Friday, 15 December 2017

From One Euro-Explosion to Another

Distracting as the Parliamentary antics may be, in the outside world something rather tangible took place this week:  a major (and fatal) gas explosion at Baumgarten, one of the biggest hubs in Europe sitting astride a very large quantity of Russian gas-flow into southern and eastern Europe, notably Italy.

Early headlines were dramatic:  "Italy declares state of emergency" and indeed "Gas shortage PANIC".  Fair enough: no-one wants to be without gas in a cold December.  Gas prices blipped upwards, unsurprisingly, and Europe wondered briefly if we were all going to freeze.

But only briefly.  European gas networks are far more interconnnected today than even five years ago and, importantly, market mechanisms have replaced the old system of government diktat that used to prevail over gas supply in countries like France and Italy until quite recently.  When it comes to efficient allocation of scarce resources the combination of interconnection plus responsive market pricing is every bit as potent in practice as free-market theory would suggest.  (That Europe now relies on this approach is, incidentally, a major triumph for the UK over years of patient work in the EC ...)  That Baumgarten has already dropped from the headlines is even more of an achievement when you know there are several other logistical problems in the wider European gas system right now - and a cold snap to boot.

It's also being reported that Baumgarten has already put many of the pieces back together again.  Not wishing to downplay the fatality (nor the impressive photos of cars whose bumpers have melted), but natural gas fires are generally among the least problematic because (a) in this post-Piper-Alpha world, gas units have non-return valves everywhere, cutting off the supply of fuel to the fire very quickly; and (b) methane is so light, the short-lived fireball goes straight up into the air.  Steel doesn't melt quite so easily. 

Hereabouts we used to debate with our old friend Sackerson the thorny issue of self-sufficiency vs reliance on markets.  At one end of a spectrum it can sometimes feel pretty uncomfortable being dependent on a simple price signal to redirect international supplies your way when you're in trouble locally.  At the other end, we know where 100% self-sufficiency leads: grotesque inefficiency - because 100% is never enough, is it?  The monopolists always demand they be allowed to go for 200% or more - just to be sure.  'Security of supply': the last refuge of the statist scoundrel.

What's the optimum?  You don't always have a choice.  Belgium, for example, has no indigenous gas resources, but they want to stay warm, like the rest of us.  So they are 100% reliant on imports, plus a bit of local gas storage. We couldn't all do that: but the power of free trade, suitably regulated (e.g. to stop the French government intervening in situations like Baumgarten and blocking all exports, as used to be their wont), is not to be underestimated.  They'll be OK in Italy, too.


Thursday, 14 December 2017

Tories for Corbyn!

It is all very well making Parliament have a vote on the final Brexit deal. I still don't get what difference it will make:

1) It passes and so the House has had its say but to all practical intents and purposes it meant nothing.

2) They vote it down, but then what? A currency crisis for sure and a new political crisis. Either the UK crashes out without a deal if we are very close to March 2019 or a new Government is needed for a new negotiation.

The Tories, by dint of voting against their own bill, can't then try to form a new minority Government. So either the Labour Party take over with a silly minority or in some kind of Grand Coalition (mmm, how likely is that!).

Or we have an election, where justly the Tories would be routed for making such a mess of things since 2015.

And that means the most Left Wing Government ever being elected - along with a Brexit in Name Only. Truly the worst outcome imaginable. Yuck!

Tuesday, 12 December 2017

Bitcoin bubble - will it be anothe Long-Term Capital Management

Many moons ago, indeed decades now, there was a hedge fund that managed to leverage itself up so much that it caused a massive loss in Wall Street and even led to the resignation of the  Chairman of UBS.

So, is this time different?

Bitcoin is a classic tulip-bubble mania. There is a limited supply, there is some kind of magic involved, retail investors are sucked in and there is plenty of liquidity in the market to push the currency on.

Of course, historically most of the bitcoins have been used by mafia and corrupt governments as a means of washing illegal gains. But these players have had ample opportunity this year to clear out, at a massive profit too!

So now the base is increasingly retail investors and some more risky financial broker-dealers who smell trading profits.

With the CME now allowing shorting of Bitcoin for the first time, there may well be hedge funds who come into the market now to take a bet on the collapse.

The danger though is that bitcoin is now worth some $270 billion and this changes rapidly daily. Ina major crash there is a lot of money to be destroyed. LTCM only burned through around $4 billion in 1998!

Over the course of this week the meteoric rise of bitcoin does seem to have stopped with the CME entry to the market and it is now stable at around $17000 per bitcoin.

One key element that may help stop a big impact if there were to be a run on bitcoin is that most holders would be sitting on paper losses only - in that most coin were created or traded at much lower values, thus the losses are not real in the sense of investment money going south.

But a 50% crash in the price (which is nothing when it has gone up 1700% this year) would be a big hit - I wonder where the bodies would be because there would definitely be some big hits with $130 billion of losses to share around

Sunday, 10 December 2017

Peanuts. The Brexit deal.

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Anna Soubry

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Amber Rudd
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Leo Varadkar
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Nigel Farage
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Keir Starmer
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Theresa May and Arlene Foster
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Jeremy Corbyn
David Davis

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The European Union

Saturday, 9 December 2017

Theresa Breaks The News 

Theresa May returns to her flat at Number 10. After a hard day settling the Brexit negotiations she is keen to discuss her triumph with her husband Philip.
 As she enters her apartment her husband looks up from his newspaper crossword and greets her cheerily. 

"Hello dear. Did you have a good day at the office? anything exciting happen or just the usual daily drudge. The dull, grey suit, shuffle?"

Theresa looks crossly at her spouse. "Oh Philip, really! I've been at the brexit summit. The EU talks! "

"Really? He looks mildly puzzled. "There was no mention of any brexity, dealey, summity euro thingy on any news today. I've had the wireless on this afternoon. There was a play for today on 4. About a slum Tory landlord expelling Eastern Europeans from his buy-to-let. And they all perished at Grenfell. ...Or was that yesterday? Or the day before..Come to think of was everyday this week. Or a version of that theme...Did you catch any of it, dear?"

"What ..No mention?" Philip thinks she looks completely bewildered. Even more so than usual.
"But..I had...A press conference..and ..made a speech.."

"Did you?" he lifts up his paper again to peer at the clues.."Was it live...the main event..not just a Euronouncement. No one covers those anymore. Not even the Huffpuff bother.."

"No! It was the proper thing. With the EU negotiators. We stood on the steps and everything..I just can'"

Philip drops his paper to the sofa and hops up to hug her.

"Only teasing, old fruit. I saw it all on Sky Snooze. And jolly good it all was, too. You especially."

"Oh, thank goodness. Oh Philip, don't prank me so." 
But she is too relieved to be angry with him for his joke. It would be just like the media to have made a huge splash about the early week disasters and then put the hard won agreements on the back page or the final segment before the weather.

"Sorry dear..Just my, I'll fetch you a drink..The press office summary is on the coffee table. They seem ..pleased...ish."

Mrs May picks up the press releases and nods approvingly. They WERE good. Success this. Not failure that. Less expensive than Trident had been crossed out to less expensive than HS2. Which was a good thing. Though best not to mention either.
Still. Very good news. very satisfying indeed.

Philip handed her a sherry and sat back down on the sofa.
"The media said you had a pretty good deal today. Even the newspapers said you did a good job."

"Well, it's about time the UKIP-Brexit red tops gave me a little credit for bringing about our leaving the EU."

"Oh, I didn't mean them, old stick. I meant the Remainer media. BBC very supportive. For a change. Guardian loved it, too. Full editorial and feature pages. Lapping it all their whingey-wailey, doom averted way."

"Oh." She said. And sat down onto her favourite chair. "Well...All publicity is  good publicity, isn't it?"

"Indeed it is, old sport. A triumph! Speaking of which, and not trying to steal your thunder in any way, but..I did have a bit of a triumph in the negotiations department myself, today," said Philip. Waggling his eyebrows over the top of his glasses and looking particularly pleased with himself.

"Really?" Asked Tess. Wondering what he could have done that would be the equivalent to leaving the European union whilst not snapping off the two extreme, irreconcilable, wings of her disconsolate party.

"Yes, indeed I did. " Philip leans forward and winks conspiratorially at her. 
"I went to that new Lidl, off the Horseferry road. And while there I saw a sign "THREE, Mörök Háború for the price of one! How about that, eh?" And he nods and smiles.

"What? What on..I mean..what is ..Murdock Harbour..?"

"Mörök Háború," he corrects.  "It's Hungarian brand Toilet-Duck. But as good as our SC Johnson stuff here. And I got three, for the price of one.! Good , eh?" he exclaims in jubilation. 

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Theresa regards him with incomprehension. 
What is he talking about? Toilet Duck? TOILET DUCK? 
Impatiently she asks

 "How is three bottles of Mangy Toilet Duck relevant to...what I" And she slips off a shoe and rubs her sore heel. And rolls her fingers over the bunion that that some photographer had stepped on.

"Well, old skirt, in and of itself, not so much. Three for one is a good, if not outstanding deal. But the clever part was, I noticed there was no Ce mark on the bottles."

Theresa looks even more confused. She is tired after a very long day, and an even longer, stressful week. And in no mood for riddles. "Ce mark?" she manages to ask.

"Yes. You know. The approved for sale in the European union, registration symbol. Well, these bottles didn't have it! Hah! So I point this out to the deputy assistant supervisor. And she gave me TWO more, free bottles. So there. What do you think of that?" And he sits back comfortably, evidently pleased with his feat.

Theresa is getting annoyed. Is he doing this because she is a woman? Deliberately belittling her achievements just because she doesn't know who Westhampton Rangers beat in the 1976 World Club?"

"Philip, " she says through thinning lips, and over the rim of the deep gulp she takes of her Sherry. "I hardly think that matches the tightrope diplomacy I have been indulging in..At all.."

"Oh, no Quite..Quite..No.." says Philip raising his hands, palms open to placate her.
"I just meant that essence. We both got good deals today. You got some agreements and paid a huge sum for some future possible something..While I got, Five Toilet Duck equivalent, but only paid the price for one. So..i'm just saying. We are both winners today, aren't we?"

Theresa stands up, eyes flashing in true annoyance. 

"Philip. I have been transacting with European leaders! I have finally, on deadline day, or just after anyways, got a deal that is acceptable to all..."

"Yes..Yes..Dear..Acceptable. Oh, I so agree. I'm not knocking, really I am not. I'm just pointing out there is acceptable. And there is five for the price of one. Both great deals. No question. I am simply just suggesting one may be a little bit of a better deal than the other? "

"Oh for heaven's sake!" she curses and heads angrily off to the bathroom. 
Phil shrugs and picks up his newspaper to resume his crossword. Its a toughie.
He can still hear her indignant words through the door.

"I've been working on this for twelve months. Back and forth. Back and forth. With the most intransigent men in the world. And that's just our Brexit team. And you say its just the same as getting four bottles.."

"Five bottles," he corrects her, to himself. Tapping his pencil on his lip.

"...four bottles of lavatory cleaner is the equivalent of world-stage statecraft..."

"..not equivalent.." He continues to say to himself.."Five bottles. And better than.."

"...Statecraft that takes month and months of patient, painful talks. Which results in give and take on both side.."

"Ahh..both sides," he thinks. "On our side.. and on our other side.."

"..With all warring parties finally brought into alignment! And you! ..You even have the nerve to suggest that this delicate finesse was in any way of the same magnitude of a deal as buying household cleaning products from a supermarket?!"

.." Not the same, old horse" says Phil, loudly enough for her to hear.. "Not the same in any way.."

And then lowers his voice so only he can hear himself say,
"The deal that I struck, was better than the EU one. Five bottles. And I only paid 20% of the RRP."
 He fills in, then rubs out a failed clue..
"Blast F in Phosphate...."

"PHILIP !" he hears a now very, very angry yell from the toilet.
"PHILIP!" Bawls out Mrs May. "This Hungarian... acid stripper supposedly got the agreement of the century on, has gone and taken the lacquer off the bowl !"

"Hmmm" .. thinks Philip May. 
" It's still a better deal."