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Izabella Kaminska joined FT Alphaville in October 2008, which was of course the best time in the world to become a financial blogger. Before that she worked as a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP’s internal magazine. She has also worked as a reporter on English language business papers in Poland and Azerbaijan and was a Reuters graduate trainee in 2004.

For one week in 2003, and one week only, she traveled on her own initiative to Kabul to report on Afghanistan’s emerging business and banking industry. She stayed with mercenaries, which was cool. She later sold the piece to a business magazine, which was also cool.

The experience, however, taught her the valuable lesson of risk/return trade-offs.

Today she prefers to report from the mean streets of Geneva, Switzerland — a notorious European risk-aversion zone.

Everything she knows about economics stems from a childhood fascination with ancient economies, specifically the agrarian land reforms of the early Roman republic and the coinage and price stability reforms of late Roman emperors. Her favourite emperor is one Gaius Aurelius Valerius Diocletian.

She studied Ancient History at UCL, and has a masters in Journalism from what was then the London College of Printing.

And yes, she is also a second-generation West London Pole (who likes mushroom picking, bigos and pierogi).

Contact Izabella Kaminska

Now that everyone’s a volatility seller…

In February 2012, Macro Risk Advisors drew our attention to an explosion in the market cap of the TVIX ETP, the 2x Vix exposure ETP offered to the market by Velocityshares, but backed by Credit Suisse.

As it happens, that fact turned out to be a perfect forward indicator to a whole sequence of shenanigans and suspensions to come in the ETP, confirming a general rule in our minds that whenever ETP market caps explode, beware, there’s probably someone somewhere (not the dumb money, of course) unearthing an arbitrage at the expense of the vanilla investor.

Well, more than two years later — perhaps because 2x Vix exposure isn’t quite as sellable as it used to be — the recent volatility spike has flamed another curious explosion in market cap. But not in volatility hedging instruments that reward when volatility spikes up, but rather, their exact opposite: inverse volatility ETPs, which reward when volatility reduces. Read more

Beware the Chinese FX reserve fall

The latest from SocGen’s Albert Edwards features this eye-catching chart:

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Burn rates, oil sovereign edition

How long does it take for an oil-exporting nation to burn through its cash reserves as it waits for oil prices to turn around?

Naturally, it depends on which oil exporter we’re talking about and the size of their existing cash-pile. Differences between countries can be monumental.

The Oxford Institute of Energy Studies picks up on the theme by citing a chart from Deutsche Bank which shows the varying cash buffer rates between Saudi Arabia, Russia and Nigeria (H/T Marc Ostwald). Read more

The (early) Lunch Wrap

Total chief dies in Moscow air crash || China GDP growth slowest since global crisis || Apple smashes through forecasts || UK public finances deteriorate || Facebook’s new board member apologises for harassment || Libya-Goldman clash sheds light on formerly secretive fund || Asos profits dip unstylishly by 14% on strong pound || Mark Carney launches review after BoE payment system crash || Markets Read more

Secular stagnation and the paradox of worth

Gauti Eggertsson and Neil Mehrotra’s latest stab at modelling secular stagnation can be found here.

It includes explanations about the role of demographics, technological displacement, the liquidity trap and the paradox thrift, toil and flexibility within the secular stagnation framework — and there’s also a really neat explanation about the effects on capital, and in particular productive capital’s tendency to depreciate more quickly than might otherwise be expected. (You know, there’s more stuff being produced than expected, so the return on investment is never quite achieved in time, due to increasingly lower barriers to entry thanks to technique.)

The flip side of that scenario, however, is that unproductive capital becomes strangely useful for dodging depreciation for as long as there is belief in the asset class; hence the tendency for bubbles to form in asset classes which can’t easily be over-produced. At least not without significant investment. Read more

A new raison d’être for cryptocurrency, but an age old problem

Steve Randy Waldman’s latest post at Interfluidity talks about econometrics, open science and cryptocurrency. He makes the point that the real potential of “blockchain technology” is rooted in the possibility that it could one day help many different groups and movements achieve consensus for the sake of mutual discovery and progress.

There is, in his opinion, a need to create a public forum in which scientists, academics and inventors can share data and research, and in a way that allows them to shed the mal-effects of groupthink and open themselves up to public scrutiny and refutation. Read more

Real Time Gross Settlements fail at the BoE

From the BoE on Monday:

The Bank of England has identified a technical issue related to some routine maintenance of the RTGS payment system and has paused settlement while we resolve it. We are working to address this issue as quickly as possible, and restart the RTGS payment system in a controlled manner. The most important payments are being made manually and we can reassure the public that all payments made today will be processed.

What does this mean and do you have to panic?

Best consider it a BoE “blockchain” ledger fail. Read more

It takes $200bn per quarter to feed the machine

As usual Matt King et al at Citi’s credit research team breaks things down to the key fundamentals.

Here’s the chart that tells a thousand stories: Read more

Oil sell-off, the Goldman view

Ever the market-moving contrarians, Jeff Currie and team at Goldman came out with a note on Thursday doing for oil markets what Bullard and Haldane have been doing for markets in general.

When it comes to the oil price decline it is, they say, too much too soon. And, critically, the issue is on the expectations side NOT on the current market supply side:

The recent sell-off in oil has been mostly driven by positioning based upon expected fundamental shifts as opposed to currently observable shifts. While looking into 2015 we have sympathy for these medium- to longer- term bearish views that have driven prices lower, we believe it is too much too early. Prices have also likely overshot to the downside particularly as the lower we go the tighter the near-term balances become. This leaves us near-term constructive despite being bearish as we look further out.

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In which Haldane warns of the path to the weak side

It may have a David Lynchian “who killed the economy?” title, but in reality Andrew Haldane’s latest speech sees the chief economist of the Bank of England come over all Jedi master. Another sign of the Jedi economic reality we are living in.

As Haldane’s dualistically themed remarks note, he’s feeling a great disturbance in the economic force:

On balance, my judgement on the macro-economy has shifted the same way. I have tended to view the economy through a bi-modal lens. And recent evidence, in the UK and globally, has shifted my probability distribution towards the lower tail. Put in rather plainer English, I am gloomier. That reflects the mark-down in global growth, heightened geo-political and financial risks and the weak pipeline of inflationary pressures from wages internally and commodity prices externally. Taken together, this implies interest rates could remain lower for longer, certainly than I had expected three months ago, without endangering the inflation target.

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The (early) Lunch Wrap

BoE’s Haldane favours a delay in interest rate rises || Rolls-Royce shares tumble after profit warning || BoE lashes out at EU bonus cap rules || Putin, Poroshenko agree to enforce Ukraine ceasefire || Google overtakes Goldman Sachs in US political donations || Jimmy Choo shares flat after London launch || Markets Read more

The real disruption at the heart of banking

The FT’s John Gapper follows up our mythbusting finance 2.0 post with some extremely wise points on what technology land is missing when it comes to “disrupting” banking.

The key point being, banks have already been disrupted! There’s not much positive value left to transfer, unless, of course, you’re prepared to work in the shadows or outside the regulatory climate that has been especially devised to segregate the sort of risk that is still intolerable to the system:

Mr Andreessen believes non-banks will manage to work around regulations. There may be something to this – it is striking that my energy supplier offers a higher rate of interest on deposits than my bank – but neither regulators nor the public will tolerate shadow retail banking for long if something goes wrong, as it tends to do

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Could the liquidity crisis be back?

So says, at least, Sebastien Galy from SocGen on Thursday.

As he notes: Read more

When a man cannot choose, is he still a consumer?

Supermarket price wars, as we all know, are beginning to weigh on the bottom lines of the nation’s top grocers. [Err, surely they been weighing for a long time no - ed?]

So what’s a grocer to do to raise margin?

Here’s an idea: accelerate the rollout of the personal pricing revolution and get even bolder with your customer entrapment policies, also known as loyalty programmes.

You see, if you thought your local supermarket was just a goods dispensing intermediary whose model depended on pooling suppliers in one convenient location and attracting customers conveniently to that location, you’d be gravely mistaken. Most of the country’s biggest supermarket brands don’t see themselves as plain old grocers anymore. Rather, they like to think of themselves as technology firms. Read more

Eggbanxx benefits!

No, it’s not a new cryptocurrency initiative focused on exploiting the naturally occurring phenomenon of “coin eggs”, which are capped at a limited number due to the protocol laws of nature, bestowed in decentralised mode to every woman on earth and mined by the laborious process of “childbirth”, handily encrypted via the wonder of the DNA blockchain.

No, it’s EggBanxx! A company providing cheap egg-freezing services to female workers at Silicon Valley companies everywhere, and now available through company benefit packages alongside company pension plans. (H/T Emma Jacobs at the Business Blog). Read more

When the cartel bursts, Brent edition

When you look at things hard enough you realise almost everything in society can be reduced to a cartel, monopoly or perfect (and chaotically disruptive) competition model.

While cartels come in many shapes and forms, the purpose is common: stability.

In other words, as long as everyone plays by the rules of the cartel, what’s best for that particular participatory group can be guaranteed.

On which basis, government itself can be reduced to a cartel-type system. As can central banks. Read more

Why Janus, what big ETPs you have!

“Why, all the better to see and hear you coming with my dear!”

Little Red Riding Hood is the cautionary tale of what happens to the naive and gullible if they trust or listen to strangers. Specifically, it’s the story of a little girl who gives away too much information to the Big Bad Wolf who then uses it to create a situation where he can much more easily eat her up for lunch — by masquerading as her loving grandmother — out of sight of the regulatory oversight of the local woodcutter enforcement committee.

Or, as the Charles Perrault version of the story goes:

As she was going through the wood, she met with a wolf, who had a very great mind to eat her up, but he dared not, because of some woodcutters working nearby in the forest. He asked her where she was going. The poor child, who did not know that it was dangerous to stay and talk to a wolf, said to him, “I am going to see my grandmother and carry her a cake and a little pot of butter from my mother.”

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If you’re not paying for it, you are the market, Nobel edition

The 2014 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel has been awarded to Jean Tirole, a French professor of economics at the Toulouse School of Economics for his analysis of market power and regulation.

As the release from explains, Tirole’s contribution comes in figuring out the costs of information asymmetry and regulatory arbitrage : Read more

It’s not all about London property you know

Sometimes it’s all about the ski chalets.

On which note, Knight Frank’s latest dive into the world high-altitude snow-dusted living offers some interesting findings. Among them is the fact that putting your investment money in twee wooden cabins is actually becoming a bit of a thing:

For the world’s wealthy a ski home is a key component of their global property portfolio, but increasingly it is being bought not just as a lifestyle acquisition but one that can provide an investment return as well.

Which is possibly a neutral bet given the poor but not terrible track record of ski chalet prices during the crisis:

Bricks and mortar – of the Alpine variety – did not benefit from the safe haven shift that prime property in cities like New York and London saw post Lehman’s collapse in 2008. Prime prices dipped in the Alps but did not plummet like they did in some of Europe’s oversupplied second home coastal markets.

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The (early) Lunch Wrap

Good morning New York,


Further reading

Elsewhere on Thursday,

- Can we stop with the regulatory arbitrage equals innovation stuff?

- After QE ends?

- The waste heat generator is here.

- The deficit is down, and nobody knows or cares. Read more

Thiel on the race to zero

Billionaire investor and well known libertarian Peter Thiel has been on the road promoting his new book Zero to One for about a month now, in which he argues about the virtues of monopoly.

Given that we just made a case for a conspiracy of doves in the oil markets, and have written previously about why monopolies aren’t always evil, we found the latest insights from the investor, as presented by Pando Daily editor-in-chief Sarah Lacy, quite interesting. (Should be noted, Thiel is invested in Pando).

The central premise in Thiel’s book– which he talked about at our PandoMonthly two years ago– is that competition isn’t a virtue. Rather, it’s the antithesis of capitalism because it erodes profits and crushes margins to the point where no one can innovate.

Throughout “Zero to One” Thiel describes undesirable slug-fest market dynamics where customers are wooed with little more than discounts because the end product is interchangeable. He sets these up as the worst kinds of businesses to start and fund. And each description sounds to me exactly like what I see everyday between Uber and Lyft.

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It’s a super market price war! (in oil)

That Saudi Arabia and the Opec cartel were going to be “disrupted” by North Dakota millionaires was hardly difficult to foresee.

What was always harder to figure out, however, was how Saudi would react. Would Opec’s most important swing-producing state cave in and give up on market share for the sake of price control? Or, conversely, would it be more inclined to follow along the lines of the Great UK Supermarket Price War, and enter a clear-cut race to the bottom?

So far, it seems, the strategy is focused on the latter course. Which means people are finally beginning to wonder just how sustainable a path that really is.

More so, to what degree does such a price war potentially disrupt the average break-even rate for the entire industry and compromise energy security more widely? What exactly happens to prices when the cartel effect is stripped out? Read more

The (early) Lunch Wrap

EU approves Hinkley Point nuclear plant || London Mining on brink of collapse as shares plunge || Halifax says house price growth slowing || Banks rewrite derivatives rules to cope with future crisis || Pension fund slashes Pimco investment || Businesses evicted to make way for flats || Markets Read more

Houston, we don’t have a corporate bond liquidity problem

Gary Jenkins at LNG sets out his views about what might happen to the corporate bond market once the Fed begins pulling back liquidity seriously.

It’s all down to the vanquished liquidity in the market already.

As he notes on Wednesday (our emphasis):

The concern at the present time is that as the Fed starts to remove the extraordinary stimulus that they have injected into the market interest rates will rise which will in turn lead to selling of corporate bonds. One theory is that the lack of liquidity in the corporate bond market will exacerbate the problem and thus prices will move very sharply downward as a host of sellers are met by very little appetite for risk by the natural providers of liquidity, the investment banks.

There is little doubt that day to day liquidity in the corporate bond market has reduced substantially since the Great Financial Crisis. Risk appetite has reduced and regulatory changes have also had an impact. A chart that sums this up very well was produced by the credit strategy team at Deutsche. I reproduce it below:

 Read more

Further reading

Elsewhere on Wednesday,

- How social media leads to an unstable world.

- And all because the gold price struck a 15-month low.

- Limits to growth is not a thing.

- How is IBM deploying Watson these days? Read more

Mythbusting finance 2.0

We can all agree that the current financial system is not perfect by any stretch. The question is, is the new system now being touted by the People’s Front of Libertaria, led by the likes of Marc Andreessen and Overstock CEO Patrick Byrne likely to be any better?

Chances are no, it’s likely to be even worse.

In fact, we propose it’s just a recasting of the old story of Animal Farm, where the animals band together to throw out their evil oppressors only to unwittingly replace them with an even greedier variety in the long run.

Hence, of course, the propaganda onslaught to convince you that what is being offered up is somehow revolutionary, when it’s actually nothing but the same old, same old. The revolution relates only to who the new overlords are. Read more

More on the overvalued renminbi

For a couple of years now we’ve made the case that the Chinese currency isn’t undervalued as many people believe, but rather, overvalued — especially, once all the other fundamentals are considered.

But, of course, the mantra that the Chinese renminbi is being repressed by the government is so ingrained in investor consciousness, it’s the sort of “whacky” out of the box thinking that tends to draw sceptical denial.

In the last few days, however, a number of analysts seem to have realised that something has changed in the nature of global capital flows, which may mean views that were taken for granted for years no longer really apply. Read more

The (early) Lunch Wrap

Plunge in industrial production stokes German recession fears || Chinese investors surged into EU at height of debt crisis || Tesco asks another senior executive to step aside || Rio turned down Glencore merger idea || Brussels targets Amazon’s Luxembourg tax deal || Nobel winner criticises UK immigration rules || SFO secures first UK Libor guilty plea || Markets Read more

Further reading

Elsewhere on Tuesday,

- $660 per ounce for gold?

- Paul Krugman reviews Martin Wolf.

- Volatility is back. (Or is it that the central bank put is disappearing?)

- Silicon Valley has an asshole problem. Read more