Category Archives: markets

Isn’t This Interesting

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There’s an oil tanker traffic jam at the Turkish Straits junction with the Black Sea. That jam is being caused by tanker insurers’ refusal to honor a Turkish demand that the tankers produce letters from their insurers assuring Turkey that the tankers’ Protection and Indemnity Insurance policies remain in effect following the G-7’s, EU’s, et al., imposition of a price cap on Russian oil that bars insurers from covering oil tankers carrying Russian oil for sale above the cap. The International Group of P&I Clubs provides 90%, by tonnage, of the policies covering the world’s oil tanker fleet.

That Club’s problem with that demand for proof of effectivity of its policies post-cap is this:

The insurers said they couldn’t agree to the Turkish request because it could lead them to violate sanctions….

Isn’t that rationale for the Club’s reluctance interesting. What sanctions do Club insurers think they might violate if their policies comply with the requirements of the cap? It’s certainly possible that Russian oil shippers and/or traders could lie to the insurers about the prices of their oil, but that just puts a premium on the insurers exercising due diligence before they issue their policies. And on refusing to insure further if the Russian shippers/traders are discovered after the fact to have lied.

Get Rid of the EV Subsidy Altogether

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Allied and friendly governments object to the Biden administration’s battery-operated car tax subsidy requirements that these vehicles be assembled substantially in the US or they’re not eligible for the subsidy. That puts battery-operated cars assembled in Europe, Japan, and the Republic of Korea at a substantial disadvantage in the competition for sales in the US.

They’re right, but for a different reason than they think.

The Biden administration should get rid of the battery-operated car subsidies altogether. If battery-operated cars truly were ready for market, they’d need no subsidy: Americans would buy them on the merits of the cars. If we don’t want them, or don’t want them in large numbers, government intervention (via subsidies here) is no more appropriate than is government intervention in any other section of our free market marketplace.

Full stop.

Controlling

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Naked self-promoting advertisement….

My latest (as of 22 Nov 22, anyway) Peter Hunt novel is out, available here.

Peter Hunt’s lady is brutally assaulted, and Hunt has to go after the mastermind who set the thing up.

Donahugh was involved in DPA Donason’s kidnapping and personally involved in her rape.
More quiet. Then Freyman said, “I’ll be handling the prosecution. Keep me current as this business proceeds.”
“Of course,” Jankuwicz said.
Freyman turned to me. “I’ve also heard about you. There will be persons to prosecute as this winds up?”
“Before I could answer, Jankuwicz said, ‘That depends on the perpetrators.'”

Jankuwicz drummed his fingers on his desk for a moment. Then he said to me, “What do you need from me?”
“‘Keep Freyman out of my way.’
“‘hat would be easier to do if you keep in mind what I said earlier.”

But that’s not all Hunt had to deal with. His pseudo-niece Trang Thi Thao is back and they’ve found a line on the…person…who bought her missing older sister, Trang Thi Khiem, for his personal use and through him they hope to locate her sister.

A thin mattress, only slightly more than a mat, covered in a dirty red sheet, was on the floor…. Suarez was standing on the other end of the mattress, trying to pull his pants up. He was still shirtless, his brown skin glistening with the sheen of his sweat in the light from the ceiling light bulbs. Bare light bulbs; the ceiling fixture had long since lost its cover. Clumps of dark hair spilling down over his ears from their original sweep back. Thick chest gone soft.
Another thin mattress, with no sheet at all or pillow, was on the floor, too…. The two mattresses filled most of the small room’s floor, leaving just enough space for the door to open when Suarez wanted in—or when it was kicked in. Half Pint was standing on the bare mattress, holding a small Asian girl in front of him. His bush of blond hair was messed and twisted. Big, striped t-shirt wadded on the mattress. The girl might have been Thao’s age when she’d been sent to me by Pilsner. She was pale and emaciated, so it was hard to tell. She was wearing a too-big, dirty, pale blue t-shirt that came to the tops of her thighs.

The Cost of Food

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Saturday’s Wall Street Journal had an article centered on the difficulty of passing a farm bill that, among other things, continues subsidies for farmers. The article included some words on the bill’s food stamp program and funding, including this remark:

...SNAP, the food-stamps program is generally aimed at helping low-income households afford to buy food.

There are at least two ways to help low-income households afford to buy food. One is to restore work/train for work/school requirements to the program, which in the end, increases those families’ income.

The other way is to get rid of the ethanol subsidies and requirements. Converting food to fuel additives drives up the costs of a whole range of foods, creating a closed loop of increasingly expensive food driving increasing need for food stamps. Cut that out.

Getting rid of the subsidies will help the farmers, too, by encouraging them to grow more food more cheaply and with their lower cost (already significantly lower than the cost of farming in other nations), gain global market share. And more income for farmers.

Financial Reporting

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A little bit in the weeds, here, but necessary for future understandings by some investors. The proximate matter is FTX’ collapse and bankruptcy (with possibly criminal activities associated).

In a footnote to the financial statements, the company said its “primary shareholder is also the primary shareholder of several related entities which do business with the company.” It didn’t say who the related parties were for any specific transaction it disclosed.
The standard accounting rules for disclosing related-party transactions are vague and have long been considered a weakness in the system. There is no clear-cut rule requiring companies to disclose the players in a related-party transaction. The rules do say, “If necessary to the understanding of the relationship, the name of the related party shall be disclosed.”

Some questions arise. Whose definitions of “necessary” and “understanding?” The way the rule is written, those definitions are left to the company—FTX, here—to determine, and what an investor or customer or client needs or wishes for his own understanding is unimportant.

FTX’s new CEO John Ray exposed part of the much larger problem in his FTX bankruptcy-court filing, in which he acknowledged that FTX’s financial information wasn’t trustworthy and that it was controlled by

 a very small group of inexperienced, unsophisticated, and potentially compromised individuals.

That potentially compromised part is key. Compromised by whom? In what way? That would seem clearly related to who those “related parties” are.

There’s more, related to arm’s length transactions, which are statutorily required in many business arrangements. Here’s a working definition of arm’s length transactions that’s good enough for our purposes:

A transaction in which the buyer and the seller have no significant, prior relationship. In an arm’s length transaction, neither party has an incentive to act against his/her own interest. That is, the seller seeks to make the price as high as he/she can, and likewise the buyer seeks to make it as low as he/she can. The negotiations for an arm’s length transaction result in the arm’s length price, which is almost always close to the market value of the asset being sold.

That drive for each party to work toward his own interest, and especially the resulting essentially market price for the things being transacted, also is key. How can an investor or a customer or a client know that a particular transaction within an FTX is legitimate or problematic under arms’ length requirements if the investor or customer or client can’t know who the related party is that’s do[ing] business with the company? And why is the investor or customer or client being actively denied this information? What’s being hidden?

This is, as RG Associates founder and member of the Financial Accounting Standards Board’s Emerging Issues Task Force, Jack Ciesielski, said,

a hole that needs to be fixed. The auditors would have to know who the related party is. Why not just put that in there? How hard can it be? By keeping it purposely opaque it’s defeating the purposes of the footnote.

And so do investors, customers, and clients need to know—hence the footnote, even if carefully vague in the present case. And hence the need to plug that loophole: require the related parties to be explicitly identified. There’s no free speech question here, no political speech would be chilled by this. Documenting business arrangements in a purely investment environment has nothing to do with our 1st Amendment.