Mar 06

Today’s News 6th March 2022

  • Must See TV
    Must See TV

    In a time when everyone desperately needs a good laugh, we dare you to find a better two minutes of must-see TV than the following clip courtesy of India’s Times Now. We won’t spoil it (some background here), just be sure to watch the full thing until the end.

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    For those wondering what happened next, and how India feels about the current global crisis, here is part two. No wonder, on Thursday some US diplomats suggested D.C. may sanction New Delhi next for buying Russian weapons…

    Tyler Durden
    Sat, 03/05/2022 – 23:20

  • Tesla Finally Receives Conditional Permit To Start Building Its German Gigafactory
    Tesla Finally Receives Conditional Permit To Start Building Its German Gigafactory

    Tesla has finally won final approval for its Gigafactory in Germany, according to local officials last week. The company was granted a 536-page conditional building permit that allows it to begin building. 

    However, the company still needs to meet “several” requirements before the factory can get a final permit and start producing, according to a new report by The Verge. 

    The factory had drawn the ire of environmentalists, who had fought to delay or derail its opening over the last few years, while it was in development. 

    Brandenburg state premier Dietmar Woidke called the factory “a big step into the future”, Reuters reported. He said that Tesla would be a “major industrial and technological driver for Germany and the region.”

    The factory will hire about 12,000 workers. So far, about 2,600 have been hired. Tesla is also in talks with local suppliers about starting to stock the plant with inventory. 

    Recall, in late January 2021, Tesla gave up on applying for subsidies for the factory. Details were sparse as to why the application was pulled. A spokesperson for the economy ministry said: “Tesla continues to stick to its plans for the battery factory in the Gigafactory Berlin-Brandenburg, but will do without state IPCEI funding.”

    Recall, last summer, we commented on the ongoing war between Tesla and German environmentalists who were trying to prevent the erection of the plant. 

    German environmentalist groups Green League and NABU filed complaints against the company in 2021, looking to block provisional approvals necessary for the construction of the factory. Those complaints have obviously failed, at this point. 

    As if the irony of Tesla’s planned getting bulldozed by groups looking to preserve the environment wasn’t rich enough, the action came after deficiencies were discovered in how Tesla may deal with environmental hazards at its forthcoming plant. “…A recent accident report warned Tesla wasn’t sufficiently prepared with regard to the possibility of exploding gas clouds and the escape of irritant gas in the factory’s paint shop,” Bloomberg reported.

    We first noted last May that the factory could be delayed due to legal woes lodged by environmentalists. Since announcing plans for expansion in 2019, Tesla’s proposed factory in Berlin was “torpedoed by environmental regulations, unexploded WW2 bombs and labor laws,” according to the The Daily Mail. 

    Tyler Durden
    Sat, 03/05/2022 – 23:00

  • Biden Urged To Prevent 'Catastrophe' In That Country Americans Quickly Forgot About
    Biden Urged To Prevent ‘Catastrophe’ In That Country Americans Quickly Forgot About

    Authored by Jake Johnson via Common Dreams,

    A coalition of more than 80 humanitarian groups implored U.S. President Joe Biden this week to revoke his executive order that would permanently seize $7 billion in frozen Afghan central bank assets and split the money between the families of 9/11 victims and an ill-defined trust fund ostensibly formed to benefit the people of Afghanistan.

    In a letter to Biden and other top administration officials, the groups argued the best way the White House can help Afghans as they face a worsening humanitarian disaster—including mass starvation—is by withdrawing the February executive order and conducting a review of the current sanctions regime, which one analyst warns could be deadlier than two decades of U.S.-led war on the country.

    Internally-displaced Afghan children in Herat province, AFP via Getty Images. 

    “We write to ask that you prevent a catastrophe from unfolding in Afghanistan by urgently rescinding the recent executive order which splits the frozen reserves that are the property of the people of Afghanistan, designating half pending court action involving the families of the September 11th attacks and depositing the other half into a newly created humanitarian fund, rather than finding a safeguarded mechanism to return the Afghan people’s reserves through the infrastructure of Afghanistan’s Central Bank,” reads the letter, which was coordinated by Afghans for a Better Tomorrow, the Partnership of Advancement of New Americans, and Just Foreign Policy.

    Arash Azizzada, co-director of Afghans for a Better Tomorrow, said in a statement Thursday that “the Biden administration’s executive order from February 11th is deeply misguided, but it’s not too late to change course.”

    “We call on the administration to rescind the order,” Azizzada added, “and take immediate steps to alleviate the pain and suffering in Afghanistan.”

    The groups sent their letter just days after members of the September 11th Families for Peaceful Tomorrows—an anti-war organization formed by the families of 9/11 victims—demanded that the Biden administration release Aghanistan’s central bank assets, which the U.S. Treasury Department froze last August following the Taliban’s return to power.

    “There is not only a moral imperative in doing this, there is also a national security interest in doing this and preventing Afghanistan from sliding into total collapse,” Terry Rockefeller, whose sister died at the World Trade Center on September 11, 2011, told The Intercept earlier this week. “You can’t end terrorism by producing more civilian victims, and this is just what is happening now, more Afghan civilian deaths even after 20 years of war,” Rockefeller added.

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    The United Nations special envoy for Afghanistan told the U.N. Security Council on Wednesday that while relief efforts have helped to avert the worst-case scenario of a catastrophic winter famine, “it is imperative that we not find ourselves six months from now in the situation we faced six months ago: with millions of Afghans facing another winter of starvation and the only tool at our disposal being expensive and unsustainable humanitarian handouts.”

    “It is now most urgent to address Afghanistan’s economy,” said Deborah Lyons. “We are nearing a tipping point that will see more businesses close, more people unemployed and falling into poverty. It is approaching a point of irreversibility.”

    Aid groups estimate that around 97% of Afghanistan’s population is currently living in poverty and more than 20 million people—over half the country—are facing food insecurity. “Until sweeping measures are taken to restore the Afghanistan economy, people will suffer and lives will be lost,” the International Rescue Committee (IRC) said in a statement Friday.

    “As the world’s attention shifts to the conflict and displacement crisis in Ukraine, the IRC calls on the world to not neglect Afghanistan,” the group added. “The international community should seize this window of opportunity in Afghanistan to prevent famine, save lives, and put an end to the horrific conditions facing women and girls.”

    Tyler Durden
    Sat, 03/05/2022 – 22:20

  • Iran Nuke Deal On The Verge After Russia Makes Unexpected Last-Minute Demands
    Iran Nuke Deal On The Verge After Russia Makes Unexpected Last-Minute Demands

    The Ukraine war is threatening to throw a monkey wrench into the weekend optimism which started building especially on Friday reports that a revived Iran nuclear deal is mere “steps away” and “very close”. It appears Russia is ready to play hard-ball following for the past week the US and EU ratcheting up unprecedented sanctions targeting Moscow’s banking sector and top officials, including sanctions against Putin himself, which the Russian president on Saturday stressed is “tantamount to an act of war”. 

    Moscow is now pointing to the fresh Ukraine-related sanctions as directly detrimental to its ability to trade with Iran if the JCPOA nuclear deal is restored. Russian Foreign Minister Sergei Lavrov on Saturday for the first time demanded written guarantees that the new anti-Russia sanctions won’t get in the way.

    “We have asked for a written guarantee…that the current process triggered by the United States does not in any way damage our right to free and full trade, economic and investment cooperation and military-technical cooperation with the Islamic Republic,” Lavrov said.

    Following the Lavrov statement, Russia’s chief negotiator in Vienna stated there were still issues to be hammered out “to ensure smooth civil nuclear cooperation with Iran.”

    The irony is that Washington desperately needs this deal to go through given it would open up badly needed global oil supply, at a moment it’s been scrambling to find Europe alternatives in the scenario of Putin weaponizing his significant energy leverage if he chooses to. The White House has also come under significant domestic and media pressure for not targeting Russian oil exports as punishment for the Ukraine invasion. Here’s what’s at stake on that front, based on analysis in Asia Times:

    News reports noted Iran could possibly ramp up shipments beyond 1 million barrels a day within months of a revived accord, offering potential relief as the Ukraine conflict pushed oil above $100 a barrel. 

    The Chinese representative, Wang Qun, has also said that the talks are at a “last stage,” telling reporters last week that interlocutors are “only a small step away from the final agreement.”

    And chief British negotiator Stephanie Al-Qaq said Friday of the Vienna talks, “We are very close to an agreement,” and that “Now we have to take a few final steps.” There are reports the Biden’s State Department and Western officials broadly have been itching to see a deal finalized “this week”.

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    According to commentary in The Wall Street Journal: 

    It was always understood by Western officials that Russia’s specific role within the 2015 nuclear deal would need to be protected from sanctions. That includes receiving enriched uranium from Iran and exchanging it for yellowcake, Russia’s work to turn Iran’s Fordow nuclear facility into a research center and other nuclear-specific deliveries to Tehran’s facilities.

    However, Mr. Lavrov appeared to demand far more sweeping guarantees that could introduce major loopholes in the tight financial, economic and energy sanctions the West has imposed in recent days because of Russia’s invasion of Ukraine.

    Thus it’s clear that the Western powers negotiating in Vienna knew that for all parties to sign on to a revived deal they couldn’t target any signatory nation’s ability to trade with Tehran. But indeed the unprecedented avalanche of fresh sanctions on Moscow have muddied this past week’s building optimism on reaching a final deal.

    One unnamed Western diplomat cited by WSJ said there are suspicions Russia could now hold the Iran deal hostage at a politically sensitive moment for Biden, who is struggling to assure the domestic public that sanctions measures on Russia will not blow back to harshly on Americans at the gas pump.

    “But if Lavrov is using this as a play to try to carve a huge hole out of the overall Ukraine sanctions, that’s a different story,” the diplomat was quoted as saying. 

    Tyler Durden
    Sat, 03/05/2022 – 21:00

  • No, Canada Did NOT Seize Any Crypto Wallets Connected With The #FreedomConvoy, Here's Why
    No, Canada Did NOT Seize Any Crypto Wallets Connected With The #FreedomConvoy, Here’s Why

    Submitted by Mark Jeftovic, founder of the Bombthrower blog and CEO of easyDNS.com.

    Short answer: They can’t

    (Unless they’re in a hot wallet on an exchange within Canadian jurisdiction).

    Longer answer:

    I’m seeing references and hearing anecdotally how the Canadian government froze or even seized crypto wallets associated with the #FreedomConvoy fundraising efforts. Including the sensational headline from Fortune magazine’s “Fed up Ottawa residents win secret suit to freeze the crypto wallets funding Canada’s ‘Freedom Convoy’ protesters“.

    … fed up residents

    … secret suit

    … “Freedom Convoy Protestors” in scare quotes

    Oh my.

    The article refers to a Mareva Injunction issued by the Ontario Superior Court against the convoy organizers (Dichter, Lich, Barber), Pat King (the convoy crasher in my book), several people who were involved in the Tallycoin fundraiser for the truckers, and then numerous John Doe’s. It orders that 134 crypto wallets be frozen, such that nobody remotely involved with them can basically move or cause to be moved any of the funds in those wallets.

    Further, it orders that any wallet that receives funds from any of these wallets also be frozen. Technically that means if somebody were to move a single satoshi to Coinbase, Kraken, Binance, BitBuy, etc – then the receiving hot wallets of those exchanges are technically “frozen” as well.

    This isn’t really tenable, and this issue has actually come up before within the context of Bitcoin mining and OFAC compliance. There was a time when Marathon Digital actually tried to create an initiative where they would only mine “fully AML and OFAC compliant” derived blocks. This would have essentially required the censoring Bitcoin transactions and  was widely scorned by the industry. It proved itself to be unworkable, with Marathon  scrapping the program almost immediately. (It is also worth noting here that according to blockchain analytics firm Chainalysis, which consults for numerous law enforcement and intelligence agencies, only 0.5% of all Bitcoin transactions are illicit in nature).

    Trying to enforce a “taint chain” on specific crypto addresses would run into similar problems to the point where the choice would simply be to shutdown Bitcoin entirely (not possible) or give up.

    The reality

    The order also says

    “Any other person who knows of this order and does anything which helps or permits the Defendant to breach the terms of this Order may also be held to be in contempt of court and may be fined or imprisoned. “

    Let’s stress for the record that we are not advising nor condoning anyone subject to the order should violate it (but should preferably, at this stage, contest it in court).

    The simple reality, which we’d argue is protected as free speech is this: no government can actually seize or freeze anything stored in any self-custody wallet, full stop. In fact, nobody can actually “help or permit” the defendants to breach the terms of the order, because only those who hold the private keys to the specified wallets are in a position to do so.

    The courts can issue orders and the government can issue decrees forbidding any  entity under their jurisdiction from allowing transfers into or out of those addresses – that’s what they mean by “freezing” wallets.

    But the reality is that none of these wallets are actually frozen. Not in the same sense of when a bank freezes your account. I would argue that the more accurate way to describe those wallets would be as “restricted”, not frozen.

    In crypto, those wallet holders can still move those Bitcoin to any other BTC address, but probably not one that has already been created and in a FINTRAC regulated exchange. Most of the news items mention 34 or, these 134 or sometimes 200+ crypto addresses.

    There are a possible

    1,461,501,637,330,902,918,203,684,832,716,283,019,655,932,542,976

    BTC addresses, enough for every individual inhabitant of Earth to have

    196,385,600,286,334,710,857,791,565,804,391,698,421

    addresses for their own use.

    But some say “Bitcoin is not anonymous, the ledger is trackable”. Which is true (at least as long as a given asset stays on the same chain). What I usually say about this hits upon one of my favourite aspects of Bitcoin. It may be true that funds can be tracked throughout the blockchain, but there isn’t a damn thing anybody can do about it. 

    Further, there is an entire universe, a “cryptoverse”, that is constructed of innumerable nodes and entities that don’t even reside within Cartesian reality, let alone the legal jurisdiction of the Ontario Superior Court. (One of the key tenets of our Crypto Capitalist Manifesto is that, in general terms, increasing amounts of wealth moving into the cryptoverse is one-way, there is no intention of it ever coming back out into fiat).

    Within this cryptoverse, these nodes can take the form of:

    • Non-FINTRAC regulated exchanges
    • Decentralized exchanges (DEX)
    • Peer-to-peer exchanges
    • Alternate Layer-1 blockchains, Layer 2 protocols and wrapped assets
    • Decentralized Finance (DeFi) apps, automated market makers and liquidity pools
    • Bridges between any and all of these

    There’s nothing anybody can do about the explosion in number and complexity of all these crypto things, and attempts to similarly “freeze”, “seize” or shutdown every address traversed of some asset you’re trying to trace through all this would mean somehow taking control over centralized exchanges (some of them very large, with legal teams) in other countries, or decentralized entities, some which don’t effectively possess legal personhood but are some sort of Decentralized Autonomous Organization (DAO).

    The Mareva order does explicitly order several named entities (many of them well outside the jurisdiction of the Province of Ontario) to

    otherwise prevent any removal, dissipation, alienation, transfer, assignment, encumbrance, transaction, or similar dealing with any of the assets identified in Schedule “A” to this Order.

    One of which is PancakeSwap, which is one of those decentralized DAOs I was just talking about. PancakeSwap isn’t an entity that can be readily subjected to a court order, it’s a smart contract.

    To be clear: I am not advocating that anyone knowingly violates a court order to which they are a subject. I’m pointing out that the government can only order wallet holders not to move funds, but that the government cannot actually, freeze let alone seize what’s in those wallets. (Technically speaking the only thing in the wallets are the private keys anyway. The cryptocurrency itself is all on the blockchain).

    In a period of extreme financial turmoil such as a bank run or currency collapse where governments may be imploding while issuing all manner of orders and emergency edicts in desperation, wallet holders can be secure in the knowledge that they will still have the ability to execute capital flight even if the traditional banking sector and payment sectors are suffering extreme dislocations and breaking down.

    Tyler Durden
    Sat, 03/05/2022 – 20:20

  • Wall Street Is Quietly Trading For The Return Of Russia
    Wall Street Is Quietly Trading For The Return Of Russia

    For holders of Russian equities, the past week has been nothing short of a surreal, modern-day version of Dante’s 10th circle of hell, where in the span of just a few days virtually all Russian stocks have seen their value wiped out as a result of a barrage of western sanctions that have disconnected Russian equities from global capital markets and money flows, nowhere more visibly than in the stock of Russian Novatek PJSC, Russia’s second-largest natural gas producer and the world’s seventh-largest publicly traded company by natural gas production volume, which collapsed from $215 on Feb 16, to 65 cents a few days later.

    The carnage has been unprecedented, and not just at Novetek – the most widely-held Russian stock among ETFs and other international investors – but across the equity spectrum where adding insult to injury, investors have been blocked from selling their holdings as stocks plunged and fortunes were wiped out overnight. Russian sovereign bonds have also gotten hammered, with some issues losing as much as 75% of their value in the span of just a few days…

    … as the Russian ruble suffered a similar spectacular implosion, losing 50% of its value in days.

    And yet, amid the widespread carnage of Russian assets coupled with a self-imposed boycott by buyers of anything with ties to Moscow (a list which certainly includes oil), some on Wall Street are already preparing for – and trading – the eventual recovery of beaten down Russian assets, and the largest US bank is happy to provide them with its analysis of which are the best Russian assets to buy – in this case when there is literally blood in the street – at deeply distressed levels before they return to “money good” status.

    A team of JPMorgan strategists led by Zafar Nazim, published a note on Friday titled “Russian Corps: If Ifs-And-Buts-Were-Candy-And-Nuts Recovery Analysis; Move LUKOIL, NLMK, MMK to OW” (available to professional subs), in which they upgrade a trio of Russian corporate bonds – those of Lukoil, Novolipetsk Steel (NLMK) and Magnitogorsk Iron & Steel (MMK) to Overweight – which JPM sees as remaining money good (i.e., not defaulting), and in some cases, such as Lukoil, which JPM views as the “best recovery play” on distressed Russian corporate debt because the company has substantial international operations and relatively low international, eventually recovering at par (from a current price of 40 cents on the dollar).

    JPM’s analysis is based on recovery from international operations, supplemented by potential claim on international receivables, with the bank analysis predicted on the assumption that “most Russian corporates are likely incentivized to continue servicing debt obligations given material international exposure via foreign operations and exports. However, they may be precluded from doing so, potentially leading to an event of default (EoD).”

    The bank goes on to note that recovery values could be materially higher for several corporates under the low recovery group above if  creditors are able to negotiate / enforce ongoing recovery from export sales (i.e. not the stock of receivable, but the flow).

    Here, the company with most potential upside is Lukoil due to its substantial downstream and upstream assets across its international operations (see table below) which generated ~$3.5bn of EBITDA in FY21 (~18% of total EBITDA), to which JPM applied a 3x multiple to this figure to derive an EV of $10bn for the company’s international operations. Western integrated peers, such as BP, Shell and Total, trade at an EV/EBITDA of ~6-7x. JPM also estimates that around ~63% of Lukoil’s FY21 revenue of $128bn is generated from exports of crude oil and petroleum products from its domestic operations. Accordingly, the bank has assumed 63% of the company’s trade receivables, amounting to ~$6.1bn, are related to exports from Russia and we’ve included these in our estimate of the value of the company’s international assets.

    The full Lukoil recovery analysis suggests that total debt coverage via international ops is at least 133% and could be as high as 212%.

    JPM has done a similar recovery analysis for other Russian corporates, noting that Novolipetsk bonds may also have room to rally given the company’s international operations. JPM took a more downbeat view on firms such as Dutch telecommunications company Veon Ltd., which gets most of its revenue from Russia and has bonds trading around 55 cents, a level the strategists think is close to the firm’s recovery potential.

    According to the bank, for now Russian companies aren’t restricted by their government from servicing foreign debts (and it the assumption that this will continue that is the basis for JPM’s optimistic view). On the flip side, the bank warns that on account of severe international restrictions, these companies’ export operations could contract materially, limiting recovery potential primarily to value derived from stand-alone international operations.

    There is much more detailed analysis in the full note, available to professional subscribers.

    Whether JPM’s analysis is ultimately proven correct or not (we have heard of at least 3 funds that have purchased Russian bonds on the basis of this research, expecting a 100%+ return over a modest time-horizon in hopes of recreating what Elliott Management has done over the years in his engagements with insolvent sovereigns such as Argentina), the bigger and far more problematic question is one of nuance and optics: after all, it is hardly a good look for Jamie Dimon that his bank is seeking to profit – JPM gets paid with soft dollars, or commissions derived from in house research – from the Ukraine war; meanwhile sanctions and other restrictions on certain foreign payments have sowed confusion in the debt markets and have made purchases of Russian assets a symbolic act of collaboration with the Putin regime.

    Sure enough, it didn’t take long for Wall Street’s nemesis, Elizabeth Warren, the most vocal critic of Wall Street in Congress, to slam banks for “undermining” sanctions on Russia by snapping up the nation’s corporate bonds and suggesting clients buy assets on the cheap.

    In a statement released late Friday, she called out JPMorgan and Goldman Sachs following a Bloomberg report that the two banks had been purchasing beaten-down bonds, something they have been doing in response to both clients requests and because they expect to find ready buyers (with the help of research such as the one above).

    “Giant Wall Street banks like JPMorgan and Goldman Sachs never miss out on an opportunity to get richer even if it means capitalizing on Russia’s invasion of Ukraine and undermining sanctions placed on Russian businesses,” said Warren.

    We doubt Warren’s sermon will shake the conviction, or motivation, of any trader presented with solid odds of doubling their money in the not too distant future…

    Tyler Durden
    Sat, 03/05/2022 – 19:40

  • Russia's Attack On Ukraine Represents A Demand For A New World Order
    Russia’s Attack On Ukraine Represents A Demand For A New World Order

    Authored by Gail Tverberg via Our Finite World,

    Russia’s attack on Ukraine represents a demand for a new world order that, over the long term, will support higher prices for fossil fuels, especially oil. Such an economy would probably be centered on Russia and China. The rest of the world economy, to the extent that it continues to exist, will largely have to get along without fossil fuels, other than the fossil fuels that countries continue to produce for themselves. Population and living standards will fall in most of the world.

    If a Russia-and-China-centric economy can be developed, the US dollar will no longer be the world’s reserve currency. Trade will be in the currency of the new Russia-China block. Outside of this block, local currencies will play a dominant role. Most of today’s debt will ultimately be defaulted upon; to the extent that this debt is replaced, it will be replaced with debt in local currencies.

    As I see the situation, the underlying problem is the fact that, on a world basis, energy consumption per capita is shrinking. Energy consumption is essential for creating goods and services.

    The shrinking amount of energy per person means that, on average, fewer and fewer finished goods and services can be produced for each person. Some countries do better than average; others do worse. With low fossil fuel prices, Russia has been faring worse than average; it wants to remedy the situation with long-term higher energy prices. If Russia can start transferring its energy exports to China, perhaps the new Russia-China economy, with limited support from the rest of the world, can afford to pay Russia the high prices for fossil fuels that Russia requires to maintain its economy.

    In this post, I will try to explain what I see is happening.

    [1] It appears that Russia now fears that it is near collapse, not too different from the collapse of the central government of the Soviet Union in 1991. Such a collapse would lead to a huge drop in Russia’s living standards, even from today’s relatively low level.

    If we look back at the Soviet Union’s energy consumption, we see a strange pattern. The Soviet Union’s energy consumption rose rapidly in the period after World War II. It became a military rival of the US, as its energy consumption grew in the 1965 to 1985 period. Its energy consumption leveled off before the central government collapsed in 1991. In fact, energy consumption has never gotten back to its level in the late 1980s.

    [2] The thing that seems to have been behind the 1991 collapse is the same thing that seems to be behind Russia’s current fear of collapse: continued low oil prices.

    When we look back at inflation-adjusted oil prices, we see that a long period of low prices preceded this collapse. These low prices were harmful in many ways. They reduced funds for reinvestment, which led to the collapse in oil supply. They reduced the funds available to pay wages. They also reduced the tax revenue that the Soviet Union could collect.

    I believe that these chronically low oil prices ultimately brought down the top layer of the government of the Soviet Union. This is because of the physics of the situation. It takes energy to provide the services of the top level of the government. As the total energy that could be purchased by the system fell because of low prices received for exports, it became impossible to support this top level of governmental services. This top layer was less essential than the lower levels of government, so it fell away.

    In recent times, there has also been a long period of low prices, since about 2013:

    Unless this pattern of low prices can be reversed quickly, Russia as a political entity could collapse. Exports of all of the goods it now produces would likely fall.

    [3] While oil prices depend on “supply and demand,” as a practical matter, demand is very dependent on interest rates and debt levels. The higher the debt level and the lower the interest rate, the higher the price of oil can rise.

    If we look back at Figure 4, we can see that before the US subprime housing bubble popped in 2008, inflation-adjusted oil prices were able to rise to $157 per barrel, adjusted to the 2020 price level. Once the debt bubble popped, inflation-adjusted oil prices fell to $49 per barrel. It was at this low point (and correspondingly low prices for many other commodities) that the US started its program of Quantitative Easing (QE) to lower interest rates.

    After two years of QE, oil prices were back above $140 per barrel, in inflation-adjusted prices, but these soon started sliding down. By the time oil prices dropped to $120 per barrel, oil companies started to complain that prices were falling too low to meet all of their needs, including the need to drill in ever less productive areas. Now we are at a point where interest rates are about as low as they can go. Short-term interest rates are near zero, which is where they were in the late 1930s.

    The quantity of funds in peoples’ checking and savings accounts is at an extraordinarily high level, as well. This is partly because of the availability of debt at these low interest rates.

    Thus, even before the Ukrainian invasion, oil prices were raised about as high as they could go, through low interest rates and generous debt availability. With all this stimulus, Brent Spot Oil prices in January 2022 averaged $86.51 in January 2022. Even now, with all the disruption of the attack by Russia against Ukraine, oil prices are below the $120 threshold that producers seem to need. This price issue, plus the corresponding low-price issues for natural gas and coal, is the problem that Russia is concerned about.

    Prices for imported coal and natural gas have bounced very high in the last few months, but no one expects these high prices to last. For one thing, they are too high for the European manufacturers that use imported coal or natural gas to stay in business. For example, producers that create urea fertilizer using natural gas find that the price of fertilizer produced in this way is way too high for farmers to afford. For another, the electricity produced by burning the high-priced natural gas or coal tends to be too expensive for European households to afford.

    [4] The fundamental problem behind recent low oil prices is the fact that the current mix of consumers cannot afford goods and services produced using the high oil prices that producers, such as Russia, need to operate, pay high enough wages, and do adequate reinvestment.

    When the price of oil was very low, back before 1970 (see Figure 3), it was relatively easy for consumers to afford goods and services made with oil. This was the period when the world economy was growing rapidly, and many people could afford to purchase automobiles and buy the oil products needed to operate them.

    Once the cost of oil extraction started rising because of depletion, it became more and more difficult to keep prices both:

    1. High enough for oil producers, such as Russia, and

    2. Low enough to make affordable goods for consumers, as was possible prior to 1970

    To try to hide the increasingly difficult problem of keeping prices both high enough for producers and low enough for consumers, central banks have lowered interest rates and encouraged the use of more debt. The idea is that if a person can buy a fuel-efficient car at a low enough interest rate and over a long enough term, perhaps this will make the vehicle more affordable. Similarly, interest rates on home mortgages have fallen to very low levels. All of this, plus the fact that debt is used to finance new factories and mines, leads to the relationship we saw in Figure 4 between oil prices and debt availability, related to interest rates.

    [5] No one knows precisely how much oil, coal and natural gas can be extracted because the quantity that can be extracted depends on the extent of the price rise that can be tolerated without plunging the economy into recession.

    If prices of these fossil fuels can rise very high (say, $300 per barrel for oil, and correspondingly high prices for other fossil fuels), a huge amount of fossil fuel can be extracted. Conversely, if energy prices cannot stay above the equivalent of $80 per barrel oil for very long without a serious recession, then we may already be very close to the end of available fossil fuel extraction. Both oil and gas producers and coal producers can be expected to go out of business because prices do not leave a sufficient margin for the required investment in new fields to offset the depletion of existing fields. Renewables will falter, as well, because both building and maintaining renewables requires fossil fuels.

    The amount of resources of any kind (fossil fuels and minerals such as lithium, uranium, copper and zinc) that can be extracted depends upon the extent of depletion that the economy can tolerate. Depletion of any kind of resource means that a bigger effort (more workers, more machinery, more energy products) is required to extract a given quantity of each resource. It is clear that the entire economy cannot be transferred to the extraction of fossil fuels and mineral resources. For example, some workers and resources are needed for growing and transporting food. This puts a limit on how much depletion can be tolerated.

    What Russia (as well as every other oil producer) would like is a way to get the tolerable oil price up significantly higher, for example, to $150 per barrel, so that more oil can be extracted. The hope is that a Russia-and-China-centric economy might be able to do this. Ideally, the tolerable maximum price for coal and natural gas would rise, as well.

    [6] Europe, in particular, cannot afford high oil prices. If interest rates are increased soon, this will make the problem even worse. China seems to have definite advantages as an economic partner.

    Europe is already having difficulty tolerating very high prices of imported natural gas and coal. Rising oil prices will add even more stress. Central banks are planning to raise interest rates. These higher interest rates will make loan payments more expensive. These higher interest rates will tend to push Europe’s economy further toward recession.

    Given the problems with Europe as an energy importer, China would seem to have the possibility of being a better customer that can perhaps tolerate higher prices. For one thing, China is more efficient in its use of energy products than Europe. For example, many homes in the southern half of China are not heated in winter. People instead dress warmly inside their homes in winter. Also, homes and businesses in northern China are sometimes heated with waste heat from nearby coal-fired electricity plants. This is a very efficient approach to heating.

    China also uses more coal in its energy mix than Europe. Historically, coal has been much less expensive than oil. What is needed is a low average price of energy. A small amount of high-priced oil can be tolerated in an economy that uses mostly coal in its energy mix. When all costs are counted, wind and solar are very high-priced energy sources, which contributes to Europe’s problems.

    In recent years, China’s consumption of energy products has been growing very rapidly. Perhaps, in the view of Russia, China can use high-priced fossil fuel better than other parts of the world.

    [7] Russia realized that the rest of the world is utterly dependent upon its fossil fuel exports. Because of this dependency, as well as the physics-based connection between the burning of fossil fuels and the making of finished goods and services, Russia holds huge power over the world economy.

    The world economy should have known about the importance of fossil fuels and the likelihood that the world economy would face depletion issues in the first half of the 21st century, ever since a speech by Rear Admiral Hyman Rickover in 1957. In this speech, Rickover said.

    We live in what historians may someday call the Fossil Fuel Age. . .With high energy consumption goes a high standard of living. . . A reduction of per capita energy consumption has always in the past led to a decline in civilization and a reversion to a more primitive way of life.

    Current estimates of fossil fuel reserves vary to an astonishing degree. In part this is because the results differ greatly if cost of extraction is disregarded or if in calculating how long reserves will last, population growth is not taken into consideration; or, equally important, not enough weight is given to increased fuel consumption required to process inferior or substitute metals. We are rapidly approaching the time when exhaustion of better grade metals will force us to turn to poorer grades requiring in most cases greater expenditure of energy per unit of metal.

    . . . it is an unpleasant fact that according to our best estimates, total fossil fuel reserves recoverable at not over twice today’s unit cost are likely to run out at sometime between the years 2000 and 2050, if present standards of living and population growth rates are taken into account.

    I suggest that this is a good time to think soberly about our responsibilities to our descendants – those who will ring out the Fossil Fuel Age. Our greatest responsibility, as parents and as citizens, is to give America’s youngsters the best possible education [including the energy problem of a world with finite resources].

    Many people today would conclude that world leaders have done their best to ignore this advice. The likely problem with fossil fuels has been hidden behind an imaginative, but false, narrative that our biggest problem is climate change caused primarily by fossil fuel extraction that can be expected to extend until at least 2100, unless positive steps are made to hold back this extraction.

    In this false narrative, all the world needs to do is to move to wind and solar for its energy needs. As I discussed in my most recent post, titled Limits to Green Energy Are Becoming Much Clearer, this narrative of success is completely false. Instead, we seem to be hitting energy limits in the near term because of chronically low prices. Wind and solar are doing very little to help because they cannot be depended upon when needed. Furthermore, the quantity of wind and solar available is far too low to replace fossil fuels.

    Few people in America and Europe realize that the world economy is entirely dependent upon Russia’s exports of oil, coal and natural gas. This dependency can be seen in many ways. For example, in 2020, 41% of world natural gas exports came from Russia. Natural gas is especially important for balancing electricity from wind and solar.

    North America has historically played only a very small role in natural gas exports; it is questionable whether North America can ramp up its total natural gas production in the future, given the depletion problems being experienced with respect to the extraction of oil and the associated natural gas from shale formations. Continuously high oil prices are necessary to justify ramping up production outside of sweet spots. If drillers consider long-term prospects for oil prices to be too low, the associated natural gas will not be collected.

    Europe is especially dependent upon natural gas imports (Figure 9). Its imports of natural gas exceed the exports of Russia and its affiliated countries in the Commonwealth of Independent States, referred to as Russia+ in Figures 8 and 9.

    Without the natural gas exports of Russia and its close affiliates, there is no possibility of supplying adequate natural gas exports to the rest of the world.
    Diesel fuel, created by refining oil, is another energy product that is in critically short supply, especially in Europe. Diesel fuel is used to power trucks and farm tractors, as well as many European automobiles.

    An Argus Media report indicates that Russian supplies account for 50% to 60% of Europe’s seaborne imports of diesel and other gasoil, amounting to amounting to 4 to 6 million tons of fuel per month. It likely would be impossible to replace these imports, using supplies from elsewhere, without bidding the price of these imported fuels up to a much higher price level than today. Even then, countries outside Europe would be left with inadequate diesel supplies.

    [8] Russia’s attack on Ukraine seems to have been made for many reasons.

    Russia was clearly frustrated with the current situation, with NATO becoming increasingly assertive within Ukraine itself, even though Ukraine is not itself a NATO member. Russia is also aware that in some sense, it has far more power over the world economy than most people realize because the world economy is utterly dependent on Russia’s fossil fuel exports (Section 7). Sanctions against Russia will likely hurt the countries making the sanctions as much or more than they hurt Russia.

    There were also several concerns that were specifically Ukrainian giving rise to the attack on Ukraine. There had been long standing conflicts about natural gas pipelines. Was Ukraine taking too much natural gas out as a transit fee? Was it paying the correct fee for the natural gas it used? Ukraine also seems to have mistreated quite a few Russian-speaking Ukrainians over the years.

    Russia has become increasingly frustrated with the small share of the world’s output of goods and services that it receives. The way the economic system works today, those who provide “services” seem to receive a disproportionate share of the world’s output of goods and services. Russia, with its extraction of minerals of many kinds, including fossil fuels, has not been well compensated for the great wealth that it brings to the world as a whole.

    Over the years, Russia’s great strength has been its military. Perhaps Ukraine would not be too large a country to do battle over. Russia might be able to eliminate some of its irritations with Ukraine. At the same time, it might be able to make changes that would help to raise what have become chronically low fossil fuel prices. The sanctions that other countries would make would tend to push the required changes along more quickly.

    If the sanctions really did push Russia down, the result would tend to push the whole world economy toward collapse, because the rest of the world is extremely dependent upon Russia’s fossil fuel exports. In Figure 1, the laws of physics say that there is a proportional response to the quantity of energy “dissipated”; if a greater output of goods and services is desired, more energy input is required. Efficiency changes can somewhat help, but efficiency savings tend to be offset by the higher energetic needs of the more complex system required to achieve these savings.

    If energy prices do not rise high enough, we will somehow need to get along with very little or no fossil fuels. It is doubtful that renewables will last very long either because they depend upon fossil fuels for their maintenance and repair.

    [9] If higher energy prices cannot be achieved, there is a significant chance that the change in the world order will be in the direction of pushing the world economy toward collapse.

    We are living in a world today with shrinking energy resources per capita. We should be aware that we are reaching the limits of fossil fuels and other minerals that we can extract, unless we can somehow figure out a way to get the economy to tolerate higher prices.

    The danger that we are approaching is that the top levels of governments, everywhere in the world, will either collapse or be overthrown by their unhappy citizens.

    The reduced amounts of energy available will push governments in this way. At the same time, programs such as government-funded pension plans and unemployment plans will disappear. Electricity is likely to become intermittent and then fail completely. International trade will shrink back; economies will become much more local.

    We were warned that we would be reaching a time period with serious energy problems about now. The first time came in the 1957 Rickover speech discussed in Section 7. The second warning came from the 1972 book, The Limits to Growth by Donella Meadows and others, which documented a computer modeling approach to the problem of limits of a finite world.

    The Ukraine invasion may be a push in the direction of more serious energy problems, emerging primarily from the fact that other countries will want to punish Russia. Few people will realize that punishing Russia is a dangerous path; a serious concern is that today’s economy cannot continue in its current form without Russia’s fossil fuel exports.

    Tyler Durden
    Sat, 03/05/2022 – 19:00

  • Visa, Mastercard Suspend All Russia Operations
    Visa, Mastercard Suspend All Russia Operations

    Just hours after Ukraine president Zelensky asked Congress to, among other things, turn off Visa and Mastercard in Russia to which Rep Brad Sherman responded that “the Financial Services committee needs to look at this next week”…

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    … the two payment processors decided unilaterally and without any prodding from Congress, to suspend Russia operations and all transactions initiated with its cards issued in the country will no longer work abroad. In a statement Saturday, Visa said that any cards issued by financial institutions outside of Russia will also no longer work within the country.

    “We are compelled to act following Russia’s unprovoked invasion of Ukraine, and the unacceptable events that we have witnessed,” said Al Kelly, chairman and chief executive officer.

    “We regret the impact this will have on our valued colleagues, and on the clients, partners, merchants and cardholders we serve in Russia. This war and the ongoing threat to peace and stability demand we respond in line with our values.”

    Moments later Mastercard followed, saying that it too would suspend network services in Russia, a decision which “flows from our recent action to block multiple financial institutions from the Mastercard payment network, as required by regulators globally.”

    “With this action, cards issued by Russian banks will no longer be supported by the Mastercard network. And, any Mastercard issued outside of the country will not work at Russian merchants or ATMs” the company said.

    With this latest escalation in Russia’s comprehensive expulsion from the western financial system, expect a surge in usage for China’s UnionPay credit card system as millions of former Visa/MC users in Russia look east. 

    Or Russians may just focus on domestic alternatives: in response to previous sanctions, Russia has developed its own national payment system. The Mir payment system was introduced in 2015 after clients of several Russian banks were temporarily unable to use Visa and Mastercard due to US sanctions. Russia has issued 37 million Mir cards as of June 2018. That said, as IIF chief economist Elina Ribakova notes, “It will be an uphill battle to have MIR (ironically translates as either “world” or “peace”) from 24% to 100% of domestic card volume. In addition to SWIFT will make domestic banking very challenging.”

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    Tyler Durden
    Sat, 03/05/2022 – 18:13

  • The California Housing Market: Affordable, Attainable, or Impossible?
    The California Housing Market: Affordable, Attainable, or Impossible?

    Authored by Thomas Buckley via the California Globe.

    It has been said that everything starts in California.

    Politics, storms, vast amounts of (currently) sequestered, (always) predatory wealth, that “up at the end” accent no one can actually tolerate, etc. –  all that is true.

    Add to that list housing cost spikes.

    There has been a significant debate around the idea of “affordable” housing.  To simplify, that means – when the government is involved – a certain percentage of your known income will go to cover the roof over your head.  If you happen to live in the Golden State, that will mean somewhere between 10 and 30 percent of your gross income will go to housing (and it can be less than zero, depending upon the definition of permanent supportive housing).

    But instead of focusing on the idea of “affordable” housing, it may be time to look at “attainable” housing.

    Attainable housing first, unlike government-supported “affordable” housing, is owned, not rented.  A standard (averages used – locational issues are the variable) urban California housing unit costs about $3,000 per month, utilities extra.  This is a rent that can be sustained by an income of about $90,000 per year, already a bit above the state family average.

    Now imagine making that rent payment each month and saving up for a down-payment – a California home (again, locational variables aside) costs about $700,000, which means an initial outlay (depending upon veteran and/or other status) of between $70,000 and $150,000.

    This translates, if one is saving for a home, into an actual housing cost of $5,000 per month until the home is purchased.  In other words, the average family would have to earn more than $150,000 per to both pay rent and save up  for an, at best, typical home (and as prices rise, that figure gets higher every day).

    What that means is that only about 15 percent of Californians can currently reasonably expect to be able to even think about buying a home, once the bedrock of American – let alone California – society.

    Which brings us to the question – Qui bono?

    Surprisingly, it’s not necessarily the “evil” local developers, many of whom see a massive market opportunity and are trying to fill it – by building new units -as fast they can.  The very specific beneficiaries are the massive hedge funds currently buying up single-family homes – with cash – in hundreds of local neighborhoods.

    Vast numbers of standard homes have been bought and converted into rentals – for institutional investors it makes sense, as the current return on rentals is near and/or above the S&P average and the value of the ability to convert real property into general (borrow-against-able, if that scans) collateral is far more than that.

    Playing into that is California’s recent move to wrest control of local land use ordinances and mandate a four “dwelling unit per lot” allowable minimum; this new window has created the perfect investor tsunami – if you can buy one home, spend a few bucks, and rent it to four families, even though the neighborhood was specifically designed for one “typical” family worth of cars, one family worth of school kids, etc. why wouldn’t you? And why wouldn’t you do it again…and again…and again – no matter the immediate negative quality-of-life impacts?

    What all that implies is that California is creating neither affordable nor attainable housing – no matter the type of housing unit is being considered.  With a state of renters – and everyone has rented (it must be noted an attractive long-term option for millions) at some point, so no harm, no foul – no matter how many months ahead, no matter the income, a certain edginess in one’s life occurs.  If one is able to create that situation amongst a widespread majority that is a consistently nervous majority, one can essentially destroy the middle class,  And, yes, lawn mowing and the tidy garage and the “well, don’t bug the neighbors” mindset is ripe for, occasionally deserved, mockery, to does mark – and personify –  the inherent stability and success of the state and nation.

    No matter the image, California was built on a simple reality – good regular people doing good regular living pretty darn well.

    While the state that was once the global magnet for the brilliant and the silly and the rich and the optimist may still exist, the core that allowed the brilliant and silly and rich and the optimist to prosper may not be here much longer.

    Tyler Durden
    Sat, 03/05/2022 – 17:30

  • "Won't Do Unless At Gunpoint" – Musk's Starlink Rejects Governments Requests To Ban Russian News
    “Won’t Do Unless At Gunpoint” – Musk’s Starlink Rejects Governments Requests To Ban Russian News

    Moscow-backed news outlets across the European Union were banned this past week. Across the pond, RT America pulled the cord, ceased all operations, and laid off most of its staff due to “unforeseen business interruption events.” The Orwellian measures that governments impose to silence opposition and control narratives is the same playbook used during the virus pandemic.

    In the ‘fog of war,’ it’s important to hear both sides so one can make an informed decision — even though the other side might be wrong (or lying) — the ability to objectively hear both sides leaves room for debate. 

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    No other than the world’s richest man, Elon Musk, tweeted early Saturday morning that “some governments (not Ukraine)” have told Starlink “to block Russian news sources.” He said, “We will not do so unless at gunpoint.” 

    Musk added: “Sorry to be a free speech absolutist.” 

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    That said, Musk also warned that “Starlink is the only non-Russian communications system still working in some parts of Ukraine, so the probability of being targeted is high.”

    Last week, Ukraine’s Minister of Digital Transformation, Mykhailo Fedorov, said the first batch of SpaceX satellite dishes arrived in the country and will be used to keep the internet up and running despite Russia’s invasion. 

    People on Twitter overwhelmingly supported Musk’s stance on free speech. Here is what they had to say:

    “What Russia is doing to Ukraine is horrendous but blocking RT or other Russian channels like what @DStv has done is setting dangerous precedent globally and its stain the notion of ‘free world,‘” one person said. 

    “Elon is right, you either defend free speech or you do not, there is no in-between. It’s worth remembering hypocrites like Johnson, Trudeau, and Biden have all demonstrated their willingness to use censorship to control the narrative and propaganda to control the population,” someone else said. 

    It appears Starlink is going heavily against the grain of most Silicon Valley-based tech firms that are “canceling” Russian media. 

    However, one Twitter user pointed out:

    “Unless you say something bad about Tesla or Musk. Then he will call your boss and try to have to fired, or unleash his army of Flying Incel Monkeys on the free speaker.”

    Besides cozying up with China over the years, having Tesla employees sign NDAs, and dissolving the company’s PR team, Musk could be making a business move to promote how Starlink betters the world by protecting free speech. 

    Tyler Durden
    Sat, 03/05/2022 – 16:50

  • Russia Arrests American WNBA Player On Drug Smuggling Charges
    Russia Arrests American WNBA Player On Drug Smuggling Charges

    One WNBA player has found herself in an exceedingly difficult legal situation after being arrested in Russia after customs officials reportedly accused her of smuggling drugs after allegedly finding used hash oil cartridges in her luggage. The player, believed to be American WNBA and former Olympic star Brittney Griner, was detained at Sherematyevo International outside Moscow.

    Brittney Griner

    Griner, 31,is an American professional basketball player for the Phoenix Mercury.

    She was reportedly detained in late February, meaning she has been in custody likely for at least a few days. Russia’s notoriously harsh drug smuggling laws mean she could face up to ten years in prison if convicted, the NYT reports.

    Griner has won two gold medals as part of winning women’s basketball Olympic teams. She has been playing in Russia for years, along with many other WNBA players, who find that they can make more money playing in Russia during the WNBA off-season, according to the NYT.

    She has played for played for the Russian team UMMC Ekaterinburg for several years.

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    According to a statement from Russia’s Customs Service, a criminal case involving the American basketball player “has been opened into the large-scale transportation of drugs.”

    While the Russian Customs Service said the detained player had won two gold medals, they only hinted at the player’s identity. But a spokesperson for Griner has apparently confirmed the arrest, and the league has published a statement saying it would stand by Griner through this difficult process.

    The Russian Customs Service released a video of Griner apparently being detained via Telegram.

    The video showed a Russian guard removing something from Griners bag. A date in the video showed it was from February, meaning Griner may have been detained in Russia for weeks already.

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    Her agent told the press that her team was aware of the situation and was working to resolve it.

    In a statement, Griner’s agent, Lindsay Kagawa Colas, said: “We are aware of the situation with Brittney Griner in Russia and are in close contact with her, her legal representation in Russia, her family, her teams, and the WNBA and NBA.

    “As this is an ongoing legal matter, we are not able to comment further on the specifics of her case but can confirm that as we work to get her home, her mental and physical health remain our primary concern.”

    The W.N.B.A. said in a statement that Griner “has the W.N.B.A.’s full support and our main priority is her swift and safe return to the United States.”

    As the NYT points out, the detainment comes amid the escalating conflict created by Russia’s invasion of Ukraine and high tensions between Russia and the United States.

    The arrest will likely be the most high-profile detainment of an American in Russia since the arrest of Trevor Reed two and a half years ago. The 30-year old former American Marine has been detained on trumped up charges since his arrest, and has been accused of being a “spy”. Reed and another former Marine, Paul Whelan, have spent years in Russian custody now on charges that their families (and American officials) have claimed were fabricated by the Russian government in order to seize them as “bargaining chips.”

    Well, now Moscow has yet another valuable bargaining chip. And as China has already showed us, sometimes bargaining chips can be extremely useful.

    Tyler Durden
    Sat, 03/05/2022 – 16:50

  • US Tells All Americans To Leave Russia "Immediately" After Putin Dials Up Threats
    US Tells All Americans To Leave Russia “Immediately” After Putin Dials Up Threats

    Update(4:30pmET): The State Department on Saturday updated its advisory for American citizens in Russia, urging them to leave “immediately”. It comes after a prior notification from the embassy on Wednesday which advised that they should “consider” exiting the country. 

    Below are the opening paragraphs the State Department’s new travel warning, coming the same day it was revealed that American WNBA and former Olympic star Brittney Griner was detained at Sherematyevo International outside Moscow [emphasis in original travel warning]:

    Do not travel to Russia due to the unprovoked and unjustified attack by Russian military forces in Ukraine, the potential for harassment against U.S. citizens by Russian government security officials, the Embassy’s limited ability to assist U.S. citizens in Russia, COVID-19 and related entry restrictions, terrorism, limited flights into and out of Russia, and the arbitrary enforcement of local law.  U.S. citizens should depart Russia immediately.

    U.S. citizens residing or traveling in Russia should depart immediately.  Limited commercial flight options are still available.  Overland routes by car and bus are also still open.  If you wish to depart Russia, you should make arrangements on your own as soon as possible.  If you plan to stay in Russia, understand the U.S. Embassy has severe limitations on its ability to assist U.S. citizens, and conditions, including transportation options, may change suddenly.  U.S. citizens who are able to depart Russia for another country and are in need of emergency assistance upon arrival may contact a U.S. embassy or consulate in that country.

    Griner is accused of having drugs on her possession, and it’s believed she’s already been in Russian custody for a number of days. 

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    The US advisory also warns US citizens of the impact of sanctions and restricted Russian airline travel across Europe and into the US, saying they “should note that some credit and debit cards may be declined as a result of sanctions imposed on Russian banks.  Also, there are some reports of cash shortages within Russia. U.S. citizens should make an alternative plan for access to money and finances if remaining in Russia.”

    The war-footing rhetoric between Moscow and Washington is also growing hotter, with Vladimir Putin in a Saturday speech warning that any country contemplating a no-fly zone in Ukraine would be met with an immediate declaration of war by Russia. 

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    More and more battlefield footage has emerged from Ukraine in the past two days showing Russian aircraft shootdowns, suggesting that its air force may be taking a harder hit than the Kremlin expected.

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    Update(10:21amET): Ukraine’s President Zelensky and his top officials have over the past days been very openly urging a US and NATO imposed no-fly zone over the country, which would effectively bring American forces into a direct shooting war with Russia. On Saturday Russian President Putin issued a stern threat to any external power thinking about intervening by sending direct military forces. 

    Putin made clear a no-fly zone would result in the Kremlin’s immediate declaration of war on any country intervening in such a way. The AP reported and translated his fresh comments made before civilian aviation industry members and pilots as follows: 

    A no-fly-zone would spell war for any third party who tries to enforce one over Ukraine, Vladimir Putin has said.

    Speaking at a meeting with female pilots on Saturday, Putin said Russia would view “any move in this direction” as an intervention that “will pose a threat to our service members.”

    “That very second, we will view them as participants of the military conflict, and it would not matter what members they are,” the Russian president said.

    Further he addressed the ratcheted up sanctions on Russia from the West, which are now serving to isolate Russia almost on levels akin to the US sanctions regimen on Iran – with of course the important exception that the US has not yet directly targeted Russian oil and gas exports.

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    “Sanctions against us are like declaring war on Russia,” Putin said additionally in the meeting with military members.

    He further painted a positive picture of Russia’s strategy and military operations on the ground, at a moment many Western officials and pundits in the media have pointed out major problems for the invaders as Ukraine mounts a fierce ground resistance…

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    The second round of Ukraine-Russia talks which took place Thursday reached a key agreement to allow for the evacuation of civilians in areas of Ukraine seeing intense fighting by establishing ‘humanitarian corridors’. With a third round of talks agreed upon to take place at the start of next week, the potential for local ceasefires sparked hope that this could lead to a broader ceasefire over the country. 

    These corridors were erected in at least two major cities which have been under bombardment by Russia – Mariupol in the southeast on the Sea of Azov, and the eastern city of Volnovakha. The local ceasefires were seen as a significant breakthrough which could lead to a wider pause in fighting, but that appears to have already broken down, after civilians in a city of some 400,000 were only given five hours to exit Mariupol on Saturday. 

    Shelling in Mariupol. Source: @AyBurlachenko via Reuters

    Shelling by Russian forces has reportedly since resumed, with the brief ceasefire now effectively over. President Zelensky’s office issued a statement blaming Russia for breaking the deal: “The Russian side is not holding to the cease-fire and has continued firing on Mariupol itself and on its surrounding area,” it said. 

    The ceasefire for allowing the exit of civilians in Volnovakha has also reportedly broken down. “Talks with the Russian Federation are ongoing regarding setting up a cease-fire and ensuring a safe humanitarian corridor,” the statement by Zelesnky’s office indicated. 

    Additionally Deputy Prime Minister Iryna Vereshchuk said, “We appeal to the Russian side to stop firing,” according to the AP. Mariupol had prior to the humanitarian pause been under continuous shelling for some 30 hours, according to international reports. 

    Ukrainian officials say a Russian plane has been shot down in the outskirts of the northern Ukrainian city of Chernihiv…

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    Likely Russia sees the 5-hour ceasefire as having been sufficient time to allow for civilian evacuations. Mariupol has been described as under complete siege, and with no water or electricity. Given it’s a city of some 400,000 – it’s more than likely that many thousands of civilians remain there as the shelling resumes. 

    City authorities have said they believe at least 200 civilians have been killed since the start of the attack on Mariupol.

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    Meanwhile Germany has issued new numbers after the United Nations previously reported that over 1 million Ukrainians have fled the war. “More than 27,000 refugees have arrived in Germany from Ukraine since the beginning of the Russian invasion on Feb. 24, according to Germany’s interior ministry,” CNN reports. “Germany’s Federal Police has registered 27,491 refugees from Ukraine in Germany to date, an interior ministry spokesperson confirmed to CNN Saturday.”

    Tyler Durden
    Sat, 03/05/2022 – 16:30

  • Watch Live: Convoy Of Truckers Arrive At Final Staging Area Before Push To D.C. Region
    Watch Live: Convoy Of Truckers Arrive At Final Staging Area Before Push To D.C. Region

    At least 1,000 ‘freedom convoy‘ vehicles converged at a speedway in Hagerstown, Maryland, on Friday night and through Saturday morning into the afternoon as some made the 2,500-mile journey from Southern California, according to WaPo. The convoy is at a staging area where their next move could be Washington, D.C., to protest the COVID-19 vaccine and other public health mandates.

    NBC4 Washington reports the convoy is planning to drive onto the Capital Beltway on Saturday, but a convoy spokesperson said they’ll stay in Hagerstown for another night. 

    The convoy left a rural parking lot in Adelanto, California, on Feb. 22 and is now at its last staging area, about 73 miles outside of D.C. 

    Here’s the convoy’s route across America as it appears Hagerstown is the last staging area before D.C. 

    • Adelanto, California
    • Kingman, Arizona
    • Lupton, Arizona
    • Glenrio, Texas
    • Elk City, Oklahoma
    • Vinita, Oklahoma
    • Sullivan, Missouri
    • Indianapolis, Indiana
    • Cambridge, Ohio
    • Hagerstown, Maryland
    • The D.C. Beltway area

    As the Epoch Times notes:

    Organizers of the convoy told The Epoch Times that the group has adjusted its plans and are no longer aiming to arrive in Washington on Saturday as previously reported. Rather, they will be staying in Hagerstown, Maryland—about 70 miles northwest of Washington—for Saturday, and will be headed to an unspecified location two miles from the D.C. Beltway area either on Sunday or Monday.

    Numbers in the convoy have fluctuated as vehicles and trucks join and drop off along the way. It’s unclear how many vehicles will be headed to the nation’s capital.

    One of the organizers, Mike Landis, said he will be driving to Washington. He pointed to a symbolic U.S. flag that had been gifted to him by the grandson of a fallen soldier killed during WWII.

    “In Oklahoma, his grandson drove from Texas to give it to me because his mother said that this is the first thing that reminds her of freedom since WWII and they wanted it to fly behind the lead truck,” he told a rally in Hagerstown on Friday.

    “I can tell you one thing right now. The government can claim that they have all this opposition for us waiting in D.C. but that flag on the back of my truck will go down Constitution Avenue between the White House and the Washington Monument before this is over.”

    *  *  *

    Aerial footage from the area shows a massive line of trucks. 

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    Hundreds of trucks are seen parked at a speedway in Hagerstown.  

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    Here are scenes on the ground. 

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    And there are multiple live feeds to monitor when the convoy begins the final leg to D.C. (that’s if they do). 

    Tyler Durden
    Sat, 03/05/2022 – 16:10

  • Google Searches For Iodine Pills Skyrocket
    Google Searches For Iodine Pills Skyrocket

    Russia’s invasion of Ukraine and President Putin ordering nuclear deterrent forces to be placed on “special” alert has scared the bejesus out of many in the western world who are now panic searching where to buy potassium iodide in case of nuclear war. 

    Potassium iodide can help block radioactive iodine from being absorbed by the thyroid gland, therefore protecting the gland from radiation injury during a nuclear incident. 

    After Putin called for his nuclear forces to be combat-ready last week, U.S. Google search trends of “iodide pills” surged to the highest level since 2011, when the Fukushima nuclear disaster unfolded. 

    Like the U.S. and NATO, Russia has thousands of nuclear warheads and maintains a nuclear deterrent attack force. As Russian incursions show no signs of slowing down, Putin announced Saturday that he would declare war on any country that imposes a no-fly zone on Ukraine. 

    On Thursday night, there were reports Russia shelled Europe’s largest nuclear power plant and damaged a reactor, but those claims turned out to be false. The International Atomic Energy Agency confirmed no reactors at the Zaporozhskaya Nuclear Power Plant in Energodar, southwestern Ukraine, were damaged except for an education and training building. Still, the news sparked concern about Moscow’s warfare which raised international alarm. 

    There are already indications people are panic hoarding in Central Europe. Brussels Times reported 30,000 residents flocked to pharmacies for free potassium iodide pills post-invasion. Pharmacies in Bulgaria are already out of stock.

    “In the past six days, Bulgarian pharmacies have sold as much [iodine] as they sell for a year,” said Nikolay Kostov, chair of the Pharmacies Union, according to Reuters.

     “We have ordered new quantities, but I am afraid they will not last very long,” Kostov said. 

    Administering the tablets should occur within hours of radiation exposure and can help protect the thyroid gland for approximately 48 hours. 

    Tyler Durden
    Sat, 03/05/2022 – 15:30

  • Following Global Outrage, Shell Says It Only Bought Russian Oil After "Intense Talks With Governments"
    Following Global Outrage, Shell Says It Only Bought Russian Oil After “Intense Talks With Governments”

    Yesterday, we reported that after a week of “no bid” markets for Russian seaborne oil where the discount for Urals widened more and more from spot with each passing day (while in the process making the market for non-Russian oil almost offerless and helping Brent close near $120), finally on Friday one company stepped up, and with the Russian crude discount hitting a record $28.50 below dated Brent…

    … Shell purchased the Russian black gold from oil merchant Trafigura Group, which had originally bought the cargo originally from Russia (the cargo was bought on a delivered basis, meaning Shell won’t need to sort out transportation).

    Discussing the transaction, we said yesterday that the deal not only underscores the deep discount Russia is going to have to sell its oil at – which amounts to roughly 25% below spot – but more importantly, it is also the first clear reminder that there is a clearing price for everything, and that Russia will still find willing buyers in companies that are reliant on Urals crude if the discount is low enough.

    We also said that “now that Shell has shown the rest of the world world it can be done, we expect most if not all western companies to scramble and bid for Russian oil, especially when considering that regular spot Brent is trading around $115 on its way to $200, and with that the Russian discount to spot will slowly but surely drift back to zero.”

    What we didn’t say is that Shell would get a flood of pushback and outrage for its decision by Western moralizers, who still refuse to grasp that without Russian oil in the market, the clearing price of crude could soon hit $200 (as many banks have warned) leading to a historic global recession, with outcomes not that different from what happened after oil hit $140 in the summer of 2008 (as discussed first here two months ago).

    So on Saturday, about a day after the details of the Shell purchase first emerged, and following the anticipated barrage of criticism for buying Russian oil, Europe’s largest oil company pushed back, saying in a tweet that “without an uninterrupted supply of crude oil to refineries, the energy industry cannot assure continued provision of essential products to people across Europe over the weeks ahead” – which of course, is precisely the core pillar behind Putin’s gambit – and, more importantly, adding that Shell has been “in intense talks with governments and continue to follow their guidance around the issue of security of supply” even as it is “acutely aware we have to navigate this dilemma with the utmost care.”

    “We will continue to choose alternatives to Russian oil wherever possible, but this cannot happen overnight because of how significant Russia is to global supply,” Shell added in the statement.

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    The London-based Shell didn’t specify which governments it had been speaking to, and as Bloomberg notes, a U.K. government official didn’t immediately comment.

    As we said yesterday, and as Bloomberg today confirms, “Shell’s purchase is a signal that major buyers will likely continue to make purchases of Russia’s energy products despite its increasingly deadly war against Ukraine.”

    The deal also underlined the stark situation facing European and world energy buyers. They need to work out how to deal with the potential loss of one of the market’s top suppliers, as a raft self-sanctioning effectively removes Russian product as an option.

    Shell’s purchase sparked a barrage of global criticism; Ukraine’s Minister for Foreign Affairs Dmytro Kuleba took to Twitter to ask the company whether Russian oil smelt like “Ukrainian blood for you?” and called on all “conscious [sic] people around the globe to demand multinational companies to cut all business ties with Russia.”

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    He has also pressed his twitter followers and Western nations to “stop buying Russian oil” however as even Shell writes, such an action would be tantamount to economic suicide by Western nations.

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    In hopes of quieting its critics, Shell, which last weekend also announced it would divest its stake in the Sakhalin-2 LNG project, also said it will donate profits from its Russian business to humanitarian aid agencies.

    Tyler Durden
    Sat, 03/05/2022 – 14:51

  • "Close The Skies Or Give Us Planes": Zelensky Tells US House & Senate In Zoom Call
    “Close The Skies Or Give Us Planes”: Zelensky Tells US House & Senate In Zoom Call

    At a moment that US Congress is busy prepping a whopping $10 billion military and humanitarian aide package for Ukraine, the country’s leader Volodymyr Zelensky is already making a “desperate plea” for more, telling a virtual meeting of over 300 Congress members Saturday that his military urgently needs additional jets to be sent to Kiev.

    The Zoom call was first time since the Russian invasion began almost a week-and-a-half ago that Zelensky addressed both houses of the Congress in a major appeal. He took the opportunity to reiterate his call for a no-fly zone, which both NATO leadership and the Biden administration have so far rejected, citing that it would lead the US into a direct shooting war with Russia.

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    During the speech, Zelensky made a “desperate plea for Eastern European countries to provide Russian-made planes to Ukraine.” This according to a description of his words provided to media outlets by Senate Majority Leader Chuck Schumer.

    “I will do all I can to help the administration to facilitate their transfer,” Schumer said. Zelensky also appealed for more drones to be given to the Ukrainian military.

    According to The New York Times, Zelensky seemed to acknowledged the prior call for a no-fly zone over Ukraine is not on the table for Washington. So he framed the need as a “close the skies or give us planes” message:

    “Zelensky’s message is simple: ‘Close the skies or give us planes,’’” Senator Ben Sasse, Republican of Nebraska, said in a statement after the meeting. “Let’s be cleareyed about our options: A no-fly zone means sending American pilots into combat against Russian jets and air defenses — in a battle between nuclear powers that could spiral out of control quickly.”

    Despite Sen. Sasse clearly being aware of the dangers of the US getting sucked in to a WW3, he said in follow-up that he believes the US “should absolutely send Ukrainians planes, helicopters and UAVs,” according to the Times report.

    And more…

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    On Saturday surreal footage is circulating of a Russian jet shot down over Ukraine’s north, with pilots parachuting over city buildings…

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    As for the $10 billion aide package in the works, Congressional leaders said they are busy working “very hard in bipartisan fashion”.

    Tyler Durden
    Sat, 03/05/2022 – 14:20

  • Soaring Wheat Prices Leave These Countries Susceptible To Uprisings 
    Soaring Wheat Prices Leave These Countries Susceptible To Uprisings 

    Ukraine is considered the “breadbasket of Europe,” and the Russian invasion is choking off grain exports, sending global food prices to record highs.

    Grain prices surged to record highs last week as world food prices are now higher than they were during the 2011 Arab Spring, leaving us with an abundance of caution that political uprisings due to food price shocks could be right around the corner. 

    On Friday, the UN Food and Agriculture Organization (FAO) Food Price Index (FFPI), a measure of the monthly change in international prices of a basket of food commodities, reported record-high prices for February. Prices are, in fact, 3.1% higher than they were in February 2011 when anti-government protests, uprisings, and armed rebellions sprung up around the Arab world. 

    The risk of an uprising happening again is rising. Everyone’s favorite permabear, SocGen’s Albert Edwards, opined two years ago about future agricultural price shocks and how they could cause another Arab Spring.

    We want to determine which countries are most vulnerable to food price shocks and shortages because of the Ukrainian crisis. Bloomberg data shows the most reliant countries on Ukraine wheat, including Egypt, Indonesia, Bangladesh, Pakistan, and Turkey. 

    While there are no indications that any of these countries are on the brink of social unrest, keep a close eye on them as food prices soar and spring in the northern hemisphere is two weeks away. 

    Tyler Durden
    Sat, 03/05/2022 – 13:50

  • Putin Threatens Ukraine With Loss Of Statehood
    Putin Threatens Ukraine With Loss Of Statehood

    As we detailed earlier, Russian President Vladimir Putin in a Saturday morning speech gave a wide-ranging update of the war in Ukraine, painting a positive picture essentially saying “everything is going to plan” – while taking the opportunity to war any Western nation eyeing the imposition of a no-fly zone that such action would bring an immediate Russian declaration of war against that country.

    Putin also addressed the leaders of Ukraine, warning that the country might lose “statehood” if “they continue doing what they are doing,” as reported in The New York Times. It’s the first time Putin in such a blunt and detailed way addressed what might be the Kremlin’s end game for Kiev – coming after much speculation on the West over whether full annexation into the Russian Federation is on the table or not.

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    “The current leadership needs to understand that if they continue doing what they are doing, they risk the future of Ukrainian statehood,” Putin said in Moscow. “If that happens, they will have to be blamed for that.”

    Already last month, within days before the all-out invasion of Ukraine, Putin signed a decree giving formal independence recognition to the Eastern Ukraine breakaway republics of Donetsk and Luhansk. Since the launch of the invasion on Feb.24, some pundits have suggested the war could end in a divided Ukraine along the lines of a pro-Russian eastern speaking half and pro-West half centered in Lviv. 

    The other major eyebrow raising remarks were centered on his addressing this past week’s avalanche of sanctions coming from the EU and United States, including against Putin personally.

    He bluntly called the sanctions “akin to a declaration of war” – which is the first time the Russian leader has addressed the sanctions with those words, marking a clear escalation in rhetoric. Here’s what he said, according to Fox:

    Putin pledged that the “realization” of demands to do so would “bring catastrophic results not only to Europe, but to the whole world” and called western sanctions against Russia “akin to a declaration of war.” 

    “Our proposals are on the table with the group of negotiators from Kyiv,” he said. “Hopefully, they will respond positively to that.”

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    In the hours since his speech, Ukraine’s government has confirmed that it’s ready to enter the third round of ceasefire talks on Monday, March 7. During Thursday’s second meeting, local ceasefires were agreed upon in order to facilitation the evacuation of civilians from cities under fire. In Mariupol for example, that ceasefire reportedly lasted five hours before fresh shelling is said to have broken out. 

    Tyler Durden
    Sat, 03/05/2022 – 13:20

  • North Korea's Kim Launches 9th Ballistic Missile This Year While All Eyes On Ukraine
    North Korea’s Kim Launches 9th Ballistic Missile This Year While All Eyes On Ukraine

    With the entire world’s attention focused on Russia and Putin amid the ongoing war in Ukraine, now in the middle of its second week, it seems Kim Jong Un thought it was the perfect time to launch some rockets.

    On Saturday North Korea fired a ballistic missile into the sea while expanding weapons testing, according to The Associated Press. “The launch was detected by the South Korean military, and the country’s Joint Chiefs of Staff said that the missile flew about 270 kilometers (168 miles) at a maximum altitude of 560 kilometers (348 miles) and landed in the sea between Korea and Japan,” the report detailed.

    2022 has already been a busy year for Pyongyang, with Saturday’s launch marking no less than nine rounds of missile launches, also coming at a moment that denuclearization talks on the peninsula have been completely stalled.

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    Last Sunday a projectile was launch from the country’s Sunan, area, The Hill noted. That prior Sunday launch barely made a blip in global headlines, given international media’s seemingly singular focus at that time had been on the shock Russian invasion of Ukraine.

    Of that prior launch, some world leaders accused Pyongyang of intentionally using the distraction of the Ukraine crisis to its advantage: 

    Japanese Defense Minister Nobuo Kishi called the launch “absolutely unacceptable.”

    “The missile was fired just as the international community is responding to Russia’s invasion of Ukraine, while also in the middle of the Beijing Paralympics,” Kishi said.

    Rachel Minyoung Lee, a non-resident fellow with the 38 North Program at the Stimson Center, commented a week ago that “A confluence of these events — the Ukrainian situation, South Korea’s leadership transition period between now and the new president’s inauguration in May, and the shifting global dynamics involving the U.S., Russia, and China — make it extremely difficult to come up with and impose a coordinated response to North Korea, even if it were to resume intercontinental ballistic missile test-launches or nuclear tests,”

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    “This lays the perfect ground for Pyongyang to test its new weapons and continue to make advancements in its nuclear and missile technology,” Lee said further.

    Tyler Durden
    Sat, 03/05/2022 – 12:50

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