Where finance and media intersect with reality


In the Blind Spot (Regulatory Discount Curves, FX Swaps, Iran)


Business, Econ and Finance etc…

  • The volume of sterling traded against Bitcoin exploded upwards to almost 11x the daily average during the peak of sterling’s troubles.
  • People reportedly gathered in eastern Germany to protest their government’s energy policies, amidst large price rises following sanctions against Russia.
  • Afghanistan’s Taliban sign deal to acquire Russian oil products, gas, and wheat.
  • Apple lowers iPhone production increases after demand for their new smartphones splutters.
  • The Bank of International Settlements launched a joint exploration into the use of CBDC use for international retail and remittance payments, together with the Israeli, Norway, and Sweden’s central banks. 
  • Poland starts compulsory restructuring of Getin Noble Bank.
  • BlackRock says it is cutting leverage in some funds in UK pensions crisis.
  • The CEBR notes Kwasi Kwarteng’s costings for the UK Growth plan are probably over-estimated.
  • Dollar swaps face biggest collapse since Fed 2011 liquidity plan.
  • SocGen’s Albert Edwards has a different view of events this week.
  • Truss’s unorthodox plan for Britain means she must ‘hold her nerve’, argues Allister Heath in the Telegraph.

    I’m not trying to downplay the seriousness of what happened in British financial markets this week. Because it was serious. It did nearly choke the system. But, I think a little bit of perspective is also needed. There is a general animosity in the market towards Britain which tends to cloud everyone’s judgment. Markets may be efficient in the long run, but in the short-term they lean “Remain” and that means they are inclined to judge Britain excessively harshly whatever it does simply because of the historical baggage. This is not supposed to be a political point, it’s just an observation.

    The liability-driven investment (LDI) side of this story is a hedging and leverage story. But it is also a regulatory discount curve story. Much of this was well flagged and well understood. See this 2018 working paper from Harvard Business School’s from Robin Greenwood and Annette Vissing-Jorgensen.

    From the abstract of the paper:

    We draw on changes in regulations in several European countries between 2008 and 2013 to provide well-identified evidence on the effect of the P&I sector on yields and to show that P&I demand is in part driven
    by hedging linked to the regulatory discount curve. When regulators reduce the dependence of the
    regulatory discount curve on a particular security, P&I demand for the security falls and its yield
    increases. These effects extend beyond long government bonds. Our results suggest that pension
    discount rules can have a destabilizing impact on bond markets that reverses once rules are

    Meanwhile, as the authors note about the regulatory discount curve factor:

    “This suggests that when designing pension fund regulations, regulators face a tradeoff. On the one hand, stopping procyclical behavior by intermediaries is useful for avoiding asset price spirals that hurt the sector’s solvency and destabilize markets. On the other hand, being more lenient in how pensions mark their liabilities
    increases the risk that the pensions will not ultimately be able to meet their obligations.”

    Meanwhile, I noted a Tweet going around this week that was adding extra drama to events by alleging that the tapping of the Fed’s US dollar swap lines by the BoE for a sum of $5m was somehow significant. Not only is that a micro sum in keeping with historical norms, it also happens to be $5m less than the BoE tapped in its previous operation. The tapping by the SNB and ECB was also far greater. – IK

Military Developments:

Geopolitical Pivots:

Down Under:

  • Australia’s central bank has equity wiped out by billions in bond losses.
  • Australian house prices are falling as RBS lifts rates.
  • Australians scramble to change passports and driver licenses after the biggest hack in history.

From the “Fake News” zone:

  • How fact-finding Fauci led to an author’s cancellation at Forbes.
  • Former MRNA vaccine supporter, cardiologist Dr. Aseem Malhotra changes his views after publishing a peer-reviewed paper on vaccine side-effects.
  • Dilbert creator Scott Adams has a decisive plan to deal with America’s fentanyl problem.

Aerial Phenomena:

  • Food-delivery drone crashes into electrical wires and shuts down power to an entire area.
  • Thousands of NASA e-mails related to Unidentified Aerial Phenomena were acquired by the Black Vault.

    Offering an insight into the American space agency’s comms on UAP, we find debate on UAP technosignature research, debate on the research jurisdiction of SETI over the UAP issue, and criticism of the landmark 1968 Condon Report as unscientific, which allegedly found no evidence of anything extra-ordinary in UAP sightings. – DGG

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