Europe Can’t Even Agree On Russian Trade Sanctions

The (ironically named) United Kingdom is the first to openly raise concerns over trade sanctions against Russia. As The Telegraph reports,

Britain is preparing to rule out trade sanctions against Russia amid fears that the Ukraine crisis could derail the global economic recovery

Perhaps it is the fear of a massive liquidity suck out from London’s real estate market (or its banking system) that has the Brits on edge. We suspect Germany will be close behind as they eye exploding gas and oil prices and their dependence on Russia’s marginal production.

It would appear, just as in the case of Syria, that Obama may find himself alone among his allies…


    



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Monday Humor: World On The Verge? “Get Some Peace Of Mind”

The Cold War being back with a bang and somehow the world again finding itself on the verge of World War got you down? Don’t worry, there an insurance policy for that. Because life is unpredictable…

 


    



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Rand Paul is Not an Isolationist

Last Friday, Sen. Rand Paul (R-Ky.) released a statement on
the situation in Ukraine:

We live in an interconnected world and the United States has a
vital role in the stability of that world. The United States should
make it abundantly clear to Russia that we expect them to honor the
December 1994 Budapest Memorandum, in which the U.S., Russia, and
the United Kingdom reaffirmed their commitment ‘to respect the
independence and sovereignty and the existing borders of Ukraine.’
Russia should also be reminded that stability and territorial
integrity go hand in hand with prosperity. Economic incentives
align against Russian military involvement in Ukraine. Russia,
which has begun to experience the benefits of expanded trade with
World Trade Organization accession, should think long and hard
about honoring their treaty obligations and fostering the stability
that creates prosperity for its citizens. Most importantly, Russian
intervention in Ukraine would be dangerous for both nations, and
for the rest of the world,” Sen. Paul said.

This sort of position is not good enough for neoconservatives,
some of whom are repeating familiar and inaccurate rhetoric
relating to Paul’s foreign policy positions.

Over at Commentary, Jonathan Tobin today referred to
Paul’s
“neo-isolationism.”
 Tobin has previously associated Paul
with
“a growing chorus of isolationists.”
In a column for
The Washington Post published today,

Jennifer Rubin
refers to “the isolationist right,” and writes
that “no one has looked less able to lead America in dangerous
times than Sen. Rand Paul (R-Ky.).” Rubin previously referred to
Paul’s
“isolationist vision”
in a column about intervention in Syria.
In a post for the American Enterprise Institute published in
October last year, Phillip Lohaus referred to Paul’s
“isolationist tendencies.”

Of course, Paul is not an isolationist. Wanting trade and
diplomatic relations with countries while opposing being overly
involved in their affairs does not make you an isolationist. Taken
to its extreme, an isolationist foreign policy results in a country
that looks much closer to North Korea than a country like
Switzerland, which in economically engaged with the world but is
known for being wary of military intervention. 

That Paul is not an isolationist has been point out before by
the Cato Institute’s
Justin Logan
:

Rand Paul, Rep. Justin Amash, and other skeptics of reckless
foreign wars and secret government spying on Americans aren’t
isolationists. They’re prudent conservatives who take the
Constitution seriously and rose to power amid the wreckage of the
George W. Bush administration, which destroyed the GOP advantage on
national security and provided a good example of how not to conduct
foreign policy.

There are some on the right who do understand the difference
between isolationism and non-interventionism.
National Review
correspondent Kevin Williamson writes
that those who advocate for non-military solutions to foreign
affairs justifiably protest against the use of the term
“isolationist.”

Paul has outlined his position on foreign policy before in a
speech at The Heritage Foundation last year. Watch below:

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Washington State Wants to Eliminate Medical Marijuana Co-Ops, Bring Patients Under Tighter Control

Two bills in the Washington state legislature aim
to “reconcile”
the state’s medical and recreational marijuana
markets
The Associated Press reports. An
attempt to cut back on bureaucracy or make a patchwork of competing
regulations easier to follow? Not so much. The measures would put
tighter restrictions on medical marijuana patients and
dispensaries, which currently operate as cooperatives. Small
business owners like Loaded Soda’s Dave Kois think the moves amount
to little more than a money grab by the state. 

“They see medical as a threat to their tax money on the
recreational side,” said Kois, who grows marijuana high in the

antioxidant and anti-inflammatory cannabis compound cannabidiol

and low in THC (the compound that gets you stoned). He told
AP that medical and recreational marijuana are “two
separate systems and they should stay that way.”

Staying that way would mean operating under a bifurcated
regulatory scheme that considers medical marijuana dispensaries
“collective gardens,” wherein patients pool resources to grow and
distribute medical weed. These medical pot collectives are freer
from state regulation than folks dealing in recreational marijuana,
who must be licensed by the state. 

The measures (House Bill 2149 and Senate Bill 5887) under
consideration by Washington legislators would eliminate these
collective gardens, naturally. To stay in existence, current
medical marijuana co-ops and dispensaries would have to get
licensed by the state or shut down. The bills—one of which has
passed the House and is awaiting a Senate hearing; the other
awaiting a vote in the state Senate Ways & Means
Committee—would also place further restrictions on medical
marijuana. 

Both bills look to reduce the amount of marijuana and number of
plants patients can possess, and would do away with collective
gardens by the middle of next year. They would also establish a
patient registry that would provide medical marijuana patients with
an authorization card that would grant them a sales tax break on
medical marijuana purchased at authorized stores. Both allow stores
to have a medical endorsement to sell medical along with
recreational marijuana and also allow an option for endorsed retail
stores to solely serve medical marijuana patients. Rivers’ bill
requires the Liquor Control Board, which is overseeing
implementation of I-502, to consider the needs of patients in
determining the number of retail licenses issued. Currently, the
board has limited recreational retail licenses to 334 across the
state, for which there are currently more than 2,000
applications.

Medical marijuana patients have, quite understandably, been
decrying the potential changes. Some fear that buying in the
recreational weed market will be more expensive and lead to a low
supply of low-THC strains of marijuana. The bills would also
severely curtail the amount of marijuana patients can possess, from
24 ounces to 3 ounces, and the number of plants they can grow, from
15 to six (though both would allow health care professionals to
authorize more if deemed necessary). Washington lawmakers claim
these measures are necessary in order to keep the federal
government from stepping in.

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Ukraine Has Only 4 Months Of Gas Stocks Without Russia

Having explained the Ukraine "situation" in one map, it appears the inter-connectedness of Ukraine and Russia is becoming any increasingly problematic part of the current crisis. As Reuters reports, absent Russian gas, Ukraine's natural gas stocks can meet just 4 months of demand. The modest silver-lining is that the stocks are generally in the west of the country (away from potential Russian intervention) but it bears noting that Ukraine meets around half its gas demand through Russian imports (and Russia has cut supplies in the past). The situatio is not just energy though as Bloomberg notes, that Ukraine relies on Russia for about 30 percent of its global trade activity, compared with Russia’s 6 percent dependency on Ukraine.

 

Sadly, everything you need to know about the crisis in Ukraine in one worrisome map which summarizes all the relevant "red lines."

To prepare for a potential disruption, Ukraine's gas transit monopoly Ukrtransgas has been increasing its gas imports from Russia in recent days, increasing its stocks which now stand at four months worth of supplies, several industry sources said.

Of Ukraine's 33 billion cubic metres (bcm) storage capacity, Gas Infrastructure Europe (GiE) data shows that around 80 percent is in its far west, so even in the case of a Russian intervention in Ukraine's predominantly Russian east, most storage assets would likely remain safe from seizure.

Analysts also say that a continuation of gas supplies was in the interest of all parties.

"Until a real war, I think that all sides (Russia, Europe and all parties in Ukraine) have a vested interest in flowing gas from Russia to Europe," said Thierry Bros, senior gas analyst at French bank Societe General.

"Russia needs the money from gas sales, Europe is 26 percent dependant on Russia for its gas consumption, and Ukraine need the money from the transit fees," he added.

 

Ukraine's Reliance on Russia goes far beyond just energy…

A conflict between Russia and Ukraine would have a more substantial impact on Ukraine in terms of trade dependency. Trade-flow data show that Ukraine relies on Russia for about 30 percent of its global trade activity, compared with Russia’s 6 percent dependency on Ukraine. The European Union overtook Russia as the larger destination for Ukraine’s exports in January 2013 on a 12-month rolling basis.

 

Still, more than a quarter of Ukraine’s exports are still consumed by Russia. Ukraine depends on Russia for about a third of its total imports. Russia’s reliance on Ukraine is much less, with 6 percent of the country’s exports being consumed by Ukraine and about 5 percent of Russia’s imports coming from Ukraine.

 

The chart illustrates how trade dependencies between Ukraine and Russia have changed during the past 10 years.

And it's not just Ukraine that faces a problem

In western Europe, a mild winter and improved infrastructure mean Europe is less reliant on Russian natural gas pumped through Ukraine than in past years, easing worries that the escalating crisis in Ukraine could hurt supplies.

 

Despite the improved situation, analysts warned that a renewed disruption would hit Europe hard.

 

"Risks for Europe exist always, that is why it should pursue even more diversification projects further and develop liquefied natural gas (LNG) markets and new connectors in central and southeastern European regions," said Anna Bulakh of the International Centre for Defence Studies.

 

However, Ukraine has another big problem – while it would like $3bn in IMF loans, that will not even cover interest and principal payments through June…

 

What is perhaps most ironic is the mainstream media's attention to a 12% drop in the Russian stock market. If this occurred in the US, it would be the end of the status quo… Putin does not care about Russian stocks… all he cares about is the price of oil. Sanctions would merely raise oil prices as supply would be cut… raising the value of Russia's resources – and we are sure the Chinese would be more than happy to buy (in Yuan-terms) crude direct from Russia as the rest of the world shuns them (and faces crushing energy costs).

 

Source: Bloomberg


    



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Seth Klarman Compares Phony U.S. Economy to “The Truman Show”

Seth Klarman is one of the most talented fund managers of our time. I have been consistently awed by his intelligence and consistent performance, as well as a strong sense character and honestly.

ValueWalk just put together a synopsis of his latest investor letter, and there are some choice phrases in there. While I completely disagree with him on Bitcoin (he seems to see it as merely a currency rather than an efficient, global, P2P, decentralized payment system), I’m not going to hold that against him.

Now from ValueWalk:

Baupost Group, among the largest hedge funds in the world, returned $4 billion in assets to clients at the end of 2013 because it didn’t want to grow too quickly and dilute performance, according to an investor letter reviewed by ValueWalk.  Seth Klarman’s fund, which in 2013 had a high of 50% of his portfolio in cash, up from 36% in 2012, posted 2013 returns in the mid-teens consistent with the fund’s nearly 22-year track record.

Like many of the best market analysts, Seth Klarman looks at both sides of the issue, the bull and bear case, in depth.  “If you’re more focused on downside than upside, if you’re more interested in return of capital than return on capital, if you have any sense of market history, then there’s more than enough to be concerned about,” he wrote.  Citing a policy of near-zero short-term interest rates that continues to distort reality and will have long term consequences, he ominously noted “we can draw no legitimate conclusions about the Fed’s ability to end QE without severe consequences,” a thought pervasive among many top fund managers. “Fiscal stimulus, in the form of sizable deficits, has propped up the consumer, thereby inflating corporate revenues and earnings. But what is the right multiple to pay on juiced corporate earnings?”

“In an ominous sign, a recent survey of U.S. investment newsletters by Investors Intelligence found the lowest proportion of bears since the ill-fated year of 1987,” he wrote. “A paucity of bears is one of the most reliable reverse indicators of market psychology. In the financial world, things are hunky dory; in the real world, not so much. Is the feel-good upward march of people’s 401(k)s, mutual fund balances, CNBC hype, and hedge fund bonuses eroding the objectivity of their assessments of the real world? We can say with some conviction that it almost always does. Frankly, wouldn’t it be easier if the Fed would just announce the proper level for the S&P, and spare us all the policy announcements and market gyrations?” he said in a somewhat hilarious moment that bears a degree of truth.

continue reading

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Mass. Law Pretty Much Locks Brewers into Perpetual Contracts with Distributors, Says Local Brewery Owner

but who sold it to you?The way the Republican of
Springfield, Mass. explains it, the struggle of Antonio Rizos,
owner of Opa Opa  Brewing in Western Massachusetts is akin to
Curt Flood fighting for free agency in Major League Baseball.

Via the Republican
:

In Massachusetts, brewers need to contract with
wholesalers for the distribution of their products to bars and
package store. Rizos can sell as much beer as he wants at his own
two restaurants, Opa Opa Brewery and Steakhouse in Southampton and
the Brewmaster’s Tavern in Williamsburg, but he needs a wholesaler
if he wants to deliver a case to a package store down the
street.

Rizos’ issue with the law, Massachusetts General Laws Chapter 138,
section 25E, is that once a brewer has a relationship with a
wholesaler lasting six months or more, the wholesaler gains
distribution rights indefinitely regardless of performance. And
that, he said, is bad business.

Distributors, naturally, deny the characterization. If Rizos
doesn’t like the arrangement, after all, he can try to sever the
relationship if he thinks he has “good cause.” Then all he has to
do is give 120 days-notice and wait for years of appeals to work
through the state’s alcohol commission. Then he can go find another
distributor for his wares. A
statement
from Rizos’ distributor claims that “Opa Opa chose to
trade their proprietary rights to use other distributors in
exchange for providing exclusivity to” the distributor. If you can
parse that claim, let me know in the comments.

Rizos and the brewer’s guild say in such situations brewers are
forced by economic realities to stop producing the beer they don’t
think their distributor is distributing appropriately, costing
jobs. The invocation of “jobs” has gotten the state involved. Is
lawmakers’ solution to permit producers to enter into any kind of
contract with distributors and retailers that they can negotiate
with them? The repeal of prohibition came with the proviso that
states could control alcohol in their states any way they pleased,
so perish the thought. The state, naturally, wishes to keep its
controls on alcohol in place. A proposed bill to “fix” the problem
of breweries being forced into indefinite contracts with
distributors only provides an exemption for small breweries, like
Rizos’, from the state law. The brewers’ guild supports that “small
brewer relationship” exemption. The president of the guild
explained to the Republican that when the original law,
referred to as 25E, was passed, there were only about a dozen
breweries in Massachusetts but 60 wholesalers. Those numbers have
now pretty much been reversed.

Since the end of Prohibition, every state has had some form of a
three
tier system
,” separating, regulating, and sometimes relegating
to state ownership the production, distribution, and retail of
alcoholic beverages. In 2011, Washington state became, via ballot
initiative, the first state to fully privatize the alcohol
industry. Since that law was implemented, DUI arrests have
fallen
, the opposite of what opponents of the initiative
claimed before its passages. Privatization did not lower prices,
something supporters
actually steered clear of claiming
. Higher prices can actually
be partly attributed to the initiative, not because it privatized
the industry, but because it
added  new fees
on retailers and distributors on top of
some of the highest liquor taxes in the country.

Related:
It gets better, slowly
.

h/t John M.

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Libertarians Urge the Supreme Court to Allow ‘Lies, Insults, and Truthiness’ in Politics

Should telling the truth be a mandatory requirement in electoral
politics? The U.S. Supreme Court will tackle that question next
month when it hears oral arguments over an Ohio elections law which
makes it illegal to “post, publish, circulate, distribute, or
otherwise disseminate a false statement concerning a candidate…if
the statement is designed to promote the election, nomination, or
defeat of the candidate.”

The case of Susan B. Anthony List v. Driehaus arose in
2010 when the Susan B. Anthony List, a conservative anti-abortion
group, purchased billboard ads in Ohio charging incumbent
Democratic congressman Steve Driehaus with supporting “tax-payer
funded abortion” due to his vote in favor of the Patient Protection
and Affordable Care Act. Driehaus not only objected to that
characterization, he complained to the Ohio Elections Commission,
which soon ruled against the conservative group. The Susan B.
Anthony List is now asking the Supreme Court to rule in its favor
on First Amendment grounds.

In a provocative and entertaining friend of the court brief

recently filed
with the U.S. Supreme Court, the libertarian
Cato Institute, in collaboration with libertarian satirist P.J.
O’Rourke, urges the Court to reject the Ohio law and come down
instead on the side of “lies, insults, and truthiness” in politics.
Here’s a sample of their argument:

In modern times, “truthiness”—a “truth” asserted “from the gut”
or because it “feels right,” without regard to evidence or logic—is
also a key part of political discourse. It is difficult to imagine
life without it, and our political discourse is weakened by
Orwellian laws that try to prohibit it.

After all, where would we be without the knowledge that
Democrats are pinko-communist flag-burners who want to tax churches
and use the money to fund abortions so they can use the fetal stem
cells to create pot-smoking lesbian ATF agents who will steal all
the guns and invite the UN to take over America?…

Supporters of Ohio’s law believe that it will somehow stop the
lies, insults, and truthiness, raising the level of discourse to
that of an Oxford Union debate. Not only does this Pollyannaish
hope stand in the face of all political history, it disregards the
fact that, in politics, truths are felt as much as they
are known. When a red-meat Republican hears “Obama is a
socialist,” or a bleeding-heart Democrat hears, “Romney wants to
throw old women out in the street,” he is feeling a truth more than
thinking one. No government agency can change this fact, and any
attempt to do so will stifle important political speech.

All jokes aside, this is a serious issue. As the Cato/O’Rourke
brief observes, “It is thus apparently illegal in Ohio for an
outraged member of the public to call a politician a Nazi or a
Communist.” That sort of language may be offensive and outlandish,
but the First Amendment still applies to it.

Related: Reason.tv on “Attack Ads, Circa 1800.”

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Police Justify Concealing Surveillance Tools from Courts with Non-Disclosure Agreements

It was in Florida. Is Sea World part of the conspiracy?Wired today fleshes out an ACLU
blog post that a Florida police department has been concealing the
use of cellphone tracking tools (without a warrant) from the courts
because they signed a non-disclosure agreement with the tool’s
manufacturer. Wired reports:

The shocking revelation came during an appeal over a 2008 sexual
battery case in Tallahassee in which the suspect also stole the
victim’s cellphone. Using the stingray — which simulates a
cellphone tower in order to trick nearby mobile devices into
connecting to it and revealing their location — police were able to
track him to an apartment.

During recent proceedings in the case, authorities revealed that
they had used the equipment at least 200 additional times since
2010 without disclosing this to courts and obtaining a warrant.

Although the specific device and manufacturer are identified in
neither the one court document available for the 2008 case, nor in
a video of a court proceeding, the ACLU
says in a blog post today
that the device is “likely a stingray
made by the Florida-based Harris Corporation.”

The idea that an agreement gives police the authority (or
rather, the legal obligation, since that’s now non-disclosure
agreements work) to conceal evidence on behalf of a private
contractor is obviously absurd. The corporation who made the
equipment would not comment to Wired, so we don’t know who
is responsible for making this ridiculous claim. The ACLU notes how
the information finally came out and what they’re doing about
it:

When the suspect’s lawyer tried to ask police how they tracked
the phone to his client’s house, the government refused to answer.
A judge eventually forced the government to explain its conduct to
the lawyer, but only after closing the courtroom to the public and
sealing the transcript of the proceedings so the public and the
press could never read it. Only later, when the case was heard on
appeal, did the most jaw-dropping fact leak out. As two judges
noted during the
oral argument
, as of 2010 the Tallahassee Police Department had
used stingrays a staggering 200 times without ever disclosing their
use to a judge to get a warrant.

Potentially unconstitutional government surveillance on this
scale should not remain hidden from the public just because a
private corporation desires secrecy. And it certainly should not be
concealed from judges. That’s why we have asked the Florida court
that originally sealed the transcript to now make it available to
the public. And that’s also why we have asked police departments
throughout Florida to tell us whether they use stingrays, what
rules they have in place to protect innocent third parties from
unjustified invasions of privacy, and whether they obtain warrants
from judges before deploying the devices.

Although secret stingray use has increasingly been
exposed
by the
press
(and by the
ACLU
), public details are still scant. Our new work in Florida
is part of national efforts to understand how law enforcement is
using these devices, and whether reforms are needed to protect our
privacy from law enforcement overreach.

Some previous Reason reporting on stingray devices found
here.

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Send the Sixth Fleet to Ukraine? To Do What?

Naval vesselsMembers of the Wall Street
Journal
editorial board
want the U.S.
to “deploy ships from the Europe-based Sixth
Fleet into the Black Sea, and send the newly commissioned George
H.W. Bush aircraft carrier to the eastern Mediterranean.” Their
counterparts at the Washington Post
fault President Obama
because he thought he could “radically
reduce the size of its armed forces,” but say he could “play a
leading role” if he’s forceful enough. Senator John McCain
wants
, “President Obama to rally our European and NATO allies.”
And House Speaker John Boehner
insists
, “At what point do you say enough is enough? We are at
that point.” We’re at that point all right—of realizing that there
are limits to what even a superpower can do when a nuclear-armed
thugocracy like Russia decides to go romping, again, in one of its
traditional playgrounds.

Sixth Fleet? Really? Is Russia supposed to believe that the
United States is going to war to preserve Ukraine’s independence?
Do the pundits drawing a line want us to go to war to
preserve that independence?

Ukraine has a long and storied history, marked in part by the
need to draw its borders on maps in pencil. Surrounded by powerful
and quarrelsome neighbors, it has been carved up by…everybody.
It’s even been carved up by its own people, in a flurry of
mayflie-lived states that briefly filled the vacuum left by the
collapse of the Austro-Hungarian Empire and the Russian Empire.

In the modern world, Ukraine has the misfortune to share a
1,400-mile
border
with an increasingy assertive Russia, led by a cartoon
of a strongman, and a warm-water naval port
with Russia’s Black Sea Fleet. It’s also heavily dependent on its
neighbor for natural gas and
owes Gazprom, the Russian state gas monopoly, $1.55
billion
.

Which is to say, Vladimir Putin and Russia have a lot of
leverage in Ukraine, short supply lines. and military forces
already in place.

The United States is in a position to wag its fingers, perhaps
impose some sanctions, but faces very real limits on the
credibility of its demands and threats. No matter how powerful the
U.S. military may be, any promises the U.S. makes to the Ukrainian
people as they face down some of the world’s worst neighbors are
going to be hollow and false. American officials can’t—and
shouldn’t—make promises that they’re in no position to keep. Hollow
assurances may lead Ukrainians to assume that they’ll get backing
that won’t materialize—just as many Hungarians
felt betrayed after NATO (understandably) failed to intervene

to support the 1956 uprising despite encouraging pro-freedom rebels
through Radio Free Europe and other official media.

Even worse would be the U.S. actually getting involved in the
conflict, though even uber-hawk McCain
concedes
“there is not a military option.”

Whatever happens in Ukraine depends primarily on the ability of
Ukrainians to defend themselves and their independence. History
isn’t encouraging on that point, but Ukraine isn’t
defenseless
, either.

But the United States isn’t in a position to correct all the
wrongs of the world. We look foolish when we can’t back up our
words, we might lead people to expect what can’t be delivered, and
we risk being drawn into conflicts in which we’re at a serious
disadvantage.

Taing a non-interventionist position recognizes the limits the
world imposes on even the most powerful players. It may not be
pleasant to have to watch events play out—but it’s better than
making them worse.

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