Author: Scott Buchanan

Musk, Twitter, and Poison Pills

Scott Buchanan1 Comment

It has been all over the financial news that Elon Musk made an offer last week to buy out Twitter for $54.20 per share, which is well above its recent stock price. And also, that the board quickly stiff-armed Musk by adopting a “poison pill” provision. What are poison pills, are they a good thing, and how does this particular one work?

Major decisions for a corporation are made by its board of directors. In theory, they are supposed to direct operations for the benefit of the company’s shareholders, who are considered the actual owners of the corporation. The members of the board are elected by the shareholders in annual meetings.

In practice, the board largely does what it wants, and has an outsized influence on who gets elected. The board sets the agenda of the annual meetings, and proposes successor directors. In theory, shareholders can propose resolutions and alternative board candidates at an annual meeting, but it usually takes a determined effort by some activist shareholder group to actually push through some measure that is not approved by the existing board. The outside board members are often executives of other companies, and so are naturally attuned to the interests of the managerial class.  Thus, the members of this Old Boys (and Girls) Club tend to vote each other generous pay:  board members are typically paid very handsomely for what is often a fairly undemanding, part-time job.

Big corporate mergers and takeovers became a thing in the 1980’s. Some outside investor would make an offer to buy up company shares for more than the current market price. Often,  management would resist this offer, since it might entail them losing their cushy jobs. The delicate matter for management in such cases was to convince shareholders that rejecting the buyout offer was in their best long-term interest.

As in so many matters, “where you stand depends on where you sit.” Management would argue that “short-termism” is bad for the company and for the nation as a whole; the “corporate raiders” would just fire people, break up the company, and sell off the pieces, and generally create misery. The outside investors would reply that their new management would “unlock value” better than the current management was doing, by making operations more efficient and competitive and innovative.

A variety of measures might be implemented by the board to make it less attractive or less feasible for a change in control. The terms of the board of directors might be staggered, so that it would be impossible for the existing board to be totally changed out in less than say 3 years, even if someone controlled 100% of the shares. A company I was associated with in the 1990’s implemented a policy that provided for generous severance packages for upper employees in the event of change of control. (Again, management looking out for themselves).

The term “poison pill” typically refers to some measure that  targets share prices, in a way to discourage a hostile takeover. The most common form is the “flip-in” approach: 

A flip-in poison pill strategy involves allowing the shareholders, except for the acquirer, to purchase additional shares at a discount. Though purchasing additional shares provides shareholders with instantaneous profits, the practice dilutes the value of the limited number of shares already purchased by the acquiring company. This right to purchase is given to the shareholders before the takeover is finalized and is often triggered when the acquirer amasses a certain threshold percentage of shares of the target company.

This is what the Twitter board has pulled on Musk. If he acquires more than 15% of Twitter shares without board approval, the company will allow any shareholder (except Musk) to purchase additional shares at a 50% discount. Yes, this dilution would tend to lower the value of the shares, but if a lot of shareholders bought into this offer, his share of control would shrink. If he tried to buy yet more shares to get back to more than 15% ownership, the company would issue yet more discounted shares to everyone except him.

Is the Twitter board acting in their own interests, or the interests of the shareholders? Investment adviser Larry Black noted, “Let me point out something obvious: If Elon Musk takes Twitter private, the Twitter board members don’t have jobs any more, which pays them $250K-$300K per year for what is a nice part-time job. That could explain a lot.”

Musk hinted at a “Plan B”, and tweeted provocatively, “Love Me Tender”. He might be considering trying to bypass the board altogether and make a “tender offer” to the shareholders at large to sell their shares to him, at some attractive price. Typical conditions for such an offer would be that he only has to make good on his purchase offer if some large plurality of the shareholders take him up on it. It turns out that in practice this approach can be messy and complicated and delayed, probably not something the fast-moving Musk might have patience with. Also, even if he captured 100% of the shares, he could not replace all the existing board members for something like three years, so they could remain sitting there,  making anti-Musk decisions all along.

Musk’s offer has now put Twitter “in play” as a takeover target. You know that lots of wealthy people and entities are consulting their investment bankers about becoming a white (or black) knight here. Anyway, it makes for great theater. Popcorn, anyone?

The Congress That Berated Oil Companies for Producing Oil Is Now Berating Them for Not Producing Oil

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Oil production is a difficult, risky business even under favorable regulatory regimes.  For instance, here is a chart of cumulative bankruptcy filings of exploration and production (E&P) companies for 2015-2021:

A few companies go bust every year, but there are some years like 2015-2016 and 2019-2020 when a lot of companies go bust. That happens when the oil industry collectively has overproduced and driven the price of oil below the effective cost of production. Even the mighty ExxonMobil ran deep in the red in 2020, losing an eye-watering 22.4 billion dollars. With all that in mind, shareholders since 2020 have been pressuring companies to show “financial discipline”, which means “drill less”.

Beyond these basic business realities, there is a whole new set of pressures to inhibit petroleum production. Environmental activists have pushed banks to withhold funding from petroleum companies, to strangle further oil production. It was big news in 2020 when activists, alarmed by ExxonMobil’s plans to actually (gasp) increase its oil production, successfully elected several alternative members to the board of directors with the specific goal of curtailing further drilling.

There have been attacks on the oil industry on the political front, as well. Joe Biden ran on a platform of banning drilling on public lands, and one item he checked off his to-do list on his first day in office was to issue an executive order killing a pipeline that would have facilitated imports of oil from the abundant reserves in Canada. One of his nominees for a top financial regulatory post remarked regarding oil producers that “we want them to go bankrupt if we want to tackle climate change”. All these are the sorts of things that make execs less willing to commit capital for expensive drilling programs that may take years to pay back. (The counter-claim by the administration that the U.S. oil industry is just sitting on thousands of unused oil leases is a red herring).

There is only a finite amount of oil in the ground, so it makes sense to move with all deliberate speed toward renewable and nuclear energy (which emits little or no CO2). However, our European friends who have installed lots of solar panels and windmills have discovered  that the sun does not shine at night (!) and the wind does not always blow strongly (!!) , and so during their energy transition they need to maintain an adequate supply of fossil fuel power in order to keep the lights on. They elected to let their own oil and gas production dwindle, and rely instead on gas and oil purchased from Russia. We warned back in September that this European policy would give Russia leverage for harassing Ukraine, but apparently not enough EU leaders read this blog. Anyway, even back in the fall of 2021, Russia had restricted natural gas deliveries to Europe, causing sky-high prices there for gas and power.

The European experience ought to have been a cautionary tale for America, but political attacks on oil production continued in the halls of Congress itself. In an October 2021 hearing over climate change prevention, Carolyn Maloney (D-NY) and Ro Khanna (D-CA) insisted that Big Oil commit to reducing US oil and gas production by 3-4% annually (50-70% total by 2050). In a follow-up February 8, 2022 hearing,  the two legislators again demanded concrete commitments from oil companies to reduce their domestic production (although, strangely, Mr. Khanna supported President Biden’s call for other regions, such as OPEC and Russia to increase production).

With oil drilling having been curtailed for the past several years (as desired by environmentalists), the world has now flopped from an oil surplus to an oil shortage, exacerbated by Russia’s invasion of Ukraine and subsequent sanctions. And of course world oil prices (which are not under the control of U.S. companies) have gone up in response. Oil companies are actually making money again instead of going bankrupt like two years ago

In 2021 Apple had a 26% net profit margin and an effective tax rate of only 13%, while the oil industry had an average profit margin of 8.9% and an effective tax rate of 26.9%.   Yet Congress (mainly Democrats) “investigates” price gouging every time gas prices go up, without hauling in Tim Cook to grill him over the price of each new iPhone model. Repeated previous investigations have shown that domestic gasoline prices are mainly a function of world oil prices, which are not under the control of U.S. companies. Nevertheless, after berating oil execs for increasing oil production,  here come the grandstanding Congressional attack dogs, holding a hearing last week titled (wait for it…) “Gouged at the Gas Station: Big Oil and America’s Pain at the Pump”.

The oil producers patiently explained that “We do not control the price of crude oil or natural gas, nor of refined products like gasoline and diesel fuel,” and “”It [the U.S. oil industry] is experiencing severe cost inflation, a labor shortage due to three downturns in 12 years, shortages of drilling rigs, frack fleets, frack sand, steel pipe, and other equipment and materials.” But it is not clear that anyone was listening to the facts.

The Different Classes of Crypto Stablecoins and Why It Matters

Scott Buchanan1 Comment

Last month the Biden administration issued an executive order outlining some priorities and aspirational goals regarding government initiatives and future regulations regarding cryptocurrencies.
These goals may be summarized as:

1.         Protect Investors in the Crypto Space

2.         Mitigate Systemic Risks from Innovations

3.         Provide Equitable Access to Affordable Financial Services

4.         Ensure Responsible Development of Digital Assets

5.         Limit Illicit Use of Digital Assets

6.         Research Design Options of a U.S. Central Bank Digital Currency (CBDC)

7.         Promote U.S. Leadership in Technology


These positions seem generally reasonable and moderate, and were welcomed by the cryptocurrency community, which had feared a more restrictive stance. (China, for instance, has banned cryptocurrency use altogether).

Why Fear Stablecoins?

Here I’d like to focus on #2, “Mitigate Systemic Risks from Innovations”. Although so-called stablecoins are not explicitly mentioned in the executive order, it is understood that they represent a key area of concern for regulators.

A stablecoin typically has its value pegged 1:1 to a leading national or international currency such as the U.S. dollar or the euro, or to some commodity like gold, or even to other cryptocurrencies. In practice, most of them have generally held pretty well to their pegs. So what’s not to like about them? Why would they be perceived as more of a threat that, say, bitcoin, whose dollar value is all over the map?

I think the reason is that market participants count on them maintaining their (say) dollar peg. These coins are used as dollar substitutes in billions of dollars’ worth of transactions and are depended on to hold their value.The total value of stablecoins in use is nearly $200 billion and is growing fast.  If a major stablecoin crashed somehow, it could lead to significant instability, which regulators don’t like.

Four Major Types of Stablecoins

Stablecoins may be classified according to how their “tether” is maintained:

( 1 ) Pegged to fiat currency, maintained by a central stablecoin issuer

The biggest U.S.-based stablecoin is USD Coin (USDC), which is backed by significant financial institutions. There is every reason to believe that there is in fact a dollar backing each USDC. Gemini Dollar (GUSD) is smaller, but also takes great pains to garner trust. Its issuer, Gemini, operates under the regulatory oversight of the New York State Department of Financial Services (NYDFS). It boasts, “The Gemini Dollar is fully backed at a one-to-one ratio with the U.S. dollar. The number of Gemini dollar tokens in circulation is equal to the number of U.S. dollars held at a bank in the United States, and the system is insured with pass-through FDIC deposit insurance as a preventative measure against money laundering, theft, and other illicit activities.”

So far, so good. The huge stinking elephant in the room here is a stablecoin called Tether. Tether is the largest stablecoin by market capitalization (at $79 billion), and is heavily used as a dollar substitute, mainly in Asia. It has been widely criticized as a shady, unaudited operation, operating from shifting off-shore locations to avoid regulation (and prosecution). There are justified doubts as to whether the claimed 1:1 dollar backing for Tether is really there. Tether sort-of disclosed its backing reserves in the form of a sparse pie-chart. Very little was in the form of cash or even “fiduciary deposits”. Some was in the form of “loans” to who-knows-what counterparties. The majority of their holdings were “commercial paper”; but nobody can find any trace of Tether-related commercial paper in the whole rest of the financial universe (it has become a sort of game for financial journalists to try to the be first one to actually locate any legitimate Tether assets).

So, Tether by itself may justify concern on the part of regulators. Also, without diving too deeply into it, a plethora of financial institutions and tech companies are starting to issue their own stablecoins, which again are purported to be as good as cash, and so are vulnerable to abuse.

( 2 )  Stablecoins backed by commodities

Tether Gold (XAUT) and Paxos Gold (PAXG) are two of the most liquid gold-backed stablecoins. Other coins are tied to things like oil or real estate. The holder of these coins is depending the  coins issuer to actually have the claimed backing.

( 3 )  Cryptocurrency Collateral (On-Chain)

It is hard to explain in a few words how this type of coin works.  A key point here is that your stablecoins are backed by other, leading cryptocurrecies (such as Ethereum), with the process all happening on the decentralized blockchainvia smart contracts. A leading coin here is DAI, an algorithmic stablecoin issued by MakerDAO, that seeks to maintain a ratio of one-to-one with the U.S. dollar. It is primarily used as a means of lending and borrowing crypto assets without the need for an intermediary — creating a permissionless system with transparency and minimal restrictions.

Unlike with the two types of stablecoins discussed above, you are not dependent on the honesty of some central issuer of the stablecoin. On the other hand, Wikipedia notes:

The technical implementation of this type of stablecoins is more complex and varied than that of the fiat-collateralized kind which introduces a greater risks of exploits due to bugs in the smart contract code. With the tethering done on-chain, it is not subject to third-party regulation creating a decentralized solution. The potentially problematic aspect of this type of stablecoins is the change in value of the collateral and the reliance on supplementary instruments. The complexity and non-direct backing of the stablecoin may deter usage, as it may be difficult to comprehend how the price is actually ensured. Due to the nature of the highly volatile and convergent cryptocurrency market, a very large collateral must also be maintained to ensure the stability.

( 4 ) Non-Collateralized Algorithmic Stablecoins

The price stability of such a coin results from the use of specialized algorithms and smart contracts that manage the supply of tokens in circulation,  similar to a central bank’s approach to printing and destroying currency. These are a less popular form of stablecoin. The algorithmic coin FEI proved unstable upon launch, although it has since achieved an approximate parity with the dollar.

Some takeaways:

Stablecoins are a big and fast-growing piece of practical finance.

These coins bring a different kind of risk, because (unlike Bitcoin or Ethereum), users depend on them holding a certain value.

For the coins backed by major fiat currencies or commodities,  risk is introduced by the need to depend on the honesty and competence of the centralized coin issuers.

For the non-centralized stablecoins like DAI and FEI, there are risks associated with proper automatic functioning of their protocols.

 

One can understand, therefore, the urge of the federal government to impose regulations in this area. That said, it does not seem to me that the existing system is broken such that the feds need to come in to fix it in a major way. The main shady actor in all this is Tether, which everyone knows to be shady, so caveat emptor (and the vast majority of Tether transactions occur outside the West, in the East Asian shadowlands).

Musk versus Putin: Fists and Bytes

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In one of those truth-can-be-stranger-fiction events, two weeks ago Elon Musk tweeted this challenge to Vladimir Putin: “I hereby challenge Vladimir Putin to single combat. Stakes are Ukraine,” adding in Russian, “Do you accept this fight?”

I am not aware of this challenge affecting the course of Russia’s war on Ukraine, but Musk has made a significant contribution in another area. Modern warfare is all about rapid, voluminous information gathering, processing, and dissemination. The internet has become the backbone of much communication. In areas like Ukraine with less-developed cable and fiber infrastructure, internet access is commonly via cellular service.

Ukraine’s cellular service was significantly degraded by the first week of the invasion by loss of territory and widespread bombing of infrastructure. What could be done? It turns out that Elon Musk’s Starlink swarm of low-orbit satellites is designed to provide internet service for areas of the globe that are underserved by standard methods like cable and cellular. Ukraine’s Vice Prime Minister and Minister of Digital Transformation, Mykhailo Fedorov, tweeted  to Musk, “While you try to colonize Mars – Russia try to occupy Ukraine! While your rockets successfully land from space – Russian rockets attack Ukrainian civil people! We ask you to provide Ukraine with Starlink stations and to address sane Russians to stand.”

Musk responded within days by launching and/or repositioning satellites and providing thousands of ground-based Starlink terminals, providing much-needed communications for the beleaguered Ukrainians. Starlink is now the most-downloaded app in Ukraine,  and is used to direct Ukrainian attacks on Russian tanks. Such is the power of private enterprise. One wonders if the U.S. governmental agencies would have been able to provide such service so quickly.

As reported by The Wire, the Russians have complained that Musk’s actions constitute interference: “When Russia implements its highest national interests on the territory of Ukraine, Elon Musk appears with his Starlink, which was previously declared purely civilian.” Musk’s ironic reply: ““Ukraine civilian Internet was experiencing strange outages – bad weather perhaps? – so SpaceX is helping fix it.”

West’s Seizing of Russian Foreign Reserves May Lead to Rise of Commodities as Money

Scott Buchanan2 Comments

Some eighteen months ago, I wrote here on “Money as a Social Construct“. Most civilizations over the millennia have found it expeditious to move from simple, immediate barter of physical objects like cows to some system involving “money”. But what is money? Wikipedia gives the following standard definition:

Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given socio-economic context or country. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value.

For convenience, the “thing” used as money is best if it is portable and durable and of limited amount. Gold and silver have historically served these purposes. Even though these are physical objects, their actual value in usage (e.g. how much gold does it take to buy a cow) is arbitrary. Its value in usage is whatever is agreed upon by the users.

For this system of money to work, the key players all have to believe in the value of the gold coins. Thus, money is a mainly social construct, an article of mutual faith. If people lose faith in the value of some form of non-commodity money, it will in fact become valueless.

We have moved from useful commodities like cows, to gold coins and bars, to printed dollar bills redeemable in gold,  and now to fiat currencies not formally tied to any physical objects. And in the twenty-first century, most “money” is not even tangible printed bills, but is in the form of digital entries in accounts “somewhere”.

Trillions of dollars’ worth of transactions take place every year, on the supposition that the dollar you deposit in a major bank will be there next week or next year. At my own personal level, nearly all of my life savings exists in the form of investments in stocks or bonds of corporate entities, which are held in accounts that I only ever access from my computer. Thus, I rely on on-going functional, reasonably honest government to enforce rules on the stewardship of those funds at multiple levels. So I am betting everything on the supposition that law and order prevail.

Well, in war sometimes “law and order” do break down and the normal rules of stewardship are over-ridden. Such has been the case with Russian foreign reserves. The central banks of major nations hold assets in the form of accounts at other central banks. Russia, as a big net exporter, has accumulated reserves of dollars and other currencies at the central banks of various nations in the West. In the wake of Russia’s invasion of Ukraine, the Western banks froze some 630 million of Russian assets held in these banks. There has even been discussion of redeploying these assets to pay for assistance to Ukraine.

(Sadly, as I noted in How Overzealous Green Policies Force Europe to Bankroll Putin’s Military, these seemingly dramatic fund seizures and SWIFT sanctions are annoying but not crippling for Russia. Europe is still funneling billions of euros a month to Russia, because Europe has made itself utterly dependent on Russian natural gas due to prematurely chopping its own nuclear and coal power generation and banning the fracking process that has unlocked such enormous oil and gas production in the U.S.)

It is understandable why the West has taken such a step, in view of the unjustified Russian attack on Ukraine, and the ongoing atrocities such as the bombing of a maternity hospital and a clearly-marked children’s shelter. However, this action may lead to worldwide reappraisals of what is money and how net export nations choose to store their monetary surpluses.

The Wall Street Journal ran a piece called, “If Russian Currency Reserves Aren’t Really Money, the World Is in For a Shock.” It is suggested that central banks may be motivated to accumulate more of their reserves in the form of physical gold, held in their own countries, which cannot be confiscated by some outside forces. Or we may even go back to using “cows” as a store of value, with central banks gaining title to piles of useful commodities such as wheat or nickel or palladium.

Good hockey players skate to where the puck is heading. I bought into a fund of corn futures yesterday. After posting this article, I think I will log into my brokerage account and buy some shares in a fund holding physical gold.

Truth As a Casualty of Wars

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The saying that “The first casualty of war is the truth”  has been credited to anti-war Senator Hiram Warren Johnson in 1918  and also to the ancient Greek dramatist Aeschylus. We have seen this played out dramatically with Russia’s invasion of Ukraine. From the Ukrainian side have come the predictable overinflated estimates of the enemy’s losses, and perhaps understated reporting of their own casualties. Also, on the first day or two of the war there was a raunchy defiant response of Ukrainian defenders to a “Russian ship” that was demanding their surrender; as far as I know that exchange was for real, but the initial report by Ukraine that all the heroic defenders were killed was not true. Maybe I am biased here, but these sorts of excesses are stretching some core truth, not trampling over it roughshod.

On the Russian side, perhaps because there is no even vaguely legitimate justification for their invasion, the lies have been simply ludicrous. Apparently, the Russian troops have been told that they are going there to rescue Ukrainians from the current regime which is a bunch of  “neo-Nazis”.  If Putin’s thugs had a sense of humor or perspective, they might have discerned the irony of characterizing the Ukrainian regime as “neo-Nazi” when the president (Zelenskyy) is a Jew, whose grandfather’s brothers died in Nazi concentration camps.

And the Russian lies go beyond ludicrous, to revolting and inhuman. Russian Foreign Minister Sergey Lavrov has dismissed concerns about civilian casualties as “pathetic shrieks” from Russia’s enemies, and denied Ukraine had even been invaded.

The Associated Press snapped a picture in the besieged city of Mariupol a few days ago which went viral, showing a pregnant woman with a bleeding abdomen being carried out on a stretcher from a maternity hospital which the Russians had bombed. The local surgeon tried to save her and her baby, but neither one survived. The Russian side put out a string of bizarre and contradictory stories, claiming that they had bombed the hospital because it was a militia base (a neo-Nazi militia, of course) but also that no, they didn’t bomb it, the hospital had been evacuated and the explosions were staged by the Ukrainians, and the bloody woman in the photos was a made-up model. Ugh. I find it chilling to observe a regime in operation where there is absolutely no respect for what the truth actually is; rather, lies are manufactured to serve whatever purpose will suit the regime.

I know that some of that goes on even with Western democracies, but we are still usually ashamed of outright lying, and stand discredited when exposed. But with hardcore authoritarian regimes, there does not seem to be even this minimal respect for integrity.  

Freedom of speech becomes even more critical as cynicism about truth becomes more widespread in the world, even in our own political discourse. Putin is trying to suppress the truth within Russia, now with very harsh penalties (fifteen years in prison) for those disseminating information contrary to the party line. All he needs to do is deem such talk as “treasonous”, and into the clink you go.

I do worry about similar trends towards censorship within the West. In our case, it is not so much governments (so far) doing the censorship, but Big Tech. If Google [search engine and YouTube] / Facebook/Twitter disapprove of your content, they can label it “hate speech” or whatever, and your voice disappears from public discourse. But what gives the high priests of big tech the authority and the powers of moral discernment to rule on what discourse is permissible? Also, the algorithms of social media sites usually direct you towards other sites that reinforce your own point of view, so you rarely get exposed to why the other side believes what it does. However annoying it may be to see various forms of nonsense circulating on-line, the time-tested democratic response is to allow (nearly) all points of view to be fairly stated, and to trust in the people to figure out where the truth lies. Otherwise, the truth can become a casualty of culture wars, as it is in shooting wars.

How Overzealous Green Policies Force Europe to Bankroll Putin’s Military

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There is a difference between healthy zeal for a basically good cause like reducing CO2 emissions, and unbalanced myopia. Back in September I wrote about the European power debacle (skyrocketing gas and electricity prices):

Shut down your old reliable coal and nuclear power plants. Replace them with wind turbines. Count on natural gas fueled power plants to fill in when the breeze stops blowing. Curtail drilling for your own natural gas, and so become dependent on gas supplied by pipeline from Russia or by tankers chugging thousands of miles from the Middle East. What could possibly go wrong?

Well, now we know what can go wrong.

In January I noted more specifically, “This energy shortage also makes Europe very vulnerable to Russia, at a time when Putin is menacing Ukraine with invasion.” Now it has come to pass. All the huffing and puffing about economic sanctions on Russia is mainly just hot air. Because Europe is utterly dependent on Russian gas, massive “carve-outs” have been made in sanctions in order to continue these purchases to continue. The vaunted SWIFT restrictions on Russian banks have been carved down to practical irrelevance. While sanctions may impact the lifestyles of oligarch playboys, this flow of euros to Russia ensures that Putin will not run short of money for his war.

Ecomodernist Michael Shellenberger writes that behind the Ukraine military drama “is a story about material reality and basic economics—two things that Putin seems to understand far better than his counterparts in the free world and especially in Europe.” Shellenberger asks, “How is it possible that European countries, Germany especially, allowed themselves to become so dependent on an authoritarian country over the 30 years since the end of the Cold War?” and then answers this question in his trademark style:

Here’s how: These countries are in the grips of a delusional ideology that makes them incapable of understanding the hard realities of energy production. Green ideology insists we don’t need nuclear and that we don’t need fracking. It insists that it’s just a matter of will and money to switch to all-renewables—and fast. It insists that we need “degrowth” of the economy, and that we face looming human “extinction.” (I would know. I myself was once a true believer.)

… While Putin expanded Russia’s oil production, expanded natural gas production, and then doubled nuclear energy production to allow more exports of its precious gas, Europe, led by Germany, shut down its nuclear power plants, closed gas fields, and refused to develop more through advanced methods like fracking.

The numbers tell the story best. In 2016, 30 percent of the natural gas consumed by the European Union came from Russia. In 2018, that figure jumped to 40 percent. By 2020, it was nearly 44 percent, and by early 2021, it was nearly 47 percent.

…The result has been the worst global energy crisis since 1973, driving prices for electricity and gasoline higher around the world. It is a crisis, fundamentally, of inadequate supply. But the scarcity is entirely manufactured.

Europeans—led by figures like Greta Thunberg and European Green Party leaders, and supported by Americans like John Kerry—believed that a healthy relationship with the Earth requires making energy scarce. By turning to renewables, they would show the world how to live without harming the planet. But this was a pipe dream. You can’t power a whole grid with solar and wind, because the sun and the wind are inconstant, and currently existing batteries aren’t even cheap enough to store large quantities of electricity overnight, much less across whole seasons.

In service to green ideology, they made the perfect the enemy of the good—and of Ukraine.

There we have it.  It’s not just the Europeans. As I write this, shells are raining down on Ukrainian cities but the U.S. is not restricting its imports of Russian oil, lest our price of oil go even higher. The present oil shortage (even before the Ukraine invasion) is what happens when a president on his first day in office signs an executive order to cancel a pipeline expansion which would have enabled increased oil production from Canada’s massive oil sands, and the whole ESG movement hates on investing in projects for producing oil or gas.

All that said, what the West gives with one hand it may take back with the other. Although energy exports from Russia are theoretically permitted, Western private enterprises, including finance arms, are pulling back from any dealings with Russia. This means in practice, lots of wrenches are being thrown into the machinery of international finance, such that energy exports from Russia are being slowed, though not stopped. But in turn, the Russians are getting higher prices per barrel for the oil that does get exported. There are many moving parts to all this, so we will see how it all shakes out.

How Volodymyr Zelenskyy Went from Playing the Ukrainian President in A Sitcom to Actually Being the Ukrainian President

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The man of the hour is Volodymyr Zelenskyy. Russia underestimated the amount of resistance they would face in their invasion of Ukraine, and Zelensky is the heart and face of that resistance. The usual pattern in countries like Ukraine with a history of corrupt leadership is that when hostile armies close in on the capital, the leaders stuff money and jewels into suitcases and disappear to some safe haven (think: Afghanistan). Zelensky has chosen to stay and fight against Vladimir Putin, a man with a fearsome reputation for brutal military tactics (see: Chechnya and Syria) and for political assassinations.

Where did Zelenskyy come from? American politicians are nearly all lawyers or businessmen. Zelenskyy was a professional comedian. He did get a law degree, but then went into stage and film comedy. He starred in a number of lightweight films such as Love in the Big City,  Office Romance, and the zany Rzhevsky Versus Napoleon:

In 2015 the actor created, produced and starred in a comedic television series, Servant of the People:

In this political satire, a young high school teacher happens to let loose with a rant about corruption in Ukraine. One of his students captures this rant on his phone and puts it out on the internet. That YouTube video goes viral, and (to his complete surprise) the teacher gets elected president of Ukraine. He then proceeds to govern honorably, amidst various comedic situations.

In a case of life-mimics-art, the real Zelenskyy ran for the presidency of the country in 2019. Fueled by the popularity of the TV series, Zelenskyy’s campaign was almost entirely virtual. It succeeded in unseating the incumbent candidate, with Zelenskyy receiving a landslide 73% of the vote.

Although his Ukrainian presidency began on a whimsical note, it has turned into a global epic. However, it is difficult to envisage an ending to this epic that is not tragic. Drawing on his acting skills, Zelenskyy has been a master of internet communications in the present crisis, but there is only so much that can be done in the face of hard military realities. While the images of Ukrainian resistance are inspiring, the Russians have far greater military might and have the will to employ it as needed. And as long as Europe continues to fund Russia by guzzling Russian natural gas, sanctions can only bite moderately hard.

Economics of an Alabama Small Farm Homestead

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When I took a trip to Alabama a couple of months ago, I visited a small farm about an hour’s drive south of Birmingham. The proprietor of Rora Valley Farms, Noah Sanders, makes a living for his family mainly by selling vegetables from a garden plot, plus raising chickens for selling eggs and meat. I was curious as to how he manages to do this, since the usual model of agriculture is to operate at large scale, with big machines efficiently  plowing and harvesting hundreds and thousands of acres.

I had read online about a low tech, compost-intensive method of farming developed in Zimbabwe called Foundations for Farming. This method  has proven extremely successful in southern Africa at mitigating food insecurity; I posted a longish description of it at   “Pfumvudza” Planting Technique Revolutionizes Crop Yields in Zimbabwe.   Noah is listed as the U.S. representative for Foundations for Farming, which led me to contact him.

The Modern Homesteading Movement

The most fundamental aspect of his operation is not the specific crops he grows. Rather, it is the overall vision than he and his wife have for their lives and their family. Trying to start up a small farm is not something folks do just for the money. There are much, much easier ways to make a buck.

The Sanders are part of a small but growing homesteading movement. It is hard to pin down precisely what that means these days, but in general it denotes a lifestyle aimed at self-sufficiency. Thus, homesteaders grow a large portion of the food they eat, and often install solar panels and rain catchment systems to reduce dependence on the electrical and water grids. Raising chickens for eggs and meat is common. All this can be done in a suburban or even an urban back yard; nearly anyone can put in a garden, and some cities allow a few egg-laying hens to be kept (but no roosters, because of the noise nuisance). More typically, homesteading is done in a rural setting, on maybe 3-10 acres. Most of that acreage would be pasture, to support some larger animals, such as goats, sheep, and pigs, all the way up to cows.

Besides producing more of what you consume, part of the homesteading ethos is to consume less. Instead of buying yet more made-in-China stuff and watching hours of contrived mass media and movies, homesteaders are found making cheese or canning vegetables, or maybe just sitting on the back porch watching the ever-entertaining chickens. To keep overall investment down, a homestead dwelling itself is typically no-frills. You are more likely to see pine boards than designer ceramic tile when you look down at a homestead kitchen floor. Hopefully all this producing more/consuming less allows the adults to spend less time working away from home, and more time with their families. Most homesteaders still need to drive off to work “in town” to make ends meet. Holding down an outside job plus running a farm operation plus doing home-schooling can lead to stress and burnout, even for a strong young couple. A homesteading ideal, therefore, is to be able to support oneself entirely from home-based activities.

A big driver for homesteading is to raise children in a situation where they can see their parents daily working productively, and where the children themselves make genuine contributions to the family’s welfare, rather than being merely consumers that cost the family time and money to entertain and occupy them.   This small-scale, subsistence-type agricultural activity runs contrary to the conventional wisdom that economic welfare consists of increasing specialization and then exchange of goods/services that are produced by efficient specialists.    

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Half of Deliberately Exposed Unvaccinated Volunteers in UK Study Did Not Get COVID; Why?

Scott BuchananLeave a comment

A British study by Ben Killingley and 31 co-authors recently appeared in pre-print form, where 36 (heroic) healthy young adult volunteers were deliberately exposed to the Covid virus by nasal drops. These volunteers then went into quarantine for 14 days, and logged their symptoms and were subjected to various tests for a total of 28 days.


Of the 36 subjects, only 18 (53%) became infected with the virus, as determined by PCR testing (the gold standard for Covid tests) and by direct counting of viral loads in mucus cells by FFA.

The study found that viral shedding (as estimated by mucus viral loads) begins within two days of exposure and rapidly reaches high levels, then declines. Viable virus is still detectible up to 12 days post-inoculation. This result supports the practice of people quarantining for at least 10 days after they first exhibit symptoms of infection. There were significant higher viral loads in the nose than in the throat,  which supports the practice of wearing masks that cover the nose as well as the mouth.


The cheap, fast, LFA rapid antigen test method (used in home tests) performed fairly well. Because it is less sensitive, it did not it did not yield positive results for infected individuals until an average of four days after infection, or about two days after viral shedding may have begun. But from four days onward, the LFA method was sensitive and reasonably accurate which supports the ongoing use of these quick, cheap tests.

These direct inclusions from the paper are helpful, but not earthshaking. The elephant in the room, which the paper did not seem to directly address, is why nearly half of the people who were exposed did NOT become infected. This raises all kinds of issues about what mechanisms the human body may have to naturally fight off COVID or similar viral infections. Gaining insight on this could lead to breakthroughs in preventing or mitigating this pernicious virus.

An article by Eileen O’Reilly at Axios probes these questions. There is nothing conclusive out there, but four ideas that are under investigation are:

1. Cross-immunity from the four endemic human coronaviruses is one hypothesis. Those other coronaviruses cause many of the colds people catch and could prime B-cell and T-cell response to this new coronavirus in some people.

2. Multiple genetic variations may make someone’s immune system more or less susceptible to the virus.  Some 20 different genes have been identified which affect the likelihood of severe infection, and a genetic predisposition to not getting infected is seen in other diseases where people have one or multiple factors that interfere with the virus binding to cells or being transported within.

3. Mucosal immunity may play an underrecognized role in mounting a defense.

This suggests nasal vaccines might have a chance at stopping a virus before it invades the whole body.

4. Where the virus settled on the human body, how large the particle was, the amount and length of exposure, how good the ventilation was and other environmental circumstances may also play a role.

These considerations support continuing with the usual recommendations of social distancing, wearing facemasks, and ventilating buildings, especially when caseloads are peaking. Also, the doses administered to the volunteers in the study were considered quite small by clinical standards. It was surprising that such a low dose was effective as it was in causing full-blown infections; and the particular strain used in the experiment was not necessarily one of the more recent highly virulent variants. After reading these results,  it is more understandable to me why so many reasonably careful friends and family members of mine (nearly all vaccinated, fortunately) have come down with (presumably) omicron COVID in the past two months. Just a little dab will do ya.