Dead Cat Bounce? Oil Prices After King Abdullah's Death

Meet the new boss [L], same as the old boss [R]?

This has been an atypical year with lots of Saudi-related posts, but this one cannot be ignored: The newswires were all abuzz this morning about the passing away of King Abdullah, formerly Crown Prince Abdullah before his half-brother King Fahd passed away in 2005. Now that he too has died, Abdullah's half-brother Salman has become Saudi king. In terms of the broader energy market, the notable news is that oil prices have bumped up slightly on the news. To be sure, Abdullah's passing was not unexpected since he has not been in the best of health in recent years and succession plans were already well-known:

Oil prices jumped on Friday as news of the death of Saudi Arabia's King Abdullah added to uncertainty in energy markets already facing some of the biggest shifts in decades. Abdullah died early on Friday and his brother Salman became king in the world's top oil exporter. Salman named his half-brother Muqrin as heir, moving to forestall any succession crisis at a moment when Saudi Arabia faces unprecedented turmoil on its borders and in oil markets.

Brent crude futures rose to a high of $49.80 a barrel shortly after opening before easing back to $49.30 a barrel by 0650 GMT, up 78 cents. U.S. WTI crude futures were at $47, down from a high of $47.76 earlier in the session."This little spike in prices is understandable. But this is a selling opportunity in our view. It should be sold off quickly and it won't last long at all," said Mark Keenan of French Bank Societe Generale. After seeing strong volatility and price falls earlier in January, oil markets have moved little this week, with Brent prices range-bound between $47.78 and $50.45 a barrel

To be sure, there are no expected changes in Saudi policy, especially in terms of cutting oil production as OPEC's most vulnerable members like Venezuela suggest:

The new king is expected to continue an OPEC policy of keeping oil output steady to protect the cartel's market share from rival producers. "When King Salman was still crown prince, he very recently spoke on behalf of the king, and we see no change in energy policy whatsoever," Keenan said.

Analysts said almost equally as important as the royal succession to energy markets would be whether Saudi oil minister Ali Al-Naimi, in office since 1995, might step down. "The real question is if there is a new oil minister soon," asked FGE analyst Tushar Bansal, adding that Al-Naimi had reportedly wanted to step down but been convinced by King Abdullah to stay on.

Even if the oil minister Al-Naimi is replaced, there is little likelihood that Saudi leadership will curtail Saudi output. Why this move upwards in oil markets, then? I believe that the phenomenon of  none of the major producers curtailing their output (least of all Saudi Arabia) is still putting downward pressure on oil prices. What appears to be a brief move upwards is a "dead cat bounce" in what appears to be a prolonged bear market absent major supply disruptions in the near future. So King Salman is a force for continuity rather than change, and replacing the oil minister with someone else is unlikely to result in any changes. However, in this kind of market, any sort of event that can at marginally raise doubts about the continuity of policy in the world's largest oil exporter is viewed with some interest. Perhaps Salman is ever-so-slightly more hawkish on output? Perhaps Al-Naimi will be replaced by someone not as bold as to say Saudi Arabia will "never cut oil prouction"?

When trading is range-bound as it is now, those few dollars and cents of movement mean a lot more than they did in the months before, and we are bearing witness to that right about now. 

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Professional Stand-In-Liners, a Venezuelan Profession

"Everyday I dream dipeys don't run out once I finally get into the store."

To be sure, professional waiters-in-line are not unique in Latin America. In countries like Brazil where red tape was (still is?) prevalent and people had to stand in line at government offices to obtain various licenses and permits, there already were folks offering to wait for you all day long. There is a term for them; it's on the tip of my tongue but I forget at the moment. (Do e-mail me if you can provide the correct Portugese term.) Indeed, it is not only a "third world" phenomenon as those buying Apple iPhone 6s have relied on those offering to stand in the queues outside Apple stores. (Such meaningful lives these people lead, living for the release of new Apple phones.)

The recent Zimbabwe-fication of Venezuela, however, is setting new standards in this, ah, line of depravity. In the absence of anything better to do--abundant workers and no real jobs to be found can do this to you--there are now legions of Venezuelans who line up without anyone asking them to. Their logic is that desperate folks will come along later in the day who will pay relatively great sums in today's inflation-hit Venezuela for their places in line to buy necessities of life which are in short supply:

There's a booming new profession in Venezuela: standing in line. The job usually involves starting before dawn, enduring long hours under the Caribbean sun, dodging or bribing police, and then selling a coveted spot at the front of huge shopping lines.

As Venezuela's ailing economy spawns unprecedented shortages of basic goods, panic-buying and a rush to snap up subsidized food, demand is high and the pay is reasonable. "It's boring but not a bad way to make a living," said a 23-year-old man, who only gave his first name Luis, as he held a spot near the front of a line of hundreds outside a state supermarket just after sunrise in Caracas. 

Unemployed until he tried his new career late last year, Luis earns about 600 bolivars, a whopping $95 at Venezuela's lowest official exchange rate but just $3.50 on the black market, for a spot. He can do that two or three times a day. "There's a lady coming at 8 a.m for this place. She's paid in advance," Luis said, patting his wallet despite nods of disapproval around him. "I'll have a break and then maybe start again. I chat to people to pass the time, the conversation can be fun. If it's not, I play on my phone."

Apparently, there is another variation on this practice. Another group of these folks eager to queue all day long as long as it earns them some money are more like professional grocery shoppers who wait in line to buy your orders:

Krisbell Villarroel, a 22-year-old single mother of two small children in Caracas, makes a living by queuing up to buy things she then sells to clients who pay her for the time she spends standing in line. “Every day, I have to get up at two in the morning and call my friends to find out where things are for sale or what is for sale,” Villarroel told AFP.

“That is how I spend my day. I get out of the first line at 10am and then perhaps go to another to see what they are selling,” she explained. “In one store, I might get milk, sugar or coffee, but in another – flour, rice, diapers or shampoo.” Villarroel said her customers are families who do not have the time or really the need to wait in line – business people who have their own lives and money to pay someone to do this kind of thing.

Once more, there is an analogue Stateside since there are those who purchase groceries for seniors who are not active enough to do the grocery shopping themselves. Still, that young, active Venezuelans in the prime of their years are literally being paid to waste time suggests the brokenness of their socialized economy. A lot of this nonsense could be subsidized when oil was at $120 a barrel; nowadays, what you see is what you get. 

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After Swiss Capitulation, Will Danes Keep Their Peg?

Older bills feature a homburg wearer. Should we keep faith in homburg wearers?

First off, you can discount the headline from the rather sensationalistic Daily Telegraph--bastion of economic illiteracy--that the removal of Denmark's krone (DKK) peg may cause similar effects to the disruption caused by the Swiss uncoupling the franc's value from that of the euro. From BIS figures, the Swiss franc (CHF) is the world's sixth most-traded currency in global markets--involved in 5.2% of all transactions--whereas the Danish krone's share of 0.8% is a rounding error in comparison. It's simply not one of the world's most widely traded currencies, and Denmark is not quite a global trading powerhouse despite being a very advanced country due to its size.

That said, the Danes are wading into dangerous territory by attempting to ward speculative money away through negative interest rates on short-term deposits. That is, they are trying to prevent speculators from going "long" on krones since you would actually lose money holding onto it:

Denmark is trying to silence currency speculators as the government and central bank insist the Nordic country won’t follow Switzerland in severing its euro ties. “Circumstances significantly different from Denmark’s” were behind the Swiss National Bank’s decision, Danish Economy Minister Morten Oestergaard said in a phone interview. “Any comparison between Denmark and Switzerland is impossible.”

The comments followed yesterday’s surprise decision by the Danish central bank to cut its deposit rate by 15 basis points to minus 0.2 percent, matching a record low last seen during the darkest hours of Europe’s debt crisis in 2012. Like the Swiss, the Danes lowered rates after interventions in the market proved insufficient.

What the Daily Telegraph unsurprisingly neglects to mention [surprise!] is that the Danish authorities actually have an agreement with the ECB formalizing its longstanding peg. Unlike the Swiss authorities who are Johnny-come-latelys to the pegging sweepstakes, the Danes have been at it since the German occupation:

According to the exchange-rate agreement between Denmark and the ECB, currency interventions to defend the peg will “in principle be automatic and unlimited...” Denmark has “a long-lasting and politically firmly anchored fixed-currency policy,” [Economy Minister Morten] Oestergaard said. “This situation should not be overly dramatized.” 

On one hand, then, global consequences of the Danish krone breaking its peg to the euro from around its current level of 7.43 should be minimal (outside of Denmark). Whether it's in the interests of Danish officials to do so is another question. Sure Danish officials say their situation is different from that of Switzerland and that they will defend at all costs, but the latter reassurance was also made by the Swiss a week before their peg was broken.

My take? The Danes will attempt to tough it out--perhaps by making short-term rates even more negative in the coming days. However, if these attempts prove unsuccessful or too costly, they will remove the peg...and reset it at a somewhat lower EUR/DKK level. Like Dick Cheney and waterboarding, I believe pegging is in their blood. 

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Bleeding Forex Reserves: Russia & the 'Fragile Five'

The 90s "connected" developing countries through contagion . How about now?

Whether through coincidence or not, this article on developing countries quickly losing foreign exchange reserves from the Nikkei Asian Review--fast becoming my Asian periodical of choice after the demise of the late, lamented Far Eastern Economic Review--comes from an issue whose cover story is..."Living With Terror"[!] Having been a onetime foreign exchange trader during the height of the Asian financial crisis in a crisis-affected nation, I can sympathize with the feeling of being subject to fear-inspiring events I'd much rather avoid.

But the day of reckoning has come for these nations--again for a handful like Brazil, Indonesia, Russia and Thailand that were particularly hard-hit by the events near the turn of the millennium. There's an unmistakeable sense of deja vu for developing countries. Like in the aftermath of the Asian financial crisis, commodity exporters are taking it on the chin as the world economy slows down while the US seemingly does better. The combination of a developing world slowdown and dollar strength was bad then and is ominous now. A surefire sign of distress is of the aforementioned developing countries drawing down foreign exchange reserves to defend their currencies from further depreciation (the opposite of the Swiss situation in which excessive strength is the problem):

The foreign currency reserves of Brazil, Russia and four other big emerging countries fell 6% in the second half of 2014 from the preceding six months. The fall came as the countries' monetary authorities attempted to defend their home currencies in the foreign exchange market.

The decrease was the second largest since the 17% plunge in the latter half of 2008, when the global financial crisis led to emerging nations' currencies being dumped. The values of those currencies have been spiraling downward due to plummeting crude oil prices and increased dollar buying now that the U.S. Federal Reserve appears poised to raise interest rates.

Yet while the drawdowns on foreign exchange reserves have been substantial, so are the reserves these countries accumulated during the years after the Asian financial crisis. They feared a rehash during troubled times, and it appears the rainy days they saved for are upon us:

The total foreign reserves of Russia and the so-called fragile five -- Brazil, India, Indonesia, South Africa and Turkey -- stood at $1.36 trillion as of the end of December, down $92.8 billion in six months. The decline in the latter half of 2008 was $218.1 billion.

Russia suffered the largest decline, with a decrease of $89.7 billion, or 18%. Turkey recorded a 5% decline; Brazil also logged a slight drop. The Turkish lira and the Russian ruble plunged to record lows against the dollar in December, while the Brazilian real hit its lowest point in roughly nine years. The South African rand dropped to a roughly six-year low, the Indonesian rupiah to a 16-year low and the Indian rupee to a one-year low.

It is unlikely, however, that these six countries will run out of foreign reserves anytime soon; they have expanded these reserves by roughly 200% in the past decade. The market largely expects these countries will not spark a currency crisis or go into default -- at least not for the time being. Thailand, Indonesia, South Korea and even Russia experienced currency and foreign reserve crises in the 1990s. Monetary authorities have apparently learned a lesson from that era.

It's time to hang tough, then. Judging from their leadership, I'm relatively more sanguine about the prospects of India and Indonesia, but you never know how these things pan out.

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National Debt That's 245% of GDP? No Worries, Japan

Relaaaaax; it's not as bad as it looks for Japan?

Economics Professor Masazumi Wakatabe at Waseda University was prompted to write commentary on Japan's fiscal situation by a recent FT article calculating Japan's national debt to be a world-leading 245% of GDP. In Greece, it's a puny 176% by comparison. 245%! Why haven't financial yellow journalists been proven right in predicting Japan will be crushed by hyperinflation and other laughable nonsense? As the good professor explains, the fiscal situation in Japan is not nearly as bad as it looks.

First, consider the usual explanations concerning how the assets held by the Japanese government significantly offset its paper liabilities:

The key to understand Japan’s fiscal situation is the net debt as opposed to gross debt. First, the Japanese government holds large amount of assets, therefore the net debt relative to GDP ratio goes down to 132 percent as of June 2014.

Second, the Bank of Japan holds a large amount of Japanese government bonds. “Since the central bank could, in principle, forever hold its current stock of JGBs, the government need not worry about how it is going to repay these bonds,” [Columbia Professor David] Weinstein wrote. Then the net debt relative to GDP ratio goes even further down to 80 percent as of June 2014.

There is some sleight of hand here that won't pass muster with international standards regarding national-level bookkeeping, of course, but thankfully he doesn't reiterate the old chestnut that most Japanese government bonds (JGBs) are held by Japanese since their exceedingly low yields make them unattractive to international investors. So, Japan is not really vulnerable to a crisis of confidence among foreign holders of its debt since, well, most debt is held at home.

But wait, there's more. Updated figures suggest the situation is note even as dire as the "adjusted" figures indicate:

The Ministry of Finance has been compiling the balance sheets of the government from 2003. According to the recent figure (in Japanese. Curiously, the English version is not updated since 2003), the Japanese government owes debt of 1,269.1 trillion yen, and owns assets of 822.2 trillion yen, therefore the net debt is 447 trillion yen at the end of March, 2013. The net debt relative to GDP ratio is about 90 percent, which is lower than the Weinstein estimate.

The statistics for 2014 fiscal year is not yet released, but assuming that the net debt has increased by 5 trillion yen from 2013 to 2014, the net debt would be 452 trillion yen. As of December 31, 2014, the BOJ holds JGBs worth 254 trillion yen. If we subtract this from the net debt, the net debt relative to GDP ratio becomes 41 percent.

However, even more caution should be exercised in "magicking" Japan's debt from 245% down to 41%. For, some of the assets identified are already set aside for servicing future obligations--chiefly pensions. That said, he is still more sanguine about Japan's fiscal situation than most:

Now some might argue that the assets which the Japanese government owns are earmarked, and thus not salable. This is true for funds reserved for the pension fund worth 130 trillion yen, but the Japanese government has 41 trillion yen of cash, and 272 trillion yen of securities. The government also owns real properties in good locations. They may not be sold, but could certainly be leased to the private developers. As the real estate market in Tokyo is picking up, a lease of government properties could generate a considerable amount of revenue to the government’s coffer.

I am not saying that fiscal consolidation is not necessary. But right now, Japan faces an output gap, a difference between potential and actual GDP, of 2.8 percent. Japan faces a shortage of demand. Against this background, the budget for the 2015 fiscal year is not expansionary enough. What the public should worry about is not the fiscal situation, but the dwindling economy.

Again, I am not so sure if Japan can spend its way to prosperity and much recommend opening the country up to significantly increased migration for both increasing the pool of working-age persons and generating consumer demand. To me that is the tonic for a dwindling economy that the Japanese remain so very reluctant to address but the most likely to work since almost everything else has already been tried to little effect.

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Counting Ways the Swiss Franc Shook the World

Some folks didn't know when to fold 'em, hurting FXCM.

Less than a month into 2015, we already have a candidate for its biggest economic story for the year. Catching nearly everyone off-guard, the Swiss National Bank (SNB) indicated on Thursday (15 January) that it would no longer push down the value of the Swiss franc against the euro. You see, since 6 September 2011, the SNB had kept the Swiss franc (CHF) at 1.20 to the common currency to maintain the competitiveness of Swiss exports--especially to the Eurozone where over half of them go. The trigger of this guarantee was the CHF brutally gaining against EUR [1, 2] as the European Central Bank (ECB) started emulating American-style easy money policies in trying to reflate the Eurozone from its moribund state.

By the end of Thursday, CHF had gained nearly 40% against the euro--kind of unbelievable, but it really did happen. We all know of the massive Swiss multinationals that have loudly complained about the SNB's action given the loss of competitiveness that will surely follow: ABB in construction, Nestle in food, Hoffman-LaRoche and Novartis in pharmaceuticals, etc. The beating Swiss exporters received on stock markets on Thursday and the uncertainty this action caused for banks that were caught "short" on Swiss francs the world over walloped any number of financial service concerns and dragged global equity indices down.

However, there is also a long list of victims of the SNB move that are somewhat less obvious. Nothing is for certain, and mistaking something temporary--albeit long-lasting--as permanent gives rise to all forms of financial distress when the self-inflicted delusion is revealed. In order of culpability, these include:

(1) Eastern Europeans who took out home loans denominated in CHF:

Eastern European currencies tumbled and banking stocks slumped after Switzerland’s move to allow its currency to appreciate stoked concern individuals will struggle to repay loans denominated in Swiss francs. Poland’s zloty weakened 15 percent to 4.1533 against the the Swiss currency by 5:56 p.m. in Warsaw, paring an earlier loss of as much as 28 percent. Hungary’s forint and the Romanian leu tumbled to records. Warsaw-listed Getin Noble Bank SA sank 16 percent, while Bank Millennium SA and PKO Bank Polski SA, the country’s biggest lender, slid at least 6.5 percent.

The Swiss National Bank’s unexpected decision to scrap its minimum exchange rate is threatening to spur a rise in bad debt as the move raises the cost of paying off loans in francs, including mortgages. Many Poles and Hungarians opted to borrow in francs in the run-up to the 2008 financial crisis because loan rates were lower than for local currencies. Their payments increased as the franc appreciated against the zloty, forint and leu in all but one of the past five years.

“Massive Swiss franc appreciation is extremely bad news for foreign-currency borrowers in central Europe,” Michal Dybula, an economist at BNP Paribas SA in Warsaw, said in an e-mailed note. “It will make servicing franc loans more expensive, reducing disposable income and hurting consumption. That’s bad news for growth and the banking sector as the non-performing ratio of Swiss franc mortgages is likely to increase.”

(2) One of the world's largest online foreign exchange brokers, FXCM:

Retail foreign exchange broker FXCM got a $300 million bailout on Friday after taking huge losses on the Swiss National Bank's (SNB) shock decision to drop its three-year-old peg of 1.20 Swiss francs per euro.

Leucadia National invested $300 million cash in FXCM in exchange for a $300 million senior secured term loan with a two-year term and a 10 percent coupon. If FXCM is sold Leucadia will get a portion of the proceeds. FXCM shares plunged more than 70 percent in afterhours trading Friday. The stock was halted for the entirety of the regular session.

To make a long story short,  FXCM had to cover margin calls for clients considerably in excess of their account equity, causing losses for the broker itself. In other words, it loaned money for clients to gamble against the Swiss franc with, and this magnified their losses when the CHF strengthened. Meanwhile, FXCM held the bag in compensating counterparties for losing bets its customers made against the Swiss franc.

(3) And perhaps the most obvious of them all, a large hedge fund that was reportedly shorting Swiss francs:

Marko Dimitrijevic, the hedge fund manager who survived at least five emerging market debt crises, is closing his largest hedge fund after losing virtually all its money this week when the Swiss National Bank unexpectedly let the franc trade freely against the euro, according to a person familiar with the firm.

Everest Capital’s Global Fund had about $830 million in assets as of the end of December, according to a client report. The Miami-based firm, which specializes in emerging markets, still manages seven funds with about $2.2 billion in assets. The global fund, the firm’s oldest, was betting the Swiss franc would decline, said the person, who asked not to be named because the information is private.

The stereotype most have of the Swiss is of rather staid people. Ever been to Geneva? Whoever thought that it would be the Swiss who would drop this kind of bombshell on the world economy so early in 2015? A happy new year it is not for any number of folks embroiled in forex shenanigans involving the Swiss franc.

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Strongman's Strongman: 30 Years of Cambodia's Hun Sen

He traded a walk-on part in the war for a [30-year] lead role in a [Cambodian] cage.

This year marks the thirtieth that Hun Sen has been the prime minister of Cambodia. He is the sixth-longest tenured world leader after, er, Robert Mugabe of Zimbabwe. There have been  (count 'em!) 33 that preceded him, but once he assumed office, he's held on no matter what. For what it's worth, he sought refuge in Vietnam at the height of the Khmer Rouge and subsequently returned to oust those murderous folks. The Khmer Rouge were undoubtedly brutal, killing at least 2 million of their own people in the four years they were in power. For helping oust the Khmer Rouge, all civilized people the world over owe a debt of gratitude to Hun Sen.* However, there remains a fairly huge asterisk on this claim since Hun Sen himself has not been a particularly savory leader in the aftermath.

To commemorate thirty years of Hun Sen in power, Human Rights Watch came out with a scathing indictment of his (mis)rule:

The 67-page report, “30 Years of Hun Sen: Violence, Repression, and Corruption in Cambodia,” chronicles Hun Sen’s career from being a Khmer Rouge commander in the 1970s to his present role as prime minister and head of the ruling Cambodian People’s Party (CPP). The report details the violence, repression, and corruption that have characterized his rule under successive governments since 1985.

Hun Sen has ruled through violence and fear. He has often described politics as a struggle to the death between him and all those who dare to defy him. For example, on June 18, 2005, he warned political opponents whom he accused of being “rebels” that “they should prepare coffins and say their wills to their wives.” This occurred shortly after he declared that Cambodia’s former king, Norodom Sihanouk, who abdicated to express his opposition to Hun Sen’s method of governing, would be better off dead.

In a speech on August 5, 2009, he mimicked the triggering of a gun while warning critics not to use the word “dictatorship” to describe his rule. On January 20, 2011, responding to the suggestion that he should be worried about the overthrow of a dictator in Tunisia at the time of the “Arab Spring,” Hun Sen lashed out: “I not only weaken the opposition, I’m going to make them dead ... and if anyone is strong enough to try to hold a demonstration, I will beat all those dogs and put them in a cage.”

So Hun Sen is not a cuddly guy; us Southeast Asians kind of figured that out early on in his tenure. I am not exactly contesting HRW's claims that he's done some fairly nasty things over the years. That said, there are extenuating circumstances. Would the same national political circumstances that gave risk to the Khmer Rouge become all lovey-dovey afterwards? Hun Sen's contention has always been that you need to be tough to survive as Cambodia's leader. Recently:

In a speech marking the ceremonial completion of the country's longest, 2,200-metre Japanese-funded bridge across the Mekong River yesterday, the 62-year-old Hun Sen defended his record, saying that only he was daring enough to tackle the Khmer Rouge and help bring peace to Cambodia.

"If Hun Sen hadn't been willing to enter the tigers' den, how could we have caught the tigers?" he said. He acknowledged some shortcomings, but pleaded for observers to see the good as well as the bad in his leadership.

It's a fair point way back when, although you have to question whether Cambodian  development has been hamstrung by having Hun Sen in power for so long. He's been adaptable to shifting political tides: allying with Vietnam to dislocate the Khmer Rouge but moving closer to China afterwards as the latter grew in power. His viciousness is reflected in the United Nations power-sharing agreement struck with Cambodia's royalty, which prompted him to dispose of Prince Ranariddh shortly thereafter. The aftermath wasn't pretty:

A U.N. report in August 1997 confirmed summary political executions of 41 opponents to Mr. Hun Sen, including Interior Ministry Secretary of State Ho Sok, who was killed inside his ministry. In a November 1997 BBC documentary, Mr. Hun Sen laughed off the damning U.N. findings. “There are probably no more than 50 people in Cambodia who have read the report. There are 11 million people in Cambodia. They don’t understand what the human rights report is about,” he said.

“What the U.N. says doesn’t bother me. The problem is my people and whether they support me.” The U.N.’s human rights office in Phnom Penh reported a further 16 political killings in the two months before the July 1998 national election, which the CPP won, legitimizing Mr. Hun Sen’s power and allowing him to return as Cambodia’s sole prime minister...Asked in 1998 what the U.N. had given Cambodia five years before, Mr. Hun Sen said “AIDS.”

The point about support from the international community being secondary to domestic support well taken. Ultimately, Hun Sen is the strongman's strongman--a canny political operator in Cambodia's literally murderous environment. There is a case to be made reminiscent of any number of Middle Eastern countries that have gotten rid of their longtime leaders: So you can get rid of strongmen with the tacit approval of the West, but will these countries be any better off afterwards? This is not always the case as any number of Middle Eastern countries have demonstrated.

How long would a soft-in-the-middle democracy lover last in Cambodia? I guess with Hun Sen still around, we will not really know the answer for quite some time for better or worse.

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How Cheap Oil Saved the Arctic From Drilling

Save us from those "saving" the Arctic from discontinued plans for oil and gas drilling there.

There has been much hot air--gas, if you will--expended in the past few years over the potential dangers of drilling for oil and gas near the Arctic circle. I myself am not fully convinced about the climate justice in first having Arctic oil reserves made available to human exploration by burning fossil fuels that have played a part is causing polar ice to melt, then obtaining more fuel to shrink the aforementioned polar ice anew. There's even been a high-profile campaign aimed at Lego (of all companies) to get Shell to stop exploring these areas.

The recent plunge in oil prices as massive production continues untrammeled is having interesting effects the world over--including the Arctic. As it turns out, northern climes where it was previously economic to explore and eventually drill way above $100/barrel are no longer so when you have predictions that we will soon have $40 oil at spot prices. So, environmentalists are rejoicing for now in the misfortune that has befallen the evil energy firms who endanger these ecologically sensitive areas with the possibility of oil leaks and so forth:

The Arctic -- spanning Russia, Norway, Greenland, the U.S. and Canada -- accounts for more than 20 percent of the world’s undiscovered oil and gas resources, including an estimated 134 billion barrels of crude and other liquids and 1,669 trillion cubic feet of natural gas, according to the U.S. Geological Survey. That’s almost as much oil as Iraq’s proved reserves at the end of 2013 and 50 percent more gas than Russia had booked, BP Plc (BP/)’s Statistical Review of World Energy shows.

Yet, explorers seeking a piece of the Arctic prize have been tripped up for years. After spending $6 billion searching for oil off Alaska over the past eight years, Royal Dutch Shell Plc (RDSA) in October asked for an extension of licenses as setbacks including a stranded oil rig and lawsuits risk delaying drilling further. Cairn Energy Plc (CNE) spent $1 billion exploring Greenland’s west coast in 2010 and 2011 without making commercial discoveries, and OAO Gazprom (OGZD) has shelved its Shtokman gas field in the Barents Sea indefinitely on cost challenges. 

The militants at Greenpeace, for one, are quite pleased with this turn of events:

Environmental group Greenpeace has occupied oil rigs from Norway to Russia, arguing a spill would cause irreparable damage to ecosystems that sustain animals from polar bears to birds and fish. The possibility that economically marginal fields such as Arctic deposits might be stranded as governments adopt stricter climate policies has also shaken some investors.

The Brent crude benchmark fell 1.9 percent to $45.70 a barrel, deepening losses from the lowest closing price since March 2009. Statoil declined 1.4 percent to 127.3 kroner at 9:50 a.m. in Oslo, extending losses to 35 percent since a June high. 

As oil companies cut spending to cope with falling prices, already costly and risky Arctic projects will fall down the priority list even if crude is expected to recover by the time production starts, Henderson said. Global capital expenditure will probably drop by more than 20 percent this year, according to a Jan. 9 note from Sanford C. Bernstein. Like Statoil, Dong Energy A/S and GDF Suez have returned Greenland licenses because exploration has become too expensive, Danish newspaper Politiken reported.

Until oil prices climb again and these firms begin reconsidering extraction in these marginal regions, I'd save my attention for...other things.

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Occupy Hong Kong Meets Occupy Taiwanese Parliament

Do we need another hero? Sticking it to the mainland sympathizers.

There is a saying that "the market" takes the brunt of the blame in capitalist countries when economic times are sour, while "the state" does in communist countries. In East Asia, there is another, rather more sinister offshoot at work--blame the PRC. We received a taste of this with the backlash against Hong Kong-based tycoons being perceived as the key mediators in the relation between that special administrative region and the mainland some weeks back. Well, guess what: largely the same things are happening in Taiwan at the moment as President Ying-Jeou is perceived as being too close to the PRC. Just as disaffected youths closed down Hong Kong's main thoroughfares for months on end, so too is there a youth backlash in Taiwan:

A 26-year-old graduate student is widely considered the spokesman for Taiwan's under-30 set, a generation struggling amid poor job prospects, stagnant wages and rising economic inequality. Lin Fei-fan is also one of the island's brightest political stars, thanks to his strong anti-China stance. He may well go on to influence cross-strait relations and even the democratic movement in Hong Kong, though he has not said whether he plans to run for public office..

Nicknamed God Fan by his supporters, Lin made his name as a frontman of the Sunflower Movement, a mass anti-Beijing rally that started in late March and saw a group of students occupy the island's legislative chamber for three weeks. The students were protesting the Nationalist government's efforts to push through a services trade deal with China.

It's another sign of disaffection with cottoning up to the mainland and supposedly accepting a subordinate political position relative to it as a result:

The Sunflower movement and the election results reflect growing public unease with Ma's direction. While the president has claimed his mainland initiatives are necessary for Taiwan's economic survival, many now think the 21 pacts he has signed with Beijing have benefited only big conglomerates, while hurting small businesses and undermining the island's de facto sovereignty.

The widespread fear of China gaining sway in Taiwan largely stems from Beijing's refusal to abandon its claim on the island, even though it has been 65 years since the two sides split in a civil war.

The parallels to Occupy Hong Kong are unavoidable since, well, both sides coordinate with each other to some extent:

"If China doesn't abandon its goal to have complete control of Taiwan and Hong Kong," Lin said, "it will only lead to more conflicts. Taiwan's civil society has gradually formed a consensus that we can no longer tolerate China's approach." Lin added that activists in Taiwan and Hong Kong keep in touch and learn from each other's experiences.

As with Hong Kong, I would understand their cause better if they took some time to distinguish between PRC-inflicted difficulties and those largely the creation of the Taiwanese government. As it stands, though, I think the PRC has become something of an all-purpose bogeyman: "whatever ails East Asian economies, the PRC is probably behind it" does not seem to be an especially sophisticated argument. Like many alter-globalization groups, this one appears diffuse and unfocused.

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Boom's End? Saudis Sock It to North Dakota

Not everywhere in North Dakota adjacent to the Bakken Formation can be a boomtown.

Only a few weeks ago--it feels like eternities now--we talked about how the Saudi Arabian government convinced other OPEC nations not to lower their cartel's output in response to falling oil prices. Rather than take their collective foot off the pedal of production, it signaled that it would be steady going as far as output was concerned. The result has been a further fall in oil prices. In the space of less than half a year, they are down over 50%.

Although it's still early going, some of Saudi Arabia's intended targets--US shale produeers--are feeling the pinch. In particular, producers in marginal sites are in trouble given their higher operating expenses in extracting oil and gas. That is, not enough is extracted there to make up for what it costs to perform hydraulic fracturing at current market prices. Anecdotally, the number of oil rigs operating in these sites in North Dakota--second after Texas in terms of shale production--is noticeably declining:

Only five oil rigs were drilling in Divide County this week, down from 12 last August, according to state data. While those only account for a handful of the more than 162 rigs still drilling in North Dakota, the drop has been much steeper than elsewhere in the state and could signal trouble across the No. 2 U.S. oil producer behind Texas if prices continue to slide.

A "Coming Soon" sign still marks the spot on a patch of fallow farmland just outside of Crosby, the county seat, where a 200-person "man camp" to house oil workers was set to be built. Late last fall, Timberline Construction Group, an Alabama-based contractor, put the project on hold after an oil company pulled out of a housing contract. In downtown Crosby, restaurants and bars report fewer rig workers, and foot traffic has noticeably slowed. Two businesses have been put up for sale.

To be sure, there are more profitable sites that can probably wait out the current decline in oil prices. That said, those operating outside of these sweet spots are in trouble since they only become economic to extract at rather higher prices. Consider the aforementioned Divide Country:

That's partly because the state's Bakken shale formation is geologically immature throughout most of Divide County, only 40 feet in width here versus 60 feet in richer counties further south, according to state records. "Divide County is a little bit on the edge," said Julie LeFever of the North Dakota Geological Survey. "Each part of the Bakken has its own little idiosyncrasies."

The four counties immediately south - Williams, McKenzie, Dunn and Mountrail - now produce 90 percent of the state's oil, and Divide was mostly left for smaller companies willing to take the risk when oil prices were riding near $100 a barrel. At under $50 a barrel, the economics change dramatically. The breakeven oil price, the price level needed to drill a new well, for Divide County is $85 a barrel, according to the state; for Williams, it's just $37. The difference is due to geology, among other factors.

To paraphrase another saying, is geology destiny? If it's mostly smaller, less-resourced oil concerns operating in these marginal sites, then they will be first to go. Not only do they have fewer financial resources to weather a period of sustained power prices as smaller companies, but they also have higher costs of operation in extraction. That said, it will take more to discomfort those with more productive sites, so the Saudis will have to wait and see if that comes to pass. The first wave of smaller companies falling by the wayside may not have much effect on oil prices, but if they can get to the ones operating at the heart of Bakken, who knows if the Saudi strategy can actually work?

1/17 UPDATE: The EIA provides further numerical support for the title's contention: from a recent peak of 1,609 rigs drilling for oil in October 2014 in the US, they are now down to 1,366. As for Bakken in North Dakota and Eagle Ford in Texas...

The total number of oil rigs working in the Williston basin, which includes the Bakken shale of North Dakota, has dropped by 34, or 17 per cent, since October, while the number in the Eagle Ford shale of south Texas has dropped by 32, or 16 per cent. The number in the Permian basin of west Texas is down 81 rigs, or 14 per cent.

It's game on: Are you tough enough to withstand the House of Saud, Yanks?

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AirAsia & Dealing with Disaster's Aftermath

Partly due to appropriate post-crisis response, AirAsia stock has retained much value post-December 28 (Sunday).

It behooves me that attention is seldom paid to businesses operating in Southeast Asia unless extraordinary things happen. Such was the case with Malaysia Airlines prior to the two tragic incidents that occurred last year [1, 2], and so it is now with budget carrier AirAsia. In terms of profitability, both have had differing trajectories as Malaysia Airlines had to deal with significant "legacy" costs whereas AirAsia has been relatively free from those in running a young, dynamic operation. Prior to recent incidents, both also had sterling safety records. Recall, too, that both were momentarily connected in 2011 until Malaysia Airlines' vested interests vetoed the idea of a slimmer, trimmer Malaysia Airlines that emulated AirAsia's business model.

With the crash of an AirAsia jet, we are unfortunately back to circumstances everyone would much rather avoid. Nobody likes these things to happen, but they do. An interesting if unusual topic of interest in this regard concerns airline responses to air disasters. How should executive leadership respond to such events? Also, how is firm performance affected by these responses in the aftermath? The Nikkei Asian Review has an article that sheds some light on the matter. Given the charismatic leadership of Tony Fernandes, it appears that his firm is responding better than Malaysia Airlines did in terms of promptly disclosing available information and empathizing with those affected. Taking responsibility has helped:

Fernandes has won praise and support for his proactive communication with relatives of the crash victims via Twitter soon after the jet was confirmed missing in the early morning of Dec. 28. He asked his employees to remain strong, consoled the families of the crew and passengers, and alerted the media to upcoming company statements. Fernandes also took care to reflect the solemnity of the incident, changing the airline's bright red logo to a somber gray online.

 "I, as your group CEO, will be there through these hard times," Fernandes wrote on Dec. 28. He flew to Surabaya from his base in Kuala Lumpur within hours after the flight vanished from Indonesian air traffic control. There he met the families of the passengers and crew, and later flew to Jakarta to meet with authorities overseeing the rescue operation.

 AirAsia's response stands in sharp contrast to that of Malaysia Airlines, the country's flag carrier, which lost two of its jets last year. In an incident on March 8, it took the airline several days to publish an accurate version of the passenger list on its Flight MH370, which vanished with with 239 people on board and is still missing.

Not being aloof helps, as well as interacting in a timely manner with various stakeholders:

A newcomer to the airline business when he started, Fernandes said the secret of AirAsia success has been his ability to get close to his staff. "Thirteen years ago 'till now, I am still the same, willing to meet the staff and hear their problems out," he told The Nikkei Asian Review days before the crash.

When one of the bodies was identified as a crew member, Fernandes wrote Jan. 2 that he would personally escort the body to its final resting place. "I'm arriving in Surabaya to take Nisa home to Palembang," he said. Many of Fernandes' nearly 1 million followers on Twitter have responded with praise and admiration.

To be sure, the facts are not yet fully known about the causes of this accident. That said, the performance of AirAsia stock seems to reflect the proprietor's conviction that AirAsia will remain a viable concern. Contrast this situation with Malaysia Airlines that had to be nationalized yet again in the aftermath of its 2014 accidents.

The narrative that seems to be emerging is this one: AirAsia was in relatively good shape financially prior to its accident, whereas Malaysia Airlines was not. In the face of adversity, the former is better able to deal with adversities that may arise in the form of paying indemnities to passengers and so forth. That AirAsia's public relations has handled its crisis better-=likely in response to what happened to its fellow Malaysian carrier--bodes well for its longer-term prospects. Successfully dealing with adversity, after all, distinguishes those who thrive from the also-rans.

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Sands' Sheldon Anderson 1, Online Gambling Stateside 0

The US nanny state and a casino mogul combine to frustrate online gambling Stateside.

For a long time, I have covered attempts to regulate Internet gaming Stateside and its effects on offshore service providers like the microstate of Antigua & Barbuda. It's a long story, but ancient, pre-Internet laws prohibiting interstate gambling have been invoked by those concerned about "morals" to not only stop foreign gaming sites but also those operating across borders of US states. Perhaps unsurprisingly, operators of bricks-and-mortar casinos have also lobbied against further liberalization of gaming laws to allow interstate online gaming. Step forward Sheldon Anderson of the Sands. The end result is that we are back to a kind of Stone Age situation in which people are not allowed to do as they please with their own money over dubious "security" concerns--unless you physically visit the Sands, of course:

Efforts to allow internet gambling across the US have stalled, after a campaign backed by casino owners pushed back against industry efforts to allow more widespread wagering on laptops and smartphones. New Jersey, Delaware and Nevada became the first states to liberalise online betting in 2013, prompting industry executives to predict that longstanding prohibitions on the practice would soon crumble as others followed their example. 

How bad is it? Those operating the aforementioned real-life casinos have poured much effort into stopping the online juggernaut to apparent success. Earlier predictions that in-state gambling operations would result in considerable revenues have not materialized as a result:

Instead, 12 months later, revenues from the three states have failed to come close to lofty expectations, and quarrelling within the industry has shelved hopes for further expansion...[C]asino mogul Sheldon Adelson used his presence on the AGA [American Gaming Association] board to persuade the group to withdraw its support for online betting. Mr Adelson, the billionaire chairman of Las Vegas Sands, pledged to spend "whatever it takes" to stop internet gaming.

The reversal dismayed other AGA members, such as Caesars and MGM Resorts, which had been vigorously pushing for a federal framework for internet gambling. Mr Adelson and his allies then helped derail attempts to legalise online play in California and Pennsylvania, although they were unsuccessful in pushing for a provision in a Congressional spending bill to restore a blanket federal ban.

The 1961 Wire Act prohibited wagering via electronic transmissions, but in late 2011 the Justice Department reversed its interpretation of the law to allow individual states to establish their own internet betting schemes.

To be sure, part of the reason why online gaming has not really taken off is residual concern from financial services providers about the unsettled legal situation:

New Jersey, by far the largest market of the three to do so in 2013, registered just $111.8m in revenues over its first 12 months — well shy of the $1bn projections offered by analysts and state officials at the outset. Some attribute the poor performance to a miscalculation of consumer demand and technical glitches, while others point out that banks have been reluctant to clear online gambling transactions — a problem that has caused similar headaches for the emerging legal marijuana industry.

 The 2006 Unlawful Internet Gambling Enforcement Act, which the Justice Department used to go after offshore poker operators in 2011, has been an important obstacle. "Under [UIGEA], failing to block restricted transactions could result in liability. But there is no liability for over-blocking or refusing to honour Internet gambling-related transactions. This was a carefully considered provision designed to make it much more difficult for internet casinos to operate," said Michael Borden, an attorney with Sidley Austin and former congressional aide who helped draft the law.

In effect, many financial services providers have decided to err on the side of caution in overzealously restricting the use of depositor accounts for gambling purposes.  Absent a new law to replace the 1961 Wire Act (and UIGEA) by extension, we will still be stuck in this Flintstones-era situation.

Let my people do what they with their money. It's theirs to gamble with. 

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Polanyi & British Football's Great Transformation

Karl Polanyi's The Great Transformation is, by now, probably regarded as one of the main texts on the emergence of capitalist transformation alongside Adam Smith's The Wealth of Nations and Karl Marx's Capital. To explain Polanyi's thesis in a nutshell, the emergence of the self-regulating market (supply and demand work conditions themselves out absent non-market intervention) has disembedded the economy from society. Whereas consumers once knew producers and their relations were embedded in society, ever-lengthening "supply chains" have alienated consumers from producers and vice-versa. However, it is not a simple story of Marxist alienation; Polanyi sees this phenomena undergoing a double movement: eventually people tire of the endless commodification of their existence and band together to re-embed the economy in society during a backlash. Hence the so-called "double movement."

David Webber of Warwick University offers an interesting application of Polanyi's "double movement" to English football. As more and more foreigners with next to no vested community interests have bought into the English game--Russian oligarchs, Middle Eastern monarchs, American LBO-ers and so forth--teams have become little more than holding companies of others' commercial interests. That is, there is no longer a community spirit motivating the fans. Unlike in other European countries like Germany where supporters own the club, these teams have become disembedded from the communities they are named after:

Earlier I described how the first phase of Polanyi’s ‘double-movement’ might be used to understand the ‘disembedding’ of football from its traditional communities. Polanyi however, didn't stop here. In the second movement of his ‘double-movement’ thesis, Polanyi argued that wherever this market activity threatened social life, there would be an instinctive reaction against it by society. In the broader movement ‘against modern football’, we have seen precisely this occur. Fans, fed up of being politically and economically excluded from their own clubs, have set up independent supporter groups and supporter unions, such as the Spirit of Shankly. Some supporters, as those at Portsmouth and Wrexham, have gone further still. They have rescued their clubs from the financial mess created by previous owners by taking control themselves.

These movements are an important reminder that clubs are not simply businesses, but are in fact, socially always embedded. Local communities, families and/or friendship groups all revolve around a shared love of the game and affinity towards a particular club. Given that they invoke and reinforce strong bonds of identity and affection, these ties cannot and perhaps should not be easily commodified. It is hardly surprising then that the financialisation of football has been politicised and met with such resistance.

So, how will English clubs take ownership back from Putin loyalists, Arab sheiks and American debt addicts? Or, in other words, how does the second phase of the double movement take place? Here we must speculate a bit more:

How England’s clubs might be socially re-embedded leads us back, rather appropriately, to Polanyi’s earlier observation concerning the formation of market structures. We suggested then that English football’s ‘great transformation’ was not inevitable, but rather a carefully constructed, deeply political response to the crisis experienced in the game, most notably in the aftermath of the Hillsborough disaster [where nearly a hundred fans were crushed to death in an FA Cup match]. The political and legal framework mapped out in the early 1990s incentivised clubs to pursue a more market-minded strategy; one which has created the ‘modern football’ that fans are disillusioned with today.

Here, however, Polanyi’s work provides a note of optimism for those keen to deliver football back into the hands of its supporters. If ‘modern football’ required a distinct political structure in order to transform English football then this would suggest that if there was the political and social will, then the space exists to embrace an alternative, more socially-embedded game. Of course, these small movements face several challenges, not least between competing political and economic interests. Nevertheless, there is at least the possibility of political reform and social change within the game.

The thing is, I suspect that more than a few of us who don't regularly attend games may consider the Premier League era as a welcome one since we don't have to pay for exorbitant tickets. Plus, the worst of English football excesses--fan hooliganism especially--have been reduced. You can certainly argue that we have to take the good with the bad: the price for the civilizing effects of commerce noted by Adam Smith and Albert Hirschman have to be balanced with the Disneyfication of the game together with higher costs of attendance.

Unless the Premier League adopts a German model in the future--which I doubt--we have what we have. 

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Political Barriers for Game Console Makers in China

A game console bonanza in China? Not yet so far.

The irony for video game console makers in China is that while some components are made there, the likes of Microsoft, Nintendo and Sony have not been able to sell console makers in the mainland--at least until January of 2014 when the ban on selling consoles was lifted. Starting in 2000, there had been a ban due to supposed concerns about video game consoles engendering moral decay from pervasive violence. No Witcher 3 for you. buddy. However, console makers are not home-free yet by a long shot: There being no such thing as a free lunch, they have to establish operations in China's newfangled Shanghai SEZ and obtain local partners besides if they wish to sell these things in the PRC. From the Nikkei Asian Review:

The ban, which was put in place in 2000, was lifted in January for companies that build operational bases in the China (Shanghai) Pilot Free Trade Zone. Foreign console makers also have to partner with Chinese companies. To meet this requirement, Sony in May agreed to set up joint ventures with Shanghai Oriental Pearl Culture Development, a government-affiliated media company.

What are the barriers to entry? Let us count the ways. First off, note that consoles are not totally unavailable since there has been an active grey market for these devices:

China’s ban didn’t totally eliminate consoles there — a grey market of smuggled and home-grown consoles has long existed there. But analysts say the rule caused China’s gaming market to be dominated by PC and mobile games. That means Sony and Microsoft now have to convince Chinese gamers they should buy a console, too.

Why, then, should Chinese consumers buy consoles when there are PC and smart device games aplenty? Note, too, that the censors will have a crack at approving titles as well--not something they necessarily do with PC or smartphone games. Speaking of which, PRC regulators are (surprise!) much more willing to cut local developers slack, hence the drive to obtain local partners' existing content which can be ported immediately without passing through the electro-nannies again:

But while China is letting foreign consoles through the front door, whether or not they can bring along Call of Duty or Titanfall is another question. Each game sold in the country has to win the hard-to-earn approval of China’s Ministry of Culture, which prohibits everything from blood to touchy political topics...

The key for Sony and Microsoft, analysts say, is for them to build partnerships with Chinese game makers, who enjoy pre-existing relationships with regulators and whose games have already passed the lengthy approval process. For now, Sony and Microsoft can entice Chinese developers to port their pre-approved games to the Xbox and PlayStation. If consoles take off with Chinese gamers, local developers are likely to start making dedicated games for them.

With an entrenched based on PC and smartphone users, the Johnny-come-lately console makers don't have it easy. For instance, Microsoft Xbox One sales have been limited thus far:

Microsoft has not done nearly as well. In China, only around 100,000 Xbox Ones have been sold in the three months or so that the console has been in stores. The low number comes despite spirited promotions. Working with the Lenovo Group and Chinese consumer electronics retailers, Microsoft has set up 4,000 locations in 37 cities where consumers can try their hand at console gaming.

Microsoft is also promoting the Xbox as an educational tool. In late November, it launched an online English language course for 2- through 8-year-olds. Yusuf Mehdi, a Microsoft corporate vice president, stresses the Xbox's ability to play movies and music, and to be used for educational and health care purposes.

While it's great to portray game consoles as multi-purpose devices, don't smartphones, tables and PCs do those things better already? Like I said, it's going to be an uphill battle given commercial challenges on top of sundry regulatory ones imposed by the Chinese government.

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Star Wars: USA vs Russia Aboard the ISS

Geopolitics (astropolitics?) 400 km above Earth.

Space, the final frontier. These are the very last few voyages of American astronauts to the International Space Station (ISS)[sic]. As Russia and the United States bash each other in every field of international endeavor, it was perhaps inevitable that cooperation in manned space flights would be another victim. Before I get to that, however, some background on what's coming up in 2015. The most recent issue of TIME features NASA's latest experiment in how living in space for an extended period causes changes human physiology. To accomplish this experiment, they are sending astronaut Scott Kelly to stay aboard ISS for one year beginning in March, while his identical twin brother (and erstwhile astronaut) Mark Kelly will serve as the "control" specimen. What is interesting in this day and age of mutual US/Russian distrust is that Russian cosmonaut--this term has been used since the Soviet era and has stuck ever since--Mikhail Korienko will be assisting in the experiment:

But most of all, Mark, 50, knows Scott, 50—which is how it is with brothers, especially when they’re identical twins, born factory-loaded with the exact same genetic operating system. The brothers’ connection will be more important than ever beginning in March, when Scott takes off for a one-year stay aboard the space station, setting a single-mission record for a U.S. astronaut.

Scott will be partnered in his marathon mission with Russian cosmonaut Mikhail Kornienko. They, in turn, will be joined by a rotating cast of 13 other crew members, all of whom will be aboard for anywhere from 10 days to six months, conducting experiments and reconfiguring various station modules for the arrival of privately built crew vehicles, which could come early as 2017...

Here, the science must yield a bit to the wild card of human emotion, and even a veteran like Scott may have trouble wrapping his mind around the scope of the mission he’s about to undertake. His flight begins on March 28, but he has to leave the U.S. on Feb. 16, since he will take off from the Russians’ Baikonur launch complex. 

OK, there are two striking things in the above excerpt. First, that the Russians are still willing to help out shows that cosmonauts and astronauts share a camaraderie their earthbound equivalents do not. From space, we are reminded of how fragile our shared planet is, etc. Second, note how Scott Kelly needs to head to Russia to reach ISS. This part is easy to explain. With the discontinuation of the space shuttle program in 2011, the NASA has relied on Russia to get its astronauts to the ISS. (Incidentally, Mark Kelly was aboard the last space shuttle flight.) In another tit-for-tat action, Russia has indicated that it will no longer permit American astronauts to reach the station in 2020:

Russia, for its part, does not have the economic clout to play tit-for-tat with the United States on economic sanctions, but it has moved to hurt the United States’ space program by denying the United States access to the International Space Station (ISS) beyond 2020.

The ISS is the single most expensive structure constructed by humanity, at a cost of around $150 billion. The United States’ National Aeronautics and Space Administration (NASA) footed a plurality of the cost to construct the ISS, contributing around $58.7 billion plus the costs of the 36 space shuttle flights that were required to construct the installation. Russia footed $12 billion of the ISS’s budget. Despite the United States’ contributions to the ISS, Russia is able to bar the United States from accessing the station by denying NASA access to Russian rocket engines, which are used to transport goods and personnel into space and back. In particular, the only way to reach the station right now is Russia’s Soyuz spacecraft. After discontinuing its own space shuttle program, NASA has no immediate way of reaching the ISS without years of research and development of a new space-travel platform.

Hence the added attention given to NASA programs already in the pipeline at the USS like the experiment with identical twins. Needless to say, the arrangement with Russia has become increasingly uncomfortable in recent months:

Since NASA retired its space shuttles in 2011, it has been paying the Russian government about $70 million a seat to transport U.S. astronauts to the space station. That arrangement, which was always intended to be temporary, has become strained in recent months amid tensions between Russia and the West over the situation in Ukraine and Crimea.

Hence NASA has contracted Boeing and Elon Musk's Space X to make manned flights to ISS. Mind you, Space X already makes unmanned cargo deliveries to Space X, so sending astronauts appears to be an incremental activity. What is new here is that manned space flight will be contracted out to a private provider for the first time in US history. If things go according to plan, this should be accomplished by 2017--two years from now:

NASA plans to choose Boeing and SpaceX for multibillion-dollar contracts to lift astronauts to the International Space Station, NASA announced Tuesday. NASA expects to certify the capsules in 2017. The $6.8 billion contract includes two to six missions to the space station. NASA has paid Russia to ferry astronauts to the space station since retiring the final space shuttle in 2011. SpaceX and Orbital Sciences Corp. have already started carrying cargo to the station.

Interesting stuff-someone should write an extended analysis of it for Space Policy.

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The Enviro-Pope: "Sin" of Climate Change?

Having "greened" the Vatican, the Pope seeks to do the same the world over.

The land is mine and you are but aliens and my tenants. Throughout the country that you hold as a possession, you must provide for the redemption of the land - Lev. 25:23-24. For all its faults, there has never been much doubt that the Roman Catholic Church has been solidly in the environmentalist camp. After commencing on the installation of a massive solar panel in 2008 pictured above, the Vatican has solidified its (quasi-)national position as a leader in green energy by having the most solar power installed per capita.

The solar panel installation at the Vatican was initiated by Pope Francis' predecessor, Pope Benedict XVI. Now, however, the former is seeking to move past the immediate confines of the Vatican in bringing the environmental message to the faithful. Around July 2014, there were rumblings about how he was preparing an encyclical--typically a letter from the Pope to all the bishops--concerning environmental matters. Hence some consultations he held with them. For instance, Fr. Michael Anthony of the Franciscan order previewed this "green" encyclical:

The Pope himself brought up the issue of the environment. And he talked about his deep concern that we need, the Church needs, to find the way to respond, using the best of science. But also using the best of goodwill of all of humanity, to bring together a consensus on trying to respond to the crisis, the ecological crisis...

Keep in mind that the Pope, the Church, in October [2014], will have a Synod on family life. There will be a pre-Synod and then the Synod. So the Pope is gonna be very busy preparing for that Synod. So, some time after October, maybe November. He might wait until the beginning of the new year.

A few days ago, we received further news that these plans are on track. After visiting the Philippines later this month--especially emblematic of climate change concerns given the wake of supertyphoon Haiyan--the environmental encyclical is due out in March. Already there is talk of a new schism: Whereas the George W. Bush-esque evangelicals Stateside supported the Vatican's conservative stance on social issues, their climate change-denying ways are likely to come into open conflict:

Pope Francis is due to publish an encyclical he feels is so important it will be printed and distributed to parishioners in their pews. Pope Francis plans to publish his long awaited encyclical on the environment and he plans to tackle the issue of global warming head on...

This March, following a visit to the Philippines, Pope Francis will publish an encyclical on the environment that insiders say will tackle the issue of global warming head on. Pope Francis is hoping to have some impact when world leaders meet to discuss climate change in Paris next year. The encyclical will have one definite impact in the United States - it will chagrin conservatives in the U.S. who generally believe that global warming is a hoax.

There is a tendency to interpret the Vatican in terms of largely Amerocentric labels of conservative or liberal, Republican or Democrat, but we are reminded that these labels matter less in a less parochial, more global context:

Pope Francis, and the Church itself, defy political labels. The Church is far higher than any political persuasion and is concerned with Truth, not political preferences. The publication will be a reminder to American political conservatives that Pope Francis defies all attempt to label him as one thing or another. He is neither conservative, nor liberal, but he is Catholic. The coming encyclical is informed by the Vatican's Pontifical Academy of Sciences, the world's single-longest running scientific mission. The institution has already affirmed that global warming is real and a threat to people around the world, especially in developing nations. 

There is also much to be said about combining findings from science with guidance on the appropriate responses of the faithful to climate change:

It is easier to simply consign the issue to the dustbin of "myth" and stop thinking about it...However, finding the moral balance we need to strike between long and short term gains, between the dignity of individuals and the rights of others to generate a living through their labor, isn't a simple task. This is why the direction of Pope Francis and the Church, guided by the Holy Spirit, will be so welcome by most of the world. 

Note that in the title I have put "sin" in quotation marks since the wording of the encyclical on, yes, man-made climate change is yet uncertain. As a preview, possible climate change discussions would involve whether anthopogenic climate change constitutes a sin of omission (neglect) or the rather worse sin of commission. In turn, this and other distinctions hinge of how Biblical and other relevant texts place importance on environmental stewardship.

Say what you will about the Roman Catholic Church, but it undoubtedly takes the lead among religious authorities on this key topic. Meanwhile, watch this space come March as we await the forthcoming encyclical: videmus, speramus.

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