Streetwise Professor

July 25, 2021

Anglosphere RIP

Filed under: CoronaCrisis,Politics — cpirrong @ 3:45 pm

Post-911, the idea of the “Anglosphere” gained some traction. The English speaking nations, the UK, US, Australia, Canada, and New Zealand, were held out as the last bulwarks of liberty in the world.

This idea has not aged well. In the Age of Covid, the Anglosphere is now the cutting edge of repression and fascism and active hostility to the ideals of individual freedom that were allegedly its hallmark.

Look at them.

Australia: entire states are locked down–hard–in response to single digit “case” numbers. People who protest are set upon by truncheon and club wielding police.

Canada: adopting a panoply of highly restrictive policies and restrictions on free speech.

New Zealand: locked down hard for months. And recently, the Skeletor-resembling PM instructed the proles that the government was the “sole source of truth.” Oh thank you so much Big Sister! Governments have been so so so omniscient in the past 20 months!

UK. Locked down until just recently. The “Freedom Day” (19 July) is a simulacrum of real freedom because numerous restrictions remain, and even that has freaked out the establishment, including most notably the Orwellian-named “SAGE.” Even though case numbers have declined since the lockdown was eased, SAGE is issuing dire warnings. No doubt because they have been wrong so often that they need to cover their sorry asses by keeping up the scare.

US. There are some bright spots, including Florida and Texas, but the “elite” is panting to reimpose mask mandates (to make us pant) and forced vaccination and lockdowns because Delta variant. Or something.

I’m not anti-vax. I’m vaccinated. But the externality argument is so abused. The costs and benefits of vaccination are almost completely internalized.

(Although ironically I bet dimes to donuts that Jim Carey and Jeff Daniels (a neighbor for several years) would love to mandate vaccines.)

Australia is particularly sad, and almost inexplicable to me. It used to be a bad ass, fuck-it-all kind of place. A similar ethos to Texas. But not now. Incredibly authoritarian, with a largely craven and submissive populace. Crocodile Dundee? Watching that is like Charlton Heston finding an almost completely buried Statue of Liberty. A relic of a dead era.

Continental Europe–the supposed antithesis of the Anglosphere–has actually demonstrated more of the spirit of liberty than any English-speaking country. Check out today’s protests in Paris.

A la Bastille! (And note that in Louis XVI fashion, Macron is doubling down. I hope the past is prophecy.)

No. The vaunted Anglosphere has proved to be ruled by authoritarians and populated by submissive and insanely risk averse cattle. It would be wrong to say that the ideal of freedom is dead. It is more accurate to say that the ideal of freedom is reviled, at least by the elites–and far too many of the non-elite have proved to be ovine in their submissiveness to their soi disant (but not really) betters.

Speaking of things that did not age well. This from a decade ago is a (sick) laugh:

I do not mean that English speakers act any less extravagantly than speakers of other tongues, but rather that English generally acts to tether thought to the empirical world. This is something Bishop Thomas Sprat dilated on in his History of the Royal Society (1667): “The general constitution of the minds of the English,” he wrote, embraces frankness and simplicity of diction, “the middle qualities, between the reserv’d subtle southern, and the rough unhewn Northern people.”

English, Bishop Sprat thought, is conspicuously the friend of empirical truth. It is also conspicuously the friend of liberty. 

If there is one thing that is conspicuous about the events of the past 19 months it is that for all of the strident commands to “follow the science!” public policy has been completely untethered from “the empirical world.” Instead, an arrogant priesthood has imposed a cultish, unscientific, evidence-free orthodoxy and branded as heresy any skepticism–even after the skeptics have been proved right time and again. Empirical reality is not just ignored–it is anathematized.

Perhaps you can explain the collapse of the Anglosphere to its infection by Continental ideas (Derrida, Foucault, etc.). But that is merely by way of a post mortem. The fact is that practically speaking, the Anglosphere is as dead as Hector. Perhaps “palimpsests of freedom” (to use Paul Johnson’s chapter title from Modern Times) still exist in the English speaking world, but they are under siege and definitely not in command. Enemies of freedom–the antitheses of traditional “English liberties”–are in the saddle and wielding the whip.

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May 30, 2021

Intelligent Design vs. The Missing Link (or the Virus Gnomes)

Filed under: CoronaCrisis,Politics — cpirrong @ 5:50 pm

The raging debate over the covid lab leak theory reminds me of the Intelligent Design vs. Evolution debate, with the lab leak theory playing the role of ID and the natural origins theory playing that of Evolution.

There is a huge difference, however. Here we have a strong candidate for the Intelligent Designer: “Bat Woman” Shi Zhengli, and her team at the Wuhan Institute of Virology. Madam Shi has both capability and opportunity. She has a long history of engaging in the genetic engineering of viruses, with the specific goal of increasing and evaluating their virulence in humans (“gain of function research”). As her monicker demonstrates, this includes a specialization in modifying viruses found in bats, which even the evolutionists acknowledge is the original source of covid. There is recent evidence that she had (almost certainly uniquely) access to the raw material (bat viruses from a cave 1000+ miles from her lab) that a modern day Dr. Frankenstein could combine with other genetic material to produce covid.

There are reputable scientists who have recently released a paper claiming that covid-19 was created in a lab. I do not have the expertise to evaluate their claims, but I think it is beyond cavil that Shi had the ability to do what they claim.

Against this we have the evolutionists, who at this stage remind me of the South Park Underpants Gnomes:

  1. Bats.
  2. ????
  3. Covid-19!

Or to use an evolutionary metaphor, they have a huge missing link problem. Despite intense efforts, they have yet to identify the intermediate species between bats deep in a cave and humans in Wuhan. They have hypothesized such a link (or links) and asserted that their hypothesis is truth. This is unscientific. Absence of evidence is not evidence of absence, but unless and until the chain of transmission can be demonstrated, the hypothesis remains only that, and the longer we go without identifying the chain the less likely it is that it ever existed.

In stark contrast, the entire possible causal chain in the lab leak hypothesis is known, and extremely plausible, and there is circumstantial evidence that it indeed operated.

Right now, in my opinion the burden of proof is on the Evolutionists. They have far less evidence on their side than the Intelligent Designers.

I of course use the term “Intelligent Design” sarcastically, but not in the way that you might think (to cast aspersions on the lab leak hypothesis, given the low scientific standing of Intelligent Design Theory). No, the sarcasm relates to what Shi (and other scientists around the world) are designing: these are smart people, but how intelligent is it to create deadly pathogens that can escape into the human population–as even defenders of that research acknowledge is a possibility?

And of course, one of those defenders is none other than Dr. Anthony “The Dervish” Fauci. In 2012 he said thus:

In an unlikely but conceivable turn of events, what if that scientist becomes infected with the virus, which leads to an outbreak and ultimately triggers a pandemic? Many ask reasonable questions: given the possibility of such a scenario – however remote – should the initial experiments have been performed and/or published in the first place, and what were the processes involved in this decision?

Scientists working in this field might say – as indeed I have said – that the benefits of such experiments and the resulting knowledge outweigh the risks. It is more likely that a pandemic would occur in nature, and the need to stay ahead of such a threat is a primary reason for performing an experiment that might appear to be risky

What are these supposed benefits? Well, the Underpants Gnomes again come to mind: ???

Supposedly the idea is that we can get ahead of nature by creating deadly things that nature might produce through evolution and create cures in advance.

OK. I’ll bite. Name one cure produced by this type of research. Just one.

I have never seen a defender or advocate of this research point to a single example.

And indeed, it seems wildly implausible that this is very likely at all. What are the odds that nature would produce something so similar to what is produced in the lab by Dr. Shi or anybody else that a hypothetical vaccine for the Frankenstein creation would work on the evolved virus? Look at flu vaccines. They are frequently useless because the specific strains of virus they target happen NOT to be the one that crops up in a given year. Vaccines are not like hand grenades or horseshoes. Close is not good enough. A miss is as good as a mile.

Covid vaccines are very specifically targeted. The hysteria over covid variants is due in large part to concern that a vax that works on one variant won’t work well on other, very closely related ones.

But we are to believe that a vaccine (which again, has never been developed in reality) to treat a lab-created virus will be efficacious against another one that evolved independently?

So maybe GOF research creates the most deadly strain of pathogen, could–in theory–give us a defense against that specific or very closely related strains. But what good is that if other really deadly (if not quite so deadly) pathogens evolve, against which the unicorn vax is useless? And what are the odds that the most deadly pathogen would evolve naturally?

That is, how can (in Fauci’s words) you really “get ahead of the threat”? This is an especially valid question for evolutionists (whose ruling model is one of random variation plus natural selection): what are the odds that a threat that is created in the lab will help deal with a threat that evolves by a random process? Gain of Function seems to presume some sort of viral teleology. Which is to say, that nature acts by intelligent design that mirrors what is done in the lab. Human Intelligent Designers can “get ahead of” nature’s Intelligent Designer.

Ironic, eh?

So, GOF basically means create something really deadly that is unlikely to evolve naturally and which is also unlikely to permit developments of vaccines against what evolves naturally. This means that the odds of GOF research producing something that will protect against naturally occurring pathogens is vanishingly small.

But the risk of a lab leak is real, and non-trivial–as historical experience demonstrates and even Fauci acknowledges.

So how is this risk-reward trade-off intelligent?

This whole line of research seems to represent exactly the kind of scientific hubris that Mary Shelly wrote about two centuries ago. The “get ahead of the threat” rhetoric seems like propaganda intended to gull people into accepting Dr. Frankensteins pursuing their hubristic ambitions.

I am open to persuasion, which would have to take the following form. A rigorous calculation of the probability that a given GOF research effort will make it possible to accelerate meaningfully the development of a vaccine or therapy against a naturally evolved pathogen vs. a calculation of the probability that the pathogen created by this given effort will escape the lab.

Until I see such a demonstration, I will conclude that GOF should be banned, and its Dr. Frankenstein practitioners relegated to other, more benign tasks.

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May 27, 2021

Dr. Tony Dervish

Filed under: CoronaCrisis,Politics — cpirrong @ 6:43 pm

I have despised and distrusted Dr. Anthony Fauci from the very onset of the Covid crisis. I was aware of his dubious–to put it mildly–role in the AIDS issue in the ’80s. But my extremely negative priors were based more on the fact that he has been at the top of the bureaucratic food chain in DC for decades, which can only mean that he is a apparatchik who cultivates power and seeks rents, rather than a man who cultivates science and seeks truth.

I think I was very early to the game. When I tweeted something critical about him in March, a couple of friends chided me for dissing “Dr. Fauci.” They are now staunch Fauci foes.

If anything, events have shown that my priors were far to generous: my posteriors are unbounded from below.

The man has pirouetted on virtually every covid-related issue. Masks. Means of transmission. Vulnerability of children. Lockdowns. He has always taken the politically expedient position of the moment. Pre-November, moreover, his words and deeds were almost invariably calculated to damage Trump. And no wonder, given the mutual antipathy between Trump and the bureaucratic establishment in DC.

But Dr. Dervish’s most disgusting spin has been from heaping scorn on the Wuhan lab leak theory to his recent acknowledgement that gee, yeah, it’s a plausible hypothesis that needs to be investigated.

Who knew? Really? Well knock me down with a feather.

Like many of the government party and ruling class (e.g., Glenn Kessler of Pravda on the Potomac), Fauci (survivalist that he is) was forced into this spin by facts. But this is little excuse. The circumstantial case for the culpability of the Wuhan Institute of Virology was always quite strong. Strong enough that it should not have been dismissed out of hand–let alone characterized as conspiratorial (and racist) lunacy as a justification for not investigating. But some recent facts of the barking dog and non-barking dog variety have only strengthened it. The illness of 3 WIV employees immediately prior to the outbreak. The connection between WIV and a bat-infested cave 1000+ miles away where (a) several individuals had contracted covid-like symptoms, and (b) the WIV had dispatched researchers to collect samples. The failure to find any animal intermediaries between the bats and people (again–who were separated by 1000+ miles).

So like a cornered cockroach, Fauci has had no choice but to admit the obvious.

And Fauci comes to this with very dirty hands indeed. He has bobbed and weaved for weeks about his role in funding WIV. He almost certainly lied about it in Congressional testimony. When forced to tell the truth slowly, he acknowledged the funding but claimed it was impossible to know whether it had gone to “Bat Woman’s” “gain of function research.” His latest spin is that it would have been a “dereliction of duty” not to cooperate with WIV on coronavirus research–all the while expressing ignorance as to whether this institution was engaged in GOF research.

WELL WHY THE HELL DON’T YOU KNOW? This is your excuse, Sergeant Schultz? “I KNOW NUTHINK?” Really? For this you are the highest paid employee in the U.S. government?

Very few in Washington have been willing to challenge this superannuated elf. Only Rand Paul has had the stones to shirtfront Fauci time and again. Other Senate Republicans (and most in the House), you ask? Surely you jest. Worthless and craven governing uniparty POS almost without exception.

As a result, there is little doubt that, like Blattella germanica, this bureaucratic cockroach will survive, and even thrive. Rand Paul, on the other hand, should rightly fear assassination.

This is where we are.

After terminating a Pompeo-initiated effort to investigate the lab leak theory, whoever has his/her hand up the back of Joe Biden’s/Charlie McCarthy’s shirt has ordered the intelligence community to investigate.

Yeah, that inspires confidence, don’t it?

Can you say “whitewash” these days? If you can, I guarantee that’s what this “investigation” will be.

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April 30, 2021

If You Woke Up With Wood . . . You’re Rich!

Filed under: Commodities,CoronaCrisis,Derivatives,Economics — cpirrong @ 6:33 pm

Especially if it’s lumber. Not so much if it’s timber or logs.

Lumber prices have been on a tear recently. The CME lumber futures price has risen inexorably for weeks:

The softwood lumber PPI has increased 73 percent from April of last year, when Covid cratered all markets (including all commodity markets in particular) to March of this year. As the graph above shows, the price increase in the last month alone will add almost 100 precent to that. The plywood PPI is up 43 percent. The PPI for logs, timber, and pulpwood has not risen nearly as much over the April 2020-March 2021 period–only 7 percent.

So what’s going on? This podcast has a pretty good explanation, which comports with the analysis that follows. My main objection is that it repeatedly refers to the market as “broken.” No. A market is broken when it sends the wrong price signals. It is not broken if it sends the right signals, even if you don’t like them. That’s what’s going on here. Prices are signaling a major change in demand patterns that is straining a productive capacity oriented to the old patterns.

The podcast claims that log and timber prices are down. That’s not consistent with the PPI data, which does demonstrate some uptick in log/timber prices. I have also seen reports that timber/log prices are firm in western Canada. But it is obvious that the spread between lumber and timber has widened dramatically.

Which provides a perfect opportunity to apply what I teach in my commodities classes: Find the bottleneck. In a reasonably competitive market, the spread between two commodities, one that can be transformed into the other, equals the cost of that transformation. Sawmills transform logs into lumber, so if the spread between the prices of these things blows out, that shows you where the bottleneck is–at the mills.

The podcast largely confirms that. The sawmill sector has contracted and consolidated in recent years for a variety of reasons. The Covid-induced economic shock of last year also led to the idling of capacity. Now demand has come roaring back. There is a building boom, driven by an exodus from cities and a substitution of things for services. The turnaround has been so abrupt that sawmill capacity has not been able to adjust to keep up. It of course takes a long time to build new mills, and the decision to do that depends on expectations about long-term demand. It is quicker and more economical to restart idle mills, and to add shifts, and that is happening. But it can’t happen overnight.

A transportation bottleneck is exacerbating the problems. Shortages of railcars and trucks are limiting the ability of sawmills to satisfy demand. These shortages reflect in part a commodities boom generally. Chinese demand for US ag products (which has sent corn prices soaring) is contributing to that, but the transportation sector has been robust generally since its doldrums of a year ago. In that time the Dow Jones Transportation Average is up 128 percent off its Covid bottom, and is 40 percent above its pre-Covid collapse level.

Transportation bottlenecks tend to widen spreads at all levels of the value chain, from timber farm to mill, and from mill to lumber yard.

Lumber inventories are at barebones levels, as one would expect in such circumstances. When the supply-demand balance is tight today relative to what is expected in the future, the efficient thing to do is to draw down inventories and to consume everything that is being produced. This is leading, exactly as theory would predict, to a pronounced backwardation in lumber prices:

Note there’s an almost 30 percent backwardation going out six months. That’s very steep. Very Although I wouldn’t put too much weight in the distant deferred prices (given the absence of volume and open interest) one, it appears that the curve flattens out after the six month point.

So what’s going on is commodity economics 101. A surge in demand after a sharp fall (which led to reductions in transformation capacity) caused the lumber market to hit constraints–constraints in the amount of available inventory, and constraints in the capacity to transform a raw product (timber) into a consumable one (lumber). This in turn caused spreads (calendar spreads and the spread between finished and raw prices) to blow out. Market participants are responding to these price signals. The backwardation suggests that the constraints will ease by the end of the year. That of course is a forecast based on current information. Things could change.

So things ain’t broke. Indeed, what is happening in the lumber and timber markets is a symptom of a robust economic recovery, at least in the housing and goods sectors. It also reflects an apparent ongoing structural shift post-Covid (and post urban disturbances of the last year), namely, a desire to move out of cities driven by the recognition that more people can work remotely, and the declining amenities of cities (largely the result of lockdowns and their aftermath, and an upsurge in crime). Such an abrupt and seismic shift inevitably bumps up against constraints determined by past investments tailored to accommodate the old consumption patterns. That affects prices, and prices signal the need for new investments to alleviate the bottlenecks. This too shall pass, and within some months the bottlenecks will ease, as. participants all along the value change respond to the extraordinary price signals we see today.

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April 24, 2021

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 10, 2021

“Public Health”: The Mask for Fascism

Filed under: CoronaCrisis,Politics — cpirrong @ 10:39 am

In the Time of Covid, numerous liberties, and indeed Constitutional rights, have been sacrificed in the name of “public health.” The ruling class has learned this lesson well: these enemies of freedom realize that claims of “public health” are the perfect Trojan horse to achieve their dreams of subjugating the proles.

Now everything is a “public health” crisis. Guns–“public health” issue. Racism–“public health” issue. CO2–“public health” issue. The Supreme Court–“public health” issue.

I kid you not!:

“There’s growing recognition that the Supreme Court poses a danger to the health and well-being of the nation and even to democracy itself,” said Aaron Belkin, the director of the group Take Back the Court. “A White House judicial reform commission has a historic opportunity to explain the gravity of the threat and to help contain it by urging Congress to add seats, which is the only way to restore balance to the court.”

Appeals to health are particularly seductive in this era of safetyism, when ironically most of the true health scourges of humanity have been eliminated, or at least greatly reduced, and marginal risks have been transmogrified into horrific threats. Moreover, by appending the term “public” to the emotive word “health”, the ruling class denies individual responsibility or insinuates the abject irresponsibility of individuals, and asserts the necessity of controlling you. For your own good, you know, and that of “the public.” You are a selfish bastard if you resist, right?

The public health profession has always attracted statist control freaks. There are indeed limited circumstances in which external health effects of individual decisions are so damaging that some constraints on individual choice are justified, and it would be acceptable if public heath authorities stayed within that small box. But the profession has striven mightily to expand its authority to wider and wider spheres of personal behavior. And particularly in the midst (would that it be in the aftermath) of covidmania the totalitarians among us, who presume to rule us, have found public health claims to be a powerful weapon in their relentless campaign to destroy freedom and rights.

Which is why unless proven otherwise, subject to a very high burden of proof, we should view any assertion that something is a public health issue as a mask for fascist assaults on our liberties.

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January 25, 2021

LNG Skyrockets: Is Excessive Reliance on Spot Markets to Blame, and Will This Cause Contracting Practices to Change?

Filed under: China,CoronaCrisis,Derivatives,Economics,Exchanges,LNG — cpirrong @ 8:26 pm

After languishing in the doldrums in the Covid era, and at times touching historic lows, the price of LNG delivered to Asia skyrocketed in recent weeks before plunging almost as precipitously:

As always happens with such big price moves, there has been an effort to round up suspects. Here, since the visible price increase occurred in the spot market, the leading culprit is the spot market–something that has been growing rapidly in recent years, after being largely non-existent prior to 2014 or so.

For example, Reuters’ Clyde Russell writes:

What is more likely is that some buyers misjudged the availability of spot cargoes, and when hit with a surge in demand found themselves unable to secure further supply, thus bidding up the prices massively for the few cargoes still available.

Frank Harris of Wood Mackenzie opines:

“Buyers are going to become aware that you may not always be physically able to source a cargo in the spot market regardless of price,” Mr Harris says. “The most likely outcome is it shatters some of the complacency that’s crept into the market over the last 12-18 months.”

It is incorrect to say that a shortage of spot cargoes per se is responsible for the price spike registered in the spot market. It is the supply of LNG in toto, relative to massive increase in demand due to frigid weather, that caused the price increase. How that supply was divided between spot and non-spot trades is a secondary issue, if that.

The total supply of LNG, and the spatial distribution of that supply, was largely fixed when the cold snap unexpectedly hit. So in the very short run relevant here (days or weeks), supply in Asia was extremely inelastic, and a demand increase would inevitably cause the value of the marginal molecule to rise dramatically. Price is determined at the margin, and the price of the marginal molecule would be determined in the spot market regardless of the fraction of supply traded in that market. Furthermore, the price of that marginal molecule would likely be the same regardless of whether 5 percent or 95 percent of volume traded spot.

If anything, the growing prevalence of spot contracting in recent years mitigated the magnitude of the price spike. Traditional long term contracts, especially those with destination clauses, limited the ability to reallocate supplies efficiently to meet regional demand shocks. The more LNG effectively unavailable to be reallocated to the buyers that experienced the biggest demand shocks, the less elastic supply in the spot market, and the bigger the price increase that occurs in response to a given demand shock. That is, having less gas contractually committed, especially under contracts that limited the ability of the buyers to sell on to those who value it more highly, mitigates price spikes.

That said, the fundamental factors that limit the total availability of physical gas, and constrain the ability to move it from low demand locations to high demand locations in the short time frames necessary to meet weather-driven demand changes (ships can’t magically and instantaneously move from the Atlantic Basin to the Far East), mean that regardless of the mix of spot vs. contract gas prices would have spiked.

Some have suggested that the price spike will lead to less spot contracting. Clyde Russell again:

The question is whether utilities, such as Japan’s JERA, continue with their long-term vision of moving more toward a spot and short-term market, or whether the old security blanket of oil-linked, but guaranteed, supplies regains some popularity.

It’s likely LNG buyers don’t want a repeat of the recent extreme volatility, but perhaps they also don’t want to return to the restrictive crude-linked contracts that largely favoured producers by guaranteeing volumes at relatively high prices.

The compromise may be the increasing popularity of short-term, flexible contracts, which can vary from a few months to a few years and be priced against different benchmarks.

Well, maybe, but color me skeptical. For one thing, contracts require a buyer and a seller. Yes, buyers who didn’t have long term contracts probably regretted paying high spot prices–but the sellers with uncommitted volumes really liked it. The spike may increase the appetite for buyers to enter long term contracts, but decrease the appetite of sellers to enter them. It’s not obvious how this will play out.

I note that the situation was reversed in 2020–buyers regretted long term contracts, but sellers were glad to have them. Ex post regret is likely to be experienced with equal frequency by buyers and sellers, so it’s hard to see how that tips contracting one way or the other.

This conjecture about the price spike leading to more long term contracting also presupposes that the only way of managing price risks is through fixed price contracts (or oil-indexed) contracts for physical supply. But that’s not true. Derivatives allow the separation of who bears price risk from the physical contracting decision. A firm buying spot (and who is hence short LNG) can hedge price risk by purchasing JKM swaps. This has the additional advantage of allowing the adjustment of the size of the hedge in response to more timely information regarding likely quantity requirements, price projections, and risk appetite than is possible with a long term contract. That is, derivatives permit unbundling of price risk from obtaining physical supplies, whereas long term contracts bundle those to a considerable degree. Moreover, derivatives plus short term/spot acquisition of physical supplies allows more flexible management of supply, and management of supply based on shorter term forecasts of need: these shorter term forecasts are inherently more accurate than forecasts over contracting horizons of years or even decades.

So rather than lead to more long term contracts, I predict that this recent price spike is more likely provide a fillip to the LNG derivatives market. Derivatives are a more flexible and cheaper way to manage price risk than long term contracts.

This is what happened in the pipe gas market in the US post-deregulation. Spot/short term volumes grew dramatically even though price spikes were a regular feature of the market: market participants used gas futures and swaps and options to manage these price risks, and benefited from the greater flexibility and precision of obtaining supplies on a shorter term basis. This shifted a lot of the price risk to the financial sector–which is the great benefit of the much bewailed “financialization” of commodity markets.

The same is likely to occur in LNG.

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December 19, 2020

Sacrifice More Virgins!

Filed under: CoronaCrisis,Economics,Politics — cpirrong @ 9:25 pm

Once upon a time, a tribe dwelled on the slopes of a volcano that towered over their tropical isle. When the volcano began to smoke and rumble, and lava started to flow down its slopes, the natives ran to their shaman. “Oh wise one, what shall we do to appease the volcano god?” they beseeched the wizened old man. “Sacrifice 10 virgins to the volcano god, and he will be appeased!”

Encouraged by the hope of sparing the multitude by dispatching a few, the tribesmen seized 10 virgins, and duly sacrificed them with great solemnity.

Yet rather than quieting, the volcano became more violent then ever. Massive rivers of lava were now flowing, and great plumes of ash were erupting from its crater.

So the natives again ran to the shaman. “Oh wise one, we did as you said, and sacrificed 10 virgins to the volcano god. But look–he is not appeased! He seems angrier than before! What shall we do?”

“Sacrifice more virgins, of course!” replied the shaman, who was angry at the natives’ temerity in questioning his awesome knowledge of matters supernatural.

This is a silly story, and fictional, of course. But it echoes a story the world is living out today, which is not at all silly, but is instead deadly serious. Namely, the responses of government shamans to the Covid-19 virus.

The world has experienced waves of lockdowns of varying intensity since March, lockdowns imposed by government authorities claiming to be acting on the basis of science and unquestionable expertise. The lockdowns are intensifying over the Christmas season, descending with particular ferocity in Europe, where the UK, Italy, and Germany have or will soon impose restrictions as draconian, or more so, than they did during the previous peaks in the outbreak.

Prior to 2020, lockdowns were NEVER the recommended response to a pandemic. Indeed, the WHO and other public health bodies recommended against them. Further, the evidence gained to date on these extraordinary interventions indicates that they have had no effect on the course of the pandemic, or at best a minor effect dwarfed by their adverse economic, social, and health (physical and mental) consequences. The course of the virus proceeds independent of the futile interventions of authorities and experts.

The studies claiming to demonstrate the beneficial impacts of lockdowns disproportionately rely on comparing model forecasts to outcomes. But the model forecasts have been proven wrong again and again. These studies are therefore just another indictment of the models, rather than an endorsement of lockdowns.

The current Cancel Christmas hysteria follows hard on the heels of the Cancel Thanksgiving panic, accompanied by dire warnings of a post-Thanksgiving spike due to the failure of people to sacrifice their family gatherings to appease the virus. This spike has not occurred. Indeed, in many states (e.g., the upper Midwest) infections and deaths have been on a downward trajectory since before Thanksgiving, and that trajectory has continued post-holiday.

Yet experience be damned. Sacrifice more holidays!

The economic, psychological, spiritual, and health havoc wreaked by the lockdowns is large, and clearly evident. Yet rather than recalibrate, let alone admit error, our supposed betters who pompously declare their fealty to Science!, ignore these costs, ignore the utter inefficacy of their past ukases, and issue more diktats instructing us to sacrifice yet again. And again. And again. They are indistinguishable from the shaman of the parable.

Lockdowns are one example of this phenomenon. Masks are another. The evidence on the effectiveness of masks in controlling infection that was accumulated before 2020 was largely negative, and equivocal at best: masks offer little or no protection. A recent Danish study, grudgingly published after months of lingering in peer review purgatory, shows a trivial reduction in susceptibility to Covid infection by those wearing medical-quality masks, not the type that most of the world actually uses. And the recent (almost certainly seasonal) resurgence in Covid-19 prevalence refutes the efficacy of masks, since it has occurred despite near universal mask mandates, and high rates of compliance therewith.

I am at something of a loss to explain this fetishism with lockdowns and masks. The enthusiasm with which politicians embrace lockdowns, in spite of the ravages they impose and in spite of the lack of evidence of efficacy (and the existence of evidence of inefficacy) is more than a little disturbing. What explains it? I think that any explanation is unlikely to be flattering to them–or the people who enthusiastically agree with them.

The most charitable explanation is that it is a hope born of desperation: people want to believe that there is a solution that humans can devise and implement, and their desire to believe blinds them to evidence that contradicts their beliefs. Failure actually feeds the desperation, which leads to doubling down in the absence of any ready alternative.

Less charitably, perhaps it is opportunism in the political class. The pandemic has presented politicians with an opportunity to exercise plenary powers this Christmas that they could not have even imagined last Christmas, even after overindulging at the annual holiday party. Power is an addictive drug to politicians. Once hooked, they will not give it up.

The most ominous examples of this are those who push the Great Reset or massive social transformations similar thereto. Many of these (e.g., Justin Trudeau, Klaus Schwab, Bill Gates) have been quite open in expressing their belief that Covid-19 presents a great opportunity to reorganize society on leftist utopian lines. Because those efforts have always worked out so well, right?

We are ruled by fools, knaves, and devils. And we are fools as long as we consent to let them rule us. We would be far better off pitching our shamans into the volcano, rather than following their commands to sacrifice ourselves.

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October 22, 2020

“It’s Easy to Win an Argument With Milton, When He Isn’t There”

Filed under: CoronaCrisis,Economics,Politics,Regulation — cpirrong @ 6:30 pm

Raghuran Rajan is a smart guy who has done excellent and rigorus work, and is a gentleman to boot. But even such as he are capable of saying dodgy things, as in his comments to the FT on Friedman’s social responsibility article, in which he said the covid pandemic has exposed flaws in Friedman’s argument:

First, Covid-19 has threatened some companies with the extinction of shareholder value, subjecting businesses to a shock that, despite government intervention, has put their existence in question. “At this point,” Prof Rajan told me, “the best thing [a company with thin resources] could do is focus those resources on survival, because in surviving, it provides a decent job for its workers, it continues making that widget which people buy. It lives for the future.

Not all companies came into the crisis with thin resources. For the tech companies, nursing war chests replenished by tech-hungry consumers in lockdown, this should be a chance to go beyond bare Friedmanite requirements

Amazon, for instance, could “do more for its various suppliers, some of whom may be struggling small and medium business units”, said Prof Rajan. “It could find ways to provide them more credit to last through the pandemic that will get it more loyalty, because people will know it can be a source of insurance, rather than just a platform.”

. . .

This sort of action exposes the “missing part” of Friedman’s thesis, said Prof Rajan. He failed to recognise that “implicit equity stakes” — such as the commitment of a company to the partnership with its workers, suppliers or customers — are “as important, sometimes, as the explicit equity stake”

These things are missing how, exactly? Essentially Rajan is arguing that there are gains from trade to be realized to a corporation from adjusting explicit and implicit contractual terms with “stakeholders” such as workers, suppliers, and customers, in response to an economic shock like covid. But note: such adjustments would enhance the corporation’s profits, by allowing it to capture some of those gains from trade.

Indeed, according to the Friedman norm, such companies, acting as profit maximizers, would benefit not just themselves, but their workers, suppliers, and customers. Thus, rather than being some lacuna in Friedman’s framework, what Rajan emphasizes is precisely why profit maximization in the price system should be encouraged, as Friedman did. It provides an incentive for corporations to engage in mutually beneficial transactions, regardless of the underlying circumstances. That is, profit maximization guides optimal responses to circumstances, even crappy circumstances. Nay, especially crappy circumstances.

Or perhaps I should say “in the contractual system.” For what is involved here is negotiating contracts that maximize joint surplus. As Coase tells us, absent transactions costs, firms and their counterparties will do just that, and profit maximization (or utility maximization by workers, say) is exactly the engine that powers that result.

So the only way to make this critique coherent is to argue that transactions costs could somehow be reduced by reshuffling organizational forms or control rights. This Rajan does not do. Nor has anyone who burps up the term “stakeholders” and proclaims “QED!” Not that I have seen anyways.

As I said in my earlier post: if you are so smart, why aren’t you rich? Why haven’t you–or anyone else–come up with an alternative organizational form that allows the creation and capture of gains from trade that corporations leave on the table?

Indeed, the most coherent restatement of the “stakeholder” argument is that corporations have failed because they aren’t maximizing profits because they are failing to structure transactions with stakeholders that exhaust all gains from trade.

I’m tempted to cut Raghuran some slack because his remarks are impromptu statements made to reporter, rather than in an academic article–or even a blog post. But the fact that something in an FT article is far more likely to resonate than a weighty academic tome or even a not-so-weighty academic blog post arguably cuts the other way: one should be on particular guard against expressing flabby thoughts, when said thoughts may be read by millions–and hence mislead millions. And, to be honest, Raghuran’s thoughts about the errors of Friedman’s thought during times of pandemic are very flabby indeed.

In reading all these critiques of Friedman, 50 years on, I’m reminded of something George Stigler said. “It’s easy to win an argument against Milton when he isn’t there.”

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October 7, 2020

The Real Pandemic: Mass Munchausen’s Syndrome by Proxy

Filed under: CoronaCrisis,Economics,Politics — cpirrong @ 6:21 pm

It’s more than fair to say that we are experiencing a pandemic, but not the one you hear about ad nauseum. No, the pandemic is not a virus, it is a pandemic outbreak of Munchausen’s Syndrome by Proxy which focuses its obsessions on the virus.

Munchausen’s Syndrome by Proxy is a mental illness in which the sufferer fantasizes that others–usually people in their charge, such as children–are suffering from serious illness and require drastic medical intervention.

Observe what has happened over the last 7 months, and what if anything is increasing in intensity today. The obsession with Covid-19. The monomaniacal focus on “cases” (usually the result of hypersensitive tests prone to false positives), with the belief that people who test positive are sick, and huge numbers of those who become sick will die.

Given the actual experience over the last several months, these beliefs are wildly exaggerated–imaginary, fantasized illnesses, with fantasized severity, just the kind of thing that a sufferer of MSbP does.

And there’s more to the diagnosis. MSbP sufferers subject the people whom they imagine are ill with suffocating attention and unnecessary, and often harmful, health-related interventions. You know, like lockdowns; draconian restrictions on movement, social contact, and other features of everyday life; the shutting down of schools and colleges; and strident demands to wear masks–even between bites of your meal if you are in California.

Look at so many governors and mayors, e.g., Gretchen Whitmer of Michigan, Gavin Gruesome–excuse me, Newsom–in California, J. B. Pritzker in Illinois, or Tim Walz in Minnesota. (I could go on. And on. And on. Believe me.) They constantly invoke their power over you. But it’s for your own good! Trust them! Mommy is protecting you! And if you object, you will be punished! How dare you defy Mommy’s tender mercies, you ungrateful brats? If you do, you will be punished! To get your minds right and realize just what danger you are in, and why you need to listen to Mommy and do exactly as she says!

And if it were only limited to “authorities” who make Cartman look pleasant. You probably have neighbors or co-workers who have the Syndrome. Or you run into them in the grocery store. Or maybe it’s the fatso in the pharmacy checkout line. (Yeah, that’s an allusion to a personal experience, but no worries: I doubt said fatso can read.)

It was already bad enough before Trump was diagnosed with Covid. Then a super-virulent strain of the Syndrome appeared, through some Darwinian mechanism apparently. As soon as I saw his first remarks from the hospital–that he had learned a lot about Covid, and he was going to share that information and experience with us–I knew he would say exactly what he did say: it can be a serious illness, but the vast majority of people can beat it, and we shouldn’t let it dominate our lives.

And I knew that this would kick the MSbP crowd into apoplexy. They want a narrative of doom and gloom. They want people to be afraid. They want people to defer to them, and to depend on them, and most importantly to obey their commands. You could get really sick–ALL OF YOU! You could die–ANY OF YOU! Don’t listen to anyone who tells you otherwise! They don’t have your best interests at heart, like Mommy does. And put in your earplugs (so you don’t hear the Bad Orange Man), put on your eye shades (so you don’t read the Great Barrington Declaration), you know where to put the cork (aka the mask that makes it impossible for you to speak intelligibly).

So anything that contradicts the narrative triggers a mass attack of the Munchausens.

Is Covid like the seasonal flu, as Trump said? Well, the more data that comes in, the more it appears that yes it is a danger on the order of magnitude of a bad seasonal influenza strain–the kind we have endured multiple times in the past without draconian measures that cratered economies. And ironically, the data strongly suggest that it is less of a danger to children than the garden variety seasonal flu.

But it is beyond cavil that it is nothing remotely like the last great pandemic disease, Spanish Influenza of 1918-1919. But that doesn’t stop severe cases of MSbP like Gov. Gretchen Ratched from justifying their actions by reference to that episode, and invoking laws passed during that real pandemic to control your life today.

In normal times, most of the objects of MSbP sufferers are children, who have limited power to resist. Often medical professionals are the ones who identify a MSbP situation, and intervene to protect the object.

But today, adults are overwhelmingly the objects. And too many medical professionals enable MSbP (and may indeed be sufferers themselves–just look at the lunatic Twitter timelines of many medicos FREAKING OUT over Trump’s remarks and behavior, i.e., acting like someone suffering the flu, or a cold).

Given the coercive powers of the most important MSbP sufferers, the said governors, mayors, bureaucrats, etc., this pandemic–the MSbP pandemic–is wreaking untold havoc. We need more people to say we aren’t going to take it. We need more people to push back. We should not be in the thrall of the mentally ill.

But alas, we are. Because there are so goddam many of them, and they infest the executive branches of government at every level.

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