we know it will have changed in unimaginable ways and perhaps collapsed altogether before known reserves are exhausted.

The BP extrapolation is useful for drawing people’s attention to the immediacy of the problem but for no other reason.

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Gaza Situation Report

By George Friedman

The current confrontation in Gaza began June 12 after three Israeli teenagers disappeared in the West Bank the month before. Israel announced the disappearance June 13, shortly thereafter placing blame on Hamas for the kidnappings. On June 14, Hamas fired three rockets into the Hof Ashkelon region. This was followed by Israeli attacks on Palestinians in the Jerusalem region. On July 8, the Israelis announced Operation Protective Edge and began calling up reservists. Hamas launched a longer-range rocket at Tel Aviv. Israel then increased its airstrikes against targets in Gaza.

At this point, it would appear that Israel has deployed sufficient force to be ready to conduct an incursion into Gaza. However, Israel has not done so yet. The conflict has consisted of airstrikes and some special operations forces raids by Israel and rocket launches by Hamas against targets in Israel.

From a purely military standpoint, the issue has been Hamas’s search for a deterrent to Israeli operations against Gaza. Operation Cast Lead in late 2008 and early 2009 disrupted Gaza deeply, and Hamas found itself without any options beyond attempts to impose high casualties on Israeli forces. But the size of the casualties in Cast Lead did not prove a deterrent.

O Canada … Uh Oh!

Our friend JR alerted us to this video commentary on the Canadian economy. The video was published May 19, 2013 and we assume that it was produced at a point close to that. At almost 48 minutes it is on the long side and somewhat tedious. However, it is comprehensive in its view of the economy and broad social and economic analysis.

It should be noted that not all of the data is current. Some is taken from studies in prior years and from data sets that lag in reporting. Some economic principles may not be without controversy. Still, the overall picture is one of social and economic decline in an inverse relationship to the growth of the welfare state. Since this growth is continuing the economic picture painted will only get worse.

The commentator spends a long part of the end of the video describing the plight of natives. The problem with his position is that it is entirely one-sided – blame the government. Any obligation on the part of natives to adjust their position and take responsibility for their actions is ignored. If you’re running short of time or have become bored, you might end it at this point.

Without further comment, here’s the video:

The Real Job Situation in Ontario: Ugly

Since the governing Liberals have proven to be inveterate liars as we have documented many times, we thought we would review the latest job statistics for Ontario. As background, particularly for understanding what seasonal adjustment means, read The Lies My Mommy Told Me, Part II.

The June Statistics Canada Numbers

First we look at the last year’s worth of data in CANSIM Table 282-0087, Labour force survey estimates (LFS), by sex and age group, seasonally adjusted and unadjusted monthly. From June 2013 to June 2014, the number of people employed increased by 22,000. This is composed of an increase of 31,200 full-time jobs and a loss of 9,200 part-time jobs. This reflects a modest improvement, year over year, in the job situation with a net increase and a likely conversion of part-time into full-time jobs.

Now let’s look at the job numbers in various sectors of the economy for the same period in CANSIM Table 282-0088, Labour force survey estimates (LFS), employment by North American Industry Classification System (NAICS), seasonally adjusted and unadjusted. Table 1 shows the two sectors, goods producing and service producing, along with a few sub-sectors that had the greatest effect on month-to-month changes.

A Brief History of Relations between Israel and Russia During the Years of the Cold War


With this essay, Paul has begun a new series on Jerusalem and Moscow. The first essay in the series follows: A Brief History of Relations between Israel and Russia During the Years of the Cold War. We present this essay reprinted by permission of Paul and from The Bayview Review. See the links at the end for direct access to the rest of Paul’s work. The essay follows.

In a previous essay (“Israel Finds Opportunity in the Ukraine Crisis,”, June 5, 2014), I reviewed Israel’s efforts over recent weeks to triangulate between Russia and the United States on what the Americans (but not the Israelis) regard as the geopolitical issue of the day – Russia’s intrusions into Ukraine and its implications for NATO. Many commentators in America and perhaps even more in Israel have suggested that Israel’s behaviour in this matter amounts to violation of sacred commitments undertaken by Israel on behalf of the Free World during the Cold War. Others allow that, while there may be cynicism in Israel’s phoning in sick when its longtime ally needed its vote at the UN, account must be taken of recent provocations coming from the American side.

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