Streetwise Professor

I’ve been a China skeptic for a while now.  Post-crisis, I referred to it as “the Michael Jackson economy,” kept going by massive doses of stimulants.  Huge sums have been directed to investment in real estate and infrastructure, and financed by a massive expansion of credit.  I am deeply skeptical that such a top down, throw money at everything, approach is a viable way to create self-sustaining growth.  Instead, it appears to be a politically-driven way to protect elite interests and avoid social unrest–for now.  The fact that people like Thomas Friedman swoon at Chinese economic policy only confirms my suspicions.

I’m not alone in those suspicions.  Some noted shorts like Jim Chanos have been sounding the alarm about China for some time.  And just the other day, Dr. Doom himself, Nouriel Roubini, added his voice to the skeptic’s chorus:

China’s economy is overheating now, but, over time, its current overinvestment will prove deflationary both domestically and globally. Once increasing fixed investment becomes impossible – most likely after 2013 – China is poised for a sharp slowdown. Instead of focusing on securing a soft landing today, Chinese policymakers should be worrying about the brick wall that economic growth may hit in the second half of the quinquennium.

Despite the rhetoric of the new Five-Year Plan – which, like the previous one, aims to increase the share of consumption in GDP – the path of least resistance is the status quo. The new plan’s details reveal continued reliance on investment, including public housing, to support growth, rather than faster currency appreciation, substantial fiscal transfers to households, taxation and/or privatization of state-owned enterprises (SOEs), liberalization of the household registration (hukou) system, or an easing of financial repression.

. . . .

The problem, of course, is that no country can be productive enough to reinvest 50% of GDP in new capital stock without eventually facing immense overcapacity and a staggering non-performing loan problem. China is rife with overinvestment in physical capital, infrastructure, and property. To a visitor, this is evident in sleek but empty airports and bullet trains (which will reduce the need for the 45 planned airports), highways to nowhere, thousands of colossal new central and provincial government buildings, ghost towns, and brand-new aluminum smelters kept closed to prevent global prices from plunging.

. . . .

Continuing down the investment-led growth path will exacerbate the visible glut of capacity in manufacturing, real estate, and infrastructure, and thus will intensify the coming economic slowdown once further fixed-investment growth becomes impossible. Until the change of political leadership in 2012-2013, China’s policymakers may be able to maintain high growth rates, but at a very high foreseeable cost.

Roubini, then, is all in with the Michael Jackson economy hypothesis.

The main question is how long the Chinese leadership can keep playing Dr. Feelgood.  Roubini suggests 2013.  That sounds about right, but it’s impossible to be very confident in any timing prediction.  I would say that the longer they try and succeed in this strategy, the more brutal the fall will be.  But once you start with this regimen, it’s virtually impossible to stop.

Relatedly, I’ve been reading a book on the Chinese financial system, Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise, by Carl Walter and Fraser Howie.  I can’t recommend the book all that highly because it’s poorly written, and particularly poorly organized.  But if you slog through it, you can pick up some valuable insights.  One main theme is that the Chinese financial system is oriented towards supporting the enterprises of the politically powerful, and that as a result, there have been periodic episodes of malinvestment followed by bad loan problems followed by shunting these bad loans from the banks to . . . somewhere.  The shady/opaque means used to make banks appear healthy would make Andrew Fastow blush–or turn green with envy.  Just who is on the hook for these bad loans is virtually impossible to figure out.  I have little doubt that the need to resort to such chicanery will soon recur–but given the very real possibility that the looming problem dwarfs the previous ones, I do have doubts whether the same tricks will work again.

When all is said and done, one’s view on whether Chinese economic management can avoid the kind of catastrophe that Roubini and I consider to be likely depends on your view of the efficacy of centralized economic management of the type that China practices.  The Thomas Friedmans of the world, and arguably Obama, believe that such dirigisme is superior to the messy, decentralized, unplanned and non-centrally coordinated actions of greedy individuals in markets.  People like me, conversely, believe that the visible hands of greedy, largely ignorant, and short-sighted politicians and bureaucrats is likely to lead to inferior outcomes.

I know that Coase (at age 100!) has a book coming out about China’s transformation to capitalism, which argues that Chinese policy in recent years has been pragmatic and empiricist rather than ideological (“seeking truth from fact”).  But  I strongly sense they’ve gotten themselves into a major mess from which there is no pragmatic exit.

The controversy over the culpability of US government real estate policy in the ’90s and ’00s, and Fannie and Freddie in particular, continue to rage.  To me, those who deny the central role of government policy and the GSEs have to answer a crucial question: if they were not absorbing a substantial amount of the credit risk in subprime mortgages, how did they lose so much money?

There are two new editorials that press the argument for a substantial F&F role.  The first is by Mark Brickell, formerly of J.P. Morgan and a past chairman of ISDA.  Writing in the FT, Brickell writes:

This suggests two important things. First, the housing finance crisis was not an unregulated market failure; no financial sector had more government involvement before the outbreak of the crisis than housing. It was failure driven by a public policy that was accepted by voters willing to spread the benefit of home ownership to fellow citizens. Yet, extra loans prompted by that housing policy nudged upward the indices that regulators and businessmen relied on to make their decisions.

Second, we need to remember that in any market, government subsidies have an important, indirect, cost when they affect the information that market participants – and regulators – use to make decisions. This time the distortion was pervasive, difficult to quantify, and hard to correct. That should guide regulators as they look for sources of widespread risk in the financial system.

It should inform Congress as it considers the fate of Fannie Mae and Freddie Mac. It should be of concern to participants in subsidised markets, such as education and healthcare, and to electorates that will be asked to approve “investments” in other sectors, such as green tech in the months ahead. The housing finance crisis has shown us how painfully high that cost can be.

The point in the last paragraph is particularly important for thinking about the future, as opposed to forensically examining the past.  All of the “investments” that Obama and the Dems are asserting are essential to “winning the future” (aka “WTF”) involve huge subsidies and government steering of capital to politically preferred sectors and firms.  Those tend to distort the allocation of resources, and the bigger the subsidy, the bigger the distortion.  Sooner or later, reality intrudes.  When that happens, the crash is brutal.  We’re still experiencing the dead cat bounces in the housing market, going on 4 years after that crash began.

AEI’s Peter Wallison also examines Fannie and Freddie, and particularly the ongoing failure to investigate thoroughly their role in the crisis:

For many years, Fannie Mae defined subprime mortgages as loans that it bought from subprime lenders, not by credit score. This had the effect of making its investment holdings seem less risky. In its 2007 10-K annual report, for example, the company estimated its subprime exposure at about 0.3 percent of its single-family mortgages. Tables deeper inside the report showed loans with FICO credit scores of less than 660 were 18 percent of the company’s single-family holdings.

The significance of this for the financial crisis is that Fannie and Freddie’s reports might have lulled analysts and risk managers into believing that if the housing bubble collapsed, the damage would be limited because the number of risky loans was small.

We now know the damage was severe. Had those 12 million Fannie Mae and Freddie Mac loans been prime instead of subprime, delinquencies and defaults probably would have been around 2 percent, not almost nine times higher.

No Inquiry

In writing my dissent from the commission’s majority report, I searched widely for examples of anyone — academic researcher, credit rating analyst or housing market expert — who knew before 2008 that half of all mortgages in the financial system were subprime or otherwise risky, or that Fannie and Freddie had contributed almost half of that total.

The commission had a chance to investigate the risks that Fannie and Freddie were taking and why the information available in the market was so deficient. But this would have required the commission to examine the losses caused by government housing policy. Angelides refused to do so. Instead, Fannie and Freddie’s contribution to the housing crisis was called “marginal” in the commission’s report.

As a result, the American people and Congress received a distorted picture of the causes of the financial crisis, not the thorough investigation they deserved.

Monocausal explanations of anything as complex as the housing collapse are unpersuasive.  But so are explanations that overlook the role of the GSEs.  There are hundreds of billions of reasons to suspect that they played a central role.  The Brickell and Wallison pieces help keep those reasons in mind.  That’s important not just so that we can understand the past better, but so that we have some chance of avoiding similar mistakes in the future.  Mistakes that we can no longer can afford.

This is one of the most inadvertently hilarious things I’ve read in a while.  Vladimir Belaef of the Global Society Institute of San Francisco (which is a sufficient statistic to infer what you need to know about him), and one of Russia Profile’s “experts”*, wrote:

To presume that the TNK-BP and BP-Rosneft issue is somehow connected with supposed internal intrigues in the Kremlin is rather a stretch of the imagination. William of Occam would suggest looking at the simpler explanation: money. Billions of dollars are involved, certainly worth a purely commercial dust up on the part of ARR, who could expect substantial pecuniary benefit should it prevail in some form. Politics should be left out of this, particularly Russian electoral gambits.

What a card!  Uhm, like “billions of dollars” and “politics” are disjoint sets?  If it’s one, it can’t be the other?  In Russia, of all places?  Stop it Vladimir!  You’re killing me!

Look, internal intrigues in the Kremlin are all about money.  Especially when it comes to energy-related money.  The Vladimir who matters–V. V. Putin–resembles less a real prime minister, and more an especially sleazy US Secretary of Commerce spending a good chunk of his time shilling for domestic companies.  But that’s only when he’s not getting involved in giving Russian companies detailed orders on what to produce and how to produce it, or arbitrating disputes between oligarchs.  I defy you to name a head of government or head of state in any major country who is involved more directly with business decisions down to the level of minutia, and who spends more time doling out carrots to some favored businessmen while giving others a whack with the knout.

Anybody who draws a line between “billions of dollars” and “politics” in any nation is a fool, because politics is all about money.  (As Mark Hanna, a Republican power broker said around 1900, “There are two things that are important in politics. The first is money, and I can’t remember what the second one is.”)  To say that about contemporary Russia takes a special kind of fool.  But if you’ve read Belaef for any amount of time, you wouldn’t be surprised.

* An erstwhile RP expert once told me that its “Expert Panel” was “three Kremlin stooges and [him or her].”

I read this article about how the TSA is targeting complainers right before heading out to the airport.  Not that it made any difference (as you’ll see in a bit).  The line at Terminal C of IAH was interminable–35 minutes in mid-afternoon.  There weren’t that many people in line, but TSA had only 1 lane open and was making everyone go through the body scanner so the line moved at a glacial pace. In preparation for the scanner, I took off my watch, and removed my wallet, boarding pass, and plastic comb from my pockets (the last item having been identified as suspicious in one of my previous nude photo shoots).  I went through the machine, fingers touching over my head as instructed.  (Guess which ones.)  I get out of the scanner, and Officer Friendly says (I quote exactly): “I need to inspect your buttocks.”

Oh joy.

So he gropes, and says, “What’s in your back pocket?”  I thought I’d taken out everything, but I reached in and found a piece of Kleenex balled up at the very bottom.  I show the worthy public servant, who barks at me: “We told you to take EVERYTHING out of your pockets.”  I replied: “Sorry.  So relieved to know you are keeping the skies safe from the Kleenex threat.”  Apropos the article, that set me up for special treatment: the bomb swab.

I’m sure you’re shocked to learn that I passed.

What’s the point of having expensive technology that can provide precise, anatomically correct 3D images of your junk, but can’t identify a plastic comb–or a piece of facial tissue–as harmless?  Based on my myriad experiences in airport security lines, I estimate that the rate of false positives of body scanners at about 30 percent, meaning that about 1 out of 3 people require a grope down to uncover some innocuous thing that they inadvertently missed in their self-grope before entering the machine.  That’s just idiotic.

So, Obama is right when he says that through government we can do things we cannot do as well by ourselves.  Especially things involving incompetence, inanity, and insufferable attitudes.  But you better not mouth off about it lest you get attention from the Nurse Ratched wannabes.

On this subject, Obama continued his full-throated defense of the need to spend more, More, MORE in a fundraising speech in Chicago.  Quoth Mr. Post-Partisan:

“Under their [the Republicans’] vision, we can’t invest in roads and bridges and broadband and high-speed rail,” Obama told a select group of the Democratic faithful at the second of three fundraising events in his hometown of Chicago.

“I mean, we would be a nation of potholes . . .”

He apparently said this without the slightest sense of irony, given that his speech was delivered in Chicago, City of the Big Potholes.  The city where it takes 10 Streets and Sanitation workers to fix a pothole: 1 to actually fill the hole with asphalt, the other 9 to lean on their shovels and rate his performance (that doesn’t include the guys sleeping in the truck).  The city where the only things that government fixes are elections and contracts.

Yeah.  We have to protect all that from the budgetary meat axe.  (The last being the standard political rhetoric referring to cuts that only a trained microsurgeon could make under high magnification with a laser.)

The FSB is seriously concerned about the threat that Skype and Gmail pose to the Glorious Motherland:

Alexander Andreechkin, a Federal Security Service official, said at an April 8 government meeting that “uncontrolled use” of services such as Google Inc.’s Gmail and Microsoft Inc.’s Hotmail, which use foreign-made encryption technology, may lead to a “large-scale security threat in Russia,” RIA Novosti reported.

Although the Kremlin quickly shot down Andreechkin’s proposal (even though a Putin spokesman said it was “well-reasoned”), this does provide a fascinating insight into the FSB’s mindset.  One can understand their serious concern that Russian citizens might actually communicate among themselves and the outside world without spooks listening in!  I mean, it’s not like the FSB needs to worry about hacker rings in Russia running vast botnets to engage in a world-wide cybercrime wave.

Uhm, except that there are:

The U.S. Justice Department said it disabled a “massive fraud scheme” that infected more than 2 million computers worldwide with malicious software.

. . . .

“The scale of the botnet is huge,” said Don Jackson, the director of intelligence at Dell Secureworks, a cyber security firm that said it first discovered Coreflood. “The scale of the operation itself, in terms of the core team, is very small and very close-knit.”

People in Russia

The company, based in Atlanta, concluded that the botnet is controlled by as few as three people in Russia, Jackson said. The hackers specifically targeted corporations, downloading private e-mails and confidential financial data, he said.

Botnets, hacks against social networking sites heavily used by Russians (including many critical of the state), cyberwars against sovereign nations.  All routine in Russia.  Indeed, one of the few things in which Russia and China are peer competitors vying for world leadership is hacking and computer crime.

But the FSB is worried about Skype.

Go figure.

Could it be that the security services (and other parts of the state) are involved in the hacking?  Or benefit from it or exploit it for financial or political reasons?  Or just don’t give a damn as long as it is directed at foreigners and suspect elements in the country?

Regardless of the explanation (or explanations), the obsession with Skype (this isn’t the first time that the service has been criticized as a security threat) and the complete indifference to–or complicity in–colossal cybercrime waves tells you a lot about the priorities of Russian security services–and the political figures whom they spawned.  Political figures that repeatedly praise these services as the embodiment of Russian patriotic values.

Grinding through a major white paper and teaching obligations have eaten up my day, so only enough time and energy for a brief reaction to Obama’s budget speech. In reality, a brief response is all that’s required, because the speech was completely insubstantial. I thought it would be impossible to make a more vapid speech about an important issue than he did about Libya, but I was wrong.

No serious person doubts that addressing America’s looming fiscal train wreck requires major changes in Medicare.  In other words, anybody–anybody–who is serious about ensuring the long term fiscal viability of the US knows that we need to end Medicare as we know it.  Anyone who uses the phrase “end Medicare as we know it” as a scare tactic to attack political opponents who have thought seriously about the issue is an unserious demagogue.

No serious person believes that Obamacare will save $1 trillion dollars.  Anybody who says that is a liar or a fool.  Anybody who claims that a more aggressive implementation of the Obamacare model will save more is a bigger liar or a bigger fool.  Or both.

No serious person would misunderstand the purpose behind the Ryan plan’s individual vouchers as badly as Obama did.  The whole point of vouchers is to “reduce the cost of health care itself” by getting individuals to internalize the marginal cost of their consumption of health care services, and consequently to shop around for the best deals and to make rational and economical choices about the services that they consume–and those that they choose not to.  That’s how you control costs.  Anybody who doesn’t understand this point shouldn’t be in charge of a street vendor’s budget, let alone the US’s.

No serious person believes that centralized social engineering of health care provider compensation schemes by bureaucrats subject to political pressure will improve the efficiency of the health care system.

No serious person could lay the entire blame for the current fiscal situation on previous administrations, and fail to assign any culpability to the current one.  Yes, Bush was a spendthrift, and much of the current fiscal problem is the result of a major recession for which Obama is not responsible.  But a good deal is also due to the fiscal incontinence of the post-2006 Democrat majority, and especially the 2008-2010 Dem Congress and Obama tag team.

No serious person believes that cuts in defense and tax increases on the wealthy will make a substantial difference in the nation’s long run fiscal health.

No serious person believes that large amounts of current spending is hugely stimulative, but that large tax increases are not a drag on the economy.

No serious person believes that labeling government spending “investment” magically transforms dross into gold.

No serious person believes that “clean energy” is a viable alternative to traditional fuels over the next several decades.  And certainly no serious person believes that the government has the knowledge, wisdom, or incentives to invest wisely in it.

I could go on.  Suffice it to say that no serious person would give credence to a word that Obama said.  Including “it” and “the.”

Certainly, a profoundly unserious person uttered them.

The speech was also marked by all of the annoying and fundamentally dishonest Obama rhetorical tics–straw men, false choices cross-dressing as attacks against those allegedly making false choices, mischaracterizing and demonizing the opposition, the Olympian condescension, the “let me be clear” moment.  Indeed, he went one step beyond: he said “let me be absolutely clear.”  Since “let me be clear” is a “tell” that he’s about to tell a whopper, “let me be absolutely clear” must be a tell that he’s about to tell the mother of all whoppers.

Oh, make no mistake: he was absolutely clear, if inadvertently so.  He made it clear as crystal that the nation’s dire fiscal straits are not something that he intends to address in a serious and constructive way.  Instead, it is just a political issue to be demagogued to expand the power of the federal government, and to maximize his chances for re-election.

Apres lui, le deluge.

Well, the difference between ancien regime France and the current US is that our system has the means for change–a legislature and elections.  That we have the means does not imply that they will be employed wisely.  If they are not, and Obama’s unserious approach to a deadly serious problem prevails, the deluge will come.  If they are, there is a chance–a chance–that it can be avoided.

I fear however, that Obama is not alone in his unseriousness.  Indeed, with a few exceptions (notably Ryan) he has quite a bit of company on both sides of the aisle.  And there are few things as sobering as the thought of deadly serious problems being in the charge of profoundly unserious–short-sighted–people.

The BP drama in Russia slouches on.  One interpretation of these events that has been advanced is that this represents something of a step forward for Russia, in that it is respecting the legal rules and the contract between the TNK-BP partners.  Maybe.

Here’s an interpretation that I consider equally likely, and arguably more so: hiding behind the contract was just a convenient way for Putin to exercise his discretion to achieve a desired outcome.  Exactly why he desires this outcome is difficult to divine, but money almost certainly has something to do with it.  That, and maintaining the political equilibrium in the natural state.

BP thought it was playing by Russian rules.  It made a deal with a powerful representative of the state commonly believed to be Putin’s alter ego.  But the real Russian rule is that there are no rules.  Or that the rules change without warning.

Moreover, BP may have overlooked something very important: that it is possible to be too powerful in Russia.  Putin’s essential task is to maintain a balance between rivals; he can’t let anybody get too powerful.  Stalin played the same game, only using more ruthless means.

In brief, Russia is akin to a lobster tank.  Once it looks like one lobster is going to climb out, others pull it back in.  In this instance, Fridman et al grabbed Sechin by the tail.

Indeed, the big problem with the BP deal for Putin may well be that it would have greatly strengthened Sechin if it had gone through.  By allowing it to be torpedoed at the last moment Putin also cut Sechin down to size.  That is, the deal would have made Sechin too powerful had it succeeded, but provided the perfect opportunity to undercut him.  This lends credence to the view that Putin is perfectly fine with Medvedev’s demand that Sechin leave his directorship at Rosneft.

The most recent development is that AAR is planning to sue BP for damages for violating the TNK-BP shareholder agreement.  This seems like a legal stretch: an injunction seems the appropriate remedy for BP’s breach, and it is difficult to see how TNK-BP would be damaged if the deal doesn’t go forward.  Instead ,this lawsuit–along with 2 others apparently in the works–are likely intended to turn up the heat on BP and force a buyout of the AAR partners on favorable terms, or alternatively to force a buy in of TNK-BP into the joint venture with Rosneft.

Prior to his departure (from the front of the scenes, although there are suspicions he is still involved behind them), Sechin growled menacingly that if the BP deal failed, Rosneft would seek damages.   Even if Sechin is not the decider on this, it is likely that whoever is will decide that this is worth pursuing.  It would permit Rosneft to extract some major money from BP in the here and now.  As for the Arctic venture, that was and remains a highly uncertain, long term prospect.  Moreover, there are other companies who could step in for BP–even if they would be unlikely to engage in a share swap.  Given the way that the Russian leadership discounts the future, a trade of some cash today for a pig in the poke tomorrow is a no brainer.

Whether this would be mere opportunism, making the best of an unexpected situation, or whether it was part of the plan all along is impossible to say.  This whole situation is so murky that it is impossible to tell what the exact sequence of events was, and what was the knowledge and intent of the key parties.  I am convinced, however, that (a) Putin was aware of that AAR had grounds to fight, (b) Putin knew AAR would fight if he did not stop it, and likely win, and (c) that Putin could have readily found a way, a carrot and/or a stick, to get AAR to back down if he wanted them to.  That things have developed the way that they have means that he wanted it to work out that way.  Just why is more difficult to know.

Thus, I think that BP’s travails are just beginning.  Even if it tries to walk, it will be tied up in court for years.  Every option they have looks very, very costly.

That’s the risk you take when you invest in Russia.  You think you are playing by the rules, and then find that those rules are no longer operative.  You think you’ve figured out the power relationships, only to find out that they’ve changed–and indeed, your actions might be the impetus for that change.

So, believe if you like that Putin’s apparent deference to a contract represents a move towards the rule of law.  I certainly wouldn’t put a red cent on the line based on that belief.  For remember: the very devil himself can cite scripture for his purpose.

In 1839 Custine wrote about how in Tsarist Russia, those who wanted to travel abroad had to receive permission from the police, and you could not obtain it unless you could prove that you had no debts.  (The would-be traveler had to announce his intentions in the paper three times to alert creditors.)  In 2009, Russia re-instituted the practice.  In 2011, something of the like is being seriously considered in the US–at least if the US government is whom you owe (h/t R):

Owe thousands in back taxes and need to get out of the country? No problem. Under current law, the State Department can’t withhold a passport over unpaid taxes.

But that could change, if lawmakers decide to run with the findings of a new government report suggests Uncle Sam could recoup billions by blocking delinquent Americans from getting passports until they settle their debts to the IRS.

The Government Accountability Office, at the request of Congress, released a study Monday examining how the government could leverage the passport process to recover unpaid taxes. The office found that in fiscal 2008, Americans who received passports owed a collective $5.8 billion to the IRS. The debt of the internationally traveling public, though, is likely far larger, considering that estimate only factored in a year’s worth of recipients.

The GAO report projected that linking passports and tax obligations could lead to a windfall for the IRS, if Congress opts to draft legislation making that possible.

“The federal government has a vital interest in efficiently and effectively collecting the billions of dollars of taxes owed under current law,” the report said. “Such legislation could have the potential to help generate substantial collections of known unpaid federal taxes and increase tax compliance for tens of millions of Americans holding passports.”

You may argue about the merits or demerits of this.  But make no mistake.  This is a harbinger of things to come.  The government’s dire fiscal position is going to lead it to be more intrusive, more aggressive, and a greater threat to individual liberties.  Junkies do increasingly desperate things to feed their habit, and it would be naive in the extreme to expect the spending junkies in DC to be any exception.

Bart Chilton has been bolstering his case for position limits by touting a statistic that the amount of speculation in energy markets has increased by 64 percent since 2008. Several people sent me this very interesting deconstruction of Chilton’s number:

Critics say Chilton’s claim is grossly misleading for three reasons. [Emphasis added.]

First, the primary reason for the rise in futures-equivalent holdings was a collapse in natural gas prices, which fell 65% from June 2008 to January 2011 (see pie chart below on contributions to the rise in futures-equivalent index holdings).  Due to the price collapse, for a given notional value of natural gas exposure, more contracts are required now than in 2008.  But the dollar value of holdings did not rise per se.

Second, futures-equivalent does not represent open interest in futures markets, as some of the exposure index players have is netted against internal positions and therefore does not reflect open interest on futures markets.

Third, the notional value of index energy exposure, or the dollar amount on which periodic payments are calculated, shows holdings were 10% lower in January 2011 than in June 2008.  And among the energy contracts, only gasoline showed a notional increase.

Let’s break this down.  Chilton wants to exploit the recent rise in oil and gasoline prices to fuel (pun intended) his campaign for position limits.  He therefore needs to show, somehow, that speculation increased, driving the price increase.  But net long speculation in oil and refined products declined in dollar terms.  Futures equivalents increased somewhat (about 30 percent for crude).   But natural gas futures equivalents rose dramatically–186 percent–even though due to the collapse in gas prices the net dollar investment in natural gas declined 7 percent.  The dollar number doesn’t help to make his point for the crude complex.  The crude complex contract number doesn’t make a big point. So he combines contract positions for natural gas and the crude complex, and ties it to the recent rise in oil prices:

Hemingway said, if you really want to write, start with one true sentence, and from that sentence, you can form your opinion of the truth. Well, here is one true sentence: We have more speculative positions in commodities markets than we have ever had in the past—in fact, they are up 64 percent in the energy complex from June of 2008. You can draw your opinion of the truth, your own conclusions as to whether there is a cause-and-effect—looking at the price trends as these investors enter and exit markets. Read the studies, on both sides of the issue, and draw your own conclusions.

As for the tie:

I’ve said several times that I don’t think these investors are the cruise control of prices, but I do think they tap the gas pedal. I think they can have some effect on driving prices up when they are long in the markets, and I believe they can have some effect on declining prices when they exit.

Note how far Chilton has to stretch to get his headline-grabbing 64 percent number–he has to add in natural gas positions.  Yet he fails to mention that natural gas prices have fallen dramatically–65 percent!–over the period that what he portrays as a speculative splurge has occurred; doing so would completely undercut the “truth” he is trying to reveal.

It makes no sense whatsoever to lump natural gas and crude oil and refined products together.

Well, it makes no sense if you are trying to make a logical argument, and to support the argument by reference to legitimate empirical evidence.  It makes all the sense in the world if the true objective is to confuse the rubes with some sleight of hand.  Where’s the red lady?  (In the day, it was the black lady–maybe that’s not PC any more.)

As for me, I’m still waiting for that “one true sentence.”  That self-righteous reference to Hemingway only adds insult to deception.

The aftermath of the Kaczynski plane crash just over a year ago seemed to provide the basis of a rapprochement between Poland and Russia. But the Russian handling of the report has irritated the Poles–including those better disposed towards Russia than the dead ex-president and his brother–and the Russians have expressed their dissatisfaction with the Poles’ role too. But those disputes at least involve some substance, in contrast to this gratuitous Russian insult:

The first anniversary of the plane crash that killed Poland’s president in western Russia was overshadowed by a decision by Russian officials to change a memorial plaque at the crash site to delete a phrase banned during the Soviet era.

The original plaque said President Lech Kaczynski and 95 others on his plane died while on route to a commemoration of the Katyn Massacre, “the Soviet crime of genocide against prisoners of war, Polish Army officers.” The plaque, only in Polish, was put up last year by “The Katyn 2010 Association of Families,” a name that irked Russia by suggesting a link between the crash — an accident resulting from a number of procedural errors and negligence in both countries — and the killing of Polish soldiers ordered by Soviet dictator Joseph Stalin.

Russian officials replaced it with a new plaque in Polish and Russian, which doesn’t mention the reason for Mr. Kaczynski’s planned visit to western Russia on April 10, 2010.

. . . .

At President Kaczynski’s previous visits to Katyn, Russian news reports would go as far as providing readers false explanations of why he was there.The new version of the plaque doesn’t do that — it just fails to mention Katyn. From the Polish perspective, this looks like Russia’s relapse on the crime despite last year’s declaration by the Russian State Duma blaming Stalin and other officials for the 1940 killings.

Facts are facts.  Stalin and the Soviets murdered the Poles in Katyn.  Kaczynski was flying there to visit the site.  Katyn is a hugely emotional issue for Poland.  The Russian Federation is not culpable for Stalin’s crimes.

Put all that together and it’s not too hard to figure that some deference is warranted.  Moreover, it costs Russia nothing to give it, and indeed, it might provide Russia with some real, tangible benefit.  But small minded homo Sovieticus lives on, especially in the Russian bureaucracy. Why do something that could provide a benefit in the future when that requires shedding a dark light on the Soviet past?

Russia needs to decide whether it is going to reject the Soviet past decisively and forthrightly.  Acts such as this suggest that it can’t bring itself to do so, and that it is in fact nostalgic for Soviet days. Russian officialdom often expresses resentment at the suspicion with which their nation is viewed just beyond the borders to the west.  The continued backsliding on Katyn is just the kind of thing that feeds those suspicions.  Are they really so clueless that they don’t understand, or is it that they really don’t care?