Streetwise Professor

February 27, 2013

There Are No Coincidences, Comrade

Filed under: Military,Politics,Russia — The Professor @ 11:14 pm

John Kerry-Mr. Kyrzakhstan-has been meeting with Sergei “The Tarantula” Lavrov.  He has given the Russians much amusement with his assertion that Americans have the right to be stupid.  The guy is a walking gaffe. He is already leaving his mark.  Sadly, the mark is on America’s forehead.  Thank God he is only SecState-imagine if he were president, which but for Ohio would have been reality!

But Kerry is not the only witless wonder in Obama’s new cabinet.  One can only imagine what idiocies Hagel will utter in the coming days.  When growing up, I remember being told that anyone could become president.  I don’t know about that, but I do know that if you are a rather dim anti-Semite you can become Secretary of Defense

Given the palpable cluelessness of the new national security establishment in DC, it is no coincidence, comrades, that the following events occurred precisely when Kerry was meeting with Lavrov:

1. The sole defendant in the Magnitsky case was acquitted.  And he was only accused of “negligence.”  The stone cold killers (thieves who killed to cover up their theft) were not even formally accused.

2. A Republican House member who voted for the Magnitsky Act was denied a visa for a trip to Russia, where he was to have discussed the Act, among other things.

Lavrov has already humiliated Kerry with his “I’m too busy talking to the foreign minister of Guinea to take your call regarding the NoKo nuke test” gambit.  These two moves are rubbing Kerry’s nose in the manure pile yet again.

The scary part is not that Lavrov is doing this.  The truly scary part is that Kerry seems oblivious to the fact that he is getting a manure facial.  Given his obliviousness, Lavrov will certainly serve up another treatment at the first opportunity.

God is in His Heaven, and the Tsar is Far Away

Filed under: Military,Politics,Russia — The Professor @ 10:36 pm

Putin gave a stern speech on military matters yesterday.  It was a classic.

First, the paranoia:

“Attempts are being made to tip the strategic balance,” said Putin, who as president is commander-in-chief of the armed forces, told his audience at the General Staff academy on Moscow’s outskirts. The head of the Russian Orthodox Church, Patriarch Kirill, sat in the front row.

“Geopolitical dynamics call for a quick and considered response … Russia’s armed forces must move on to a new level of capabilities in the next three to five years,” said Putin, who has not ruled out seeking another term in 2018.

The former KGB spy said moves that threatened Russia’s geopolitical position included the eastward expansion of Russia’s former Cold War foe NATO and U.S. deployment of an anti-missile shield in Europe.

Eastward expansion of NATO?  Really?  To where, exactly?  Ukraine has been off the table for freaking years.  Georgia-ditto.  And has he paid attention to the complete hollowing out of the European military?  For crissakes, France can’t attack freaking Mali without a big assist from the US.  And has he paid attention to the huge looming cuts to the US military?

I don’t know whether he really believes this crap, or whether he just believes the babushkas on whom he is increasingly reliant for political support believe this crap.

Then there was the delusional ranting about transforming the Russian military:

“Geopolitical dynamics call for a quick and considered response … Russia’s armed forces must move on to a new level of capabilities in the next three to five years,” said Putin, who has not ruled out seeking another term in 2018.

Transformation in 3-5 years?  Seriously?  Given the completely ineffectual nature of Russia’s attempts to transform its military over the last 3-5 years, how in God’s name could he possibly believe that such a thing is possible?  Jeez, this is a military that cannot even commit to having its troops wear socks (rather than foot wraps).  So it is going to transform into a technologically advanced force in 5 years?  As if.

Putin’s speech also betrays extreme frustration that makes his calls to a technological transformation transparently hollow:

President Vladimir Putin instructed the General Staff of the Russian Armed Forces on Wednesday to sort out issues related to housing for soldiers and the problems affecting garrison towns.

In an address to an extended meeting of senior officers at the Defense Ministry in Moscow, Putin ordered the Ministry to deal once and for all with all unfulfilled housing obligations, saying “there should be no such notion as an officer without an apartment.”

Putin earlier described the issue of service housing as “eternal.” The lack of army housing has been one of its most pressing problems since the Soviet era, particularly following the withdrawal from the former Warsaw Pact nations in the early 1990’s, despite a massive downsizing of the forces since that time.

In a pre-election article, Putin promised to resolve the issue by 2014. As of December 2012, about 100,000 soldiers remained on the housing waiting list, according to Russian Audit Chamber head Sergei Stepashin.

Putin also ordered the ministry to deal with infrastructure problems in garrison towns, where a number of power cuts and central heating malfunctions were reported this winter.

“The situation when, because of someone’s irresponsibility and complacency, certain [military] cities had insufficient fuel or heating this winter, when recently renovated boiler stations broke down and power supplies were cut because of debts, is impermissible,” Putin said. “I ask the Defense Ministry to deal with every separate case and sort out this mess.”

So, this military which cannot provide housing or fuel or heating to its troops, despite repeated promises and repeated orders to do so, is somehow supposed to transform itself into a technologically advanced force capable of defeating the attempts of the evil Americans to impose its will on the Fatherland?

Putin’s fury at his inability to translate his will into reality is palpable.  He wants so badly to rejuvenate Russia’s military prowess, but there is a yawning gap between his orders and their implementation.  The transmission belt between his will and the acts of his agents slips and slips, hence his fury.

This is another old, old, old phenomenon in Russia.  From time immemorial, Tsars would issue commands, but were pitifully unable to enforce obedience to them.  Exerting control over subordinates scattered across Russia’s vast wastes proved beyond the capacity of even the most willful Tsar.   God is in His Heaven, and the Tsar-and Putin-are far, far away.  At least Canute understood the futility of trying to rule the tides. Putin is battling against forces as inexorable as the oceans, but he deludes himself into believing that he can overcome them.


Russia is on Putin’s hamster wheel, and Putin is on the hamster wheel of Russia’s history.  He harkens to Russian history, but fails to comprehend its implications.

Word to the Wise: Never Confuse Government With Annie Oakley

Filed under: Clearing,Commodities,Derivatives,Economics,Energy,Politics,Regulation — The Professor @ 11:14 am

I laughed out loud when I read this paragraph from a Risk Magazine article about futurisation in the energy markets:

Top CFTC officials [GiGi? Is that you?] as well as members of Congress who supported Dodd-Frank [that’s Frankendodd around here, buddy] have repeatedly said the law was not aimed at physical end users of derivatives.  But if the the flight towards futures causes liquidity elsewhere in the market to dry up, end-users might have no choice but to fall in line.

Look: Elvis Costello’s “My aim is true” is definitely not the theme song of regulators and legislators in the US, or anywhere for that matter.  A 16 year old, hopped up, Afghan jihadi sprayin’ and prayin’ with his AK on full auto is more discriminating in his targeting than most regulators, and regulations.  Unintended consequences-AKA collateral damage-are the rule, rather than the exception with regulations.  This goes N-fold for monstrosities like Frankendodd.

Frankendodd is just starting its rampage.  The energy derivatives markets-and end-users in them-are only the first victims.

So when a regulator or legislator says that a particular reg or law isn’t aimed at you, don’t take comfort: take cover; there will be incoming.   We’re not talking Sergeant York or Annie Oakley behind the trigger here. More like Blind Lemon Jefferson.

Who is the Sucker Here?

Filed under: Commodities,Derivatives,Economics,Politics,Russia — The Professor @ 10:17 am

Gazprom has announced that it is entering into exclusive negotiations with Levant LNG to secure the rights to market 100 percent of the gas produced by the Tamar floating LNG plant:

OAO Gazprom (GAZP), the world’s biggest natural gas producer, is seeking exclusive rights to export liquefied natural gas produced from fields off Israel’s Mediterranean coast.

Gazprom Marketing & Trading signed a heads of agreement with Levant LNG Marketing Corp., outlining the terms of a 20- year sales deal from the Tamar floating LNG plant, the unit said today in an e-mailed statement.

Levant and Gazprom’s marketing unit will hold exclusive talks on LNG sales for six months, according to a separate statement to the Tel Aviv bourse today. Sales may amount to 3 million tons of LNG a year, linked to Brent crude prices, according to the statement. That equals the plant’s total planned output volume.

My first reaction is that I cannot believe the Israelis will be so stupid as to lock themselves into Gazprom on an LNG project.  Why not?

Most importantly, Gazprom has little interest in seeing gas from the Mediterranean come onto market, and hence has an incentive to throw roadblocks in way of the project.  Interestingly, the announcement indicates that Gazprom plans to sell the gas in Asia, even though eastern Med gas is perfectly positioned to sell into Europe-which is probably precisely the reason that Gazprom wants to send the gas east rather than north and west.  But even if those tons of Israeli LNG don’t go to Europe, they would displace other gas that would otherwise go to Asia, and which could show up on European shores.  Thus, Gazprom still has an incentive to delay the gas coming on line any way that it can.  Yes, as a marketer, Gazprom would have less ability to do that than would the project developer, but it could still throw up obstacles.  If the Israelis do deal with Gazprom, they should be damned sure that the  contract is written very tightly.  And it would not be wise to give Gazprom the exclusive marketing rights, because that would maximize the Russian’s leverage.

But my second reaction is that the Russians may be signaling that they will overpay.  I base this on one detail in the announcement:  the price in the deal will be tied to the Brent crude oil price.  It is ironic that this announcement came out on the same day that the FT ran an article detailing how Japan-which is a major LNG buyer and which will purchase substantially more in the future as it moves away from nuclear power-is seriously considering ditching oil linked contracts for contracts tied to Henry Hub gas prices.

A flurry of projects has now emerged to harness the plentiful supplies of cheap shale gas by selling it on to international markets as LNG. And the exporters are pricing their gas off Henry Hub, the US natural gas benchmark, rather than off Brent or WTI. Henry Hub gas is now selling for about $3 to $4 per million British thermal units, less than a quarter of the price LNG cargoes are sold for in Asia. Japanese, Korean and Chinese buyers have, understandably, been flocking to the US in search of deals.

As a consequence, says Professor Jonathan Stern, head of gas research at the Oxford Institute for Energy Studies, Japanese utilities are increasingly reluctant to commit to oil-indexed LNG.

“They recognise how dangerous it is to sign up to any contracts on the old formula,” he says. “They can see the degree of commercial exposure, which is huge.”

What has spurred the Japanese into action is the way that rising LNG prices have stoked the country’s mounting trade deficit and exposed power utilities to big financial losses. Not only is LNG becoming more expensive, Japan has also been importing more of it: with most of the country’s nuclear reactors shut down in the wake of the 2011 Fukushima disaster, gas is filling the gap.

. . . .

Other Japanese gas importers, including Tokyo Gas and Osaka Gas, are also trying to move away from oil-linked prices, even for gas not produced in the US. Kansai Electric Power, for example, signed an innovative long-term agreement where the LNG it buys from BP, sourced from various parts of the world, is linked to daily Henry Hub settlements. Kepco is hoping for a 30 per cent reduction in LNG import costs.

So if it did an oil-linked deal with Levant LNG anticipating selling to Asia on the same terms, Gazprom will face increasing difficulty in doing so.  It therefore runs the risk of being effectively short oil (i.e., being hurt by rising oil prices) and long North American gas (hurt by falling gas prices).

But maybe this is the attraction of the deal to the Israelis.  If they anticipate a widening spread between oil and gas prices, and the Russians are willing to pay them the oil price when other marketers, anticipating that the market will soon transition to being priced off of gas (especially North American gas) will only be willing to do deals based on the gas curve.

So although the potential exposure to Gazprom opportunism would suggest that the Israelis would be suckers to enter into an exclusive deal with the Russian firm, Gazprom’s increasingly frantic attempts to defend the oil link may be leading the firm to overpay.  So maybe the Israelis are thinking that Gazprom is the sucker.

The pricing mechanism in gas is in a state of transition.  Moreover, these transitions tend to be very abrupt and “tippy.”  Once the market starts to shift from one benchmark to another, the move is self-reinforcing: there is a positive feedback effect as the liquidity in the new benchmark increases, attracting more trade, which increases liquidity, and so on.  The tipping process is well underway in Europe, and if Japan truly does move to gas based pricing and away from its historic commitment to oil linkage, that would likely start the snowball rolling downhill in Asia too.

Just look at what has happened in iron ore.  In a period of about two years, the industry has moved from annual negotiated contracts to spot price indexed deals between miners and steelmakers.

The economic case for gas linkage is compelling.  Gas prices reflect, well, gas market supply and demand fundamentals.  Oil prices, not so much.  The potential for misalignment of prices and values, which is so evident in European gas markets in particular, is much greater with oil indexing than gas indexing.  It is this misalignment that leads to misallocation of resources, and to disputes between buyers and sellers.   This provides a natural impetus towards the move to gas indexing.

But Gazprom is wedded to oil linkages.  Its commitment is likely what makes it willing to offer such a deal to the Israelis, and it is at least plausible that the Israelis see the writing on the wall that oil linkage is dying, and are calculating if Gazprom wants to be the sucker and lock itself into this obsolete mechanism, why should they say no?

February 26, 2013

Obama’s Latest, Greatest Example of Executive Stewardship

Filed under: Uncategorized — The Professor @ 4:38 pm

Obama is playing the sequester game for all it is worth, by regaling the country with horror stories of what will happen if the sequester goes into effect.  All he needs is a flashlight held under his chin while sitting by a campfire.

The prudent response to a need to cut spending due to a tightening of a budget constraint is to find the least important things, and cut those first.  But Obama isn’t interested in being prudent.  He is interested in being political.  He is using the sequester as part of his war to the knife with House Republicans, and hence is going with the Washington Monument Strategy on Steroids, and focusing cutbacks on the most visible and vital services.  For instance: furloughing TSA personnel.  I am scheduled to fly to visit my parents on the day the sequester kicks in.  Oh freaking joy.  I say furlough them all.  Forever.  But no, we’ll get all of the stupid procedures with fewer people to implement them-and no doubt they will be under orders to work to rule to make the process as inefficient and painful as possible. Another for instance: releasing illegal aliens detained in prison. I could go on. But you get the point. It’s all about making the most painful and most visible and most inconveniencing cuts, all for political advantage. The man has no shame. This is not about executive leadership or stewardship. It is about Goebbels-esque propaganda theater.

Looking at Obama’s strategy brought this classic National Lampoon cover to mind:

Or, in the Obama version: if you don’t cave on the sequester (and everything else) we’ll . . .

The ultimate mendacity, moreover, is that Obama insisted on the sequester during a budget standoff in 2011, and signed it into law. He’s daddy, but is denying paternity: indeed, he’s asserting the Republicans did the deed. Oh, for a political DNA test.

But the problem is that even if such a test existed, it wouldn’t matter. The media knows the truth, but is so in the tank for Obama that they refuse to flog him over his hypocrisy and dishonesty: hell, they (Bob Woodward excepted) even refuse to acknowledge Obama’s insistence on including the sequester in the 2011 deal. A good portion of the populace is also indifferent to Obama’s duplicity. Further evidence of the degraded condition of our Republic.

February 25, 2013

Gaseous Mercantilism

Filed under: Commodities,Economics,Energy,Politics,Regulation — The Professor @ 11:36 am

I am adding a new entry to my list of phrases that put me on guard that someone is trying to con me: “balanced approach.”  Obama is always blathering about balanced approaches to fiscal matters.  And in today’s WSJ, Dow Chemical CEO Andrew Liveris pleads for a “balanced approach to shale gas exports.”

To say that “balanced” is highly subjective is the understatement of the century.  In Obamaland, “balanced approaches” mean large tax increases now, and hazy promises of spending cuts in some distant future.  In Leveris’s oped, “balanced” means imposing restrictions on exports of natural gas to lower the cost of his most important input.  Funny, ain’t it, that things seem to tip the way of those advocating “balanced approaches”?  In other words, if it helps me, it’s fair and balanced!

Liveris couches this as a means of stimulating employment in US manufacturing and increasing GDP:

Moving manufacturing facilities back to the U.S. from abroad—the trend known as “reshoring”—could create up to five million American jobs over the next seven years, according to the Boston Consulting Group. This figure is so high partly because in the chemical industry jobs created by investing in domestic manufacturing are eight times more beneficial to gross domestic product than are simple gas exports, as documented by the American Chemistry Council.

To which I reply: Bull.  National income is maximized when goods are allowed to flow to their highest value use.  If domestic gas prices are $3/mmBTU and foreign prices (net of transportation, etc.) are $4, that means that at the margin 1 mmBTU of gas consumed in the US-including by Dow-generates $3 of value, and if consumed overseas it generates $4.  Letting that mmBTU go overseas therefore generates $1 of value-of income.  No BCG or American Chemical Council mumbo jumbo can change that simple fact.  And I’m sure that the ACC is totally objective.  Totally.

Leveris pleads that all he wants is a rule-based system:

The truth is that every firm in every sector benefits from exports and rules-based free trade. But what are the rules for exports of liquefied natural gas? Who sets them? Oil and gas companies, states, Japanese government agencies? Or are they part of rules-based free-trade agreements that the U.S. government has negotiated so as not to disadvantage domestic consumers, manufacturers and workers?

Here’s a balanced rule for you, Mr. Leveris: Producers can sell to whomever offers them the highest price.  Short. Simple. Easy to understand.  No bureaucrats required.  And to show what a broad minded guy I am, I propose that the rule be applied to Dow.

But Leveris wants to insert bureaucrats into the process:

The Department of Energy has already received applications for the export of half the gas consumed in the U.S. today. Under a 1938 law, the department must determine if those applications for exports are in the national interest (taking into account all segments of society).

Several manufacturers, including Dow, are calling for faithfulness to current law. We are concerned that hasty government action, coupled with growing domestic and international demands for natural gas, will trigger a severe supply pinch that will send the U.S. back to the days of higher and more volatile domestic natural-gas prices.

Ah.  “The national interest.”  That’s the ticket.

The 1938 law inserts a government bureaucracy that can distribute rents among rent seeking supplicants-such as firms like D0w-based on political calculations.  Resources are wasted in the influence process: e.g., chemical companies and energy companies engage in an influence arms race employing lobbyists and other resources to importune the bureaucrats.  More resources are wasted as this process inevitably leads to inefficient outcomes.  The uncertainty generated by the vagaries of this process also serves to damp investment.

So here is my balanced proposal: scrap the 1938 law.

Everywhere you look you see that energy is highly politicized.  Politicians and bureaucrats exert a huge influence over the allocation of energy resources.  Look at Keystone XL.  Look at cockamamie subsidies for solar and wind.  I could go on and on.  These interventions destroy huge amounts of value.

Balance is a relevant concept here, because politicians and bureaucrats balance competing political interests when choosing policies that divide up the pie.  But that “balanced” process destroys wealth.

We need less politicized energy market.  Allowing free export of US natural gas-and oil-should be a no brainer if your object is-as Mr. Leveris claims his is-to maximize national income.  But that’s not his real objective.  His real aim is to maximize Dow’s income, to redirect wealth from the shareholders of E&P firms to his shareholders.

Leveris’s piece is a gaseous plea for mercantilism, though of a rather apostate form since traditional mercantilism advocates the maximization of exports.  But the essence of mercantilism is government control and manipulation of trade.  And moreover, one staple of mercantilist thought is that domestic raw materials should only be used in domestic manufacture because manufactured goods are more valuable than raw materials.  Leveris repeats this long discredited fallacy in his oped.  Proving that few things live longer than bad arguments.

Sadly, it is likely that the chemical industry, and other energy consuming industries, will exert some influence and succeed in restricting the exports of natural gas.  That’s the way things work, alas.  But don’t buy the bilge that these restrictions are part of a “balanced approach” that advances (ill-defined) “national interest.”  Instead, they are inherently unbalanced and advance very specific economic interests.

And one last word of advice: when anyone says they are only advocating a “balanced approach”, grab your wallet and call bull.

February 24, 2013

Rogozin the Ridiculous Believes That Military Production is the Key to Prosperity. Yeah, That Worked Out So Well for the USSR

Filed under: Military,Politics,Russia — The Professor @ 4:31 pm

Rogozin the Ridiculous is on a roll.  He has been chosen by Medvedev to lead the effort to protect Russia from meteorites (!) and is proposing a global effort to protect the world from objects hurtling from space (!!).

Rogozin is also the main cheerleader for Putin’s ambitious rearmament plan, which envisions spending $600+ billion on new armaments by 2020.   Putin largely makes the argument for rearmament on national security grounds, but Rogozin is much more expansive in his advocacy.  He sees the arms program as a way of transforming Russia from oil fields defended by nukes into a modern industrial powerhouse:

“By 2020, the moment of the weapons program implementation, we will be living in a quite another country…In the country, which will surely get off the oil and gas needle, in the country which will have new modern plants, in the country, where the cult of an engineer and constructor will be created,” Rogozin, who is in charge of the defense industry, said.

“We will turn the tide, this will be an industrial power,” Rogozin said on Saturday at a meeting of Russian patriotic organizations in Krasnogork, in the Moscow Region, marking the holiday, known as Defender of the Fatherland Day.

This is as delusional as many of his other pronouncements-which is saying something.  Resources-human and physical capital-dedicated to military production are not available to create, design, and produce advanced technology or manufactured goods for civilian use or trade.  The only way that a burst of military procurement will produce “modern plants” doing anything other than producing for the military is that there are large externalities-spinoffs- from military technology and production into civilian technology.  This is a leap of faith with little or no empirical basis.

Indeed, there was once a country by the name of the USSR that focused on military technology and production.  It is still unknown just what fraction of GDP the USSR devoted to military purposes, but it was immense.  And this investment had few, if any, positive spinoffs for civilian goods and technology.  Indeed, the military industrial complex sucked up virtually all the best minds and most of the capital, leaving the civilian economy a technological backwater.  Any externalities were negative ones.

This is hardly news.  All but the dinosaurs knew in the late Soviet period that massive arms expenditures had bankrupted the state and left Russia with a completely uncompetitive civilian economy.  But RtR seems to have learned nothing, and forgotten nothing.

In truth, the main impetuses behind rearmament are nationalist nostalgia for the days Russia (i.e., the USSR) was a military superpower and cupidity.  Large sums spent on overpriced arms disappear into private pockets.

As I’ve written before, Russia’s biggest military issue is a software problem, not a hardware problem.  It has too few men to serve, and many of those who do are sickly.  Plans to transform to a professional military are way behind schedule, resulting in a continued reliance on conscripts who serve a total of 12 months.  Their training has been cut to three months before being assigned to combat duties-far too little, especially given the absence of experienced NCOs in combat units.  Moreover, the old guard is pushing back against organizational reforms (mainly the shift from divisions to brigades), and seems intent on retaining as much as possible of the old Soviet structure.

In brief, the rearmament program will not even transform the military, let alone the entire Russian economy.  Indeed, it will likely hamper the development of the civilian economy without substantially increasing military capability, because that capability is constrained by manpower and doctrinal deficiencies.

Rogozin should stick to protecting Russia from meteorites.  These efforts may be futile but are less likely to be as dysfunctional as attempting to create a simulacrum of a Soviet military industrial complex.

February 21, 2013

Chasing Russian Unicorns, Foreign Policy Edition

Filed under: Military,Politics,Russia — The Professor @ 4:42 pm

Putin and Russia generally have sharply ramped up the anti-Americanism since his election, and the protests.  This is overdetermined.  Partly it is playing on the prejudices of a domestic audience, but it also reflects Putin and the elite’s belief that the US is actively trying to undermine their rule by fomenting an Orange-y revolution in Russia-hence the clampdown on NGOs and the demonization-and worse-of anyone who receives western funding.  With regards to foreign policy, it reflects Russian zero sum thinking and a belief that Russian interests and American interests are at odds generally, and in specific areas like Syria and Iran.  It also reflects a deep seated suspicion of, and hostility to, the West generally and the US specifically that traces far back before Soviet times, but was inculcated in everyone in the Soviet Union, especially those in the security apparatus and the Party-individuals who dominate the Russian hierarchy today, including notably Putin.

Given this, Obama’s Reset was unrealistic, romantic, and even delusional when first announced in 2009.  It only became more unhinged from reality thereafter, as developments in the past years, including the protests, the Arab Spring, and the fall of Khadafy all reinforced all of the foregoing tendencies.  (Note the slick video attacking Medvedev that went viral: one of the main charges leveled against Mr. #Pathetic was that he acquiesced to the NATO takedown of Khadafy.)

Hence, it is truly bizarre to read David Ignatius’s piece in the WaPo advocating Obama make another go at “aligning” American and Russian interests.

How do you align the orthogonal?  Just asking.

Yes orthogonal probably overstates things, but only a tad.  Certainly in Putin’s zero sum mind the areas of common interest are quite limited indeed.  These are particularly true in the three areas Ignatius argues that the US could use Russian assistance: Syria, North Korea, and Iran.

With regards to Syria, Russia has vigorously protected its client Assad, and obstructed every effort to resolve the conflict.  “No more Libyas” is clearly the Russian watchword here.  It conducted naval operations off the Syrian coast at the end of last month, and just announced that it is looking to maintain a continuous deployment there.  This is obviously serving as a tripwire to deter any NATO/US action against Syria.

With regards to North Korea, in the aftermath of the NoKo’s recent nuclear test, Lavrov dodged calls from Kerry to discuss matters, claiming he was too busy on his Africa tour to Algeria, South Africa, Mozambique and Guinea to pick up the phone.  On the last stop Lavrov tried to cajole the Guinean government to restore Deripaska’s aluminum smelting concession.  “I can’t talk to you about NoKo nukes because I’m talking to Guinea about Deripaska” tells you exactly how much they are interested in cooperating on this issue.  They also continued to oppose any additional sanctions on North Korea that would affect “normal trade.”  Uhm, what “normal trade” does North Korea have?  (Not counting drugs or counterfeiting.)  Perhaps they are still holding out hope for that trans-Korean gas pipeline.

With regards to Iran, Ignatius pixels (as in pixilated) three of the most delusional paragraphs I’ve read in a while:

So what’s the answer to this classic foreign-policy dilemma, where U.S. interests and values are in conflict? I’d argue that the benefits of a more cooperative U.S.-Russian relationship — on Syria, Iran, North Korea, arms control and other issues — are so substantial that they are worth the cost. That’s a heavy burden, especially since it’s likely to be borne by Russian human-rights activists. [There’s always more room under the Obama Bus!]

The Obama administration made a similar strategic choice in its first term, when it decided that a positive “reset” with Russia was a top priority and placed missile defense, NATO expansion and other issues lower on its list. This decision opened the way for Russian support of U.N. resolutions sanctioning Iran.

A second presidential term isn’t a clean slate, but it offers a new chance to test whether Russia’s interests and America’s can be aligned. To get where he wants over the next four years, Obama needs to unlock the Russia door.

Yeah.  The Russian support for sanctioning Iran has been so helpful.  So much progress has been made with Russia’s assistance.

If Obama needs Russia’s help to get to where he wants to go, it’s a case of I know where you’re going, but you can’t get there from here.  Indeed, the zero sum mindset means that if Putin believes he is helping Obama get what he wants, he’s less likely to do it.

I’m not saying to go all confrontational, although showing some spine on the Russian tantrum on Magnitsky and the tragic case of the death of an adopted Russian child in Texas would be desirable.  (I will write on that latter issue, especially the role of the truly execrable Pavel Astakhov, when the results of the Texas authorities’ investigation are released.)

But chasing after Russian unicorns is completely counterproductive.  A serious deal with the Russians on Syria, Iran, or North Korea is about as likely as finding a silky, single-horned animal grazing on the White House lawn.  So get real and move on.

Indeed, Obama’s best strategy for dealing with Putin is one that comes naturally to him: pretty much ignoring.  Obama is focused on domestic issues, and is naturally aloof with even the members of his own party in Congress, let alone with foreign leaders.  That aloofness drives Putin crazy: it’s hard to figure what he hates worse, when the US pays attention to Russia, or when it doesn’t.  So here’s one case where Obama’s personality and personal style actually pays dividends: by being his superior self, he doesn’t waste time pursuing the impossible, avoids doing a stupid deal with Russia, and drives Putin around the bend in the bargain.

So here’s one time I encourage him to channel his inner ‘Bam, and avoid the temptation to listen to David Ignatius’s blathering about the beautiful unicorns that roam the steppes.

February 18, 2013

Bart Chilton Tries to Resurrect Position Limits, With the Same Lack of Intellectual Rigor and Honesty We Have Come to Expect

Filed under: Commodities,Derivatives,Economics,Energy,Politics,Regulation — The Professor @ 8:22 pm

Gensler and Chilton are taking up the cudgels again for position limits-this in spite of the spanking from Judge Wilkens last year.

Chilton, as usual, is most outspoken on this issue:

Today, energy costs for most families have risen more than 20 percent since 2001. This hurts not only American households, but also American business—like many of your businesses—that rely on energy. According to the Energy Information Administration (EIA), nearly nine percent of our economy or $1.4 trillion is spent on energy annually. Imagine if that figure dropped by just ten percent—$140 billion freed up for investment and economic growth.

So that’s why I continue to lead the charge for position limits—to help keep the markets working for you. The efforts to stop position limits will ultimately fail. Congress told us in no uncertain terms to get it done, and I intend to see that we do that, before more families and businesses go into the “red” column on their balance sheets.

First of all, 20 percent in 13 years is less than 2 percent per year-that is, less than the rate of inflation: the CPI is up almost 30 percent over those 20 years, meaning that the real price of energy has fallen.   I say again: the real price of energy-per Chilton’s own numbers-have fallen.

I also note Chilton’s continued focus on the rise in oil prices, and his complete refusal to acknowledge the collapse of natural gas prices precisely during the period in which his Massive Passive bogeymen have allegedly driven commodity prices generally, and energy prices particularly, far above what they “should” be.   If “speculation” by “massive passives” (or whoever) can cause prices to become completely unhinged from fundamentals, why has natural gas moved in the exact opposite direction from oil?

Chilton’s egregious errors of omission and commission must be caused either by a lack of intellectual capacity, or a lack of intellectual honesty.  I really see no other alternative.

Chasing Green Unicorns: That’s Reality-Based?

Filed under: Climate Change,Economics,Energy,Politics — The Professor @ 8:04 pm

Obama and his acolytes flatter themselves as sophisticates, reality-based devotees of science.  They look to Europe for inspiration.  If only they would actually pay attention to the reality of Europe, as opposed to their fantasy vision.

Obama brought his supporters to paroxysms of joy-near orgasms, in fact-with his call in the SOTU speech for action on “climate change.”  Action that he said he would take if Congress does not-the Constitution be damned.

Would that he actually look to what his Euroheroes are actually doing  Which is to realize that their alternative energy initiatives have proved to be very expensive unicorn hunts.  Both Germany and Spain have realized that alt-energy is outrageously expensive and inadequate to achieve any meaningful impact on climate:

More than a decade ago, Germany and Spain created similar laws to aggressively promote the adoption of renewable energy. The two countries were again marching in step on Thursday—this time to fix a web of subsidies and compensations they created for green energy that had the unintended effect of driving up household electricity bills.

. . . .

Fearing a voter backlash from anger over the lopsided financing of green energy, Ms. Merkel’s government on Thursday proposed putting a cap on the green-energy surcharge until the end of 2014 and then restricting any rise in the surcharge after that to no more than 2.5% a year. The government also plans to tighten exemptions, which would force more companies to pay, and achieve a cut in green subsidies of €1.8 billion ($2.42 billion). The plan is a quick fix pending comprehensive reform after the election, government officials said.

. . . .

The Spanish parliament took a similar step on Thursday, passing a law that aims to curb rising household electricity costs by cutting aid to the renewable-energy industry.

Renewable-energy producers “are going to receive less revenue, but these measures are better for consumers” said Energy Minister José Manuel Soria.

In other words, Germany and Spain are retreating posthaste from their former grandiose commitments to green energy.

But despite this rather flagrant example of the economic bankruptcy of subsidies for renewables, Obama is intent on playing the David Farragut of greendoggles: Damn the reality! Full speed ahead!

It’s bad enough that Obama ignores what is going on in Euroland.  He should have plenty of examples closer to hand.  Like Solyndra. (Do you really need links?  Seriously?)  Like Tesla (ditto). Compact Power. LG Chem: read it and weep.  You’d  get more satisfaction out of taking $175mm in $100 bills and setting them alight.

But we are likely to be subjected to yet more of these monstrosities, because there is nothing that the reality-based community likes to do more than deny reality.  Especially when it stares them in the face.

Not only are we almost certain to chase green unicorns, we may well deny ourselves of very real energy sources.  This weekend saw protests against the Keystone XL pipeline, and I would say that the odds are better than even that he delays or kills it: the cabal of enviros and Warren Buffett will be pretty hard for Obama to oppose.  (The calculations of my earlier post imply that Keystone XL-which will last for decades-will pay for itself in less than 600 days-and that’s conservative because a good fraction of the $20mm/day in surplus generated by Cushing-Gulf pipelines is attributable to the oil that Keystone XL could transport.)  In contrast we’ll be paying for greendoggles for many multiples of 600 days.

It is quite instructive to view the contrast between the European’s concession to reality, and Obama’s denial thereof.  Just when the Euros are beginning to concede that green unicorns may not exist, Obama is hell bent on chasing them.

God help us.

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