Streetwise Professor

January 28, 2017

Trump’s Finger Is On the Button!

Filed under: History,Politics,Russia — The Professor @ 12:43 pm

Fearing Trump, the Union of Concerned Scientists has advanced the Doomsday Clock, indicating their belief that the risk of nuclear war has increased. This is actually quite confusing. After all, the Clock has historically waxed and waned based on the perceived (by the pointy heads at the UCS, anyways) threat of a nuclear exchange between the US and the USSR, and since its demise, Russia. So wouldn’t Trump’s supposed softness on Russia and the prospect of a rapprochement between Trump and Putin (which elicits shrieks of horror from the Democrats) reduce the risk of such an event? Shouldn’t the clock have moved backwards, not forwards?

But that’s not the button I refer to in the title. Actually, I should have written buttons, plural, because what I am thinking of is Trump’s pushing of the progressive left’s buttons. We’re only a week into his administration, and already he has pushed so many of their buttons that they are on the brink of psychological collapse–many past the brink, actually.

I could mention several examples, but one stands out even though it is the most symbolic and least substantive of the things he’s done since January 20: the announcement that he will return a portrait of Andrew Jackson to the Oval Office.

Trump’s core constituency is Jacksonian America (as Walter Russell Mead and then I pointed out in 2015), but truth be told, most Jacksonians don’t know a lot about him. Pace Willie Dixon, he’s just one of those Dead Presidents they’d like to get their hands on: “Jackson on a 20 is really great.” But the left does know Jackson, and hates him with a passion: he is one of their bêtes noires. Slaveholder. Ferocious Indian fighter. Author of the Indian Removal Act (a/k/a Trail of Tears). Unabashed American nationalist (heaven forfend!). Further, the left also hates his political heirs: they are the kind of people that an execrable candidate for DNC chair said it would be her job to shut down.

So Trump’s announcement regarding the portrait probably didn’t really make a ripple in his Jacksonian constituency, and that’s not why he did it. But it did unleash an uproar among the progressives–and that’s exactly why he did it. A very deliberate push of a prog button.

Personally, I have considerable ambivalence about Jackson. Much of the criticism is presentism that ignores the historical context: of course men of the 19th century frontier thought and decided differently than those on the Upper West Side for whom Harlem is the frontier. Jackson’s greatest modern biographer, Robert Remini, argues that Jackson believed that removal was the only way to prevent the annihilation of the eastern tribes at the hands of rapacious whites. Others clearly disagree, and believe that Jackson was motivated by bigotry and hatred. The point is that the story is much more complicated than the morality play presented by the left.

Jackson’s economic policy was a very mixed bag. He was in favor of small government, and was the last president to leave the US with no government debt. But his banking policy was disastrous, and was directly responsible for the Panic of 1837.

Politically, of course, he was the avatar of populism and popular democracy. This is is also a mixed bag, but the pluses are bigger and the minuses smaller when the government is small than when it is large.

He was a slaveholder, but an ardent foe of secession, as his actions during the Nullification Crisis showed.

He was also one of the most consistently successful military commanders in US history, beating both Red Coats and . . . Indians (and Spaniards too) in both conventional and unconventional warfare.

But the progressive left is anything but ambivalent about Jackson. To them he is a devil figure, which Trump surely knows–and which is why his portrait will hang in the Oval Office.

As men, Jackson and Trump have myriad differences. Their biographies are obviously utterly different. Where Trump only mused about shooting people in the street, Jackson actually did it. But they have some great similarities, and these will loom large during Trump’s presidency. Both are outsiders who express their disdain for the system and the supposed elite–and the disdain is returned with interest. Neither is constrained by elite convention, and indeed, each takes great glee at sneering at convention and brutally trampling the political establishment. Both rely on advisers who are outside the establishment. Both easily take offense, hold grudges–and take revenge.

It is therefore deeply symbolic that one of Trump’s first acts was to restore Jackson to a place of prominence in the White House. It is pushing the left’s buttons, yes. But he is also signaling how he will act as president. Aggressive–indeed, truculent. In your face. Defiant of the political establishment. Totally unafraid of confrontation and driven to prevail–utterly.

I fully expect that Trump will share other similarities with Jackson. I think that it is likely that his economic policy will be a mixed bag with extremely varied effects: protectionist insanity will sit juxtaposed with a sensible rollback of regulation and the administrative state. Trump will face international issues as president that dwarf anything Jackson had to, but his American nationalism will also lead to very varied effects, as did Jackson’s various foreign engagements (most as a general, rather than president, as in Florida).

And along the way he will push many buttons. But not the nuclear one.

January 25, 2017

Live From Moscow! Rosneft Kabuki!

Filed under: Commodities,Derivatives,Economics,Energy,Russia — The Professor @ 3:31 pm

Today it was announced that Putin will indeed meet with Glencore’s Ivan Glasenberg,  QIA’s Sheikh Abdullah Bin Hamad Al Thani, and  Intesa Sanpaolo SpA Managing Director Carlo Messina. According to Bloomberg,

Putin will talk about “the investment climate, the reliability of Russia for foreign investors and prospects for expanding cooperation,” Peskov said on a conference call. The Kremlin said Jan. 23 that Sechin was keen to underline the significance of the deal with Glencore and Qatar and to outline new projects.

Yes, this is all about portraying the Rosneft stake sale as a normal deal, and as an indication that Russia presents a normal investment climate.

In fact, the deal does nothing of the sort. The bizarreness of what is known, that the curtain of secrecy that prevents so much from being known, show that the deal is highly abnormal by the standards of the US, Europe, Japan, and other major investment regions.

A Russian analyst puts his finger on it: this is PR, not reality:

The deal meant Rosneft avoided buying back the 19.5 percent stake itself. That would have been seen as “Russia’s demise” in the search for investors, according to Ivan Mazalov, a director at Prosperity Capital Management Ltd., which has $3.5 billion under management.

“It was important for Russia to win a PR battle that Russia is open to do business and that investors consider Russia as a good destination for their capital,” Mazalov said by e-mail.

But that’s the thing. We don’t know for sure that Rosneft avoided buying back the 19.5 percent stake. It apparently did not buy all 19.5 percent, but there is the matter of that missing 2.2 billion Euros. Further, who knows how the complex structure of shell companies involved the deal parses out actual economic ownership? And even if Rosneft isn’t putting up money or taking economic exposure to the stake, it’s pretty clear that some Russian entity or entities are.

But the show must go on! This Frankenstein’s monster of a deal must be made to look like the epitome of commercial normalcy: Since henchman Igor (Sechin, that is) is obviously not up to the task, Herr Doktor Putin himself must make an appearance to calm the agitated villagers.  Ivan Glasenberg is no doubt quite happy to play his part, because Glencore apparently made out very well in the deal, due in large part to the offtake agreement that went along with it. And il Signor Messina has stumped up Euros 4.5b, so he is certainly going to chew the scenery.

So who you gonna believe, Putin and his troupe, or your lyin’ eyes?

January 24, 2017

Rosneft & Glencore & QIA & ???: More Kabuki

Filed under: Commodities,Economics,Energy,Politics,Russia — The Professor @ 7:58 pm

Today Reuters ran a long article summarizing all of the holes in the official Russian story about the sale of the Rosneft stake. Nice of them to catch up: there is nothing in the article that wasn’t discussed here, or in RBC reports, from six weeks to two weeks ago.

The main question is who is covering the €2.2 billion hole. My leading candidates: (1) a Russian state bank (likely VTB) providing debt financing, or (2) Rosneft buying its own equity from Rosneftgaz (perhaps using funding from a Russian state bank directly, or indirectly via proceeds from its recent bond sale). One factor in favor of (2) is the web of shell companies involved in the deal: these could be used to conceal the faux nature of the “privatization” and the supposed transfer of foreign money to the budget in an amount equal to the announced purchase price. The money could be used to launder Russian money, making it look like it was coming from a foreign source.

Recall that when it was doubted Rosneft would find a foreign buyer, the fallback plan was to have the firm purchase its shares from Rosneftgaz, and then sell them to a foreign buyer later. Option (2) would be a variant on that.

Regardless, even if the details are not known, it is abundantly clear that the privatization was not the clean, blockbuster deal originally announced. It is a stitched up job intended to obscure the failure to make a straight, uncomplicated sale to foreign buyers.

Interestingly, Rosneft has allegedly paid $40 million in legal fees. (H/T @leenur.) In 2017. That’s about $2 million/day, and if the deal was done in 2016, that’s when the legal expenses would be expected to be incurred. This is consistent with this being very much a work in progress. Or maybe, a work in regress.

But the Kabuki play must go on! Sechin is inviting Putin to meet with Glencore, QIA, and Intesa:

The chief executive of Russia’s biggest oil firm Rosneft on Monday asked President Vladimir Putin to receive the company’s partners Glencore, Intesa and the Qatar Investment Authority (QIA), the Kremlin said.

Trading house Glencore and the QIA recently became Rosneft shareholders in a multi-billion-dollar deal partly funded by Italian bank Intesa.

Rosneft boss Igor Sechin said at a meeting with Putin on Monday that Rosneft was planning new projects with the three partners and they wanted to tell Putin about the prospects for those projects, the Kremlin said in a statement on its website.

This is clearly intended to lend Putin’s authority to the deal (as he already did in his end of year Q&A). Bringing in Putin and the alleged principals for a Sovok PR gimmick is pathetic, and amusing–and amusing because it’s so pathetic!

Any such act will not end the questions. It will just bring attention to the deal, and any attention will only bring the questions to the fore.

Not that we can expect to get any answers from the Russians, or from QIA. But why the UK authorities and the LSE seem so complacent about the participation of a UK/LSE-listed company in such a dodgy deal, with such little disclosure, is beyond me. Glencore may argue that it has disclosed the basics of its involvement, but without knowing about the structure of the entire deal it is evaluate the accuracy of those disclosures, in particular relating to what Glencore’s real economic exposure is. The relevant parties in the UK should be pressing hard for much greater disclosure from Glencore.

Two Contracts With No Future

Filed under: China,Commodities,Derivatives,Economics,Energy,Exchanges,Politics,Regulation — The Professor @ 7:14 pm

Over the past couple of days two major futures exchanges have pulled the plug on contracts. I predicted these outcomes when the contracts were first announced, and the reasons I gave turned out to be the reasons given for the decisions.

First, the CME announced that it is suspending trading in its new cocoa contract, due to lack of volume/liquidity. I analyzed that contract here. This is just another example of failed entry by a futures contract. Not really news.

Second, the Shanghai Futures Exchange has quietly shelved plans to launch a China-based oil contract. When it was first mooted, I expressed extreme skepticism, due mainly to China’s overwhelming tendency to intervene in markets sending the wrong signal–wrong from the government’s perspective that is:

Then the crash happened, and China thrashed around looking for scapegoats, and rounded up the usual suspects: Speculators! And it suspected that the CSI 300 Index and CSI 500 Index futures contracts were the speculators’ weapons of mass destruction of choice. So it labeled trades of bigger than 10 (!) contracts “abnormal”–and we know what happens to people in China who engage in unnatural financial practices! It also increased fees four-fold, and bumped up margin requirements.

The end result? Success! Trading volumes declined 99 percent. You read that right. 99 percent. Speculation problem solved! I’m guessing that the fear of prosecution for financial crimes was by far the biggest contributor to that drop.

. . . .

And the crushing of the CSI300 and CSI500 contracts will impede development of a robust oil futures market. The brutal killing of these contracts will make market participants think twice about entering positions in a new oil futures contract, especially long dated ones (which are an important part of the CME/NYMEX and ICE markets). Who wants to get into a position in a market that may be all but shut down when the market sends the wrong message? This could be the ultimate roach motel: traders can check in, but they can’t check out. Or the Chinese equivalent of Hotel California: traders can check in, but they can never leave. So traders will be reluctant to check in in the first place. Ironically, moreover, this will encourage the in-and-out day trading that the Chinese authorities say that they condemn: you can’t get stuck in a position if you don’t hold a position.

In other words, China has a choice. It can choose to allow markets to operate in fair economic weather or foul, and thereby encourage the growth of robust contracts in oil or equities. Or it can choose to squash markets during economic storms, and impede their development even in good times.

I do not see how, given the absence of the rule of law and the just-demonstrated willingness to intervene ruthlessly, that China can credibly commit to a policy of non-intervention going forward. And because of this, it will stunt the development of its financial markets, and its economic growth. Unfettered power and control have a price. [Emphasis added.]

And that’s exactly what has happened. Per Reuters’ Clyde Russell:

The quiet demise of China’s plans to launch a new crude oil futures contract shows the innate conflict of wanting the financial clout that comes with being the world’s biggest commodity buyer, but also seeking to control the market.

. . . .

The main issues were concerns by international players about trading in yuan, given issues surrounding convertibility back to dollars, and also the risks associated with regulation in China.

The authorities in Beijing have established a track record of clamping down on commodity trading when they feel the market pricing is driven by speculation and has become divorced from supply and demand fundamentals.

On several occasions last year, the authorities took steps to crack down on trading in then hot commodities such as iron ore, steel and coal.

While these measures did have some success in cooling markets, they are generally anathema to international traders, who prefer to accept the risk of rapid reversals in order to enjoy the benefits of strong rallies.

It’s likely that while the INE could design a crude futures contract that would on paper tick all the right boxes, it would battle to overcome the trust deficit that exists between the global financial community and China.

What international banks and trading houses will want to see before they throw their weight behind a new futures contract is evidence that Beijing won’t interfere in the market to achieve outcomes in line with its policy goals.

It will be hard, but not impossible, to guarantee this, with the most plausible solution being the establishment of some sort of free trade zone in which the futures contract could be legally housed.

Don’t hold your breath.

It is also quite interesting to contemplate this after all the slobbering over Xi’s Davos speech. China is protectionist and has an overwhelming predilection to intervene in markets when they don’t give the outcomes desired by the government/Party. It is not going to be a leader in openness and markets. Anybody whose obsession with Trump leads them to ignore this fundamental fact is truly a moron.



January 20, 2017

Who is the Reactionary on Nato and the EU? Not Trump

Filed under: History,Military,Politics,Russia — The Professor @ 7:31 pm

So it’s official. Donald John Trump is now president of the United States. Buckle in. It will be a wild ride.

One reason it will be wild is that Trump has much contempt for the status quo, and shows no hesitation in saying so. He gave a taste of things to come in an interview last week. He questioned the viability of the EU, saying that it disproportionately benefited German at the expense of other countries. He also called Nato obsolete.

The reaction was immediate and hysterical. Was this warranted?

Not in my view.

Take Germany. Trump was making an observation. It is an opinion shared by large numbers of Europeans, especially in the south. It is a reasonable observation. And that’s probably why the Europhiles are freaking out: they know that the EU is under great strain and that its popular support is thin and wavering, and would prefer that everybody Believe! Believe! so Euro-Tinker Bell lives.

But what about dissing Germany, our stalwart ally? First, anti-American sentiment is very strong in Germany, and is often expressed by government officials. Second, the German government has often made unfavorable comments about American policy.  If you can’t take it, don’t dish it out.

Given all the frenzy about Trump’s alleged affinity for Russia and threat it poses to the west and western solidarity, let’s remember that there are very strong pro-Russian elements in Germany. Especially in the business community. Germany, don’t forget, is the country of “Putin Verstehers”–Putin understanders. It’s ex-chancellor is on the board of a Gazprom subsidiary, and Germany has actively supported Nord Stream against the objections of neighboring EU countries. Putin can only dream that Trump will be as accommodating to Russia as Germany has been. So don’t put the onus on Trump for compromising western interests in dealing with Russia. Merkel’s worries about that are far closer to home, as in her coalition partners, notably her Foreign Minister.

Insofar as Nato is concerned, it is obsolete, in the sense that it has not updated its mission, strategy, or capabilities in response to dramatic changes that have occurred in the last 25 years, let alone the nearly 70 years since its founding. Indeed, it is arguable that Nato is not just obsolete, but dysfunctional.

Nato countries spend piteously small amounts on defense, and the capability that they get is not worth what little they do spend. Germany spends around 1 percent of GDP on defense. There have been times recently that German troops had to train with broomsticks. Recently 2/3s of its combat aircraft were inoperable. It has zero capability to deploy anything overseas. The Dutch have no tanks. I could go on. Suffice it to say that Europe does not put its money where its mouth is when it comes to Nato. They pay lip service, rather than for troops and weapons. I would take their pieties about Nato more seriously if they actually sacrificed anything for it.

(By the way, this is why Russian hyperventilating about the Nato threat is absurd. It poses no military threat, beyond that which the US poses unilaterally. Indeed, for reasons that I discuss below, the European Nato Lilliputians tie down the American Gulliver.)

Another example of dysfunction is Montenegro’s impending bid to join Nato. Just what is the rationale for this? There is none: Montenegro brings no military capability, but just adds an additional obligation.

But it’s worse than than. Nato’s biggest weakness is its governance structure, which requires unanimity and consensus in major decisions. This is flagrantly at odds with one of the principles of war–unity of command–and makes Nato decision making cumbersome and driven by the least common denominator. Nato’s governance, in other words, makes it all too easy for an adversary to get inside its decision loop.

Coalitions are always militarily problematic: Napoleon allegedly rejoiced at the news that another nation had joined one of the coalitions against him. Nato’s everybody gets a vote and a trophy philosophy aggravates the inherent problems in military coalitions.

Put differently, decision making power in Nato bears no relationship to contribution and capability. This is a recipe for dysfunction.

So what is the point of adding yet another non-contributor (population 620K!) whose consent is required to undertake anything of importance? This is madness.

It is especially insane when one considers that Montenegro is a Slavic country with longstanding ties to Russia, and in which Russia has a paternalistic interest. Parliamentary elections last year were extremely contentious, with the pro-western incumbents barely hanging on. Post-election, there were allegations of an attempted coup engineered by the Russians. The country is extraordinarily corrupt. All of which means that if you are concerned about Russia undermining Nato, Montenegro is the last country you would want to admit. It is vulnerable to being suborned by Russia. Outside of Nato-who cares what Russia does there? Inside of Nato-that is a serious concern, especially given the nature of Nato governance.

But apparently current Nato members believe that it would be really cool to collect the entire set of European countries: frankly, I can think of no other justification. There is no better illustration of how Nato has lost its way, its strategic purpose, and its ability to think critically.

So yes, Trump is more than justified in raising doubts about Nato, and if questioning the relevance of the organization is what is needed for people to get serious about it and to reform it to meet current realities, then he’s done a service.

Following the shrieking and moaning on Twitter today during the inauguration, it struck me that the most prevalent theme was that Trump is turning his back on X years of US policy in this, that, and the other thing. The reaction shows that the real conservatives–in the literal, traditional sense of the word meaning unflinching defenders of the old order and status quo–are on the leftist/statist side of the political spectrum. They are petrified at the thought of disturbing in the least way the existing order. To them, it is apostasy even to question this order. Trump is challenging all their verities, and it drives them to apoplexy.

The EU and Nato are two examples of institutions that are supposedly sacrosanct, but which Trump has had the temerity to question. The defense by the real conservatives–the real reactionaries, actually–on the left and left-center has been unthinking and reflexive. They refuse to acknowledge the rot and decay that exists, and which threatens the viability of the things they claim to admire. Rather than neurotically projecting their fears on Trump, they should thank him for giving them the opportunity to reform dysfunctional bodies, and join in the work of reforming them. Not that I expect that they will, because this is not in the nature of conservatives and reactionaries.

January 17, 2017

Didn’t Know China is a Beacon of Economic Openness & Political Freedom? You’re Not Worthy of Davos!

Filed under: China,Climate Change,Economics,Politics — The Professor @ 9:26 pm

The Davos set is in such a complete meltdown over Trump that they are desperate for someone to champion the cause of globalism and to fight against the growing tide of protectionism. And they found him! Chinese President Xi Jinping.

No. Really. The slobbering over his speech today praising globalization and criticizing protectionism was embarrassing, even by Davos standards.

Trump’s views on trade are utterly misguided, but to view Xi and China as some sort of avatar for an open society is not just bizarre. It’s perverse. Beyond perverse, really.

China’s economy is a Frankenstein of controls and state intervention. Vast swathes of the Chinese economy are strongly protected from foreign competition, and foreign investment is heavily regulated. The currency is also tightly controlled, and not freely convertible: that will happen in a decade, if ever. I am not saying that that the currency is currently manipulated downwards. To the contrary, at present the reverse is true. Chinese are looking for every way possible to get money out of the country, a sure sign of an overvalued currency. (Small illustration: visit a luxury car dealer in any major city in the US, and you’ll note how many of the buyers are Chinese.) The government  is doing everything possible to prevent it, and may be forced to go to hard capital controls. The point is that in the currency as in other things, the Chinese buy open markets a la carte, and only when it pleases them.

In brief, China is a heavily controlled mercantilist economy. Xi and the Chinese do things that Trump could only dream of in his greatest flights of mercantilist fantasy. To view Xi as the anti-Trump is utterly ridiculous, even by the clownish standards of the Davos dips.

Trump’s presidency and the environmental holocaust that it will supposedly bring has also led many to turn to China for leadership on climate. This is just as clueless, even if one overlooks the real pollution that chokes China–already this year, 60 Chinese cities have declared smog emergencies–and focuses on the far more speculative issue of CO2.

Yes, China has spent gazillions on wind and solar. But what has it received for its massive investment? This NYT article gives a great illustration:

On the edge of the Gobi Desert, the Jiuquan Wind Power Base stands as a symbol of China’s quest to dominate the world’s renewable energy market. With more than 7,000 turbines arranged in rows that stretch along the sandy horizon, it is one of the world’s largest wind farms, capable of generating enough electricity to power a small country.

But these days, the windmills loom like scarecrows, idle and inert. The wind howls outside, but many turbines in Jiuquan, a city of vast deserts and farms in the northwest province of Gansu, have been shut off because of weak demand. Workers while away the hours calculating how much power the turbines could have generated if there were more buyers, and wondering if and when they will ever make a profit.

“There’s not much we can do right now,” said Zhou Shenggang, a manager at a state-owned energy company who oversees 134 turbines here; about 60 percent of their capacity goes unused each year. “Only the state can intervene.”

China, the world’s largest emitter of greenhouse gases, has pointed to its embrace of wind and solar power and other alternatives to coal to position itself at the forefront of the global effort to combat climate change.

More than 92,000 wind turbines have been built across the country, capable of generating 145 gigawatts of electricity, nearly double the capacity of wind farms in the United States. One out of every three turbines in the world is now in China, and the government is adding them at a rate of more than one per hour.

But some of its most ambitious wind projects are underused. Many are grappling with a nationwide economic slowdown that has dampened demand for electricity. Others are stymied by persistent favoritism toward the coal industry by local officials and a dearth of transmission lines to carry electricity from rural areas in the north and west to China’s fastest-growing cities.

Then there’s this: “Wind power now accounts for 3.3 percent of electricity generation in China.”

And so how does China generate power? With dirty coal, mainly–as the choking smog in Beijing and other major cities testifies.

In brief, China’s renewables boom is a classic example of green hype, and of the grotesque malinvestment that has occurred in China in the past decades, especially post-financial crisis. Keep this in mind when you interpret Chinese economic statistics. These thousands of windmills that produce nothing contributed to measured Chinese GDP–but they contribute virtually nothing to its actual economic wealth or consumption. Much of measured Chinese GDP growth is due to the incurring of costs that confer no benefits, and is as economically meaningful as Soviet statistics. (Alas, allegedly smart people are as deceived today by China as they were by the supposed Soviet miracle.)

The article also contains this tidbit: “The tepid demand for electricity in an economic downturn has also exacerbated the troubles for renewable energy. Demand for electricity grew by only 0.5 percent in 2015, the slowest rate of growth since 1974.” But measured GDP increased 6.9 percent. It’s hard to reconcile those figures.

But the “elite” is so obsessed with Trump and the havoc that they are just sure he will wreak on trade and the environment that they embrace the leader of a mercantilist environmental disaster as their savior.

And it’s not just economics. The elites project every conceivable oppression fantasy on Trump, and portray him as a mortal threat to racial and religious minorities (including Jews–quick: Someone warn his son-in-law!), LGBTQXYZwhateveritisnowIcan’tkeepupandwillprobablyrunoutofletters, immigrants, and on and on and on. Yet they are lionizing a real oppressor, indeed, the leader of one of the most repressive regimes on the planet: what it lacks in rigor compared to North Korea, it makes up with in size. They ignore real oppression and get hysterical over oppression that exists exclusively in their imaginations.

I would say these people are not serious. I wish that were true. The problem is that these people are deadly serious.

They are also completely without a clue. Davos founder Klaus Schwab ostentatiously said that Trump was not invited. First, as if Trump gives a flyer–indeed, he probably considers this a compliment. Second, and more importantly, it demonstrates exactly why this lot was utterly blindsided by the events of 2016–most notably by Brexit and the election of Trump. Davos–and elite conversation around the world–is a carnival of confirmation bias, an impenetrable bubble of self-congratulation utterly cut off from the people they condescendingly claim that they want to help. People with way too much money and way too little sense.

At the risk of sounding like Tom Friedman quoting some cab driver, I will relate a story from today that illustrates the disconnect between those in Davos giving tongue baths to a mercantilist leader of a police state and the people who are toppling their heroes and putting their arch enemies in their stead. While getting a haircut, my barber–a Lebanese immigrant, by the way, not a member of Storm Front–said “I don’t pay much attention to politics, but I hope Trump tells the Chinese to go fuck themselves.” (Note: China had not been part of the conversation up to that point.)

But this is our world now. Due to the Trump derangement syndrome the allegedly liberal globalist elites heap praises on the leader of a protectionist, mercantilist, serial human rights violator. And all the while ignoring those with more common sense (like my barber), then wondering why they are losing.


January 13, 2017

Who? Whom?

Filed under: Military,Politics — The Professor @ 9:05 pm

That, of course, is Lenin’s famous question.  What brings it to mind today is the drumbeat from the political class that Trump has to play nice with the intelligence services. For instance, Leon Panetta has been spending the last week chiding Trump for his rift with the intelligence community. Panetta represents the default DC position, which is aghast that that meanie Donald is bullying their BFF, the CIA.

Even worse is Chuckie Schumer: “Let me tell you, you take on the intelligence community, they have SIX ways from Sunday at GETTING BACK AT YOU”.

Nice little presidency you got here. Shame if anything happened to it.

Um, don’t you think that the appropriate action by a responsible government official would be to say that it is unacceptable for “the intelligence community” to “GET BACK AT” the president of the United States? Oh, but I was talking about Chuckie Schumer, so “responsible government official” doesn’t quite fit, does it?

And by the way, can you imagine the sh*tstorm that would erupt if anyone had said this, approvingly, about the “intelligence community” taking down Barack Obama a few pegs?

Well, I’ve always known it takes two to tussle, so why put all the blame on Trump? And more to the point, these same people pull their chins obsessively, and worry about Trump’s anti-constitutional impulses (a worry notably missing during the pen-and-a-phone Obama administration), Mattis’ appointment threatening civilian control of the military, and such.

Well riddle me this: who works for whom? Does Donald Trump work for the CIA, or does the CIA work for the chief executive of the United States under the Constitution, Donald Trump? Reading the New York Times, the Washington Post, and other establishment media outlets, I’d have to conclude the former.

The CIA, DNI, FBI, and the rest of the “seventeen intelligence agencies” we’ve been told about ad nauseum are part of the executive branch, and are answerable to the duly elected chief executive. Which in 7 days will be Donald John Trump. They may not like it, but they have to lump it. That’s the way the system works. Or is supposed to, anyways-as they tell us when it suits their purpose.

And if you are really truly concerned about seizures of power you should be concerned about the plain-as-the-nose-on-Barabara Streisand’s-face campaign of the intelligence agencies to de-legitimize the Trump presidency.

But apparently some people–and apparently most people in the 202 area code–are unable to rise above their oh-so-situational principles. A CIA doing things that would have had them in the streets had they done it against Obama or Clinton is just hunky dory if directed against Trump. Indeed, Trump is in the wrong for having the temerity to fight back.

Epitomizing the CIA courtier class is WaPoo columnist David Ignatius. I would call him a pilot fish, but those creatures clean the gills and mouth of sharks: Ignatius is more like whatever cleans the other end of the digestive tract.

His chin puller today included this attack on one of the CIA’s bêtes noire, National Security Advisor designate Michael Flynn:

Retired Lt. Gen. Michael T. Flynn, Trump’s choice for national security adviser, cultivates close Russian contacts. He has appeared on Russia Today and received a speaking fee from the cable network, which was described in last week’s unclassified intelligence briefing on Russian hacking as “the Kremlin’s principal international propaganda outlet.”

According to a senior U.S. government official, Flynn phoned Russian Ambassador Sergey Kislyak several times on Dec. 29, the day the Obama administration announced the expulsion of 35 Russian officials as well as other measures in retaliation for the hacking. What did Flynn say, and did it undercut the U.S. sanctions? The Logan Act (though never enforced) bars U.S. citizens from correspondence intending to influence a foreign government about “disputes” with the United States. Was its spirit violated? The Trump campaign didn’t immediately respond to a request for comment.

If the Trump team’s contacts helped discourage the Russians from a counter-retaliation, maybe that’s a good thing. But we ought to know the facts.

First, to claim that Flynn’s appearances on RT demonstrate his Putinist bona fides, without even mentioning Flynn’s very harsh condemnation of Russia in his book and in public statements about it means that Ignatius has discarded even the pretense of objectivity or fairness.

Second, this story starts in the middle. The Logan Act? Give me an effing break. At the time of these conversations, Flynn was 3 weeks from becoming NSA–hardly an ordinary citizen engaged in ad hoc diplomacy. Obama had just maliciously and deliberately complicated the incoming administration’s dealings with Russia by imposing sanctions on his way out the door. Everybody with a lick of sense realized that this was Obama’s purpose. But Ignatius doesn’t mention that. Get this, especially in light of the current screeches about Trump not being appropriately deferential to the CIA:

What discussions has the Trump team had with Russian officials about future relations? Trump said Wednesday that his relationship with President Vladimir Putin is “an asset, not a liability.” Fair enough, but until he’s president, Trump needs to let Obama manage U.S.-Russia policy.

The president is president, damn it, unless his name is Trump.

So what is the incoming administration generally, and Flynn specifically, supposed to do? Sit on their hands and zip their lips for 22 days rather than try to manage a problem that Obama deliberately created for them?

Can you seriously believe that had the situation been reversed, that Ignatius would have arrived at the same judgment? (A word I use loosely in this context.)

Other defenders of the CIA react to Trump with outrage: How dare he attack those who risk their lives defending us?!?!? First, the operational element of the CIA that actually faces any prospect of mortal danger is rounding error in its personnel count. The vast majority sit all day long in front of a computer screen in a huge building, and the biggest risks they face are sciatica, paper cuts, and bureaucratic backstabbing. Second, when I look at Syria, and other misadventures of the CIA where CIA lives have been at risk, I have to say: don’t do me any more favors by defending me.

Chuckie Schumer is right as a description of reality: the intelligence agencies DO have six ways to Sunday to attack a president (and they are doing so to the president elect now). But that’s exactly why Chuckie Schumer, and all the others toadying up to the CIA et al are dead wrong. This is not something to be remarked upon as a mere empirical fact, without moral judgment. It poses far more of a threat to constitutional government than Donald Trump’s Twitter account, or even any potential power grabs as president–which will elicit a furious reaction if he tries. Yet the Chuckie Schumers (which my autospell changed to “Chuckie Schemers”–smart autospell!) and Leon Panettas and David Ignatiuses of the world are clearly taking the side of the entity that is subverting the constitutional order. They realize that elections have consequences, and they don’t like it one damned bit, so they side with the unelected. Mark that well, and remember it any time they wail about Trump’s violation of the constitutional order of this country.


Dossiergate: The Rogue Intelligence Operation Here Is Not Russian

Filed under: Politics,Russia — The Professor @ 7:36 pm

It pains me to do it, but I feel compelled to comment on the Trump dossier. I will not call it the “intelligence dossier” because it is the antithesis of that. It is a retard dossier, but the retarded has become a political reality. And because the story of its release has very troubling implications.

I will just try to focus on a few high level points.

First, the document’s credibility is undermined by its narrative voice, which is best described as third person omniscient. This is is often reserved for bad fiction written by amateurish writers, which is the case here. There is no way that any private intelligence operative, ex-MI6 or not, would have so many sources who knew so many important people who were present when said important people had conversations about extremely sensitive–and indeed explosive–topics.

Second, even overlooking that, the chain of transmission of each story is rather long. A source observes the principals (e.g., Putin and Ivanov) having a conversation; tells that to a (presumably) Russian contact of Christopher (not Remington!) Steele; who tells Steele who then transcribes it and passes it along. Even in a game of telephone with honest players there is an appreciable opportunity that the story will become garbled along the way, especially since at least one translation was likely involved for each story. And why should we possibly believe any one of the participants in these chains, each of whom had incentives to lie and embellish? Consider Steele’s (presumably Russian) intermediaries. They were no doubt paid, and their income was dependent on the putative salience of their information. Passing along “I had lunch with Ivanov’s chief of staff. He had borscht” wouldn’t command a very high price, would it? Dishing dirt about Ivanov conversations with Putin would be much more valuable. And who could verify the stories? Who could even cross check basic facts? So spice it up!

Especially when it appears that the buyer of the information (both at the first stage, Steele, and his downstream political customers) hardly seems to be skeptical, and has a definite desire for the lurid, the incentives of the intermediaries to make stuff up are strong indeed. Not to mention the fact that the alleged sources (if they exist) have an incentive to tell the stories they want heard.

In other words, this type of communication is inherently unreliable. The incentives to fabricate are strong, and the penalties for fabrication are negligible.

Third, some of the stories are real clangers. I’ll focus on two.

The first story claims that in 2015 Sechin told Carter Page, an alleged Trump emissary, that if Trump would lift sanctions, Sechin would sell Trump the 19.5 percent share of Rosneft to be privatized. Look, I think Sechin can be a moron, but there’s no way he could possibly think that would work. Just how would Trump hide the acquisition of such a large asset? How would he pay for it? How would he possibly deal with the political maelstrom that this acquisition would cause? Maybe Sechin envisioned a Russian-style (or Mafia-style) acquisition, in which a straw buyer would take ownership, but Trump would be the economic beneficiary. But even that would be wildly unworkable.

The second story–stories actually–relate to Sergei Ivanov, Putin’s now ex-chief of staff. A note about Ivanov. He is a scary guy. A real Chekist, who served in the KGB, SVR, and KGB. He was reputed to be a Chekist’s Chekist. He is the kind of guy about whom you could say (and about whom I did say): “Be careful what you ask for if you desire getting rid of Putin. Somebody like Ivanov could take his place.” And he is exactly the kind of guy you would expect not to be blabbing about things said in confidence to Putin, or with anyone else.

In the dossier, several conversations between Ivanov and Putin are described. In one set, Ivanov is harshly critical of the attempts to influence the US election. On July 30, the dossier claims that the Kremlin is concerned that the operation is spinning out of control. On 5 August, Ivanov allegedly (I will drop the “allegedly” hereafter) tells a confident who tells Steele’s source that he is angry at the turn of events, and blames Peskov for screwing things up. Pesky is “scared shitless” that the operation is resulting in huge blowback, and that he will be blamed. Ivanov claims to have opposed the operation from the beginning, and claims Medvedev does too.

Five days later (!), Ivanov claims that Putin is “generally satisfied with the progress of the operation to date.” So pleased, in fact, that he has a drink with Ivanov to celebrate!

I’ll pause here for a second, to give you the opportunity to test your knowledge about Putin. See the problem with this story?

Yes: Putin is a teetotaler. Maybe it was just Ivanov drinking, but this detail hits a very false note.

But even overlooking that, according to the dossier, in 5 days the Kremlin goes from being “scared shitless” about the blowback, to being generally satisfied.

But wait! Two days after Putin and Ivanov were toasting the success of the influence operation, Ivanov is fired unceremoniously–and shockingly. The next month, the dossier claims that Ivanov was fired because he had given Putin “poor advice” on the operation. Whereas the earlier telling in the dossier portrays Ivanov as an opponent of the operation, by mid-September the dossier claims that Ivanov (and the SVR!) had advised Putin that the operation “would be effective an plausibly deniable with little blowback.” The blowback was so severe that Putin ordered everyone to dummy up, and deny, deny, deny.

August 10th (or thereabouts)–“Серге́й, Давайте выпьем за успех нашего дела!” August 12th, Putin does his Donald Trump imitation: “вы уволены!”

Maybe there is a way of squaring all this, but I don’t see it. Is he [Ivanov] a supporter of the deal, or ain’t he? Was he afraid of blowback from Peskov’s stupidity, or was he convinced there would be no blowback? Was Putin bipolar, and serially displeased, pleased, displeased, pleased?

One possibility is that Ivanov was changing his story in response to shifting political winds in the Kremlin. But if that’s so, every other source could have been doing so as well. And recognizing that, no statement in the entire freaking dossier can be taken at face value. Instead, even if the statements were made (a big if), they were all self-serving tales told to advance the tellers’ interests.

I am not the only one to call BS on all this. My colleague, Paul Gregory, does so as well, and he has much deeper experience in Russia, including long work in Soviet archives (including some intelligence documents). He too ridicules the Sechin offer, though I don’t think (as Paul does) that Sechin was offering the stake for free.

Paul’s conclusion is that the document was written by a Russian, probably with background from the security services.

Wrap your head around the possibilities inherent in that, especially when you consider the twisted ways that spies think. Given the impact the document has had, and assuming that this impact was anticipated by those who prepared it (or at least, provided the stories that Steele typed up), and the “Putin hacked the election to help Trump” is not the only hypothesis in the running. Please submit your hypotheses in the comments.

One last point. As I mentioned in response to a comment by elmer earlier today, the way this document came to light is very disturbing and casts a very ominous light on the US intelligence agencies. This document, by multiple tellings, has been circulating for some time. Harry Reid referred to it in a letter to the FBI (or at least, that’s obvious in retrospect). Multiple journalists have admitted that they had seen it. No media organization would report it, however, because it was so clearly unsubstantiated, and incapable of being substantiated.

But lo and behold, the dossier is allegedly mentioned in an intelligence briefing given to Trump. “Trump told about possible kompromat” is a legit story, right? And that makes the source of the claim that US intelligence forwarded to Trump a legitimate story, right? So soon after the story about the briefing hits, Bottom Feeder–excuse me, Buzz Feed–publishes it.

In other words, a necessary condition for the release was that the intelligence community tells Trump about it. In the public interest, of course. (And in the event, it was a sufficient condition as well.)

Spare me. This document had been around more than a crack whore, so of course Trump knew of its existence. He didn’t need some anal retentive type from Langley to tell him about it. The briefing served no public purpose. But it did serve the purpose of green lighting the release of the document.

It could be that the CIA/FBI/DNI etc. knew what the media’s Pavlovian response would be to the LEAK about the briefing, and didn’t need to collude with CNN or whomever to ensure that things would play out as they did. Or perhaps the intelligence community did collude with some in the media. That’s of secondary importance. What is of primary importance is that the intelligence agencies–with the assistance along the way of John McCain–most likely deliberately schemed to ensure the publication of this document days before Trump’s inauguration.  A document that they had to know was full of falsehoods, and likely a falsehood in its entirety. (If they didn’t know, we are just screwed in a different way, being served by asses instead of demons.) And a document that was sure to have explosive political consequences.

In other words, there is a rogue intelligence operation here, and it isn’t Russian.

This is beyond the pale, and bodes very ill for the coming months.

January 6, 2017

Send in the Clowns: The “Intelligence Community’s” Wikipedia Page on Russian Attempts to Influence the 2016 Election

Filed under: History,Politics,Russia — The Professor @ 9:30 pm

The “intelligence community’s” serial effort to beclown and degrade itself reached a new low today with the release of the much touted report that we were breathlessly told would prove that Russia (a) hacked the DNC and Podesta, (b) provided this information to Wikileaks, and (c) did so with the specific intent of securing a Trump victory (or, a Hillary defeat). It did none of these things. If anything, this report was less substantive than the one that was previously released.

As an indication that even the IC is hardly proud of this effort, the report was released exactly at the time you would do so with the intent of burying it: late in the afternoon of a Friday. Apparently even the FBI, CIA, DNI, etc., are ashamed for prostituting themselves to Hillary, the DNC, and the lame duck administration.

One thing that had been promised–by leaks, of course–that the report did not deliver was the identity of the party who delivered the DNC and Podesta emails to Wikileaks:

US intelligence has identified the go-betweens the Russians used to provide stolen emails to WikiLeaks, according to US officials familiar with the classified intelligence report that was presented to President Barack Obama on Thursday.

So why didn’t the public report name names? And don’t tell me that the IC is loath to disclose such information for fear that it would compromise precious methods and sources. In the past, the government has determined that a hacking offense was so egregious that naming and shaming–and indeed indicting–was necessary. In 2014, the government indicted Chinese military personnel that it alleged had hacked private US corporations. It took this measure precisely because it believed that this was necessary to deter future such acts:

“This is a case alleging economic espionage by members of the Chinese military and represents the first ever charges against a state actor for this type of hacking,” U.S. Attorney General Eric Holder said.  “The range of trade secrets and other sensitive business information stolen in this case is significant and demands an aggressive response.  Success in the global market place should be based solely on a company’s ability to innovate and compete, not on a sponsor government’s ability to spy and steal business secrets.  This Administration will not tolerate actions by any nation that seeks to illegally sabotage American companies and undermine the integrity of fair competition in the operation of the free market.”

“For too long, the Chinese government has blatantly sought to use cyber espionage to obtain economic advantage for its state-owned industries,” said FBI Director James B. Comey.  “The indictment announced today is an important step.  But there are many more victims, and there is much more to be done.  With our unique criminal and national security authorities, we will continue to use all legal tools at our disposal to counter cyber espionage from all sources.”

“State actors engaged in cyber espionage for economic advantage are not immune from the law just because they hack under the shadow of their country’s flag,” said John Carlin, Assistant Attorney General for National Security.  “Cyber theft is real theft and we will hold state sponsored cyber thieves accountable as we would any other transnational criminal organization that steals our goods and breaks our laws.”

“This 21st century burglary has to stop,” said David Hickton, U.S. Attorney for the Western District of Pennsylvania.  “This prosecution vindicates hard working men and women in Western Pennsylvania and around the world who play by the rules and deserve a fair shot and a level playing field.”

The administration has represented that what transpired in 2016 was far worse than what the Chinese did. So why no indictment? Why no names? The double standard here is flagrant.

It gets better. Earlier this year the US indicted two Russians, and the FBI admitted it had reverse hacked into Russian computers. Or better yet, it indicted seven Iranians allegedly members of the Iranian Revolutionary Guard Corps in March. At the time, Reuters characterized this as part of an administration policy to confront publicly foreign state hackers. And check out what our soon-to-be-erstwhile Attorney General said at the time:

“An important part of our cyber security practice is to identify the actors and to attribute them publicly when we can,” Lynch said Thursday. “We do this so that they know they cannot hide.”

“An important part of your cyber security practice is to identify the actors and to attribute them publicly when we can.” That was then, this is now, apparently.

As for what is in the report, well, there is nothing, really. There are five pages of ex cathedra assertions of “assessments” that Russia intervened in the election with the intent of aiding Trump/hurting Hillary. These are mere appeals to authority, with zero–literally no–supporting factual evidence. (And even these appeals to authority are hedged with caveats that intelligence judgments can be wrong. Believe us. We know.)

At times the report descends to farce. It cites the fact that Russian information/propaganda outlets attacked Hillary and appealed to the Trump constituency as evidence of Russian intent to sway the election. But it also states that Russian reticence in explicitly supporting Trump is also evidence of the very same intent:

  • Beginning in June, Putin’s public comments about the US presidential race avoided directly praising President-elect Trump, probably because Kremlin officials thought that any praise from Putin personally would backfire in the United States.

When diametrically opposed facts are used to support the same conclusion, you know you are not dealing with an intellectually serious, and intellectually honest, attempt to find the truth. You are dealing a hack job intended to reach a pre-determined conclusion.

Astoundingly, the report’s discussion of the events of 2016 consumes an entire five pages (and even that is padded), but its analysis of RT runs for seven. Apparently Captain Obvious obtained his commission in the intelligence services, and was seconded to write this report, because reading it you’ll learn that RT is a Russian propaganda outlet that has taken an anti-US line for years. Who knew? Did you know that? I surely didn’t!

I did, actually. In fact, I should sue the IC for plagiarism, because to support its case of Russian attempts to influence US politics it notes that RT was an early mouthpiece for the Occupy movement, precisely because of a desire to sow dissension in the US. Which I pointed out in November, 2011.

For this the CIA needs a black budget of tens of billions of dollars?

And citing Zhirinovsky as some representative of official Russian policy? Are you kidding me.?The man is a buffoon who provides Putin with a useful foil, and as an outlet for the whackier nationalist fringe.

There is no secret that Putin views the US as an adversary, and arguably an enemy. He likely does so because he actually believes it. He also likely does so because it is useful for domestic political reasons. Regardless, this is not news.

And it provides only the sketchiest circumstantial case in support of the allegation of a hack of emails, released via Wikileaks, undertaken at Putin’s direct order to interfere with the 2016 election.

I have an open mind. I am perfectly willing to evaluate fairly a serious case, backed by evidence. This is what I do for a living. I obviously have no illusions about Putin, or RT, or Zhirinovsky, so I am clearly not predisposed to take their side. But this report provides no evidence to support its sweeping “assessments.” It is little more than a Wikipedia page. It is, quite frankly, an insult to the intelligence of the American people.

Furthermore, it is being used to call into question the results of the election, and thereby undermine the legitimacy of the incoming president. This is a very serious–even grave–action that should only be undertaken with great caution. It is imperative to provide real evidence. Indeed, given the serious implications of these assertions, it would be defensible, and even necessary, to disclose some of the classified information supporting the “assessments” laid out in the report.

The failure even to pretend to present a serious case is an affront to the American people which actually trivializes the very serious allegations that have been made. It is quite befitting a low, dishonest administration unable to depart with grace, dignity, and honor, and respect for the electorate.


January 5, 2017

Rosneft/Glencore/QIA: More Answers Mean More Questions

Filed under: Commodities,Economics,Energy,Russia — The Professor @ 8:01 am

Soon after I posted yesterday, news stories reported that the Rosneft-Glencore-QIA deal had closed. But questions still remain.

Here’s the Rosneft statement:

“As part of the previously agreed privatization deal all sides in the project, including Rosneftegaz and the consortium of foreign investors – one of the world’s largest sovereign funds, Qatar Investment Authority, and a leading Swiss commodity producer and trader Glencore – as well as financial and legal consultants, financial institutions and creditors, have finalized all corporate and technical closure and payment procedures,” the statement read.

I had to take that from Sputnik, because, curiously, there is no statement on Rosneft’s website. Yes, I know it’s the holidays in Russia, but still.

Also, look at this part: “have finalized all corporate and technical closure and payment procedures.” But on December 16, it was reported that Sechin had told Putin that the funds had been transferred to the Russian budget. Putin said so during his end-of-year gabfest. But the release says that only payment procedures have been finalized. So, whence the money that appeared in the Russian budget?

There is still the open question of the arithmetic. The moneys supposedly pledged by Glencore, QIA, and Intesa don’t add up to the purchase price. Close to 20 pct is pretty big for rounding error. So where’s that coming from?

I found this interesting:

“The technical procedures for closing (the deal) required the preparation and signing of more than 50 documents and agreements,” Rosneft said in a statement. “All this reflects the unprecedented complexity of the deal.”

Why so complex? Indeed, unprecedentedly so? What are the complexities? Many players who have not been named publicly? A complicated set of indemnities, collateralization agreements, guarantees and cross guarantees?

Another intriguing fact. Glencore announced the closing on Tuesday, 3 January. This is the sum and substance of the statement:

The Company announces that final settlement has been completed and closing achieved for the transaction described in its release of 10 December 2016.

I know Glencore is still a Swiss trading company at heart, but it is a public company now and such firms are usually somewhat more forthcoming about large transactions. Some even brag a little. Or a lot. Glencore’s statement is like a legal notice in a newspaper.

So the deal is done. Apparently, beyond that, we know little. And the principals are quite obviously very happy to keep it that way. Which is revealing in its own way.

Update. A Russian reporter kindly tells me that the Rosneft press release is available on its website. On the Russian language site, go to: “Shareholders and Investors” section > Disclosure of information > Main shareholder Rosneftegaz and open the first from the top pdf-release. It’s a PDF in Russian, moreover, meaning that you just can’t translate it in Chrome. How could I possibly have missed that?

Meanwhile, English language version of the home page of the Rosneft website tells you that “Rosneft launches Italian Cafe Chain A-Cafe in Moscow.” So we know what’s really important.



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