Thursday, March 31, 2022

Ruble Round Trip

Call it morning driving through the sound of
In and out the valley


After getting smoked on Western sanctions, the ruble has clawed all the way back to pre-invasion levels.

Lotta manipulation (both ways), so it's difficult to assess precisely what has driven recovery. That said, hard not to include these factors:

Russia's strong commodity position

Ineffectiveness of sanctions over time

Russian proclivity toward gold

One thing seems certain. Those engaging in financial system warfare vs Russia early on were not counting on a ruble round trip.

position in gold

Wednesday, March 30, 2022

Nazis and Russia Redux

"Everybody thinks they're gonna get a chance to punch some Nazi in the face at Normandy, but those days are over. They're long gone."
--Lt Chris Burnett (Behind Enemy Lines)

Interesting discussion of the brand of Nazism endemic to Ukraine. WWI divided many eastern European countries into small, non-viable entities. Western Ukraine became an imperial intersection for intolerant ideologies. 

The environment fostered the development of strong Ukraine nationalist groups that were further shaped by Nazi Germany during WWII. The Nazis were able to manipulate these groups toward Russian hate, thus creating a destabilizing force in the Ukrainian USSR during the war.

This anti-Russian mindset has persisted, making these groups attractive to Western interventionists interested in influencing politics in the region. The West has been manipulating Ukraine nationalist groups for some time to instigate regime change as well as violence against Russian-speaking citizens in eastern Ukraine. Subversive activity has picked up pace over the past several years, highlighted by the Maidan protests and government overthrow of 2014, and the civil war in eastern Ukraine since then.

What is important to note is that it has been the West, and the United States in particular, that has nurtured neo-Nazi factions of Ukraine.

The author notes that Western support of Nazi groups is not new. Alongside England, the United States government supported Hitler in the 1930s for balance of power reasons. Anglo America lent Hitler billions to build up Germany as a bulwark against Russia. 

History has since been rewritten to temper the enthusiasm that the Anglos held for Nazi Germany as a resource on the geopolitical chessboard.

So here we go again. The West is once more funding Nazi-groups, this time in Ukraine, for similar purposes of combating Russia. 

History is rhyming.

Tuesday, March 29, 2022

Stock to Flow Ratio

I don't know why
You treat me so bad
Think of all the things
We could have had

--Talking Heads

Nice point about stock to flow ratio differences between gold and other commodities. Stock to flow ratio is measured here by taking above ground inventory and dividing it by annual production.

Unlike most commodities, gold's stock to flow ratio is high. Nearly all gold mined over thousands of years still exists in its stand alone, elemental form. Because physical gold is durable and inert, it remains with us. On the other hand, annual gold production is relatively low, constituting only 1.5% or so of above ground stock. Consequently, gold's current stock to flow ratio is above 50.

Compare this to wheat. Above ground wheat stocks are rapidly consumed. Wheat put in storage is subject to decay. In order to meet demand, about 3x the amount of wheat inventory must be produced annually. Inventory turnover is high, resulting in wheat's low stock to flow ratio below 0.5.

Of course, the properties of gold that elevate its stock to flow ratio, e.g., durability, scarcity, etc, make it attractive from a monetary perspective. In fact, it seems to follow that commodities with high stock to flow ratios would constitute a nice short list of plausible monies.

The article stresses that stock to flow ratio helps explain pricing differences between gold and other commodities. Whereas the price of wheat is driven largely by supply/demand dynamics of its stock to flow ratio components, the price of gold is less subject to short term volatility. Above ground inventories are high compared to new supply and consumer demand.

Instead, gold price should be driven more by changes in institutional demand. The more institutions demand gold, the higher the price--regardless of inventory levels or annual production.

While institutions are often regarded as large financial entities such as money center or central banks, in a broader sense institutions represent societal rules and norms.

Stated another way, when it becomes more 'societally correct' to own gold, then price will go up.

Stated another way again, changes in institutional rules are likely to coincide with changes in price of high stock to flow ratio commodities such as gold.

Monday, March 28, 2022

War Crimes

"It is an easy thing to condemn one man in the dark. It is easy to condemn the German people to speak of the basic flaw in the German character that allowed Hitler to rise to power and at the same time positively ignore the basic flaw of character that made the Russians sign pacts with him, Winston Churchill praise him, American industrialists profit by him. Ernst Janning said he is guilty. If he is, Ernst Janning's guilt is the world's guilt--no more, no less."
--Hans Rolfe (Judgment at Nuremberg)

Judge Nap discusses the legitimacy of war crimes and associated prosecution. War crimes are prosecuted by the victors. They control the judicial apparatus which is slanted in manners that insulates victors from prosecution.

Using the post WWII Nuremberg trials as an example, war criminals are generally alleged to have violated unwritten laws--laws which are conveniently concocted for the purpose at hand. This is illegal in the US and in many other countries.

War tribunals seek legitimacy by claiming that they can rightly prosecute war behavior that is so heinous and obvious that the broken laws need not be codified.

However, the only 'obvious' uncodified law is natural law. Natural law is grounded in the non-aggression principle. The non-aggression principle posits that all aggression is wrong and violates the natural rights of the victim. 

This means that only defensive behavior in war is just. People or countries can defend themselves from invaders, but by using only the violence necessary to neutralize the threat. Pre-emption, or counter offensives violate the non-aggression principle.

In reality, of course, few wars involve one side acting purely in self-defense. The original defender commonly turns around and mounts offensives against the original invader, thereby reverse the roles.

Viewed from this perspective, many war crimes are committed during armed conflict and are perpetrated by people on all sides--even by those not firing shots.

Obviously, that's not how war crime tribunals typically proceed. Instead, war crimes constitute what's in the eyes of the beholder.

Sunday, March 27, 2022

Escalators in Chief

Stephen Falken: General, are you prepared to destroy the enemy?
General Beringer: You betcha.
Stephen Falken: Do you think they know that?
General Beringer: I believe we've made that clear enough.
Stephen Falken: Then don't!


As Glenn Greenwald writes, it remains clear that the US government is avoiding neutrality and diplomacy in favor of hostile escalation of the Ukraine conflict. 

I was personally dumbstruck a couple days ago when reading that the secretary of state has not been in direct contact with his Russian counterparts since the middle of February. It is impossible to justify such inaction by any state that desires peace.

Then, on a visit to Poland this weekend, the president poured more gasoline on the fire. While visiting US troops in the region, he told them that they would soon see firsthand how Ukraine was pushing back against Russian troops. Subsequently, in a Warsaw appearance, the president called Putin a 'butcher' and during formal televised remarks said, "For God's sake, this man cannot remain in power."

The White House has since been in damage control mode trying to put out the conflagration resulting from the sequence of the president's inflaming statements.

As Greenwald quotes a former Greek foreign minister:

"A U.S. President who, during an atrocious war, does not mean what he says on matters of War and Peace, and must be corrected by his hyperventilating staff, is a clear and present danger to all."

Yet, the actions of these people suggest that this is precisely what they want. Hostile words and actions that continue to escalate the situation. No leadership through neutrality and diplomacy.

The president and his minions are bumbling through roles of Escalators in Chief.

Saturday, March 26, 2022

Unipolar Moment

We've always had time on our side
Now it's fading fast

--Orchestral Manoeuvres in the Dark

In foreign affairs, the 'unipolar moment' represents the period following the collapse of the Soviet Union, leaving the world with a single dominant power: the United States. Lacking no like-sized competitor, the US would proceed to rule the globe, pursuing policies in its own interest regardless of the consequences.

This unfettered run is coming to an end.

As the influence of China has been rising, the unipolar moment has been fading. The US now faces a formidable peer on the world stage. No longer can the US do whatever it wants in an unchecked manner. It now has to take into account what China will do in response.

The Ukraine conflict clearly demonstrates. The US has assumed no thoughtful leadership role in ending the war. Instead it has become merely another of a partisan anti-Russian collective that levies insults and sanctions.

Increasingly, it appears that China that is the adult in the room. China has remained neutral and appears unmoved by the shrill tirades and threats emanating from the West.

China's ambassador to the US offered an excellent example of his country's position in a recent interview. When asked by a commentator on Face the Nation why he wouldn't condemn Russia's invasion of Ukraine (condemnation, of course, representing a norm for shouting down behavior that  juvenile collectives dislike, the ambassador replied:

"Don't be naive. Condemnation does not solve the problem."

Zing. That's what a grown up says.

As the US behaves more like a child, China acts more mature on the world stage.

By definition, moments are brief. The unipolar moment, as it pertains to US hegemony, has come and gone.

Friday, March 25, 2022

Wrecking Ukraine

Time respects no person
What you lift up must fall
They're waiting outside
To claim my crumbling walls

--John Mellencamp

2015 lecture by Prof John Mersheimer of the Univ of Chicago that explains the West's primary role in the Urkraine situation. Could have been made yesterday.

The punchline, made at about 44 mins at the end of his formal remarks, is this:

"I actually think that what's going on here is that the West is leading Ukraine down the primrose path, and the end result is that Ukraine is going to get wrecked."


Mearsheimer spoke to a student group from Cambridge a week or so before the invasion. Seven years had done little to alter his view. He did note that after a lull from 2015-2020, the near-term factors driving Russia's acute response included Ukraine's government recent aggressive actions against Russian-speaking citizens in the east, and ramped up arming/training of Ukraine military by the US and other NATO associates.

Mearsheimer also opined that he didn't think Putin would invade because the costs of war and occupation did not justify the potential benefit. Besides, Russia appeared to be winning the strategic battle as, in his view, the country's concerns regarding NATO expansion et al were capturing Western attention.

Apparently Putin didn't share that view.

Nevertheless, Mearsheimer's prescription both then and now is the intuitive one. Make Ukraine a neutral state, including the guarantee of no NATO expansion. 

That would stop the wrecking of Ukraine.

Thursday, March 24, 2022

No Coincidence

In violent times
You shouldn't have to sell your soul
In black and white
They really, really ought to know

--Tears for Fears

It seems increasingly apparent that there are several groups intent on triggering WWIII. They include progressives, neocons, and globalists. And, of course, the mainstream media. 

These factions are not mutually exclusive.

Interestingly enough, they are the same blocs that pushed for authoritarian CV19 policies.

This is no coincidence.

Wednesday, March 23, 2022

Winter is Over

Hang on to your hopes, my friend
That's an easy thing to say
But if your hopes should pass away
Simply pretend
That you can build them again

--The Bangles

Recall the White House's 'winter of death' warning for the unvaccinated?

Winter came and went. It's the vaccines themselves that are dying.

Tuesday, March 22, 2022

Harding's Path

Nick Carraway: You can't repeat the past.
Jay Gatsby: Can't repeat the past? Why, of course you can!

--The Great Gatsby

The dominant narrative about President Warren G. Harding was that he was a boob who ran a corrupt administration. To be sure, the Tea Pot Dome scandal happened on his watch, and, similar to Donald Trump, Harding may have been far too trusting of those working in his administration.

However, as this article points out, Harding achieved much during his term in office--a term that was cut short by his untimely, and somewhat suspicious, death in 1923.

A likeable sort who was elected by a landslide in 1920, President Harding was determined to lead Americans weary of war and Wilsonian progressivism into a peaceful age of prosperity. After quickly overcoming a post-war depression using a 'hands off' approach completely lost on modern administrations, Harding focused on perhaps the crown jewel of his legacy: foreign policy.

Harding clearly ended WWI for America. He withdrew troops from the German Rhineland, presided over agreements on war debt, and shunned the military-industrial complex's calls for arms buildup. He convened the Washington Disarmament Conference in late 1921 to ink international agreements on weapons limitations. Harding also withdrew US troops from Latin America and signed several treaties to ease tensions in Asia.

Completing work begun as a senator prior to his presidency, Harding killed his predecessor's League of Nations proposal. "America can be a party to no permanent military alliance," he said. "It can enter into no political commitments, nor assume any economic obligations which will subject our decisions to any other than our own authority."

Wise words which were, of course, subsequently ignored by bureaucrats following WWII.

Warren G. Harding reversed the dangerous internationalism of Woodrow Wilson and put the United States back on the path of neutrality and non-interventionism. America proceeded to roar down that passageway during the Twenties.

Harding's achievements provide a roadmap for how to get back onto that path today.

Monday, March 21, 2022

Lead Through Neutrality

"His voice traveled with such a still purpose. It was more than a voice...a man more than a man. He said, 'Blessed are the merciful, for they shall obtain mercy. Blessed are the peacemakers, for they shall be called the children of God.'"
--Esther (Ben-Hur)

Country A and B are engaging in armed conflict. Country C, if it truly desires peace, does not pick a side. It does not join A or B in battle. It does not supply arms to A or B. It doesn't levy economic sanctions on A or B. It does not berate A or B in the media.

If it does any of these, then C reveals itself as a partisan cohort of war.

The peaceful stance is neutrality. Engage in trade with A and B. Seek to mediate, to understand the concerns of both sides. Volunteer to host discussions between A and B that would bring an end to violence.

Lead through neutrality.

Sunday, March 20, 2022

Acts of War

Guy de Lusignon: Give me a war.
Reynald de Chatillon: That is what I do.

--Kingdom of Heaven

In the context of multinational geopolitics, an act of war is aggression done by country A on one or more other countries B of such magnitude that B declares that A's violence exceeds a threshold that justifies reciprocal violence by B toward A. 

While B's reciprocal violence, if taken, is often framed as 'self-defense,' it very well may be offensive in nature. In fact, A and B may engage in ongoing conflict where each side exchanges offensive salvos and defensive parries during the campaign.

Clearly, claiming something to be an act of war is subjective. How much damage must be done, and how many casualties must result before belligerent behavior is deemed an act of war?

Moreover, does a shot even have to be fired? After all, there are surely ways to do violence on others without discharging a weapon directly at them.

For instance, trade sanctions seek to hurt people of a country economically. That economic strife may maim or kill people--both in the country that is the target of sanctions and in other nations as well. 

Arms may only be involved to the extent that they need to be brandished to enforce the sanctions. Quite ironically, those guns often must be flashed at the sanctioner's own citizens to remind them of the consequences of trading with the enemy.

Although they almost certainly regard themselves as 'peaceful,' countries that levy trade sanctions are acting aggressively toward others--and toward their own people.

Saturday, March 19, 2022

Saving Rain

Here comes the rain again
Raining on my head like a tragedy
Tearing me apart like a new emotion


Nice graphic that shows that not only do Americans have no net savings, but that savings is negative after inflation.

As the Fed has suppressed interest rates over the past 30-40 yrs, people have had less incentive to save. Why put money into a savings account when there is little or no compensation to do so?

Now add inflation. As prices go higher, why put money away today when those dollars are expected to be worth less tomorrow?

Remember the saying 'Save it for a rainy day'?

No savings means no buffer against uncertainty (i.e., you'll get rained on). And, perhaps more importantly, no capital to fund productivity improvement.

Friday, March 18, 2022

Petrodollars to Petroyuan

When situations never change
Tomorrow looks unsure
Don't leave your destiny to chance
What are you waiting for?

--Swing Out Sister

Courtesy of the 1944 Bretton Woods Agreement, the US dollar has enjoyed reserve currency status for the better part of a century. A reserve currency is a money that circulates extensively internationally. It is deemed the standard used to price and execute financial transactions. As such, it is constantly in demand. Banks worldwide must keep piles of reserve currency on hand.

Strong international demand for the USD has been a boon for the federal government. Money can be printed and debt can be issued without having to worry about destroying the value of the currency. 

It is safe to say that the financial position of the United States would be in a much different place were it not for the USD's reserve currency status.

No market demonstrates USD reserve currency privilege more than the international oil market. For decades, Saudi Arabia has priced barrels of crude in USD. Any non-US entity seeking to buy crude from the Sauds has to pay in USD, which lights a fire under dollar demand in forex markets.

Plus, the US gets an extra kicker. Because it can print gobs of USD with little penalty, the US can do so to buy oil on the international market. Let's see...paper dollars printed out of thin air versus a barrel of crude. 

Who gets the better deal? 

The USD's use in oil trade has led to the term 'petrodollar.' The US has reaped huge gains from the petrodollar.

However, the age of the petrodollar may be coming to an end. Financial system warfare currently being waged as part of the Ukraine conflict is awakening countries to their vulnerability, and prompting them to investigate ways to reduce dependence on the USD. By doing so, these nations could sidestep crushing sanctions that might be hurled toward them in the event that they cross the US in some manner.

Seeking alternatives to petrodollars in oil markets would constitute  a significant step in that direction. 

It should not be surprising, then, to learn that countries are experimenting with pricing oil in yuan rather than in USD. In an uncertain world, it makes sense to diversify--even more so when some of that uncertainty involves a country that might decide to weaponize its currency against you.

By engaging in financial warfare the United States appears to be looking the proverbial gift horse in the mouth. The gift of reserve currency status may be rescinded as countries scramble to increase their sovereignty in a sanction-heavy world.

Movement from petrodollars toward petroyuan demonstrates.

Thursday, March 17, 2022

Engineering Recession?

And the world
The world turns around
And the world and the world
The world drags me down


Yesterday's FOMC actions and data have emboldened theories that the Fed is trying to engineer a 'soft recession' that would cause prices to decline through 'demand destruction.' As opposed to addressing the primary cause of higher prices--which is money printing.

If this is indeed the Fed's intent, then it is even less brains than previously assumed.

And that's saying something.

Wednesday, March 16, 2022

Dot Matrix

"Whatever you're thinking, rethink it."
--Phil Broker (Homefront)

The Federal Reserve Open Market Committee (FOMC) announced that it will raise the fed funds rate target to the 0.25-0.50% range. It also indicated that it plans to begin reduction of the $9 trillion of balance sheet assets amassed during it various QE campaigns 'at a coming meeting.'

The lone dissenter was 'hawk' James Bullard who preferred a 50 bip increase in the fed funds rate instead of the 25 bip bump announced.

The Fed's 'dot plot,' which indicates current FOMC member forecasts of where the fed funds rate is headed suggests that Fed heads foresee higher rates in 2022-2024 than previously expected. However, longer run rates are seen as unchanged or slightly lower than previously forecast.

The dots suggest a couple of things. Several rate hikes this year--six of them if they are 25 bps each. Then a relatively benign longer run.

The FOMC also forecast price inflation of 4.1% by end of 2022.

Given the Fed's previous track record, don't be surprised if all if its guesses here are way off.

Tuesday, March 15, 2022

Treason Mania

"A high treason. That's what these men were committing when they signed the Declaration. Had we lost the war, they would have been hanged, beheaded, drawn and quartered, and--my personal favorite--had their entrails cut out and BURNED!"
--Benjamin Franklin Gates (National Treasure)

Glen Greenwald discusses the increased tendency to label people as 'traitors.' Out of concerns that treason term would be abused for political gain, the framers defined the limited scope of the crime in the Constitution itself. Per Article 3, Section 3:

Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort. No person shall be convicted of Treason unless on the testimony of two Witnesses to the same overt Act, or on Confession in open Court.

Treason was the only crime to be delineated in the Constitution. Why? Because the framers anticipated the grave danger of repressive governments seeking to silence criticism of, or opposition to, government policy by making it a capital crime.

Stated differently, they knew that liberal interpretations of treason would squash freedom of speech.

Given its constitutional limitations, treason has rarely been prosecuted in the United States, and less than 12 Americans have been convicted of treason in the nation's history.

Unfortunately, legal limitations have not prevented politicians and their media minions from shouting "Treason!" in the direction of those who behave in manners deemed unsupportive of consensus government policy.

Greenwald suggests that the Trump era elevated accusations of treason from a periodic transgression to a standard, reflexive way of criticizing political opposition. Indeed, the 'scandal' investigations that embroiled Trump's term can easily be seen as a protracted treason campaign. As Greenwald observes,

"The dominant narrative insisted that Trump and his allies were controlled by Moscow, subservient to the Kremlin, and were acting to promote Russian over American interests. That Trump was loyal not to the country that elected him but, instead, to an adversarial nation is something Democrats believe as an article of faith."

In reality, of course, many of those who have accused Trump of treason seem to possess little affinity for the fundamental institutions that underpin the United States and, in fact, seem hell bent on overthrowing them. As such, the Trump Treason narrative seems another ironic act of projection by this group. 

In any event, thanks to the Trump Treason years, "an entire generation has been trained to believe that 'treason' is the crime of expressing views that undermine Democratic Party leaders, diverge from the US security state, and/or dispute the consensus of the US corporate press."

Enter, now, the Ukraine conflict. Russia's invasion of Ukraine three weeks ago has taken treason mania to another level. (Although Greenwald calls it 'never-before-seen,' I suspect that we have, judging from what I've gathered about the Alien and Sedition Act of 1798, as well as the Wilson and FDR years). People suggesting that NATO expansion or any other factor beyond 'Putin' helped spark this conflict, or that Ukrainian borders are not vital enough interests to the US to warrant American involvement, are reflexively labeled 'traitors.'

Our founding ancestors lived this accusation. By speaking out against the King of England they were deemed traitors for voicing legitimate political opposition to the crown. They understood that the hallmark of tyranny is intolerance of voices that questioned official government policy, and to criminalize them if possible by equating dissenting voices with treason.

That's why the framers articulated the First Amendment, and a limited criminal scope for treasonous behavior. 

If you've been labeled a 'traitor' for dissenting from the party line on Ukraine, then find comfort that you're on the right side of history and of reason. Don't take the insults personally.

Better yet, pray for them.

Monday, March 14, 2022

Monetary Cease Fire

It's 2 am, the fear is gone
I'm still sitting here, the gun still warm
Maybe my connection is tired of taking chances

--Golden Earring

Last week the Fed made a final bond purchase before shutting down its fourth round of QE operations. 

During the most recent round of QE, which was instigated during the CV19 panic, the Fed has added an additional $5 trillion to its balance sheet--on top of the roughly $4 trillion from the previous QE junkets.

As shown above, QE programs by the Fed and other central banks around the world have lit a fire under asset prices. Any attempt to unwind QE balance sheet assets has led to lower prices.

This begs questions about the durability of this monetary cease fire. What will the Fed do with those $trillions on its balance sheet? And how long will it be until QE5 fires up?

Sunday, March 13, 2022


"You arrogant ass. You've killed us!"
--Andrei Bonovia (The Hunt for Red October)

Over the past couple of weeks, Western governments have levied countless sanctions on Russia. In this context, sanctions are trade restrictions against a foreign country meant to punish that state for behavior deemed undesirable or bad. Russia's invasion of Ukraine sparked a deluge of sanctions ranging from curtailing or banning trade of particular commodities to freezing Russian bank accounts.

Sanctions aim at achieving various political objectives. One is to make the sanctioned country's population hurt to the point where it demands that its ruling regime cease enacting policies that outsiders find objectionable. Another objective is to weaken a country economically and financially so that it depletes resources for conducting belligerent activities. A third objective might be to weaken a state to the point where it can be overthrown by direct attack.

Despite their popularity, sanctions have marginal track records of success. One reason for this is that sanctions require solidarity among outside states in order to be effective. If only a few countries honor the restrictions, then the targeted state can reconfigure its supply chains toward other countries open to trade. The economic strain of sanctions can therefore be mitigated by developing alternative trade channels.

Sanctions also fail because they commonly strengthen resolve in sanctioned states. When freedom to trade with outsiders is forcibly restrained, then nationalistic tendencies increase among a country's population. Rather than creating animosity toward a domestic regime, sanctions often unify nations behind that regime.

It also seems lost on politicians that the economic penalties imposed by sanctions work both ways. When trade is restricted, the productivity benefits of specialization decline as countries diversify to become more self-sufficient. Less output is produced, and standard of living falls--not just for the sanctioned target, but for all countries--even for those who decline to honor the sanctions. In this manner, sanctions behave like tariffs

Who is hurt the worst? The world's poor. Because those at the bottom of the economic pyramid have the most to gain from specialization and trade, they become 'collateral damage' when prosperous countries impose trade sanctions. 

Consequently, sanctions themselves may be seen as acts of war. Although they are often levied in response to violence, sanctions are also violent in nature. They forcibly restrict trade--often in manners aimed at hurting others--particularly civilians. In this sense, trade sanctions bear similarity to wartime policies such as the Allied bombing of German and Japanese cities during WWII. 

While sanctions seem to satisfy popular urges to 'do something,' they possess capacity to do more damage than the bad behavior that those restrictions purportedly aim to punish.

Saturday, March 12, 2022

Europe Graphics

"How am I ever going to get along in Paris without someone like you? Who'll be there to help me with my French? To turn down the brim of my hat?
--Linus Larabee (Sabrina)

Some nice graphics related to the Europe cribbed from this article. An overview of the member states:

List of EU members:

Timeline of NATO expansion:

Note that there two other important European associations. The Eurozone comprises those countries that use the Euro as their national currency. Currently, there are 19 Eurozone members. The United Kingdom, Switzerland, Sweden, and, given current events, Ukraine are noteworthy non-members.

The Schengen Area consists of European countries that support free movement across borders, permitting visa-free travel for up to 90 days. Twenty-six nations belong to Schengen. Noteworthy abstainers are the United Kingdom--and Ukraine.

Friday, March 11, 2022

Hyper Connectedness and Hyperinflation

Hundred dollar car note
Two hundred rent
I get a check on Friday
But it's already spent

--Huey Lewis & the News

With 40 yr highs in official measures goods and service prices, it should not be surprising that inflation expectations are marking similar highs.

Although it is caused by increases in money supply, inflation's effect on prices can be shaped by buyer psychology. The greater the belief that money will be worth less tomorrow, then the more consumers will buy today in attempt to get ahead of that devaluation. Prices squirt higher as result.

That is why it is often said that once inflationary psychology takes hold, the toothpaste is out of the tube.

This time around, I wonder whether inflation expectations may be worse than in the past due to the amplifying effect of our increased connectedness. We know that networked individuals are more tightly coupled, meaning that they respond similarly to stimuli and disturbances. 

If the echo chambers of social networks, et al tell individuals that inflation is rocketing, might this exacerbate expectations and the 'buy today' behavior that serves as a coping mechanism?

Weimar GermanyVenezuela. Could hyper connectedness breed hyperinflation

Thursday, March 10, 2022

Collective Security

War, children
It's just a shot away
It's just a shot away

--The Rolling Stones

Whenever a 'crisis' comes along, it is tempting to assume that this time is different--that we're at a unique point in history never before contemplated. With a little digging, however, one finds that this is rarely the case.

Murray Rothbard provides useful historical context (penned in 1982) for the present Ukraine situation, particularly as it relates to the notion of 'collective security' and interventionism. Collective security is the philosophy upon which the United Nations and NATO were founded. Each nation state is viewed as an 'individual.' When one state 'aggresses against' an individual state, then it is the duty of the collective to punish the 'aggressor.' No declaration of war is necessary because the collective response is a 'police action.' All nations in the collective, including their media organs, are expected to fall in line.

The left warmly embraced the collective security concept--so much so that they were ardent supporters of US entry into the Korean and Vietnam wars. 

Opposition to war was instead a characteristic of the 'old right.' From the 1930s to the 1950s, the old right was regarded as 'isolationist,' objecting American entry into WWII, the Marshall Plan, NATO, conscription of troops, and Korea. Among the politicians in this group were Robert Taft and Howard Buffett (Warren's dad). Garet Garrett and John T. Flynn were among the author/analysts.

The old right isolationists saw grave flaws in the collective security concept. One was that, in reality, there is no single world government or police force. Instead, there are hundreds of nation states, each with their own war-making capacity. In some cases, this capacity is quite formidable. Consequently, when gangs of states wade into a conflict, they invariably widen it. Every controversy invites the gang to decide who is the 'aggressor,' and then attach to the side considered virtuous.

It stands to reason, then, that collective security systems have the potential to turn local squabbles into global conflagrations.

Another problem with the collective security notion is that it can be difficult if not impossible to accurately identify the uniquely guilty parties in conflicts between states. Although the property rights of individuals make actions by an aggressor relatively easy to finger, the legitimate boundary lines of each state are more difficult to discern. This is because state borders are rarely demarcated by just and proper means. Instead, states generally exist through coercion over citizens and subjects; state boundaries are invariably determined by conquest and violence. 

Consequently, by condemning one state for crossing the borders of another, collective security systems implicitly recognize the validity of existing boundaries. Why should boundaries of a state be any more legitimate now than they were one hundred years ago? Why should borders be enshrined such that crossing them leads all members of the security collective to wage war, and to force their citizens to kill and die?

It is straightforward to apply the limitations of collective security to the Ukraine situation. Indeed, one can find both of the above problems raised by Vladimir Putin in his address explaining the rationale behind his country's action in Ukraine.

Once again, it seems that we have failed to learn from history.

Wednesday, March 9, 2022

Apologist Ad Hominem

Birds fly
In the eye of the faithless daughter
Broken at the bitter end

--Icicle Works

It has become popular to accuse anyone connecting the Ukraine conflict to NATO expansion as being a 'Putin apologist.' This is what an ad hominem counter looks like.

A more constructive approach would be to leave the playground and develop a well-reasoned argument as to why NATO expansion has NOT been a driver of the Russian invasion of Ukraine.

That seems an uphill battle. It would involve refuting arguments in pieces like this point-by-point. For example, the NATO expansion position has been taken by statesmen and analysts for many years, some dating back to NATO's founding, preceding the current conflict. Were all of these people Kremlin stooges?

What about past evidence of NATO enlargement itself? The geographic evidence is compelling. And of enlargement activities that have involved Ukraine? Or of the ongoing meddling of Western forces (as well as Russian forces) in the geopolitical trajectory of Ukraine?

Then, of course, is Putin's explicit mention of NATO expansion in his February 22 speech discussing his motivations for invading Ukraine. If the counter is that his words cannot be trusted, then that would rule out using any of Putin's words to build a defense against the NATO expansion argument.

If these points can't be adequately countered, then just scream insults.

Tuesday, March 8, 2022

Stepping on Gas

Down in the pleasure center
Hell bent or heaven sent
Listen to the propaganda
Listen to the latest slander

--Elvis Costello

...Speaking of oil, the administration announced this morning that, as part of the accumulating pile of sanctions levied against Russia, the US would ban Russian oil and gas imports (which amount to about 10% of total imports). Crude immediately shot higher on the news.

Domestic gas prices are now at record highs. In some places they are touching $7/gallon.

Two observations. One is that much of the recent craziness in commodity prices can be attributed to government intervention (read: force). Regulation, tariffs, sanctions, war of course. What we are seeing is not the outcome of people voluntarily and peacefully engaging in production and trade.

Stated differently, the craziness has been imposed.

The second observation is that, for an administration seeking to boost sagging poll numbers, forcibly raising gas prices in front of voters seems a strange approach...

position in CVX

Plugged Nickel

Well, it's midnight
Damn right
We're wound up too tight


First of several posts seeking to record some of the craziness in commodity markets. This one follows up on the short squeeze in nickel.

After moving over 80% higher at one point yesterday, nickel outdid itself today.

Trading was halted after the squeeze jacked nickel prices to over $100,000/ton.

This action seems the mirror image opposite of what we saw at the depth of CV19 market craziness where crude futures dipped below zero...

Monday, March 7, 2022

Risky Hedges

Past the church and the steeple, the laundry on the hill
The billboards and the buildings, memories of it still
Keep calling and calling, but forget it all, I know I will


We're seeing some eye-popping moves in commodities with chatter that many commodity producers are getting margin calls on their hedges. 

Why should producers face problems with commodity prices going thru the roof? Commodity producers sometimes short futures to lock in prices. In fact, futures markets came about mainly for this purpose years ago.

The problem is that producers' 'long' positions are usually physical ones that have yet to be sold, meaning that producers lack liquidity (cash) to cover margin calls when their short hedges move higher.

Nickel is up over 80% today as producers feel the squeeze.

Peabody Energy (BTU), a major coal producer, announced today that they had secured a facility from Goldman Sachs to cover temporary cash requirements for their hedges. After hitting a 52 week high yesterday, the stock was off more than 10% on the announcement. 

Although hedging is generally considered a risk management tool, the current situation demonstrates that this is not always the case. 

no positions

Sunday, March 6, 2022

Oil and Recession

Out where the river broke
The bloodwood and the desert oak
Holden wrecks and boiling diesels
Steam in forty-five degrees

--Midnight Oil

When crude spikes well above trend, recession is usually imminent.

Crude is currently spiking well above trend, and current sits at about $116.

Saturday, March 5, 2022

Cancel Culture and War

Watch me clinging to the beat
I had to fight to make it mine
That religion you could sink it neat
Just move your feet and you'll feel fine

--Culture Club

As observed by ZeroHedge, during a war (or in any situation of conflict) you want to hear both from both sides in order to make more informed decisions--even if the 'other' side is wrong or lying. Discerning truth can be extra challenging when the war propaganda thickens.

And degree of difficulty rockets higher when info flow from the other side is shut down.

Western countries were quick to suppress Russian new outlets last week. Moscow has now reciprocated.

This tells you that both sides have things to hide. Or that each side does not want or trust its people to make informed decisions.

After coming of age during Trump, BLM, CV19, et al, mature cancel culture is ready for war.

Friday, March 4, 2022

Pact and Pressed

"I wanna know why you're pressin' me."
--Latrell Walker (Exit Wounds)

Map shows what NATO expansion has meant over the past 30 yrs. Not only is the space between Russia and 'the West' becoming smaller, but many of the expansion members were formerly Warsaw Pact countries. 

The Warsaw Pact was system of shared security created in 1955 as a reaction to West Germany joining NATO. It can be seen as another expression of the Cold War pitting the two superpowers. The US led NATO, and the Soviet Union led the Warsaw Pact.

Unlike the Warsaw Pact, which dissolved when the Cold War ended, NATO persisted and, in fact, began scooping up former Pact members. Today, Belarus and Ukraine serve as the primary land buffers between the NATO collective and Russia.

It is straightforward to see how this situation has left Russia feeling increasingly pressed. Now it is acting to relieve that pressure.

Again, imagine a similar situation occurring domestically, with country members of a CCP-led shared security collective surrounding the US.

How would the US respond?

Thursday, March 3, 2022

Financial System Warfare

"Dude, we're on the grid!"
--Riley Poole (National Treasure)

Over the past month we've witnessed countries using the financial system to suppress behavior that they don't like. First it was the Canadian government freezing bank accounts and funding sources of citizen CV19 protestors and their allies. 

Then there has been the international response to the Ukraine situation. The US, EU, and other state entities have levied an array of financially-oriented sanctions on Russia to the point where it seems nearly impossible for people inside Russia to engage in external economic transactions. Even inside Russia, those sanctions have wrought chaos--sovereign debt downgrades, plunging stock markets, a cratering Ruble among them.

What should be clear is that modern financial systems, whose digital configurations are far easier to manipulate than in the past, are being used as geopolitical tools of warfare. Armed with these tools, governments can target either their own citizens (e.g., Canada) or remote citizenry (e.g., Russia).

This lesson is unlikely to be lost on at least two groups. One group involves countries with, shall we say, invasive aspirations. In anticipation of where escalating geopolitical tensions might head, Russia began decoupling its monetary and financial system from the international grid several years ago. For example, it substantially cut its US dollar reserves and increased its gold holdings. Consequently, the present barrage of financial system sanctions, while difficult to handle, has not completely incapacitated a more independent Russian financial system.

Given its aspirations to take control of neighboring Taiwan, China will undoubtedly prepare for a similar barrage before physically moving across a border (if/when). Any belligerent, for that matter, will need to decouple its financial system to the point where it will be able to survive the monetary salvos.

The second group involves citizens at large. The issue is captured in a question: Knowing that a government can, at its discretion, freeze or confiscate digital bank accounts as well as block digital financial transactions of any citizen, do you really want to have all of your financial resources on the grid?

The more people wake up to the specter of government-waged financial warfare, the more likely they will begin re-positioning for greater financial sovereignty. 

This re-positioning to combat geopolitical financial warfare seems likely to include gold.

position in gold

Wednesday, March 2, 2022

War, Propaganda, and Politics

"War is a continuation of politics by other means...Von Clausewitz."
--Capt Frank Ramsey (Crimson Tide)

Doubt you'll find a better analysis of propaganda as applied to media coverage of the Ukraine situation. In the case of the US, this means that any pro-Ukraine or anti-Russian claim spreads rapidly while dissenters are vilified as traitors or Russian agents.

Emblematic of the situation was the 'Ghost of Kiev' meme which quickly went viral on social media. The Ghost was a rogue Ukranian pilot who, while protecting the skies over Kiev, shot down 6 Russian planes. Although the Ghost wasn't real, I doubt the Congressmen who helped perpetuate the fable cared much.

Meanwhile those questioning the fables are deemed apologists for the Kremlin.

However, all of this is nothing new. False narratives, censoring dissent, etc have been ratcheting higher thru Trump and CV19. 

Although truth has indeed been a casualty of this war, it had already been compromised for years.

Indeed, war is indeed a continuation of politics by other means.

Tuesday, March 1, 2022

Taft's Foresight

"This minute the Russians are watching their boards, trying to figure out what we're up to. If we can't convince them it's an accident we're trying to correct by any means, we're going to have something on our hands that nobody bargained for, and only a lunatic wants."
--Brigadier General Warren A. Black (Fail Safe)

Echoing yesterday's missive, Ron Paul argues that the expansion of NATO to Russia's doorstep is central to the Ukraine conflict. He also notes that concerns about NATO's focus on collective military force aimed at Russia can be traced back to the treaty's origin.

Ohio Senator Robert Taft was labeled an isolationist because he opposed entering foreign wars and alliances. In 1949 he voted against the North Atlantic Treaty, and he gave an insightful speech as to why. He stressed the possibility, similar to these pages, that surrounding Russia with military arms could prove dangerous at some point:

"It may decide that the arming of western Europe, regardless of its present purpose, looks to be an attack on Russia. Its view may be unreasonable, and I think it is. But from the Russian standpoint it may not seem unreasonable. They may well decide that if war is the certain result, that war might better occur now rather than after the arming of Europe is completed."

More than 70 years later, NATO is still expanding the 'the arming of Europe' around Russia. Taft suggested that Russia might preempt perceived threat by engaging in conflict before that arming is completed. Ukraine as a NATO member would certainly be another step toward completion.

Consequently, as Taft foresaw, Russia finally acted.