Where finance and media intersect with reality


Spot Markets Live Transcript: 21/11/22

Screenshot 2022-11-21 at 13.55.39

Today’s Spot Markets live session is with Ben Harrington, the founder and Editor of Betaville.

Comments in bold are addressing audience questions or statements.

Izabella Kaminska 10:58

 Hello and welcome to Spot Markets Live – the live weekly tour of what’s moving markets.

Good morning rabble

I’m joined today by Ben Harrington of Betaville.

Ben Harrington 11:01

Oi oi

Izabella Kaminska 11:01

Hello Ben, how are things?

Ben Harrington 11:01

Betaville in the house!

All good thanks … but it’s looking rather gloomy outside

Proper November / British winter has begun

And this mood seems to be reflected in the markets

Izabella Kaminska 11:02

It’s Thanksgiving week and WORLD CUP, so it’s probably going to be a light market week. But who knows?

Ben Harrington 11:02

saying something like that is asking for it

Izabella Kaminska 11:02

No doubt.

Are you invested in crypto?

Ben Harrington 11:02

I thought about it when it was 30,000 … thought it might be a good level to get into … then tried to do it and it was more complicated to do than I originally planned so decided to wait and never got around to it … so just luck and forgetfulness meant I avoided the disaster …

One supposedly serious pro-investor that is still keen on it is … have a guess rabble?

Izabella Kaminska 11:03

Like a proper serious name?


Not Warren obviously

Ben Harrington 11:04


Izabella Kaminska 11:04

I give up who?

Ben Harrington 11:04

No not Warren!

Izabella Kaminska 11:04

(@noelle thanks)

Ben Harrington 11:04


Babyface Bill

Izabella Kaminska 11:04

Whoah – the man who called Herbalife an MLM

Ben Harrington 11:05

He is one of the most eloquent American hedge fund speakers about

You might not like or agree with what he has to say but he does deliver it well

Izabella Kaminska 11:06

He’s particularly bullish on the Helium network I see

I kind of agree with Ackman – but only to a degree. I’ve become convinced there is probably a marginal use case on the utility token side. BUT… it’s marginal and can’t really thrive until all the grifting has been ejected from the system. And people become wise as to how value actually works in this space.

Ben Harrington 11:07

Basically argues there is still value and the disclaimer is he has invested in a few small crypto projects to get an understanding of the space …

Izabella Kaminska 11:07

No rest for the wicked though and the FTX story is still moving fast and furious. But we’re the Blind Spot …

…and since the entire world is looking at FTX, it’s probably clever at this point to look beyond FTX and to the bigger implications of the story.

Ben Harrington 11:08

What’s that then?

Izabella Kaminska 11:08

So, there’s generally still a feeling out there that crypto is contained. But there are a few ways that it might not be.

1) The reputational damage on the likes of Temasek, Sequoia, and Softbank, all of whom failed to do the due diligence on FTX. If people lose trust in them on the back of it, that’s gonna cascade rapidly.

2) The impact on listed on crypto companies like Coinbase. These are owned by real-world investors at this point (and Cathie Wood). GBTC is also a listed bitcoin closed-end fund that is currently trading near a 50 per cent discount (Cathie Wood is also a big investor).

3) The crypto in the treasury balances of stupid corps that decided to go for exposure that way.

4) The normal-world companies that have been selling shovels to the entire crypto space, especially the cloud computing firms.

5) The entire blockchain complex. Remember the adage that bitcoin is bad but blockchain good – a mantra that was endorsed and anointed by the likes of McKinsey. This obviously fueled an absolute bucket load of investment from VCs into anything to do with blockchain.

With ASX finally suspending its dalliance with blockchain for the overhaul of its aged CHESS clearing and settlement system, the real risk for the market is the bubble in enterprise blockchain bursts too.

And that would be something!

Ben Harrington 11:12

Why is crypto still at 16,000?

Sorry Bitcoin at 16,000

Is the Binance guy just propping it up?

Does the so-called crypto buck stop with him?

Izabella Kaminska 11:13

I blame it all on “Big Crypto”

Aka the whales

But, consider this.

I’m particularly interested in the shovel sellers

This piece from Tim Bray, a former AWS engineer, is really worth a read.

Long story short, he explains how for years he tried to make sure AWS didn’t just plough into blockchain mindlessly.

But in the end when he left they seemingly did

From his piece:

“ Ledgers are useful, cryptography tech is useful, blockchains aren’t, the field is full of grifters, but we could build distributed-ledger infrastructure and then these cool services on top of it. “

It seems the core engineering teams who work on real-world data problems always knew blockchain and a lot of crypto was bollocks, but the gaslighting FOMO got the better of everyone.

Tim Bray was a rare force trying to keep AWS out of the whole thing, but based on his account it looks like the allure of selling shovels to a crypto gold rush was too great, and even AWS came out with its managed blockchain solution.

Ben Harrington 11:15

What does that mean Izz?

Izabella Kaminska 11:15

It means AWS has way more exposure to crypto than people appreciate. The CFO even mentioned that the recent slowdown in AWS revs was partly to do with reduced demand from crypto. This is from the Q3 earnings call

“And your first question about cost optimization, first, there are some industries that have lower demand that’s showing up in our volumes as probably like other companies as well, things like financial services, the mortgage business being down, cryptocurrencies being down. We’re very strong in some of those industries, and that’s part of it.”

Frankly, I was shocked to see how much of “decentralised finance” runs on AWS, Azure, etc. By the last count, it was over 50 per cent on AWS.

The irony in this setup is quite extraordinary.

Also, if this story is true it’s even more amazing how far AWS was in recent years prepared to go to service Big Crypto.

Allegedly (and I”ve not verified this) they were sneakily trying to sell crypto hosting services to Chinese crypto businesses, which of course had been banned by the Chinese government.

As to the state of unwitting centralisation because of the cloud computing link, worth pointing out that all of FTX ran on AWS.

Here’s another cool story referencing the issue

“Ethereum has been mainly dependent on services like Hetzner and Amazon Web Services.” “Approximately 40% of the Solana network’s validators—and 20% of the network’s total stake—were housed on Hetzner as recently as August, according to independent analysis by Google Cloud engineer Sam Padilla. ” “Hetzner, along with centralized cloud services providers Equinix and Amazon Web Services (AWS), hosted a whopping 65% of Solana’s stake in August, according to Padilla. A decision by those companies to deny service to Solana validators would instantly derail and offline the network—which touts itself as “the most censorship resistant blockchain network in the world.”

Ben Harrington 11:18

Surely Amazon can take it on the chin…

Izabella Kaminska 11:18

I’m not so sure. Amazon depends on AWS profit to keep its whole system alive. And it depends on that profit growing. But let’s not get me started on Amazon.

Layoffs, paring back its unprofitable devices division which includes Kindle and Alexa, and subletting a load of over-leased capacity.

The model’s profitability has never really been tested in a rising interest rate environment.

The Enron formation is strong in Amazon:

Speaking of which, I got in touch with █████████ (no relation), who was the ███ whistleblower to ask him what he thought about the whole blowup.

Here’s his bio FYI:

Readers might be aware that FTX’s new liquidating CEO is John Ray, who oversaw Enron’s liquidation.

█████████ the following:


Ben Harrington 11:20

Did you see Izzy Englander invested in FTX?

Isn’t he supposed to be a sophisticated investor?

Izabella Kaminska 11:21

Well, that’s the thing. This was FOMO on a mass level.

What’s notable of course is the total lack of any paper trail.

Again, deeply ironic for a ledger revolution.

This is my favourite bit from the John Ray filing:

“I have over 40 years of legal and restructuring experience. I have been the

Chief Restructuring Officer or Chief Executive Officer in several of the largest corporate failures

in history. I have supervised situations involving allegations of criminal activity and

malfeasance (Enron). I have supervised situations involving novel financial structures (Enron

and Residential Capital) and cross-border asset recovery and maximization (Nortel and Overseas

Shipholding). Nearly every situation in which I have been involved has been characterized by

defects of some sort in internal controls, regulatory compliance, human resources and systems


“Never in my career have I seen such a complete failure of corporate
controls and such a complete absence of trustworthy financial information as occurred here.
From compromised systems integrity and faulty regulatory oversight abroad, to the concentration
of control in the hands of a very small group of inexperienced, unsophisticated and potentially
compromised individuals, this situation is unprecedented”

If you want a fun read, you can find the full doc here https://pacer-documents.s3.amazonaws.com/33/188450/042020648197.pdf

Ben Harrington 11:23

What’s the next news line on this situation?

FTX I mean …

Izabella Kaminska 11:23

The next news line no doubt…

Is that there will be a movie, not least because Michael Lewis is involved again.

The Michael Lewis connection is very interesting and connects to the fact (I suspect) that FTX ended up buying a 10 per cent stake in IEX, which was founded by the hero of Michael Lewis’ other novel “Flash boys”.

Michael Lewis ends up the real winner here methinks.

Ben Harrington 11:24

I’m assuming hacks are already looking into the other exchanges?

I mean is FTX a one-off?

I’m no crypto expert at all but seems like that would be the obvious news line to chase

Izabella Kaminska 11:25

Yes. No doubt. But the real story is the regulatory angle. The IEX stake was actually a highly strategic play. It was kind of like a regulatory SPAC for SBF since it allowed him to lobby the SEC and famously Garry Gensler which regulates IEX.

In terms of the conflicted relationships, we are only beginning to see the full scale of the de facto mutual cartelisation.

FTX owes its 100 top creditors $3.1bn and the top creditor is due $226mn. The names have not been released, no doubt to not prompt even more panic in the market.

But people can sort of figure them out.

The market has its eyes on everyone from GBTC to Coinbase, and Genesis Global, and even Binance as potentially exposed.

Also, there’s a bit of a genius hack going on right now, where a hacker is transferring funds from FTX accounts but since he can’t cash out for fiat, he’s just selling the hell out of Ethereum, and benefiting in some private account somewhere from a short position.

All in plain sight.

To finish off, here’s a sell-side note from Morgan Stanley’s Equity Strategist Sheena Shah, who notes that leverage in the crypto sphere crept in in many different ways, but mostly via creating new cryptos which traded largely on speculation (You don’t say!).

Who is exposed to the FTX collapse? The Financial Times (12 Nov) revealed the

asset and liability composition of FTX’s balance sheet, which we show inside this

report – liquid assets only covered 10% of liabilities on 10-Nov. We have

compiled a list of over 50 companies and projects that have publicly declared

exposures to FTX/Alameda so far (Exhibit 3 – Exhibit 6). Companies include crypto

exchanges, lenders and applications. Investors include crypto hedge funds and

venture capital funds (VC). All have been impacted by the outflows from the

industry, falling crypto prices and falling crypto leverage but most importantly

some have capital stuck (and possibly lost) on the FTX platform. Those that

haven’t yet declared exposures are going to be probed by the markets as an area

of concern. Crypto exchanges will continue to see outflows in the near term as

institutions and retail investors either move to self-custody or sell the assets.

Crypto Fund Research estimates that 25-40% of crypto hedge funds have some

direct exposure to FTX exchanges or the FTT token that is on average 7-12% of


The bitcoin maxis are having a field day though because bitcoin is turning out to be the equivalent of the dollar in the crypto ecosystem. So it is benefiting from a rush of flows into it as the safest of all the cryptos.

Again from Morgan Stanley:

My sources say the bitcoin borrow market has now entirely frozen up. Genesis has stopped making loans entirely. There isn’t actually a generic rate you can borrow bitcoin against at all. Very shades of 2008. But for crypto.

Ben Harrington 11:28


Izabella Kaminska 11:28

Also notable is the general madness in tokens being used as collateral as if they were actual equity rather than froth over-valuation depositories.

As Morgan Stanley notes:

Crypto leverage – new cryptos/tokens. The key catalyst for recent market

volatility was that Alameda had borrowed against assets that are difficult to

value. Around 40% of Alameda’s assets were in a crypto token (FTT) created by

its sister company FTX. How is that token’s value set? The token doesn’t give the

owner a portion of the FTX company (like equity) or rights to capital in a

bankruptcy (like debt), the token’s value was mostly set by market participants

speculatively trading FTT on exchanges. This process was described by FTX

owner Sam Bankman-Fried on a Bloomberg podcast back in April.

FTX created a new token from nothing (zero reserve), retained a portion of it via

Alameda then allowed the rest of the tokens to trade in the broader markets,

where retail and institutional participants could set its value. In the bull market,

capital went into all crypto assets and tokens, without full consideration for

what the token was useful for. At the start of November, before the market

volatility, bitcoin’s price was up 185% relative to the start of 2020. In comparison,

the FTX token FTT was up 1100%, a 6x multiple (Exhibit 2). FTT was used as

collateral by FTX/Alameda and it is accepted as collateral on decentralised

lending platforms.

Ben Harrington 11:29

Didn’t you flag all of this up over the years?

Izabella Kaminska 11:30

Yep. It’s really frustrating for me, because when I read things like …

“In February this year, we showed that New cryptos are created every day. In one week, Coingecko had listed over

180 new cryptocurrencies, adding to the 12,000 assets that had already been

listed. Some of these tokens were similar to FTT in terms of offering a service for

the user and some others represented value within a game”

… I just wonder what the hell were these analysts thinking for so many years.

Anyway here are some useful tables from MS:

And I love the listing of El Salvador here:

“FTX had $13.8bn of liabilities ahead of the Sunday 6th Nov customer withdrawals and

$8.8bn after. Of the $8.8bn of liabilities, over half were denominated in US dollars

(Exhibit 9), which likely includes customer deposits. Of the $0.9bn of liquid assets, over

half ($0.47bn) were in Robinhood (HOOD) shares and around a fifth in US dollars held

on Ledger Prime (Exhibit 10).a”

Ben Harrington 11:31

Oooh, a Robinhood exposure!

Quite a few of my contacts were wondering what happens to SBF’s stake in Robinhood.

Izabella Kaminska 11:32

Yep, more than half of FTX’s liquid assets were in Robinhood shares.

Ben Harrington 11:32

Has anybody heard what might be happening to it?

@BP – totally agree!

Izabella Kaminska 11:32

Yep – I agree too!

Hence this is just the canary in the coal mine, and obviously, the first sector to implode. I’m personally not very bullish on any of the growth-focused tech stocks that couldn’t generate profits if they tried.

Ben Harrington 11:34

@BP – aren’t these assets actually in fact all correlated?

i.e. there isn’t much that is uncorrelated when the free money tap is turned off?

Izabella Kaminska 11:35

I think that’s a fair assumption. Not to be too Zerohedge about it, but we are probably coming out of the longest correlation trading environment ever. Much of the variance has been disguised not just by QE but also the boom and popularity of ETF index trading.

Should we move on to the real world?

Ben Harrington 11:35

Good idea

European markets are looking a little weak this morning.

Generally gloomy … maybe they are correlated to the weather?

Surely someone has done some research on this?

Izabella Kaminska 11:37

@helmholtz – the deflationary signals are upon us if we look at the latest German PPI

German PPI has fallen for the first time in 2 years.

Ben Harrington 11:37

@Izzy – let’s sort out inflation first.

Marc Ostwald of ADMSi notes:

A much sharper than expected drop in #German #PPI -4.5% m/m, 34.5% y/y vs. Sep 45.8% y/y, all down to -10.4% m/m drop in #Energy, but bear in mind 3-mth change only slowed to 12.0% from Sep peak of 12.8% – see table; Nov should also post large fall, given a further slide in #Baseload #Power #prices.

Ben Harrington 11:38

I almost paid £7.00 for a punnet of Italian tomatoes last week.

Izabella Kaminska 11:38

Ha, well we also have an egg shortage in the UK.

Likely to have rationing soon, but that’s mostly due to an outbreak of avian flu.

@BP- interesting

But I’m not so sure inflation is going away even in a depression situation. Because my fear is that profit margins have to make a comeback because the cost of capital can’t support zero-profit businesses anymore.

So we will have less stuff, and what we have will be more expensive.

Just my hunch.

Ben Harrington 11:40

So isn’t that stagflation then?

Well let’s try to cheer ourselves up by looking at the Sunday papers

Izabella Kaminska 11:40

Any decent stories around?

Ben Harrington 11:41

Well, the Mail on Sunday business section splashed on a piece about Arm – the chip designer owned by SoftBank –  delaying its £50 billion float plans. According to Mark “Shappers” Shapland Arm is going to delay its float on the LSE, which Softbank bought it from for £24 billion in 2016. Readers might have noticed that the valuation of Arm being pitched to the newspapers is twice what SoftBank paid for it six years ago…mmmmm…

I’m not sure that’s much of a cheery story though

It’s a bit gloomy as well.

Izabella Kaminska 11:42

what else then?

Ben Harrington 11:43

Betaville’s chum Jamie “Nimmers” Nimmo had a hamper piece in The Sunday Times business section about Ripple looking to purchase parts of FTX. Eeeeek.

Izabella Kaminska 11:43

Yes EEEK is the operative word

Did you know that XRP and Ripple are a favourite Qanon conspiracy?

The Q-narrative states that after the financial system collapses, the only system left standing will be Ripple.


And of course, don’t forget the role Ashton Kutcher played in pumping all that up

Ben Harrington 11:44

Shall we not go down the crypto rabbit hole again?

Izabella Kaminska 11:44


Ben Harrington 11:45

Olly Shah had a decent scoop about Jeremy Hunt reviving Britain’s “industrial strategy” after Kwasi Kwarteng scrapped it but whether that policy makes it past the next election is very much questionable … and they also had a piece in the interview (I am not entirely sure this was a one on one interview) slot by Sam Chambers with an FTSE 100 exec – Daniel Akeroyd, the newish boss of luxury trench coat maker Burberry. Akeroyd used to work at Harrods…

Izabella Kaminska 11:46

Speaking of Britain…

I’m once again with SocGen’s Albert Edwards on the whole Sunak/Hunt budgetary approach. I think what they are doing is total madness.

As Edwards has noted, citing Ambrose Evans-Pritchard:

Eye-watering austerity will be in the UK budget today to “restore credibility”. This is crazily stupid. There is no £50bn ‘black hole’. It is a lie. And UK public finances are better than almost all other G7 countries. Great from Evans-Pitchard below…

Ben Harrington 11:47

Ambrose used to be a colleague of mine at The Daily Telegraph

A very nice man

Izabella Kaminska 11:47

And right about inflation!

Albert Edwards also flagged this chart claiming it is showing utter armageddon on the horizon

And finally here tweeted that Lance Roberts tweet tweeting something he wrote:

“But #equity #investors should be aware that one key source of price #inflation is getting more attention from #policymakers ‘Excess’ corporate #profits has come into the cross-hairs. Reducing record profit margins has now become a policy target variable.” @albertedwards99

Somewhat circular of AE (retweeting someone else quoting him) but… true!

The point is that profit margins HAVE to go up to restructure the economy in a productive way. But if that comes with financial repression from governments, the incentives might all get screwed.

It’s counter-intuitive to the lay person, but corps must be allowed to make a margin.

Otherwise, there’s too much of an incentive to go after the unicorn models that orientate everything toward ponzi-nomics.

It seems a bit quiet tho in the corporate scene for now, during these austere times.

Ben Harrington 11:52

Yes, there has been a lot of talk about a slowdown in dealmaking.

But given last year’s boom that isn’t surprising

And there are deals happening, still – last week BHP agreed to a deal to buy Australian copper mining giant OZ Minerals for A$8.4 billion, not exactly pennies.

Izabella Kaminska 11:53

Have you got any of your special “RARE” news for readers today?

Ben Harrington 11:54

The RARE stories are few and far between at the moment but there is a bit of UNCOOKED around

Izabella Kaminska 11:54

Ooh, what’s that?

Ben Harrington 11:54

one of them is about Mears, the social housing maintenance firm.

Izabella Kaminska 11:55

Is that the £250m London-listed market cap company?

Ben Harrington 11:55

Yes …

There is some talk about a private equity firm casting its slide rule over the company.

I haven’t heard which PE firm is looking at Mears but some corporate financiers reckon the most obvious bidder would be Warburg Pincus as last year it bought a stake PTSG, formerly known as Premier Technical Services Group, from Aussie firm Macquarie. PTSG looks to be in a similar space to Mears.

Izabella Kaminska 11:56

LBOs are hard to do at the moment, because of the growing debt expense no doubt.

But because Mears is so small, they might be able to raise a tiny amount of debt or entirely with equity.


Ben Harrington 11:57

There is also an UNCOOKED story percolating the market about Elementis, the speciality chemicals company.

Izabella Kaminska 11:57

Hasn’t that been approached recently?

Ben Harrington 11:58

Yes, last year and the year before… the firm has had plenty of interest in Minerals Technologies, a US-listed group, offering 130p a share in late 2020 and six months later Innospec, another American group, made a 160p a share cash and shares bid that was also rejected by Elementis.

But right now the company is carrying out a strategic review of its Chromium business

Which is due to complete soon

The UNCOOKED mutter is that during the strategic review Elementis has drawn interest from a suitor interested in buying the whole group…

Izabella Kaminska 12:00

Anything in Europe?

Ben Harrington 12:00

Yes – Somfy, a France-listed supplier of controllers and drives for entrance gates, garage doors, blinds, and awnings, might be taken private by its largest shareholder, the Despature family, at EURO 143 a share or EURO 5.3 billion. As a result, the stock is up over 40pc over the last month.

Izabella Kaminska 12:00

Ahh… Somfy! I routinely drive past their HQ in France en route to the alps and have always wondered about them.

I’ve always been taken by the name.

They made my blinds in fact. Good stuff.

As a blind maker, Somfy should sponsor the Blind Spot…

🙂 Shame they’re french.

Ben Harrington 12:01

Where are you heading to in the Alps?

Izabella Kaminska 12:01

Chamonix as always

Ben Harrington 12:02

Well the next Uncooked tale involves a company is in the other direction

Izabella Kaminska 12:02

Go on…

Ben Harrington 12:02

But a similar aspect to Somfy.

Izabella Kaminska 12:02

@T – ha!

Ben Harrington 12:02

Indeed, large shareholder takes private in European businesses have been a bit of trend over the last two years as they look to take advantage of low valuations and take full control.

The latest rumoured one could involve Telenet, the Belgian cable company

Liberty Global is the largest shareholder in the business, so the speculation has focussed on the US cable group controlled by cable cowboy John Malone buying out the remainder.

But there has also been talk that Liberty Global might be looking to get out of Belgium by selling its stake to a private equity firm, which would then in turn buy out the rest of the business.

It sounds like whoever is looking at Telenet has been tapping up the credit markets for the money …

Izabella Kaminska 12:05

Thanks Ben!

I guess it’s football time…

Ben Harrington 12:05

Lunch first!

Izabella Kaminska 12:05

And just before we all pop off for the football, Dario has some interesting stuff on meme stock borrowing costs and FTDs

Dario Garcia Giner 12:06


GME borrow fees are at 9.3% this year and have been at that level for much of October;

But this is actually the lowest they’ve been for a while – GME borrow rates were at 32.5%, down from May highs of 110%.

As of Nov, GME has $1.54 bn in short interest, with 21.5% of available shares allegedly shorted.

BBBY shares are currently at an annualised borrow rate of 9.14%, recently dropping from highs of 11% on Friday.

But most interesting of all is AMC

4 days ago, AMC’s short borrow fee rose to 96.3%

And its annualised borrow fees are quite high at 18%;

And fails to deliver (FTDs)… oh lord the FTDs.  They’ve reached daily levels above 1 million FTDs several times during the first half of October;

For a little comparison, Tesla’s FTD counts have been averaging around 154,000 FTDs during the same period.

Interesting, right Izzy?

Izabella Kaminska 12:10

Yes indeed! FTDs are sometimes a stealth way to access un-agreed emergency financing.

I find all this market structure stuff fascinating

But on that note, I think we should call it a day.

We’re 10 min over and there’s a world cup to watch

Also, I’m about to do a BBC interview

So thank you to Ben and Dario, and of course you the rabble. We will be back next Monday as usual.

Take care!

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