Streetwise Professor

March 27, 2017

No, I Haven’t Gone Soft on Putin: It’s That I Understand Who the Real Menace Is

Filed under: Politics,Russia — The Professor @ 9:09 pm

I spoke to my uncle over the weekend. He asked me, in all seriousness: “You haven’t written anything about Vlad lately. You going soft?”

My answer: “No–not going soft. But there are so many know-nothing lunatics shrieking about Putin that I don’t want to run the risk of being lumped in with them or confused with them or giving them any credence.” (If you think “know-nothing lunatic” is too strong, check out the Twitter timelines of Louise Mensch or John Schindler. You’ll see I’m actually being overly generous.)

And here’s the truly perverse thing about the hysteria. The lunatics are Putin’s most useful allies. If he really desired to create havoc in the American political system–which I would have no problem believing–in his wildest dreams he couldn’t have done the amount of damage that is now being wreaked by the Democrats and the media (I repeat myself, I know). They are using Putin and Russia as the pretext to carry out their own political vendettas, and to express their rage at losing a race that they just knew was in their pocket.  By massively overreacting to rather pitiful allegations (Podesta’s emails–really?) for purely partisan reasons they are doing far worse harm to the US than Putin could have ever hoped of doing.

I know Putin has an obsession with the US, and would love nothing more to undermine it. But his best sappers are unwitting ones, and Americans to boot. And bizarrely, they are doing their sabotage in the name of fighting Putin. I have never seen anything so demented and destructive in all my living days: it is so twisted it is difficult to explain it. Given that, it is far more important that I go after them, and leave Putin out of it. They are the immediate menace, and fighting them is not only justified in its own right, it is also the most direct way of depriving Putin of a chance to weaken the US.

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March 11, 2017

One Degree of Idiocy: Michael Weiss Expounds on Trump-Putin Connections

Filed under: Energy,Politics,Russia — The Professor @ 9:59 pm

Some years ago, “Six Degrees of Kevin Bacon” was somewhat popular. The object of the game was to connect any randomly chosen actor to Kevin Bacon in six movies or less.

Today, the game that is all the range in DC and the media is Six Degrees of Donald Trump. The main difference is that the starting point is not any randomly chosen individual, but one very specific individual: Vladimir Putin.

Not surprisingly, the most  demented and absurd entry in this game was submitted by Michael Weiss of the Daily Beast. Here’s how it goes. Putin is connected to Gazprom. Gazprom was a participant in a consortium (which also included European energy giants Shell, ENGIE, Winterhall, OMV, and Uniper) to build the Nordstream 2 pipeline. This consortium hired McClarty Associates as a lobbyist. McClarty employs ex-US diplomat Richard Burt. Burt made suggestions about Russia policy that a third party passed on to Trump. As a bonus connection, Burt attended two dinners hosted by Jeff Sessions, and wrote white papers for him.

Burt has never met Trump. Like many in the foreign policy establishment, Burt advocates a pragmatic approach to Russia. He was engaged in diplomacy with the USSR while in the Reagan administration (hardly a hotbed of commsymps and Russophiles), and shockingly, has continued to do business in Russia in the past 30 years. But apparently under the Oceania Has Always Been at War With Eastasia mindset that dominates DC at present, this is tantamount to Burt being a Russian puppet (a view that requires the consignment of most of the history of that period, not least of all that of the Obama administration 2009-2014, to the Memory Hole).

As far as connections are concerned, this is about as tenuous as one can get. The headline (“The Kremlin’s Gas Company Has a Man in Trumpland”) is a vast overstatement. For one thing, Burt is barely in Trumpland. Indeed, although the article says that the connection offers “Republican bona fides,” it is almost certain that was not the reason for hiring McClarty. Astoundingly, the article fails to note that said McClarty himself is a Clintonoid: Mack McClarty is from an old-time Arkansas political family, was closely connected to Bill Clinton in Arkansas, and was Clinton’s first chief of staff. Weiss ominously starts his piece with a recounting of the importance of having a krysha (“roof”, i.e., political protection) and insinuates that hiring Burt was intended to obtain a roof in the Trump administration. But if anything, it would have been an entree into a Clinton administration–which, of course, everybody figured was an inevitability.

Furthermore, perhaps Weiss hasn’t noticed, but “Republican bona fides” are hardly a ticket into Trumpland. Trump’s relationship with the party establishment varies between the hostile and the transactional.

And the timing is all wrong: the contract was signed before Trump was even the Republican nominee, and at a time when no one figured he would be the party’s candidate, let alone president. Talk about a deep out-of-the-money option.

It’s also rather bizarre that the connection between Burt and Gazprom also involves several very large European companies, and a purely European issue. There is nary an American company involved, and the matter is an intramural European spat pitting eastern vs. western EU countries. Wouldn’t you think that if you are trying to buy influence in the United States, you’d engage McClarty/Burt on an issue that would allow them to interact with US officials and politicians?

Further, if you are going to buy a krysha in the Trump administration, dontcha think you’d want to hire somebody who, you know, actually knows Trump?

But our Mikey is not deterred by such pesky details. He has a connection between Putin and Trump, and he is going to flog it for all it’s worth. Which isn’t much.

Of course the details of the Burt-Trump (non-) connection alone wouldn’t make for much of an article, especially for Weiss, who typically drones on paragraph after endless paragraph. So he adds gratuitous ad hominem attacks on Burt, such as comparing him to the late Russian UN ambassador Vitaly Churkin (career diplomats are a type–who knew?), and trotting out Bill Browder, who snarked about how gauche the Russian influence efforts were back in the bad old days (you know, when he was on the make in Russia) and yet again drags out the corpse of his lawyer, Sergei Magnitsky, in order to score political points.

Weiss also notes that McClarty has been retained by a Mikhail Fridman company in the UK, but fails to point out that Fridman is hardly a Putin pet. Indeed, Fridman took on Sechin, and came out the winner. But in Weiss’ worldview–which makes that of a 1950s John Bircher look nuanced by comparison–all them Russkies are Putin pawns.

And the anti-Trump establishment should at least get its story straight. On the same day that Weiss’ article appeared, Foreign Policy ran a piece claiming that Tillerson is a weak Secretary of State (the weakest ever, in fact!) because he doesn’t have Trump’s ear. So Trump ignores his own Secretary of State but somehow a guy whom he has never met and who has no position in the administration exerts some great influence over him? And weren’t we told a month ago that Tillerson was going to be Putin’s cat’s paw in the Trump administration because of his extensive dealings there (including with Gazprom in Sakhalin I)? But now he’s a nobody? Damn, that Memory Hole is getting a helluva workout.

Indeed, if the Burt connection (such as it is) and the like are the best that these people can come up with, they are doing a great job of showing how limited and tenuous Trump’s ties to Russia are. And remember the whole point of the Kevin Bacon game: it was a cutesy way of illustrating the “six degrees of association” theory, which posits that any two people in the world are separated by no more than six acquaintances. Any two people, no matter how obscure. Play Six Degrees of Vladimir Putin using yourself as the terminal connection: I bet you could connect with Vlad in six steps or less. I know I can. And does make me some sort of Putinoid? Hardly, as anyone who has read this blog knows.

When major international figures are involved, moreover, there are inevitably multiple such connections, often involving less than six steps. So finding a connection is about as earth shattering as finding sand on a beach. Furthermore, when considering a figure like Trump, he has myriad connections to other figures, many of whom may have interests and views contrary to Putin’s/Russia’s, or orthogonal thereto. Ignoring all these other contrary connections and focusing monomaniacally on ties to Putin and Russia when attempting to predict or explain Trump’s motivations is beyond asinine. In econometrics, this is called omitted variable bias–if you omit relevant variables, you get a very biased estimate of the influence of the ones you include.

But this is what passes for journalism in the United States right now: parlor games posing as deep analysis, latent with dark meanings.

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March 3, 2017

The Rocks Didn’t Go Anywhere. Go Figure.

Filed under: Commodities,Economics,Energy,Russia — The Professor @ 2:58 pm

The conventional wisdom during the oil price collapse that started in mid-2014 and which accelerated starting in November of that year when the Saudis decided not to cut output was that the Kingdom was engaged in a predatory pricing strategy intended to drive out US shale producers. I mocked this in real time. Nothing really special about that analysis: economists have known for a long time that predatory strategies are almost never rational. They are irrational because the predator has to incur losses to cause its competitors to reduce production, but the competitors’ resources are unlikely to leave the industry permanently: they can come flooding back in when the predator attempts to restrict output to raise prices. Thus, the predator suffers all the pain at selling at low prices, but cannot recoup these losses by selling at higher prices later.

In the case of shale, the rocks weren’t going anywhere. Obviously. When prices fell, companies just drilled fewer wells–a lot fewer wells–but the rocks remained. The knowledge of where the right rocks were remained too. The knowledge of how to drill the rocks didn’t disappear. Idled rigs went into storage. Yes, some labor (including some skilled labor left), but this resource is pretty flexible and can come back quickly when demand goes up. E&P companies incurred financial losses, and some experienced financial distress and even bankruptcy, but this did not drive them out of the industry permanently, and did not drive out the human and physical capital that these firms employed. New capital required to drill new wells is available to E&P firms based on future prospects, not past failures. Indeed, one of the functions of bankruptcy and restructuring of distressed firms is to clean up balance sheets so that old debt doesn’t impede the ability of firms to take on positive NPV projects.

In sum, even though drilling activity plummeted along with prices, the resources needed to ramp up production weren’t destroyed or driven out of the industry. They were only waiting for more favorable prices. The industry went into hibernation: it didn’t die.

OPEC’s decision to cut output to raise prices–and the Saudis going beyond their share of output cuts to strengthen OPEC’s effect–provided the opportunity the industry had been waiting for. It rapidly awoke from its slumbers. Rig counts did a U-turn, up 90 percent in 9 months. And so has output. John Kemp reports:

U.S. crude oil production appears to be rising strongly thanks to increased shale drilling as well as rising offshore output from the Gulf of Mexico.

Production averaged almost 9 million barrels per day (bpd) in the four weeks to Feb. 24, according to the latest weekly estimates published by the Energy Information Administration.

Production has been on an upward trend since hitting a cyclical low of 8.5 million bpd in September (“Weekly Petroleum Status Report”, EIA, March 1).

Javier Blas chimes in:

“North American oil companies are going to increase their spending by 25 percent in 2017 compared to last year,” said Daniel Yergin, the oil historian-cum-consultant who hosts the CERAWeek. “The increase reflects the magnetism of U.S. shale.”

U.S. benchmark West Texas Intermediate traded at $52.79 a barrel on Friday. Futures bounced between $51.22 and $54.94 in February.

So far this year, U.S. energy companies have raised $10.5 billion in fresh equity, with shale and oil service groups drawing the most investment, the best start of the year since at least 1999 and equal to a third of what the sector raised in the whole of 2015. [A clear indication that “debt overhang” is not constraining the ability to access capital to fund drilling programs, which would have been the only way the Saudi strategy had a prayer of working.]

In Midland, the Texas city at the center of the Permian basin, the activity rush is palpable, as is the threat of higher costs for shale companies. The county’s active-rig total ranks second in the U.S., behind only Reeves County further to the west.

“You could see the town’s energy is back,” said Alan Means, founder of Cambrian Management Ltd., a Midland-based firm that operates more than 200 oil wells in the Permian across Texas and New Mexico. “The rigs are up again, the fracking crews are busier and the highway traffic is increasing.”

As activity rises, the man-camps in the town outskirts are flush again, with workers arriving from the Bakken in Montana and North Dakota, and from as far way as Canada. The 1,000-bed Permian Lodging camp is now 100 percent full, up from 65 percent in July, according to camp owner Ralph McIngvale. [See how quickly labor resources can return?]

Shale firms have also become more efficient.

In sum, the predatory strategy hasn’t made shale go away. Now, the longer the Saudis and the rest of OPEC (and the non-OPEC countries that have joined in) hold down output, the larger the fraction of that output loss will be redeemed by resurgent shale production in the US.

In other words, shale makes the the demand for OPEC (and non-OPEC cooperators’) oil pretty elastic. This raises serious questions about the rationality of the output cuts from the perspective of the cutters, especially the big countries like Saudi Arabia (which has cut substantially–more than it promised) and Russia (whose cooperation is more equivocal). This, in turn, makes the durability of the cuts problematic.

The quick turnaround in US shale provides a new data point for the Saudis, Russians, et al. Their dreams that they could make rocks disappear–or that they could make it permanently unattractive to extract oil from their rocks–have proved chimerical. Persisting in output cuts will become progressively less profitable, and indeed, is likely to be downright unprofitable soon. What’s the over-under on how long until they figure that rocks will outlast them, and give up the output cut game?

Teaser: I am currently slogging through oil well data (tens of thousands of wells in all the major basins) in a study of the sources of productivity gains in shale production. Hopefully I will be able to report some results soon. Initial results are particularly ominous for OPEC. I am finding evidence of learning-by-doing in both oil and gas. That is, drilling wells today generates knowledge that enhances future productivity and lowers future costs. This means that the increased shale output resulting from OPEC’s current attempt to prop up prices will increase the US shale industry’s future productivity, making it even harder for OPEC to keep prices high months or years from now.

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February 18, 2017

Putin Is So Smart That He Outsmarted Himself–You Should Have Listened to Me, Vlad

Filed under: History,Military,Politics,Russia — The Professor @ 2:29 pm

Apparently there is buyer’s remorse in Moscow, as Putin and his coterie are disappointed at Trump’s failure to change dramatically the relationship between the US and Russia. Don’t believe me? The WaPoo and the FT say so.

This is no surprise to me at all. Indeed, from the time that the hysteria over alleged Russian manipulation of the US election broke out, I said Putin should be careful what he asks for, because it was be unlikely that Trump would behave as expected–and hoped, in Moscow, apparently. There are several reasons for this, some of which I pointed out at the time.

The first is Trump’s mercurial nature. Counting on what he says at time t to be reliable information for forecasting his behavior at T>t is a mugs’ game, because much of what he says is for tactical value and to influence negotiations, and because he changes his mind a lot, in part because he does not have strong ideological convictions.

I think Trump’s stand on Nato–an issue of particular importance to Putin–is a classic example. There is good sense at the core of Trump’s position: European Nato states have been free riding for years. He wants to get them to stump up more money. What better way than to threaten to ditch Nato? He has quite clearly put the fear into them. Then he dispatches his reasonable emissaries–Mattis and Tillerson–to lay out the framework of a modus vivendi.

The second is that Trump’s assertion of an independent United States with attenuated ties to traditional multilateral organizations is hardly helpful to Putin. This is especially true because part of Trump’s program along these lines is to revitalize the US military. Russia has strained mightily to overcome the decrepitude of its 1990s military, and has managed to recapitalize it sufficiently to make it a credible force. Even after these efforts, however, it can only dimly see the tail of the American military in the distance. If Trump goes into super-cruise mode, Russia’s expenditures will have largely been for nought. Closing the military gap required the US not to compete. Trump made it clear he would compete. How could Putin have desired that?

Nato was already the US military plus a few European military baubles hung on for decoration. A stronger US military makes Nato stronger, regardless of what the Europeans do. If the Europeans kick it up a bit too, well that all really sucks for Vlad.

The third is something that has only become manifest in the past months. Namely, the Democratic loss left them desperate to find a scapegoat. Russia has become that scapegoat, and anything said that is remotely positive about Russia unleashes paroxysms of fury–not just from Democrats, but from many Republicans as well. Any positive move that Trump would take towards Russia would be seized upon as evidence of a dark bargain with the Kremlin. So (as he acknowledged in his press conference) he has no political room to deal with Russia. Indeed, if anything he might be forced to being more Russophobic Than Thou in order to put this issue to rest.

That is, the dynamic created by his intervention has completely undermined Putin’s purpose. A self-inflicted wound.

There is yet more irony in this development. Along with their spawn, 1980s peaceniks who shrieked that Reagan’s robust stance with the Soviet Union threatened the earth with nuclear annihilation now sound like those in the hard right in the ’80s who thought Reagan was a wimp, and a traitor for talking with Gorbachev. Trump, of all people, is the one lamenting that defusing conflict and talking with the Russians would reduce the risk of nuclear holocaust.

All this calls into considerable doubt Putin’s vaunted tactical and strategic acumen. If indeed Russia intervened heavy-handedly in the US election, it is not turning out well for Putin. And evidently he recognizes this, and is sharply reducing his ambitions. Maybe, pace Stalin, we’ll see him write an article where he claims Russia is dizzy with success, and needs a respite to consolidate its gains.

Truth be told, I do not think that Putin thought that his machinations (whatever they were–and I am skeptical about some of the more lurid claims) would result in Trump’s election. I surmise that his objective was to damage Hillary, in the full expectation that she would win and it would be advantageous to deal with a weakened president. But, he was too clever by half, outsmarted himself, and now has to deal with an unpredictable dervish capable of turning any which way.

Viewed in this light, Putin is less Sorcerer, than Sorcerer’s Apprentice, who cast a spell he could not control: authoritarians who have been in control too long have a tendency to do that, because they are convinced of their own greatness. Whatever his intent, the unintended consequences of his actions have arguably left him worse of than if he had left well enough alone. I do not believe that it was his intent to elect Trump. When Trump was elected, he let his mind run wild with the possibilities, but he has now come crashing to earth.

Wiley Coyote comes to mind. That Acme Election Kit (or would it be the Acmeski Election Kit) hasn’t worked quite as planned, has it Vlad?

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February 13, 2017

The Intelligence Community Coup Continues

Filed under: History,Military,Politics,Russia — The Professor @ 8:27 pm

Update (2239 CST, 2/13/17). The pack has caught its quarry: Flynn has resigned. The taste of blood will just excite their appetite for more. Further, this will show that leaking works. Unless this is rooted out ruthlessly, this administration will die the death of 1000 leaks. Regardless of what you think of Trump, the ramifications of this are disturbing indeed.

The hounds are baying at the heels of National Security Advisor Michael Flynn. Flynn’s sin was to discuss sanctions with the Russian ambassador Sergey Kislyak before inauguration. Flynn denied this when the issue was allegedly raised.

Flynn’s denial has been challenged by the Washington Post, which relied on descriptions of intercepts of Flynn’s communications with the Russian ambassador. Flynn’s alleged dishonesty has allegedly led Trump to “evaluate” his status.

The substance of Flynn’s conversation with the Russian ambassador was benign. The WaPoo reports it thus:

Two of those officials went further, saying that Flynn urged Russia not to overreact to the penalties being imposed by President Barack Obama, making clear that the two sides would be in position to review the matter after Trump was sworn in as president.

“Kislyak was left with the impression that the sanctions would be revisited at a later time,” said a former official.

“Cool your jets.” Wow. How incendiary. Even if the interpretation placed on Flynn’s alleged words is correct, he did nothing more to say that sanctions would be part of broader discussions with Russia. This is a surprise why, exactly?

I further note that the WaPoo is basically serving as a ventriloquist’s dummy, dutifully mouthing “a former official’s” interpretation. (My nominee for the “former official”: Ex-CIA director and all around slug John Brennan.) Everything about “making clear” and “left with the impression” is the “former official’s” interpretation. Does he read minds? Kislyak’s in particular?

If Flynn is to be axed because he dissembled, every figure from every past administration should be sanctioned in some way. It’s almost amusing how the WaPoo is SHOCKED! SHOCKED! at the thought. FFS. Ben Rhodes comes out and says that the Obama administration lied to the media and the public as a matter of policy, and the WaPoo shrugged its shoulders so hard it took months of chiropractic treatment to straighten out.

And none of this is the real story. The real story is that this is just another act in the intelligence community’s attempted coup of the duly elected president of the United States. Consider the facts here. First, the intelligence community was surveilling Flynn’s communications. Second, it leaked those communications in order damage him and the president of the United States over a matter of policy disagreement.

The chin pullers seriously intone that Flynn may have violated the Logan Act, i.e., that he was conducting diplomacy as a private citizen. But if he was a private it was unlawful to surveil him without a warrant, or if his communications were intercepted while communicating with a legitimate target of surveillance, his communications had to be discarded/minimized, and certainly NOT leaked. (Exceptions include those communicating with Al Qaeda and other terrorist organizations. Russian ambassadors don’t count.)

If he was not a private citizen, the Logan Act allegation is bullshit. In that case, Flynn had some official status, and his communications were almost certainly classified, which would make leaking them a crime.

So whatever way you cut this, someone in the intelligence community has committed a crime, or multiple crimes.

This episode also gives the lie to the IC’s justification for not providing anything more than a Wikipedia entry to document alleged Russian hacking of the election. Recall that the IC claimed that releasing specific communications was impossible, because it would compromise sources and methods.

Um, this leak about Flynn doesn’t?

Evidently–and not surprisingly–the IC’s concerns about “sources and methods” are oh-so-situational, aren’t they?

This is all beyond the pale. Yet anti-Trump, pro-IC fanboyz (e.g., the execrable John Schindler) think it’s just great! Trump is the security risk, so everything’s fair! The ends justify the means!

Um, no. If these IC people have a basis to believe that they should resign publicly. They are not judge and jury. To arrogate those roles is a violation of the constitutional order, and they should be terminated forthwith, and prosecuted if they are revealing classified information. (Funny how Schindler was all for hanging Hillary from the highest tree for jeopardizing classified information on her server, but he’s all in with these leaks.)  Those who are currently outside government should be prosecuted as well.

The irony meter has exploded from being overloaded, but I will mention another irony: Schindler, Brennan, and other critics of Snowden constantly said that he should have taken his concerns through channels, rather than leaking classified material based on his own political views. More situational “ethics”: apparently this “go through channels” dictum is not operative when Trump or Flynn are involved.

Yet another irony: those baying the loudest here also constantly intone ominously about the threat that Putin and the siloviki pose. But what is the siloviki (one component of it anyways) but senior intelligence personnel acting outside the law in order to exercise power and decapitate political enemies and rivals? So those who warn of the danger of the Russian siloviki grab their pom-poms and lead the cheers for American siloviki.

Why is this happening? I think the problem is overdetermined, but there are a couple of primary drivers.

First, there is intense bad blood between Flynn and the CIA. This apparently goes back to Flynn’s opposition to the CIA’s glorious endeavors in Syria, most notably his incredibly prescient prediction of the rise of ISIS, and his insinuation that this would be the direct result of US policy (acting largely at behest of the oil ticks in the Gulf), either intentionally or unintentionally. This is payback, and also an attempt by the CIA in particular to defend its prerogatives against someone who is deeply skeptical of its (disastrous) machinations.

Second, it is a well known strategy of those who want to attack the king to strike at his trusted retainers first. This isolates the king; makes him reluctant to rely on others (because in so doing he makes them targets too); and sends message to those who dare to support the king.

It is for this reason that I believe that Trump will not throw Flynn to the hounds, at least not now when the baying and panting is at its most intense. He knows that it would just encourage his enemies to select a new fox once they tear this one to pieces. And he also knows that eventually they will be emboldened to go after him directly.

Regardless, this is an extremely dangerous turn of events. The intelligence community (which has a litany of failures to its “credit”) cannot be allowed to use leaks and surveillance to undermine the legal order, either because of a policy disagreement, a dislike of the man elected president, or to protect its institutional interests (including protecting it from being held accountable for past failures). Once upon a time the left–the Washington Post prominent among them–told us the same. But that was then, and this is now.

PS. I suggest you also read Spengler’s take on this, which is similar to mine.

 

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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.

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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?

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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.

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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.

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January 13, 2017

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.

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