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).

When the commodity rents stop flowing…

Ever wonder what the collapse of a commodity means for the hegemonic order that controls access to it?

Look no further than the sugar trade of the 1800s.

A new paper by Christian Dippel, Avner Greif, Daniel Trefler entitled The rents from trade and coercive institutions: removing the sugar coating examines the effect of the sugar price collapse on wages and incarceration rates in colonies established for sugar cane cultivation. Read more

Further reading

Elsewhere on Friday,

- The hyperloop is becoming a thing.

- Charlie Stross on the financialization of everything.

- Is oil space running out?

- How the Silk Road episode shows that stateless pirate fiefdoms always turn into states.  Read more

US bank assets, then and now

We know there’s been a great deal of change on the asset-side of banks’ balance sheets since the crisis. But if you ever wanted it summed up in one table, look no further than the following:

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Noble Group, an ‘asset light’ commodity nomad

Earlier this month, Noble Group – Asia’s biggest commodity trader by sales – rebuffed accusations by an unknown research group called “Iceberg Research”, which had accused it of shoddy accounting practices that inflate profits.

On Thursday, Noble released its full-year results, recording headline net profit of $132m after impairments on a range of assets and investments totalling $438m, which generated a net loss of $240m in the last quarter. Read more

Should central banks adopt a green agenda?

We know central banks have the power to support asset classes and to move markets, and do so frequently in the name of financial stability.

But are there other social threats that could be stabilised or mitigated by central banks in a similar way?

For example, should central bank monetary policy be charged with a green agenda? Should central banks take it upon themselves to encourage and support the formation of liquid environmentally-focused markets? Read more

The BoE on fundamental digital change in central banking

Here’s a comment to note in the Bank of England’s “fundamental change” section of its One Bank Research Agenda discussion paper:

Technology is potentially transforming the landscape for money and banking. New digital or e-monies and new methods of payment and financial intermediation raise fundamental questions for financial regulation, money demand generally and central bank money in particular. For example, might central banks issue digital currencies and what would be the impact on existing payment and settlement systems? Is the cryptographic technology behind Bitcoin transformational? How will financial regulation need to adapt if new non-bank credit intermediaries emerge in scale?

Talk of official digital money, of course, is not new to FT Alphaville readers. Nor, for that matter is talk of collaborative non-bank credit unions that mint their own currencies for their own network use. Or even talk of digital money solutions that open up the central bank’s balance sheet to more people in a way that eases the safe-asset shortage. Read more

The Bank of England is responding to change

The Bank of England, in case you thought otherwise, is a thoroughly modern institution that embraces change, innovation and the hip lexicon of the fintech start-up of today.

That’s why on Wednesday, in a bid to show us just how ‘with it’ the Old Lady Threadneedle Street really is, the Bank will be launching its “One Bank Research Agenda”, focused on crowd-sourcing feedback on all its policies, structures and methodologies. Read more

The great growth destruction?

Strangely enough, even as the importance of the output gap measure has been increasing the last few years, informed estimates about it have remained few and far between.

As the IMF explains, that’s because potential output by definition is very difficult to measure because it’s something that can’t be observed directly. Statisticians can only make rough guesses about what it ought to be based on other observable inputs. All this generally makes sourcing unbiased estimates problematic even on a national level, let alone on a global one. It also adds to the controversy of the academic debate regarding the significance of such measures. Read more

Mega hyper ‘oldest trade in the world’ disruption

We all know the story of ‘Vivian’, the prostitute with the archetypal heart of gold who falls for the dashing corporate raider Edward Lewis in the Julia Roberts and Richard Gere 1990 classic Pretty Woman.

A love story which would might never have happened had Mr. Lewis not stumbled into Vivian’s patch on Hollywood Boulevard whilst driving himself home. Read more

Nigeria’s oil minister opens door to an energy Bretton Woods, and more

Nigeria’s oil minister Diezani Alison-Madueke told the Financial Times (and FT Alphaville with them) on Monday she was happy with Opec’s decision to keep production unchanged at last year’s November meeting, a move which had shocked the oil market at the time and prompted an extended rout in the price of oil.

To the oil minister’s mind the decision was a “text-book” manoeuvre, designed to help the cartel stand its ground, defend market share in the face of growing international competition and drive inefficient producers out of the market. This to a large part had been achieved, in her opinion.

“I think it’s quite shrewd really,” she said. “If you cede market share continuously you drive yourself into oblivion.” Read more

Mega hyper food-tech consolidation

This is Mary Berry. Harmless, innocent, loveable Mary Berry.

Who in the world would want to displace her from her new found perch as Britain’s favourite home-cooking meister? Read more

L’embarras de richesses, crude oil edition

At what point does running out of space to keep all the stuff you want to hold on to stop being prudent risk management and become a compulsive hoarding disorder instead?

It’s a question worth asking in the context of oil surpluses because, according to Citi’s commodity research team, US capacity to store excess crude oil may be about to run out of space. Read more

The BoE as eurodollar dealer of last resort?

Zoltan Pozsar may have swapped his day job as senior adviser to the U.S. Department of the Treasury to that of a director in Credit Suisse’ global strategy and research department, but that hasn’t stopped him pursuing his favourite subject area: the plumbing of the shadow banking system.

Readers may remember that Pozsar’s last report set out the compelling theory of money hierarchy.

Pozsar is back now with a follow-up to that report, no less compelling, entitled Levered Betas and Wholesale Funding in the Context of Secular Stagnation in which he expands on many of the original themes.

The key proposition this time is that real money investors are being forced to plug asset-liability mismatches — brought on by shifting demographics — with leveraged bond portfolio positions, because this allows them to generate equity-like returns with bond-portfolio levels of volatility. Read more

Do you like your payments subsidised with ads?

Over the course of February UK Gmail users may have stumbled across this message:

Yup, it’s Google’s attempt to break into the e-money transfer business, and its methodology is focused very specifically on linking banking and money to your email. Read more

Negative rates as global cash burn

As Paul Krugman always likes to recount, strange things happen at the zero bound. Macroeconomics gets weird. Liquidity traps prevail. And a whole slew of paradoxes come into being.

And that’s largely because below the zero bound things get even stranger still.

What you think should happen, doesn’t, and what you think definitely won’t happen, does. Furthermore, negative interest rates don’t just kill off the traditional point of banking, they encourage bad incentives and dubious market practices for all purveyors of capital. Read more

Time to start treating commodities as currencies?

A few weeks ago, Michael Masters, of the eponymous US investment firm, made the point to FT Alphaville that bad things can happen whenever investors mistake the fruits of production for the means of production, and apply long-standing “long only” strategies (more suited to equity index markets) to assets like commodities.

Earlier this month, Nomura put out a note that observed much the same point.

Specifically, they argued that commodities should be treated like currencies and valued with macro-trading tools that incorporate the concepts of carry, value and momentum. Read more

Once you cross-subsidise bank services can you ever go back?

Alternative title: First mover dis-advantage in banking

In early 2013 the Financial Stability Board asked a group chaired by Paul Fisher of the Bank of England and RBA assistant governor Guy Debelle to formulate a set of proposals to improve the FX benchmark process and reduce the scope for manipulation.

Debelle gave an update on progress in a speech this week in Sydney.

As he noted, the group’s work was conducted separately from the investigations into allegations of FX manipulation and group members did not have access to any of the evidence gathered. Furthermore, while the concluding reported outlined 15 recommendations, none of these were explicitly embodied in regulation. The expectation instead was for the recommendations to be voluntarily implemented by market participants, on the basis were they not acted on, authorities could conclude that a regulatory response was necessary to generate the desired improvement in market structure and conduct. Read more

The new Hanseatica, now with robot dogs

So, Apple has taken advantage of the drop in Swiss funding costs to issue SFr1.25bn of bonds.

A no-brainer funding opportunity for Apple? Or…, alternatively, a sign of things to come: corporates replacing petrodollar and sweatdollar sovereigns as the key accumulators of trade surpluses in the global economy, and issuing debt in a bid to sterilise the effects of too much liquidity on capex they can’t control?

If it’s the latter, we should beware of Andrew Keen’s concerns about the perils of a winner-takes-all tech economy, where a handful of geeks inadvertently become the new masters of the universe, thanks to their cunning monetisation of things Tim-Berners-Lee-types would never have dreamed of rationing to the great tech-ignorant. We’ve dubbed it Silicon Valley’s “god complex” before. Read more

The BIS has a very different take on oil financialisation effects

So, this weekend, the Bank for International Settlements released a preview of an upcoming report in which they make a connection between financialisation and the oil market.

Tracy’s written it up here.

But, before you get too excited, two things must be pointed out.

The first, of course, is that a BIS admission about financialisation effects on the oil market is pretty unexpected.

You see, as far as we’ve tracked or heard from BIS economists on this matter, they’ve resisted arguments and models pointing to financialisation effects, embracing instead explanations that link price effects to fundamentals.

Which brings us to the second thing. Yes, the BIS is shifting its view on the financialisation argument, but the paper also shows it doing so in a really convoluted and unconvincing way. Definitely the opposite of Occam’s Razor. Read more

Busting currency pegs, Saudi Arabia edition

Boom. BANG! Crunch. CRACK.

That’s the sound of the world’s fixed currency systems buckling under the pressure of a new dollar paradigm. Today’s edition: Saudi Arabia’s riyal.

The last time the riyal’s peg with the dollar came under any significant stress, of course, was back in 2008. And we know what the problem was back then (hint: not enough dollars).

So the following chart by way of Standard Chartered on Friday is probably worth a minute or two your time:

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An unexpectedly bittersweet oil side-effect

This is the Tate & Lyle share price on Friday:

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About that $9 trillion global non-bank credit exposure…

In one of our previous post about petrodollars, we cited BoAML on how nobody really knows how the petrodollar shadow liquidity flows through the global economy, apart from the fact that eventually they end up being repatriated to the US via investments in domestic stocks or bonds (both public and corporate).

It’s a point worth bearing in mind in the context of this working paper from the BIS’s Robert McCauley, Patrick McGuire and Vladyslav Sushko, from January, previously covered by Matt. Read more

Swiss yields in perspective

The SNB’s historical time series on interest rates and yields offers some fun charts the week that Nestle bond yields fell below zero:

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Unravelling the petrodollar liquidity enigma

Whenever you mention the “petrodollar” issue, you get one of two responses. The first goes, “it’s really not an issue, the flows are totally irrelevant on the wider capital scale, you’re wasting your time even looking at it.” The second goes, “wow, that’s a really big potential issue for shadow liquidity”.

Trying to get to the bottom of whether it really is or isn’t an issue are BoAML’s Alberto Ades and Jean-Michel Saliba of the economics and strategy team. They’ve structured a helpful 30-point Q&A on the matter this Thursday, within which the following question and answer really do stand out (our emphasis): Read more

The ECB’s early adopter problem

You know how Bitcoin miners get a natural advantage in the cryptocurrency pyramid of inequality because of being early adopters that get first dibs on all new currency that’s created?

Turns out the ECB has a similar problem.

Here’s a nice write up of the distributive problems associated with QE-style helicopter drops in the current asset-purchasing framework from Pierre Monnin, a fellow at the Council on Economic Policies (our emphasis):

In practice, targeted money drops, like quantitative easing (QE), do not spread instantaneously throughout the economy. Like a vaccine, money is injected at one place and then disperses more or less quickly to other areas. Stephen Williamson[3] and Olivier Ledoit[4] have closely looked at how a money injection moves through the economy. They both use a model in which different economic groups trade randomly and repeatedly with each other.

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The CNY depreciation risk remains

Another BoAML FX observation on Thursday, this by way of Claudio Piron, emerging Asia FI/FX strategist, and his team.

On the analysts’ radar this week, the continuing risk of CNY depreciation, and in particular this chart:

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Reminiscences of a futures operator

One for the FT Alphaville historical log.

The CME announced on Wednesday that it would be closing most open outcry futures trading pits in Chicago and New York as of July. Only options on futures contracts and S&P 500 futures pits are to remain open.

That makes it a sad day for anyone who was inspired to become a futures operator because of, you know, that film.

It also contrasts with the LME’s decision to bring their open-outcry ring trading practices (along with their red benches) with them to their new corporate location in Finsbury Square.

Most importantly, however, it marks the end of a visual indicator for how the market is really trading, or any insight into “mood”. Once all contracts transact in the digital ether, all panics will be resigned to pixelated flash crash form visible only on screens or broker terminals. Gone forever will be the distressed pit trader photos. Read more

Bitcoin continues to evolve into a worse version of the current system

A cheaper, faster and more secure way to pay for things on the internet or on your smart phone.

Those are the usual claims you hear about Bitcoin. But on January 12, anyone transacting on the network may have come across an unusual problem: a near two-hour wait for a payment to be processed. Read more

Michael Masters on speculation, oil, and investment

Back in May 2008, nobody — especially regulators — had a clue about what was causing crude oil prices to spike to $100-per-barrel-levels, and mostly everyone was inclined to either blame “China” or “speculators” or some combination of the two.

But Michael Masters, a portfolio manager at Masters Capital Management, had a simple proposition. In the Senate committee hearings organised to figure out exactly what was going on, Masters testified that it was his belief that a new class of investor — one he dubbed the passive “index speculator” — had bulldozed his way into the market and distorted the usual price discovery process. Read more

NIM decay *alert*

About time we familiarise ourselves with a new three-letter acronym: NIM. It’s bank parlance for “net interest margin”. And all you need to know about NIM is that once you strip out all the other stuff banks do after lending, it’s probably the best measure we have of how profitable a bank’s core business is.

The problem these days is that a negative carry universe doesn’t sit well with NIM. Not only are you having to pay people to borrow from you, unless you’re particularly well funded or in the banking elite, you’re probably having to borrow at more than zero. So, unless you’re a bank that has a habit of err, creating false markets or artificial scarcities — which we know has been severely constrained in the new post-crisis regulatory climate — NIM compression is a bit of a big deal.

And small surprise, bankers are beginning to worry, especially now that negative rates are a Eurozone-wide thing. (FWIW FT Alphaville’s “negative carry” tag takes that concern back as far as 2012.) Read more