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).

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.

 Read more

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

A Panamanian bombshell

A seemingly massive leak originating from one of the world’s most secretive law firms, Panamian-based Mossack Fonseca, has just been revealed by journalists working under the auspices of The International Consortium of Investigative Journalists. The 2.6 terabytes of data reveals how the firm has helped clients launder money, dodge sanctions and evade tax, according to media sources privy to the data.

The named parties include heads of state, connections to Vladimir Putin and even sports superstars. Read more

Craig Wright’s upcoming big reveal


Bitcoinland is abuzz with speculation Craig Steven Wright will out himself as Satoshi Nakamoto, the cryptocurrency’s pseudonymous creator, within the next two weeks and that he is looking for backing in his verification from some of the industry’s biggest players.

Wright, a self-declared cyber security expert who claims to hold a theology PhD, was originally identified as Satoshi in December 2015 following the publication by Wired and Gizmodo of supposedly leaked emails and documents purporting to prove Wright and a colleague, Dave Kleiman (now deceased), were the co-inventors of bitcoin. The source of the document leak was never identified. Read more

Eurodollars, China, TIC data + mysteries

Bloomberg went to town this week on news that hedge funds may be piling into USTs to the total tune of $1.27tn in lieu of foreign central banks and finance ministries who for the first time since 2000 have — on an annual basis — been holding off from making further investments.

On March 15, US Treasury International Capital system data confirmed that foreigners sold $50.4bn in Treasuries on a net basis in January. But! foreign central bank holdings of US Treasuries actually grew to $6.183tn in January.

But there are discrepancies to consider. Read more

Float management isn’t easy

Banks are being bamboozled by the idea that the solution to most of their problems lies in becoming more like the fintech upstarts currently threatening their turf.

This is strange because if anyone should know the degree to which fintech’s cost advantage is linked to unadulterated regulatory arbitrage, the exploitation of banks’ own subsidy systems against them, cartel-based solutions or complete disregard for par value protection of the payment float, it should be banks.

There are many facets to this story. In this post, however, we’re going to explore how and why fintech — in its rush to disrupt finance — has overlooked the critical role banks play in protecting the par value of the monetary float (usually with collateral), and why it’s not that easy or even advisable to provide payment services without the support of such a scheme. Read more

That time I defaulted on Bloomberg’s Tracy Alloway

Back in October, 2015, Bloomberg’s Tracy Alloway and I struck an OTC futures deal over a teeny, tiny vial of crude oil, which Tracy for some reason felt compelled to nickname “Williston”.

Read about it here.

I now plan to default on this contract (a ladies’ agreement, witnessed by “the world” due its publication on Bloomberg) and this is a public notice explaining my reasons for doing so. Read more

Exorbitant privilege and the cost of renting America’s balance sheet

Bankers are blaming tensions in the repo world on the increasing cost of renting out their balance sheets.

As we’ve broken down already, leverage and liquidity requirements make it harder than in the past for banks to borrow cheaply to buy (mostly) riskless and lend those same assets on at higher rates than they have to pay to their own creditors.

Which is another way of saying…new guys in the investment scheme don’t get to accrue the same rate of return from new asset purchases the early guys do unless the assets massively outperform, and hence are much more likely to run if and when these assets are priced below par value or start to outperform. Bitcoiners will, of course, know this as “early adopter syndrome”. For everyone else it amounts to the dynamics which drive debt overhang constraints.  Read more

Further reading

Elsewhere on Wednesday,

- Nick Denton on the Hogan verdict.

- Remember, the true gains from hedging are often unseen.

- How we paid for spitfires.

- A history story about millennials. Read more

Something very significant is happening in repo

The spike in US Treasury bond fails to deliver, which started earlier this year, is something we’ve been watching closely.

It’s fair to say we’re now at a significant milestone and the story is beginning to go mainstream.

From the WSJ on Tuesday:

Settlement failures in Treasury repurchase transactions in March hit their highest level since 2008, underscoring concerns on Wall Street that trading conditions are apt to deteriorate in even the most-liquid markets under the acute stress evident early this year.

Almost 13% of Treasury repos through primary dealers in the week ended March 9 included a failure by one party to deliver securities as promised, according to the latest data available from the Federal Reserve Bank of New York. That is up from 2.7% last year and the highest ratio since 2008, saidJoseph Abate, an analyst at Barclays PLC.

 Read more

Trudeau, pandas and fiscal stimulus packages

Canada. Poor old boring, out of the way, overly polite, commodity-cycle downtrodden, Canada.

Except, of course — unless you’ve been trapped on a Wifi restricted island resort for the last six months — it will not have escaped your notice that Canada ain’t so boring anymore.

And it’s all because of this man: Canada’s new PM, Justin Trudeau — a heartthrob statesman so comfortable with his feminine side he can summon the power of pandas and still look authoritative.

 Read more

Further reading

Elsewhere on Tuesday,

- Ray Dalio’s succession plan.

- Big data, algos, racial profiling and Facebook.

- Valeant sold some drugs twice.

- Hold onto your cork hats and get ready for an Australian recession by 2017. Read more

The Porsche 911 R pump and flip

Markets run into inefficiencies for technical reasons all the time. But every now and then inefficiencies are purposefully engineered into markets, for profit.

Financial market regulators are charged with policing shenanigans to keep markets fair and transparent. When caught, market manipulators are fined to discourage others from trying.

But the remit of financial regulators only extends so far. They can’t, for example, influence the world of tangible goods, products and collectibles nearly as easily.

This matters because negative interest rates are making investments in everything from super-cars to art and collectibles increasingly appealing. As speculators pile in, those markets are getting financialised, which increases the potential profit gained from obstructing the ordinary flow of operation. Read more

Further reading

Elsewhere on Friday,

- Robots are not very profitable.

- Dorms for grownups.

- Confessions of a sponsored content writer. Read more

Further reading

Elsewhere on Thursday,

- Beware the ransomware (Zerohedge affected).

- The tackiest architecture.

- Fiat currencies and balance of payment crises. Read more

The petrodollar fragility is out there

It was not too long ago that analysts and economists were arguing that core petrodollar states, such as Saudi Arabia, would be able to withstand a longstanding reversal in the oil price even as weaker petrodollar states such as Venezuela and even Russia took notable hits. Not so much any more.

From Moody’s on Wednesday (our emphasis):

We have changed our outlook for the Saudi Arabian banking system to negative, from stable. The change reflects the credit implications of our revised global oil price forecasts, which we expect to be lower for longer. It also captures new fiscal measures initiated in December by the Saudi government to tackle its rising budget deficit.

 Read more

The ‘minimum viable product’ infection

Unless you work in the tech sector or the VC funding world, chances are you won’t have heard of the “minimum viable product” approach.

But trust us, investors, you really need to know about this if you’re to make smart investing decisions in the tech-loaded future of blockchains, IoT and artificial intelligence. Especially as it’s another in a long line of approaches originating in techland being exported into mainstream business on the presumption that what works in tech must work everywhere. Read more

US settlement fails, bond shortages and 3% charges

¡Ay, caramba!

Something’s gotten hold of The Bond… keeping its yields and its coupons apart:

 Read more

On the economic power of ransom

Controlling something other people want gives you power over them.

Sometimes this control is considered “legitimate”, such as a tribe’s or family’s inherited influence over fertile land. Other times it’s thought of as “illegitimate”, because control comes from violence or threats of violence. The distinction is inherently subjective, and indeed, throughout history, the client-protector relationship has been defined by the deployment of such tactics, whether by common bullies, regional strongmen or hegemonic states. Read more

Chinese outflows as dollar debt payments

The BIS’s latest Quarterly Review is chock full of useful observations about the counterintuitive effects of negative interest rates, electronic trading on fixed income markets and wealth inequality on monetary policy. Do read the whole thing.

If you don’t have time… cast your eyes directly to Robert McCauley and Chang Shu’s contribution on dollars and renminbi flows out of China.

McCauley (in particular) has been tracking the story of international dollar liabilities and their monetary effects for some time. He was also one of the first to draw attention to the Chinese dollar debt load. As a rule any research with his byline is a must read. Read more