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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).

Blockchains, bazaars and price fixing cartels

While in Istanbul for a blockchain conference, we came across Matt Levine’s latest Money Stuff column, in which he observes the following about the Libor manipulation and anti-trust case:

It is fairly well established that a bunch of big banks manipulated the London Interbank Offered Rate, and that the dollar numbers attached to Libor manipulation are quite large, so a bunch of investors and plaintiffs’ lawyers got together a while back to sue the banks and get some of those dollars. One of their main theories was that the banks’ collusion to manipulate Libor was an antitrust conspiracy. But the district court threw out this theory, reasoning that it can’t be an antitrust conspiracy for the banks to get together and agree on Libor, because banks getting together to agree on Libor is just Libor. It can’t be illegal to do anticompetitive stuff with Libor, because Libor isn’t a competitive market; it’s “a cooperative endeavor,” so the fact that the banks cooperated in setting a false Libor, while it might be bad, can’t be an antitrust violation. I am not an antitrust expert but I found this interpretation clever, and fairly convincing.

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If it’s free, it’s not neutral

In the run up to Camp Alphaville on July 1, we’re profiling the panels and discussions we’ve got lined up by trying to explain why we chose the subject in the first place.

So here’s the rationale and background to the “End of the Free Internet” panel which I will be moderating at noon on the day, featuring the FT’s chief commercial officer, Jon Slade, Deutsche Bank’s chief data officer JP Rangaswami, Ctrl-Shift’s strategy director Alan Mitchell, and Felix Salmon, senior editor at Fusion and general besserwisser.

The premise is simple: the days of free content, free web platforms, free digital services and freemium generally may be coming to an end.

The key to this about turn is the long term un-sustainability of cross-subsidised business models based on advertising or data resale, as well as the true cost of supporting and protecting our internet infrastructure from tragedy of the commons side-effects. When the bow breaks — and it will, because fixed costs are a real thing, people don’t like watching ads, and privacy is a big deal — the economic impact could be much more severe than anyone expected. Read more

Mt. Gox and the mother of all short squeezes

When Mt. Gox, the Japan-based bitcoin exchange run by Mark Karpeles, stopped honouring redemptions on February 7, 2014, the company initially blamed the affair on an obscure tech fail known as a malleability issue. Many, however, were unconvinced by the explanation, suspecting foul play, a hack or an inside job.

When Mt. Gox filed for bankruptcy on February 28 it emerged 750,000 of customers’ bitcoins had been lost, plus 100,000 of Mt. Gox’s own stash — a sum collectively worth $473m at prevailing exchange rates. Karpeles himself, however, insisted the exchange had been the victim of external sabotage or fraud.

Time went by. Customers put their complaints to the authorities. Alas, not much in the way of information came their way. At some point, rumours began to emerge that much of the run-up in bitcoin’s price to a record $1216.73 in November, 2013, had been driven by a bespoke algorithmic programme known as the Willy Bot, developed by Mt. Gox for its own profit, and that this punting bot may have been the cause of many of the losses. Without concrete evidence, however, this too remained a theory. The mystery prevailed. Customers began to accept the reality: the money was gone and they’d never get it back because that’s what happens when you punt on an unregulated exchange. Read more

Saudi Arabia’s IOUs

Something of significant note just occurred in the global oil hierarchy.

According to a Bloomberg report filed on Wednesday afternoon (UK time), Saudi Arabia may be considering paying some outstanding bills to contractors using government-issued bonds.

Contractors, they added, would be able to hold bond-like instruments until maturity.

This is quite something, not least because paying your contractors with short-term bonds is not entirely dissimilar to paying them with IOUs. Read more

It’s not a game of thrones, it’s a game of monopoly

Last week Donald Trump, in his usual provocative manner, called out for having “a huge antitrust problem”.

Leaving aside Trump’s tendency for headline-grabbing theatrics, the real question is: does he have a point?

We think yes. In fact, we think he probably didn’t go far enough. After all, it’s not just an Amazon issue. It’s a FANG complex and beyond issue.

And we’re not the only ones. In the last week Joseph Stiglitz has knocked it out of the park in terms of articles lamenting the scale of monopolism today. On Friday in the Guardian, Stiglitz noted for example: Read more

More decentralised autonomous organisation (DAO) mysticism

We’ve flagged cryptocurrency enthusiasts’ distinctly mystic beliefs in spontaneously emergent headless organisms before.

Now something called the “Decentralised Autonomous Organisation” — The DAO, not to be mistaken with Tao — project has begun to attract actual column inches in mainstream publications, albeit in keeping with the new style of journalism… i.e. devoid of critical evaluation and taking all claims at face value.

The DAO is currently raising Ether tokens (the pre-mined currency of the Ethereum blockchain, itself funded via a bitcoin capital raising) — $110m at mark-to-market rates today — in exchange for DAO, a token which “grants its holder voting and ownership rights.” As Techcrunch put it, holders of DAO “can use their tokens to vote on big governance issues (akin to traditional shareholders) but also on minute details of how The DAO spends its resources. In this way, token holders have total control over The DAO’s assets and its actions.”

The DAO explicitly states its tokens are not a form of equity — even if to the average bystander everything about the DAO token looks, smells and feels like common equity. (Perhaps the feeling is that if you dazzle them with “tokens” instead of stocks, those pesky unlicensed stock solicitation rules won’t apply? We’re not sure regulators will see it that way.) Read more

Smartphone gluts and inadvertently hoarded iPhones

Anxieties over a “Peak Apple” moment in markets eased temporarily on Monday when it was revealed Warren Buffett’s Berkshire Hathaway had taken a stake in the Cupertino company valued at more than $1bn.

Nevertheless, concerns about Apple’s capacity to keep the world hooked on its products have not been entirely eliminated. Some in the market are still digesting news that chipmaker TSMC cut production targets because of weaker demand expectations in the second quarter. Others, meanwhile, fret over whether the iWatch and other new products will ever achieve the mass appeal of the iPhone.

If that’s the case we could soon see Apple stock being valued less as a flashy growth-focused tech stock (where the attention is on product launches) and more as a boring old non-cyclical (where the attention is on product lifespans and upgrade cycles). Read more

When you take the slack out of the system bad things happen

In today’s highly fragmented, personalised and noisy news environment, you may have missed the story that on Monday, May 9, the breakdown of several old power stations led to a growing deficit in the UK wholesale electricity market leading the National Grid to issue an emergency request for more supplies.

Prices spiked to £1,250 per megawatt hour accordingly, relative to a price per MWh in summer that’s usually closer to £50.

It’s a significant phenomenon, and one worth paying attention to not least because of what it says about the efficiency of capital allocation in the UK. Read more

How to steal a cyber billion swiftly

As reported in the FT on Friday, a fresh cyber attack has been identified by Swift, the bank transaction messaging system, potentially linking the recent theft from the Bangladesh central bank to the data breach at Sony in 2014.

At the heart of the attack was a “sophisticated knowledge of specific operational controls within the targeted banks — knowledge that may have been gained from malicious insiders or cyber attacks, or a combination of both.”

But also… a bit of malware which targeted the bank’s PDF reader.

As we’ve had it explained by Swift on Friday, the malware essentially created a decoy interface which obfuscated the true state of underlying accounts, ensuring the spent transactions went unnoticed by the impacted institution for longer than would otherwise be normal. Read more

Grantham on the paradigm shift that never was

GMO’s Jeremy Grantham famously speculated in 2011 that when it came to commodities and resources we were very possibly witnessing the most important economic event since the industrial revolution:

From now on, price pressure and shortages of resources will be a permanent feature of our lives. This will increasingly slow down the growth rate of the developed and developing world and put a severe burden on poor countries. Read more

Camp Alphaville 2016: The rundown

This year Camp Alphaville has been rebranded the FT’s Festival of Finance.

It’s on July 1, at the usual place: The HAC Royal Artillery Gardens, just by Moorgate.

More info about the venue, ticket prices and registration details can be found here.

But now… the much awaited details of our jam-packed agenda. (Some of the timings and panels, though, are still subject to change.) Read more

In other news, Skynet and tech mysticism

Bitcoin business pioneer Jeff Garzik told Cryptocoinsnews over the weekend his latest venture Bloq will behave as a sort of consulting platform to bridge the world of private blockchains with bitcoin, because it is “very important to make Bitcoin a part of the blockchain discussion again”.

But he also said this (our emphasis):

“It’s the overall mission to make blockchain more acceptable, more stable and more widespread than ever before,” Garzik said. “And I think that’s really going to be the success point within twenty years. Bloq is gonna be building a decentralized system. I like to call Bitcoin the first decentralized autonomous organism. There will be many more decentralized systems built on top of this technology and long-term Bloq is going to play a role in launching side chains and blockchains, and launching digital identity that’s affordable and tying all that together.”

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Distributed ledgers, centralised logic and competition

Blockchain fever has, as we all know, turned into private permissioned distributed ledger fever — loosely summarised as the idea that the advantages of blockchain can be stripped out of the only tried and tested blockchain (bitcoin) then applied to pre-existing token framework (a.k.a fiat money), without the need for costly proof of work verification mechanisms.

The hype on that front is now astronomical. And yet, despite all the column inches written about the system, nobody seems to have cottoned on to a critical contradiction with the premise. Blockchain, like the euro, makes little sense if it’s applied to participating institutions that don’t share the same business logic or governance standards. As a result it encourages unification around central systems, which don’t necessarily appeal to all parties involved. Read more

Artificial Intelligence on trial

A couple of weeks ago I received this in the post:

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An annona for your bitcoin caput

A quick update on developments in the Craig Wright [is] or [is not] Satoshi story.

In the last 24 hours Wright has posted on his blog that extraordinary claims require extraordinary proofs and that he will provide such proof over the coming days in the form of “a transfer from an early block”. This could be the much touted miracle of the movement of the Satoshi funds we’ve all been waiting for.

At the same time Gavin Andresen, a lead developer in bitcoin, has stated that it was a “mistake” to have posted a personal blog testifying that he was “convinced beyond a reasonable doubt” of Dr Wright’s case. He told Dan Kaminsky, a noted security expert, in correspondence: Read more

Transferwise gets slammed for *those* ads

UK-based “peer-to-peer” money transfer service TransferWise has been dubbed the darling of the European fintech start-up scene. Developed in 2011 by Estonian Kristo Käärmann and Taavet Hinrikus, it famously scored a $1bn valuation (and precious UK unicorn status) in 2015 when it raised $58m in a funding round. And the company’s founders have been anything but modest about the platform’s growth projections. And anything but worried about the platform’s poor profitability.

Then there were those ads.

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Blockchains and blood reserves

Reserves. Something not needed for immediate use but available if required, or the act of keeping back something today for future use or for a special purpose.

Also construed to be a form of purposeful rationing. A form of risk management. A form of operational smoothing.

Are reserves expensive? Of course they are. The flip-side to any reserve is the wastage associated with not using stocks in time before they spoil or depreciate. Reserves are inherently costly. But, as the story of Joseph and the pharaoh teaches us, they’re also essential for sound economic planning in systems exposed to unexpected externalities. Read more

Oh my! Craig Wright’s ‘Keys of Revelation’

As the clairvoyant FT Alphaville said on March 31, Australian Craig Wright has come out to claim he is Satoshi Nakamoto, the pseudonymous creator of Bitcoin both in a personal blog post and in media interviews with The Economist, a former newspaper, blokes’ mag GQ, and the gullible old BBC.

And he chose Monday, May 2 (a Bank holiday in the UK), to do the ‘Big Reveal’, which just happens to coincide with the first day of Consensus, a hullabaloo blockchain event in New York featuring famous self-styled bitcoin/blockchain radicals like Balaji Srinivasan of 21 Inc, Jack Markell, governor of Delaware State, and Larry Summers. (Yes, that Larry Summers.)

As the world’s media now embraces a manufactured ‘Craig Wright media storm’, we should probably add some detail on how this story has developed and we need to look at the evidence thus far presented. Read more

Decentralised courts and blockchains

In the beginning, there was the promise that blockchain-supported smart-contracts could disintermediate the powers that be and replace them with a self-organising decentralised system where every contract entered into could be depended upon to perform as expected, with risk and costs entirely eliminated.

Furthermore, it was thought, both human and state involvement could be taken out of the process too. Instead, we’d achieve an autonomous financial utopia within which capital flowed from each according to his ability, to each according to his needs — guided only by faceless protocols and algorithms.

Yet, from the beginning, there was an inconvenient truth buried in the promises being made by blockchain advocates. Read more

Are we over depending on capital gains?

David Levy’s April forecast, by way of Jerome Levy Forecasting Center, presents three notable viewpoints worth sharing this month.

The first is that capital gains are accounting for an increasing share of total investment returns, now making-up probably the majority of them. But, says Levy, it will be challenging to maintain those capital gains from now on.

The second is that whilst there is a popular view that foreign exchange can explain the extreme volatility so for in 2016, this is probably wrong. According to the prevailing view, Davy notes, the stability of the global economy leans heavily on currency stability and especially on a benign set of stable dollar exchange rates. Read more

The Priests, the Temples and the Blockchain Clearing Systems

Whilst by no means an entirely undisputed theory, ancient historians generally believe that the emergence of civilised states such as Sumer was closely connected to the centralised role temples played in standardising, clearing and redistributing value in their societies.

Temple authorities, the theory states, kept account of the assets and liabilities of each individual, meaning citizens could only claim as many goods from the temple storage as the records permitted — something based on the amount of provable work they had done. Tangible money was consequently unnecessary. The accounting system was ubiquitous in society and dependable.

As Benjamin Foster, a Yale Assyriologist, has noted before, historians have speculated that the religious complex was essential for spurring the sort of non-rivalrous collaboration that allowed for the cultivation and settlement of land in the first place. Read more

Bringing balance to the commodity force, not leaving it in surplus

Commodity curve purists insist that long-term futures prices must not be confused with market forecasts.

People who do that are deemed commodity dummies because long-term futures are said to reflect the price at which market participants are prepared to buy or sell commodities in the future today. That generally means prices that make sense for them right now, but not necessarily those they expect in the future.

As a result, certain assumptions can be made about curve structures.

If long-dated futures are very much higher than spot prices, the market is offering premiums to those who have the capacity to take delivery today and store the oil until the future. It’s a dynamic that indicates an abundance of oil in the spot market today, rather than an expectation that prices will be higher tomorrow. It’s known as a contango market and is generally a bearish signal. Read more

From the annals of eurobond tax evasion history

Cast your mind back for a moment to 1984.

Not the dystopian tale of what might have been that year according to George Orwell, mind you, but the year as it actually transpired.

Have a feel for the music of the era. (For example, Alphaville were Big in Japan, Madonna’s big hit was Like a Virgin, Michael Jackson was Thrilling the world, Bruce Springsteen was Born in the USA and Queen was using shots of Fritz Lang’s Metropolis in their music video for Radio Gaga).

Think back too to the big movie hits of the year, Ghostbusters, Gremlins, Indiana Jones, Terminator and the lesser known films like War Games, Protocol and Red DawnRead more

Remembering the xeno market

Everyone has an opinion or a theory about what really caused the global financial crisis of 2008. The usual suspects include subprime securities, a housing bubble, financial engineering gone mad, Black Scholes risk models, global imbalances, dollar liquidity shortages and in some cases even Gordon Brown having sold off all the UK’s gold leaving the country with nothing solid when we needed it most.

But what if there was another, more subtle, cause? One we all failed to notice because by its very nature it was designed not to be noticed? A cause connected, instead, to some misleading nomenclature and the tricks language plays on our brain when the etymology behind a word or a phrase is forgotten about due to its overly common dispersal. Read more

A global reserve requirement for all those eurodollars

From the New York Times, November 13, 1979 (please note emphasised text):

PARIS – Central banks of the major Western industrial powers have privately agreed on a two-stage plan for controlling the explosive growth of the so-called Eurocurrency markets that they now believe is fuelling world inflation, according to a senior central bank governor closely involved in the discussions. The governors of the central banks are reviewing the new Eurocurrency control scheme at their regular secret monthly meeting at the Bank for International Settlements in Basel. However, they are unlikely to unveil it formally before the end of the year, according to the source.

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Mavrodi’s MMM Global pyramid scheme collapses, unsurprisingly

Sergey Mavrodi, architect of the MMM Global pyramid scheme, has a habit of closing off his web-based addresses and messages with the assertion that he believes the “financial apocalypse is inevitable” and that “together we change the world!”

On Monday, that prediction was seemingly coming true, albeit not for the financial system as much as for Mavrodi’s own investors. Read more

The eurodollar as an economic no-man’s land

What’s the euro really? The collective currency of sovereigns subscribed to the European monetary system? Or an international bridging platform — a no man’s land if you will — for laissez-faire market experimentation intended to prove a fundamental point about the capacity of free markets to organise the economy without the necessary subjugation of free will?

The euro-zone, we propose, is not what it seems.

And if we see it as something it’s not, it’s mainly because we’ve forgotten the history which made it the thing it is today. That though is the story of the rise and dominance of European-brokered international capital markets from the 1960s onwards, a system itself predicated on the rise of the no-man’s land neutral security:

Eurodollars. Euromoney. Eurocurrency. Eurobonds. Eurosecurities. Read more

Bearer securities and eurosystems

So you thought bearer securities weren’t a thing any more. And that jurisdictions left, right and centre were banning the bearer structure (much depended on in the past by the eurobond markets) precisely because of its association with tax-efficient offshore dealings.

Except, as we outlined on Monday, one of the things revealed by the Panama Paper leaks is the extent to which bearer securities were depended upon by the offshore finance network.

And yet, as we also noted, it’s not like bearer securities have entirely gone away either. We referenced as an example the Bank of England’s series of $2bn dollar-denominated bearer bonds paying a coupon of 1.25 per cent, which take the form of the so-called “New Global Note (NGN)” structureRead more

Blockchains and virtual bridging currencies

You may have come across this story about Barclays partnering up with a “Goldman-backed” bitcoin payments app called Circle International Financial, which uses bitcoin to transfer central bank currencies as digital money increasingly moves into mainstream finance, and thought “wow” that sounds innovative and exciting.

But is it? Is it really all that innovative?

Let’s break down some of the key claims being made. Read more

So you thought bearer securities weren’t a thing anymore?

Bearer securities have been a thing since the dawn of finance (and specifically the dawn of the eurodollar security market).

BUT! They were supposed to have been phased out years ago due to their capacity for misuse in shady dealings, not to mention Die Hard plot lines — or so at least the popular narrative went. The phasing out came part and parcel with regulatory efforts focused on dematerialising and registering assets in common databases, with intermediaries at best playing the role of proxy owners on a trust basis with clients.

One fascinating insight from the ICIJ’s Panama Papers leaks, however, is that we may have over-estimated the degree to which bearer securities were phased out in the international system these last few decades. To the contrary, the papers point to the highly prolific and institutionalised use of bearer structures in the offshore tax haven world, at least up until the 2008 crisis took place. (Panama itself only got rid of the bearer structure at the end of last year). Read more