In the biggest currency news in quite some time, the Swiss abandoned their misguided currency peg (sardonically reported on here in 2011).
Broken from its chains, the Swiss Franc has burst forth and in a wild and unsettling display of strength. However, whether the beloved Swiss currency can truly reclaim its safe haven status cannot yet be fully known.
Some Swiss accounts are currently paying negative rates, not to mention the recent vote rejecting gold. We’ll have to see how things turn out…
After decades of leading OPEC – an entire organization dedicated to working against market forces – Saudi Arabia has cynically embraced declining crude oil prices as both acceptable and convenient.
Putting aside, for now, how maintaining existing OPEC quotas on production equates to a market-based solution, what are we to make of the House of Saud’s Christmas present to the West?
To be sure, there will be both winners and losers. It isn’t entirely clear that Saudi Arabia will be one of the winners, but the ultra-low cost producer obviously has a plan.
The boom/bust oil cycle keeps a lid on the competition, and ensures only the strong survive. Whether the Saudis are out for market share, collapsing the Russian economy, shutting down those pesky shale operations, or something else – I don’t know.
No economic forecasts for 2015 imagined this scenario, the future once again proving impervious to the machinations of well-schooled soothsayers. We shouldn’t assume that the Saudis can see into the future either, but they sure know how to play their hand.
The new year is likely to bring things we shouldn’t try to predict – so let’s at least agree not to try. Happy New Year – and enjoy the cheap gas.
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- Tags: oil
The United States military has found that for some of its projects, using the open source Linux operating system can save it plenty of both time and money. The reason that Linux works so well, however, is its underlying philosophy in dealing with complexity – and it’s just this approach which the armed services can’t seem to apply more generally.
Do one thing – and do it well, is the philosophy Linux inherited from Unix. In other words, when you have extremely complex systems, you should focus on making something small that works very well, and design it to work together with other small components. Trying to build a monolithic solution to all of your problems never seems to work out well anyway.
Unfortunately, the US military seems completely addicted to the idea of “multipurpose”, “multi-role”, “versatile” weapons programs, that – much like that All-In-One printer – is not necessarily well positioned to be the best at anything in particular, but it sure does have a lot of complexity and points of failure. So, somewhat ironically (but logically), focusing on building a single system which encapsulates disparate functionality to save costs ends up increasing costs due to the complexity of the system.
Here, I will use the F-35 as an example of a complex military system designed to saved costs from the start by incorporating an absurd list of features. Rather than a purpose-built aircraft like the F-16, A-10, or B-1 Bomber (which have clear roles within the military), the F-35 is going to try to fill (more or less) all of those roles as it would be a customizable universal platform for a variety of roles. The theory was that by doing this, costs would come down by building a common platform with shared components that included input from all parties. This then, was going to allow the F-35 to be mass produced (think thousands, not hundreds), driving down costs further.
Now, bashing the F-35 is nothing novel, and at the very least, the plane is good enough for the Chinese to steal the designs and start copying. So it appears that it won’t be a total waste of money.
But what is the F-35? Well, there is a version for the Air Force, another one for the Navy that lands on carriers, and another one for the Marines that just takes off vertically. It can be equipped as a fighter, or a bomber. Some will be outfitted with nuclear weapons. The Air Force version has a gun, but the other version don’t. It’s even being built to support laser weapons that will “probably exist soon”, and the pilots will wear helmets that use virtual reality to let them see through the plane. You get the picture. Of course, inevitably, this leads to all sorts of problems which increase the cost of the aircraft, which means the Armed Services can’t build as many as they want, which means the per-unit cost rises:
“The program is stuck in low production rates and high costs,” said Richard Aboulafia, an aerospace industry for the Teal Group. “The production rates are low because costs are high and costs are high because production is low.”
To be fair, the F-35 is easy pickings, but the “multi-role” philosophy is pervasive in the military. The Navy seems to have already figured out that it’s multi-role, modular Littoral Combat Ship (yes, it was designed to save costs by swapping out portions of the ship for different missions) turned out to be so expensive that it can’t really afford to build them.
The Army wants a tank that is fast, stealthy (really?), durable, and delivers devastating firepower. I’m not even sure what that means. The V-22 Osprey is a helicopter that can turn into an airplane once it is in the air. Yes, that is a really cool idea, but it turns out to be an expensive one too.
Back to the F-35, the latest round of delays is caused by writing the software for it, which looks like it will be an enduring problem for the multi-role plane. So far, it has 24 million lines of code, and it’s behind schedule. No surprise there.
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In 2008, while the world came together in peace during the Olympic games, the vicious Georgian army began shelling innocent civilians in South Ossetia, in a brutal invasion in violation of international law. Or so the Russians would have us believe.
This time, the Russians have spun an even more implausible narrative. The current Ukrainian government is not only illegal and corrupt (both points are admittedly arguable), but they are, in fact, Nazis.
Yes, the National Socialist party is back, courtesy of imaginative Russian propaganda. After all, when you’re an imperialist empire bent on annexing your neighbors, it’s best to compare yourself to the Nazis… or something.
Today, Russian patriotic feeling is at a zenith after the end of the 2014 Winter games in Sochi. Vladamir Putin has yet again outmaneuvered the West. Well-placed propaganda gives the people on the Crimean peninsula a clear choice. Your country will be run by Nazis or Vladamir Putin, choose wisely.
And, let’s be honest, since you probably speak Russian and you’re surrounded by Russian troops, and you might even already have a Russian passport (the South Ossetians did in 2008), and the Ukrainians seem way too friendly towards the European Union (which is run by Germans), and there are some neo-Nazi’s in Ukraine somewhere… it’s probably easier to vote for the friendly dictator who just put on the Olympics.
Most people seem to spend a good portion of their lives trying to make money, thinking about what they will do if they more money, and spending the money they have (or … in some cases, don’t have yet).
But what if you’ve been successful? So successful that it isn’t clear how to spend all of your money? Individuals in this rare position take all kinds of diverging paths. On the other hand, what if we are talking about a company – a company so successful and so profitable that it couldn’t possibly spend all of the money it makes?
The answer is, of course, that you buy another company. Hopefully one that, some day, will help you make even more money so that you can buy even more companies. A foolproof plan.
Better yet, you can point your entire company in a new direction by buying up a series of companies in the same field. It isn’t hard to guess what Google has up its collective sleeve:
Google Acquisitions in December 2013
- Industrial Perception
- Redwood Robotics
- Meka Robotics
- Bot & Dolly
- Boston Dynamics
It just so happens that seven of these companies are robotics companies, and the other one is pretty close to it. Google is betting heavily on a very robotic new year. Maybe you should too.
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There’s a false image we sometimes have, that the United States bullies other countries around these days. That we play hardball in a world that is otherwise full of camaraderie and cooperation. We’ll spy on you, and if you play your cards right, we’ll be nice and share the dirt we dig up on your enemies. You’re just lucky we’re not bombing you.
The truth is, that these days, our foreign policy tends towards incoherence. Moreover, such a point of a view reveals a deep naïveté concerning how things actually work – and not all countries are infused with Western ideals that soften the harshest approaches.
A meeting of two such players who eschew American ideals – Russia and Saudi Arabia – occurred in August. Specifically between (the seemingly eternal) Russian President Vladamir Putin and Saudi Arabia’s Prince Bandar. Normally, we wouldn’t know anything about such a high-level, closed-door meeting other than a carefully scripted and sanitized summary, perhaps.
This time? Well, things went a little differently. We seem to know exactly what said thanks to a leaked document. Dispensing with subtleties and all facades, the Saudi Prince lays out his case directly (Telegraph). In exchange for abandoning Syria, Saudi Arabia is willing to:
- Work with Russia to set the world’s price for oil and keep it stable
- Immediately “invest” $15 billion in Russia by purchasing weapons (no doubt funneled to Syrian rebels)
- Cooperate regionally to ensure gas and oil flow where Russia needs them to (but no doubt not through the currently proposed pipeline that Saudi Arabia dislikes)
- Ensure that Russia keeps a safe and secure Mediterranean port
- Cooperate with Russia against terrorist organizations
Additionally, he claims that the US will back whatever agreement they reach at the meeting. While this is somewhat remarkable, it rings true, given that the prince’s main concern is the removal of Assad from power – something that would certainly delight President Obama.
Nevertheless, Putin is unpersuaded. Most likely, he figures that the Mediterranean port (remember, most of Russia freezes over in the winter) is too valuable and the assurances of its safety are not worth as much as an alliance with Syria. While Russia desperately needs a high oil price and Saudi Arabia doesn’t, Russia doesn’t want to be pushed around – or abandon its allies to terrorists.
Prince Bandar kicks it up another notch, in one of the most stunning displays of true realpolitik:
I can give you a guarantee to protect the Winter Olympics in the city of Sochi on the Black Sea next year. The Chechen groups that threaten the security of the games are controlled by us…
Did that just happen? It looks that way. And it also looks more than a little like a threat of violence at the Olympics if Saudi Arabia doesn’t get its way. But Putin, purportedly remained unfazed:
We know that you have supported the Chechen terrorist groups for a decade. And that support, which you have frankly talked about just now, is completely incompatible with the common objectives of fighting global terrorism that you mentioned. We are interested in developing friendly relations according to clear and strong principles.”
In the United States, we Americans often gripe that our representation is inadequate. There are numerous issues, after all, that while the majority of voters agree, the majority of our representatives never do. It doesn’t matter which party is in place, there are a few issues that just never seem to get handled according to the broad societal consensus.
Now, imagine you are an Egyptian, and you just – through the blunt power of rioting and demonstrating – brought down a dictator. You would feel exceptionally empowered, and you would have high expectations of the first elected leader of your lifetime. You wouldn’t have a jaded American mindset and just mutter, “Stupid politicians!” or “C’est la vie” under your breath.
No, you would think to yourself, “Why not do it again?” It hardly matters to the Egyptians that Morsi was elected for a 4 year term. The crowds have turned against him. Indeed, the crowds are larger than the ones that overthrew Mubarak. The people have tasted their power in its rawest and most undisciplined form – and they aren’t about to give it up.
Before continuing, let’s look at the economic reasons for the Egyptian outcry:
GDP Growth Rate: 2.2% Unemployment Rate: 13.2% Inflation Rate: 8.2%
Pretty high on the misery index – it’s reasonable to assume that a lot of Americans would be rioting too. None of them, however, would expect to be able to topple the government. Already, Egyptian ministers are resigning right and left.
When “Democracy” means little more than rule-by-mob, it is little more than a dictatorship of the majority. Westerners show their naïveté when they honestly believe that freedom is spreading throughout the Islamic world. These are not Federal Republics meticulously planned by Madisons and Jeffersons. These are simply crowds, trading one dictatorship for another, or the dictatorship of the 50.1%.
It’s hard to keep up with the so-called “Currency Wars” these days. I’m not sure that a currency war can have a winner, but certainly the Japanese are in the lead.
With all resistance cleared away by elections, a central bank beholden to politicians, enthusiastic corporations hungry for exports, and a population desperate for that ever-elusive “growth,” the Japanese are now rapidly depreciating their currency:
It should be axiomatic that a country should want its currency to be strong, but after decades of tortured rationalizations, countries are competing for the least valuable currency.
This makes Japan’s “success” all the more remarkable – the Yen is weakening even compared to currencies which are themselves weakening. Truly, we are witnessing a race to the bottom. Look at the chart again – it’s a comparison against the US dollar – where zero interest rates and quantitative easing are taken for granted.
This is when I would normally quote Japanese officials, except, the comments are so extreme that the quotes would be dismissed or assumed to be mistranslations. Sometimes it’s just better to break out the popcorn. Unless you happen to be Japanese, then it’s probably better to buy a little bit more gold, just in case.
You don’t have to look too closely at the tea leaves to find reasons to be less than sanguine about our future. There can be little doubt that we will face existential threats to our way of life. There are dangers on all sides, and it is natural to concern ourselves with them.
Yet, surely we must avoid both paranoia and blitheness. While it’s perfectly reasonable to do what you can about the situation (and everyone will have their own ideas about what is useful), there is more that we cannot do. There’s also a lot that we probably think everyone should do that wouldn’t help anyway.
But even in the darkest hours of civilization, men still have friends. We still eat with our families. We still love. We still hope. And we have at least as much faith.
As long as men can drink wine and eat food, there is little reason to fall into a despair. We may not be able to control all of the things we want to, but usually it’s the little things that matter the most anyway. We don’t need large retirement accounts or governments that we can trust. We just need each other, and the simpler pleasures in life.
And really, we should have known this all along.
A person can do nothing better than to eat and drink and find satisfaction in their own toil. This too, I see, is from the hand of God, for without him, who can eat or find enjoyment?
It was once said, “Emancipate yourself from mental slavery…” and once you do that, no power on Earth can enslave you.
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It’s not just the time of year where we all resolve to do better. You know what I mean – lose weight, budget, quit smoking. It’s also the time of year where we ponder: what will the next year be like?
Some believe that their accumulated knowledge gives them a special ability to foresee events. Usually we call such people economists, but this time of year a wider variety of pundits temporarily indulge in this impossible task.
We know that some will argue that we can create our own futures. Setting our minds to this task, armed with positive energy and good vibes (or maybe Jesus and enough prayer), we can surely realize our dreams. While no doubt providing a good dose of comfort for these anti-victims, their logic is greatly wanting.
The problem is, of course, that the future remains entirely unpredictable. Not just unpredictable in degree, or scope: like when you predict your football team will win the Superbowl but instead they lose at the last moment. No, the future is entirely unpredictable.
But why should it be so? Why can’t we analyze how many cars General Motors has sold throughout its history, or look at the GDP of Estonia – and make reasonable assumptions about the future? For the very reason that it is never reasonable to make assumptions about the future.
The problem turns out to be that seemingly unreasonable and truly unpredictable things happen all the time. It is only later that we go back through each piece of information, and choose only those that fit the latest scenario, and claim that the event certainly could have been predicted – if only we had followed the right clues.
But alas, such voices are wrong the next time around, too – and eternally. Much better then, to accept the fate proper to creatures such as ourselves, and admit that not one among us can predict what will happen in 2013.
Happy New Year!