Biography
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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).

Further reading

Elsewhere on Friday,

- The rise of micro tipping.

- How the over valued rouble disguised Russia’s debt problem.

- A history of unprecedented Federal Reserve actions.

- The commoditisation of sandwiches and the rise of Sandwich Inc.

- A complete history of Reddit. Read more

Russian foreign liabilities in perspective

Once upon a time there was a magical land called Ru, where the roads were paved with oil and the houses were built from kitsch gold blocks. Because its capital glistened with a red petroleum hue, it became known to all around as the wonderful Crimson City of Ru.

There, all the residents rejoiced night and day safe in the knowledge their needs would forever be catered to. Why? Because the Wonderful Wizard of Ru, known by some as “Ru the great and the terrible”, would see to it that the kingdom was always defended from its greatest enemy: the Wicked Witch of the West.

Ru was the most wondrous place in the world. Read more

Shale oil gluts, 1980s Dynasty and Dallas edition

If history really does repeat itself, then the upside of the oil glut of 2014 could be some top quality kitsch TV drama moments in the not too distant future.

We’re going by Season 3, episode 7 of Dynasty, which first aired December 8, 1982.

The episode features Blake Carrington, CEO of Denver-Carrington, despairing about the prospect of becoming an oil tycoon in distress due to the 1980s oil glut and having to rely on ex-wife Alexis Colby (Joan Collins) for a bailout if his loans go bad.

Check out the opening two minutes and later at 24.30 for the scene between Carrington and the chairman of the subcommittee on energy policy and technology. Read more

Brent at $66.60

You know, just because there was that one time the S&P hit $666:

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These are not the dollars you’re looking for

The big story on Monday is the warning from the BIS that a resurgent dollar could disrupt EM markets due to the fact that collectively the region has three quarters of its $2.6tn debt denominated in the US currency.

Meanwhile, international banks’ cross-border loans to emerging market economies amounted to $3.1tn in mid-2014, mainly in US dollars, the BIS added.

And herein lies the key problem associated with the hypothetical eventuality of no more petrodollars. A major dollar squeeze in foreign eurodollar markets.

Not that the petrodollar is near its death just yet — the US after all is nowhere near energy independent. Read more

Citi vs Mercuria, a.k.a when commodity repos go wrong

Being heard this week at the High Court of Justice:

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The price of piracy

Arrr, you can’t keep a good pirate down. As we’ll learn below, the suppression of buccaneering in one area soon prompts piratical hot spots else where.

Indeed, one of the things the bitcoin community is quickly learning — as it goes through about 600 years worth of banking lessons at hyper speed — is that piracy, theft and fraud is a naturally occurring cost in any money system. Call it the unintended bitcoin risk premium that anyone carrying the currency must bear. (Something that doesn’t include the risk associated with the crypto currency’s volatility.)

The lesson the community is still to learn, however, is that most ordinary folk don’t like these sorts of risks and expect risk mitigation to be a demonstrable aspect of any currency system they use. In fact, one of the things people love about today’s banking system is precisely its ability to compensate or refund people if they ever do find themselves victim of fraud, theft, hacking or sub-quality service. Read more

Wanted: Buyer of last resort for commodities

One of the problems with cartel systems is that when they bust apart they tend to take out not just their own industry but all the other industries that have come to depend on their ability to keep things balanced in their favour.

In fact, best to think of cartels and monopolies as an “ecosystem”, which allow a whole range of different lifeforms to thrive on the back of their ability to keep things in a permanent goldilocked state of not too much and not too little control.

Small surprise then that the repercussions of Opec’s non cut last week have turned to wide-eyed realisation for some market participants that the price function in commodity markets has never really been about the fundamentals as much as the dedication of certain entities to “not sell” volumes when they have them to hand. Read more

An Indian precedent for Switzerland

Switzerland’s “anyone can initiate a referendum if they’ve got enough signatures” society gets to vote on the “Save our Swiss gold” proposal this Sunday, which aims to make it compulsory for the Swiss Central Bank to hold at least 20 per cent of its assets in gold bullion and repatriate all Swiss gold that’s held abroad.

The proposal also plans to make it illegal for the SNB to sell any of the gold it accumulates. Ever.

What’s worth noting ahead of the poll, though, is how the naturally occurring phenomenon of “too many non-productive gold assets in our economy” has struck economies in the past. Read more

Nigeria’s petrodollar exposure

The consequences of Thursday’s non-Opec cut are understandably harshest for the oil cartel’s weakest members, such as Nigeria and Venezuela.

For Nigeria, lower prices are a particular problem, not only because it depends on petrodollar revenues for managing imports (amongst other things petroleum products themselves) but because of its dollar debt exposure to key trading intermediaries, whose business models depend on the ability to provide credit intermediation services to Nigerian businesses and banks.

So whilst the sovereign may indeed have little exposure to a petrodollar dearth, the same cannot be said for Nigeria’s private sector. Read more

A copper bullion story

A tip of the hat to John Kemp for drawing our attention to the latest from Reuters’ base-metals’ reporter Andy Home, who provides some much needed perspective on the nature of cartels in commodities. Namely, the fact they’re probably endemic.

Case in point, in December 2010 when the copper market was booming, LME reports showed that a single entity controlled over half of all eligible LME stocks, leading to speculation that someone was squeezing the market.

When JPM was outed by the media as the likely holder immediate connections were made with the fact that it was also the bank that was planning to launch an exchange-traded fund backed by physical copper. Read more

Opec non-cut, the press release

Those looking to intensively scrutinise and analyse Opec’s non-cutting decision would do well to check out the public statement from the cartel which can be found here.

In any case, here is the key par to take note of (our emphasis): Read more

No cut!

As per Opec tradition, the cartel’s decision on Thursday has been leaked to wire reporters from Bloomberg and Reuters who are citing delegates stating…

OPEC KEEPS OIL PRODUCTION TARGET UNCHANGED AT 30M B/D: DELEGATE, BBG Read more

Buiter on gold, Bitcoin and subjective value

Someone once wisely said, “if you love something, let it go. If it returns, it’s yours; if it doesn’t, it never was.”

But as Willem Buiter, chief economist at Citi, points out on Thursday, that’s not the message those with a tendency for passion investments seem to have ever received. They want to imprison the thing they love most and keep them in a dark dingy basement.

In a note on the non-virtues of gold and bitcoin investing (and the upcoming Swiss gold referendum), Buiter notes:

  • Gold is a fiat commodity currency (with insignificant intrinsic value).
  • Bitcoin is a fiat virtual peer-to-peer currency (without intrinsic value).
  • Gold and Bitcoin are costly to produce and store.
  • Gold as an asset is equivalent to shiny Bitcoin.
  • Central bank fiat paper currency and fiat electronic currency are socially superior to gold and Bitcoin as currencies and assets. There is no economic or financial case for a central bank to hold any single commodity, even if this commodity had intrinsic value.
  • Forbidding a central bank from ever selling any gold it owns reduces the value of those gold holdings to zero.

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Opec price wars, then and now

Some wise comments from our esteemed FT colleagues on Opec’s price war:

Cutting production only makes sense if there is strong reason to believe that the glut is temporary; and even then it makes better sense in low-cost fields, where not too much capital is tied up, than in high cost ones. Unless, of course, the oil price falls below the operating cost of a high cost field. That is thought to be about $7 a barrel in the North Sea. That is the economic reason why everything depends on Opec, which still controls much of the low-cost oil in world trade.

For the moment, most observers are betting that Opec is bluffing about a price war (which would in any case be the correct strategy) but this begs the question of maintaining internal discipline which is already frayed. Gulf peace and the addition of 2m barrels a day of Iranian supplies, could be the last straw.

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Jim Rogers’ contrarian view on Russia

The rouble may be down more than 25 per cent versus the dollar this year, but the currency’s recent slide won’t be enough to dissuade legendary investor and author Jim Rogers from adding to his Russia investments.

Rogers told the Financial Times on Tuesday his bullish case was based on the view there had been a fundamental change in the Kremlin’s mindset when it came to the treatment of foreign investors. This, he said, had led him to about-turn on his previous scepticism about the country’s potential and views he had set from the moment he had first visited the country over 46 years ago. Read more

Oil-price decline: the bank-exit liquidity theory

We’re all about unexpected consequences of “liquidity illusion-syndrome” these days, so it was exciting to discover a liquidity-focused assertion from Citi’s Edward Morse and team on Monday about the recent oil price decline, one that ties together a few ideas about how commodity markets relate to bank intermediation.

As a reminder, we have postulated that much of the decline is less related to sudden spot imbalances as it is to the curve’s “definancialisation”. The connection Citi has now made is between the commodity sell-off and regulatory burdens placed on banks’ commodity operations.

It adds to a discussion developed in an April paper by David Bicchetti and Nicolas Maystre, which questioned whether the recent correlation reversal in commodities was indeed connected to the closure of banks’ commodity departments. Read more

Lies, damned lies, and liquidity expectations

Last Friday we warned about the “liquidity illusion” in the market, and the degree to which it becomes part and parcel of regulatory efforts to bring the concept of caveat emptor back to the marketplace.

Which leads us on Monday to flag a paper the Committee on the Global Financial System (CGFS) published on the same day, focusing on similar themes, rubber-stamped by William Dudley of the New York Fed.

Entitled, market-making and proprietary trading: industry trends, drivers and policy implications, it notes (our emphasis): Read more

On the hypothetical eventuality of no more petrodollars

Imagine the scenario. It’s 2025 and the volume of home-produced oil is so great that the US is near energy independent as far as crude imports are concerned.

With that energy independence, the amount of dollars flowing out of the US and over to net energy producers (and traditional dollar reserve hoarders) such as Saudi Arabia, Russia and Mexico has come crashing down.

So how would such a dollar-flow contraction affect the global economical and political balance?

According to Citi’s credit team, it would likely affect things a lot. Especially so in the credit markets. Though, what’s really interesting … they believe the effects of a petrodollar shortage may already be showing up in credit markets. Read more

Private money vs totally-public money, plus some history

Let’s close the week off with little bit of “history is just repeating itself” education for both the champions of private cryptocurrency, unaware of the private origins of evil fiat currency, and the “take away the banks’ power to create money!” Positive Money campaign in light of the recent deluge of historically myopic press releases in our inbox.

As the BoE’s historical timeline helpfully points out, the BoE came into being when a private syndicate decided to risk all in 1688 by providing the UK government with funding when no-one else was prepared to do so. This ultimately proved to be a very good decision. It turns out lending money to government on terms you can enforce and control can be very profitable, especially if it leads to wise public investments that improve the wealth of the nation and make it easier to collect taxes as a result. Read more

No-one ever expects the PBOC

The People’s Bank of China likes to act unexpectedly. And Friday’s surprise announcement of a Chinese rate cut only confirms that being unexpected is indeed the PBOC’s preferred communications strategy.

As Reuters noted, this is the first Chinese rate cut in two years and lowers the benchmark lending rate by 40 basis points to 5.6 per cent. One-year benchmark deposit rates were lowered by a smaller 25 basis points.

But, as Marc Ostwald at ADM Investor Services International commented in an email, the timing of this move looks to be as much about the sharp appreciation of the Chinese currency versus the yen as the fact that China’s economy is experiencing difficulties, with both Chinese CPI and PPI remaining very benign. Read more

The liquidity monster that awaits

Fears are growing that the next crisis, if it should manifest, won’t come from any of the areas that spawned the 2008 crisis. To the contrary, it will emerge from areas we’ve not really had to worry about to date.

The key areas those in high places are now worrying about: the taken-for-granted presumed liquidity of the system.

This is an easy assumption for the asset management industry to make. For years investment banks have made a business of carrying liquidity risk on their balance sheets, mainly by internalising the inventory nobody else is prepared to hold. This sort of “we’ll buying anything just to make money from making markets” service as a result conditioned the buy-side to presume liquidity risk is something that just doesn’t really manifest anymore. Read more

Further reading

Elsewhere on Friday,

- The Karl Marx credit card.

- The un-wisdom of crowding out against Keynes.

- Scrutinising Zerohedge.

- Uber investor Ashton Kutcher defends digging up details on “shady” journalists. Read more

Fed of mystery and supplementary normalisation tools

If analyst comments in our inbox are anything to go by, the latest FOMC minutes, released on Wednesday, provided nothing much to write home about. Everything revealed was pretty much as expected.

One thing did prompt our eyebrows to raise, however. More on that below, but first here’s some of the reaction. Stephen Lewis at Monument Securities wrote:

The minutes of the FOMC meeting on 28-29 October sprang few surprises. Compared with earlier meetings, FOMC members gave more prominence to the risks stemming from worsening conditions elsewhere in the world but ‘many participants’ expected the impact of foreign developments on US growth to be limited.

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ECB QE and the prospect of gold purchases

One of the problems with ECB QE, as we all know, is the lack of a collective eurobond or sovereign-neutral asset to target, which would make asset purchasing less, you know, subjective vis-a-vis the assets you choose to support and those you don’t.

It is for this reason that analysts are divided about the type of assets Draghi may or may not be inclined to target.

There is, after all, a delicate balance between targeting ETFs or real-estate trusts neutrally and buying corporate stock or housing, which can evoke the start of quasi nationalisation of the economic system, if not government favouritsation of specific sectors, corporations or industries.

One way around this problem is to target all bonds in equal measure, but this runs into the problem of over-targeting assets such as German bunds which are already in short supply vis-a-vis other European bonds in the market, opening the door to liquidity problems and all sorts of unintended side-effect.

Hence why talk is suddenly turning to the purchase of more neutral (domain unspecific) assets like gold. Read more

Further Reading

Elsewhere on Thursday,

- The effect of oil price declines on consumer prices.

- The macroeconomics of the Death Star, redux.

- Objects can lie about their identity too. Read more

On the pluses and minuses of paying employees in non-cash instruments

On Monday Mark Carney, Bank of England governor, injected fear into the hearts of highly paid bankers everywhere by stating…

Standards may need to be developed to put non-bonus or fixed pay at risk. That could potentially be achieved through payment in instruments other than cash. Bill Dudley’s recent proposal for certain staff to be paid partly in ‘performance bonds’ is worthy of investigation as a potentially elegant solution. Senior manager accountability and new compensation structures will help to rebuild trust in financial institutions. In a diverse financial system, trust must also be rebuilt in markets.

His comments came on the back of growing regulatory concerns that banks avoid bonus caps by boosting fixed salaries and so offer less variable pay, weakening the link between performance and compensation. Read more

FirstFT, the email briefing formerly known as The (early) Lunch Wrap

This is FirstFT, the FT’s new email briefing written by Amie Tsang in Hong Kong which is replacing the Lunch Wrap and the Cut. All Cut subscribers should now be receiving it in their inboxes. If that isn’t happening do please email firstft@ft.com or alphaville@ft.com.

If anyone reading this is not yet subscribed do please click here. Read more

More on Nigeria’s fuel problems

A quick follow-up to our Nigerian fuel scarcity story from Monday, which highlighted the country’s growing exposure to potential fuel shortages if and when oil prices continue to descend, and as the national currency weakens.

As already noted, Nigeria may be a net oil exporter, but the country remains dependent on product imports to keep its economy ticking over. Those products are imported by local companies from international oil trading intermediaries, and distributed at prices which are further subsidised by the government. Read more

Ever naira a fuel scarcity issue for Nigeria

Nigeria’s fiscal exposure to falling oil prices is amongst the most acute within the Opec group.

But as Standard Bank analysts note on Monday, whilst the country’s central bank has shown it is prepared to defend the currency ahead of all-important national elections in February, its ability to do so diminishes with every dollar that the Brent crude price loses:

The CBN is clearly struggling to balance constraining upside USD/NGN pressure with limiting the depletion of FX reserves. At present, the CBN is intervening in the interbank market just below the prevailing rate rather than protecting a line in the sand.

The CBN has also recently shifted the RDAS rate higher and we suspect may move it to the upper end of 155 +3% band in coming weeks.

Our core scenario remains that there will not be an official shift in the RDAS central rate until after the elections in Feb 15. The ability of the CBN to achieve such an outcome clearly diminishes, the lower the oil price goes.

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