Exchange Invest Weekend Edition 2681: Gas Balance
Anglosphere eyes are smiling. Gas status quo. Sino Taiwan No Go? Revolut unbanked? BsAs Peso problem, Motherboard madness & more…
Exchange Invest is a unique information resource combining the day’s stories in a newsletter for investors in exchanges/financial markets infrastructure.
Exchange Invest was founded by former exchange CEO and author of the first bestselling book of fintech (“Capital Market Revolution!” FT 1999) Patrick L Young. Monday through Friday our daily paid subscriber email discusses the business of bourses of all kinds across the world.
This weekly edition is a magazine of broader macro topics as well as including our free weekly podcast which reviews the highlights of the week in the world’s market structure.
On this day in 1971, the U.S. ended a 21-year trade embargo on China.
IN BIGWORLD
From Exchange Invest 2678: June 7th, Wednesday:
That idiocracy passing as a superpower (well ‘superpower’ in the same way I passed for an ‘F1 champion’ as a child by having lots of racing posters on my bedroom walls), the EU, has once again spectacularly missed the point.
Years ago Brussels was eager to halt what was to them an egregious over reliance on the US Dollar as the currency of energy pricing. Some folks tried to talk about free markets but in the Canutian corporate socialism of the EU, they retain a chip on their shoulder about economics as theorised by Scotsmen and so forth, even if a lot of EU nations had a decent stab at the topic - qv Austria - during the past century.
Anyway, of course there was actually a success right under the EU’s nose: TTF, that elegant balancing mechanism which amounts to the world benchmark for gas. Note, it’s not the US one, that’s Henry Hub and a jolly decent chap is Henry and all that…no, TTF is the big kahuna, the global benchmark for gas. However, the EU for some reason which is known only to itself, stubbornly refuses to pay attention to TTF or indeed acknowledge its position.
Quite the opposite in fact. The EU last year spent some considerable time dissing TTF with gusto last year. Their misguided briefings (“misguided” being a synonym here for ‘well beyond porcine levels of ignorance’) were parroted out by their usual over-educated, under-brained, shills in the meeja who demonstrated an embarrassing ignorance of TTF’s status.
QV?Exchange Invest 2452?- 12 September, 2022, where the Brussels Bugle delivered “A column of genteel muckraking” called into question the CCP model and?stated with a remark that has aged about as well as Johnny Depp: “the so-called TTF benchmark has been proven to be a flawed gas price metric for electricity markets — manipulated in effect by Putin.” The FT demeaned itself that day despite some fine souls such as Philip Stafford offering pragmatic defence of TTF markets on Twitter.
The EU’s grouse was essentially the standard issue Canutian pricing model of the EU: whatever the market decides, the EU perceives conspiracy and price gouging. It’s like engaging with several thousand Elizabeth Warren’s. This hectoring contempt became more acute during the Ukraine invasion as the EU led the whole crisis…
…well crisis leadership that is, apart from not providing arms, not having anything worthwhile to say to Putin other than whimsical desires to buy Russian gas and indeed being as useless as ever albeit with lovely dinner services in their expensive ‘embassies.’ (NB The EU still fails to have an agreed Russian foreign policy).
The idiocrats of the Brussels blob went further and decided there would have to be a price cap on TTF because that would stop gas being too expensive for EU citizens. This was against the background that the great Soviet sleeper agent masquerading as German Chancellor, Angela Merkel had materially damaged her nation and the broader EU with a craven embrace of Russian gas verging on hapless addiction - 40% before the Russians began their Ukrainian invasion (7% and falling late?2022). That left the EU only inches from a big winter crisis but fortunately it was a mild one last year and Europe survived entirely despite its political masters.
The EU’s daft price cap led to ICE sensibly providing a spar to Brexit Britain with a Netherlands cap price market and a free market across the North Sea. London TTF sans cap was made available to trade and the market prepared in case the EU’s 180 euro (per MW/H) cap was met. Fortunately prices didn’t get back there as Smith’s invisible hand waved its magic once again. Thus the EU continues to have its global gas benchmark?trading through Amsterdam…
Previously, the Germans, in a move of breathtaking financial illiteracy, had hit the panic button, publicised their wallet was de facto without limit to secure supplies ahead of winter and thus TTF peaked at 342 Euros last August.?
This week, despite wholesale failures across the EU to understand markets (plus ca change!), the TTF price is around 27-28 Euros… and Volume is off the charts!
A record 5.7 million TTF futures and options traded during May, equivalent to a record 4,158 Terawatt hours. I have no idea how much that amounts to but I think a sporting guess is ‘enough power to enable an infinite number of monkeys playing Call of Duty until the end of time on the consoles of their choosing’ but I may be exaggerating. Slightly. TTF options trading has grown 179% so far. (Fun fact: the EU only applied their cap to futures, not options - I know 3 dimensional thinkers, Pavlovian salivation and a mega opportunity in there plus another damning indictment of the idiocracy…).
Anyway, not that the EU has yet understood / acknowledged / appreciated but they have ‘never had it so good!’ with their global gas benchmark growing Open Interest +37% Y/Y with options OI +68%?suggests TTF is poised for Lake Baikal levels of depth.
The EU finally got lucky when it stopped stupidly intervening with all the frenzied demeanour of a coke-addled billionaire playboy in a St Tropez nightclub on a busy night, firework flaming Krug bottles et al. It dodged a $33 billion margin call risk (qv?EI 2521 ECB Says Alamo?December 1st, 2022). ICE stayed cool and provided an orderly market - against all odds…and further enhanced their growing portfolio of energy benchmarks around the world.
That’s an exchange story worthy of the unique bourse business digest Exchange Invest but the macro of the tale is pivotal for understanding BigWorld, the future of energy et al.
IPO-VID LIVESTREAM
NEXT WEEK?TUESDAY
Season 19: Episode 02: IPO-VID Livestream 110
Tuesday, June 13th: 1800 UK, 1900 CET, 1400 EST
"AFM@25, EI@10: Anniversary Spectacular"
Join us for a different show with celebrations and thoughts on the AFM 25th anniversary conference as well as kicking off our 10th anniversary celebrations for Exchange Invest.
Watch the stream on:
NOW ONLINE!
Season 19: Episode 01: IPO-VID Livestream 109
Guest: Christopher Sturgess
Tuesday, June 6th: 1800 UK, 1900 CET, 1400 EST
“AFM, Africa & Commodities”
With a background across Africa during a tumultuous quarter century for the continent’s commodity markets, former AFM Chairman Chris Sturgess is passionate about developing and adding value to markets.?
Chris Sturgess has over 25 years commodities market experience having begun with South African Futures Exchange (SAFEX) where a small team revolutionized South African commodity trading.
Until early 2018 Chris was Chairman of the Association of Futures Market, a position he held for 5 years. More recently he has concentrated on consulting services on the African continent, working with various stakeholders in Malawi, Zambia, Kenya, Cote d’Ivoire, Togo and Nigeria. He has also been engaged with the World Bank and their various carbon funds.
Watch the stream on:
IPO-VID LIVESTREAM PODCAST
In IPO-VID Episode 101: Patrick L Young was joined by CNBC Senior Markets Correspondent, Bob Pisani.
In this episode, we discussed his 25 years on the New York Stock Exchange floor with CNBC and his book “Shut Up and Keep Talking!”
Now available from multiple different podcast sources including:?
EI WEEKLY?PODCAST
Adam Smith 300 - No, that's not a NASCAR race!
Xavier Rolet skewers London’s market problems?
Binance D Day gives way to Coinbase getting sued too and TTF is back, baby! - as Bigworld meets the parish of bourses head on!
VICTORY OR?DEATH
20 years on from the first fintech bestseller “Capital Market Revolution!”… “Victory Or Death” is a must read book for anyone interested in the intersection of Blockchain, Cryptocurrency and FinTech as part of the whole future of finance.
FINANCE BOOK OF THE?WEEK
In response to reader’s queries, we have added a book of the week column to the EI weekend edition - You can sign up for EI Weekend for free at ExchangeInvest.com incidentally.
We’re choosing interesting books pertaining to exchanges and markets, investment et al.
This week’s book was written by our?IPO-VID guest 104, Rainer Zitelmann.
"In Defense of Capitalism.” Rainer Zitelmann examines the ten most common objections to capitalism: capitalism leads to hunger and poverty, to rising inequality, to unnecessary consumption, to environmental destruction, to climate change and wars. Capitalism, its critics say, prioritizes profits over humanity, creates dominant monopolies, and undermines democracy. Zitelmann scrutinizes each of these arguments in turn and reveals the critical flaws that debunk them. He offers counter arguments to each charge, deploying a wealth of historical evidence and eye-opening facts to prove that it is not capitalism that has failed, but a century of anti-capitalist experiments.
The second part of the book explores popular perceptions of capitalism in Europe, the USA, Latin America and Asia and is based on a specially commissioned Ipsos MORI poll of 21 countries, the results of which are presented here for the first time.
Get the book?here.
Suggestions welcome if you would like to nominate a book for us to cover!
Our next Book of the week will be unveiled Saturday in the EI Weekend Edition.
& don’t forget if you want all the news on the bourse business sent daily to your Inbox subscribe to Exchange Invest - via Exchange Invest.com - it’s only $349 per annum to join “The Exchange of Information.”
BITCARNAGE
Simple facts:
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Alternatively, if you want to follow Bitcarnage - the daily update on happenings in the world of crypto and digital assets, then you can find?Bitcarnage?as a standalone on Substack.
PODCASTS THIS WEEK
The Hulsman podcast
PLY: John Hulsman is presenting a fabulous series currently on the ‘great powers’ from their POV. The Anglosphere is another excellent, must listen edition.
Chinese Whispers Podcast (The Spectator)
MACRO THOUGHTS
UnHerd
PLY: In essence, the people sought to take back control but the blob buried the request pending an interminable number of appeal processes.
OF INTEREST
As always, a review of interesting reading to provoke thoughts and consideration… Not sure we agree with much of it….but it’s thought-provoking!
WIRED
The Spectator
PLY: The self same rather boxed in by narrow thought media shoot from the hip types are ranting that the UK is losing its innovation ethos because the powers that be are dragging their feet about authorising Revolut to have a full banking licence.
The idea it might be because Revolut are unfit for such a privilege of regulation has finally been given an airing - thank you The Spectator and Martijn Vander Weyer who notes “Revolut should stop grandstanding and prove it meets City standards.” Hear! Hear!
BA Times
Telegraph
The Spectator World
LAST WORD
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You can also check out the?“Reflections From Young’s Pyramid”, it illustrates the relative value of exchanges around the world.
Or the “ICE Cost of Borrowing 2020–2022” An Interest Rate Comparison, which illustrates the end of the funny money era of QE and how interest rates have already had a major lurch up from their previous region of zero to, even negative, levels.
At the least can you like this article, or leave us a comment, we welcome your feedback.
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Catch up on Tuesday for Exchange Invest 2682…
The future continues in the water cooler of the bourse business…
- Patrick