Friday, December 4, 2020

"China Shows that Geopolitics is Less Relevant than Ever"

 From Australia's Quadrant Magazine:

When J.R.R. Tolkien was asked, late in life, how he had created the extraordinarily rich and complex world in which his famous adventures took place, he answered that he “wisely started with a map and made the story fit”. Before him, Robert Louis Stevenson gazed at the map of Treasure Island that he had drawn for his own story, and “found the pirates began crawling out of it, Long John Silver with his cutlass between his teeth”. The romance of adventure aligns naturally with a map, for it allows the narrative to unfold step by step, growing into the space delineated. But there is always the danger that maps overwhelm the brute facts of geography, comprising instead a kind of spatial yearning that substitutes for the difficulty of actually bringing the story to life. As long as the story remains fiction though, X really can mark the spot.

Perhaps there is a carto-tropic property of the human mind that exaggerates the significance of maps, substituting an idea of control for the real thing, as if maps contain some secret knowledge, an unknown mountain pass, a sacred river or a hoard of gold. Dreams of controlling territory often turn on wild claims of the strategic importance of hidden pathways and unlocked doors, which is why they form the best plots of spy and adventure novels. Not just Stevenson and Tolkien, but perhaps the greatest of all spy novels—Erskine Childers’s The Riddle of the Sands—also turns on the discovery of a hidden invasion route and a grand conspiracy, the secret knowledge of which is obtained by a couple of sojourning yachtsmen, like Swallows and Amazons for grown-ups. The book even reproduces a series of detailed maps. From John Buchan to Tom Clancy, the sheer number of thrillers that involve secret treaties, oil pipelines and hidden keys that unlock and transform the entire world order would be hard to overestimate.

All these adventure tales do have a serious side, however, in that they often overlay the reality of political and strategic competition. This is particularly so when academics and commentators turn to what is known as “geopolitics”, a field of inquiry in which maps take precedence, for when the geopolitical imagination fires up, maps are taken as opportunities to clarify the strategic facts. But it should occasionally be asked, do they clarify or do they disguise? Jorge Luis Borges, another famous novelist, wrote a one-page story1 about an ancient civilisation of map-makers, whose desire for precision led them to make a 1:1 scale map of their entire empire, which merely crumbled, forgotten into the desert sands after it was, obviously, found to be useless.

Borges was satirising scientists but his story also captures something of the allure of maps and the seductive generalising they encourage, allowing us to visualise what we would like to see over and above what is actually there. This failing, I believe, can also apply to geopolitics, where the urge to make spatial sense of politics leads to what Salvatore Babones has called “mappism”,2 which might be compared to Stevenson’s reaction to his own map of Treasure Island, leaving the contemporary strategist “seeing naval bases and new alliances crawling out of it, Xi Jinping with his Belt and Road clamped firmly between his teeth” when in reality there are just lines on a page.

The Technology of Geography: Or, Why Mackinder was Wrong

To some extent it is of course true that maps matter. Military commanders need to know exactly the contours of any battlefield on which they will engage. Consequently, mountain passes, narrow straits and isthmuses matter for any effort to concentrate and supply force. But on another level, the perceived importance of maps reduces to a misconception, or at the very least a simplification, of geopolitics. A strategist takes geography for granted, assumes that it is broadly fixed, and plans around it. This is why knowledge of terrain and “reading the ground” have historically been critical skills for the battlefield commander. At the battle of Assaye in 18033, for example, Arthur Wellesley (the future Duke of Wellington) personally surveyed the ground, estimating that a river, contrary to the intelligence he had received, was fordable, allowing him to gain a crucial advantage in the ensuing engagement. Scale up these sorts of considerations to the strategic level and although the ground becomes more complex, the task of the strategist remains a proper consideration of the constraints geography applies to force projection.

Geopolitics, however, concerns not the constraints of geography on military action or strategy, but the determining quality of geography on politics. Geopolitical insights are therefore more general, more predictive. Sir Halford Mackinder (1861–1947) suggested that it was possible to determine “geographical causation in universal history”, and although he is considered the progenitor of the discipline of geopolitics one can find many antecedent works that reward serious “geopolitical” reflection. Famously, Alfred Thayer Mahan’s classic The Influence of Seapower upon History (1660-1783)—mentioned in The Riddle of the Sands—is one, but there are many pithy quotes from renowned statesmen of the past. Napoleon, for example declared that “Geography is destiny”, though apparently he made that remark before his invasion of Russia, so perhaps he changed his mind....

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"Cyber attackers have targeted the cold supply chain needed to deliver COVID-19 vaccines"

From the FT (incl. Kadhim!) via Ars Technica:

Nation-state backed hackers going after COVID vaccine supply chain
Sophisticated operation is well-researched and well-placed, aimed at EU.

Cyber attackers have targeted the cold supply chain needed to deliver COVID-19 vaccines, according to a report detailing a sophisticated operation likely backed by a nation-state.

The hackers appeared to be trying to disrupt or steal information about the vital processes to keep vaccines cold as they travel from factories to hospitals and doctors’ offices.

According to the report by IBM’s threat intelligence task force, which advises companies and the public sector on cyber security, they targeted organizations associated with a cold chain platform run by the Gavi vaccine alliance, a public-private partnership for developing immunization for poorer countries.

Many of the COVID-19 vaccines have to be kept cold to keep them from spoiling. Pfizer and BioNTech’s vaccine must be kept between minus 70C and minus 80C, while Moderna’s shot needs to be transported at minus 20C.

The attackers pretended to be an executive at a Chinese supplier of ultra-cold refrigeration to mount a phishing campaign trying to obtain usernames and passwords, the report said.

Nick Rossmann, IBM’s global lead for threat intelligence, said he believed the hackers were either looking to disrupt the vaccine delivery process or steal intellectual property....

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As we've mentioned over the years: "Cold is very important."

EIA Natural Gas Weekly Update

 Front futures up a couple cents at 2.5270.

From the Energy Information Administration:

....Overview:
(For the week ending Wednesday, December 2, 2020)
  • Natural gas spot prices rose at most locations this report week (Wednesday, November 25 to Wednesday, December 2). The Henry Hub spot price rose from $2.28 per million British thermal units (MMBtu) last Wednesday to $2.70/MMBtu yesterday.
  • At the New York Mercantile Exchange (Nymex), the December 2020 contract expired last Wednesday at $2.896/MMBtu. The January 2021 contract price decreased to $2.780/MMBtu, down 18¢/MMBtu from last Wednesday to yesterday. The price of the 12-month strip averaging January 2021 through December 2021 futures contracts declined 8¢/MMBtu to $2.773/MMBtu.
  • The net withdrawals from working gas totaled 1 billion cubic feet (Bcf) for the week ending November 27. Working natural gas stocks totaled 3,939 Bcf, which is 10% more than the year-ago level and 8% more than the five-year (2015–19) average for this week.
  • The natural gas plant liquids composite price at Mont Belvieu, Texas, rose by 21¢/MMBtu, averaging $5.44/MMBtu for the week ending December 2. The prices of propane, natural gasoline, butane, and isobutane rose by 8%, 4%, 4%, and 2%, respectively. The price of ethane fell by 1%.
  • According to Baker Hughes, for the week ending Tuesday, November 24, the natural gas rig count increased by 1 to 77. The number of oil-directed rigs rose by 10 to 241. The total rig count increased by 10, and it now stands at 320.....

....U.S. LNG exports are flat week over week. Eighteen LNG vessels (five from Sabine Pass, four from Freeport, three from Cameron, and two each from Cove Point, Corpus Christi, and Elba Island) with a combined LNG-carrying capacity of 65 Bcf departed the United States between November 26 and December 2, 2020, according to shipping data provided by Bloomberg Finance, L.P.

U.S. LNG exports set a new monthly record in November, averaging 9.4 Bcf/d, according to EIA’s estimates based on the shipping data provided by Bloomberg Finance, L.P. LNG exports in November were 17% higher than the previous monthly record set in January 2020 at 8.0 Bcf/d....

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Nationwide and population adjusted there were 32 fewer Heating Degree Days than the five-year average and 18 fewer than last year.

UN "FAO Food Price Index registered a sharp rise in November to its highest level in nearly six years"

 From the Food and Agriculture Organization of the UN, December 3:

» The FAO Food Price Index* (FFPI) averaged 105.0 points in November 2020, up 4.0 points (3.9 percent) from October and 6.4 points (6.5 percent) higher than its value a year ago. The November increase did not only mark the biggest month-on-month rise since July 2012, but it also resulted in the index reaching its highest level since December 2014. All sub-indices of the FFPI registered gains in November, with the vegetable oil sub-index rising the most, followed by those of sugar, cereals, dairy and meat.

» The FAO Cereal Price Index averaged 114.4 points in November, up 2.7 points (2.5 percent) from October and as much as 19.0 points (19.9 percent) higher than its November 2019 value. The latest increase marked the fifth consecutive monthly rise in the value of the index. Wheat export prices continued to edge upwards in November, largely on a tightening outlook for export supplies and reduced harvest prospects in Argentina. Maize prices also rose further in November, supported by continued large maize purchases by China, amidst further cuts to this year’s production estimates in the United States of America and Ukraine, both major exporters. Among other coarse grains, firm demand continued to push up feed barley and sorghum prices. By contrast, international rice prices held steady in November, as support provided by tight availabilities and currency movements in selected South East Asian exporters was offset by limited demand and harvest pressure in other major origins.

» The FAO Vegetable Oil Price Index averaged 121.9 points in November, gaining a stunning 15.4 points (or 14.5 percent) month-on-month and reaching its highest level since March 2014. The rally mainly reflects additional spikes in palm oil prices, combined with further increases in soy, rapeseed and sunflowerseed oil values. International palm oil price quotations rose for a sixth consecutive month, underpinned by sharp contractions in world inventory levels, as smaller than customary output in major producing countries coincided with firm global import demand. As for soyoil, prices firmed amid subdued export availabilities in South America and upbeat import demand, notably from India. Likewise, rapeseed and sunflowerseed oil values strengthened further on limited supplies. Meanwhile, firming petroleum prices also lent support to vegetable oil prices.

» The FAO Dairy Price Index averaged 105.3 points in November, up 0.9 points (0.9 percent) month-on-month, continuing the upward trend registered in recent months and nearing an 18-month record high. The latest rise was largely driven by firmer butter and cheese prices, reflecting steady increases in global import demand and a surge in retail sales in Europe coinciding with the region’s milk production reaching seasonal lows. By contrast, following six months of consecutive increases, skim milk powder prices dropped due to a slower pace of purchases in Asia, especially China, coupled with increased global export availabilities, including India’s powder surpluses. Despite a rise in demand for spot supplies from the Middle East and North Africa, especially Algeria, smaller purchases by China weighed on whole milk powder price quotations.

» The FAO Meat Price Index** averaged 91.9 points in November, up 0.8 points (0.9 percent) month-on-month, marking the first increase since January, but still 14.6 points (13.7 percent) below its value in the corresponding month last year. International bovine meat prices increased, after four months of consecutive declines, due to robust demand from China and tight supplies from Oceania. Pig meat prices recovered slightly, underpinned by a fast pace of purchases by China amidst low availability of slaughter-ready animals in Brazil, while Germany and Poland remained banned from exporting to the Asian markets over African swine fever outbreaks.  Ovine meat prices also rose, mainly because of firm import demand from China and low supplies from Oceania. By contrast, poultry meat quotations fell, reflecting increased shipments from leading producers amidst subdued international import demand.....  

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Thursday, December 3, 2020

Meanwhile in Namibia: "Politician named Adolf Hitler wins election"

2020 staying on brand I see.

From the Evening Standard, December 3:

The politician said his wife just calls him Adolf

A politician named Adolf Hitler has distanced himself from the dead Nazi leader after winning election in Namibia, saying: “My name doesn’t mean I’m striving for world domination”.

Adolf Hitler Uunona won more than 85 per cent of the vote for the ruling SWAPO in a regional council election in Oshana.

The Southwestern African country was a former colony of Germany and shares many street names and family names with the European nation.

“My father named me after this man. He probably didn't understand what Adolf Hitler stood for," he told Bild....

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“My name doesn’t mean I’m striving for world domination”.

Uh huh. "This is my last territorial demand in Europe"

U.S. Natural Gas: "Gas Spread Going Negative Shows Traders Doubting a Cold Winter"

From Bloomberg:

A closely watched U.S. natural gas price spread flipped to negative, signaling that traders have all but given up already on the prospect of a cold winter.

Gas for January delivery is now trading below February prices, a first for the 2021 contracts. January futures tumbled to a two-month low on Thursday, for the worst performance among major commodities, as near-term forecasts for chillier conditions were scaled back. Temperatures may be above normal in much of the Midwest and parts of the Northeast in mid-December, according to The Weather Company.

https://s.yimg.com/ny/api/res/1.2/H4548IZbR5D3wPmjGr_uiw--/YXBwaWQ9aGlnaGxhbmRlcjt3PTk2MDtoPTU0MA--/https://s.yimg.com/uu/api/res/1.2/bo5vBOccwYu1QqJY4unjQA--~B/aD02NzU7dz0xMjAwO2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/bloomberg_markets_842/574855f08fc54887dfc4b9cb71807023

The market extended declines after a government report showed that only 1 billion cubic feet of gas was taken out of storage last week, much lower than the five-year average draw of 41 billion for this time of year.

Just over a month ago, hedge funds’ bullish wagers on gas climbed to a six-year high as liquefied natural gas exports rose to a record and shale drillers reined in production amid low oil prices. But with few signs of the weather cooperating to support a rally, money managers are now unwinding those bets, leaving prices futures mired below $3.

“This is Gas Vegas -- it’s gambling on picking a bottom at this point,” said Bob Yawger, director of the futures division at Mizuho Securities.

Gas for January delivery slumped 9.8% to $2.507 per million British thermal units on the New York Mercantile Exchange, the lowest close since the beginning of October. February futures slid 9.5% to $2.515.

The decline doesn’t bode well for gas drillers, who had fared better than their oil-heavy peers amid the crude rout earlier this year. Shares of gas producers including Southwestern Energy Co. and EQT Corp. fell despite a broader rally in equities Thursday.....

....MORE

Front futures off another tenth of a penny at 2.5060 

Earlier:
EIA Natural Gas Storage Report: We Don't Need No Stinkin' Natty

Prepare For The Onslaught

Following up on "Meanwhile in L.A.: 'Residents in city of Los Angeles to ‘remain in their homes’ amid COVID-19 surge, mayor’s office says".

Podcasters are exempt.


.....IV. All travel, including, without limitation, travel on foot, bicycle, scooter, motorcycle, automobile, or public transit is prohibited, subject to the exceptions in Paragraph V.

V,  Exceptions. People may lawfully leave their residences while this Order is in effect only to engage in the following activities. All businesses operating under any of the following exemptions must comply with all applicable protocols set forth by the State of California and the Los Angeles County Department of Public Health.

A.Essential Activities Exempt. Certain business operations and activities are exempt from the provisions of this Order, on the grounds that they provide services that are recognized to be critical to the health and well-being of the City. Persons engaging in any of these essential activities are required to maintain reasonable social distancing practices and wear facial coverings....

....5.Newspapers, television news, radio, magazine, podcast and journalism; and music, film and television production, after adopting the Los Angeles County Department of Public Health’s Reopening Protocol for Music, Film and Television Production. 

Do you have any idea how many people in Los Angeles greet each other with "Hey, it's been a while, do you have a podcast?".

And how many more the lockdown is going to spawn?

"Alright buddy, waddya doing outside?"

"I'm a podcaster officer".

"Carry on, citizen"

There is one note of Grace:

Page 2of 12

I.Subject only to the exceptions outlined in this Order, all persons living within the City of Los Angeles are hereby ordered to remain in their homes. Residents of the City of Los Angeles who are experiencing homelessness are exempt from this requirement....

So, if you are homeless, you don't have to stay home.

Here's the Mayor's diktat.

According to the LA Homeless Services Agency there were 41,290 homeless as of the last count in June. With the effects of the lockdown and coming evictions, including from state and city owned or leased properties, we might be looking at 100,000 homeless by Christmas Eve - New Year's Eve.

But they won't be required to stay home.

"Russian, Chinese intelligence targeting Norwegian oil secrets: report"

From Reuters:

Russia, China and other countries are using espionage to glean secrets of Norway’s petroleum industry and plans by its government to cut or increase production, the Norwegian counterintelligence service PST said.

In a report dated Nov. 5 but published on Thursday, the service warned of possible attempts to recruit sources or hack computers, as in a major cyber attack six years ago, and said renewable energy could become a focus for foreign spies.

“PST expects that the use of economic tools and network operations will increase in the next 18 months,” it said....

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"CTAs Will Puke Once 10Y Yield Hits 1.02%, Sparking Liquidation Cascade"

 A quick note up front: trading off the information embedded in the Commodity Trading Advisors reports or the gamma gurus is only a guide to what is going on, it is not the ultimate reality. There are events that overcome option dealer positioning or commercials vs. specs and this is especially true in situations like the dollar or the 10-year where the crowd, ourselves included, have been on the right side of the trades.

By the bye, although we did not catch the exact recent bottom on the 10-year yield,  0.5040% on August 6th, (we really started beating the drum that rates were going higher at 0.56%) the 10-year's yield—proxied by the CBOE's TNX—has backed up to 0.9200 -0.0280 (-2.95%):


BigCharts

 We saw .9660% on Wednesday afternoon.

From ZeroHedge

One question that has emerged recently on trading desks is what will happen first: Bitcoin hits $20,000 or the 10Y rises above 1.0%. The answer may depend on what bond-trading CTAs do.

As Nomura quant Masanari Takada writes when commenting on yesterday's spike in 10Y yield which rose as high as 0.96%, "CTAs have resumed preemptive exits from long positions in UST futures." Noting that at the same time as momentum-chasing CTAs have been gradually adding to their exposure in DJIA and Russell 2000 futures ...

... CTAs are being drawn back into exiting long positions in 10yr UST futures (TY). As 10yr yields bounced back up to around 0.95% this week, "CTAs, who had been waiting on the sidelines, have again been pressed into action" with the Nomura quant estimating that CTAs have already liquidated about 65% of the long TY positions they held at the peak in August, and with a key trigger line at around 1.02% on the near horizon, CTAs are looking increasingly likely to have to exit the entirety of their aggregate net long TY position.

Should 10yr yields break above 1.02%, CTAs would be pushed "en masse" into loss-cutting mode, and the resulting systematic sell-off would put additional upward pressure on yields. According to Takada, based on past correlations "the 10yr UST yield could jump up to around 1.20% if CTAs were to sell their way down to a flat position."

While any systematic selloff would likely lead to buying by other investor types, Takada cautions that UST bulls would probably would probably encounter a pair of headwinds, the first of which is that risk-parity funds have little room in which to go any further with their buying of bonds driven by the decline in DM government bond market volatility. The reason for this is that the portfolio weight that risk-parity funds have assigned to low-risk bonds has already hit a ceiling (as a reminder 60/40 portfolios have been pivoting away from bonds for the "40" component of the basket amid fears upside is now largely capped). Also, demand for 1-m options on UST futures is tilted solidly to the put side, which is an indication that traders picturing a decline in prices for 10yr UST futures (TY) and a rise in volatility are in the majority....

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Meanwhile in L.A.: "Residents in city of Los Angeles to ‘remain in their homes’ amid COVID-19 surge, mayor’s office says"

 From KTLA, December 2:

All residents within the city of Los Angeles should continue to remain in their homes and follow the city’s “safer-at-home” order, which mirrors guidance from L.A. County, according to the mayor’s office.

A public order posted on the mayor’s website Wednesday detailed many of the restrictions, including a ban on some travel with a variety of exemptions.

Email and text alerts from the city’s NotifyLA System also went out Wednesday, although the mayor’s deputy press secretary, Harrison Wollman, said the guidance has been in place for days.

“The city uploaded the most recent version of its safer-at-home order today to match the county’s current order that was enacted earlier this week,” Wollman said. “The two orders are identical, and the process of publishing the official document on our website is a formality that occurs each time the order is revised.”...

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Izabella Kaminska: "How 2020 is becoming ever more like an episode of the dystopian TV series Black Mirror."

 Oh Izzy, it's even worse than that. 

Back in May, Charlie Brooker, creator of Black Mirror said he wasn't working on season 6, basically conceding he couldn't compete with 2020-to-that-point. In some ways reminiscent of how reality knocked Middle East parody site, The Pan-Arabia Enquirer, off the internet in 2015*

From FT Alphaville: 

I’m a celebrity, give me the vaccine live on TV!

Earlier this week we suggested the best way to counter vaccine fears and conspiracies was with creative-minded solutions, not authoritarian-sounding declarations about compulsory vaccination programmes. 

There were three main alternative strategies we offered. 

One: Bigging up messaging that highlighted the public duty of getting vaccinated, something we believe would work wonders with all those inclined to signal their virtuous acts loudly across social media. 

Two: Getting high-profile celebrities, officials and leaders to take the vaccine first so as to drum up public confidence in its safety. This would be akin to a “skin in the game” strategy and would be especially effective with the conspiracy-inclined if it featured those who have become central figures in conspiracy narratives such as Bill Gates, The Queen, Joe Biden etc etc. 

Three: Launching counter-conspiracies that would challenge the accepted conspiratorial view that it’s the vaccine that should not be trusted rather than the virus itself. Like the idea that the vaccine is actually here to save us from Alien colonisation.

It didn’t take long for the system to provide....

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Although FT Alphaville's editor uses a couple other pics to illustrate her post I kept thinking of  Slobodan Praljak:

https://s.abcnews.com/images/US/Praljak-1-gty-er-171129_4x3_992.jpg 

*And:
Editors at semi-popular Middle East satire news website The Pan-Arabia Enquirer yesterday revealed that they had “given up” in their long-running struggle to keep ahead of reality.

The announcement came following last week’s news that labourers working in Qatar had been coerced into taking part in a marathon, with many bussed in from their dormitories and forced to run in jeans and flip-flops as part of a failed bid to break the world record for number of participants.

“Honestly, simply cannot compete in these sorts of conditions,” said Enquirer acting editor Baltimore Stafford in a statement.

“Over the years, we’ve had to deal with a growing trend of real-life trying to outdo satire, especially in Saudi Arabia, but this is beyond our capabilities. To be honest, we could have probably worked around the whole ‘labourers forced to take part in marathon’ bit, but with the addition of flip-flops, jeans and the fact it was a shambolic attempt to break a record, we’ve had to concede defeat.”

The PAE attempted a comeback in 2018 but as the poet said "The dogs bark but the caravan moves on"

EIA Natural Gas Storage Report: We Don't Need No Stinkin' Natty

The stink is the mixtures of sulfides and mercaptans added to otherwise odorless natural gas.

 Also the futures, down 9% (-0.250) at 2.530. 

First up the estimates going into the report, from FX Empire: 

Natural Gas Price Fundamental Daily Forecast – Crushed by ‘Exceptionally Comfortable’ Temps Ahead of EIA Data

.... NatGasWeather says, “For today’s EIA weekly storage report, a large range in national survey averages between -10 and -17 Bcf, but with the most notable near -10 Bcf. It was warmer than normal over most of the US besides the Great Basin. Our algorithm predicts a draw of -9 Bcf, lighter than the 5-year average of -41 Bcf, although tricky due to the Thanksgiving Holiday.”

Natural Gas Intelligence (NGI) says, “A Bloomberg survey of six analysts produced a range from a 26 Bcf withdrawal to a 1 Bcf injection, with a median draw of 19 Bcf. Reuters polled 16 analysts, whose withdrawal estimates were as low as 28 Bcf and injection estimates were as high as 3 Bcf, with a median decrease of 12 Bcf. A Wall Street Journal poll of 12 analysts showed draws ranging from 8-28 Bcf. NGI projected a 15 Bcf pull.”....

The report, from the Energy Information Administration:
for week ending November 27, 2020   |   Released: December 3, 2020 

Working gas in storage was 3,939 Bcf as of Friday, November 27, 2020, according to EIA estimates. This represents a net decrease of 1 Bcf from the previous week. Stocks were 343 Bcf higher than last year at this time and 290 Bcf above the five-year average of 3,649 Bcf. At 3,939 Bcf, total working gas is within the five-year historical range. 

And finally, the price action via the CME:

https://www.tradingview.com/x/n00RnBFX/

"To Save the Climate, Give Up the Demand for Constant Electricity"

 The third piece of our look at what people are talking about, energywise.

As intro'd in last night's "Mariana Mazzucato: We may need climate lockdowns to halt climate change.":

Sometimes I get the feeling I'm being groomed to accept things I normally wouldn't.

Sort of a cross between Rotherham and Hegelian dialectic, given two awful choices, choosing the one that seems slightly less awful but that's not enough so rinse, repeat.

 From Boston Review:October 5, 2020:

The writer "David McDermott Hughes" is a Professor of Anthropology at Rutgers.

Waiting to ensure uninterrupted power for everyone as we transition away from fossil fuels will cost too much time—and too many lives.

Many decades ago electricity became the new oxygen, and the vast majority of Americans today believe they need it every moment of every waking or sleeping hour. The United States has built a vast infrastructure for generating, transmitting, and consuming it—all almost entirely based on planet-destroying fossil fuels and nuclear power.

Electricity has become the new oxygen. The vast majority of Americans today believe they need it every moment of every waking or sleeping hour.

Those fuels hold and store energy. If you accumulate enough of them, you can generate electricity abundantly and reliably. The result is that the average American household uses electric resources far beyond its needs while losing power for fewer than six hours per year. Renewables can provide that plenitude—and already do through wind and solar farms in Texas and California—but not necessarily all the time. The sun shines at us constantly, with more energy that we can possibly use at any moment, but the Earth’s rotation puts us in shadow at nightfall. And wind, of course, can simply stop. As a result, the leading fossil- and nuclear-free sources of energy bounce from feast to famine, raising the possibility of more frequent and longer power cuts. Critics—often supporters of natural gas—say wind and solar power are “not ready.” Renewables, they warn us, pose an “intermittency problem.”

For those seriously concerned about climate change, the inverse—the demand for electrical continuity—may be the real problem. Today’s most ambitious plans to abandon fossil fuels—which are certainly not supported by the natural gas industry—allow ten, twenty, or thirty years to wire the whole country with solar and wind power, running all day, every day, for everyone, everywhere. The plans differ in speed, but all agree on the last point: except for six agonizing hours per year, electrons must flow 24/7/365. To make that steadiness possible, solar plants will have to store some electricity during the daytime feast to last through the nocturnal famine. “As economies shift to variable renewables,” environmental activist Paul Hawken writes in his aggressive climate proposal Drawdown (2017), “management of the power grid with energy storage systems is critical.”

We ought to consider enduring much more than six hours of electrical downtime every year for the sake of transitioning more rapidly away from fossil fuels.

But storage means batteries, and battery technology takes time to sell and install. In the case of utility-scale batteries or battery farms, investors have to negotiate with regulators and neighbors. Such friction is impossible to measure now, but additional equipment and infrastructure always create delay. That lost interval—years, in each of the transition scenarios—matters profoundly. Carbon dioxide can trap heat in the atmosphere for 120 years. For the most precarious people, a year’s emissions mean the difference between life and death.   

So just how critical is continuity, then? And critical for whom? The U.S. grid sends 30 percent of its electricity to residences. As of 2017, 63 percent of those were single-unit, detached dwellings. Under Hawken’s plan in Drawdown, these houses will require battery farms and high-tension lines, and until they get them, they will probably draw power from natural gas at night. Thus, each household demanding continuous electricity marginally exacerbates the climate crisis. Perhaps, then, it is critical that we not store energy for these houses. At least, we should not do so in a way that hobbles the transition away from fossil fuels. We ought to consider waiting a few years for storage—enduring much more than six hours of downtime every year—for the sake of transitioning more rapidly away from fossil fuels. But few people have championed such residential intermittency. Why not?

section separator

Self-sacrifice is not popular, especially at home. After Jimmy Carter suggested we turn down the thermostat in winter, Ronald Reagan banished sweaters to the political graveyard. No one will recommend that we spend the winter being cold. Forgoing the stove for a few hours is a different kind of sacrifice; it doesn’t degrade our quality of life so much as reschedule or interrupt activities. Delay is the kindest form of rationing. Yet we are so wedded to availability, predictability, and continuity that any break seems like a sacrifice. Long before the lithium-ion battery, we became addicted to electrical continuity.

Self-sacrifice is not popular, especially at home. After Jimmy Carter suggested we turn down the thermostat in winter, Ronald Reagan banished sweaters to the political graveyard.

This steadiness became normal and expected at home and in the economy when—and precisely because—the home and the economy converged. First, they diverged from a common concept. As developed in the seventeenth century, the term “economy” derives from the Greek word for household or family management (oikonomos). Both units rely upon internal cooperation. In the seventeenth and eighteenth centuries, they also ran at roughly same tempo: when breadwinners slept, so did production and trade. Factories of the Industrial Revolution, however, moved to continuous production. High-energy manufacturing—in blast furnaces, for example—was just too costly to stop and restart. The economy of making goods thus became an insomniac while the family slumbered. Then, for buyers, sellers, and traders of goods, the digital revolution set an alarm clock without snooze. “Business continuity” is now vital—defended from hackers and blackouts alike. So just about every part of the economy outstripped the family completely. The former is always on, whereas the latter—except where someone works the night shift—appears to turn the lights off at night.

In subtle ways, the family has been catching up to the economy. Perhaps, the change began in the 1960s when the electric clock replaced the wind-up alarm. This technology turned an unnoticed midnight blackout into potentially career-wrecking tardiness. Then the digital clock colonized all our appliances, from the TV to the stove: you can’t turn them off anymore. If the contractor installs them compactly, you can’t even unplug them. Now—through the Internet of Things—they are all going to talk to each other all the time. That will certainly be convenient; houses will run themselves, heating, cooling, and maybe eventually cooking and cleaning through timed algorithms and web-based data. The household will run like always-on, continuous business.

Meanwhile, COVID-19 has forced almost all white-collar workers to telecommute. Thanks to Zoom, meetings have dispersed from the conference room to bedrooms and kitchens. Business continuity now requires uninterrupted electricity in millions of households. For the moment at least, the economy and the family run on the same circuit, and we would seem to need continuity now more than ever. Today’s viral interruption, however, may actually teach us how to live with intermittency.  

section separator

We will certainly need to be taught. In 2014 the German grid—6 percent of it working on solar energy—only scraped through an eclipse by drawing on other sources of electricity from neighboring countries. The operators saw that one coming. Wind is harder to predict than the sun. In August, still air hit California’s wind farms during a heat wave, and despite drawing from public and private batteries, the grid still went down in some locales. The more experimental sources of energy—tides, waves, and ocean currents—all vary by hour, season, and forces so mysterious that we call them acts of God. To make matters worse, none of this intermittency coincides with the rhythms of human life. Workers arrive home—where they will cook and turn on appliances—just as the sun is setting, so demand peaks while supply plummets. Many Americans, of course, fall outside this comfortably employed, nine-to-five, meat-and-potatoes routine, but the privileged ones who live this way consume enough energy to set the pattern for everyone else. A familiar criticism of solar energy—“Can’t store. No power after four.”—thus continues to constrain the move from fossil fuels to renewables.

Lithium-ion batteries are moving into position to overcome that constraint, but they create problems of their own. Like most form of mining, lithium extraction produces toxins—imposed, on this case, on indigenous down-winders in Chile. Also like mining, the lithium trade concentrates power and wealth in the hands of few, corporations. Sometimes called “bottlenecking,” this process converts a resource too plentiful for profit—like sunlight—into a scarce and lucrative commodity. Right now, Tesla seems on track to gain a controlling share of any smart grid connected to electric vehicles; its Powerwall battery is out-competing less toxic technologies, and it could eventually dovetail with software known as “demand response.” Through that automated collaboration, your neighbor’s car would wash your dishes, but only at night when she doesn’t need the former and you can wait for the latter. Google’s Nest program will call the shots. A corporate juggernaut is thus taking shape, one that has the power to slow the energy transition and make it less just. Tesla and Google may not have intended to lay the battery trap, but they are now poised to snap it shut.

A corporate juggernaut is taking shape, one that has the power to slow the energy transition and make it less just....

....MUCH MORE 

Also last night: 

"Tesla CEO says electric cars will double global electricity demand"

The next thirty years are going to be lit unlit.

Wednesday, December 2, 2020

"Tesla CEO says electric cars will double global electricity demand"

 From Reuters, December 1:

FRANKFURT (Reuters) - Tesla Chief Executive Elon Musk said on Tuesday that electricity consumption will double if the world’s car fleets are electrified, increasing the need to expand nuclear, solar, geothermal and wind energy generating sources.

Increasing the availability of sustainable energy is a major challenge as cars move from combustion engines to battery-driven electric motors, a shift which will take two decades, Musk said in a talk hosted by Berlin-based publisher Axel Springer.

“It will take another 20 years for cars to be fully electric. It is like with phones, you cannot replace them all at once,” Musk said in a talk streamed on the Bild.de web site, adding that around 5% of vehicles are replaced every year....

....MORE

Mariana Mazzucato: We may need climate lockdowns to halt climate change.

Sometimes I get the feeling I'm being groomed to accept things I normally wouldn't.

Sort of a cross between Rotherham and Hegelian dialectic, given two awful choices, choosing the one that seems slightly less awful but that's not enough so rinse, repeat.

From Professor Mazzucato  writing at Project Syndicate, September 22, 2020, via MarketWatch:

We are approaching a tipping point on climate change, when protecting the future of civilization will require dramatic interventions 

LONDON (Project Syndicate)—As COVID-19 spread earlier this year, governments introduced lockdowns in order to prevent a public-health emergency from spinning out of control. In the near future, the world may need to resort to lockdowns again—this time to tackle a climate emergency.

Shifting Arctic ice, raging wildfires in western U.S. states and elsewhere, and methane leaks in the North Sea are all warning signs that we are approaching a tipping point on climate change, when protecting the future of civilization will require dramatic interventions.

The world is approaching a tipping point on climate change, when protecting the future of civilization will require dramatic interventions. Avoiding this scenario will require a green economic transformation—and thus a radical overhaul of corporate governance, finance, policy, and energy systems.

Under a “climate lockdown,” governments would limit private-vehicle use, ban consumption of red meat, and impose extreme energy-saving measures, while fossil-fuel companies would have to stop drilling. To avoid such a scenario, we must overhaul our economic structures and do capitalism differently.

Three interconnected crises

COVID-19 is itself a consequence of environmental degradation: one recent study dubbed it “the disease of the Anthropocene.” Moreover, climate change will exacerbate the social and economic problems highlighted by the pandemic. These include governments’ diminishing capacity to address public-health crises, the private sector’s limited ability to withstand sustained economic disruption, and pervasive social inequality.

These shortcomings reflect the distorted values underlying our priorities. For example, we demand the most from “essential workers” (including nurses, supermarket workers, and delivery drivers) while paying them the least. Without fundamental change, climate change will worsen such problems.

The climate crisis is also a public-health crisis. Global warming will cause drinking water to degrade and enable pollution-linked respiratory diseases to thrive. According to some projections, 3.5 billion people globally will live in unbearable heat by 2070.

Addressing this triple crisis requires reorienting corporate governance, finance, policy, and energy systems toward a green economic transformation. To achieve this, three obstacles must be removed: business that is shareholder-driven instead of stakeholder-driven, finance that is used in inadequate and inappropriate ways, and government that is based on outdated economic thinking and faulty assumptions....

....MUCH MORE

Hegelian Dialectic is no more than Johnny Carson's first rule of comedy: If they buy the premise, they'll buy the bit.

Thesis (premise, awful) — antithesis (even more awful) — Synthesis (resolution but moved further toward the thesis)

China's Xi Pushes for Global COVID QR Code

I'm thinking no.

From QR Code Press:

Xi Jinping may be facing an uphill battle in convincing the world to use a barcoded tracking system
Chinese President Xi Jinping is encouraging other world leaders to implement a global COVID QR code system comparable to the one his country rolled out months ago.

The goal would be to help fast-track international business and travel even as the pandemic continues

Earlier this year, China required the use of QR codes in a color-coded public access system in its cities. It has been credited with being a major tool in curbing the spread of the COVID-19 virus in the country. Now, the Chinese president wants the global COVID QR code rollout for similar successes on an even more widespread level.

The barcode assigns app users with a color code based on their risk level of exposure to the coronavirus behind the pandemic. The three colors are based on a traffic light scale. Green is the safest color. Amber indicates a certain level of risk. Red represents the highest level of risk. China used this system to decide who could leave their residences and among those who could, who could access which public areas and facilities. 

Xi recently spoke to G20 leaders at a virtual meeting in which he recommended a global COVID QR code system....MORE

After the latest revelations about China's covid coverup any conversation about China and coronavirus better be focused on reparations.

Part Of The Granddaddy Of Silicon Valley, Hewlett Packard Enerprise, Is Leaving For Texas (HPE; HPQ)

 Silicon Valley basically started here:

https://www.hpmuseum.org/garage/garage1.jpg

That's the garage at David and Lucile Packard's rented home in Palo Alto. Bill Hewlett lived in the little shack on the right.

In 2015 HP split into two parts,

From ABC13, Houston TX:

Tech giant HP Enterprise moving headquarters from California to Spring, Texas

SPRING, Texas (KTRK) -- Fortune 500 company Hewlett Packard Enterprise is moving its world headquarters from California to the Houston area.

The move by the tech giant will mean thousands of jobs for the area when it opens in the city of Spring in 2022.
"As we look to the future, our business needs, opportunities for cost savings, and team members' preferences about the future of work, we are excited to relocate HPE's headquarters to the Houston region," said Antonio Neri, the company's CEO.

HPE describes itself as "the global edge-to-cloud platform-as-a-service company that helps organizations accelerate outcomes by unlocking value from all of their data, everywhere."

The Hewlett Packard Enterprise, which focuses solely on information technology and solutions, is not to be confused with HP Inc., which focuses on computer hardware and printers....

....MORE

Creighton University's "Mid-America Index Drops: Economic Outlook Plummets"

 From Creighton's Heider College of Business, December 1:

November survey highlights:

  • The regional Business Conditions Index remained above growth neutral for the sixth straight month.
  • Since bottoming out in April, regional manufacturing has gained back roughly 37,000, or 2.7%, of the initial non-farm job losses from COVID-19.
  • Approximately 52.9% of supply managers from the November Creighton survey indicated their firm had hired back all COVID-19 furloughed workers.
  • The wholesale inflation gauge rose its highest level since June 2018.
  • Supply managers economic outlook, or business confidence, plummeted for the month.
  • Approximately 45.5% of supply managers reported that their employer had increased the employee health care insurance contribution for 2021.

OMAHA, Neb. (December 1, 2020) – For the first time since April, the Creighton University Mid-America Business Conditions Index, a leading economic indicator for the nine-state region stretching from Minnesota to Arkansas, fell, but remained above growth neutral for the month.

Overall index: In April of this year, COVID-19 pushed the overall index to its lowest level in 11 years. Since April, the overall index has climbed above growth neutral 50.0 for six of the past seven months. The November Business Conditions Index, which ranges between 0 and 100, dipped to 69.0 from October’s 70.2.

“Creighton’s monthly survey results have mirrored the national manufacturing survey results indicating that the manufacturing sector has been expanding at a solid pace since sinking to a post-2008 recession low in April. Even so, current output in the regional and U.S. manufacturing sectors remains below pre-COVID-19 levels,” said Ernie Goss, PhD, director of Creighton University’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics in the Heider College of Business.  

Employment: The regional employment index remained well above growth neutral for November, but fell to 63.1 from 66.7 in October. Since the onset of COVID-19, U.S. Bureau of Labor Statistics data indicate that regional nonfarm employment is down 649,000 jobs, or 4.7%, and regional manufacturing employment is off by 72,000 jobs or 4.9%.

Since bottoming out in April, regional manufacturing has gained back roughly 37,000, or 2.7%, of the initial nonfarm job losses.

Approximately 52.9% of manufacturers from the November Creighton survey indicated that they hired back all COVID-19 furloughed workers, while 29.4% reported that their firms had rehired a portion of the furloughed workers. The remaining 17.7% stated that their firm had never furloughed workers. Approximately 5.9% expect to furlough additional workers....

.....MUCH MORE

This follows on the downturn in Creighton's other data-series, reported out a couple weeks ago: 

Creighton University's Rural Mainstreet Index Retreats for First Time Since April: Bankers Expect 3.1% Decline in Holiday Sales 

Convexity Maven: "The Wages of Fear”

As we've noted previously, Mr. Bassman knows stuff.

From Harley Bassman, The Convexity Maven, December 2:

The lack of (Consumer Price Index –CPI) inflation should not distract anyone from recognizing that our financial economy is presently overwhelmed by too much debt,both public and private; and it is beneath the cloak of systemic risk management that the Federal Reserve (FED) flipped on their printing press to support an alphabet soup of asset purchase programs

And while I do not begrudge most of the FEDs actions to offer relief from both the Great Financial Crisis (GFC) and the COVID pandemic, what we all must recognize is that the financial remediation of these two crises have pulled forward the day of reckoning for how to fund the promise of Social Security and Medicare for the retiring Baby Boomer demographic.

The political game of “kick the can” for managing the two largest strands of our social safety net has reached an end; about a decade sooner than hoped. We are at a crossroads where one path is well trodden by financial history, and the other newly paved by an economic Pied Piper.But her siren song has been too sweet, and we are turning to the perfidy of Modern Monetary Theory (MMT).

Here we consider the reason and consequence of this dangerous road.

Only Congress can legally “spend” money (Fiscal Policy), and since they would not offer sufficient support in response to the GFC, the FED stepped in with(Monetary Policy) Large Scale Asset Purchases (LSAP), also known as Quantitative Easing (QE),as their most potent tool.These assets landed on the FED’s -genetian line-balance sheet.

*****

While indeed much has changed over the past decade, sometimes to the point where facts do not exist, what has remained constant are the rules for double entry bookkeeping, where every asset must be paired with a liability.... 

....MUCH MORE (9 page PDF)

Tuesday, December 1, 2020

Vaclav Smil on Alt-Energy: "Germany's Energiewende, 20 Years Later"

It's not as if the conclusions of this retrospective should be a surprise to anyone. Since Germany began its monumental restructuring you knew who was paying for it. Here's an example from 2012:

Too Funny: "China demands timetable to $100 billion climate aid for developing world"
China is the world's largest emitter of CO2 and was the prime beneficiary of Kyoto money. The least they could do is say Danke to the German hausfraus who foot the bill.

And from the brainiacs at IEEE Spectrum (or in this case, brainiac singular, Professor Smil):

Germany's far-reaching program to reduce the share of fossil fuels in energy has achieved almost exactly what the United States achieved, but at greater expense

In 2000, Germany launched a deliberately targeted program to decarbonize its primary energy supply, a plan more ambitious than anything seen anywhere else. The policy, called the Energiewende, is rooted in Germany’s naturalistic and romantic tradition, reflected in the rise of the Green Party and, more recently, in public opposition to nuclear electricity generation. These attitudes are not shared by the country’s two large neighbors: France built the world’s leading nuclear industrial complex with hardly any opposition, and Poland is content burning its coal.

The policy worked through the government subsidization of renewable electricity generated with photovoltaic cells and wind turbines and by burning fuels produced by the fermentation of crops and agricultural waste. It was accelerated in 2011 when Japan’s nuclear disaster in Fukushima led the German government to order that all its nuclear power plants be shut down by 2022.

During the past two decades, the Energiewende has been praised as an innovative miracle that will inexorably lead to a completely green Germany and criticized as an expensive, poorly coordinated overreach. I will merely present the facts.

The initiative has been expensive, and it has made a major difference. In 2000, 6.6 percent of Germany’s electricity came from renewable sources; in 2019, the share reached 41.1 percent. In 2000, Germany had an installed capacity of 121 gigawatts and it generated 577 terawatt-hours, which is 54 percent as much as it theoretically could have done (that is, 54 percent was its capacity factor). In 2019, the country produced just 5 percent more (607 TWh), but its installed capacity was 80 percent higher (218.1 GW) because it now had two generating systems.

The new system, using intermittent power from wind and solar, accounted for 110 GW, nearly 50 percent of all installed capacity in 2019, but operated with a capacity factor of just 20 percent. (That included a mere 10 percent for solar, which is hardly surprising, given that large parts of the country are as cloudy as Seattle.) The old system stood alongside it, almost intact, retaining nearly 85 percent of net generating capacity in 2019. Germany needs to keep the old system in order to meet demand on cloudy and calm days and to produce nearly half of total demand. In consequence, the capacity factor of this sector is also low....

....MUCH MORE

"A New CIA Initiative Aims to Bring Spy Tech to the Public"

From Washingtonian:

The Agency thinks it has more to offer than spycraft gadgets. 

When you hear the phrase “CIA invention,” you probably think of trick briefcases, shoe phones, or cars that transform into submarines with a flick of your Rolex. But while the Agency has cooked up plenty of goofy spycraft gadgets (does the world really need a robot catfish?), it also has a history of contributing to technological innovations that have significantly impacted non–James Bond culture, including the lithium-ion batteries that power our phones and the technology that became Google Earth.

Now the CIA wants to bring more of its inventions to the public. In September, it launched CIA Labs, an incubator designed to cultivate tech projects—and make the CIA a little less insular. The concept was cooked up by Dawn Meyerriecks, the Agency’s deputy director for science and technology, a job roughly equivalent to that of “Q,” but without—we assume—people testing flamethrowing bagpipes outside her office.

Having previously worked at both AOL and the Defense Department, Meyerriecks has a deep appreciation for how innovation and technology are increasingly bringing the public and private sectors together. “We do everything from mascara to space,” she says, referring to the CIA’s efforts with conventional disguises and satellite-based snooping. “When we are asked to look at a national-security challenge, I can bring in, no kidding, experts from any discipline.”...

....MORE

Back in October I was sent this link but was reluctant to visit:

https://www.cia.gov/offices-of-cia/science-technology/cia-labs.html  

Oh who am I kidding, to quote The Amazing Lileks:

"If there was some clickbait that said clickbait reduces your IQ 
by 7 points, I’d click on it...."

"For 15 Years Sweden Thought Enemy Submarines Were Invading Its Territory. It Turned Out To Be Herring Farts"

 I don't know if it's related but the Swedes have some of the quietest submarines in the world:

And the headline story from IFL Science:

It's perfectly feasible that in the 1980s a major diplomatic incident between nuclear superpowers could have been triggered by fish farts. In fact, Russia and Sweden nearly came to blows over this very thing. They just didn't know it at the time. 

Before we move on to farts, first, some background. In 1981, a Soviet submarine ran aground on the south coast of Sweden, just 10 kilometers (6.2 miles) from a Swedish naval base. The Soviets claimed that they were forced into Swedish territory by severe distress, and later navigation errors, while Sweden saw it as proof that the then Soviet Union was infiltrating Swedish waters. It didn't help that when Swedish officials secretly measured for radioactive materials using gamma-ray spectroscopy, they detected what they were 90 percent sure was uranium-23 (used for cladding in nuclear weapons) inside the sub, indicating that it may be nuclear armed.

The submarine was returned to international waters, but the Swedish government remained alert, convinced that Russian subs could still be operating near their territory. Which is when they started to pick up elusive underwater signals and sounds. In 1982, several of Sweden's subs, boats, and helicopters pursued one of these unidentified sources for a whole month, only to come up empty-handed.

This continued for over a decade. Every time they picked up an acoustic signal they would search and find nothing but for a few bubbles on the sea's surface. Sweden was, of course, worried about the intrusions, and couldn't think why, with the Cold War now over, Russia would continue to provoke them in this manner.

But it was farts....

.....MUCH MORE

One of the scientists who broke the case, Magnus Wahlberg, was awarded the igNobel Prize in Biology by Harvard's Journal of Improbable Research (shared with a team from Scotland who independently came to similar conclusions as to what the Herring were up to.)

https://www.improbable.com/about/people/MagnusWahlberg.html

The 2004 vintage awards were very well rounded with the prize in Medicine going to an American team for:

The Effect of Country Music on Suicide

https://www.improbable.com/ig-about/winners/#ig2004

Organized Crime Is Using Basic AI

From the Organized Crime and Corruption Reporting Project: 

Organized Crime Has a New Tool in Its Belts - Artificial Intelligence 

....One such example is procedurally generated fishing emails designed to bypass spam filters.

Despite the proliferation of new and powerful technologies, a cybercriminal's greatest asset is still his mark’s propensity for human error and the most common types of cyber scams are still based around so-called social engineering, i.e taking advantage of empathy, trust or naivete. 

While in the past social engineering scams had to be somewhat tailored to specific targets or audiences, through artificial intelligence they can be deployed en masse and use machine learning to tailor themselves to new audiences. 

“Unfortunately, criminals already have enough experience and sample texts to build their operations on,” the report said. An innovative scammer can introduce AI systems to automate and speed up the detection rate at which the victims fall in or out of the scam. This allows them to focus only on those potential victims who are easy to deceive. Whatever false pretense a scammer chooses to persuade the target to participate in, an ML algorithm would be able to anticipate a target’s most common replies to the chosen pretense, the report explained....

....MUCH MORE, deepfakes, etc

 And Europol:

Malicious Uses and Abuses of Artificial Intelligence

Ethanol: Now That's Hungover

From Vanessa at Messy Nessy Chic: 

The Victorian “Two Penny Hangover”: How the term “hungover” originated

https://static.messynessychic.com/wp-content/uploads/2020/11/two-penny-hangover.jpg

At one of the first homeless shelters in London, for two pennies a night people could sleep resting over a rope (they were forbidden from lying down). It was called the “two-penny-hangover” and it may likely be where the term “hungover” originates from.

Full article found on Historic UK

Messy Nessy home 

Previously from Messy Nessy.

Taibbi: "The S.E.C. Rule That Destroyed The Universe"

 I've mentioned SEC Rule 10b-18 a few times, some links after the jump.

A lifetime of looking at this stuff has led me to the conclusion that in the U.S. stock buybacks are nothing more than a tax-avoidance scam with the added benefit of rewarding managers for things they didn't do by, well, managing the company rather than the stock price.

From Matt Taibbi's substack April 10, 2020:

How the coronavirus is creating a political opportunity to overturn one of the worst practices of the kleptocracy era

The Covid-19 crisis has revealed gruesome core dysfunction. Drug companies have to be bribed to make needed medicines, state governments improvise harebrained plans for emergency elections, and industrial capacity has been offshored to the point where making enough masks seems beyond the greatest country in the world.

But the biggest shock involves the economy. How were we this vulnerable to disruption? Why do industries like airlines that just minutes ago were bragging about limitless profitability – American CEO Doug Parker a few years back insisted, “My personal view is that you won’t see losses in the industry at all” – suddenly need billions? Where the hell did the money go?

In Washington, everyone from Donald Trump to Joe Biden to Alexandria Ocasio-Cortez is suddenly pointing the finger at stock buybacks, a term many Americans are hearing for the first time.
This breaks a taboo of nearly forty years, during which politicians in both parties mostly kept silent about a form of legalized embezzlement and stock manipulation, greased by an obscure 1982 rule implemented by Ronald Reagan’s S.E.C., that devoured trillions of national wealth.

The mechanics of buybacks are simple. Companies buy their own stock and retire the shares, increasing the value of shares remaining in circulation. This translates into instant windfalls for shareholders and executives that approve the purchases. That this should be proscribed as market manipulation, and additionally offers a clear path to insider trading – former SEC chief Rob Jackson found corporate insiders were five times as likely to sell stock after a share repurchase was announced – is just one problem.

The worse problem comes when companies not only spend all of their available resources on stock distributions, but borrow to fund even more distributions. This leaves companies with razor-thin margins of error, quickly exposed in a crisis like the current one.

“When companies spend billions on buybacks, they’re not spending it on research and development, on plant expansion, on employee benefits,” says Dennis Kelleher of Better Markets. “Corporations are loaded up with debt they wouldn’t otherwise have. They’re intentionally deciding to live on the very edge of calamity to benefit the richest Americans.”

It’s hard to overstate how much money has vanished. S&P 500 companies overall spent the size of the recent bailout – $2 trillion – on buybacks just in the last three years!
Banks spent $155 billion on buybacks and dividends across a 12-month period in 2019-2020. As former FDIC chief Sheila Bair pointed out last month, “as a rule of thumb $1 of capital supports $16 of lending.” So, $155 billion in buybacks and dividends translates into roughly $2.4 trillion in lending that didn’t happen.

Most all of the sectors receiving aid through the new CARES Act programs moved huge amounts to shareholders in recent years. The big four airlines – Delta, United, American, and Southwest – spent $43.7 billion on buybacks just since 2012. If that sum sounds familiar, it’s because it equals almost exactly the size of the $50 billion bailout airlines are being given as part of the CARES Act relief package.

The two major federal financial rescues, in 2008-2009 and now, have become an important part of a cover story shifting attention from all this looting: the public has been trained to think companies have been crippled by investment losses, when the biggest drain has really come via a relentless program of intentional extractions.

Corporate officers treat their own companies like mob-owned restaurants or strip mines, to be systematically pillaged for value using buybacks as the main extraction tool. During this period corporations laid off masses of workers they could afford to keep, begged for bailouts and federal subsidies they didn’t need, and issued mountains of unnecessary debt, essentially to pay for accelerated shareholder distributions.

All this was done in service of a lunatic religion of “maximizing shareholder value.” “MSV” by now has been proven a moronic canard – even onetime shareholder icon Jack Welch said ten years ago it was “the dumbest idea in the world” – and it’s had the result of promoting a generation of corporate leaders who are skilled at firing people, hustling public subsidies, and borrowing money to fund stock awards for themselves, but apparently know jack about anything else.

During a Covid-19 crisis where we need corporations to innovate and deliver life-saving goods and services, this is suddenly a major problem. “We’re seeing, these people don’t have the slightest idea of how to run their own companies,” says University of Massachusetts economist William Lazonick, whose substantial research on the buyback issue has been a cornerstone of the movement toward reform.

Wall Street analysts spent the last weeks mulling over the grim news that society is wondering if it can afford to keep sending most of its wealth to a handful of tax-avoidant executives and corporate raiders (known euphemistically in the 21stcentury as “activist investors”). The Sanford Bernstein research firm sent a note to clients Monday warning buybacks would be “severely curtailed” in coming years, for the “intriguing” reason that they were becoming “socially unacceptable” in this crisis period.

Goldman, Sachs chimed in with a similar observation. “Buyback activity will slow dramatically, both for political and practical reasons,” the bank told clients.
The political furor on the Hill in the last weeks has mostly been limited to grandstanding demands that recipients of aid in the $2 trillion CARES Act not be spent on stock distributions. “I’ll take it, but most of them don’t know what the hell they’re talking about,” is how one economist described these complains.

If politicians did understand the buyback issue more fully, they either wouldn’t have voted for this unanimously-approved bailout, or would have insisted on permanent bans, given the central role such extraction schemes played in necessitating the current crisis to begin with. The history is ridiculous enough.
***
The newspaper record of November 17, 1982 shows an ordinary day from the go-go Reagan years. Republicans boosted tax cuts and military budget hikes. An NFL player strike ended after 57 days. Soviet and Chinese foreign ministers met, and 80 complete skeletons were found in a dig at Mount Vesuvius in what one scientist called a “masterpiece of pathos.”

There was little news of a rule passed by the Securities and Exchange Commission and implemented with almost no documentary footprint. “It’s not written about in histories of the S.E.C.,” says Lazonick. “It’s barely mentioned even in retrospect.”

Yet rule 10b-18, which created a “safe harbor” for stock repurchases, had a radical impact. For decades before Reagan came into office and stuck E.F. Hutton executive John Shad in charge of the S.E.C. – the first time since inaugural chief Joseph Kennedy’s tenure in the thirties that a Wall Street creature had been made America’s top financial regulator – officials had tried numerous times to define insider purchases of stock as illegal market manipulation.

Again, when companies buy up their own stock, they’re artificially boosting the value of the remaining shares. The rule passed by Shad’s S.E.C. in 1982 not only didn’t define this as illegal, it laid out a series of easily-met conditions under which companies that engaged in such buybacks were free of liability. Specifically, if buybacks constituted less than 25% of average daily trading volume, they fell within the “safe harbor.”

The S.E.C. in adopting the rule emphasized the need for the government to get out of the way of such a good thing:

The Commission has recognized that issuer repurchase programs are seldom undertaken with improper intent… any rule in this area must not be overly intrusive.

The rule added that companies may be justified in “stepping out” of safe harbor guidelines, and said that there would be no presumption of misconduct if purchases were not made in compliance with 10b-18. Thirty-three years later, in 2015, S.E.C. Chief Mary Jo White would double down on this extraordinary take on “regulation,” saying that “because Rule 10b-18 is a voluntary safe harbor, issuers cannot violate the rule.”

10b-18 was a victory for a movement popularized in the late sixties by Milton Friedman and furthered in the mid-seventies by academics like Michael Jensen and Dean William Meckling. The aim was to change the core function of the American corporation. If corporate officers previously had to build value for a variety of stakeholders – customers, employees, the firm itself, society – the new idea was to narrow focus to a single variable, i.e. “maximizing shareholder value.”

Like objectivism and other greed-based religions that helped birth the modern version of corporate capitalism, “MSV” was anchored on hyper-rosy assumptions tying efficiency to self-interest. It was said CEOs paid in stock would become owners, which would lead to reductions in spending on private jets and other waste.

Shareholders previously were paid via dividends, or by waiting for share prices to appreciate and selling them. Now there was a shortcut: board members chosen by shareholders could raid their own companies’ assets to buy stock and to goose share prices.

Employees, customers, and society were suddenly in direct competition for resources with executives and shareholders. Should a company invest in a new factory, or should it just deliver instant millions to shareholders and executives paid in options?....

.....MUCH MORE

*See October 2019's:

"Share Buybacks and the Contradictions of 'Shareholder Capitalism'” 

In the U.S. stock buybacks are just a straight-up tax dodge with the added attraction of boosting shares-based management compensation. If interested see "The Real Reason Stock Buybacks Are a Problem"

The smart kids, members of Phi Scamma Jamma, are still pitching a differential between tax on earned income and tax on capital gains even though the efficacy of capital gains tax breaks in performing their original purposes, investment and job creation, has been declining since the 1970's and is now just an excuse for a loophole. See "TAXES, CAPITAL AND JOBS" for an exceptionally lucid discussion, again, if interested.

And today's headliner, from American Affairs Journal:...MORE

Or August 2018's "In Which FT Alphaville Pokes At One Of The Most Profound Questions In Finance"

Expected future returns—and getting your fair share, or better yet, more than your fair share—is pretty much the raison d'être for all the words and pixels and neuronal sparks on this blog and anywhere else the topic is business/finance/investment, and, as the rabbinic sage Hillel said in a very different context, "All the rest is commentary".

Here is the problem, last seen in 2015's "Mutual Funds In the Venture Capital Business: 'Eye-Popping Valuations'":
Maximizing expected future returns.
One of our favorite topics, along with agricultural commodities and production, materials science, really, really fast computers, advanced manufacturing technology, energy and Dogbert's schemes for world domination. 

One of the most profound facts of investing is that the growth is in the new companies.*
Not small companies, new ones.
So the question is: How to capture that growth?
And while you're at it, maybe mitigate some of the risk inherent in new ventures?...
We'll come back to that asterisk but first, FT Alphaville.
And just a heads up: our concern here is not buybacks but getting companies public while there is still some growth left in the things. For buybacks,  the answer is pretty straightforward, go back to the pre-1982 rules on share repurchases:
...II. Overview of Current Rule 10b-18
A. Rule 10b-18 as a "Safe Harbor"
In 1982, the Commission adopted Rule 10b-18,4 which provides that an issuer will not be deemed to have violated Sections 9(a)(2) and 10(b) of the Exchange Act, and Rule 10b-5 under the Exchange Act, solely by reason of the manner, timing, price, or volume of its repurchases, if the issuer repurchases its common stock in the market in accordance with the safe harbor conditions.5 Rule 10b-18's safe harbor conditions are designed to minimize the market impact of the issuer's repurchases, thereby allowing the market to establish a security's price based on independent market forces without undue influence by the issuer....
Here Alphaville looks at both topics, the changing characteristics of the IPO biz and the astonishing metrics of the repurchase racket:

Or March 2020's "Mark Cuban says bailed out companies should never be allowed to buy back their stocks ever again"

Capital Markets: No Follow-Through To Decline

Which I suppose is a way to say stuff is bid.
Let's go visit Mr. Chandler at Marc to Market:

No Follow-Through After Month-End Adjustments

Overview: The near-record rallies seen in the major equity markets in November may have contributed to the month-end drama yesterday. There has been no follow-through activity. Stocks bounced back, and the US dollar is heavy, with few exceptions. In the Asia Pacific region, all the markets are higher, and most rose by more than 1%. The European Dow Jones Stoxx 600 is recouping most of yesterday's 1% loss, and the S&P 500 is nearly 1% higher too. Benchmark yields are most 1-2 basis points firmer in Europe and the US, leaving the 10-year Treasury yield around 0.86%. The dollar is lows against all the major currencies, led by the Scandis. The euro remains within striking distance of the $1.20-level and sterling flirted with $1.34. Emerging market currencies broadly are recovering, and the South African rand and Hungarian forint are leading today's advance. The Turkish lira is a notable exception, falling for the first time in five sessions. Gold is nearly 1.8% higher and has resurfaced above $1800 an ounce. Oil is little changed with the January WTI contract hovering around $45 a barrel, as OPEC+ has delayed their meetings day amid discord.

Asia Pacific
The Caixin manufacturing survey was considerably stronger than expected at 54.9 from 53.6 in October.
This is the highest in a decade and is consistent with the recovery seen in other data. South Korea exports, which are also seen to be driven by Chinese demand, were also strong, rising 4% year-over-year in November after a revised 3.8% decline in October (initially -3.6%). When adjusted for the number of working days, the value of average daily exports rose 6.3%, the most in two years.

The final look at Japan's November manufacturing PMI revised away the initial decline to 48.3 from 48.7 and instead rose to 49.0, the highest since August 2019. However, the employment situation deteriorated slightly, and the October unemployment rate ticked up to 3.1% from 3.0%. This is a new cyclical high and matches the highest level since 2017. The job-to-applicant ratio rose to 1.04 from 1.03. It stood at 1.58 a year ago.

As widely expected after easing policy last month, the Reserve Bank of Australia stood pat. The RBA says it is ready to do more if needed. Separately, the Markit manufacturing PMI slipped to 55.8 from 56.1 preliminary reading, but still better than October's 54.2. It was just below 50 a year ago. First thing tomorrow, Australia reports Q3 GDP. It is expected to have expanded by 2.5% in the quarter after a 7.0% contraction in Q2....

....MUCH MORE