EUROPEAN natural gas futures show signs of deteriorating liquidity, with large price gaps emerging, indicative of many traders and market-makers avoiding trading in size because short-term volatility has become too extreme and risks are too high:
EXTREME short-volatility, price gapping and evaporation in liquidity are classic features of a market nearing an extreme high/low, in terms of time if not price. Recent examples are negative WTI prices in April 2020 and the peak in oil prices in Jun/Jul 2008
MARKET pricing starts to break down near extreme high/lows, with more and more traders pulling back from taking any significant position because of the size of the short-term price moves and lack of liquidity to enter and exit positions. Lack of liquidity becomes self reinforcing
POWER GRID FAILURES never have a single cause. Grids should be managed conservatively with multiple layers of protection and reserves. Even if there is a single proximate cause, such as a single generator outage, the grid will only fail if those multiple layers have eroded
IN TEXAS, the proximate cause of grid failure was likely the extreme cold temperatures across much of the state. But big freezes are not that infrequent in the state. ERCOT's system operating plan should have been able to cope with the cold. The question is why it failed.
IN TEXAS, the power crisis seems to have blown through multiple layers of system protection, including spinning reserves, peaking power reserves, and demand-response, all of which seem to have proved insufficient, leaving ERCOT no option but massive forced load-shedding.
Forced load-shedding is a sign of a power system under extreme stress, with inadequate firm generation capacity, inadequate capacity to import power from neighbouring areas to support the network, and inadequate flexibility on the consumption side
Forced loading shedding is always a planning failure. Like California blackouts last summer, post-event study needs to identify why ERCOT had insufficient firm generation; whether grid managers acted in time to manage reserve margins; and whether there is enough load flexibility
“ONE COUNTRY, TWO SYSTEMS,” formula for Hong Kong is ending. Protestors reject China’s sovereignty; China rejects HKSAR legal autonomy; and United States no longer willing to treat HKSAR as a separate economic and financial territory: state.gov/prc-national-p…
OCTS was based on a deliberate ambiguity about the territory’s status following the transfer of sovereignty from Britain to China, one that obscured differences over culture, identity, economic functions and ultimate control. But ambiguity has come under increasing strain
OCTS required ambiguity at multiple levels: social, HKSAR, PRC, and international. But at every level the ambiguity has given way to pressure for clarity. And the compromises and contradictions are starting to unravel.
ECONOMIC GROWTH and technological change has always destroyed huge numbers of jobs in old industries while creating employment in new industries:
* Peasant farmers (enclosure)
* Spinners (steam engines)
* Weavers (power looms)
* Canal workers (railways)
* Coal miners (automation)
Economic growth, productivity gains and technological change have eliminated occupations which employed tens of millions of people over the last 250 years, and the future is unlikely to be any different
USTR LIGHTHIZER’s negotiating strategy can be summarised as lay out an uncompromising position and then engineer a deadline/crisis to push the negotiations over the line and secure a deal. Current White House has been an enthusiastic supporter of this approach giving 100% backing
LIGHTHIZER’s notable success was the USMCA deal in 2018, but it may have led observers to overestimate the usefulness of his strategy
USMCA only reached conclusion by splitting weaker partner (Mexico) from stronger one (Canada), doing deal with weaker partner and threatening to leave stronger partner isolated if it didn’t sign on
SOME INFORMAL reflections on the U.S. decision to end all waivers for Iran sanctions:
UNITED STATES, SAUDI ARABIA and UAE have now gone “all-in” on their campaign of maximum financial pressure on Iran through oil sanctions. Few if any more rungs left on the diplomatic escalation ladder
PRESIDENT TRUMP has staked his personal credibility on Saudi Arabia making up barrels lost to sanctions AND avoiding a sustained increase in oil prices (White House can no longer complain that “OPEC” is driving prices higher)
TARIFFS AND TRADE
Earlier in my career, I focused on trade liberalisation and negotiations
Current articles about trade are generating more heat than light, so I thought I’d offer some observations ...
The General Agreement in Tariffs and Trade was reached in 1947. Tariffs and trade wars during the 1930s made all countries worse off. Policymakers had learned the hard way that there are no winners from a trade war, only losers
GATT 1947 built on the key terms of earlier bilateral trade treaties and turned them into a multilateral general framework (most off the terms in the GATT had appeared in treaties before)