Where finance and media intersect with reality


Spot Markets Live Transcript: 07/10/22


Today’s Spot Markets live session is with Anjuli Davies, formerly of the Telegraph and Reuters, Davies’ last posting was as Senior City Editor for the Telegraph, moving there from her role as Acting Chief UK Financial Correspondent for Reuters.

Comments addressing audience statements are in bold.

Izabella Kaminska 11:58

Hello and welcome to Spot Markets Live, the secret gathering of market and finance geeks every Monday at 11 am.

Today we’re joined by Anjuli Davies. Hello Anjuli!

Anjuli Davies 12:00

Greetings and Happy Monday

Izabella Kaminska 12:00

I’m finally back from what feels like endless travel and am starting to understand what an aged pop star on a whistlestop European tour must feel like.

It’s good to be home!

Except not for long, as I’m off to Zurich on Wednesday for the final installation of the autumn conference circuit – finishing things off by chatting Bretton Woods III with Zoltan Pozsar at Credit Suisse.

Anjuli Davies 12:00

You are so jet-set. Have you finally bought the flights?

Izabella Kaminska 12:01

I have indeed.

Any rabble out there? Hello Helmholtz, good to have you with us.

Probably worth checking in on Credit Suisse news just in case. Uh oh.

Anjuli Davies 12:01

As each week…

Starting Monday the Swiss bank could start announcing job cuts in its markets, investment banking, and global wealth management businesses, the news outlet «Bloomberg» reports, citing people familiar with the matter. 

The cuts are expected to come among mostly support staff and investment advisors, the outlet wrote. Dismissals in markets and investment banking have already started, a consequence of the ailing lender’s plan to reduce 9,000 positions by 2025, 2,700 of which are scheduled for this quarter.

Anjuli Davies 12:03

I wonder if the mood at Credit Suisse will be any better than at Twitter?

Izabella Kaminska 12:03

Part of the restructuring at Credit Suisse is being headed by former Citigroup exec Michael Klein, who also happens to be a board member,  via a spin-off they are going to call CS First Boston. CS will own a majority stake in the new biz.

Anjuli Davies 12:03

Klein of course was the famous go-between ex-Citi banker on the Glencore-Xstrata deal, which apparently personally netted him between $15-20 million. Anyway, what’s the share price been doing?

Izabella Kaminska 12:04

Err not going back up.

Anjuli Davies 12:04

Talking of banks, is HSBC finally going to break itself up as well? Fascinating public comments by its largest shareholder Ping An last week.

Izabella Kaminska 12:04

Ooh had not seen this. Tell me more.

Anjuli Davies 12:04

HSBC has long been dragged down by its TBTF status, being such a global behemoth. According to the FT, which ran an interview with Michael Huang chair of Ping An’s asset management unit last week, this global model needs to go.

Ping An holds 9 per cent of HSBC. HSBC makes around 70 per cent of its profits from Asia and the Greater China region but is hamstrung by global capital requirements and directives from places such as the UK which ordered HSBC to halt dividend payments in 2020 due to pandemic fears. (Apparently, Ping An could count on nearly $1 billion of dividend payouts from the bank).

There have also been some management shake-ups which apparently Ping An has not been happy with as they are also viewed as too UK-centric. HSBC has long struggled also to make its mark in investment banking and has constantly been in cost-cutting drives  – it has nearly 220,000 employees globally. It’s huge.

Izabella Kaminska 12:05

It really is huge.

Let’s check in on the markets.

I hate to say this, but has anyone noticed that the Nasdaq looks like a classic Bitcoin chart?

I mean it’s a total mirror of this famous textbook diagram of a bubble which we always used to compare crypto to:

I mean hard to say for sure, but I’d like to float the possibility we may be at the bull trap point.

Which wouldn’t surprise me based on the sense of denial and blissful ignorance about global macro problems I detected at Web Summit last week.

The conf was also attended by Mrs. Zelensky, who has been on her own world tour.

Anyway, it is total techno-ggedon out there that’s for sure. Layoffs absolutely everywhere. Yet those guys are all like this about it:

The mood really was extraordinary.  “Oh it’s just another winter. It will be followed by a summer.”

The S&P, however, isn’t that much better. Maybe modern Western American civilisation itself is a Ponzi scheme?

It does kind of make me feel hopeful about Britain: Consistently defying Ponzi dynamics.

Anjuli Davies 12:09

Should we check in on the pound?

Izabella Kaminska 12:09

Yep, holding on

Anjuli Davies 12:09

Meanwhile, your old boss Izzy:

Izabella Kaminska 12:10

Oh dear.

Taking control of the memes of production.

I am actually of the opinion that what Elon is doing is a good idea. The old system of arbitrary blue ticks was a bit stupid. We will have to wait to see the details, but if he’s planning to plug into banking KYC to help with verification that wouldn’t be dumb.

The fact that the elites are upset about the hoi polloi potentially getting ticks, is really very Versailles.

It’s like being upset that the rabble has been allowed into the court.

Anyway… if you want to hear more about what I think about Twitter, check out the latest edition of The Blind Spot’s podcast.

how about COP27

Why is it 27?

Anjuli Davies 12:13

it’s the 27th installment of this thing

Izabella Kaminska 12:13

Ah. Everyone is in Sharm El Sheikh.


Anjuli Davies 12:14

Rishi has got some very statesmanlike pictures up

Rishi Sunak arriving in Sharm el-Sheikh, Egypt, to attend the Cop27 climate summit on Sunday evening.

Izabella Kaminska 12:15


Anjuli Davies 12:15


Izabella Kaminska 12:15

Oh yeah.


I don’t really want to linger on this whole thing, but I did want to draw attention to this utterly astounding GB News interview with Philip Pilkington, where Anne Diamond and co-host simply can’t get their heads around the idea that maybe doubling down on renewables doesn’t actually make sense.

The clip is at 3.24.30.

Anyway, the reason I mention that clip is that it seems ever clearer to me that there is an epic scale of disinfo going on in the green narrative.

People genuinely have been convinced that all we need to transition is more investment in green infrastructure. But this is utterly wrong. There is no fully green grid anywhere in the world.

We need nuclear at a minimum to cope with all the renewable intermittency issues, and those take a minimum of 7-10 years to build.

In the interim that means we need gas or some other bridging fuel. Without the bridging fuel, we collapse.

None of this is really that hard to understand. But at the moment what we have is something akin to Turkeys voting for Christmas. It’s really very odd.

Luckily, I saw the BoE’s Sarah Breeden talking at Santander’s international banking conference last week, and she seemed very realistic about all this.

She warned about the risks of piling too much money into green finance before the alternatives were ready and available. Like penalising mortgage holders of nonefficient buildings, when they have no other choices.

Anjuli Davies 12:17

France’s finance minister has been on the tape this morning decrying America’s financial repression

Izabella Kaminska 12:18

Yes, it’s a curious comment. Perhaps EU protectionism is finally good for something?

French Finance Minister Bruno Le Maire says that the #US’s new Inflation Reduction Act (#IRA) law is a major threat to European companies and that the #EU has to stand firm against it.

Anjuli Davies 12:18

Izzy, aren’t you an expert on repo markets?

Izabella Kaminska12:19

Well, expert is putting it politely. But yeah, I know a bit about it.

Anjuli Davies 12:19

What did you think of The Telegraph splash on repo market warnings?

Izabella Kaminska 12:19

Quite fascinating that it’s gone mainstream frankly.

Anjuli Davies 12:19

I also saw an interesting write-up of some comments from Apollo CEO Marc Rowan last week on its earnings call basically saying that the liquidity situation has irrevocably changed with the rise of securitisation and shadow banking.  (h/t @MarcRuby):

“Securitization is now how America banks. We estimate that less than 20% of debt capital to US businesses and consumers is provided directly by the banking system. The vast majority of capital is provided by all of you through intermediaries like us and our peers.”

“We’ve lived in 10 years of benign environment with increasing liquidity and low rates. And this mismatch of daily liquid products with non-daily liquid assets is across our financial system. We saw it in March of 2020…where it happened in open-ended mutual funds and ETFs…”

“…We’ve now seen it in LDI. And we will continue to see that because…our system is designed today such that things are only liquid on the way up there, not liquid on the way down.”

Izabella Kaminska 12:20

I think that is a very good point.  I personally think the risk with ETFs is even bigger. They are designed to synthesise liquidity.

But people don’t appreciate the slippage that is involved, or all the stealth shorts that they generate in the system via mechanics like “create-to-lend”.

On LDI, I can offer this community a bit of semi exclusive news. While at the Santander Banking Conf, I brushed shoulders with Sarah Breeden – exec director of financial stability strategy and risk and a member of the financial policy committee.

I was speaking about CBDCs. We laughed about my Elizabeth perpetual NFTs to save the budget idea.

But I simply had to ask her about LDI. Her main points (already in the public domain FYI):

  1. She said that the bank had worked hard to assure that the LDI funds have at least double what they need to manage a 100 basis point hike. 
  2. One of the issues in the mini-budget wasn’t so much that they didn’t know about the risk, they simply didn’t expect the market to pre-emptively move to the extent it did.
  3. She was very clear that the intervention was NOT QE. It was a technical operation and it was never designed to expand the money supply.

Breeden has given a speech today at the ISDA conference.

There are a few snaps here:

She has also bashed crypto a bit. Here’s the full speech:

One of the interesting points referred to is the difference in vulnerability between pooled funds and segregated funds:

The issue was particularly acute for one small corner of the LDI industry – pooled funds. In

these funds, which make up around 10-15% of the LDI market, a pot of assets is managed

for a large number of pension fund clients who have limited liability in the face of losses.

The speed and scale of the moves in yields far outpaced the ability of the large number of

pooled funds’ smaller investors to provide new funds who were typically given a week, in

some cases two, to rebalance their positions. Limited liability also meant that these pooled

fund investors might choose not to provide support. And so pooled LDI funds became

forced sellers of gilts at a rate that would not have been absorbed in normal gilt trading

conditions, never mind in the conditions that prevailed during the stressed period.

Other LDI funds, with segregated mandates, were more easily able to raise funds from

their individual pension scheme clients. However, given their scale, at 85-90% of the

market, some of these funds were also contributing to selling pressure, making the task at

hand for pooled LDI funds even harder. And of course if the pooled funds had defaulted,

the large quantity of gilts held as collateral by those that had lent to the funds would

potentially be sold on the market too.

There’s also a bit on collateralisation posing its own risks and one-way risk at CCPs.

So whilst greatly reducing counterparty credit risks, with important systemic benefits,

collateralisation may also increase systemic liquidity risks.

This dynamic was at play in the ‘dash for cash’ in March 2020, where hedge funds with

highly leveraged positions in US Treasury cash-futures basis trades, were one source of

the boost in demand for liquidity. When markets turned against them, these investors

unwound their positions, selling US Treasuries at scale, contributing to a short but extreme

period of illiquidity in these usually safe and liquid markets. That added to dysfunction and

necessitated unprecedented central bank intervention.

It’s worth reminding readers that Breeden testified to the Treasury Select Committee on Oct 19th.

As she told them then, none of what happened was really a shock. The BoE definitely knew about the risks:

Sarah Breeden: In 2018, working with the Pensions Regulator, we had done a scenario analysis, a stress test, of these funds. The scenarios we used were 25, 50 and 100 basis point increases instantaneously in long-term interest rates. They looked very conservative in the context of the actual historical behaviour of that part of the curve. What we saw on this occasion was something that was sharper, of greater scale and at greater speed. That is the lesson… We did think we had done a pretty good job of stress testing this.

Anjuli Davies 12:25

Are you starstruck, Izzy?

Izabella Kaminska 12:25

Hehe. A little bit maybe. I did like her pragmatic attitude.

But the other thing the central bankers at the conference were in a bit of a fluff about was this:

Did anyone in the crowd spot this sleight of hand by the ECB?

Apparently, it’s quite a big deal

Anjuli Davies 12:27

They’re calling it a “recalibration”

Izabella Kaminska 12:27

I love these new terms the cbankers big up.

ECB recalibrates third series of targeted longer-term refinancing operations (TLTRO III) to ensure consistency with broader monetary policy normalisation process
Recalibration will help address unexpected and extraordinary inflation increases by reinforcing transmission of policy rates to bank lending conditions

I would like to call up a bunch of utility suppliers and banks and ask for my agreements to be “recalibrated”

What do you reckon?

I checked in with our resident rates expert Helmholtz about all this, and here’s what he told me:

(Though I see he is in the crowd)

It’s a strange move by the ECB but not inconsistent with other behaviour. Unilaterally rewriting a contract is a breach but as the ECB is judge, jury and executioner, and is backstopping the entire EU banking system (see T2 and balance sheet), it’s a fiction that the EU banks are really private sector so they can huff and puff but have little other option.

Anjuli Davies 12:29

One rule for us, another rule for them

Izabella Kaminska 12:29

Seems to be.

So why did the ECB do it?

According to Helmholtz:

1) In terms of rate transmission it’ll put pressure on loans in the EU, so making sure rate rises do percolate out.

2) ECB P/L?

Worth explaining that one more I reckon, if you’re about and fancy popping up to the top layer do feel free 🙂

Helmholtz 12:30

Hi –

ECB doesn’t like being arbitraged and although I haven’t crunched the numbers I’d guess it’s possible to reinvest LT funds taken under the LTRO at a profit in ST repos with ECB.

Izabella Kaminska 12:32

Long-term vs short-term repos right?

Helmholtz 12:32


Izabella Kaminska 12:32

Is this akin to what Paul Tucker was talking about with the indirect impact of QE on fiscal exposure to rising rates?

Helmholtz 12:33


Izabella Kaminska 12:33

His October paper at the Institue of Fiscal Studies was really fascinating

I’ve written up the key points in today’s wrap. I think it’s an extraordinarily important paper that hasn’t had enough facetime in high circles

Tucker spells out beautifully what should have been bleeding obvious to central bankers all along. That until QE is unwound, you can’t effectively raise rates. Indeed, strange paradoxical effects are likely to be afoot for as long the balance sheet remains expanded. This all comes down to the fact that as interest rates increase, so do the interest payments on the expanded cash reserves sitting in central banking thanks to QE.  Since the UK government is ultimately on the line for any negative equity that manifests at the central bank thanks to unfunded/unsterilised money issuance, this has the effect of shifting a large fraction of UK government debt from fixed-rate borrowing to an open-ended floating rate.

Helmholtz 12:34


Izabella Kaminska 12:35

It’s really amazing to me that nobody discussed this in any depth publicly until now. Or maybe they did, and we were just not paying attention?

It’s really very simple.

Tucker offers three main ways to deal with this issue.

One way to reduce the cost to the taxpayer is to introduce a system of tiered interest rates on banks’ reserves.

Another way would be for the state to hedge its exposure to unexpected rises in Bank Rate by substituting two-year gilts for around two-thirds of banks’ reserves.

(Helmholtz – this second one seems to be what the ECB is going for with this recalibration right?)

Helmholtz 12:36

I think so.

Izabella Kaminska 12:36

And the third way is to just unwind QE entirely before even trying to raise rates.

I mean, it’s kind of obvious really when you think about it.

Also, there’s an interesting history in the paper about the Bank Rate.

A lot of market reporters assume that all the central banks around the world use the same mechanical structures to pass on their monetary policy. But actually, things vary quite a lot. The UK has always been quite unique because the BoE dropped reserve requirements decades ago.

So Banks for the longest time have always set their own optimal reserve targets. They are then charged mostly for any additional last-minute supplies they didn’t foresee in their maintenance period.

This means, in the UK, the Bank Rate is transmitted via a de-factor interest on reserve mechanic.

This is very different to the Fed, or at least used to be. The Fed didn’t introduce interest on reserves until the GFC, and was until then dependent on managing a minimum reserve requirement.

According to Tucker, there’s nothing stopping the BoE from changing the terms of the interest on reserve, but there may be some unintended consequences for the independence of central banks.

For example, if the BoE stops charging rates, that will incentivise the Treasury to push for monetary tightening that is focused more on rate hikes than on QT. In a loosening environment, it might do the opposite, encouraging the Treasury to push for QE over interest rate cuts.

So there it’s all a bit complex. Seems like we’re in a pickle. Personally, I think unwinding the expanded reserves first and then hiking rates seems a better idea. But who am I? Just an arbitrarily verified Twitter blue check journo.

What do you think?

Anjuli Davies 12:42

Sarah Breeden superfan you mean

Izabella Kaminska 12:42

Haha yes, that too. Though if I’m going to be super honest, I’m actually part of “Team Tucker for Governor”.

I would even happily start a public campaign. (Though the Libor issue is probably a headwind on that.)

Not sure if a coup at the BoE is doable though.

Anjuli Davies 12:43

Moving on, what else have we got?

Izabella Kaminska12:44

Well, I thought it might be fun to look at Uber results.

I couldn’t believe my eyes last week when I saw headlines like this:

Anjuli Davies 12:45

I don’t know about you but even if I wanted to, I can’t get an Uber to accept a ride…

Izabella Kaminska12:45

So you would think it was all good news…

But this is TOTAL FAKE NEWS!

Uber’s profitability is still non-existent.

It’s all down to these fake measures it has created to measure itself with.

I checked in with Hubert Horan, the former aviation analyst turned evergreen Uber sceptic. just to be sure.

And here’s what he said about Uber’s alleged turn to profitability;

I haven’t done deep dive on numbers yet but reported GAAP loss was $1.2 billion, maybe half of that from Didi writedown so still a big loss if you exclude non-current operations.

Nothing in Uber’s PR or mainstream news coverage mentioned Uber becoming profitable (except of course by the bogus “adjusted EBITDA” metric.

Yes losses are declining but they are still losses. The main story that everyone in the media is ignoring is that all of the improvement seems to come from massively higher prices. They have (deliberately) never reported the unit revenue data investors need to properly understand marketplace performance but Uber is now a much, much more expensive service than the traditional taxis it drove out of business, and I strongly suspect they’ve eliminated much of service they used to provide to underserved neighborhoods that helped drive their original popularity. If you limit service to dense higher income areas you also improve your operating efficiency.

The other strange thing is despite the huge and widespread collapse of “tech” equities–given the realization that companies that never demonstrated any ability to earn profits will be especially challenged post ZIRP–absolutely none of the news reports on Uber mentioned these broader issues or tried to explain why Uber had remained totally exempt from them.

Seems to be a couple dubious things in Uber’s 3q results. They’ve continued to inflate earnings from ongoing operations due to the paper appreciation of Aurora (who took over Uber’s driverless car business) claiming this is still a core part of their business. They seemed to inflate demand growth by including all UK gross bookings as Uber revenue (following the reclassification of UK drivers) and by not mentioning (outside of detailed footnotes in the SEC filing) the revenue added by a recent freight acquisition.

Bottom line remains the same. Losing $500-750 million in a quarter after proper exclusion of discontinued operations is still a big loss, and gains are all from huge, probably unsustainable price increases.

Do you use Uber Anjuli?

Anjuli Davies 12:49

Well, I can never get one…

Izabella Kaminska 12:49

Is that because you live in the middle of nowhere?

Anjuli Davies 12:50

Even when I’m in London I can’t

And the worst is when they accept and you watch your phone like a hawk and one minute before arrive they cancel…

Izabella Kaminska 12:50

Yeah. There’s definitely been a decline in availability. Which isn’t really that surprising. The cancellation thing seems a nasty little trick. It happened to be at Web Summit. The pin automatically dropped in an area i was nowhere near to. I don’t know Lisbon so I didn’t realise it was somewhere totally different. By the time I realised I was ages away from the cab, I was in the chargeable cancellation window. Nice little racket.

Web Summit also featured a chat from the Uber whistleblower btw.

Izabella Kaminska 12:51

LISBON, Nov 2 (Reuters) – Mark MacGann, the whistleblower behind the so-called Uber Files, said on Wednesday that the ride-hailing company seemed to be taking steps toward improving its work culture, but that its business model was still “absolutely” unsustainable.

The Guardian and Le Monde newspapers reported in July that Uber Technologies Inc (UBER.N) broke laws and secretly lobbied politicians as part of an aggressive drive to expand into new markets from 2013 to 2017.

I happened to bump into Mark in the VIP drinks – as you do.

(Owen Jones was there as well. And Ben McKenzie – as in the actor – who was there to talk crypto)

All I will say is that the hypothesis that Uber uses a totally fake metric to value itself was not disputed. If anything, it was corroborated. Poor guy is now being sued by Uber.

Anjuli Davies 12:52

David vs Goliath

Izabella Kaminska12:52

Luckily, Lisbon still has plenty of normal conventional cabs.

Because can you imagine if you’re an Uber whistleblower and you have to get an Uber to get home in a random European city?


Anything else caught your eye for the last 5 mins?

Anjuli Davies 12:54

Interesting piece in Sunday Times about how George Osborne is now back advising Jeremy Hunt

Izabella Kaminska 12:54

Oh really?

Anjuli Davies 12:54

George Osborne reborn

Izabella Kaminska 12:55

I think this is the bigger news

Anjuli Davies 12:55


Izabella Kaminska 12:55

Should we take SML bets on whether Matt Hancock can redeem himself in the jungle?

Anjuli Davies 12:56

40 days and 40 nights should do it.

Izabella Kaminska12:56

@bruce had not seen that, but Tracy is excellent on such things. So I’m sure it’s very good.

I am going to predict that he ends up being volunteered for ALL THE BUSHTUCKER challenges.

But it’s nearly the end of the hour, so I think that’s a wrap for us today.

I will use this op to flag that Frank, my biz partner developer wunder helper, has figured out a way to create 24-hour subs for the Blind Spot. We’re breaking all conventional publishing protocols to bring you this offer.

We are just testing the functionality today, but hopefully, we can go live with them tomorrow. The plan is to  see how the system works, and if they prove a hit with readers we’ll think about keeping them on. The idea really is that if you can’t afford a long term sub, buying one article is a bit steep and quality inconsistent. But 24 hours access is a more commoditised measure.

We’re thinking of pricing of £5 for 24 hours for full access to all premium tiers.

Given that top-end pricing is £50 a month, we think that is fair.

Though maybe I should ask Stephen King what he thinks about the pricing.

$8 might be better?

Do let me know what you think.

Unfortunately due to technical issues, 24-hour access won’t be enough to qualify for a Coodash login for SML. To access this live session you will still need a full monthly or annual subscription. Once you get one, to sign up for the free sessions click here.

On that note, it’s bye from me!

And it’s also bye from Anjuli, who just had to pop off to deal with a call from school.

Take care everyone and thank you for joining.

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