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).

Eurozone: welcome to your currency board future

Citi’s Chief Economist Willem Buiter spent some time with FT Alphaville explaining why he believes Draghi’s concession on profit and loss sharing among ECB member national central banks turns, in all likelihood, the single monetary unit into nothing more than a glorified currency board.

Quick background: The ECB’s profit-and-loss sharing mechanism became a key negotiating point ahead of European QE. For the Bundesbank, QE was only viable if NCBs assumed most of the responsibility for losses on assets they brought into the consolidated balance sheet. In the end Draghi acquiesced by reducing risk-sharing to only 20 per cent of assets.

A currency board works by pegging liabilities (central bank reserves and currency) to an exchange rate target, rather than a CPI or employment target. The monetary authority managing the board achieves the target by ensuring all commercial entities served by the system can convert the authority’s liabilities into foreign currency at any point. In short, there’s a guaranteed FX convertibility promise at the central bank. Read more

Buiter on soggy global growth in 2015

Willem Buiter, Citi’s global chief economist, believes global growth will come in at somewhere between “moderate and modest” in 2015, with his team shaving their growth target from 3 per cent last month (and 3.3 per cent six months ago) to 2.9 per cent.

As Buiter noted in a meeting in London on Friday, it’s also unlikely that in the long run currency wars, which wash each other out, will help to drive demand: Read more

When markets become self aware

What are the chances that if and when an eccentric computer scientist with a psychology and neuroscience background does invent a workable and autonomous artificial intelligence model, he deploys said model on the financial markets to make himself a cool $1 trillion?

It’s not that untoward an idea. In fact, it’s a key plot in most “AI-goes nuts and causes havoc” Hollywood offerings, Transcendence amongst the most recent.

The usual storyline involves the AI realising — as soon as it goes sentient — that the acquisition of capital will be necessary to achieve its dastardly objective of obliterating humankind. Read more

Don’t panic about Cushing yet

An inundated inbox means we’re slightly late to this, but it’s worth flagging up two days on regardless.

It’s the EIA’s take on the US crude system’s “l’embarass de richesses” problem.

Inventory levels at Cushing may be at a record high, they note, but not as a percentage of total working storage capacity.

The great thing about the Cushing storage system is that it’s a private market. That means whenever storage gets tight the incentive to build new capacity increases for commercial operators. Read more

Bitcoin’s lien problem

At cryptocurrency and fintech conferences, FT Alphaville often hears Bitcoin enthusiasts make the assertion that Bitcoin is superior to fiat currency because it eliminates debt from the monetary system.

But this, of course, is a fallacy.

Bitcoin may have the potential to create a fully-funded reserve system, but it certainly doesn’t eliminate debt from any system.

At best, Bitcoin’s public ledger records a transfer of digital access rights in the eyes of the clearing network. It does not, however, record or see the terms and conditions of that transfer. Read more

Is the Fed bluffing on rate hikes?

It might not be polite to say it overtly, but concerns are growing that the Fed’s rate hiking promises may be nothing more than a big bluff.

The vogue for doubting Fed rhetoric started in earnest on March 11, when Ray Dalio, founder of hedge fund firm Bridgewater Associates, wrote to investors that there was a risk if the Fed raised rates too fast it could create a market rout similar to that of 1937. Read more

Blockchains as a public and private resource

FT Alphaville attended Tomorrow’s Transactions 18th annual forum this week where all facets of blockchain and distributed-ledger systems were explored.

The most interesting ideas (at least to us) were those presented by Vitalik Buterin of Ethereum and Preston Byrne of Eris Industries. Both are focused on moving blockchain beyond bitcoin and towards useful real-world applications.

The former, for example, is focused on creating a so-called “Turing complete” public chain that would — as we understand it — allow anyone with coding capability to tap a globally distributed processing network to run their programmes upon safe in the knowledge that the underlying data can’t be falsified or manipulated. Read more

Total non-eclipse of the power grid

John Kemp of Reuters quantifies this morning’s solar eclipse with data from the National Grid’s website:

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The return of goldsmith banking

The exciting thing about negative rates in the current context is that they make the fundamental ETF, MMF and repo-type structure that lies at the core of central banking much more obvious.

In a negative rate regime the “central bank ETF” essentially clips your rights to the underlying collateral that it holds on your behalf, often, beyond the arbitrage spread a primary dealer can secure. It’s easy for a regular ETF to enforce such a management fee because all its units are electronically registered. All costs, as a result, are distributed equally. If the managing fee is too great, meanwhile, customers would just go elsewhere. Read more

On the potential of closed-system blockchains

Followers of FT Alphaville’s Bitcoinmania series will be familiar with our generally sceptical position on all things bitcoin.

Indeed, over the course of more than 64 posts, we’ve presented a mostly negative case for bitcoin “the currency”, and remain confident that the open-source “people-cleared” cryptocurrency (which replaces one accountable and identifiable third party with 10,000 anonymous parties of dubious intent) is ill-suited for the job of currency in any stable economic system.

That said, we have reflected tiny bursts of enthusiasm for what blockchain technology, the distributed public ledger underpinning bitcoin, could do for the murky and shadowy world of OTC bilateral clearing. Read more

Return of the bloated USO

Back in 2009, Olivier Jakob of Petromatrix was one of the first analysts to spot the weird effects that commodity ETFs were having on commodity future markets.

It started with the USO, the oil ETP, and then went on to the UNG, a natural gas ETP

At the time, what was going on was a bit of a mystery. Why should these ETFs be bloating up even as professional investors were staying clear of the underlying assets backing the ETFs? Read more

How to eat a banker’s lunch

Bruce Packard over at the Lafferty group has an upcoming report on the fintech disruption that’s about to hit the traditional banking sector.

As he notes, most of the corporations vying for a slice of the action don’t look much like traditional banks and many don’t even have banking licenses. But they do offer substitute products that have the potential, he says, to harm bank margins.

In Packard’s view, even though new entrants have been trying to disrupt old banks since the 90s, banks find themselves in a vulnerable position today because their opaque price structures and overall reliance on cross-subsidisation techniques don’t necessarily do them any favours when it comes to defending market share. Read more

On the limits of negative rates

Regarding how low negative interest rates can go, Paul Krugman wrote a couple of weeks ago that:

When central banks push interest rates on government debt below zero, the effective lower bound is the return on cash held by people who would otherwise be holding that government debt — not people looking to expand their checking accounts. So the liquidity advantages of bank deposits over cash in a vault are pretty much irrelevant. It’s all about the cost of storage.

 Read more

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