Thu Mar 8th, 2012 at 10:18:55 AM EST
Here's my second post for the Naked Capitalism blog.
Naked Oil 2: the Ghost of Enron
I outlined in my recent post my view that the oil market price has been inflated twice by passive (inflation hedgers) investors , albeit with short term speculative spikes from active (speculators) investors: once from 2005 to June 2008; and again from early 2009 to date. In attempting to 'hedge inflation' passive investors perversely ended up actually causing it, and allowed oil producers to manipulate and support the oil market price with fund money to the detriment of oil consumers.
A comment thread at the FT Alphaville blog a month ago
Collateralised commodity borrowing: BP edition
shed light on the esoteric subject of collateralised commodity borrowing by BP, who with Goldman Sachs were the heroes of my last post.
While Izabella Kaminska's Alphaville post was as interesting as usual, the real nugget on this occasion lay in the extremely well informed discussion which followed.
The protagonists were firstly, Patrick McGavock - a very clued up former banker whose blog rejoices in the name of the "Complete Banker". The second commenter - whose nom de plume is "Free Again" - not only had technical mastery of a subject that has me reaching for an icepack for my head, but also displayed a comprehensive knowledge of Enron's modus operandi.
But there has always been a missing link - precisely how has this manipulation been achieved?
Mon Feb 27th, 2012 at 08:15:50 AM EST
Asia Times published this piece of mine today.
The End Game
The end game is about to begin.
On the one hand you have the noise and rhetoric. Greedy speculators gouging gasoline prices; mad mullahs preparing to wipe Israel off the map; bunker buster bombs and fleets being positioned; huge demand for oil from the BRIC countries; China's insatiable thirst for oil; the oil price will head for $200/bbl and will never fall below $130/bbl again.......
On the other hand you have the reality.
Fri Feb 24th, 2012 at 11:22:44 AM EST
A Guest Post on the FT Alphaville site......
Post Modern Fiscal Theory
Following the recent upsurge in interest in Modern Monetary Theory (MMT) I was rash enough to make the comment that the central insight of MMT - that modern 'fiat' money is a credit instrument ultimately based upon the government's power to tax - is muddied by disputes as to what the proper basis for taxation actually is, or indeed, whether there should be any taxation at all.
Alphaville invited me to contribute a post on the 'Modern Fiscal Theory' I suggested. But I decided to go further and document my view that in a world of direct connections a Treasury is no more necessary as a credit intermediary than is a Bank.
Post-Modern Fiscal Theory looks to the networked, de-centralised and dis-intermediated economy emerging rapidly from the post October 2008 wreckage.
Tue Feb 7th, 2012 at 01:32:00 AM EST
Bristol Pound Currency to Boost independent traders
The Euro is in trouble, the world's financial system is in turmoil. Is this the perfect time for cities to go it alone, and print their own money?
A group of independent traders in Bristol are launching their own currency, with the backing of the council and a credit union.
The "Bristol Pound" will be printed in notes, and also traded electronically.
There are other local currencies in the UK, but this is the first which can be used to pay local business taxes.
Ciaran Mundy, the director of the Bristol Pound, explained the concept behind the currency.
"Big companies just hoover up money from a local area," he told me.
"Money goes into their financial system and typically out into London and into the offshore sector."
But by definition, Bristol pounds must stay in the city. Spend a tenner in a Bristol bakery, and they must use it to pay their suppliers or staff. In turn, those companies will have to use the money within the local economy.
"We'll be driving more business to independent traders, and ensuring the diversity of our city, which is one of the things people love about Bristol," Mr Mundy said.
This is pretty much the Transition Money - eg the Lewes Pound - approach which is thoroughly neutered so as not to be a threat to the system.
The outcome of this model - where local currency is issued against reserves of the 'real thing' (hollow laugh) - is that no new money is created, but existing money is effectively pinned to an area.
front-paged by afew
Tue Jan 10th, 2012 at 01:52:01 PM EST
My first outing on the Naked Capitalism blog Naked Capitalism: Naked Oil and a magnum opus at that.
All is not as it appears in the global oil markets, which in my view have become entirely dysfunctional and no longer fit for purpose. I believe that the market price is about to collapse as it did in 2008 and that this will mark the end of an era in which the market has been run by and on behalf of trading and financial intermediaries.
In this post I forecast the imminent death of the crude oil market, and I identify the killers; the re-birth of the global market in crude oil in new form will be the subject of another post.
Wed Dec 21st, 2011 at 09:39:43 AM EST
Asia Times were kind enough to publish a 'thought piece' of mine today. This will be 'up' until the New Year with other similarly chunky pieces to help people sleep off seasonal excesses.
So it's a long article - but hopefully a constructive one- which pulls together many of the threads I have written about in recent years, and at a time when the global system is, in my view suffering the turbulence of a 'phase transition'.
Enjoy: or get Angry; or Perplexed; or simply Ignore.
21st Century Problems cannot be solved with 20th century solutions
Martin Hutchinson wrote an interesting and entertaining article 'Back to 1693' (Asia Times links disabled because of malware issues) in which he suggested that we must go back to 1693 in order to find solutions.
He advocated not only a return to the Gold Standard, but also to a system of 'free banking' where private banks would create gold-backed credit - without interference from Treasuries or Central Banks - in order to re-base and re-boot our economy.
It was stirring stuff, and in my view he was right to suggest we look for solutions prior to 1693, but not necessarily the ones he proposes.....
Sun Dec 11th, 2011 at 08:18:41 AM EST
So a Durban Climate Deal has been struck
With tempers rising and the talks minutes from being abandoned, the chair, South African foreign minister Maite Nkoana-Mashabane, ordered China, India, the US, Britain, France, Sweden, Gambia, Brazil and Poland to meet in a small group or "huddle".
Surrounded by a crowd of nearly 100 delegates on the floor of the hall, they talked quietly among themselves to try to reach a new form of words acceptable to all.
But it was Brazil's chief negotiator, lawyer Luis Figueres, who came up with the compromise, proposing to substitute "an agreed outcome with legal force" for "legal outcome". This, said an EU lawyer, was much stronger, effectively meaning "a legally binding agreement".
The key point here is that the phrase agreed outcome with legal force is precisely the associative legal approach I have been advocating for 10 years, and which I have recently termed Nondominium.
The agreed outcome and framework agreement are not difficult to architect with a bit of imagination: but it is impossible to attain the desired outcome using the Western forms of finance capital and enterprise models - based upon 'Anglo' jurisprudence of Law (statute) and Equity (judge made common law created by lawyers for lawyers) - which actually caused the problem in the first place.
When the next phase of the evolution of financial markets kicks in, probably in Q1 2012, with the collapse of the current commodity and equity bubbles, I think we'll see common sense beginning to assert itself.
This will be driven by those who actually have the resources: after all, as Stalin might have put it...........how many barrels has the G7?
Fri Nov 25th, 2011 at 04:40:06 PM EST
Debt which cannot be repaid, will not be repaid, and my proposal to the ECB is simple: forget debt and issue Stock instead.
Wed Nov 23rd, 2011 at 02:58:11 PM EST
I found a fascinating essay by one David Astle - The Tallies - a Tangled Tale - on the subject of the role of the Tally Stick in the financing and funding of sovereign states generally and the UK in particular.
What was a Tally Stick?
" 1. Formerly, a piece of wood in which notches were cut as marks of number. It was customary for traders after notching a stick to show the number or quantity of goods delivered, to split it lengthwise through the notches, so the parts exactly corresponded, the seller keeping one stick, and the purchaser the other.
In the English Exchequer were tallies of loan, one part called the counterstock, or countertally, being kept in the Exchequer, the other, the stock or tally being given to the creditor in lieu of an obligation for money lent to the Government. Certain tallies were used in the Exchequer as late as 1827, but all were destroyed by Act of Parliament, 1827."
Here we are.....
Fri Nov 11th, 2011 at 02:10:54 PM EST
Reuters kicked it off this morning.....
Greece turns to Iranian oil as default fears deter trade
Then Zero Hedge took up the running
Greek Lender of Last resort....Iran
A fascinating article by Reuters this morning really brings to bear the reality that Greece faces as lenders and trade creditors refuse to help (and why should they realistically) with energy needs.
The harsh reality that Iran (yes that nuclearized Iran) is the main provider of Greek oil needs surely puts into perspective what seemingly unlikely events can occur when a person, corporation, country, gets desperate.
Perhaps we should reflect the other way that while all the world's bankers and money-men refuse to lend Greece money, Iran has truly become the lender of last resort for Greek survival - as it strikes us that energy needs will/should trump a coupon payment any day.
Then we saw some typically creative comment from FT Alphaville
A Drachma-tic moment in Greek oil trading
Whatever the case, if Greece's other options for imports of crude are drying up, and given that European leaders have fanned the flames by not ruling out a Greek exit from the euro, isn't there a problem forming here? And won't it eventually start to impact other Greek commodity and trade deals too?
Of course, if the issue for other providers is really potential "drachma" exposure, then surely the sensible thing is to start developing a synthetic drachma derivative market sharpish.
Trade financiers could also start embedding drachma swap terms into current agreements (you know, just in case). What's more, if the agreements were further collateralised with Greek products -- say, pledging one barrel of refined product for every two barrels of crude imported (in the event euro payments could not be made), this could even help to stabilise the exchange rate if and when Greece was to pull out of the euro.
Wed Oct 26th, 2011 at 06:17:27 PM EST
Just by way of a follow on to my more general post, here's a more specific post in respect of my home turf, the oil market.
Which in my view is approximately here
Tue Oct 25th, 2011 at 06:57:49 PM EST
The premise of this article is that equity and most commodity markets have become completely perverted by the entry into the market of a new breed of fund investors.
On the one hand there is a market behaviour issue - ie the presence of passive 'inflation hedger' participants who are aiming to avoid loss, rather than actively seeking transaction profit.
On the other hand there a newly observed phenomenon - Dark Inventory - which is essentially the Dark Matter in the market universe outside the visible market solar systems.
The bottom line is that market participants who believe that market prices are actually set by producers and consumers are unaware that financial supply and demand are sending false signals.
These traders and speculators are being ruthlessly culled, as they were in 2008, by those who know where the treasure is buried - no prizes for guessing who - and a major, possibly epochal collapse in prices is imminent which could well have far-reaching consequences.
We live in interesting times.
Thu Oct 6th, 2011 at 05:11:00 AM EST
This article concerns the policy area where fiscal and monetary converge, and proposes the re-basing of domestic credit/money as a land-based currency.
Most existing fiat money is people-based - ie relies upon an IOU issued by an individual to a credit intermediary aka a bank - but it is land-backed - ie backed by a legal claim over land.
If you think about it, the bank's insistence upon the security of a mortgage implicitly recognises that land is productive in its own right - ie it has a value in use over time. The sale price of land is in essence the capitalised value of the future use value of the location and the capital invested/embedded in it and around it.
While the monetary system recognises the true basis of money, the fiscal system and the mainstream economics which rationalises it, does not do so for ideological reasons. For the most part the fiscal basis of taxation is the use value of Labour over time - which in my analysis may usefully be deconstructed as a combination of energy/manpower, and the intellect with which this energy is put to best use. The use value of land is pretty much ignored, since taxation of privileged property rights is anathema to the privileged who own, govern and manage the country.
John Law proposed a land-backed monetary system. That is to say that credit creation by banks would be secured by the income generated by leases over land.
I propose land basis for domestic currency and energy basis for international currency. Simply put a Land Rental Unit is a Unit issued by a custodian and redeemable in payment for rental value. So a Unit redeemable in payment for £1.00's worth of rentals may be sold for 80p and this gives a return of 25% upon redemption: but of course the rate of return depends upon exactly when the Unit may be redeemed, or if not redeemed then exchanged for other money's worth.
Sat Oct 1st, 2011 at 09:20:36 AM EST
This speech (my bold) the other day by the Vice Chairman of the Governing Board of the Swiss National Bank is very interesting, particularly in view of what the SNB has actually been doing in the market.
Essentially the SNB decided to peg its currency against the so that the rate never fell below 1.20 to the CHF.
Speculators would normally have piled in to attack the peg through buying CHF and selling , because Central Banks customarily ensure that the currency they create is backed by debt.
But the SNB foxed the market - and put another nail in the coffin of mainstream economic orthodoxy - by announcing that they would not be 'funding' CHF creation with debt in this way.
The speculators realised that any Central Bank has an infinite capacity to hold down its currency by creating currency and exchanging it for foreign assets, and didn't bother trying, although quite a few traders lost their arse as a result, one of them possibly being UBS.
Of course, the mainstream headbangers are now promising inflationary doom in Switzerland as a result of all of the CHF created. But the simple fact is that while these CHF held by foreigners may - insofar as the Swiss permit - be used to buy Swiss assets, such as stocks and houses, it is not going to get out into Swiss retail demand other than through fiscal action.
What the headbangers do not realise is that this would require fiscal, rather than monetary action. In fact, hyperinflation is - everywhere and always - a fiscal phenomenon, accommodated, but not caused, by 'printing' of money.
But to return to the point, Mr Jordan's speech blows away many of the cobwebs and myths which surround Central Banks and their Alice in Wonderland accounting.
Fri Sep 23rd, 2011 at 10:47:50 AM EST
I was going to write an article about Hong Kong's currency peg, when events took a hand and I wrote an article which appeared today about Nondominium - a Caspian Solution instead.
Nondominium occurred to me as describing rather well the sort of Gandhian stewardship which underpins the new framework agreements for the Property and Money relationships which are capable of completely changing the game.
Maybe the first candidate for nondominium is the word itself - avoiding the nonsense of Chris Cook's Nondominium TM........
Mon Aug 29th, 2011 at 09:20:56 AM EST
Here, under the distinctly idiosyncratic title bestowed by my friendly Editor....
Asia Times: "....slippier to boot"
....is my latest 'Asia Times' article in respect of the completely distorted oil market, and the reasons for that distortion as I see them.
In a nutshell, I believe that the Saudis - and others - have simply been 'printing oil' or....in other words.....monetising it.
On Friday, all eyes were on the Federal Reserve Bank chairman, Ben Bernanke at the annual conference of US Federal Reserve Banks in Jackson Hole.
As an expert on the Great Depression of the 1930s, Bernanke knows that a further round of Quantitative Easing (QE3) will lead to negative interest rates in the US, and the danger of debt deflation. He also implied, in his oracular way, that the only solution to current problems lies in fiscal action through taxation or spending which is not within his power.
In other words, the Fed steering wheel has come off in his hands, so forward progress will be difficult. But if he were to look in the rear view mirror, he would see that the recent completion of the QE2 round of $1.6 trillion of Fed purchases of US Treasuries might now be having unforeseen consequences.
Thu Aug 25th, 2011 at 04:55:31 PM EST
Izabella Kaminska has been writing some thought-provoking posts on FT Alphaville of which her two latest today are fine examples.
Firstly re Krugman's recent departure into alien country Aliens to save the Global Economy
Alternative working title: When Orson Welles meets finance.
We discussed Fantasy Fed options on Wednesday. But here's one from Paul Krugman, which we definitely overlooked -- ironically, possibly the most fantastical of all.
So, working with the notion that peak debt and peak oil possibly mean peak civilisation -- and that there's no World War II style economic kick coming around the corner -- Paul Krugman's decided that there might just be some logic in staging a fake alien attack on the world. You know, to get the economy going.
Her later post then suggests that Bernanke might be indulging in Jedi-style mind-games as a sort of Jedi Economics......
These are not the policies you are looking for......indeed.
One of the results of this Guerrilla Journalism is that it has opened up some superb comments, and I could not let pass the following epic by 'skwosh' - with whom I have had a couple of run-ins before now, but who maybe repenteth.......
Tue Aug 9th, 2011 at 08:30:25 AM EST
There is in the UK an evolving police strategy, particularly in dealing with the drug traffic, known as 'Disruption': it's an updated approach to the First Commandment of fraud investigation - 'Follow the Money' - and along the same lines as the tax evasion charge that saw off Al Capone.
This recent article outlines the Disruption strategy's use in Scotland
Scottish FBI arrests over 70 Scottish Crime Lords
MORE than £33 million worth of drugs have been seized and a record number of crime bosses arrested in the past year, according to figures that reveal how Scottish police are cracking down on serious and organised crime.
The Scottish Crime and Drug Enforcement Agency (SCDEA) - nicknamed Scotland's FBI - said it had been able to use better intelligence to pinpoint "soft spots" in sophisticated criminal operations.
It said more so-called "Mr Bigs" than ever had been arrested in 2010-11. Over that period, 73 of the 195 people taken into custody were "level 3" criminals and effectively ringleaders of major crime gangs, compared with 136 arrests, with 67 at level three, the previous year.
An interesting take follows below from someone I know in London who has pretty good high-level contacts. I take it with a pinch of salt, of course, since as far as the authorities go, I favour cock-up over conspiracy every time.
Rather than the crack-down he clearly favours, I think - as a Civil Liberties type myself - a better approach might actually be to treat the causes, not the symptoms. ie legalise and regulate drug use, and give people something useful and fulfilling to to do instead of dealing and using drugs.
Wed Aug 3rd, 2011 at 05:55:44 AM EST
My last Asia Times article A Very Secret Agent generated immense interest, particularly once FT's Alphaville picked up on it The Fed's 1.6 trillion Somethings.
As a result of the discussion which followed on Alphaville, I completed my post mortem study of the dollar's pathology, and the title of this article The Eighth Wonder of the World is lifted from Investopedia's apt description of the Fed's balance sheet.
The key - Doublethink - point is that we are asked to believe two mutually exclusive descriptions of the Fed's role: the Fed may be the Treasury's fiscal agent in issuing currency; and it may be the Treasury's bank; but it cannot be both in relation to the same transactions.
Sat Jul 30th, 2011 at 06:40:25 AM EST
First, an amazing image, in which every pixel is itself an image....
Roses within Roses
Secondly to show solidarity simply Join the chain - this is spreading at a staggering rate.