Category Archives: markets

Lose the Claptrap

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Bank management teams are trekking to Conservative States in an effort to get back in the good graces of State governments whose governors and legislatures disdain woke and otherwise bigoted, illegal, and discriminatory policies like redlining whole industries such as gun manufacturing and fossil-fuel extraction. These bank management teams are trying to convince the States that they’ve left off those policies and now only lend, or not, for financial, legal, and reputational reasons.

Therein lies these bank managers’ disingenuousness and cynicism. Refusing to do business over “reputational reasons” is just a weasel-worded excuse for discriminating against industries and individual companies about which someone might object. Or even about which a whole political party might object. In either of those cases, “reputational risk” would be wholly manufactured rather than something intrinsically extant in the market.

The only lending criteria for a bank, or any other financial institution lending money, should be the borrower’s likelihood of repaying and the legality of the borrower’s activity. Bank management teams must exclude the chimerical “reputational risk” and do so in a publicly provable manner. Petty political considerations must never be allowed into what is at bottom a purely market and finance question. Banks that do not achieve this should join the growing list of banks already barred from doing business with State governments over their bigoted, illegal, and discriminatory policies.

A Thought

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I had another one. This one was brought to my forebrain by a Wall Street Journal article that discussed the lack of Russian military assistance to Iran during the latter’s attacks on Israel and Israel’s nearly two week response in and over Iran.

Israel’s responses to the Iranian war over those dozen days included the virtual elimination of Iran’s air defense capability; reduction of Iran’s ballistic missile capability, both missile production and launchers and launcher production; and Iran’s drone inventory and drone production capability.

It’s that last that interests me. I’ve already seen an apparent reduction in Russian missile attacks on Ukraine since the UA’s successful attacks on Russia’s LRA, at least compared to the number of drone attacks on Ukraine. Iran has been a major source of Russia’s longer-ranged and bigger payload capable drones, the Shaheds. Iran’s ability to produce these were particular targets of Israel’s anti-drone sorties. I wonder what effect the seemingly inevitable drop in exports to Russia will have on Russia’s aerial assaults on Ukraine. It’s true enough that Russia has a growing domestic capability to produce drones roughly equivalent to the Shahed, but that capability isn’t all that yet.

Close the Strait of Hormuz?

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Iran’s government now is threatening to close the Strait of Hormuz if the US joins its war on Israel on Israel’s side, among other things by bombing Fordow and Natanz with MOPs.

Iran certainly could, but for how long? My prediction is for a few hours to a few days, at the end of which Iran would have left no navy worthy of the name and no Arabian Gulf or Arabian Sea ports of any use to the remnants of its navy or to its commercial shipping—including is ghost tanker fleet with which it ships embargoed oil.

The reasons center on Iran’s own incapacity. It has no air assets with which to close or to keep closed the strait; it has only a supply of cruise missiles which it would have to divert from its attacks on Israel to close and keep closed the Strait, and its small navy with which to sail the strait.

That navy and the ports from which it would sally are nothing more than targets for the US Navy, which has been expanding in the region, and it would be a campaign of a matter of hours or a few days to sink the Iranian navy and destroy those ports. A few destroyers would serve to protect commercial shipping in the strait, and in the Gulf, come to that, against those cruise missiles, just as those destroyers and cruisers have done in the Gulf of Aden.

There would be sequelae to an Iranian attempt to close the strait. At the end of the campaign to reopen the strait, Iran would have limited capability to get its oil onto tankers (it would be useful for the reopening campaign also to sink such ghost tankers as happen to be in the Gulf or the nearby Arabian Sea, which would further restrict Iran’s ability to ship its embargoed oil). That would hurt the People’s Republic of China’s economy, which has been importing lots of price-discounted Iranian oil (discounts the PRC can demand since it takes 90% of Iran’s oil exports and so can demand the discounts).

Another consequence would be further reductions in Iranian (re)supplies to the Houthis.

There would be a spike in oil prices from a closure of the Strait of Hormuz, but that would be temporary, and the closure would lead, nearly inevitably, to those follow-on sequelae, which would be to the net good of the larger world.

A Useful Move

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The Senate—at least the Republicans in the Senate; the Progressive-Democratic Party’s Senators remain ensconced in their knee-jerk Nothing Republican mode—is working toward easing Corporate Average Fuel Economy requirements by eliminating the penalties associated with failing to comply with ever-increasing and increasingly impossible fuel efficiency standards. Of course there are objections, but most of them are empty.

From the news writers’ own bias:

nullifying rules that for generations have pushed automakers to churn out ever cleaner and more fuel-efficient vehicles. That technology has saved two trillion gallons of gasoline over the past 50 years, according to the journal Energy Policy.

Ignored here, as the writers cite the journal, is the fact that cost of operation—fuel costs, for instance—remain a competitive selling point, and market forces will drive fuel efficiency. That drive will occur on us average Americans‘ schedule, though, instead of by government fiat. Car companies will continue to seek competitive advantages through such techs as turbocharged engines that deliver more power, transmissions with more gears and powertrains that automatically shut off at stoplights to conserve gasoline along with a host of other pathways, including some not yet thought of, but which competitive R&D will bring out.

Other objectors include Chris Harto, a Consumer Reports policy analyst:

Automakers have proven time and time again that without strong and enforceable fuel-economy standards, many of them will leave proven, popular, and cost-effective technologies like hybrids sitting and gathering dust on the shelf[.]

Aside from the fact that simple competitive pressures in a truly free market, shorn of excessive government regulation, will push “automakers” to continue to work toward, among other things, fuel efficiency. What Harto is ignoring, though, is that his favored vehicles are sitting on the shelf because consumers don’t want them and aren’t buying them.

And this:

Consumer advocacy groups warn that the move could result in…further dependence on foreign oil sources.

This is just disingenuous. The US is the world’s largest producer of oil and a net exporter of it. What would be beneficial here would be a parallel move to deregulate oil production and refining (and exporting).

Also absent is any rationale for why we should care about gasoline savings of that magnitude. My back of the envelope estimation of how much that actually works out to is based on there being 105 million cars on the road in 1975 (those 50 years ago) and 299 million cars and now light trucks and SUVs (which burn gasoline and are much more ubiquitous than 50 years ago) on the road today. A naïve average of that is 201.5 million gasoline-burning vehicles on the road each year. 40 billion gallons of gasoline “saved” each year (those 2 trillion spread across the years) works out to 200 gallons “saved” per car per year.

To achieve that tiny savings, a ton of money has been spent on CAFE compliance rules, on building compliant and so very expensive vehicles, and on wasted money pushing those far more expensive CAFE-meeting vehicles out the factory door in order to meet the mandated manufacturer’s fleet average fuel efficiency numbers. This wastage includes, over the last several years, pushing battery cars and hybrids out the door only to sit unsold on dealer lots as us average Americans refuse to pay the enormous cost of those battery-dependent vehicles.

This is a good beginning, if the Republicans can pull it off, and the Republican caucus in the House goes along. Better would be elimination of CAFE altogether, that should be for a later day.

I Can’t Think of a Reason

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Mark Zuckerberg wants to automate ad-creation in his Meta.

That’s not all he wants to do, though. Zuckerberg said this at his recent shareholder meeting (keep in mind that the these meetings generally are Zuckerberg talking to himself since he owns the controlling number of voting shares) [emphasis added].

In the not-too-distant future, we want to get to a world where any business will be able to just tell us what objective they’re trying to achieve, like selling something or getting a new customer, how much they’re willing to pay for each result, and connect their bank account and then we just do the rest for them[.]

Which of those processes—customer convenience or Meta convenience—is the one intended to be jumped on with both feet, and which is the one intended to be slipped past us?

I, for one, have no reason at all to let anyone other than myself or my wife have whenever-they-feel-like-it access to my financials.