Latest posts

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

It all makes sense when you realise there are TWO US dollar currencies

Most people know that China’s currency is classified according to trading conditions. There is, for example, CNY, which refers to onshore yuan. There’s CNH, which refers to Hong Kong (offshore) yuan. And then there’s NDF, the non-deliverable forward market.

What differentiates these currencies are the terms and conditions that apply to those particular market zones, and how easy or not it is to transfer currency in and out. As implied yields of the respective markets show (chart via BNP Paribas), the rates of return for all of these markets varies significantly — because they are, to some extent, entirely different currencies:

 Read more

Negative rates, in context

Peter Stella, former head of the Central Banking and Monetary and Foreign Exchange Operations Divisions at the International Monetary Fund, who now heads his own consulting company, is — as ever — on a mission to explain central bank actions for what they really are.

His latest focus area: the real story behind negative interest rates at the ECB.

Critical to understanding the purpose of these, he suggests, is the following chart:










  Read more

BitCon: The book

Jeffrey Robinson is an American author best known in media circles for his work on international financial crime via his 1995 book The Laundrymen.

Suffice to say, when one of the world’s best known financial-crime authors turns his attention to the world of cryptocurrencies, and in particular Bitcoin, it probably makes sense to pay attention. Especially when the book he publishes is called, BitCon: The Naked Truth About Bitcoin.

Sadly, for the Bitcoin faithful — as well as all the other reasonable institutions that seem to have been taken in — the verdict is not good. Robinson reduces the entire phenomenon to a classic swindle. A small cohort of ruthless predators taking advantage, as usual, of the naive and gullible via a carefully constructed and asymmetrical myth, which happens to appeal to those of a certain persuasion, encouraging them to take leave of their senses entirely.

Part of the fervour is driven by classic get-rich-quick sentiment, but the other and the more sinister part is based on the art of indoctrination, no different to that employed by cults focused on getting people to hand over their hard-earned cash for the the sake of reserving themselves a prime slot in heaven and/or the supposed system that comes after this one.

 Read more

The (early) Lunch Wrap

Osborne to set out plans to curb welfare bill || Balfour Beatty warns on profits for fifth time || Middle-class swell profits at Aldi as it looks to expand ranges || HMRC to take tax debts from pay packets || Apple hit by Brussels finding over illegal Irish tax deals || Markets Read more

Too much competition, overcapacity, arghh!

Earlier this week we highlighted the following chart from Matt King at Citi representing the corporate sector’s seeming resistance to capex:

 Read more

The (early) Lunch Wrap

Hungary halts flow of gas to Ukraine || Gunvor nearly doubles cash reserves || Bankers’ pay withheld from Lord Hill’s Brussels remit || FBI claims to have identified Isis militant Jihadi John || Apple hits back over ‘bendgate’ furore || De La Rue shares tumble on profit warning || India’s Modi Aims to Rekindle U.S. Investment || Alibaba bears emerge to short 8.9m shares || Markets  Read more

Further Reading

Elsewhere on Friday,

- Falling commodity prices flash warning on widening global divergences

- Samsung has more employees than Google, Apple, and Microsoft combined.

- Asymmetric monetary risks.

- Patience is a virtue when normalizing monetary policy. Read more

The (early) Lunch Wrap

Sports Direct’s Mike Ashley takes bet on Tesco with options deal || GlaxoSmithKline poised to appoint Sir Philip Hampton as chairman || Ex-Barclays bankers to give evidence to fraud agency || Apple apologises for bungling iPhone software update || KPMG helps staff up property ladder with mortgage move || Euro weakness strengthens hand of policy makers || Markets Read more

Tech bubble or no tech bubble?

Last Thursday the below snapshot of techies panhandling for funding on the side of the street hit Valley Wag:

This came a few days after the WSJ reported that Bill Gurley, the Benchmark Capital investor who backed Snapchat and Uber warned that in Silicon Valley these days “no one’s fearful, everyone’s greedy, and it will eventually end.” Read more

Anticipating the quantum computing risk

Last week we attended the SINET conference on cyber-security innovation.

One discussion we didn’t get the chance to follow up on at the time, but which we think is worth coming back to, related to the speed of technological development, and how the invention of quantum computing systems and artificial intelligence could soon pose a serious risk to global cyber defences.

James Mawson, editor-in-chief of Global Government Venturing, wrapped up the key points nicely in an editorial (our emphasis):

The speed of technology change makes the challenge of security an issue. Michael Trevett, senior information risk owner at the UK government’s Cabinet Office, in a networking lunch on risk management in a world of fast-paced technological change, posed a series of questions about how organisations could cope with the speed of change. If technology improves so rapidly, identifying what is important and protecting that rather than everything might be helpful, he said.

 Read more

Bitcoin business model too good to be true…proves to be too good to be true

After days of speculation, Ars Technica has finally provided confirmation that the business model everyone in the finance world (not suffering from the Dunning Kruger effect) knew to be fantastical was in fact…fantastical.

For more on the greed dynamics that drive perfectly reasonable people to hand over hard-earned fiat cash to strange unregulated companies (with no track record) which promise to use that cash to handcraft depreciating money-printing machines, see our previous post here.

Safe to say, however, that if your business depends on collecting other people’s money to build money-printing devices that depreciate over time, the temptation to use those machines for yourself, rather than to deliver them to customers, may prove rather hard to resist. Read more

Let there be bubbles!

Citi’s Matt King has jumped on the secular stagnation bandwagon with a really nifty collection of charts that ties the whole story of how we got to this point together.

He starts off with the capex issue, noting that despite the cyclical recovery corporates don’t seem to be investing all that much. In fact, according to King, declining capex may be a key aspect of secular decline, which he suggests began in advanced economies and is now spreading to emerging markets as well.

 Read more

Tesco sees you coming

For those who thought Tesco was just an ordinary grocer….

In reality, thanks to the data-gathering power of the clubcard, big data analytics, and an expanding global footprint that provides major leverage with suppliers, Tesco has become a financial trading/commodities behemoth with an edge over any banking commodity trading division thanks to the data it gleans from its customers.

Let’s just say, if the average commodity trading desk had the consumption info and warehouses of Tesco at its disposal it too would be keen to give away points to even out mismatches in supply and demand. Read more

Of Tesco value points and returns

As already noted, the sharp plunge in Tesco’s share price on Monday following news of its profit overstatement comes with just a hint of accounting irregularity at the UK’s largest supermarket chain.

What we couldn’t help but notice, however, is the interesting array of warning signals that have been gathering at the grocer for years, and their similarity to the sort of concerns that today are being readily dismissed by investors when it comes to value debates elsewhere.

In other words, to what degree has Tesco, an omnipresent retail brand in Britain, been overly dependent on the sort of strategy typically deployed by so-called yieldcos? A.k.a the tendency to dazzle shareholders with earnings per share, while hoping to divert investors’ eyes from a diminishing overall return on capital employed. Something that tends, by the way, to be forgiven or ignored, so long as the stock price itself keeps going up. Read more

The (early) Lunch Wrap

Tesco reveals it overstated first-half results by £250m || British Land’s ‘super-prime’ penthouse breaks sales record || Aldermore Bank plans October London offering || China’s war on graft leads to drop in outbound investment || Siemens buys US oil services group Dresser-Rand for $7.6bn || Scots to get more powers regardless of English devolution talks || Blackstone to pull out of Russia || Alibaba boosts IPO size to world record $25bn || Markets Read more

It wasn’t QE that caused a collateral scarcity this summer

The Liberty Street Economics blog of the Federal Reserve Bank of New York provided a good analysis this week of the summer’s UST settlement fails spike.

For those unfamiliar, settlement fails in US Treasury securities rose to their highest level in more than five years in June, with DTCC figures reaching more than $1.2 trillion in gross fails for the month:

 Read more

When break-even inflation expectations are falling…

George Saravelos at Deutsche Bank has looked at Eurozone inflation break-even rates and worries that the ECB may be losing control:

 Read more

Cult Markets: When the bubble bursts

This is Jean-Paul Rodrigue’s stages of a bubble chart:

This is a chart of the price of Bitcoin from the BoE: Read more

Chicken Kiev

After Russia instituted its ban on western food imports in August, we noted there was a risk the measures could end up hurting average Russians just as much, if not more, than European farmers.

We also noted that propaganda dynamics could make it hard for westerners to discern the truth with regards to what was really going on. Read more

Cybersecurity dispatches: Managing the IoT poltergeist threat

Imagine the scene in the not too distant future.

An Uber self-driving electric car has just dropped you off home. Your front door has recognised your face, and your fingerprint has authenticated that it’s definitely you. You get into your house, not a key in sight, kick off your shoes, and happily discover that the 3D printing feature in your fridge has already printed the food you plan to consume for dinner. All the appliances you need are on. And everything you don’t need is off, nice and efficiently saving power.

You decide to treat yourself to a quick 30-minute Netflix holographic update, only to get a nudge from your wearable tech that you’ve still got a 10 minute exercise deficit to meet your daily activity quota. It’s a problem because you happen to have signed up to the extreme health management option which shuts down your ApplePay access — without which Netflix won’t work — if you fail to meet your objectives. You quickly get busy on your smart-grid connected treadmill (which conveniently sells off the energy produced by your system back into the grid) and focus on the prospect of an autonomously prepared calorie efficient meal.

When all of a sudden… your utility door flings open and your iRobot Roomba begins singing Daisy, Daisy. Read more

Brent weakness is now a thing

This little chart is becoming a major headache for the world’s biggest oil producers:

 Read more

Dispatches from the cyberwar frontline with a horrified Vince Cable

Speaking on the sidelines of the SINET cybersecurity conference being held in London on Tuesday, UK Business Secretary Vince Cable expressed concern over the average age and quality of some of the IT systems of British banks.

As Cable commented to FT Alphaville:

“I’m always horrified when I discover just how ancient the technological infrastructure of the banking system is, a lot of it comes from the 60s and banks are still operating this. One of the reasons why it hasn’t been possible to get proper competition — for example when breaking up RBS –is because the banking infrastructure is just so ancient that they can’t spin it off. And it’s a massively costly business. The financial sector, although in some ways it’s one of the most advanced parts of the economy, it’s often decades not just years behind.”

The comments followed the announcement of a £4m competition for UK cyber businesses to develop ideas to tackle cyber security threats, and initiatives aimed at raising corporate and public awareness of cyber-security risk. It is hoped, in particular, that other mission-critical businesses such as utilities will come together in a collaborative process to spearhead fresh approaches to the problem of cyber crime and resilience. Read more

The (early) Lunch Wrap

Tech chiefs in plea over privacy damage || Bill Ackman plans $2bn Pershing fund IPO in Amsterdam || Phones 4U administration boosts Dixons || SABMiller rebuffed by Heineken || Former BP chief warns on Russia sanctions || Chinese ETFs shut to new investment || Amazon hits India tax snag || Markets Read more

The corporate M&A genotype theory

Merger and acquisition activity, as we all know, comes in waves. There are M&A frenzies and then there are M&A lulls.

But a new study by a group of complexity and evolutionary scientists looks deeper into the social drivers of corporate M&A activity and suggests there may be more intrinsic forces, such as ancestry, at work.

The authors define ancestry as the cumulative number of mergers from all acquired entities — an idea that puts the corporation in the category of an organism which pursues M&A for mainly for survival reasons. The more pronounced a corporation’s ancestry on the M&A front, they say, the more likely it is to survive in the long term. Read more

The (early) Lunch Wrap

EU adds Rostec head to latest Russian sanctions list || Barclays appoints Aviva’s John McFarlane as chairman || Support for No campaign in Scots poll holds up || Virgin Money boosts board amid IPO preparation || Amazon to join rush for Silicon Roundabout || IMF warns of market fallout from a Scottish split || Yahoo faced fines over NSA compliance || Mario Draghi hits back at critics of asset-backed securities plan || Markets Read more

BoE on the potential of the blockchain

The key finding of the BoE’s report on cryptocurrencies is that the technology which supports digital currencies, the distributed open ledger — also known as the blockchain — may have a potential and positive use in the wider banking and asset business.

This is contrary, however, to its position on the Bitcoin currency which it says in its current fixed supply form would expose the economy to significant deflationary risk if it was ever to be widely adopted by the public. Or as they put it:

…the inability of the money supply to vary in response to demand would likely cause welfare-destroying volatility in prices and real activity.

 Read more

BoE on the Bitcoin tech arms race

Okay, we know, this is now our fourth post on the BoE’s foray into the world of cryptocurrencies. But we think it may be the most interesting, given that it focuses on the economics at the heart of Bitcoin mining.

For example, who can resist this log scale chart of the computational power per address in the Bitcoin network?:

 Read more

BoE on the non-cost advantage of digital currencies

The latest edition of the BoE’s quarterly bulletin looks at the rise of cryptocurrencies and, as we’ve already discussed, expresses a cautiously optimistic attitude towards the technology that drives the system. Less so, however, about the potential of “bitcoin the currency” itself.

In this post, we’d like to look closer at the issue of cost and digital currencies.

You see, monitoring and supervising the global claims system is expensive business, since it takes a lot energy and resources to make sure wealth is allocated fairly to those who supposedly deserve it.

Those who are trusted to do this job tend to be compensated for that burden. Those who do that job really well, meanwhile, are usually paid a bonus by the economy to keep them involved. Historically, that job has tended to be given to a sovereign or to gold. Read more

BoE on the moneyness of modern payment innovation

The BoE’s latest quarterly bulletin delves into the choppy waters of cryptocurrency innovation, providing some useful historical context into what’s going on. As we’ve already noted, the house view on Bitcoin “the currency” is sceptical due to its ultimate inflexibility relative to demand. But the BoE is much more open-minded about the potential of the distributed ledger that drives the Bitcoin system, and sees it a true innovation.

Before we get to the latter point, however, it’s worth presenting the Bulletin’s view on how all these new technologies fit into the monetary hierarchy picture.

As the Bulletin makes clear, while new payments “technologies” do have the potential to expand that unsupervised money base and add risk, they don’t always have to. Read more

The BoE opens Pandora’s Bitcoin box

The Bank of England is daring to open Pandora’s Bitcoin box with two major articles on the rise of cryptocurrencies in its latest Quarterly Bulletin, released on Thursday.

The two-minute take-away is that the report’s authors remain sceptical about Bitcoin’s potential as a currency (due to its inability to respond to aggregate demand), but are open minded about the potential of the technology of the distributed open ledger. As we’ll explain later, a lot of that open mindedness is related to the distributed ledger’s potential to bringing transparency to financial transactions outright, and also its potential to limit the system’s dependence on centralised clearers and counterparties.

The best thing about the report, however, is that it brings much needed clarity on the issue (and hierarchy) of the modern money system. Read more