Friday 12 February 2021

Germans REALLY Don't Understand Markets (part 94)

Now I know this becomes repetitive** ...   and by "Germans" here, I mean ... and their pocket euro-wallahs in Brussels

Europe Considers Steps to Curb Speculation in Carbon Market 
(Bloomberg). The European Union is considering curbs on speculation in the world’s biggest carbon market where record prices have lured hedge funds in search of profits. EU emission permits jumped to an all-time high of EUR 40.12 on Thursday, extending their gains to about 70% over the past year. That gain, in part, has been down to large-scale investors speculating in the market. Europe’s cap-and-trade program, started in 2005, is the region’s key policy tool to cut pollution. The European Commission, the EU’s regulatory arm, could introduce a limit on the number of CO2 allowances that can be held by investors in a central registry of the Emissions Trading System, according to people with knowledge of the matter. Doing this would prevent financial investors holding too much sway in the market.


(a) the record high prices this week have b*****-all to do with speculation, and EVERYTHING to do with very cold weather, and euro-policies that are SPECIFICALLY DESIGNED TO INCREASE THE PRICE OF CARBON.

Can I make myself plainer?  FFS!

(b) if you suppress spec interest in a market, you starve it of liquidity - the quickest route to the death of the market.

To give an example:  20 years ago, the Next Big Thing was going to be weather derivatives.  Oh, people said, this'll be a tremendous market - loads of people want to hedge their exposure to weather: look, lots of people insure against it already - and lots more could benefit from the clever products you can design using derivatives. 

Well, the "market" was duly set up, and away it went.  Lots of capable banks and energy companies and trading houses and exchanges invested time & effort & people to become players.  But ... nothing, much.  

Why?  Because nobody is willing to take the other side of the bet:  literally no punter is willing to gamble on what the temperature will be next July!  (Unlike the price of crude oil, or gold, or the FTSE, or Bitcoin etc etc.)  So - no speccies in the "market" ... and no market.  Simples.

Left to their own devices, these euro-types are going to make some big, big mistakes.  Can a Tobin Tax be far behind?



** For those who haven't heard this story from me before:  When the EU Emissions (i.e. carbon) Trading Scheme was first mooted, the Germans insisted that the initial allocation of permits should be fairly lavish, and free (as opposed to auctioned).  In this way, they said, it would have no impact on German electricity prices (based, as they were, on coal).  I and others told them that, whatever became the price of carbon when trading started, the price of electricity would increase by exactly that amount, free allowances or not.  Oh no, they said - how could that be?  All our generators have sufficient free allowances.  Yes, J├╝rgen, but as soon as there's a market price on them, they have an opportunity-value ... 

A lo!  When market trading of carbon commenced, the price of electricity in Germany (as anywhere else where prices were set by fossil fuels), went up by exactly the coal-equivalent amount!  Teuful! - how can this be?!  And the Bundestag held a parliamentary inquiry! 


dearieme said...

Tits. Indeed corrupt tits.

Or should that be 'corrupt chests'?

So hard to keep up.

No, not in that sense, matron.

Mark Wadsworth said...

"(as opposed to auctioned)"

That's the heart breaking thing in all this. If you want to "tax carbon" then just do it (and reduce VAT or something).

andrew said...

What is a market?

E-K said...

I think they're good at engineering. From that they control the markets and so don't have to understand them.

Tank warfare.

They produced the very best tanks (prime steaks.) They were so refined and specialist that they couldn't get the replacement parts to them.

Sometimes it's best to take the McDonald's approach. Just produce a load of generic burgers and make them global (The Sherman.)

I think we may be seeing the same difference between Pfizer and AZ.

Elby the Beserk said...

Fairly clear they don't understand energy, either.

"Coal Comfort: Total Collapse in Wind & Solar Output Leaves Freezing Germans Desperate for Coal-Fired Power"

dearieme said...

The Sherman was a lousy tank. For that I had the word of my father who thanked his lucky stars that he was in Churchills.

It would have been lovely if the Sherman had been the equivalent of a Toyota but it was more of a British Leyland vehicle.

Apparently there was a British modification of the Sherman that was a great improvement but I wouldn't be surprised if it suffered from a classic British shortcoming, to wit being produced in small numbers. Open to correction, of course.

andrew said...

This may be a bad memory but i think someone managed to show that the effectiveness of a tank group was linked to the square of the number of tanks.
If tank a is twice as good as tank b
1 tank a tends to beat 1 tank b
3 tank a tends to lose to 5 tank b

So many shermans beat less Panthers

E-K said...

German tanks were bollocksed when supply lines were disrupted and they couldn't get the exact parts to them (among other things.)

Sometimes economic needs demand cheap tat and Germans don't do cheap tat. They dominated the EU with their superior goods and thrived on regional disparities but those disparities are coming home to roost. CV-19 has really shown them up - this is an economic emergency in disguise.

Thud said...

Uparmoured Sherman firefly was by all accounts pretty decent.

Nick Drew said...

Related phenomenon: NHS relies on simple measures that are broadly effective when deployed en masse.

Not so great on highly complex stuff requiring bespoke application: in fact, hit-and-miss. Maybe you get a specialist that know's what they are doing, maybe you get an imposter with fake qualifications.

Mass immunisation against smallpox - check. Mass issue of statins - check. Genuinely improves average health (OK, well, increases average lifespan)

But only the Queen gets 100% personally tailored, best-available treatment every time

Bill Quango MP said...

The Allies went for quantity over quality in WW2. This is largely accepted, though not entirely true. It was true enough for armour.

Our armour simply wasn’t good enough. Luckily, it was cheap. The soviets had plenty and better than the allies. The Nazis had better quality.
The Italians and Japanese, lacking numbers and not good enough.
In aircraft, much more even. Allied aircraft did cost more than axis. But not by that much. They took significantly longer to build But they were, mostly, equal or better.

Quality vs quantity

The Vietnamese had neither quality nor significant quantity advantage. Their loses ran at ten to one, vs Americans. They still won.

NATO decided to operate on quality. The Soviets, quantity. NATO expected one allied fighter to take out three USSR. One allied tank, 5 soviet ones. This was the German method, that is being discredited here. Yet we thought it would work. Because the Israelis made it work. But the situation was not Western Europe. And luckily never tended to be tested.

Mr Drew will enlighten us to what happens when NATO quality, also had quantity. As in the war vs Iraq.

Nick Drew said...

@ NATO decided to operate on quality

was there any choice? we couldn't afford (in an all-round societal sense) to maintain standing armies of sufficient size to do anything else: and it was always going to be "come as you are" - so it didn't much matter that reservists typically can't wield the most complex kit

in a sense, a reliance on nukes is the ultimate fall-back on "quality"

the Israelis, of course, are simply outumbered: they have no choice at all

(and yes, I will resume on the Gulf War in due course)