Where finance and media intersect with reality


In the Blind Spot on Wednesday (ETPs, Nigeria, Cables)

Screenshot 2022-03-16 at 16.00.17

Finance, business, markets etc …

  • There’s been a powerful earthquake in Fukushima.
  • Barclays has suspended two ETNs, the iPath Pure Beta Crude Oil ETN and the iPath Series B S&P 500 VIX Short-term futures ETN (VXX).

    [It’s always around this point in the Exchange Traded Product fallout narrative that the mainstream press gets openly confused by the structural complexities of the products they usually like to claim are super simple and retail friendly.

    The truth is ETPs are not super simple. They’re highly complex and varied financial structrues. And there isn’t really a go-to standard in terms of what qualifies as an ETP. It really pays to read the prospectuses. Some are collateral backed, others use total-return swaps to synthesise specific exposures. In the case of ETNs, such as here, the positions are entirely internalised by the issuers.In this case that’s Barclays.

    What’s happening with the suspension of creations in these products is a direct echo of what happened to the de facto Credit Suisse sponsored TVIX ETN in 2012. In short, the fact the bank is no longer prepared to internalise long positions in these products means it can no longer shift the opposite position (in this case the short oil and short VIX positions) off its books, and is running up against risk limits in terms of how much it can directly internalise.

    How much of this reflects stress at Barclays is a function of what those risk limits are, which is highly proprietary information. For now, the fallout will impact those who shorted the ETN, since the lack of creations is likely to widen the NAV/Price disconnect and make it impossible to buy back shares at fair value.

  • George Soros on the war.
  • Putin is now president of “North Korea on the Volga”.
  • Pakistank is struggling to buy diesel.
  • Russia teeters on the brink of historic default.
  • Barry Eichengreen on the monetary consequences of Vladimir Putin.
  • Nigeria’s National Grid has collapsed and it’s facing fuel scarcity again.

    [Inflation is now at 15% and the nation is, according to some sources, in a state of collapse. It’s worth stressing that Trafigura is a key counterpart in the country’s crude-for-fuel swap contract programme. Some background on that relationship can be found here. I will revisit this in more detail soon, but my legacy knowledge is that Nigeria has a very big exposure to the commodity trader. Trafigura at this time is very openly running around looking for funding to avert margin calls, including courting the likes of Blackstone for $2-3bn worth. **Quick update, the Trafi exposure is not as extreme these days as it was I am told as it is split between a consortium these days.] 

  • Europe’s largest energy traders have called on govts and central banks to provide “emergency” assitance to avert a cash crunch.
  • LME Nickel was halted in a chaotic market resumption.

WW3 Watch (OSINT Discord):

  • Russia’s spy chief has apparently warned that the country’s fate will be decided in days.
    [Can’t vouch for the sourcing.]
  • Ukraine and Russia have drawn up a neutrality plan to end the war.
  • One Chinese perspective on the war and the emergence of a new Iron Curtain says the West’s power will grow significantly, and that China needs to pick a side rather than play the middle ground.
  • China’s Global Times has noted that Washington has no right to demand China to promise not to export arms to Russia.
  • Russia has allegedly demanded the return of Alaska and a Californian fort.
  • Russian delegates discussing biolabs resort to schoolboy tactics.
  • Polish deputy PM Kaczynski also went to Kyiv, and was then goaded by the former Russian PM about the plane crash that killed his twin brother.
  • The hunt for Putin’s daughter zooms in on Surrey,while Deripaska’s mansion is raided.

From the “Fake News” zone:

  • Putin predicts food shortages across the world in sanctions blowback and says the West’s global dominance is crumbling.

    [He is also saying that because Russian assets were stolen this will undermine trust in the West and make other countries think twice before placing their reserves in the care of the West.]

  • Russia’s state TV hit by stream of resignations.
  • The media is pushing for war not diplomacy.

The cables that run the world:

  • Ars Technica says Russia’s “disconnection” from the Internet isn’t amounting to much.
  • But that was written before the London Internet Exchange LINX disconnected Megafon and Rostelecom from it systems.

    [I’m not an expert in this stuff at all. But I am told by more informed sources that this is a significant development which could lead to significant latency in Russian internet services, and their inability to use certain applications such as Microsoft Exchange or Outlook. I’m also told that, yes, it is a little bit like the internet version of Russia being removed from SWIFT. Except that LINX is less of a monopoly. Regardless, with the two Russian entities disconnected from LINX they will have to peer through Asia instead, which could drive latency. Apparently this is an interesting LINX chart:Do give me feedback if any of this is wrong. I’m on a learning curve here.]

Covid is still a thing:

  • 30m people have been plunged into lockdown in China, and supply chains are once again at risk.

    [Perhaps China wasn’t lying about their stats?]

Catch up on my Twitter Spaces:

  • On Monday I was joined by two top-tier experts in the field of biological weapon surveillance, Filippa Lentzos from Kings College London and Greg Koblentz, from George Mason University. You can listen to the recording here. The TLDL (too long didn’t listen) is that Russia itself has a longstanding history in breaking biological weapons conventions itself, the labs are funded by Western interests only to make sure the activity there is focused on peaceful purposes and Russia has a long track record of using narrative projection to distract from its own goings on. We also covered the nature of dual use weapons, and how that makes biolabs a prime candidate for disinformation.
  • I was joined by Daniel Nielsen, a monetary economist specialising in the interaction between monetary policy and the financial system and author of Minksy. We discussed the sustainability of the dollar-standard system in the context of Russia sanctions and news that Saudi Arabia was considering selling oil to China priced in renminbi.

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