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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).

Engineers vs urban geometry

Should we really be surprised then that someone like Elon Musk, a man not just from Mars but an active card-carrying citizen of Mars, should be continuously confusing what are ultimately social problems for engineering ones?
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Supersonic helicopters with stealth capabilities and formidable arsenals…

What’s the difference between a perpetual zero-coupon government bond and charity? Not much…  Read more

Ethereum bailout complete. Long live Ethereum!

In our inbox just now from Stephan Tual, Founder & COO, of, somehow related to the DAO and Ethereum by way of an unquantifiable number of revolving doors between respective blockchain projects/cabals:

Ethereum fork successful, all DAO token holders to be made whole

The title says it all – end of the hack that never was.
On Ethereum, Code is Law. It’s the network’s participants that determine its evolving rules, voting by way of updating their software. Today, they’ve done just that to nullify an exploit found in the DAO, proving their capability to self-govern effectively.
Happy to chat at anytime on stephan.tual over skype.

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Brexit, the Target2 angle

Everybody knows much of the City of London was vehemently opposed to Brexit because of fears of what might happen to banks’ interests if so-called “passporting” rights into and out of the European system were lost.

What is less talked about, however, is Brexit’s impact on the European payments clearing system, Target2 — and how the passporting issue connects by way of Target2 to the realm of sovereign monetary policy.

At the absolute heart of the matter is the status and treatment of payment systems worldwide, and whether or not they can really be treated as something independent and thus distinct from national monetary policy (and hence open to commercial competition) — or as integral to sovereign interests. Read more

Bitcoin’s unfortunate liquidity problem, as inadvertently highlighted by an SEC order

The SEC has issued a cease and desist order against Bitcoin Investment Trust (BIT) and SecondMarket, both founded by Digital Currency Group CEO Barry Silbert — and dubbed back in September 2013 by the NY Times’ Peter Lattman and Nathanial Popper as “a reliable and easy way to bet on the future price of bitcoin”.

The Trust famously beat the Winklevoss brothers’ bitcoin ETF to market and drew significant column inches as a result. The Winklevoss ETF (for some strange reason associated possibly with risk?) is yet to receive regulatory approval, forcing the brothers to make significant amendments to their original regulatory filing if it’s to stand a chance of being approved. Read more

Rate cuts and sterling MMFs

Markets are increasingly expecting the Bank of England to cut the Bank Rate on Thursday.

As BoAML’s economic and strategist team observes in a note on Tuesday, the BoE really has nothing to gain by waiting. As a result they’re anticipating a 40 basis point cut, with a good chance of only 25 basis points because “Carney has said he is concerned about taking rates ‘too low’”. The current Bank rate is 0.5 per cent. Read more

Who is Theresa May?

Theresa May has become the UK prime minister, and the internet — in the style of looking up what the EU is only after the Referendum — is only now alive with articles/tweets about who exactly Theresa May is.

Indeed, amusingly enough, whilst a lot was being made of Andrea Leadsom’s “City” credentials, there was almost no word in the run up to the appointment of May’s own City credentials. Read more

Further reading

Elsewhere on Tuesday,

- The paradox of disclosure.

- Eugene Gourevitch’s Kyrgyzstan story: looting, corporate bribery, bagman, mob stuff.

- The potential costs of “short-termism” to US economic growth.

- Paul Krugman’s low-interest-rate tweetstorm.  Read more

When tech companies become more powerful than governments

Right now, governments determine the size and distribution of subsidies/welfare vis-a-vis the size and distribution of taxes in the economy. In the future, it might be commercial fintech platforms.

Loosely speaking, all these platforms have the scope to operate as stand-alone economic systems, managing demand and supply in something of an algorithmic Gosplan style; providing cheap credit incentives to those who have the capacity to supply goods when unexpected demand strikes — or is expected to strike — whilst deflecting oversupply to those who have the capacity to consume in exchange for customer loyalty or allegiance. Read more

Even lower rates? “Thanks but no thanks” say banks everywhere

Despite popular belief, we take no comfort in the decline in interest rates and argue that it should be viewed as a bad sign.

So says Shyam Rajan of BoAML’s liquidity insight report team, and in so doing echoes the thoughts and sentiments of probably the entire banking industry.

We’ve noted before – channeling Paul Krugman, no less — that zero rates (even more so negative rates) are not a banker’s cup of tea. Indeed, with little capacity to pass negative rates onto customers, the lower for longer scenario compromises hallowed net interest margins, the key source of predictable and sustained revenue for banks. All other services from origination to advisory collect one-off based fees. As great and balance-sheet light as they may be, they’re variable and thus unpredictable, hence inconsistent with the historical reason for buying bank stock. Read more

Why the world needs investment, not money chasing old assets

The liquidity trap, when monetary policy becomes ineffective at very low or zero interest rates, may be old news but the global dimension of the problem is a new and worrying phenomenon — not least because it’s starting to undermine the usefulness of the global monetary reserve balance, which is mostly debt financed.

And here’s the rub: so engrained is the notion saving is always thrifty and good that it’s become extremely hard to articulate why this state of affairs is so disastrous for the global economy. Read more

Some pivotal questions about UK real estate

Osmaan Malik and Charles Boissier from the UBS equities team breakdown some of the key questions everyone is asking about UK real estate post the Brexit vote. Surprise point: REITs may be better positioned than most expect Read more

Transaction costs as the saviour of UK real-estate?

Six open-ended UK property funds (and counting) have suspended redemptions on the back of Brexit induced volatility leading some to worry the market’s on the verge of a sizeable correction in UK real-estate prices.

But this isn’t the crisis of 2007, says SG’s Jean-David Cirotteau.

As Cirotteau and team observe, during the subprime crisis, UK office prices dropped by 38 per cent from peak to trough from the end of 2007 to mid-2009, and within that context the London residential price correction was more limited, with the market falling by 17.7 per cent. Read more

A REIT liquidity mismatch

Take one portfolio of illiquid building things, stir in some financial magic, liquidise, then bake for a few years in a market exposed to UKIP risk. Once Brexited remove carefully from the baking dish in the hope of not disturbing the liquid layer. It’s probably ready, even if the surface appears undercooked.

Serve with a caveat emptor disclosure. Await feedback on taste and texture from guests. Read more

Britain as the new Singapore?

At Camp Alphaville the FT Festival of Finance last Friday, opinions were divided about whether or not Brexit would be an opportunity or a curse for the UK’s role as an international offshore financial centre.

Here’s a small flavour of the views being expressed: Read more

The London scaling effect

Geoffrey West, theoretical physicist at the Santa Fe Institute*, has made a name for himself crunching data from cities, organisms and companies and figuring out the commonalities in how they all scale.

Thus far his work is indicating that a single universal scaling law — linked to network effects — could be behind the growth patterns of all these systems.

For example, the mammals he’s looked at scale in a sub-linear manner, meaning the bigger they are the less energy they use per unit of mass, and the slower their metabolic rates become. The smaller the animal, meanwhile, the more energy they use per unit of mass. The findings are consistent across a wide range of mammals.

This means that the bigger a mammal is the more efficient it is at distributing energy the larger it gets. Similar rules, meanwhile, also apply to the growth rates of individual animals though this sort of growth is not open-ended. Eventually things plateau out, and the mammal gets old and dies. Read more

Brexit, Reformation edition

In 1532 Henry VIII effected a series of acts of parliament to formalise his kingdom’s breakaway from Rome.

As Rupert Gavin commented in the FT last week what happened next ended up defining the Britain of today:

Back then, after a period of near bankruptcy, constant war and disruption, the breach was a trigger for economic growth, for the emergence of a thriving middle class and for the rapid expansion of London. By 1600, with a population of about 250,000, it was one of the largest cities in the world.

The City of London played a significant role in the post break-up environment too. Rome may have been viewed as oppressive, unaccountable and governed by a clerical elite, but it also provided important welfare safeguards for the poor, the infirmed and the weak. The confiscation of Church assets deprived the poor of their primary source of income support and welfare, says Gavin, and with little other choice they flocked to the cities to find work. Read more

On the non-viability of an independent Scotland staying in the sterling zone

As is being widely reported (exclusive to all newspapers), Scotland is considering vetoing Brexit, if not launching a second referendum to express its pro-European Union feelings in an independent context.

Somewhat overlooked in that context, however, is the role played by the sterling zone in the original Scottish referendum.

An independent Scotland after all wanted it all: independence, European Union membership and continued use of sterling.

In the event Scotland did vote ‘leave the UK’ in a second referendum, this time round the chances of it being allowed to stay within the sterling zone would be decreased sizeably. Read more

Further reading

Elsewhere on Monday,

- Brexit is a message about Englishness to the elite.

- When preference falsification strikes.

- Schäuble’s secret Brexit plan.

- The Snowbot.  Read more

Meanwhile, in a parallel universe…

The danger of pre-scheduled publication tools is that sometimes stuff happens….

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Camp Alphaville Emergency Brexit Update

Next Friday at 11am, up to a 1000 finance, business and economic experts will gather in the heart of London’s financial district to hear from an array of influential voices in this hour of Brexit, including amongst others: the ECB’s chief economist Peter Praet; the BoE’s chief economist, Andy Haldane; and the BIS’s head of research, Hyun Song Shin.

We had an inkling something like Brexit might happen, so we hedged our bets with programming contingencies (not least because last year’s emergency Greek panel looked like this):

Yes. Standing room only. Read more

London, fintech decelerator of the world

On the matter of London’s bid to establish itself as the fintech capital of the world, well known Twitter and blogging raconteur Dan Davies says:

Which fits quite nice with what a fintech/Brexit report commissioned by London FinTech Week at the end of May flagged. Read more

Cryptocurrency: No longer sticking it to the MAN

For those who thought things couldn’t get any more absurd with respect to the dumb-contract hack on the DAO (a.k.a the decentralised autonomous organisation which sits on the Ethereum blockchain and which was supposed to prove to the world that companies don’t need executives), you’re in for a treat.

On Wednesday an anonymous message posted on Pastebin said simply this:

We are an anonymous collective concerned with the lack of regulation in the cybercurrency sector.

(H/T Buttcoin reddit) Read more

In the name of Satoshi, who exactly are EITC Holdings?

Andrew O’Hagan’s 35,000 word write up of the Craig Wright Satoshi affair in the London Review of Books has been out and circulating since the weekend.

The market has had time to digest the information and yet it doesn’t look all that much like anyone has found much closure from the account. For now at least, more questions than answers persist.

Some interesting snippets nevertheless included: Read more

Brexit prep, fintech edition

Earlier on Tuesday we reported that Transferwise CEO Taavet Hinrikus had not yet considered making FX-volatility related Brexit contingencies for June 23 or the day after:

When asked whether Transferwise was making contingencies for Brexit-related volatility or interbank dislocations, Hinrikus said he had not yet considered it and that the company would be providing business as usual.

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Legal exploits and arbitrage, DAO edition

The cryptocurrency world has been rocked by a $60m hacking attack on the DAO, a decentralised autonomous organisation which sits atop the Ethereum blockchain and which had raised over $150m in ether funny money with which it was supposed to disrupt the modern corporation by making it leaderless.

A community-wide forensic review of what went wrong is now in process.

Ironically, the thing proving hardest for the community to digest is that the hack was more of an arbitrage than a hack by conventional standards. The flaw it turns out was in the logic of the underlying (not-so) smart-contract rather than the coding per se.

The attacker succeeded in other words mainly because he understood the contract terms and consequences better than its creators. (Who wants to bet he’s probably a lawyer?) Read more

What exactly is Transferwise?

For a company that prides itself on transparent fee structures, Transferwise — the UK-based FX money transmitting unicorn — has a fairly opaque way of delivering attractive exchange rates.

Competitors who have tried to reverse engineer TW’s rates have struggled, not least because pure brokerage models are not supposed to take principal trading risk when they aren’t able to immediately match buyers and sellers in the market.

To the contrary, they pass orders onto the wholesale interbank market through properly licensed institutions who take on the risk of supply/demand imbalances in their place. But this, alas, means brokers have to factor in the cost of wholesale liquidity, which inadvertently puts a floor on how low their own customer fees can go (at least if they plan to break-even). Read more

DAO hacking and dispute resolution

The Decentralised Autonomous Organisation (DAO) — the crowdfunded venture fund that invests in executive-free projects and is run on Ethereum’s blockchain — is being attacked, with over 2m ether missing so far.

More information is available here.

We’re not hacking specialists and the story is still evolving, but… a couple of weeks ago we did get wind of an interesting story involving a Korean DAO investor (who goes by the name Patrick) who lost $100,000 worth of ether (7218 ether) due to what he claimed to be a vulnerability in the open-source Mist wallet offered by Ethereum. Read more

Reserve management and the DAO

The DAO is a decentralised autonomous organisation, which the cryptocurrency faithful believe could disrupt corporate structures forever. It is, to put it simply, a kind of crowd-funded investment fund.

It’s only been going for over a month or so but in that time the DAO has already raised stacks of illiquid and variably priced Ether (ETH) coupons for funding its potential ventures — worth some $150m at the last count (or there about, because mark to market).

The faithful say the DAO will solve the problem of how revenue can be generated within a purely decentralized environment, with its core supporters claiming it is superior to a normal corporation because all the decisions it makes are transparent and because, well, its finances can be audited by anyone, making corruption impossible. Read more

Do digital industries break capitalism?

A little snippet from Citi’s equity telecom analysts earlier this week via a note entitled “Will telecoms ultimately disrupt their own industry model?”. It pertains to the upcoming release of the IDATE Digiworld Yearbook on June 14:

The two leading, but also opposing, economic forces, which drive digital industries are: (a) benefits of size and network effects; and (b) disruptive innovation. This, according to the authors, leads to two paradoxically convergent potential outcomes: (1) dominance by the leading platforms, which enables their owners to generate significant value and cash flows or (2) economy based on sharing and collaboration.

The authors see both outcomes as potentially fundamental threats to capitalism.

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