Streetwise Professor

The bizarre saga of CEFC just keeps getting more bizarre.  Today Bloomberg reports that the company is selling off all its real estate.  All of it: Everything must go!

CEFC China Energy Co., the sprawling conglomerate that’s come under increasing government scrutiny, plans to sell its entire global property portfolio with a book value of more than 20 billion yuan ($3.2 billion), according to people with knowledge of the matter.

Almost 100 properties are up for sale, including its headquarters in an upscale Shanghai neighborhood, four floors of the Hong Kong Convention & Exhibition Centre and a condominium at the Trump World Tower in Manhattan, as well as hotels, residential apartments and industrial facilities, said the people, asking not to be identified because the deliberations haven’t been publicly disclosed. The properties, mostly located in big Chinese cities, include a smattering of developments overseas, the people said.

Where this leaves the deal to buy the 14.1 percent stake in Rosneft from Glencore and the QIA is anybody’s guess.  But it probably doesn’t leave it in a good place.

Rosneft’s guess is probably as good as yours or mine.  They made inquiries, and learned nothing:

Rosneft representatives have since traveled to China but failed to get any update from CEFC on the stake acquisition deal, according to the sources.

“The other party (CEFC) has just vanished,” one source said.

“Just vanished” is not a phrase you normally hear uttered when referring to the purchaser of $9.1 billion in equity!  And definitely not one you want to hear!

(The Reuters piece is horribly and confusingly written, by the way.)

CEFC had apparently already paid out some money on the deal, but it has not closed.  Glencore optimistically asserted that the deal would close in the first half of 2018–which is already half over.  Given all of this uncertainty about CEFC, this looks incredibly unrealistic, but Glencore has not provided any more guidance. Go figure!

The price  CEFC agreed to was never disclosed in full, but was allegedly enough to allow Glencore (and the Russian banks backing it) and Intessa Saopaolo to emerge whole.   Glencore did let on that the price was at a 16 percent premium to the 30 day volume weighted average of the Rosneft price, presumably meaning the 30 day period (business days? Calendar days?) prior on 8 September, 2017.  In August-early September, 2017, Rosneft traded in the $5-$5.25 range, which puts the price in the $5.80-$6.00 ballpark.  That comports with a $9 billion total price for 14.16 percent of Rosneft’s 10,598,177,817 shares, which works out to about $6/share.  The price yesterday was $5.41, so it is clear that CEFC’s position is well under water.   This readily explains why the two Chinese government entities that have taken stakes in CEFC are allegedly reluctant to takeover the company altogether and proceed with the deal: it has already incurred a 10 percent loss.

To make things even more dicey, in January VTB announced it was “ready to” loan CEFC the money to finance the deal.  Presumably some of this money flowed, and is the source of the funds that have already been paid out.

So CEFC is selling off all its property.  Will it try to unload the Rosneft stake too? Or will the deal just collapse, leaving the original parties holding the bag? The deal was touted as a great example of Sino-Russian cooperation.  Will this compel the parties to save face by proceeding, or substituting some other Chinese firm?  Presumably this will require a price adjustment.  Who will eat that?

From day one almost 17 months ago the most bountiful product of the Rosneft privatization was questions.  And they just keep on coming.

Trump fired his 2d trade salvo last week.  Unlike the the previous one on steel and aluminum, which first appeared to be aimed at everyone and then due to various exceptions and exemptions is hard to know who will actually take the hit, this blast is clearly aimed squarely  at China.  Moreover, the rationale for the salvoes is quite different.  The allegation relating to the metals was that other countries were unfairly favoring domestic producers and exporting to the US at unfairly cheap prices, the China-directed blast is a response to systematic Chinese theft of intellectual property, an issue of longstanding that the US has repeatedly bitched about, but not taken action against.

These issues are quite different, and as Doug Irwin notes, whereas economists are largely opposed to tariffs like those levied on steel and aluminum, they have a much more open mind on taking on China on IP issues.

They are indeed quite different.  A simple analogy comes to mind.  When someone sells you a car below cost, they are doing you a favor.  When someone steals your car, and then sells it back to you, they are harming you–and adding insult to injury.  Steel and aluminum fall in the first category, IP theft in the second.

This should be a debate about tactics: how can Chinese theft be deterred and diminished?  I don’t know the answer to this question, but given the systematic failure to make progress on this issue for years, I wouldn’t rule out Trump’s tariff-based approach out of hand.  Maybe he is talking a language the Chinese understand.

What I can state with absolute certainty is that this is not a battle between principled free trader nations and retrograde protectionists, with China in the former role and Trump in the latter.  Anyone who treats it as such is not to be taken seriously, and indeed deserves brickbats.

Let’s be clear.  Virtually every government around the world criticizing Trump’s protectionism is hypocritical to the n-th degree.  Even with Trump’s recent actions, the US is less protectionist that the Europeans and the Japanese, and let’s not even start with the Chinese, whom Adam Smith would have recognized for what they are: aggressive mercantilists.

Two wrongs don’t make a right, but I’ll be damned if I listen to lectures from the Europeans, Japanese, or particularly the Chinese about the American threat to the world trade system.  Look in the mirror, jackholes.

It is particularly infuriating to see Tim Cook of Apple mouth pieties about embracing free trade–while speaking in Beijing, no less:

“Countries that embrace openness, that embrace trade, that embrace diversity are the countries that do exceptionally,” Mr. Cook said during a panel discussion at an economic forum here Saturday, when asked what message he would like to bring home to Mr. Trump. “And the countries that don’t, don’t,” he added, without mentioning the president by name.

OK, Timmy–do you have the balls to give that sickeningly sanctimonious homily to Xi Jinping?  The US is infinitely more open than China.  And if you think that the Chinese are all into diversity, Timmy, you are even a bigger idiot than I thought.

But of course Timmy doesn’t have the balls, because he knows that if he challenges the Chinese autocracy they will make Apple’s life miserable, whereas by dissing Trump he’ll get accolades in both Beijing and the “elite” circles in the US.  A profile in cowardice, not courage.

In fact, by criticizing the speck in the US eye while ignoring altogether the beam in Beijing’s, Cook is carrying Xi’s water like a good little flunky.  Objectively his criticism of Trump (and if you don’t think that who he was aiming at despite his not mentioning Trump’s name, your IQ is about the same as Stormy Daniels’ bra size) helps China in a confrontation with the US over an issue in which China is overwhelmingly in the wrong.

Again, the issue here is NOT about free trade.  It is about theft, and whether imposing penalties on the thief’s exports is the appropriate way to deter theft.  His phrasing implicitly supports the Chinese framing of Trump’s actions, which is as an attack against trade and openness, which is a grotesque distortion.

Given the extremely asymmetric threat that Apple faces from displeasing the president for life in China (who has virtually unlimited power)  vs. displeasing the president for at most 6+ more years in the US (who is hamstrung by myriad Constitutional and political constraints), it is understandable why Cook would sell out his own country by serving as its adversary’s mouthpiece.  But we should understand that’s exactly what he’s doing, and as a result ignore his homilies, and direct at him the scorn he so richly deserves.

After literally years of delays and false starts, the International Energy Exchange (a subsidiary of the Shanghai Futures Exchange) will launch its yuan-denominated, China-delivery crude oil futures contract on Monday.

Will it succeed?  Well, that depends on how you measure success.  No doubt it will generate heavy volume.  Speculative enthusiasm runs deep in China, and retail traders trade a lot.  They would probably make a guano futures contract a success, if it were launched: they will no doubt be attracted to crude.

Whether it will be a viable and successful contract for commercial market participants is far more doubtful.  Its potential to become an international benchmark is even more remote.

For one thing, most successful commodity futures contracts specify delivery in a major production area that is connected to multiple consumption regions, but the INE contract is at a major consumption location.  This will increase basis risk for non-Chinese commercials, even before taking into account the exchange rate issue.  Considering the cash basis (the cash-futures basis is more complicated), basis risk between a delivery location and a location supplied by that delivery point is driven by variability in transformation costs, most notably transportation costs.   The variance in the basis between two consumption locations supplied by a delivery point is equal to the variance in the difference between the transformation costs to the two locations, which is equal to the sum of the variances, minus 2x the covariance.  This is typically bigger than either of the variances.  Thus, non-Chinese hedgers will typically be worse off using the INE contract than the CME’s WTI or DME’s Oman or ICE’s Brent, even before liquidity is considered.

In this respect, the INE’s timing is particularly inauspicious, because the US crude oil export boom, which is seeing large volumes go to Asia and China specifically, has more tightly connected WTI prices with Asian prices.

I deliberately say “transformation costs” (rather than just transport costs) above because there can be disparities between international prices and prices in China due to regulations, currency conversion issues, and taxes.  I don’t know the details regarding the relevant tax and regulatory regime for oil specifically, but I do know that for cotton and other ags the tax and quota regime has and does lead to wide and variable differences between China prices and ICE prices, and that periodic changes in this regime create additional basis volatility.

Related to transformation costs, the INE has implemented one bizarre feature that is likely to undermine contract performance.  Specifically, it is setting a high storage rate on delivery warehouses.  The ostensible purpose of this is to restrain speculation and reduce price volatility:

One of its strategies to deter excessive price swings is to set related crude storage costs in China at levels that are at least twice the rate elsewhere. That’s seen discouraging speculators interested in conducting so-called cash and carry trades, which seek to take advantage of differences between the spot price and futures of a commodity.

This will be highly detrimental to the contract’s performance, and will actually contravene the intended purpose.  Discouraging storage will actually increase volatility.  It will also increase the volatility in the basis between the INE price and the prices of other oil in China.  The fact that discouraging storage will make the contract more vulnerable to corners and squeezes will further increase this basis volatility.  This will undermine the utility of the contract as a hedging mechanism.

Where will hedging interest for the contract come from?  Unlike in say the US, there will not be a large group of producers will big long positions that they need to hedge (in part because their banks insist on it).  Similarly, there is unlikely to be a large population of traders with inventory positions, as most of the Chinese crude is purchased by refiners.  The incentives of refiners to hedge crude costs are limited, because they have a natural hedge: although they are short crude, they are long products.  To the extent that refiners can pass on crude costs through products prices, their incentives to hedge are limited: this is why there is a big net short futures exposure (directly and indirectly) by producers, merchants and processors in WTI and Brent: sellers of crude (producers and merchants) have an incentive to hedge by going short futures because they have no natural internal hedge, and the big refiners’ natural hedge mutes their incentive to take long positions of commensurate size.

Ironically, regulation–price controls specifically–may provide the biggest incentive for refiners to hedge.  To the extent they cannot pass on crude cost increases through higher product prices, they have an incentive to hedge because then they have more of a true short exposure in crude.  Moreover, this hedging incentive is option-like: the incentive is greater the closer the price controls are to being binding.  I remember that refined product price restrictions have been a big deal in China in the past, resulting in periodic standoffs between the government and Sinopec in particular, which sometimes involved fuel shortages and protests by truckers.  I don’t know what the situation is now, but that really doesn’t matter: what matters is policy going forward, and Chinese policies are notoriously changeable, and often arbitrary.  So the interest of Chinese refiners in hedging will vary with government pricing policy whims.

If hedging interest does develop in China, it is likely to be the reverse of what you see in WTI and Brent, with hedgers net long instead of net short.  This would tend to lead to a “Keynesian contango” (the Canton Contango? Keynesian Cantongo?), with futures prices above expected future spot prices, although the vagaries of Chinese speculators make it difficult to make strong predictions.

Will the contract develop into an international benchmark? Left to its own devices, this is highly unlikely.  The factors discussed above that create basis risk undermine its utility as an international benchmark, even within Asia.  But we are talking about China here, and the government seldom leaves things to their own devices.  I would not be surprised if the government explicitly requires or strongly pressures domestic firms to buy crude basis Shanghai futures, rather than Brent or WTI.  This contract obviously involves national prestige, and being launched at a time of intense dispute on trade between the US and China I suspect that the government is highly motivated to ensure that it doesn’t flop.

Requiring domestic firms to buy basis Shanghai could also force foreign sellers to do some of their hedging on INE.

Another issue is one I raised in the past, when China peremptorily terminated trading in stock index futures.  The prospect of being forced out of a position at the government’s whim makes it very risky to hold positions, particularly in long-dated contracts.

All in all, I don’t consider the new contract to be transformative–something that will shake up the world oil market.  It will do better than the laughable Russian Urals oil futures contract (in which volume over six months was one-third of the projected daily volume), but I doubt that it will develop into much more than another venue for speculative churn.  But like all things China, government policy will have an outsized influence on its development. Refined product pricing policy will affect hedging demand.  Attempts to force firms to use it as a pricing mechanism in contracts will affect its use as a benchmark, which will also affect hedging demand.

If you are looking for a metric of success as a commercial tool (rather than of its success as a money making venture for the exchange) look at open interest, not volume.  And look in particular in open interest in the back months.  This will take some time to build, and in the meantime I imagine that there will be a lot of awed commentary about trading volume.  But that’s not the main indicator of the utility of a contract as a commercial risk management and price discovery tool.

Update. I had a moment to catch up on Chinese price regulations.  The really binding regulations, which resulted in shortages and the periodic battles between Sinopec and the government date from around 2007-8, when (a) oil prices were skyrocketing, and (b) I was in China teaching a course to Sinopec and CNPC execs, and so heard first-hand accounts.   These battles continued, but less intensely post-Crisis because the controls weren’t binding when prices collapsed.  Moreover, the government adopted a policy that effectively implemented a peg between crude and refined prices, but only adjusted the peg every 22 days and only if the crude price had moved 4 percent.  Subsequently, in 2013, Beijing revised the policy, and eliminated the 4 percent trigger and shortened the averaging period to 10 days. Then in 2015, after the collapse in oil prices, China suspended this program.  A few months later, it introduced a revised program that makes no adjustments to the price when crude falls below $40 or rises above $130.

Several takeaways.  First, at present the adjustment mechanism reduces the incentives of refiners to hedge crude prices.  Under the earlier adjustment system, the lags and thresholds would have created some bizarre optionality that would have made hedging decisions vary with prices in a highly non-linear way.  The system in effect from 2015 to 2016 would have created little incentive to hedge because the pricing system imposed hardly any constraints on margins that were allowed to vary with crude prices.

Second, the current system with the $40 floor and $130 ceiling actually increases the incentive to hedge (relative to the previous system) by buying futures when prices start to move up towards $130 (if that ever happens again).  That’s actually a perverse outcome (triggering buying in a rising price environment, and selling in a falling price environment–positive feedback loop).

Third, and most importantly, the policy changes often, in response to changing market conditions, which reinforces my point about the new futures contract being subject to government policy whims.  It also creates a motive for a perverse kind of speculation–speculation on policy, which can affect prices, which results in changes in policy.

One thing I should have mentioned in the post is the heterogeneity of refiners in China.  There are the big guys (Sinopec, CNPC, CNOOC), and there are the independents, often referred to as “teapot refineries.”  Teapots might have more of an incentive to hedge, given that they are in more tenuous financial straits–but those very tenuous straits might make it difficult for them to come up with the cash to pay margins.  And even they still have the natural hedge as long as price controls don’t bite.  It’s worth noting, however, that Chinese firms have a penchant for speculating too. I wouldn’t be surprised if some of the teapots turn plunger on INE.

Government policy towards the independents has been notoriously volatile–I know, right? In 2015, China granted the independents the right to import oil directly.  Then in late-2016 it thought that the independents were dizzy with success, and threatened to suspend their import quotas if they violated tax or environmental rules.  As always, there are competing and ever changing motives for Chinese policy.  They’ve lurched from wanting to protect the big three and drive consolidation of industry to wanting to provide competitive discipline for the big three to wanting to rein in the competition especially when the independents sparked a price war with the big firms.  These policy lurches will almost certainly affect the commercial utilization of the new futures market, even by Chinese firms.

Updated update. The thought that cash-and-carry trades are some dangerous speculative strategy puzzled me–it’s obviously not a directional play, so why would it affect price levels. But perhaps I foolishly took the official explanation at face value.  Chinese firms have been notorious for using various storage stratagems as ways of circumventing capital controls and obtaining shadow financing.  Perhaps the real reason for the high storage rate is to deter use of the futures market to play such games.  Or perhaps there is a tax angle.  Back in the day futures spreads were a favored tax strategy in the US (before the laws were changed and the IRS cracked down), and maybe cash-and-carry could facilitate similar games under the Chinese tax code.  Just spitballing here, but the stated rationale is so flimsy I have to think there is something else going on.

The outrage du jour is that a firm that worked on the Trump Campaign, Cambridge Analytica, had sucked up, and then retained, Facebook data on 50 million users.  The sucking up apparently occurred with Facebook’s approval and knowledge, the retention not.

I am highly confident that this is being treated as Armageddon primarily because of CA’s work for Trump.  Why am I so confident?  Because the 2012 Obama campaign did as much, or worse (a) with Facebook’s knowledge and support, and (b) without attracting anything close to the same criticism.  Indeed, quite the opposite: the Obama campaign’s supposedly innovative use of Facebook data to shape its strategy was the subject of fawning, slobbering praise from virtually the entire media.  Privacy, shmivacy! It helped Obama, so it’s good!  And besides, it proved how much more hip and with it those cool Obama people were, as compared to those fuddy-duddy Republicans.

And as I say, the Obama effort was massive, and occurred with Facebook’s knowledge.

Just like Orwell wrote in Animal Farm: All animals are equal, but some are more equal than others.

As it turns out, the Cambridge Analytica effort was less decisive than previously reported, and was arguably irrelevant to the outcome of the campaign.  Perhaps the Obama campaign’s use of Facebook was similarly overhyped.  Not that we’ll ever know, given the media’s clear preference to give the Sainted One’s administration tongue baths, rather than critical coverage.

The rah-rahs that Facebook gave to the Democrats sucking up of its entire “social graph,” and  Sheryl Sandberg’s email exchange with John Podesta in which he said that he looked forward to “working with you” to elect Hillary, and she replied that she wanted Hillary to “win so badly” raise serious concerns about how in Facebook’s political Farmville, Democratic animals are much more equal than others.  This in turn makes it worthwhile to revisit an idea that I mooted many moons ago, and which has subsequently gained some traction: regulating Facebook, Google, Twitter, and other social media.  It relates directly to my proposal to regulate them as common carriers, subject to a non-discrimination requirement.

It is clear that these companies have a political agenda, and that that agenda is relentlessly left and pro-Democrat.  Well, so does the New York Times and the rest of the “elite” media, so why just regulate Facebook et al?

Two reasons.  The first is the one I gave in the earlier post.  That unlike traditional media, due to network effects these companies have market power.  They fit very well into the common carrier framework in that regard.

The recent events bring out another reason.  Whereas the NYT or CNN blatantly broadcast their bias, and it is there for all to see, the same is definitely not true of Facebook, Google, and Twitter.  They can readily engage in partisanship in very insidious ways that are virtually impossible to detect.  The algorithms that Facebook uses to push content, or now censor content; that Google uses to slant search results; and Twitter uses to censor, ban, and shadow block, are utterly opaque to outsiders.  Meaning that whereas if I feel particularly masochistic and decide to read the NYT or watch CNN, I can identify and correct for the bias, I cannot readily do so when interacting with the social media and search platforms.

The second point means that a common carrier-like non-discrimination requirement is not sufficient, given the opacity of the platforms: unlike, say, price discrimination by a railroad, political discrimination by Facebook is unlikely to be observable to those who are adversely affected.  To be effective, therefore, common carrier status would have to be accompanied by a more or less intrusive means of auditing these platforms and their algos.

As a classical liberal, I do not advance this proposal with glee, although as I noted in my earlier post the idea of common carrier regulation is rooted in classical liberal jurisprudence and thought.  But the deep politicization of powerful network industries, and their Animal Farm ethos, pose a serious threat to the political system.  Life is about trade-offs, and the perfect is the enemy of the good.  These platforms are subject to little economic competition, and pose a grave threat to political competition.  They need to be constrained, before they do even more damage.

A Wall Street Journal supports McCabe’s termination, but then proceeds to lament:

All of which should have been cause for Mr. Trump to let the dismissal speak for itself, but the President is too self-involved for such restraint. Instead he tweeted on Saturday, “Andrew McCabe FIRED, a great day for the hard working men and women of the FBI – A great day for Democracy.” [Emphasis added.]

How clueless can they be? Facts speak for themselves? About Trump? Now? Give me a break.

The legacy media (to which the “news” sections of the WSJ firmly belongs) does not report facts and let people decide for themselves.  They spin these facts relentlessly, and in an outrageously biased way, especially where Trump is involved.

We saw this–and are seeing it–in the McCabe episode.  The stock media line is that Trump fired McCabe, and did so out of revenge as part of an attack on respected American government institutions. It was a classic case of the old expression about a lie making it half-way around the world before the truth puts on its shoes.  And this would have been the nearly universally accepted narrative had Trump remained silent, or delivered a temperate statement.

For better or worse, Trump feels obliged to fight fire with fire.  And it is understandable that he feels that way.  He is meeting rhetorical extremism with rhetorical extremism. This is war to the knife, and the WSJ treats it like croquet.

We are in a bad equilibrium.  We have a vicious and fundamentally dishonest media and political class that is out to destroy.  I can guarantee that the optimal response to this strategy is not “let the facts speak for themselves.”  The optimal response is something more along the lines of what Trump is doing.

A let the facts speak for themselves strategy would make more sense in a more balanced and less strident media environment where contending sides could keep one another relatively honest, and where there would be a penalty for flagrant and repeated misrepresentation by a particular media outlet–contending factions in the media would check and balance one another, and an intra-media adversarial process would facilitate the identification of facts.  But that’s not the environment we have now, with the overwhelming ideological hegemony in the politco-media class.  In such an environment, shouting louder and taking no prisoners is a best reaction.

This is yet another illustration of what I have been writing since Trump became recognized as a serious challenger for the Republican nomination: Trump is the creation of our current politico-media culture, not its creator.  Whether by accident or cunning, he has seized upon what may be the only strategy to succeed or even survive in opposition to the establishment political culture.  Anyone following the WSJ’s tut-tutting advice to take the high road  would be road kill in smack dab the middle of it.  Trump may end up as road kill, but he has a chance of survival and more by brawling and trash talking, and rallying his tribe to fight tooth-and-nail against the tribes attacking him.

If you hate his strategy, what you really hate is the game and the other players: because his is a response to them.

If you don’t like Trump, or his style, I can understand: but don’t be superficial about it.  Think a little bit more deeply about how he could ever emerge, if he is such a horrible human being.  If you do, you will  realize that he is but a symptom of a deep degradation of American political culture, driven largely by the homogenization of the media and the political class, and its isolation from and disdain for vast swathes of America.  And when those people condemn Donald Trump, they are really condemning themselves, for they made him–but they are just too absorbed in their own self-righteousness to figure that out.

Or the Joe Hooker entrance to the Massachusetts State House, anyways.  In a further illustration of the descent of the US into PC madness, MA State Rep. Michelle DuBois (D-Plymouth)  is calling for the removal of a sign designating one entrance of the State House as the General Hooker Entrance because it is an “affront ‘to women’s dignity.'”

Oh please. Fightin’ Joe’s last name has been a source of much tittering over the years.  (Tittering–can I say that? Or will that trigger Mizz DuBois too?) Some have claimed that his name inspired the slang for “prostitute” but that has long been disproven.  Yes, Joe’s moral character was rather dubious, but hardly that bad.

Why did Massachusetts honor Hooker with a statue, and emblazon the entrance to the State House facing said statue with his name?  Well, Hooker’s Civil War record was largely creditable, with a few exceptions.  He was a very solid division and corps commander, both in the Army of the Potomac and the Army of the Cumberland.  His rejuvenation, reorganization, and reform of the Army of the Potomac after the disaster and deep demoralization of the Burnside era was truly remarkable, and laid the foundation for the Army’s eventual triumph.

Hooker’s initial moves in the Chancellorsville Campaign were excellent, and seriously wrong-footed Lee.  Then, as Hooker himself said, Joe Hooker “lost confidence in Joe Hooker.”  Rather than pushing out of The Wilderness, he stopped his advance and left the initiative to Lee.  Lee launched Jackson against Hooker’s right flank, which Oliver Otis “Uh-oh” Howard failed to post properly.  Even after Jackson’s stunning flank attack, Hooker could have prevailed, but he made some fatal errors (notably ordering Sickles to withdraw from Hazel Grove, thereby gifting the Confederates with an artillery position that dominated the Union lines, and then withdrawing from an extremely strong position that Lee could not have possibly driven him from) and eventually slunk away from the battlefield.

Ironically, given the location of his statue, Hooker’s biggest flaw was politics.  He was an inveterate schemer who attempted to advance himself by pulling down his superiors, in part by saying nasty things about them to politicians.

But all in all, Hooker’s accomplishments were not undeserving of memorialization by his native state. Who else would Massachusetts so honor? Its other sons who reached army command–Ben Butler and Nathaniel P. Banks–were serial disasters as commanders, and only reached and retained their elevated positions because they were prominent Massachusetts politicians. For all his flaws, Hooker far outshone them.  (The other Civil War general to have a statue on the State House grounds, Charles Devens, was a rather undistinguished division commander–including ironically in Howard’s XI Corps at Chancellorsville–whose post-war career that culminated in his service as Attorney General in the Hayes administration was actually much more impressive than his war service.)

But service and achievement in America’s greatest historical episode is irrelevant to twits (that’s with an “i”, people) like Rep. DuBois. Their sensitive feelings must come first, history be damned.

This is yet another example of iconoclasm as an assertion of power by those with an agenda.  Hooker fought against slavery, and was indeed closely aligned with the Radical Republicans.  Perhaps that was merely political opportunism on Hooker’s part, but it definitely went against the grain in the high command of the Army of the Potomac, which was adamantly opposed to waging war on slavery.  You’d think that would win Joe some plaudits from Mizz DuBois–but no! His name is an affront to her dignity, and what’s more important than that?

In the aftermath of a disastrous defeat at the Battle of Minorca in 1756, the British hanged shot the losing Admiral John Byng for a “failure to do his utmost.” [Thanks to pedant2007 and Tim Worstall for the correction re the means of execution.] . Voltaire sardonically remarked that the real reason for Byng’s execution was “Dans ce pays-ci, il est bon de tuer de temps en temps un amiral pour encourager les autres“–“In this country, it is wise to kill an admiral from time to time to encourage the others.”

Former Deputy Director of the FBI, Andrew McCabe is at risk of being fired before he can quit. If Attorney General Jeff Sessions follows the recommendation of the FBI’s Office of Professional Responsibility and terminates him, McCabe will lose his pension.

From what we know, McCabe clearly warrants such treatment on the merits,  far more than Admiral Byng deserved for the treatment meted out to him.  But there is an additional reason to terminate McCabe: Voltaire’s reason.

“Les autres” in the FBI and the rest of the US intelligence and security apparatus have to know that they are accountable. Alas, the execrable, loathsome, abominable James Clapper has escaped accountability for his clear criminal conduct.  Since he has escaped, all the more reason to let McCabe swing–for encouragement to others in the security state.  To let those who operate in the shadows know that they are at risk if they cross the line.  This is important, because there is every indication in the conduct of many of them that they believe that they can act with impunity, at no personal risk.

Many of the DC pilot fish swarming around the security establishment sharks–including, remarkably, many leftists who once upon a time excoriated the FBI and CIA–are wringing their hands at the prospect that a man so long in public service could be disgraced and punished.  That’s exactly the point: “public service” of the sort that McCabe rendered is actually a public menace, which should be stamped out with malice aforethought.

There is also the issue of the stark hypocrisy that runs rampant in DC.  Mike Flynn pled guilty to lying to the FBI in order to avoid financial ruin.  In the view of the Office of Professional Responsibility, FBI agent McCabe lied to the FBI: why should Flynn–whose record of public service is far longer and more distinguished than McCabe’s–swing twisting in the wind while McCabe retires on a public sinecure? Especially since Flynn probably did not lie to the FBI, and the conduct that the FBI was questioning him about (communications with a foreign government while he was a high ranking member of an incoming administration) was legitimate, whereas McCabe almost certainly lied to his own FBI as part of an illegitimate coverup of illegitimate exercise of his power.

Which means that merely denying McCabe his pension would still be too light a punishment in view of what Flynn could suffer: whatever penalty is imposed on Flynn, McCabe should get far worse.

If Sessions wusses out and lets McCabe skate, the consequences will be baleful, especially in light of Clapper’s dancing past the statute of limitations.  It will be clear that those in the FBI and CIA can act with impunity.  They will probably think that their risk of punishment for misconduct is low even if Sessions axes McCabe, but at least there will be a nagging doubt in the backs of their pea picking minds.

And that would be somewhat encouraging, anyways.

Relations between Russia and the West–most particularly the UK, but the US, France, and Germany as well–are being roiled by the poisoning (using a nerve agent) of a former Russian double agent,Sergei Skripal, who had been exchanged for Russian spies in 2010.

So whodunnit?

I have no idea. And anyone who claims they know is full of it.  We have a very limited set of facts that can fit any number of competing–and indeed mutually exclusive–hypotheses.

Occam’s Razor says that an individual or individuals with connections to the Russian security services is responsible: who else would have access to a particularly nasty nerve agent developed under great secrecy and produced in large quantity in the USSR?*

Vladimir Putin certainly qualifies as an individual with connections to the Russian security services, and the reflexive reaction by many in the West has been to blame him personally.  However, although Putin is a member of the set of individuals with connections to the Russian security services, the set is not a singleton: there are thousands, and perhaps tens of thousands, of other members.  Some of these may not even be in the security services (e.g., mafia elements or an oligarch whom Skripal double crossed).

Like many in his profession, Skripal was a fundamentally dishonest man who could play both sides.  Men like that make many enemies.  His attempted murder could be very similar to Murder on the Orient Express, where the problem is not the lack of suspects, but a surfeit thereof.

My suspicion is that Skripal was far too minor a player, and one too far beyond his sell-by date, to warrant Putin’s personal attention.  But this cannot be ruled out.  Given the seismic consequences of such an act, the implications of Putin’s personal involvement would be ominous indeed.  He would be risking a superpower confrontation over a has-been: and for what? To gain a momentary burst of popularity to secure an electoral victory that was inevitable in any event?  A sort of burning of the boats, to bind Russians to him in opposition to the West?  To provoke a confrontation?

These are not inconceivable possibilities, but they seem so extreme–which is why that I am skeptical that Putin was involved directly.

The “Putin did it” claim that is so widely repeated is largely a reflection of the cartoon image of a Russia in which Putin is all knowing, all seeing, and all powerful, and where nothing in Russia, not even the fall of a sparrow, occurs but at his direction.

An alternative explanation is actually more plausible–and more frightening.  That there are elements with connections to the Russian security services who can carry out such an act without Putin’s permission.  The prospect of rogue elements operating in such a reckless way is truly sobering, especially since one predictable consequence is to create a confrontation between superpowers.

I have no doubt there are elements in Russia who want to provoke such a confrontation. Which is a reason to remember that however bad Putin is, his potential successor could be far worse.

The fundamental problem here is that Russia is so opaque, and there are so many scary types operating in the shadows, that it will be impossible to fix responsibility with any precision. We know Putin’s address, and his previous acts–real and imagined–make it emotionally satisfying to many to give him a knock. But we cannot know with any certainty–and we run the risk that even more ominous figures are counting on such a reaction in order to bring on a confrontational crisis.

The most likely outcome is an even greater estrangement between Russia and the West, and the potential return of a Cold War with a temperature approximating that in the 1950s.  Unless the perpetrators were mouth-breathing idiots similar to the criminals in Fargo, they would have known that this would be the result.  Tragically, the list of those who might have such an agenda is long indeed, and for all the hyperventilating, I don’t put Putin on the top of it.  It would actually be better if it was as simple as that.

Fools rush in where angels fear to tread.  And angels surely fear to tread in the netherworld of the Russian security services.

*It pains me to acknowledge that the credibility of Western security services, including notably MI6 and the CIA, has been so compromised as of late that the credibility of the claim that Skripal and his daughter were poisoned by Новичок is less than absolute.

If you didn’t think the Rosneft-Glencore-QIA-Intessa-CEFC deal could get more bizarre–WRONG! Today Reuters reports that during the period of time that Chinese Firm of International Mystery CEFC agreed to buy a 14.6 percent share in Rosneft from whom it was parked initially–Glencore and QIA, funded by Intessa Saopaolo and ???–it was paying loan-shark rates to secure short term financing:

But from at least the second half of last year CEFC was approaching shadow bankers – non-traditional lenders – for costly short-term loans, said six sources with direct knowledge, in a sign of the strained liquidity the company was facing.

In early January, CEFC borrowed 1 billion yuan ($158.00 million) from the Shanghai-based Bida Holding Group, also known as U.Trust Holding Group, for a 15-day loan with a daily interest rate of 0.1 percent, equivalent to an annual interest rate of 36 percent, said one person with direct knowledge of the matter.

And, of course, it was recently revealed that the head of the CFIM–Ye Jianming–is under investigation for “economic crimes.” And an arm of the government of Shanghai has taken control of CEFC Energy–the part of the convoluted group that actually agreed to buy the Rosneft shares. Given the news relating to CEFC’s desperate need for funds in the shadow banking market, this now is quite clearly a shadow bailout.

More puzzles: at the time the deal was announced CEFC made a “huge” initial payment. To whom? Where is the money now? Glencore states that it anticipates the deal will close in the first half of 2018–meaning that they haven’t been paid.  Intessa says “no problema! The deal will-a get-a done!” Meaning it hasn’t been done and they are still on the hook.  The Qataris of course say nothing.

So where’s the money? Show me the money!

Some great due diligence by all involved, no? Sell out to a virtually unknown company with the creditworthiness of a busted racetrack punter. No doubt everyone was too anxious to get out to look too closely at the buyer, and perhaps they took it for granted, or on faith, or something, that CEFC was really a stalking horse for the Chinese government, and so no worries!

The Rosneft “privatization” has been opaque since day one.  And no surprise, as it involves a convergence of the most opaque entities on the planet: Russia, China–specifically a virtually unknown Chinese conglomerate with apparent ties to the Chinese security apparatus–Middle East investors, and a Swiss commodities firm.  Have them walk into a bar, and you have the beginnings of a great joke. Put all these together, and you get a black hole from which no light can possibly emerge.

And I say again: the one entity that should be shedding light because it is a listed public company in the UK–Glencore–provides little more information than the other conspirators involved in this drama.  The FCA should be all over Glencore like flies on cow pies. But it isn’t–although the recent Beaufort Securities scandal suggests its lassitude should be no surprise.

So what happens next? I have no idea. But whatever happens, there’s no guarantee that the world at large will know what actually happens, given this lot of opaque–and unaccountable–participants.

It is very telling that the FT chose an iconic photograph of the Hatfields to illustrate its latest act of cultural condescension.  In doing so, it is repeating a stereotyping meme for the exact reason that the meme developed in the late-19th century.

The Hatfield-McCoy feud achieved national prominence, and became the archetypal mountain feud of the 19th century.  The story resonates to this day: in 2012 Kevin Costner starred in a History Channel miniseries on the feud, and there are well over 100 books about the feud on Amazon.

Why did this episode in the West Virginia-Kentucky backwoods attract such attention? The intense coverage was largely a product of the growing urbanization of America, and the conscious and unconscious desire to distance a modernizing country from its rugged pioneer past. East Coast newspapers covered the feud for years, and portrayed the protagonists as backwards reprobates. The Hatfields and McCoys were foils for an urbanizing nation: see how different we are from those hillbillies!

This is why there are so many photographs of the Hatfields in particular, and why they were posed with guns–this is the image that coastal elite wanted to see, and how they wanted to portray the kind of people whom had once been viewed as ideal Americans–think Daniel Boone and Davy Crockett, who were viewed and portrayed as rugged pioneering mountain men blazing new frontiers for freedom. But in the late-19th century press they were transformed into ominous, dangerous throwbacks.

Which is exactly the message conveyed in the FT oped, and which is exactly why that image was chosen.  So the FT doesn’t even score points for originality. They are just recycling a century-plus old slur, to serve a similar purpose.

Lost in the lurid coverage was the fact that a driving force behind the conflict–and in particular its persistence–was a battle for control over timber rights in West Virginia. The Hatfields in particular were trying to resist the inroads of large timber and coal companies, and the McCoys were to a large extent their somewhat witting, somewhat unwitting accomplices.

Another meme that resonated around the same time was the battle between moonshiners and “revenuers,” which also received considerable media attention. The message was pretty much the same: backwards backwoodsmen resisting order and progress. Untamed anarchy vs. social control exercised by progressive forces embodied in government. (This was a meme in the Whiskey Rebellion too.)  Wild borderers vs. civilization.

Again, there is little new under the sun. Political battles and the tactics employed therein may appear to be different, but they are often merely echoes or mutations of conflicts that have been raging for centuries. The FT’s use of a long-ago image that gained prominence because it conveyed a political and sociological message to frame a story about a modern political controversy intended to convey a very similar political and sociological message demonstrates that perfectly.