Biography
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).

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.

 Read more

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.

 Read more

Russia’s import-substitution problem

What’s an oil power to do when the commodity it owes its power to is on the wane?

One strategy, of course, is to devalue your currency so as to help the competitiveness of whatever exports you have left, and focus on the so-called strategy of import substitution – buying more of your own stuff and pretending that, heh, you just don’t care. As Deutsche Bank’s Yaroslav Lissovolik notes on Friday it is a strategy that has worked for Russia in the past, namely in 1998 and 2008. Read more

Putting the FX rigging fines in perspective

It takes a bold and courageous man to go against the consensus, especially when the consensus view equals “evil manipulative trader types got what they deserved with that $4.3bn fine for fx rigging!”

In this case that bold man is Matt Levine, columnist at Bloomberg and long-time communicator of logic and sense, who made the brave assertion on Wednesday that commentary surrounding this entire rigging episode may be losing sight of the core fundamentals of the case. Namely, that in terms of money made, there’s no escaping the fact that this was possibly the least successful manipulation attempt of recent times. Read more

These aren’t the oil price wars you are looking for

A tip of the hat to Reuters’ John Kemp for directing us to the following snapfest from Reuters’ journalists reporting on Saudi oil minister Naimi’s comments in Mexico:

  • 12-Nov-2014 15:52 – ACAPULCO-SAUDI OIL MIN NAIMI SAYS SAUDI ARABIA RETAINS PREEMINENT POSITION IN TERMS OF CRUDE OIL RESERVES AND EXPORTS AND THIS WILL NOT CHANGE IN FORESEEABLE FUTURE
  • 12-Nov-2014 15:55 – ACAPULCO-SAUDI OIL MIN NAIMI SAYS SAUDI OIL POLICY HAS BEEN CONSTANT FOR PAST FEW DECADES AND DOES NOT CHANGE TODAY
  • 12-Nov-2014 15:56 – ACAPULCO-SAUDI OIL MIN NAIMI SAYS MARKETS SET OIL PRICES, NOT SAUDI ARABIA

 Read more

Dollar reserves as goodwill oil-product claims

A while back we proposed that oil prices are more interest-rate sensitive than most people appreciate.

The logic goes as follows.

When interest rates are low it makes more sense for producers and commodity owners to hold their wealth in commodity-form rather than in money-form — especially if speculators are prepared (via the forward curve) to compensate them for the cost of storing these commodities in terminals, tanks or even in the ground.

Low interest rates thus support commodity prices because they encourage commodity owners to sell only what they need for financial liquidity purposes and little more, a fact which naturally keeps the market tight. Read more

Raising rates mysteriously

Paul Krugman commented this week that despite all the talk about imminent rates raises, the Fed doesn’t actually have much reason to raise rates just yet.

Or as he put it:

And as usual, I wonder why anyone is talking about this at all. Yes, unemployment has fallen. But there is huge ambiguity about what level of unemployment is sustainable given changing demography, the uncertain degree to which people might return to the work force given better job availability, and so on.

Though, none of that has stopped the Fed from slyly tinkering with the rates it offers on its still experimental Term-Deposit Facility. Read more

From heavy to light and back again

There was a time when light sweet crude was considered the best of the oil-grade bunch.

Easy to process and especially suitable for making gasoline — the fuel of choice for the world’s automobiles — it quickly became the global benchmark for oil prices everywhere.

The only problem for the industry was that there was never enough of it about. A fact which ended up providing the market with a hell of an incentive to find better ways of processing inferior crude types.

Which is exactly what happened next. Read more

BearWhales everywhere

BearWhale
n.
/bâr-weil/

1. A large mythical creature known to operate in FX markets with the explicit intention of shattering upstanding and well-managed currencies like bitcoin, the rouble and the naira. If found to display extreme speculative dumping behaviour, defences must be organised by the champions of the superior currency zone so as to scare the wunderbeast away. These defences usually involve feeding the BearWhale large amounts of unwanted inferior dirty currency until it can physically consume no more and withdraws to its BearWhale cave. A successfully slain Bearwhale is usually cause for much jubilation and festivity within the defending community.

 Read more

From SpaceX to SilkRoad2

Remember that $70k Tesla car which was bought for Bitcoin last December and which the Bitcoin PR-lobby spun with grand fanfare into an excellent example of “user adoption”?

Well, turns out, it was bought by one Blake Benthall, a former SpaceX software engineer turned custodian and alleged operator of the illicit goods cyber trafficking site Silk Road 2, which sprung up in the wake of the Feds’ take down of the original site and following the arrest of its founder and operator Ross Ulbricht a.k.a the original Dread Pirate Roberts (DPR). Read more

Fending off the great Russian BearWhale

Back in March, when one US dollar still bought you 36 Russian roubles, we noted how the Kremlin’s attempt to publicly trash-talk the dollar by threatening to drop it as a reserve currency if and when the US was to impose sanctions was largely a propaganda tactic deployed to confuse the economically ignorant about the reality of who was really dependent on whom.

(As if Russia’s dependence on dollar reserves was ever a US Achilles heel. Quite the contrary, it’s always been Russia’s.)

From our point of view it was all a desperate measure to stave off a currency crises in the making, and obscure the fact that Russia’s CBR was losing control (given that even rate hikes were proving ineffective at curbing the rouble’s slide). Read more

How the dumb money was set up for commodity failure

Here’s a great chart from Emad Mostaque, a strategist at Ecstrat, a new research company set up by Mostaque and former head of EM strategy at Deutsche Bank John-Paul Smith:

 Read more

From the annals of disruptive digital currencies past

Presenting: The lifecycle of a virtual currency scheme, via the histories of Beenz, Flooz and DigiCash. (All extracts below by way of Factiva.)

Just because, you know, not everyone was around during Dotcom bubble V.1.

Beenz.com

TAKEOFF

From a trade rag called Revolution, (June 9, 1998):

“Don’t say loyalty, say currency,” says Letts. “It is the first global currency, but it’s a different concept to both cash and loyalty schemes.”

 Read more

Bill Gross: Mystic

Gnostic mystics and Michael Fowke stand aside. A new financial shaman has emerged from the shadowlands of betaville. He is the One whose function it is to return the flock to the alpha source. Long prophesied by the ancients. Incarnated in this latest rendition of the eternal cycle simply as Gross.

And it is He who provides us with the following great revelation this Monday:

I am a philosophical nomad disguised in Western clothing, a wondering drifter, masquerading in a suit near a California beach. Sand forms the foundation of my being and its porosity is at once my greatest strength and deepest wound. I have become after 70 years, a man who believes that no belief is sacred. I have ideals and moral standards, but I believe them specific to me. Had I inherited your body and ego, “I” could just as clearly have assumed “yours.”

 Read more

Polish QE?

With the European Central Bank keeping everyone guessing on the prospect of Eurozone QE, uncertainties over exactly how Draghi will choose to act to curb the deflation risk building in the region are beginning to create a headache for non-Eurozone members such as Poland.

Whilst Poland’s economy has proved resilient to the downturn thus far, deflationary trends are creeping into the country putting central bankers under pressure to act decisively sooner rather than later. The key metric everyone is worried about is a dip in Poland’s annual rate of consumer price inflation to a negative 0.3 per cent. Read more

Your extended Abe put

Earlier on Friday, we noted that one of the most interesting things coming out of Japan on the day was the rumour that the government was about to approve new allocation targets for the world’s largest pension fund, Japan’s Government Pension Investment Fund (GPIF), which would increase its exposure to domestic stocks.

That rumour has now been confirmed.

As Richard Kaye, portfolio manager at the Comgest Growth Japan fund noted, in terms of importance, this far outweighs the BoJ’s decision to raise the monetary base by around Y80tn a year from Y60-70tn and to triple annual purchases of ETFs and REITS. Read more

Why banking got out of control in the digital age

Could the real cause of today’s financial malaise have less to do with greedy bankers, bad regulation and poor monetary policy, and more to do with the effects of the information technology age on banking?

That at least is the argument proposed in a new book, “The end of banking – money, credit and the digital revolution” by Jonathan McMillan, a collective pseudonym for two authors who are keeping their identities secret, but who hail from the world of banking and academia.

Not to say the financial system was free of instability before the IT age, it’s just that the way in which the instability was dealt with was entirely different. Read more