Latest posts

Izabella Kaminska joined FT Alphaville in October 2008, which was, perhaps, the best time in the world to become a financial blogger. (Added bonus: there was a free breakfast trolly.) 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.

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).

Stranded assets and climate stimulus

It was Climate Finance Day in Paris last week, a conference convened under the auspices of UNEP and the UNPRI to address the specific challenges and issues of redirecting capital towards a resilient low-carbon global economy ahead of the United Nations Climate Change Conference also to be held in Paris, in December.

The big takeaway was consensus is shifting, especially among asset managers and real money investors who no longer view environmental sustainability as a fringe theme. Climate is a bona fide risk for beneficiaries which professional investors must guard against to fulfil their fiduciary duties. To do nothing, essentially, is to encourage a disorderly capital transition and, potentially, a financial panic.

As example, Axa’s chief executive pledged the insurer would divest €500m of coal assets between now and the end of the year. Read more

Further reading

Elsewhere on Thursday,

- Is anyone other than me rattled by the FIFA arrests?

- The human toll of FIFA’s corruption.

- Borrowing to replenish depleted pensions.

- When bots collude. Read more

Summers and Swiss bitcoin hoards

The FT’s Richard Waters reports that Larry Summers, former US treasury secretary and secular stagnation theorist, is to form part of the advisory board at Xapo, a Silicon Valley Bitcoin start-up specialising in deep cold storage of bitcoins in Swiss vaults and the issuance of bitcoin debit cards.

Worth noting in this context, of course, is that Larry Summers is also the man arguing that bubbles are a bit of an inevitability in a secular stagnated world. Or as he explained in the Financial Times back in December 2014: Read more

The sharing economy will go medieval on you

In Paris this week, at the Ouishare Fest, the great and the good from Europe’s sharing economy have been delving deep into what it means to be running a collaborative business model within a capitalist framework. Are the two even compatible? Or is there a fundamental conflict at the heart of an industry that preaches collaboration but, due to being radically commercialised by venture capital money from Silicon Valley, also needs to profiteer from the goodwill of others if it’s to remain viable?

For the most part it’s a hypocrisy the community is trying to address. The $1bn elephant in the room — the fact some aspects of the sharing economy are becoming the very thing they set out not to be — has basically become too enormous to ignore. Read more

21 Inc and the plan to kill the free internet

Details of the hottest, most secretive bitcoin start-up in Silicon Valley have finally been revealed by chairman and soon-to-be CEO Balaji Srinivasan of 21 Inc in a post on Medium. They are, by and large, exactly what FT Alphaville reported them to be. Cold sharp summary: Bitcoin mining devices in toasters.

Calling this a simple internet of things play, however, would be lazy. To really put the audacity of Srinivasan’s vision into perspective one first has to go back in time to the days of the early internet. Read more

Scenes from the 21 Inc pitch book

Some people may have had difficulty understanding what the hell Balaji S. Srinivasan, chairman-cum-ceo of secretive Silicon Valley start-up 21 Inc, is up to after reading his Medium “open for business” post.

The following slides, shared by potential investors in 21 Inc, may or may not help. But they certainly highlight the conceit on show here. Click to enlarge.

 Read more

Charting the secular stagnation bubble hypothesis

Attempting to identify a bubble is considered a fool’s errand because, as the saying goes, they’re only obvious once they’ve popped.

None of that, however, has stopped Citi’s equity strategist team from attempting to identify the current bubble risk stalking the economy.

According to Robert Buckland and team bubbles are usually formed by four key forces: 1) A new paradigm story supported by convincing fundamentals, 2) surplus liquidity, 3) a demand/supply imbalance, 4) business/benchmark risk amongst asset managers. Read more

The curious incident of the missing super contango in the night-time

A quick post to update readers on an interesting debacle that occurred in the world of oil stock data analysis this week.

Philip Verleger, veteran independent oil analyst, launched a scathing attack on the quality of the EIA’s data on Monday, claiming the agency had been overestimating US output by some 1.6m barrels a day.

The accusations in his note were brutal to say the least:

“The explanation for the mistake indicates a gross dereliction of responsibility on the EIA’s part. Rarely if ever has a US agency charged with collecting data made a miscue of this magnitude. The EIA administrator should be dismissed immediately for gross incompetence.”

 Read more

How we’ve all been duped into subsidising our employers

Paul Donovan, economist at UBS, is perplexed by cyclically abnormal levels of capital spending relative to borrowing costs in key western economies.

All the more so given that the sluggish capital spending story is also being accompanied by a significant increase in the number of businesses.

Since these two facts don’t logically tally up, what exactly is going on?

One point to consider, Donovan notes on Tuesday, is that capital spending by and large is associated with replacement investment. For new businesses this usually takes the form of start-up capital spending instead. Read more

This is not the oil rally you’re looking for

Goldman’s commodity analysts are out with their take on last week’s oil price rally, which saw Brent oil trade just shy of $70 per barrel.

But they’re not sold on the idea that the rally has legs, describing it ultimately as self-defeating. Furthemore, they add, the move up to $70 was probably an over-reaction. Read more

Exposing the “If we call it a blockchain, perhaps it won’t be deemed a cartel?” tactic

Why are the great and the good of the banking and financial services world suddenly extolling the virtues of blockchain, the technology that underpins the artificial scarcity of bitcoin?

Possibly because they’ve finally figured out that what the technology really facilitates is cartel management for groups that don’t trust each other but which still need to work together if they’re to protect the value and stability of the markets they serve.

Cartel enforcement, in that sense, appeals to all sorts of financial players from bankers and commodity producers to general asset creators. Read more

When in bond rout doubt, Occam’s razor

So this could be the beginning of the end.

Or, alternatively, the bond price rout is a perfectly predictable response to…:

 Read more

Why negative rates may inspire market consolidation

We had a hunch back in July 2012 that negative rates, as and when they would surely manifest, would create all sorts of perverse incentives for banks and capital owners.

Notably, our point was, that banks would prefer to lend money to monopoly-minded corporates focused on artificially constraining supply — rather than those focused on improving competition rather or pursuing capex policies. Failing that, a negative rate environment would otherwise create a plethora of zombie corporates propped up with cheap financing, producing output that isn’t necessarily valued much by anyone in the wider world. Read more

The great Saudi cash burn

There were those who said it would never happen. Then there were those who said it wouldn’t matter even if it did happen. And there were those who recognised Saudi Arabia was probably panicking about the prospect of a destabilising cash burn situation as soon as the term Saudi America became a thing.

But, as the FT reports on Friday, Saudi cash burn is now not only a big thing, it’s an accelerating big thing: Read more

Meet the company that wants to put a bitcoin miner in your toaster

The company in question is called 21 Inc. Its business plan has hitherto been a closely guarded Silicon Valley secret. But we can now reveal how it plans to monetise the future of money. Welcome to the world claiming to exist beyond the Internet of Things…

 Read more

Calling all muppets! Bitcoin miner has some Bitcoin ETNs to sell

On Wednesday FT Alphaville received a press release from a company called XBT Provider proudly announcing the launch of the “world’s first bitcoin traded note on Nasdaq Stockholm”.

The tracker product being offering, the press release claimed, would make bitcoin accessible to institutional investors by providing them with a liquid exchange-traded note.

Or as the marketing spiel put it, the product was set “to provide investors with convenient access to the returns of the underlying asset, US dollar per bitcoin, less investor fees.” Read more

Executing Trader Sarao

Craig Pirrong, Streetwise prof and futures trading expert, delves into the case of the Hounslow Spoofer, and like us, smells a rat.

For one thing, notes Pirrong, the official complaint doesn’t offer much in the way of detail on the execution strategy. It’s all very well alleging that Sarao spoofed the market with bogus orders, but none of this explains how he actually made money from the strategy. Especially given that the numbers presented don’t seem to add up. Read more

FT Commodities Summit: No-one saw the oil slump coming

Some highlights from the FT Commodities Summit, which is taking place in Lausanne, Switzerland this Tuesday and Wednesday.

Oil production is becoming more of a manufacturing activity Read more

FT Commodities Summit: US oil independence to bust dollar-pegs

The FT’s Martin Wolf led a stellar panel on the global economy and the outlook for commodities featuring China expert Michael Pettis, BP’s group chief economist, Spencer Dale (formerly chief economist at the Bank of England), and Goldman’s chairman of global natural resources Brett Olsher.

As one might expect there was a difference of opinion on the panel about China’s future growth path. Goldman’s Olsher said he was confident that China would be able to maintain 6.5 per cent to 7 per cent growth in the near term, whereas Pettis suggested that even 3-4 per cent should be considered a successful adjustment. Read more

Marketplace lenders and the Chinese path to a gift-card economy

Most of us know it as shadow banking. Others refer to it as non-bank lending. But a whole new nomenclature — “market-based financing” — is growing in popularity, making the whole thing sound a lot less shadowy, rightly or wrongly.

Nathan Sheets, Under Secretary for International Affairs at the Treasury, in any case urged us to call it that when he spoke about the phenomenon in a speech earlier this year, a sentiment that has also been echoed by the Financial Stability Board.

We refer to this because a similar rebranding effort is currently going on in the world of P2P lenders, many of whom now prefer to be described as operating in the sphere of “marketplace lending“. Furthermore, some analysts we’ve spoken to don’t consider P2P lenders to be shadow banking institutions at all. Some simply call this new source of financing “internet funds”. Read more

Dispatches from the 2015 FT Commodities Summit

FT Alphaville is in Lausanne, Switzerland, for this year’s Commodities Summit. The conference is taking place at the Beau Rivage — a hotel so good that John Oliver has even expressed a desire to have intimate relations with it — and the opening keynote from Ning Gaoning, chairman of China National Cereals, Oils and Foodstuffs Corporation (COFCO) is about to begin.

Here are some scene setter pics: Read more

European bonds not scarce (yet), says Draghi

We were too distracted by wardrobe-malfunctioning protesters to pay proper attention to what Draghi was saying.

Luckily, we’ve just gone through the meeting summary from Greg Fuzesi at JP Morgan and it seems one of the key takeaways was probably this:

Draghi also dismissed concerns about bond scarcity as premature. He said that the ECB was not encountering any problems so far in making the intended volume of purchases and he added that the programme was flexible enough to adapt to any problems that might emerge. But, apart from again ruling out a cut in the deposit rate as a way of raising the amount of bonds that can be purchased, he did not say which aspects of the programme could be changed in the future, if needed.

 Read more

Why deflation is not a girl’s best friend

The biggest news in diamond land is still April’s audacious heist of a Hatton Garden safety deposit company and the theft of up to 70 boxes worth of diamonds.

Police by now have a suspect, and parallels between the robbery and the plot of a novel by Michael Connelly are even being noted.

What we’d like to draw attention to is something the criminals may not have considered when planning the heist — something that could seriously impede their ability to monetise the loot.

Deflation. Read more

BNY Mellon and an expensive case of spooky commingling action at a distance

The FCA on Wednesday slammed custodian Bank of New York Mellon with an unprecedented £126m fine for failing to comply with its Client Assets Sourcebook rules (the CASS rules) throughout the period of 2007-2013.

It’s not the biggest FCA fine ever, but it is the largest issued for a breach of this kind, and is levied against the world’s largest custody bank by assets. The previous largest fine for a CASS failing, for example, was £38m for Barclays.

The failings in hand relate to the systemic commingling (a.k.a pooling) of assets at the bank, that should really have been kept segregated. Read more

No super-contango this time around

Oil prices, both Brent and WTI, remain depressed:

 Read more

Deutsche Bank and a rocky path to GoldmanSachsism

Deutsche Bank has long been an unloved stock.

Not only does it trade stubbornly below book-value, a bleak revenue outlook in January led to the promise of a major strategy rethink for the group, including the prospect of job cuts, asset sales and the streamlining of investment banking divisions.

Among options on the table is a sale of the group’s Postbank retail business — a division it acquired in 2008 in the hope of bringing deposit funding to the aid of its investment banking arm. Read more

This is nuts. When’s the crash?

From Blackrock on Monday:

BlackRock launches its first China A share ETF for international investors London, 13 April 2015 – BlackRock has today listed the iShares MSCI China A UCITS ETF on the London Stock Exchange, giving its international institutional and retail clients direct access to China’s A share equity market. A shares are mainland China incorporated companies listed on the Shanghai and Shenzhen Stock Exchanges and represent the largest single segment of the Chinese equity market.

They were amongst the best performing equities in the world in 2014, when the Shanghai Composite Index rose 58%. However the direct purchase of A shares is open only to Chinese nationals plus foreign investors able to access a limited number of tightly controlled and regulated channels, restricting access to the market for many.

The iShares MSCI China A UCITS ETF provides investors with exposure to China A shares through BlackRock’s own Renminbi Qualified Foreign Institutional Investor (RQFII) quota. The ETF is the only UCITS fund to track the MSCI China A International Index. This index represents a broad and diversified basket of over 300 large and mid cap stocks.

But you know what they say about ETFs… Read more

Tiger Index: A stop and go recovery is in danger of another stall

The latest release of the TIGER (Brookings-FT Tracking Indices for the Global Economic Recovery) index suggests stunted growth prospects for both advanced and emerging market economies, write Eswar Prasad, Karim Foda, and Arnav Sahu in this guest post.

A stop and go global recovery seems at risk of stalling again, with only isolated pockets of strength evident in the world economy.

A modest reversal of fortunes between the advanced and emerging market economies belies the fact that both groups still face stunted growth prospects.

The latest update of TIGER (Brookings-FT Tracking Indexes for the Global Economic Recovery) reveals a somber picture characterized by stagnant low growth, risks of deflation, and weak consumer and business confidence. Read more

The financial sector’s diamond age

In Neal Stephenson’s 1995 sci-fi novel Diamond Age — a story that explores how the world might be set up if nanotechnology and replicators make everything abundant — there is still room for commercial banking.

But banks don’t operate as they do now.

Take as an example Stephenson’s imagineered Peacock bank.

This is an institution where a line of credit can be secured only if a credit card is implanted directly into the borrower’s body directly. Different banks in Stephenson’s book vary on what part of the body they use, but embedded somewhere it must be. Once in place the borrower can “buy” anything he wishes just by asking it because the bank can monitor them diligently and share that information. Read more

Understanding risk in a system of systems

David Beckworth, economist, disagrees with Larry Summers’ secular stagnation theory because he reckons it overlooks the fact risk premiums are falling. Once this phenomenon is recognised, he claims, there is no long decline in real interest rates.

Beckworth puts the decline of the risk premium down to improved economic management and policy over the last 20 to 30 years. Essentially, central bank intervention in markets has been much more effective, leading to a smoothing out effect of the boom and bust business cycle, and an overall improvement in price stability.

Yet contrast that with BoE chief economist Andy Haldane’s new theory of risk in complex systems. As Haldane recounted in a speech at the end of March, central bankers — if they are to continue to be effective — need to understand the economy is no longer just a system, but rather a “system of systems”. This new nature of the economy, he suggests, is something brought to light by the 2008 crisis. Read more