Thursday 28 September 2023

Self-identifying is completely out of control

The age of pandering to individuals and their whims might, I suppose, be seen as some asymptote of the rising trajectory launched by the individualism of the 1960s, coupled with a kind of American liberalism-positivism that says "you can be anything you want! [sotto voce ... if you are willing and able to do what it takes]".

Well, not really.  As well as the lunatic business of allowing young people (often in the hopefully-temporary grip of some pathological condition) to re-gender themselves upon a whim and no meaningful rationale, there are other worrying trends**.  A very good friend of mine, a qualified and highly experienced psychotherapist, tells me that people these days are prone to walking into consulting rooms and self-declaring themselves to be suffering from PTSD.  And of course 'ADHD' is bandied around equally loosely - frequently by parents excusing their badly-behaved offspring, & schools ditto.  Both conditions, if they are to be meaningful, require careful diagnosis: in the case of PTSD, requiring weeks if not months of observation.

Are these complaints the statements of practitioners trying to make a role for themselves?  Well, I think we can discount for that and still recognise that things have gone a long way down a ridiculous road.  We know what Gove means about 'experts'; but technical expertise on serious matters is still not to be idly skipped past.  But the evidence-resistance of much of the population is growing as fast as the antibiotic-resistance of many a strain of nasty bug.

The consequences may be just as bad.  We are all doomed to be dominated by people who think they are Napoleon: and we aren't allowed to disabuse them - still less deploy the Men with White Coats ...



** There's another complete discussion to be had about the self-identifying, self-appointed "voices of the community" who step in front of the camera / Police panel / parliamentary enquiry in order to ventriloquise said "community" for malign purposes of their own.

Thursday 21 September 2023

Sunak's net zero rethink: good politics?

Without the slightest doubt, every nation will be forced to rein back its 'net zero' plans - because with the technology available right now, they are infeasible, never mind costly.  That's even before we factor in the eventual but inevitable electoral unpopularity of the 'politics of compulsion'.

The questions, therefore, are of timing and tactics.  Sunak has decided to make it a General Election dividing line.  The ULEZ fiasco speaks in favour of this judgement, but as Chris Dillow is wont to say - but, but, but ...

The greens have obviously been out in force from the moment this broke - prematurely, of course and obviously leaked maliciously by Someone (the candidates for having done this are legion).  Right now it looks like a tsunami of "international condemnation" is being orchestrated.  Starmer, for sure, has absolutely no desire to be tarred with anything here, including becoming the Green Champion; so he'll just snipe judiciously and try to restrain Ed Miliband & other rank liars who'd love to promise to reinstate every crazy scheme, and more.  We know this of Starmer: he has form, including specifically on 'green' issues of which ULEZ is but one.  But there will definitely be some free hits available to him here, and he may not be put on the "OK-so-what-would-you-do?" spot very much at all.

So Sunak has gone for the 'up-front partial-truth-telling' approach, which is looking a bit, errr, courageous right now.  He should at the very minimum have come up with a Cummings-style Very Good Slogan: "more pragmatic, proportionate and realistic" is not it !

What other strategies are available to governments wishing to back-pedal, as they all must?  Here are some:

  • say nothing, but simply miss all targets as they come along, as will inevitably be the case, and deal piecemeal with whatever opprobrium arises, as and when.  Hope it's the other lot that will have to break the Bad News.  (Even Sunak is still doing a bit of this - viz retention of the NZ 2050 target.)
  • wait until after an election
  • quietly but positively engineer delays in costly net zero measures (easily done) so that, perhaps imperceptibly to observers, the actual costs being incurred are materially reduced
  • build consensus before back-pedaling, via a careful campaign of softening up pubic opinion
  • wait for an absolute crisis which clearly derails their net zero plans, so that nobody demurs (actually, we just had one of those and it was only partially exploited thus)
  • come up with a quid-pro-quo that the electorate finds rather attractive, e.g. - enough of the crazy heat pumps, but we are going to insulate all your homes
UPDATE: spurred by Matt's comment BTL, there is another consideration - the crazy aspect of having targets "legally binding".  Well, Parliament can do whatever it likes but in jurisprudence terms, this is a real nonsense and, as we've seen, leads to endless fatuous court cases, in the UK and other countries.  As I've written before, there will logically come a point where either (a) the courts tire of this, and rule in such a way as to neuter it, and/or (b) governments tire of it, and legislate it away.  Another item for the strategy list.   

What do we reckon on all this?  Maybe Sunak reckons he has to take risks like this if there's to be any hope at the next GE.  Has he judged the politics of this correctly, or has he been just too candid for his own good?


Tuesday 12 September 2023

(1) Demise of Wilko; (2) Rise of the subsidy-stuffers

Evidently undeserving

(1)  So, farewell then, Wilko.  Always seemed a nice store to me.  We'd all welcome BQ's informed take on What Went Wrong ...

(2)  The other big business headline on the same day was BMW's decision to make the new electric Mini in the UK rather than China.  Well, obviously multi-dimensional politics there, but the aspect that interests me for now is the big subsidy from HMG.  That's evidently the mood of the moment.

Evidently highly deserving
Going back, say, a decade, international trade law in most of the West was broadly agin state support.  Obviously, several countries had a history of mercantilist policies, explicit or under-the-counter, but it was supposed to be on the wane and the EU, to be fair, mostly clamped down on it.[1]  

Well, that's over and no mistake, ever since Biden's IRA drove a coach and horses through it, if not before.  Germany is of course screaming to be allowed to do the same, although see this intelligent piece from our old motorbiking friend Yanis Varoufakis which indicates why a number of EU countries won't be so keen to let them without far-reaching "reforms" in EU treasury governance.  Meaning a lot more "Europe" for all of them.  We shall see.

When push comes to shove, it seems, everyone is a protectionist.  Let it be recorded that in happier times, Free Trade accomplished a very great deal and we may live to regret its passing, imperfectly enforced as it undoubtedly was.  You don't need to go far in history - even (say) that of ancient Greece (you listening, Yanis, old chap?) - to find tremendous examples of new-found prosperity born of free trade; and its converse, prosperity ended by a collapse in trade.  C@W, right?



[1] Of course, the really big ones, like Hinkley Point C, were always waved through, if only eventually & after a bit of horse-trading at the top in Brussels: "too big to be stopped"

Monday 11 September 2023

Farrell / Must Be Dropped / Part 2

From Curry's sending off in the third minute of England's RWC opener on Saturday, England were backs to the wall.  And how George Ford responded! - 27 points from his boot, and a masterpiece of strategic adaptation and game management (which he'd been doing for Leicester all season before his nasty injury in the 2022 Premiership final[1]: so, no surprises whatever).

The suspended Owen Farrell could no more have pulled off that essential performance than fly over the moon: all he'd have come up with would have been blood-and-guts, huff-and-puff, & probably another card.    And England would effectively have been out before the tournament had even really got going.  His red card and still-current suspension during the warm-up series was as felicitous for England as that.  

And there is no obvious vacancy at 12.

This is the RWC; this is serious.  So, back to where we were four weeks agoFarrell Must be Dropped.[2]  



[1] Haven't seen this mentioned, but nearly half England's starting 15 (and some of the Argentinians!) have played with Ford at Leicester at one time or another.

[2] Actually, for a little more creativity: when his suspension is lifted, Farrell could be put on the bench against the contingency some opposing eejit decides the solution to Ford's dominance is to drop him with a forearm to the head.  Then the bonehead can take over against the remaining 14 men.  Smith can also be on the bench as a general-purpose option: people already like the thought of him at 15, and he could probably do 9 as well as 10.

Thursday 7 September 2023

Putin steps closer to the edge

A month ago we wrote

Scrapping the grain deal, and blasting grain storage facilities, looks like a serious blunder ... the potential for a grotesque Putin mis-step coming along soon. As critical Russian commentators have been quick to point out, a de facto Russian blockade of Odessa will drive Ukraine to export via the Danube. Now: much as Russian historians love to recount the Battle of Izmail, do they really plan to blockade the Danube, arguably Europe's greatest river linking 9 countries (mostly NATO members), 4 national capitals and a large amount of trade? Really? Article 5 looms large here ... Putin's capacity for cocking things up on the world stage has known few limits since 2021 ... I can't guess what he'll do next

Well it rather seems I did, because a day or so ago Russia bombarded Izmail, with drone debris crashing into Romania.  The latter (a NATO member, obviously) is hosting a lot of allied military resources right now, including UK fighter aircraft that fly top-cover for Black Sea reconnaissance, and very regular border patrols by the US Navy and Italian Air Force.  All the triggers are there.

This is, however, as nothing compared to the protective shield around the Polish areas bordering Ukraine.  The weight of anti-aircraft / anti-missile defences there is like nowhere else on the continent of Europe.  People have often mused - including BTL hereabouts - as to why Russia doesn't interdict the large daily flows of munitions across the Polish border.  Well they might try: but it wouldn't be easy.

There's a case to be made that things are ratcheting up to something very tense this coming winter.  It used to be a rule of thumb in ancient Greece that no city-state could survive a second winter after its lands had been ransacked two summers in a row - which might be in Putin's mind.  

He might also like to recall that Athens successfully** devised a solution to this: significant use of imported goods along heavily-defended lines of logistics.



** Yeah, yeah, I know that eventually Athens lost to Sparta.  But that was imperial over-reach born of monumental, buccaneering hubris. 

Monday 4 September 2023

Hedging for Whingeing Farmers - part 2

Some valuable practical detail in BTL comments after that last post - very much what I had in mind when writing "very real practical complexities around our simplified account above - which might have made for a genuinely interesting & informative Countryside piece."  Let's take a look at the issues they raised, & some more that I'm chucking in for good measure.

1.  The ability to hedge, even in principle.  (A) Scale.  Jim has suggested the threshold for being able to get into grain futures is 10,000 acres.  There will always be a lower limit (although with spread betting and ETF, that's been getting lower and lower) and certainly I have no better data.  And why shouldn't there be a minimum size / critical mass for any particular viable line of business?  We scorn the pitifully small energy suppliers (well, I do) for their lack of capitalisation, and wonder WTF they got a supply licence from Ofgem in the first place.  Why shouldn't some industries be for the competent Big Boys?  Nobody has a God-given right to set up a "craft" blast furnace just because they fancy.   

1(B).  Credit.  - maybe thought of as an aspect of 1(A), but it's a distinct issue.  It's always the case that a non-creditworthy counterparty (however large) can't get an OTC forward contract.  That's because payment may become due either way, & maybe they ain't good for the potential monies due.  Of course, if you're trading on an exchange (futures), you'll need to put up collateral and pay ongoing margin (if your position is moving out of the money) to minimise the credit risk.  That again may exclude some players if they can't put up the table money.  Again - so what?   

2.  Weather.  As raised by a couple of you.  Yep, this is one of the 'operational risks' that actually has little directly to do with hedging the financial exposures involved (though see 3. below on volume & Basis).  Weather risk will impact on farmers irrespective of market risk - it can impact adversely on timing, quantity and quality.  There was a time, in the late '90s / early '00s, when lots of people believed a big market was going to develop that would offer 'weather derivatives', there seemingly being a vast potential range of applications for such products.  It never really took off (for reasons we might discuss in another post), despite many big players putting in a lot of time, money, people & effort go get it going.  So:  as was mentioned BTL, insurance always was, and remains, the first recourse.  

Insurance, BTW, should always be anyone's fallback if they can't get a satisfactory hedge - and not just for weather, and not just for farmers .  No credit issues, except that naturally you need to be able to afford the premium upfront.  I say 'no issues' but of course as the client, you always have concerns over the creditworthiness of the insurance provider.  it's a heavily regulated sector, for that reason.

3.  Volume.  (Also mentioned BTL.)  Being subject to several unknowns - weather being perhaps the biggest - how does the farmer know exactly how much by volume to be trying to hedge?  This volumetric uncertainty is an intrinsic feature of some sectors, while virtually unknown in others.  The answer, as far as it goes, is easy:  pick a sensible, maybe conservative estimate, and hedge that.  You're then exposed on the balance, be that long or short.  Coupled with weather insurance, it's the best you can do.

4.  'Basis Risk' generally.  In markets where volumetric risk is small (& hence not requiring a whole risk-management discipline of its own), it would be viewed as a subset of the more general category of 'Basis Risk' - where there's an element of exposure remaining even when you've hedged the best that anyone can.  It can arise from a heap of different factors impacting the 'basis' of your hedge vs the basis of your own situation, e.g.:

-  the forward / futures contracts are only traded in lot sizes that don't allow you to create a perfect volume match;

- the settlement of the traded forward / futures is at a location and/or date that doesn't perfectly match your own locational / timing situation;

- the settlement is for a quality or grade of product that doesn't perfectly match that of your own product (e.g. a very special grade of oil for which there is no specific forward contract).  

That last point - quality - was indeed specifically raised in the Countryfile prog - about the only interesting thing that was aired.  They said that weather could affect what type of grain the crop would turn into, in terms of how it would be viewed - and priced - in the market.  I hadn't known that, but it makes perfect sense. 

*   *   *   *   *

To my mind the Countryfile team should have been at least mentioning some of the above, just as they very fairly (and in an easily-understood manner) alluded to the Basis risk of the quality uncertainty.  It's the job of TV to make these things accessible, and the whole of it is no more difficult than the quality point.

Finally, though, we get to Sobers' really interesting - and quite technical - comment that, courtesy of outrageous hanky-panky on the part of the hedge-providers, for the farmer to enter a forward / futures contract they are in practice writing a naked option.  If that terminology doesn't mean anything to you, well (a) I think Sobers explained the essence of the problem well enough, in lay terms; and (b) writing a naked option is about the most dangerous thing you can do in financial trading.

As many of you will know, agriculture isn't my sector.  I've already noted that small players needn't expect to find things just as they'd like them in any sector, so maybe this is really just another manifestation of 'too small'.  That said, to me it's a pretty shocking matter when, within an industry where quality matters so much, there aren't objective standards and assays that can be relied upon for both parties.   The whole of trade finance depends on it.  WTF should agriculture be different to energy, or metals, or pharma?  Yes, fraud happens in any industry, but what Sobers reports is daylight robbery & very depressing.  Is it really a problem for bigger farmers?  In principle there would, IMHO, be a huge opportunity for large, honest players to step into this situation charging a very modest premium for a proper service.