Biography
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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).

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:

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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

Further reading

Elsewhere on Tuesday,

- John Oliver interviews Edward Snowden.

- The Internet doesn’t make you smarter; you only think it does.

- Bernanke gets embroiled in the secstag debate. And Paul Krugman has an opinon.

- But read this if you really want to know how Ben Bernanke thinks.

- Though, maybe it’s technology that’s making all the risk disappear? Read more

On the availability of dollar funding

General collateral rates are known to get volatile as banks scramble for liquidity ahead of the quarter’s close.

But this March 31, GC rates didn’t just get volatile. They went positively paraobolic.

According to Bloomberg Data, the overnight US dollar GC rate more than doubled to 0.45 per cent, a rate not seen in the markets since October 2012. They fell back to 0.2 per cent range on Wednesday, implying there’s no systemic threat to talk about, but the spike does prompt questions over how and why a funding mismatch of this level might have come about. Read more

Buiter on why the ECB as a whole can’t go bust

Citi’s chief economist and former BoE MPC member Willem Buiter is worried that the ECB’s new profit-and-loss sharing stance on National Central Bank asset exposures risks transforming the 19 NCBs of the eurosystem into a glorified currency board.

It’s a policy that also stands to bring needless uncertainty and volatility into the system. Making NCBs accountable for their own assets in his opinion only delays risk-sharing. If Europe is to defend its currency union there’s no way out of risk sharing in the long run. In fact, risk-sharing is precisely the point of a currency union. It’s what makes a currency union work. Read more

Eurozone: welcome to your currency board future

Citi’s Chief Economist Willem Buiter spent some time with FT Alphaville explaining why he believes Draghi’s concession on profit and loss sharing among ECB member national central banks turns, in all likelihood, the single monetary unit into nothing more than a glorified currency board.

Quick background: The ECB’s profit-and-loss sharing mechanism became a key negotiating point ahead of European QE. For the Bundesbank, QE was only viable if NCBs assumed most of the responsibility for losses on assets they brought into the consolidated balance sheet. In the end Draghi acquiesced by reducing risk-sharing to only 20 per cent of assets.

A currency board works by pegging liabilities (central bank reserves and currency) to an exchange rate target, rather than a CPI or employment target. The monetary authority managing the board achieves the target by ensuring all commercial entities served by the system can convert the authority’s liabilities into foreign currency at any point. In short, there’s a guaranteed FX convertibility promise at the central bank. Read more

Buiter on soggy global growth in 2015

Willem Buiter, Citi’s global chief economist, believes global growth will come in at somewhere between “moderate and modest” in 2015, with his team shaving their growth target from 3 per cent last month (and 3.3 per cent six months ago) to 2.9 per cent.

As Buiter noted in a meeting in London on Friday, it’s also unlikely that in the long run currency wars, which wash each other out, will help to drive demand: Read more

When markets become self aware

What are the chances that if and when an eccentric computer scientist with a psychology and neuroscience background does invent a workable and autonomous artificial intelligence model, he deploys said model on the financial markets to make himself a cool $1 trillion?

It’s not that untoward an idea. In fact, it’s a key plot in most “AI-goes nuts and causes havoc” Hollywood offerings, Transcendence amongst the most recent.

The usual storyline involves the AI realising — as soon as it goes sentient — that the acquisition of capital will be necessary to achieve its dastardly objective of obliterating humankind. Read more

Don’t panic about Cushing yet

An inundated inbox means we’re slightly late to this, but it’s worth flagging up two days on regardless.

It’s the EIA’s take on the US crude system’s “l’embarass de richesses” problem.

Inventory levels at Cushing may be at a record high, they note, but not as a percentage of total working storage capacity.

The great thing about the Cushing storage system is that it’s a private market. That means whenever storage gets tight the incentive to build new capacity increases for commercial operators. Read more

Bitcoin’s lien problem

At cryptocurrency and fintech conferences, FT Alphaville often hears Bitcoin enthusiasts make the assertion that Bitcoin is superior to fiat currency because it eliminates debt from the monetary system.

But this, of course, is a fallacy.

Bitcoin may have the potential to create a fully-funded reserve system, but it certainly doesn’t eliminate debt from any system.

At best, Bitcoin’s public ledger records a transfer of digital access rights in the eyes of the clearing network. It does not, however, record or see the terms and conditions of that transfer. Read more

Is the Fed bluffing on rate hikes?

It might not be polite to say it overtly, but concerns are growing that the Fed’s rate hiking promises may be nothing more than a big bluff.

The vogue for doubting Fed rhetoric started in earnest on March 11, when Ray Dalio, founder of hedge fund firm Bridgewater Associates, wrote to investors that there was a risk if the Fed raised rates too fast it could create a market rout similar to that of 1937. Read more

Blockchains as a public and private resource

FT Alphaville attended Tomorrow’s Transactions 18th annual forum this week where all facets of blockchain and distributed-ledger systems were explored.

The most interesting ideas (at least to us) were those presented by Vitalik Buterin of Ethereum and Preston Byrne of Eris Industries. Both are focused on moving blockchain beyond bitcoin and towards useful real-world applications.

The former, for example, is focused on creating a so-called “Turing complete” public chain that would — as we understand it — allow anyone with coding capability to tap a globally distributed processing network to run their programmes upon safe in the knowledge that the underlying data can’t be falsified or manipulated. Read more

Total non-eclipse of the power grid

John Kemp of Reuters quantifies this morning’s solar eclipse with data from the National Grid’s website:

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The return of goldsmith banking

The exciting thing about negative rates in the current context is that they make the fundamental ETF, MMF and repo-type structure that lies at the core of central banking much more obvious.

In a negative rate regime the “central bank ETF” essentially clips your rights to the underlying collateral that it holds on your behalf, often, beyond the arbitrage spread a primary dealer can secure. It’s easy for a regular ETF to enforce such a management fee because all its units are electronically registered. All costs, as a result, are distributed equally. If the managing fee is too great, meanwhile, customers would just go elsewhere. Read more

On the potential of closed-system blockchains

Followers of FT Alphaville’s Bitcoinmania series will be familiar with our generally sceptical position on all things bitcoin.

Indeed, over the course of more than 64 posts, we’ve presented a mostly negative case for bitcoin “the currency”, and remain confident that the open-source “people-cleared” cryptocurrency (which replaces one accountable and identifiable third party with 10,000 anonymous parties of dubious intent) is ill-suited for the job of currency in any stable economic system.

That said, we have reflected tiny bursts of enthusiasm for what blockchain technology, the distributed public ledger underpinning bitcoin, could do for the murky and shadowy world of OTC bilateral clearing. Read more

Return of the bloated USO

Back in 2009, Olivier Jakob of Petromatrix was one of the first analysts to spot the weird effects that commodity ETFs were having on commodity future markets.

It started with the USO, the oil ETP, and then went on to the UNG, a natural gas ETP

At the time, what was going on was a bit of a mystery. Why should these ETFs be bloating up even as professional investors were staying clear of the underlying assets backing the ETFs? Read more

How to eat a banker’s lunch

Bruce Packard over at the Lafferty group has an upcoming report on the fintech disruption that’s about to hit the traditional banking sector.

As he notes, most of the corporations vying for a slice of the action don’t look much like traditional banks and many don’t even have banking licenses. But they do offer substitute products that have the potential, he says, to harm bank margins.

In Packard’s view, even though new entrants have been trying to disrupt old banks since the 90s, banks find themselves in a vulnerable position today because their opaque price structures and overall reliance on cross-subsidisation techniques don’t necessarily do them any favours when it comes to defending market share. Read more

On the limits of negative rates

Regarding how low negative interest rates can go, Paul Krugman wrote a couple of weeks ago that:

When central banks push interest rates on government debt below zero, the effective lower bound is the return on cash held by people who would otherwise be holding that government debt — not people looking to expand their checking accounts. So the liquidity advantages of bank deposits over cash in a vault are pretty much irrelevant. It’s all about the cost of storage.

 Read more