Streetwise Professor

January 7, 2022

Kazakhstan: Putin Putting the Band Back Together

Filed under: China,Military,Politics,Russia — cpirrong @ 6:51 pm

Kazakhstan has been rocked by days of massive unrest, including attacks on government buildings (including the presidential palace), and large numbers of killed among both security forces and civilians.

The supposed catalyst for the uprising was a rise in liquid petroleum gas (LPG) prices–LPG being a fuel widely used for cooking, heating, and transportation.

This is plausible. Authoritarian regimes can persist despite a deeply unhappy populace because of coordination problems, exacerbated by preference falsification. A rise in the price of food and fuel hits the entire population, and can serve as a focal point on which masses can rally in coordinated opposition. Many rebellions and revolutions start for such reasons, but once they start they are difficult to contain even if the government reverses the initial catalyst, as Kazakh president Tokayev did with LPG. The opposition has coalesced. People know that many share their broader disgust with the rulers. And their is courage in numbers. So even though the spark has been extinguished, the fire can continue to burn.

But I suspect there is more to it than that. Intra-elite conflict is also likely an important driver. Tokayev had succeeded Nazarbayev, but the latter remained powerful, chairing the Security Council. Shortly after fighting erupted Tokayev fired Nazarbayev. Shortly after that, Nazarbayev and his family fled the country. Tokayev also restored the name of the capital (Astana) in lieu of Nur-Sultan (which was an homage to Nazarbayev). It is therefore likely that a conflict between factions is the real underlying cause of the uprising.

One striking thing is that the oppositionists appear to be fairly heavily armed. That would make sense if many of them are effectively militias for one of the elite factions.

Russia, using the beard of the Collective Security Treaty Organization (a poor simulacrum of the USSR), has intervened, sending paratroops to assist Tokayev in crushing the revolt. Apparently ground troops are also massing at the border, and units from the Far East are also being mobilized.

The speed with which Russia reacted is intriguing. It suggests considerable foreknowledge. Perhaps they had good intelligence, could see what was developing in the country, and were ready to act lickety-split if things went pear shaped–as they did.

Or perhaps the Russians knew because they were behind it. They have exploited unrest in Belarus to bring that country largely under Russian control. They are likely to do the same here. It wouldn’t be the first time a country stoked a revolution in another in order to provide a pretext to move in.

But regardless of whether gaining greater control over Khazakstan by intervening to stamp out a rebellion they stoked is part of a plan, or the uprising merely presents an opportunity to do so, there is little doubt that this will be yet another step in Putin’s ambition to put the band (i.e., the USSR) back together.

And Putin does believe he’s on a mission from God.

That’s the goal, surely. But it is easier said than done. Kazakhstan is an immense country. In point of comparison, it four times the size of Afghanistan. Unrest has already spread to all major cities. Yes, it looks like the capital of Astana (at least the government areas) is back under control, but securing many far flung cities and maintaining lines of communication would require far more troops than Russia has. (Recall how quickly it secured Kabul in 1979. Recall how securing Kabul did not translate to controlling the country.) And securing the countryside–forget about it.

Indeed, the immensity of the task is one reason to believe Russia did not foment the uprising, but is instead extemporizing.

Further, this presents a great opportunity for the United States to wage asymmetric warfare against Russia. You know that will be alleged–hell, the government has already blamed it on foreigners. In this case, it is likely to be true. Which will increase the cost of Russian intervention.

Another couple of points. First, although Russia has garnered all the attention, the elephant in the room is China. China borders Kazakhstan. Crucially, Xinjiang borders Kazakhstan, and China is neuralgic about that Muslim province. Moreover, China has extensive economic interests in Kazakhstan. Even though Putin and Xi have been lovey-dovey of late, that’s only been where their interests aligned. There is some alignment of interests in Kazakhstan–neither wants to see it descend into chaos or worse yet assert its independence–but Xi also has no interest in seeing Russia become dominant there and muscle out China. Russia attempting to dominate Kazakhstan will create friction in China.

Second, Ukraine may catch a break for once. The paratroops that Putin dispatched to Astana would be the spearhead of any invasion of Ukraine. Moreover, Russian military capacity (manpower, logistics) is likely insufficient to execute two large operations over such vast spaces (and on two different axes to boot). As noted above, Kazakhstan’s vastness can easily gobble up large numbers. If the Russian involvement in Kazakhstan proves more than fleeting, and especially if it absorbs tens of thousands of troops (not to mention the logistical resources necessary to operate in such a huge country), its ability to attack Ukraine will be reduced commensurately.

Sometimes revolutionary fervor dies out almost as quickly as it starts. But sometimes it doesn’t. Geography alone makes crushing the revolution difficult. And those difficulties may make Kazakhstan Putin’s Ulcer.

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December 26, 2021

No Blood For Batteries?

Filed under: China,Climate Change,Economics,History,Military,Politics,Russia — cpirrong @ 5:46 pm

The latest hyperventilation over Russia relates to the alleged involvement of the Wagner Group–Russian mercenaries/paramilitaries–in Mali. Wagner is run by “Putin’s Chef,” Yevgeny Prigozhin.

Russia denies involvement. Wagner denies involvement. Mali denies involvement. Since none of them are remotely trustworthy, I will accept as true that Wagner (or some other Russian entity) is involved.

At one level, one could answer “So what?” or even “Good!” Western militaries, notably American and French, have been involved in the Sahel for years. The US involvement has been marked by some tragic events, notably the destruction of a US Army Special Forces team in Niger and a murder of a Green Beret by other US special operations members in Mali. France recently withdrew its troops from Mali after 8 years of inconclusive fighting that resulted in the deaths of 52 French soldiers, including a highly decorated special operator. (And which also saw two coups in Mali. So much for creating stability.)

The American and French efforts had little effect on Muslim insurgents. So why not let the Russians have a go, if the real objective is to kill Salafists–and the objective isn’t worth American or French lives?

But this level is likely a very superficial one, and that is likely why there has been such alarm at Russian involvement. West and central Africa, including the desolate Sahel region, are now the cockpit of a 21st century version of a “great game” not so much because of ISIS or Al Qaeda, but because of . . . batteries.

And unlike the Great Game of the 19th century, which involved Russia and Great Britain, the 21st century game in Africa involves Russia, the West (especially but not exclusively the US), and notably China. The largely desolate and desperately poor region which the world’s richest nations are contesting is of increasing importance because it is disproportionately endowed with materials like lithium, copper, and cobalt, all essential for the manufacture of batteries or other components for electric vehicles that the alleged green elites in the West claim will be our climate salvation.

And don’t think that the Salafists are solely motivated by religious fervor–they no doubt understand the economic calculus as well. If oil made Saudi Arabia, another otherwise desolate and impoverished region, what economic power could control over lithium, copper, and cobalt create? Oil fueled Wahhabism. EV materials could well fuel another radical Islamist movement.

A rallying cry of the left, and especially the environmentalist left, from the 70s onward was “no blood for oil!” No doubt their CO2 monomania, and the resultant obsession with electrifying everything and especially electric vehicles, has blinded them to the inevitable if unintended consequences of their idée fixe.

Specifically, realizing their vision will require vast amounts of materials. Put aside the environmental consequences of mining for these materials. Focus on the geopolitical consequences. These minerals are found disproportionately in vast, violent, and largely ungoverned spaces. Control over them can be achieved only by violence, and even if violence was not necessary, the incentive for unscrupulous governments and corporations to utilize violence to capture the rents these resources promise (especially in an electronic world) is great indeed.

Furthermore, the powers contending for these resources are facing off on every continent, and are armed with nuclear weapons. What starts in Africa is unlikely to stay in Africa. And something could very well start in Africa. Great Power conflicts almost erupted in Africa on several occasions in the era of imperialism, when the economic stakes were far smaller: what did Fashoda matter, really? Yet Britain and France almost went to war over it. The stakes are far larger now.

Especially in a world obsessed with replacing petroleum with electricity.

Methinks that the evident panic over Russians in one of the world’s armpits really has little to do with the stated reasons: again, why would France or the US mind if Russians killed Salafists, and took the casualties necessary to do it? Instead, the panic is over the prospect of an impending struggle between the US/Western Europe, China, and Russia over a vital economic resource in an ungoverned region that requires organized violence to control it.

Environmentalists are so absorbed in their monomania that they are oblivious to the unintended consequences thereof. They have lectured us for years about no blood for oil. What about blood for batteries? Because that is the inevitable consequence of replacing the former with the latter.

They need to be forced to face this reality and to own the consequences of their obsessions. Now.

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December 16, 2021

You’ll Travel the Road to Serfdom on Public Transport–Oh Joy!

Filed under: China,History,Politics — cpirrong @ 6:57 pm

The private automobile has been the greatest liberating invention in history. Before the automobile, individual horizons extended a few miles for most. With the privately-owned car, billions of people have been able to travel where they want when they want. It has made it possible to separate considerably the workplace from the living place. It has expanded the range of stores and restaurants and service suppliers available to people. It has made travel–sometimes at a whim–possible in ways it was not possible before its widespread use.

So of course the world’s “elites” hate the automobile. Because they hate personal freedom.

A couple of data points.

First, consider this from the UK: “Car Ownership Could End in Massive Overhaul of UK Roads.”

A few excerpts (but read the whole thing):

GOVERNMENT transport ministers have backed calls to end private ownership of vehicles in a major overhaul.

She said the country needed to move away from its “20th-century thinking centred around private vehicle ownership”.

She added it was “staggering” almost two-thirds of trips were conducted by lone drivers.

How dare those proles weight the benefits and costs of going where and when they want alone vs. coordinating with others!

The Government has repeatedly stressed the need to switch from a reliance on cars to other forms of transport.

Oh, if the government says so . . . Better not disagree with our betters, given how remarkably competent governments are!

They said this was one of the “biggest opportunities” to switch short car journeys to cycling and walking.

In the rain? In the snow? When it’s 90 degrees? When its 20 degrees? At night? If you are elderly or infirm? If you’ve worked all day and really don’t want to walk 3 fucking miles? If you are going to the grocery store to pick up a week’s groceries for a family of 4?

I could go on.

Supposedly new technology will allow various forms of ride sharing.

Have they heard of Uber? Lyft?

People have always had the option to ride share. They typically choose otherwise. For obvious reasons. They have more options now. And again, they typically choose otherwise.

One wonders if these people actually live in the real world.

They also tout public transport. Which has been the hobby horse of the control freaks since forever, and with few exceptions driven by urban density and legacy investments has been a massive financial black hole. Further, although sitting in traffic is often a bad experience, being tied to public transport and exposed to the crowding, crime and assorted lunatics that it entails, not to mention the lack of flexibility, is quite often far worse than driving bumper-to-bumper. Which is why people choose not to use it, and why it is a financial black hole.

Again, let people choose. But no–that’s not the elite way! We’re too stupid to choose. We choose wrong.

Another data point:

“The Government is Your Next Car Passenger.”

Section 24220 of the [“infrastructure” law], titled Advanced Impaired Driving Technology, directs the secretary of transportation to issue a rule within three years requiring advanced impaired driving technology in all new vehicles, although the rule may be delayed if the technology is not ready for implementation. Automakers have up to three years after the rule is issued to comply.

Now, as written (though vaguely) this technology will be limited to detecting/monitoring “impaired driving.” Potentially laudable. But this is the camel’s nose under the tent. The future possibilities are endless. Speed control: all cars in Europe after 2022 must be fitted with speed limiters. Driving is bad for the climate, right? So driving must be limited directly or indirectly, and governments are hot to do that. One proposal in the US is impose a mileage tax. A system that can monitor if you’re buzzed can certainly count how many miles you drive, sober or drunk, send the results to the IRS or whomever, so that you can be charged accordingly. Or maybe you’ll get a mileage ration, and your friendly government sensor will shut down your vehicle when you’ve reached it.

Again the common theme here is that governments do not like the autonomy that private automobiles provide and are moving to impose, inch by inch, limitations on that autonomy. Leftists have always hated the automobile. They’ve always loved public transport. The former gives you freedom. The latter gives them control.

Guess which one they want, and will do anything to achieve?

And it’s not just automobiles. The elite–including the private jet elite–hates airline travel that lets the proles visit family or have a holiday at a pleasant location. Whether through carbon taxes or carbon credit pricing they will squeeze mass air travel like a python.

The main characteristic of serfdom was that people were tied to the land. Serfs moved or traveled at the sufferance of their lords, who almost never granted it. Restrictions on personal mobility whether by car or plane are not quite so draconian, but they rhyme. You will travel the road to serfdom on public transport.

Right now these restrictions are but specks on the horizon. But that is no reason whatsoever to discount them. They are part of a broader agenda, and the mere existence of that agenda and the conviction–and power–of those who advance it makes these restrictions a very, very real possibility.

Whether you want to call them leftists, or progressives, or globalists, or transnational progressives, etc., the “elites” in and out of government (e.g., the WEF, people like Bill Gates or George Soros or Jeff Bezos or Larry Fink) are central planners at heart. They are like Adam Smith’s Men of System, who believe (a) they can arrange society, and people in society, like pieces on a chessboard, (b) only they are possessed of the special knowledge and intelligence to do that arranging, (c) their arrangements are completely rational, and crucially (d) you are too ignorant and/or stupid and/or selfish to know what is rational for society and that as a result you make irrational choices. So your choices MUST be sharply constrained, if not taken away altogether.

For your own good, you know.

Note: most of these people admire China.

It’s all about control, in other words. And if you have been paying attention–hell, if you’ve been sentient–for the past two years you will realize that the push to control you is omnipresent. COVID–or more exactly, the responses to COVID–should give you all the evidence that you need. Most policies, whether it be lockdowns, or masks, or mandated “vaccinations” of dubious efficacy and largely unknown risk profiles, or vaccine passports, and on and on and on, make little if any sense as health measures: at the very least they are not backed by evidence that even remotely matches the fervor with which they are imposed and advocated.

But they do make perfect sense if you conjecture that the real objective is to expand and cement the control of the “elites” over vast swathes of your life. Everything in the last two years has been about depriving you of choice, and giving control of your life to bureaucrats and politicians and the plutocrats who exercise undue influence over them.

That is why these emerging threats to your personal mobility, and the autonomy that provides, need to be taken deadly seriously. They are just one piece of a far broader assault on liberty and autonomy, and a campaign intended to make you just another brick in the wall.

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October 22, 2021

Back, Back, Back–And It’s Outta Here!

Filed under: China,Commodities,Economics,Energy,Manipulation,Regulation — cpirrong @ 6:06 pm

No, this is not a post about baseball, with an outfielder running to the wall only to watch a home run soar over his head. It’s about the copper market, where backwardation (a positive difference between the price for immediate delivery–“cash”–and a futures price) has soared, and inventories have gone yard.

The peak of the frenzy was Tuesday of this week, when at one point the cash-threes backwardation on the London Metal Exchange (LME) soared to $1050/tonne (them’s metric tons, y’all).

That was apparently an intraday price, because the official PM cash-threes back on that day was a mere $382.

The LME is unique in that it trades contracts for specific dates, and so there is a “tom-nex” spread too: the difference between the price for delivery tomorrow, and the price for delivery the day after that. Last Friday, this “daily back” reached $175/tonne–meaning copper delivered Monday was worth $175 more than copper delivered Tuesday. The tom-nex remained over $100 on Monday and Tuesday.

Backwardation on COMEX copper has also jumped recently. Here’s the October 21-January 22 spread(HGV1-HGF2).

Meanwhile, inventories have plummeted, declining to a mere 14,500 tonnes on Tuesday, down from around 250,000 MT in late-August:

So what’s going on? Let me first consider a fundamentals-based story.

The spreads between futures with different maturities for a storable commodity send signals on how to allocate resources over time. When demand is high/supply is low today relative to what is expected in the future, it is optimal to draw down inventories, and prices move away from “full carry” (i.e., spreads that cover the cost of carrying inventory) to incentivize this drawdown. With extreme (but expected to be fleeting) temporal imbalances, it can be optimal to consume all inventories and meet future demand out of future production (because future demand is expected to be lower or supply higher than at present). These extreme temporal imbalances lead to large backwardations to punish storage.

As an aside, that’s why this statement in a Reuters article is incorrect:

Backwardation is supposed to attract metal but this week’s deliveries into LME warehouses have so far amounted to a meagre 9,775 tonnes despite the biggest incentive in the market’s history.

No! Backwardation punishes stockholding–it’s an incentive to move stuff out to be consumed today rather than hold it into the future when it is anticipated to be more abundant.

In some respects, what is going on in copper is similar to what happened in lumber, which I wrote about some months ago. The lumber market went into a huge back due to tight fundamentals and inventories were low.

The good news here is that these price signals indicate that the extreme imbalance is expected to be temporary: copper is scarce today relative to what is expected to be the case some months from now. That’s pretty much what happened in lumber.

So why the temporary scarcity (relative to expected future scarcity)? One plausible explanation is energy prices, which are high now going into the high-demand winter season in the Northern Hemisphere. Due to supply responses that can occur in a period of months but also the seasonal decline in heating and power related energy demand, these prices are likely to fall. Metals refining is energy intensive, so such a rise in energy prices pushes up the metals supply curve today relative to what’s expected in the future: this can produce exactly what we’re seeing in copper, and is also becoming evident in zinc, nickel, and aluminum.

China is of paramount importance in metals refining, so the artificial shortage of power there (caused by price controls and high fuel prices) is exacerbating this problem. Power cutbacks to intensive energy consumers are exacerbating the short term supply disruption.

This points out how the world is hostage to Chinese policy–and Chinese policy mistakes. China has become so important in this area not because it sits atop large, cheap supplies of ores. Low labor costs made it cheaper to locate refining there, even taking into account transport costs. But also, Chinese subsidies of various sorts–financial suppression that makes capital cheap and subsidized power prices–have attracted arguably excessive amounts of capital to metals refining there. And add to that the relative indifference of China to pollution–and metals refining can pollute the air, the water, and the earth: lower environmental standards lead to lower costs and a great incentive to locate production in China.

The fallout from a concentration of metals refining capacity in China is reverberating around the world right now. Not just copper but a variety of metals are going haywire because of the energy-driven supply disruptions in China. Magnesium is just another example.

The former is a fundamentals-based story (albeit one in which central planning has distorted the fundamentals). Is this all that is going on?

Corners can also cause soaring backwardations. The LME was sufficiently concerned about the situation in the market to impose a limit on the amount of daily backwardation to .5 percent of the cash price (which is still a 180 percent annual rate boys and girls). The cash-threes backwardation has fallen by almost two-thirds (to $116/MT today) in the days since.

Fingers have been pointed at Trafigura for loading out large amounts of inventory, thereby exacerbating the tightness. Trafigura says it did so to meet obligations to customers. This would be consistent with the fundamentals story.

But . . .

It is not unknown for firms with large inventory holdings to remove them from the LME to create an “artificial” tightness, or to provide a cover story for a corner. Moreover, if a single firm owns enough inventory to be able to deplete stocks materially on its own, it doesn’t take too large a paper position for it to have a literal corner. Or even if one firm hasn’t cornered, a small number of firms with large physical and paper positions can have a nice little oligopoly that allows them to exercise market power, of which large backwardations are a symptom–and a source of profit. Think of how much money the holder of a large prompt position could make rolling that over at $100+ per day, day after day.

Put differently, fundamental tightness can create market power, and the exercise of this market power can greatly exacerbate backwardations.

The sharp drop in the cash-threes back after the LME intervened lends some plausibility to this explanation. However, a definitive diagnosis requires a deep dive into who was doing what that is not possible based on currently available public information. I am just laying out possibilities here.

Exercising market power in a tight market is sometimes referred to as a “natural corner” and has given some firms that have exercised market power a “get out of jail free” card in the United States.

I’ve just completed a paper on “natural squeezes” that critiques this flaw in US manipulation law. I’ll post it soon.

But when all is said and done, what is going on in copper now is possibly such a natural squeeze: a temporary tight supply and demand situation exploited to exercise market power. Maybe someday we’ll find out.

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September 28, 2021

I Have Returned

Filed under: China,Military,Politics — cpirrong @ 9:30 am

Howdy. Miss me?

My absence was due to a long deferred vacation (a week spent in Paris) and my annual teaching gig at the University of Geneva (which fortunately returned to in person instruction after a year online).

I was originally supposed to go to the Netherlands first, to give a talk at the Erasmus University Leadership in commodity trade & supply networks program (which I also teach in). However, due to the US being, er, “promoted” to being an Orange country (though no longer a Bad Orange Man country!), doing so would have required 10 days quarantine. So I did the talk online, and went to Paris instead.

Given the news accounts of anti-Pass Sanitaire demonstrations and a first hand description of the nightmarish application of that system in the provinces, I had my reservations about how that would go.

Fortunately, however, in Paris anyways the PS BS was rather lightly applied. I started to rate restaurants and other businesses on a GAF scale. Roughly half gave zero fucks. They didn’t even check. A few gave half a fuck, or maybe one fuck, and subjected my awesome CDC card to a cursory glance and did not bother to check whether the name on it matched my passport. One place, near Luxembourg Gardens, required me to show it to 3 different waiters, including apparently the head waiter.

Nor did I see any evidence that the authorities were monitoring compliance. The main evidence of police presence was convoys of cops in tactical gear on motorcycles or in paddy wagons (Pierre wagons?) racing around the boulevards on Saturday (protest day! yay!) sirens wailing.

More than a week prior to departure, I applied online for “Demande de conversion d’un certificat de vaccination étranger en passe sanitaire français (étrangers).” Didn’t hear anything until 2 days after my return, when the French government (a) acknowledged receipt of my “dossier”, and (b) in a separate email, told me that my dossier had been rejected . . . since I had departed France.

We’re in the best of hands, non?

What France did GAF about during my visit was the Australia-UK-US defense deal, which shtupped the French out of a $90 billion contract to build conventional submarines for Australia, and replaced it with a deal to provide nuclear subs and nuclear technology to Australia. The French were incandescent with rage, and it was the lead subject on most news programs for almost my entire trip. (Energy prices were #2 on the hit parade–I’ll post on that in due course.)

Given France’s history of defense unilateralism (de Gaulle, anyone?) the outrage is a bit hard to take. Moreover, as is often the case with such contracts, France’s performance on deadlines and costs was poor, angering the Australians. (Maybe their dilatory response to requests for a PS is representative of their general attitude to timely performance.) Further, from a capability and geopolitical perspective, nuclear boats are far more suitable to contribute to collective defense in the Asia-Pacific, and against China in particular–which is why China was also incandescent with rage. (A good sign! Though they freak out about everything so it’s not that meaningful an indicator.) (Although the extended timeline for delivery means that any real contribution will benefit any college-aged readers I have.)

That said, the way that the deal and announcement were handled was appalling. It was a public humiliation for France, and indeed, almost seems like a deliberate humiliation. Given the antagonism between Macron and BoJo that can’t be ruled out. This puts paid to Biden’s “rebuilding alliances” BS. Right now the French are pining for mean tweets. Sticks and stones may break my contracts, but tweets will never hurt me.

The Geneva portion of my trip was excellent. I always enjoy teaching in the master of commodity trading program at UNIGE, and the students this year were a particularly good group. Not surprisingly, the Swiss were a little more manic about COVID documentation than the French, but there were many restaurants there that achieved the precious Give Zero Fucks rating. The one exception being a place that had never heard of J&J or its vaccine, or that it was one dose, or that it was approved in Switzerland.

Getting tested to return was something of a hassle, with few appointments on offer. But Swiss physicians apparently collect a little swag on the side (paid in cash!) by giving tests, so I had a new experience–my first ever appointment with a gynecologist, who blessedly only looked up my nose.

Hopefully the pace of posting will pick up over the next few days. The rest of today is a loss, but there’s much to comment about so I’ll leave you waiting in breathless anticipation.

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July 12, 2021

Elon’s On Fire!

Filed under: China,Climate Change,Cryptocurrency,Energy,Tesla — cpirrong @ 6:29 pm

No. Wait. That was a Tesla in Taiwan City.

But Elon did ignite some (metaphorical) pyrotechnics in a Delaware Chancery courtroom with his fiery defense of the Solar City deal of 2016. My criticism of the deal at the time–which inspired some of my better lines, IMO–is the gravamen of the shareholder lawsuit against Musk. Namely, that the Tesla purchase of Solar City was a bailout of a sinking Solar City, mainly driven by Elon’s desperation to avoid a blow to his reputation as a visionary genius.

Nothing in what I’ve read about Elon’s testimony changes my mind. Ya sure the Tesla board was totes independent of him. Ya sure he did not dominate the board. Ya sure the deal made sense on the merits. Whatever, dude.

All that said, I surmise that the plaintiffs have a difficult hill to climb. Proving, legally, in court, what we all know to be true is sometimes a very difficult thing. That’s probably a good thing, but that’s a statement about the average–not any particular case.

That said, since the Solar City deal Tesla’s stock price, unlike Elon, has gone to Mars. It’s about 20 percent off its all time high in January, but still about 15 times above its June, 2015 price, which I thought was inflated then. So what do I know?

The most logical explanation to me is that $TSLA is not so much a bet on Tesla qua Tesla, or Musk qua Musk, but on government policies around the world that seem hell bent on forcing us all to drive electric cars, never mind fire risks (and Taiwan City is not a freak event), or the environmental costs of mining, or the insanity of renewables, or the increasing inability of electrical grids to handle existing demands let alone massive new ones such as that arising from electric autos, or on and on and on and on. Tesla is a first mover in electric vehicles, governments are compelling the shift to electric vehicles regardless of all the myriad problems, so Tesla stock booms. It’s not an efficiency story or an innovation story. It’s a wealth creation (for Tesla shareholders) by wealth destruction (the rest of us) story.

A couple of other Tesla/Musk-related comments that have struck me recently but not sufficiently to catalyze a post.

Tesla is having problems in China. Musk assiduously courts China. Musk makes huge sunk investments in China. China shtups Musk.

This storyline alone is sufficient to make you question Musk’s acumen. Did he really think that China would not act opportunistically? FFS. Opportunism ‘R Us is the CCP motto. Look at how the CCP is shtupping domestic tech companies (and those foolish enough to invest in tech company IPOs). If that’s what they do to “their” companies, what can foreign devils expect? Foreign devil Elon apparently thought he was special. He ain’t.

Crypto. Elon’s pronouncements can cause massive movements in cryptocurrency prices. This alone is enough to demonstrate the utter arbitrariness of crypto. Why should the value of anything depend on the musings of a mercurial and megalomaniacal individual other than the things that individual can control? Especially when said mercurial and megalomaniacal individual no doubt derives immense glee from watching people jump to his tune? That incentivizes him to say ever more outlandish things. Which the KoolAid drinkers respond to, which just incentivizes him more.

Why do his musings matter? Because people believe they matter.

In coordination games sunspot equilibria exist. In sunspot equilibria, values/prices change in response to a variable that people think matters, even though it is totally unrelated to fundamentals. Currencies–including cryptocurrencies–have a coordination game aspect where expectations matter. The value of currency (or a cryptocurrency) depends on what people think its value is, or what they expect it to be. If people believe that variable X–e.g., what Elon Musk tweets–matters, then X will matter.

That is apparently the case with crypto: whatever Elon says, cryptos do, at least to a considerable degree. What is more bizarre is that whereas “sunspots” are exogenous, Elon’s pronouncements are endogenous–he says what he says almost surely based on the fact that he knows that what he says will move prices. Yeah, that’s exactly the kind of power you want to give a megalomaniac.

Exogenous/extrinsic uncertainty can lead to excessive volatility. Crypto suggests that endogenous uncertainty a la Musk creates massive excess volatility.

So you want to “invest” in crypto why, exactly? To speculate on Elon’s mood swings and narcissism? To speculate on how other speculators speculate on Elon’s mood swings and narcissism? To speculate on how other speculators speculate on how speculators speculate on Elon’s mood swings and narcissism. (To complete this post, continue ad infinitum.)

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May 9, 2021

The Real Reasons For Ruling Class (and Corporate Class) Sinophilia

Filed under: China,Economics,Politics — cpirrong @ 3:54 pm

Niall Ferguson rightly worries about the ruling class’s infatuation with the Chinese system, and their clear desire to imitate it. Astoundingly, he fails to grasp the reason for this fanboy attraction.

Ferguson draws an analogy with Cold War I, during which he argues a process of “osmosis” threatened to make the US and the West generally more and more like the Soviet Union. But what is going on now is completely different. It is not an unthinking imitation driven by a need to compete, as in 1945-1991. It is a mixture of admiration (among the political class) and venality (among the corporate class). Yet Ferguson ignores these facts–which are far more disturbing than “osmosis”, which is an unconscious process. The ruling class’s affinity for the CCP model is anything but unconscious.

The West’s political class clearly envies the CCP’s autocratic powers, and strives to imitate them. This is most noticeable with respect to Covid policy, but it is not limited to that. Indeed, the political class fantasizes about using the extraordinary powers it seized based on the Covid pretext to reshape society generally.

The most forthright of the fanboyz is Canada’s effete Justin Trudeau–a perfect useful idiot for the CCP. He openly admires the Chinese dictatorship because, you know, it allows them to dragoon people into going green (amongst other things).

I could come up with other Trudeau examples, but I will spare you the torture of watching more of the twerp’s (cleaned that up) power worship/envy.

Although Trudeau is the most open in his admiration, it is clear that in the EU and the US the political class is itching to embrace China-like policies, whether it is massive “infrastructure” spending, draconian restrictions on liberty in the name of public health, or a social credit system (disguised, perhaps, in the form of vaccine passports or government cryptocurrencies which (a) China is racing to introduce in order to expand its social control, and (b) would almost certainly be non-anonymous to the government and linked with vast amounts of other personal information).

The Rosetta Stone to all ruling class policy initiatives is quite simple, people: you can make sense of any policy by asking what most enhances the ruling class’s power most, and deprives you of the most liberty and personal sovereignty. The ruling class envies the party/state power in the Chinese system, and hence is anxious to ape it at every opportunity.

That basic fact is missing in Ferguson’s article. Maybe it’s because he’s so embedded in the ruling class, although he from time to time takes contrarian positions.

Insofar as the corporate class is concerned, they are the 21st century version of Lenin’s 20th century aphorism about the capitalists who will sell communists the rope with which the latter will hang the former. Plus ça change, plus c’est la même chose. Slavering over the Chinese market, Western corporatists (I won’t say capitalists) are perfectly willing to countenance the enslavement of billions.

The ruling class and the corporate class crave power–the ability to control you, to coerce you. They see the power the CCP wields, and they want the same. Is not about emulating China to compete with China. It is about emulating China to emulate the domineering power of China’s political class. And to reprise Lenin again: “Who? Whom?” You are the whom.

This should be an obvious point, but Ferguson fails to make it.

The appropriate historical analogy here is not Cold War I, but the 1930s, when many in the Western ruling class openly admired the Italian Fascists, the Nazis, and the Bolsheviks because of the untrammeled power to reshape society that these malign movements possessed. The power to reshape society free from the resistance of the unenlightened proles is what the Western progressive political class desired, and desires, above all else. So they admired Mussolini then, and admire Xi now. Sinophilia (or more precisely, CCP-o-philia) is just the latest symptom of a very old disease.

These people are the enemies of freedom. They are your enemies. Respond accordingly.

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April 24, 2021

Two Self-Inflicted Diplomatic Wounds. But At Least We Don’t Have to Worry About Mean Tweets, Right?

Filed under: China,History,Politics,Russia,Turkey — cpirrong @ 9:07 pm

The Biden administration self-inflicted two serious diplomatic wounds in the space of a single day.

First, even though India is experiencing a wave of covid infections and deaths, its worse so far, the administration refused to relent on a ban (imposed by the Trump administration) on the export of vaccine ingredients.

Yes, the policy was originally Trump’s, but (a) you’d think that would be a bug not a feature with this administration, (b) India’s circumstances are far more dire today than they were when the ban was implemented, and (c) in the US, vaccine usage has nearly reached a saturation point, with many providers having shots wanting for arms.

India (both the government but especially the citizenry) has reacted extremely negatively due to this refusal, which is not surprising given the state of covid panic in the country. The United States should be courting India, not alienating it. After decades of hostility to the US (due not least because of US support for Pakistan, India’s post-independence antipathy to colonial powers or their allies, and dependence on Soviet/Russian weapons), India’s existential conflict with an aggressive China had created an opportunity to make India if not an ally, a country with which the US could cooperate on issues of common interest–most notably containing China.

That underlying dynamic is still there, but this thoughtless refusal fuels the latent suspicions of the US among many Indians and makes such cooperation far, far more difficult. It benefits the health of Americans virtually not at all, but alienates a country we should be courting.

The second self-inflicted wound involves Biden’s official recognition of the Armenian genocide by the Ottoman Empire during the depths of WWI. (Do not underestimate how this war scarred Turkey. The Ottoman Empire suffered a greater percentage loss of population during the war than any other nation, even if one deducts the Armenian dead. The Ottoman Empire was dismembered, and Turkey itself was almost devoured in the aftermath. Only Ataturk’s miracles in the War of Independence saved Turkey from being divided among the Western powers and the Greeks, and left as an Anatolian rump that no one else wanted.)

Yes, the fate of Armenians was horrible. Well over a million died. Numberless others were displaced, often to desolate camps in the Syrian desert. If you meet someone whose name ends in “ian” they are almost certainly the descendants of the Armenian diaspora. (Those with names ending in “yan” are usually post-Soviet emigres). Their martyrdom was widely acknowledged in the US. In my parents’ era, children were told to eat their vegetables, because of the starving Armenians.

Like all historic episodes, especially those that occurred in the crucible of WWI, the story is complicated. But regardless of where the guilt lies, it happened more than a century ago. Those who committed the atrocities, and those who suffered them, have long since died.

But living Turks of all political persuasions are neuralgic about being blamed for these long-ago events. Even ardent Erdoğan haters in the CHP are of one mind with him on this issue: calling what happened in the long-dead Ottoman Empire a genocide is a red line. Those who do so are Turkey’s enemies.

Turkey’s response was immediate. It recalled its ambassador to the US, and its foreign minister gave a bitter statement, claiming that this will irreparably harm Turkish-US relations. He also said that the US should not cast stones, given its historical treatment of Native Americans. (The administration’s repeated condemnations of America’s historical actions make it a particularly attractive target for such barbs.)

Many in the US, particularly in the Armenian community, dismiss this. They say that it will blow over.

Don’t be so sure. Under Erdoğan Turkey has been wobbling away from the American (and Nato) orbit. Given Erdoğan’s dicey domestic circumstances, stoking the resentment and taking real steps to distance the country from the US are natural political moves. Russia will clearly notice–and seize upon–the opportunity. Erdoğan will be quite open to their blandishments.

And do not underestimate the power of Turkish nationalism. In my experience, they are among the most chauvinistic people in the modern world. (Han Chinese are the only rivals for the title.) They are not postmodern or post-nationalist, like most Europeans. This is deadly serious to them. It will not blow over.

Turkey has geopolitical importance, not least because of its geographic position. It has been a difficult country for the US in recent years, in large part because of its mercurial and grandiose leader. Provoking it unnecessarily will bring the US many policy headaches. Virtually at the same moment as Biden’s announcement, Turkey escalated its conflict with America-aligned Kurds in Iraq. The genocide announcement will make it all the more difficult to try to manage that conflict.

And for what? This gesture will not bring anyone back from the dead. It will not undo what has been done. America helped in the best way possible–by welcoming tens of thousands of Armenians. (Including the Kardashians. Isn’t that sacrifice enough?) It is moral preening that will not reverse past atrocities, nor prevent future ones. And it is contrary to US national interests.

And Turks–including in particular Turks in the US–believe that Biden’s action does not even rise to the level of moral preening. In their eyes it is corruption, political venality, repaying Armenian-Americans (in California in particular) for massive campaign contributions, given in exchange for his promise to do what he just did. Given the absence of any other plausible explanation, this seems very reasonable. And very despicable

One day, two pointless gestures that do significant damage to relationships with two geopolitically important nations with which the US has had difficult relations. I see zero upside for US interests in these actions, and much downside. God help us if these are harbingers of US policy over the next four years–which alas is extremely likely.

But hey. At least we don’t have to worry about mean tweets, right?

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Why Is Proof of Efficacy Required for Pharmaceutical Interventions, But NOT Non-Pharmaceutical Ones?

Filed under: China,CoronaCrisis,Economics,Politics,Regulation — cpirrong @ 11:43 am

Under Federal law, a pharmaceutical intervention must be proven safe and effective before it is marketed to the public. If after introduction it proves unsafe or ineffective, the Food and Drug Administration can rescind its approval.

Note the burden of proof: the manufacturer must prove safety and efficacy. Safety and efficacy are not rebuttable presumptions.

Would the same be true of non-pharmaceutical interventions (NPIs). This neologism (neoanacronym?) is used to describe the policies that have been imposed during the Covid Era–most particularly, lockdowns and masks.

Neither had been proven safe or effective prior to their wholesale–and I daresay, indiscriminate–use. Lockdowns in particular had never been subjected to any clinical experiment or trial. Indeed, the idea had been evaluated by epidemiologists and others, and soundly rejected. But a policy first introduced in a police state–China–spread just as rapidly as the virus to supposedly non-police states despite it never having been proven efficacious or safe.

A year’s experience has produced the evidence. Greetings, fellow lab rats!

And the evidence shows decisively that lockdowns are NOT effective at affecting any medically meaningful metric about Covid. This American Institute of Economic Research piece provides an overview of the evidence through December: subsequent studies have provided additional evidence.

Furthermore, lockdowns have been proven to be unsafe. Unsafe to incomes, especially for those whose jobs do not permit working from home. Unsafe for physical health, in the form of inter alia deferred cancer diagnoses and treatment for heart attacks and strokes and greater substance abuse (with higher incidence of overdoses), as well as delayed “elective” surgeries that improve life quality. Unsafe for mental health. Unsafe for children, in particular, who have experienced debilitating social isolation and profound disruption in their educations. (Although given the trajectory of American public education, especially post-George Floyd/Derek Chauvin, feral children might be better off than those subjected to the tortures of a CRT-infused curriculum and CRTKoolAid drinking “educators.”)

Masks are not as devastating as lockdowns, but they have also been shown to be ineffective and also unsafe, especially for those who must wear them for extended stretches–which includes in particular children at school.

(Remember “For the children”? Ah, good times. Good times.)

Drug regulation was one of the first major initiatives of the Progressive Era, and the 1962 FDA Amendments that imposed the efficacy requirement were also driven by progressives. My assessment of the economic evidence (especially the literature spawned by my thesis advisor, the great Sam Peltzman) is that the efficacy requirement in particular has been harmful, on net, because it delayed and in some cases prevented the introduction of beneficial therapies.

But even if–especially if–you accept the progressive-inspired conventional wisdom regarding pharmaceutical intervention regulation, you should be dismayed and even furious that the same logic that has NOT been applied to NPIs. The underlying principle of drug regulation has been “show me”: show me something works. The underlying principle of Covid Era ukases has been: “Evidence? Evidence? I don’t have to show any stinkin’ evidence.” Indeed, it’s been worse than that: those who demand evidence, or even politely point out the lack of evidence, are branded as heretics by the very same “progressives” who believe religiously that requiring proof of efficacy of drugs is a good thing.

How to square this circle? How to explain this seeming contradiction?

I think it is as plain as the nose on your face. Power. In particular, power exercised by progressive technocratic elites. The FDA acts empower a progressive technocratic elite. Lockdowns and mask mandates empower a progressive technocratic elite–far beyond the wildest dreams of the most zealous FDA bureaucrat. (They also empower idiot politicians who imagine themselves to be part of some elite.) They are both premised on the belief that individuals are incompetent to choose wisely, and must be coerced into making the right choice. Coerced by credentialed elites who are better than you proles.

So an apparent logical inconsistency–proof of efficacy for thee, but not for me–is in fact no inconsistency at all. They are both who, whom. A soi disant elite (ha!) always pushes the alternative that gives them the most power, and deprives you of the most choice. Who (the progressives): Whom (you).

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April 17, 2021

Putin Calls Biden’s Bluff: Xi No Doubt Watches With Amusement

Filed under: China,History,Military,Politics,Russia — cpirrong @ 6:20 pm

Domestically, the US political situation is dysfunctional. On its best days. To compound the dangers, the international situation is fraught.

At present there are two smoldering hotspots involving world powers (and arguably superpowers) that could suck the US into a confrontation with such powers–Taiwan and Ukraine.

China has ramped up the rhetoric over Taiwan. It has also increased its provocative military behavior around the island.

Russia has amassed a 50,000 man plus military force, heavily armed and armored, on the borders of Ukraine.

Taiwan and Ukraine have been hotspots for years, but it is at least plausible, and in my view likely, that the increase in tensions is the direct result of the change in administrations. That is, China’s Xi and Russia’s Putin are testing Biden. Or they believe they have already found him wanting in the fortitude and strategic departments.

Who can blame them, really?

In Ukraine in particular, the Biden administration has played things in about the worst way imaginable, and has no doubt convinced Putin that they are weak.

Most notable was the embarrassing exhibition involving the supposed dispatching of two US destroyers into the Black Sea. The Russians reacted quite aggressively, and last week it was announced that no ships would be transiting the Bosporus after all.

I thought it was a horrible idea to send the ships in any event. Play out the game. If deterrence fails, and Russia and Ukraine recommence the hostilities that (sort of) ended 7 years ago, then either the DDGs would have to turn tail (which would not be a good look), or they could get involved in combat with the Russians. Even overlooking the dire consequences of armed confrontation between the US and Russia, the ships would have been able to accomplish little, and would be at extreme risk. Yes, they are very capable platforms, but are intended to operate as part of a carrier battlegroup. Operating independently, they would have little influence on a battle in Ukraine, and would be extremely vulnerable operating within range of dominant land-based air and missile forces. Which is why they almost certainly would have turned tail.

The Russians would have known this, and playing out the game, would have realized that two DDGs would not effect their operations in Ukraine. So the deterrence value of the deployment would have been close to zero; the upside of the deployment negligible; and the potential downside huge.

In other words, don’t make non-credible bluffs. That’s exactly what the administration did, before backing down. Thereby revealing that it was bluffing, and had no intention of backing it up.

This came to mind:

(That was John Cleese as Putin at the end.)

The worst possible way to play this, regardless of whether you believe that the US should risk a confrontation with Putin over Ukraine, or not. The. Worst.

It’s sickly ironic that this climbdown from a confrontation with Putin occurred about the same time that one part of the administration discretely acknowledged that the “Russian bounties on American soldiers in Afghanistan” story was a complete crock. That story was flogged incessantly over the summer to reinforce the narrative that Trump cowered before Putin, and was running away from Afghanistan as a result. Well, the story was bullshit, so there was no cowering. It is the Biden administration that is demonstrably cowering. (Even while the Pentagon was backing off the bounties story, others in the Biden administration were continuing to assert it.)

That story was another flagrant example of media mendacity. The NYT journalists who wrote it should be consigned to oblivion–but they won’t be. If they were lied to by their anonymous sources, they should call them out–but they won’t. So there is NO accountability for lying, or for trading in lies (as the NYT journalists and so many other journalists do). They used to say never trust anyone over 30. That was always a dubious statement. It is anything but dubious to say never trust any journalist, regardless of age.

Furthermore, Biden cemented his image of weakness before Putin by offering to meet him in a summit–at least, you can be sure that this offer cemented an image of weakness in Putin’s mind. It makes it look like Biden is coming to Putin as a supplicant.

Another own goal.

And shifting to the other end of the world, you know Xi is watching this very, very closely.

The coming months could be worrisome, indeed.

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