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).

The commodity super-cycle that wasn’t

This is how Glencore stock ended on Wednesday:

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The dollar re-shoring risk is out there

At FT Alphaville we’ve flagged concerns about the perfect storm of declining petrodollar/sweatdollar recycling flows, a Fed tightening schedule, and a regulatory environment increasingly averse to cross-border repos and funding, with potential unintended (or perhaps intended but grossly under appreciated) effects for offshore dollar liquidity.

Why dollar liquidity, not euro, sterling or yen? Well, obviously, because the dollar remains the premier global reserve asset. Read more

Synthetic EM

So you bought an EM fund. Maybe it was an ETF, or maybe it was just a regular fund?

Either way it gave you exposure to EM. And it was great. You could trade in and out of your EM fund as often as you wanted. There was proper unrestricted liquidity. It was awesome.

And then some random EM country decided to suspend its stock market. But hey, it was still great for you, because you could continue to trade in and out of your fund as if nothing ever happened. Read more

Dispatches from the #UBSthoughtleadership away-day

UBS + Away-day in a fancy high-tech facility at a not too secret location due to tweeting oversight = !!!Future shock!!!

We’ve been live at the scene of the new UBS ‘refresh’ on Monday — and it seems what the rebranded Swiss bank wants to discuss is EVERYTHING TO DO WITH THE FUTURE. Read more

Eurodollars, FX reserve managers and the offshore RRP issue

Previously of the NY Fed markets team and now at Credit Suisse, nobody knows repos and shadow banking like Zoltan Pozsar. In his latest co-authored piece with James Sweeney he takes a closer look at how an eventual Fed rate liftoff may play out technically on the ground.

As has been widely reported, the Fed is expected to utilise Reverse Repo (RRPs) facilities with non-bank money market funds as part of its unwind procedure. This is unprecedented to a degree, for it represents the effective expansion of the Fed’s balance sheet beyond the official bank sector.

By offering deposit services to non-banks at positive rates, the Fed will be pulling liquidity from the system by way of transforming excess reserves currently sitting on the books of the formal banking sector into non-bank reserve assets. While the overall amount of liquidity in the system will technically remain the same, what will change is who owns the liabilities. Read more

The peer-to-peer scaling, matching and pricing fallacy

Everyone loves peer-to-peer systems these days, right?

Peer-to-peer means nasty old intermediaries, who might otherwise overcharge or front-run you, are entirely eliminated from the transaction equation. Instead you, the little guy, get to operate on your own terms and only with those counterparties you want to.

And how is this magic achieved? With the power of all-encompassing algorithms. Naturally.

Except, none of that is really true. Peer-to-peer doesn’t really eliminate the intermediary, it just substitutes him temporarily for a seemingly benign (though, still commercially incentivised) entity, branded as a digital platform or social network. That such a platform appears benign is only because it charges you less than the competition currently does. Read more

Imagineering markets in our quantum computing future

A company called Cambridge Quantum Computing, which is developing qubit algos for commercial applications, has just received £50m worth of investment from private equity firm Grupo Arcano, a.k.a this man:

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Alibaba’s market edge? AI behavioral mindtricks

Here’s something for our running financial inclusion really means financial intrusion theme, courtesy of Alibaba — the internet marketplace which also benefits from extremely close relations with China’s premier shadow banky Money Market fund YueBao. (Alibaba’s cash management feature feeds the YueBao fund.)

From Techcrunch on Tuesday (our emphasis): Read more

China’s ‘asset bubble’ growth solution hangs in the balance

Whether the yuan is technically or fundamentally overvalued doesn’t really matter. China has reached the point in its growth cycle where it can no longer defend the yuan’s valuation against the USD without shedding reserves, something FT Alphaville readers may have heard us warning about since 2012. That was the moment it became obvious (to us at least) that something had changed in China. Enough external private debt had built up in the system to compromise the pegging regime unless it was accompanied with offsetting FX reserve dumps, or new capital inflows.

While it’s true FX reserves continued to build (chart below from Kit Juckes at SocGen), what was of greater interest was the overall UST position which — a better proxy for how many dollars are in the system — and the theoretical portion of those FX inflows which are coming into China on essentially leveraged terms: Read more

Why China’s stock market implosion might not be very meaningful

Whilst there’s nothing like a Black Monday bloodbath in China to invigorate the bear case, it is worth bearing in mind that the Chinese stock market isn’t quite the NYSE.

Yes, Chinese investors have been turning to stock market investing at accelerating rates over the past decade, but despite all that growth, stock ownership is still the exception not the norm in China. And because it isn’t the norm, the feed through to the real economy is unlikely to be as significant as it would be in say, America, where every man and his dog is taught from birth to watch CNBC and to own a portfolio. Read more

Offshore repo, capital charges and petrodollars

Repo expert Scott Skyrm at Wedbush warned last week that August 24 could be a date to watch because it’s a GSIB surcharge calculation day, along with July 31 and September 30.

As he stressed:

Taking that one step further, traders are even thinking about September 30 quarter‐end Repo rates. And here’s another date to watch ‐ August 24th, which is the second G‐SIB capital surcharge calculation date (in addition to July 31 and September 30) We should expect some type of funding pressure and/or Repo market distortion on Monday. If there is no obvious change in GC rates, it could be that cash is permanently gone from the market through early October, or maybe even forever. With the GSE cash in the market this week and slight soft funding, it’s a good time to finance long positions through month‐end and into September.

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So this is how internet liberty dies? With thunderous spam filters

Twitter has a problem.

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More on questioning China’s weirdly stable unemployment rate

Some thought-provoking paragraphs on China this Friday from Stephen Lewis, chief economist, at ADM Investor Services International, regarding the reliability of the country’s jobs data. He starts with this useful reminder:

Of the ten conflicts in human history with the highest death tolls, five were civil wars in China. Chief among these was the Three Kingdoms War (184-280 CE) when up to 40 million are reckoned to have perished in military operations and from the destructive consequences of warfare. This is an enormous number, considering that the global population at that time is unlikely to have exceeded 400 million. More recently, the Taiping Rebellion (1850-1864) claimed more than 20 million lives while the civil war that brought the Communist Party to power in 1949 resulted in 7.5 million deaths, over and above the 20 million estimated to have been killed in the roughly contemporary Japanese invasion. This is not the history we were taught at school but Chinese leaders are well aware of these facts. When disorder breaks out in China, things turn very nasty indeed. It is best, therefore, to avoid disorder at almost any cost.

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Cultural learnings of stock market valuation for make benefit glorious commodity trader Glencore

When people start worrying about commodity traders in bear markets, the commodity traders themselves tend to reassure the market with comments like: “Ha! This clearly demonstrates you don’t understand our business at all. Lower commodity prices are GRRREAT for us. They liberate our balance sheet on a working capital basis and allow us to focus on our real value add, which is… spread trading.”

Though, if you’re Glencore, you tweak the comment so it goes something like:

“Prices are still not making sense where they are … it’s the funds driving it where it is today, not the actual demand,” Mr Glasenberg argued. “They believe demand for commodities is going to fall and continue to fall and that’s their view. Our view is what we see on the physical movement of commodities and it’s not too bad. We see the flows are still pretty strong.”

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Productivity polarisation in our ‘Modern Times’

About a month ago, Citi’s Disruptive Innovations report revived the debate over the cause of slowing productivity in Western economies.

One insight related to how modern technology encourages smarter distribution rather than outright production growth. You don’t need to produce as many spoons because, well, in the digital age less is more and everyone drinks Soylent. You probably don’t need a big house either, because, hey virtual reality.

But if true, why does it not feel like quality of life is improving in many corners of the developed world? Perhaps there is something more to it. Read more

China: Uber but for countries

A unicorn is a legendary mystical animal with a single spiralling horn that is both highly sought after and impossible to find.

In techland, however, it represents the hunt for something even more elusive: a start-up with the potential to become a multi-billion dollar company on the back of the winner-takes-all monopolistic eco-system superpower effect.

Given that unicorns are supposed to be rare, it’s weird there are so many of them these days. Read more

Pettis explains why the RMB is not fundamentally overvalued

Nobody knows China like Michael Pettis, and his latest post on the RMB doesn’t disappoint.

Before we get to the crux of his argument we should point out that FT Alphaville has long argued that the RMB was probably over rather than under valued, based on its capital account position.

Understandably we were feeling a bit chipper with our analysis following last week’s depreciation, until we read Pettis this morning.

The Beijing-based academic argues convincingly that the RMB is still under valued because there’s a big difference between a technical misvaluation and a fundamental one. Read more

Why Soylent is a dangerous cult

There is so much wrong with Soylent, the meal replacement slop, it’s hard to know where to begin.

I mean you could start with Rob Rhinehart, the 26 year old boy wonder who “invented” the goo.* He’s got a wonderful habit of saying profoundly annoying things like:

Kitchens are expensive and dirty. This home manufacturing center has been by far the most liberating to eliminate. They are the greediest consumers of power, water, and labor and produce the most noise and garbage of any room. Moreover, they can be made totally unnecessary with a few practical life hacks.

Nevermore will I bumble through endless confusing aisles like a pack-donkey searching for feed while the smell of rotting flesh fills my nostrils and fluorescent lights sear my eyeballs and sappy love songs torture my ears.

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China has a moral hazard problem

Late last week the Financial Stability Board completed its peer review of the Chinese financial market.

For anyone who’s ever wondered about the structure of China’s shadow banking industry or the evolution of the wealth management product sector the whole report really is worth a read.

But most interesting, especially given last week’s depreciation, was the following recommendation from the FSB:

The authorities should continue to promote a more diversified and resilient financial system by: (1) increasing reliance on market-based pricing mechanisms via the removal of implicit guarantees; and (2) further developing capital markets and an institutional investor base as an alternative pillar to bank financing.

Herein lies the crux of the challenge for China. Removing implicit guarantees and effective market subsidies. Read more

It doesn’t matter if the investment is domestic or foreign…

…so long as it catches value

Deng Xiaoping (sort of)

We’ve already theorised that China depreciating the yuan against the dollar in stages will have helped to shake-out the short-term dollar leverage in the system before a Fed rate hike later this year.

But, as PRC Macro, a Hong-Kong based advisory, noted late last week, with dollar deposits at commercial banks still leaving the system, we may not be home-free on China’s private sector dollar and capital outflow exposure just yet:

Today the PBOC released foreign reserve data for July that provides evidence of an additional motive behind the Bank’s sudden devaluation of the RMB/ USD exchange rate earlier this week. Specifically, the outflow of foreign exchange from commercial banks – as shown by the net monthly change to foreign exchange deposits – gathered pace in July. On a month-over-month basis, net capital outflows increased from RMB 93 billion (US$ 15 billion) in June to RMB 257 billion (US$ 41 billion) in July, with total FX deposits down by 2% YoY. This decline to China’s foreign reserves also highlights the difficulties that the PBOC has faced where it comes to managing systemic liquidity and this may also have contributed to the timing of the Bank’s decision to devalue the RMB earlier this week.

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What are Chinese capital controls really? – Part 2

Here follows the second in a series of posts explaining why this week’s RMB depreciation is akin to the Great China Money Market fund breaking the buck.

But first a disclaimer! Whilst our analysis errs to the view that the depreciation was driven by market forces and thus inevitable, that’s not to suggest China “the market economy” is bust or about to face a hard landing. We’re very specifically talking about the state-managed part of the external capital account. Read more

What are Chinese capital controls really? – Part 1

To understand what happened in China this week we think the best financial analogy for China’s management of its economy and its external capital account is this: think of it as a giant money market fund.

So when the currency was officially devalued three times, it was equivalent to the Great China Money Market (GCMM) fund “breaking the buck”, a rare event when presumed safe investments turn out to not be so safe as thought.

We’re going to explain what that means in two posts, the first of which is the extended history of China’s economic management needed to realise how the world got to this point in the first place. Read more

One oil chart that says it all, plus some others

From the IEA’s Oil Market Report released on Wednesday:

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We buy anything!

You will have heard of “We Buy Any Car“, the auto market-maker/exchange that injects liquidity into the usually not so liquid used car market.

We Buy Any Car’s parent group, BCA, was acquired by Haversham Holdings this year and listed on the London market in April under the BCA Group name. Oh, yeah, the group also incidentally sponsored Camp Alphaville this year.

But this isn’t a post about BCA! It’s a post about the exploding ‘fast-sell’ real-estate market in the UK. Companies like two-year old “We Buy Any Home“. Read more

This one time, at band camp, the PBOC did this thing

China weakened the renminbi fixing by 1.86 per cent overnight, an unexpected move followed by the biggest one-day change in the value of the renminbi since the country abandoned its dollar peg for a managed trading band.

There are two schools of thought on this: Either balance of payment problems are forcing China’s hand, or the move is just another step in the slow and benign process of capital liberalisation.

On the first, well hey, they would depreciate in the current environment wouldn’t they? Exports are weak, the economy is sputtering, and the stock market can’t stay up without the state introducing a ban on it going down.

Move to a free-floating currency system? Meh. This is just another desperate devaluation story in the style of Nigeria, Russia before them and even peg busting Saudi Arabia on the back of a hard-currency drought in the offshore FX market. (FT Alphaville has predicted this for like ages, yeah?). Read more

PwC’s great Noble Group disclaimer

So, PwC’s review of Noble Group’s accounting and management practices — commissioned by Noble Group and released on Monday — puts the commodity trader firmly in the clear with regards to the way the company records profits on long-term sales and marketing deals.

It is, at the very least, consistent with industry practice.

But for posterity’s sake we thought we’d stick up the sizeable PwC disclaimer list that precedes the actual findings.

Click to enlarge.

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Engineering cult value, Elon Musk edition

Elon Musk isn’t just an eccentric visionary with a penchant for Bond-villain scale thinking, he’s a branded cult phenomenon. The man is known for thinking absolutely anything is possible provided enough hard work and belief are thrown at it.

Hyper loops? Check. Manned missions to Mars? Check. AI annihilation? Check. If Elon can dream it, he can make it happen.

But there are those who never bought the Musk hype. Read more

That De La lalalalala bid (is not going to happen, right?)

Introducing Daniel M. Harrison.

Journalist. Author. Publisher. Editor-in-chief. FactoryBanking inventor. Serial entrepreneur. Bitcoin 2.0 enthusiast. Blockchain evangelist. And… direct descendent of the The House of Harrison, the bloodline behind money-printing business Harrison & Sons, which FTSE-listed De La Rue acquired in 1997. Read more

Is it a bank, a money transmitter, or a Silicon Valley shadow financier? No, it’s just Paypal!

In the US, what determines whether a payments company qualifies for money transmitter status (rather than bank or investment manager status) is how it treats customer funds.

Generally speaking, to qualify for money transmitter status, customer funds must be transmitted to a specified person/place or to licensed depository institutions to be held “for the benefit” of customers (FBO).* The creditor relationship is not supposed to be between the customer and the money transmitter — because they’re not supposed to be deposit takers — but between the customer and the entity which banks the money transmitter. That’s the transmission.

But this arrangement, quite obviously, isn’t as profitable as being able to do what you want with the money put in your care. While money transmitters are still able to benefit from the interest earned on these FBO accounts, this is a paltry sum compared to what could be achieved if they were managing the money on a discretionary basis. Read more

What is hyper liquidity made of?

Peter Stella is an experienced IMFer on a crusade to champion base money understanding in a world of hard money obsessives who refuse to listen to reason.

From his latest blog post this week:

Bank reserves are demand deposits held at the central bank. Individual banks can and do transfer deposits among themselves constantly during business hours through electronic large value transfer systems (LVTS). Among the universe of LVTS, the largest are FEDWIRE and CHIPS in the US, CHAPS in the UK, BOJNET in Japan and TARGET2 in the Eurozone. From an individual bank’s perspective, reserves are “ultimate” liquidity—available instantly in real time to satisfy payments obligations to other banks.

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