Raphael Stevens

JUST AFTER the end of the first world war and the dissolution of Austria-Hungary, one observer noted that “every clock in Prague [was] gone, melted for the metals.” Another, in Vienna, saw children “wrapped in paper, for want of sheets and blankets”. At the time much of Europe was under strict economic sanctions, as western powers tried to hold the post-war peace and restrain communism. It was the first time that the “economic weapon”, the title of Nicholas Mulder’s new book, had been used, but by no means the last. By the 2010s a third of the world’s population lived under sanctions. Prominent among the current targets is Russia, which will face further sanctions if it invades Ukraine. Mr Mulder, of Cornell University, looks at sanctions over the three decades after the first world war—and reaches unsettling conclusions.Economic war against civilians is a centuries-old phenomenon. During the Hundred Years’ War English troops launched countless brutal sieges against French garrisons, often starving them into submission. Blockades were an important part of the toolkit of the naval wars of the 18th century. Sanctions were and are different. Rather than being imposed by one country on another, they often involved groups of countries coming together to punish rogue states. The formation of the League of Nations in 1919-20 made co-ordinated action easier. And rather than being seen as an act of war, sanctions were often supposed to prevent it.Sanctions were also the product of the first great wave of globalisation. In the 70 years to 1914 trade flows rose from 5% of global GDP to 14%, then an all-time high. With economies ever more integrated, like-minded governments had many points of leverage over renegades, whether by denying them the supply of crucial raw materials or by refusing to buy their goods.The role of finance truly distinguished sanctions from previous economic warfare. In 1870-1914 annual capital flows averaged 4% of global GDP. The Allied powers controlled the world’s main financial centres. Economists, as well as traditional military types, thus helped design sanctions. They aimed to hit aggressor states where they were weakest: in their financing requirements.Mr Mulder’s book is filled with anecdotes of how sanctions worked in practice. As signs of impending war grew in 1935, Italian companies such as Pirelli (tyres), Fiat (cars) and Montecatini (chemicals) were denied financing for their import needs by the Bank of England. By August 1941 expansionist Japan was cut off from the rest of the world economy, having lost 90% of its foreign oil supply and 70% of its trade revenues. Enforcing sanctions required a great deal of effort in a world of increasing financial ingenuity. In the late 1910s Banco Holandés de la América del Sud, a Buenos Aires subsidiary of a Dutch bank, used five different names to undertake transactions for various Latin American subsidiaries of German banks.William Arnold-Forster, a British administrator, argued that sanctions could “make our enemies unwilling that their children should be born”. Indeed, they could have horrific effects. Of the three main weapons targeting civilians during the period—air power, gas warfare and economic blockade—blockade was by far the deadliest, Mr Mulder argues. “Pens seem so much cleaner instruments than bayonets,” Arnold-Forster wryly noted.Whether sanctions achieved their objectives was another matter. Small countries could be bullied into obedience, such as on two occasions in the 1920s, when the threat of sanctions stopped skirmishes in the Balkans from escalating into wider war. Bigger powers were tougher nuts to crack. Overall, “most economic sanctions have not worked”—the first lesson of Mr Mulder’s book. Most significantly, they did not stop Germany from choosing war.Sanctions sometimes failed because of insufficient political will. For a long time American opinion had it that sanctions were fundamentally un-American, an anachronistic form of European-style imperialism. In other cases financial globalisation constrained, rather than widened, sanctioners’ room for manoeuvre. Britain refrained from imposing a severe financial blockade of Nazi Germany in the mid-1930s in part because British banks held huge amounts of German debt. In the event of sanctions the Reich would stop servicing this debt, and British financiers worried that the City would face a solvency crisis.The second lesson of Mr Mulder’s book is that sanctions can have unintended consequences. By the 1930s global politics and economics had radically changed from the 1920s. The Great Depression had sent many governments down a protectionist route. Global trade was in a long slump. Fascism was on the march.Doom loopSanctions, Mr Mulder shows, added fuel to the fire. Governments that believed themselves vulnerable to sanctions withdrew even further from the global economy, in order to secure strategic independence. In the 1930s Japan sought to develop a “yen bloc”, an economic zone including Korea and Taiwan, so as to reduce dependence on the Allied powers. In the mid-1930s Germany gunned for “raw-materials freedom”, in part via the construction of massive capacity for the synthetic production of oil. (Anyone witnessing Russia’s efforts in recent years to wean itself off Western finance may conclude that nothing much has changed.) It also necessitated conquest. “I need Ukraine”, said Adolf Hitler in 1939, “so that they cannot again starve us out like in the last war.”In that sense the international search for effective sanctions and the ultra-nationalist search for autarky “became locked in an escalatory spiral”. Sanctions did not work in a deglobalising world, and contributed to its continued fracturing, in turn setting the stage for the second world war. Mr Mulder is too careful a historian to labour the parallels between what happened in the inter-war period and today, when geopolitics is once again fractious and globalisation is in retreat. But the lessons are sobering. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “The wonks’ weapons” More

THE LINE between investing and gambling has always been thin. This is especially true for prediction markets, where punters bet on events ranging from the banal (“will average gas prices be higher this week than last week?”) to the light-hearted (“who will win best actress at the Oscars?”). Prediction markets have something of a cult following among finance types who rave about the value of putting a price on any event, anywhere in the world. Such prices capture insights into the likelihood of something happening by forcing betters to put money where their mouths are. But critics argue such markets will fail to grow beyond a niche group, reducing the value of their predictions in the process.The debate has been reignited by a new “event contract” exchange–a market where traders can buy and sell contracts tied to event outcomes—run by Kalshi, a New York-based startup. The firm has made headlines because it earned approval to run America’s first such exchange without regulatory limits on the scale of activity—a feat that has long eluded its predecessors. PredictIt, one of the most popular American prediction markets, operates as a non-profit research project limited to 5,000 betters for each event. The size of bets is capped too, at $850 per person, per question. Kalshi overcame such hurdles by consulting American regulators for two years to earn their trust, says its boss, Tarek Mansour. He believes this could make event contracts a real asset class, like options.That may be why the startup has attracted so much interest. It counts big names from Sequoia Capital to Charles Schwab as backers. A former member of the Commodity Futures Trading Commission, Kalshi’s regulator, has joined the firm’s board.Kalshi’s timing is also opportunistic. Retail traders have ventured far beyond blue-chip stocks to assets such as options and cryptocurrencies. The firm sees event contracts as a natural extension of that curiosity. And Kalshi specifically looks for events ripped from headlines, says Luana Lopes Lara, one of its co-founders. For instance, it launched markets on US Supreme Court cases in December 2021.In the longer run it hopes to attract more sophisticated investors. Why might they join a seemingly game-like platform? For one, they could make money off less-informed amateurs. They may also use it to hedge against risks. An investor with stock in the American construction industry, for instance, might have bet against President Joe Biden’s infrastructure bill to cushion its losses if the bill had failed.But there are several barriers to broader adoption. One is that there is a fundamental difference between betting on events and betting on stocks. Public companies generally engage in profitable projects, so shares tend to have positive returns; over a long enough period, investors would make money even if they picked stocks at random. That draws in more participants. In prediction markets, by contrast, the game is zero-sum, says Eric Zitzewitz, an economist from Dartmouth College. The pay-out of one trader is the loss of whoever takes the other side of the bet.A bigger turn-off may be lack of liquidity. Sophisticated investors will be reluctant punters if they cannot make large trades with ease. In 2002 Deutsche Bank and Goldman Sachs, two banks, launched a market for trading event contracts—similar to what Kalshi now offers, though only open to large investors—on major macroeconomic data releases such as employment numbers. It closed some years later, most likely because investors who wanted to trade on such data stuck instead with bets on the entire stockmarket using options and share indices; traditional assets had much larger volumes and were therefore easier to trade. In many cases liquidity matters more than having a perfect hedge, says a trader at a large investment bank.Looking abroad offers a clue to where volume might come from. Smarkets, a popular betting exchange in Britain, where regulations are lighter than America, has seen the most activity on major political events. The American presidential election in 2020 was its largest market to date, with more than £20m ($27m) traded, says Matthew Shaddick of Smarkets. Kalshi’s political markets are also finding some success: its most popular to date was on whether Federal Reserve chair Jerome Powell would be replaced by December 2021. Markets on elections, however, have yet to be approved in America. Mr Mansour says Kalshi is “working with regulators” to change this. Perhaps prediction markets should open a market on their own success. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Punting profits” More

THE ANCIENTS knew the source of real terror. Lions, snakes and goats (apparently) are scary creatures to stumble across, but it is the combination of different bits of them that is the stuff of nightmares. The Chimera, with the head of a lion, the body of a goat and the tail of a snake, whose “breath came out in terrible blasts of burning flame”, was a truly fearsome beast. Yet crossbreeds can also be cute and cuddly. Just think of labradoodles.What about financial crossbreeds? Are they minotaurs or maltipoos? Finance has adapted and innovated at a frenetic pace over the past few years. In 2019 there were hardly any deals using special-purpose acquisition companies (SPACs), blank-cheque vehicles which take firms public via a merger. In 2021 they raised $163bn of capital and agreed to take 267 firms public.As recently as 2020 few people had heard of non-fungible tokens (NFTs), the cryptocurrency chits attached to pieces of digital media, such as a picture or video. But interest rocketed after Beeple, a digital artist, sold one for $69m at auction at Christie’s almost a year ago. Cryptocurrencies and associated trading platforms entered the mainstream. Institutional investors now chatter about including bitcoin in their portfolios. Coinbase, a cryptocurrency trading platform, went public in April 2021. It has a market capitalisation of $45bn.As these newfangled technologies and financial vehicles have grown in size and scope they have begun to mate. First, in July 2021, Circle, a Boston-based company which issues USDC tokens, a type of stablecoin pegged to the dollar, agreed to merge with Concord Acquisition, a SPAC founded by Bob Diamond, a one-time boss of Barclays, a bank, in a transaction that valued Circle at $4.5bn. Then in December 2021 Aries Acquisition, another SPAC, announced plans to merge with InfiniteWorld, a Miami-based NFT and metaverse-infrastructure platform valued at around $700m.Keeping up? There’s more. Not to be outdone, on February 11th Binance, a cryptocurrency trading platform founded in China, announced it was making a $200m investment in Forbes, a publisher and ranker of billionaires, ahead of Forbes going public via a merger with the modestly named Magnum Opus, another SPAC. Binance’s rationale for backing the union, its boss helpfully explained, was that media is “an essential element” as cryptocurrencies, blockchain technology and “Web3”, the supposed next generation of media and internet businesses where crypto-holders run social-media platforms, come of age.What should an investor make of all this? It is tempting to dismiss these new beasts—call them Cryp SPACtaurs—as nonsense. There is nothing particularly cute or cuddly about the way SPACs typically treat their investors. In part thanks to the fat slice of shares grabbed by deal sponsors, investments in pre-merger SPACs have underperformed major stock indices by around 30 percentage points on average. Add in the risks typically associated with crypto-ventures and some punters may conclude that it looks more appealing to invest with the next Bernie Madoff.That may also explain why these crossbreeds are yet to reach maturity. Infinite World has not yet completed its merger with Aries. Circle and Concord have not tied the knot either, despite announcing their coupling around eight months ago. The Binance investment in Forbes, meanwhile, seems at least in part motivated by the prospect of the Forbes SPAC deal otherwise failing to come off. The $200m infusion replaced those mulled by other outside investors, who appear to have got cold feet. Perhaps the Chimera and the Cryp SPACtaur are alike: not because they are both monsters, but because they are both seemingly mythical creatures.Still, the prospect of facing the bright lights of public equity markets might be just what is needed to sort the puppies from the pigs. When quizzed about why the Circle SPAC transaction was taking longer than some others, Jeremy Allaire, Circle’s chief executive, explained that to enter public markets “companies have to be in a position where they have to meet necessary regulatory, disclosure and accounting standards so that the public can invest. That is a good process.” But it can take longer still for firms like Circle, which are “a very new kind of financial institution”. Only when one of them actually goes public will it start to become clear whether CrypSPACtaurs are beasts to fear or pooches to pet.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Behold the CrypSPACtaur” More

The deal means Amazon customers in the U.K. can continue using Visa credit cards, as previously announced by the two companies.
Amazon will also drop a 0.5% surcharge on Visa credit card transactions in Singapore and Australia, which it introduced last year.
Amazon has been piling pressure on Visa to lower its fees, signaling growing frustration from retailers over the costs associated with major card networks.

Visa payment cards laid out on a computer keyboard.
Matt Cardy | Getty Images

Amazon has reached a global agreement with Visa to settle a dispute over the credit card giant’s fees.
The deal means Amazon customers in the U.K. can continue using Visa credit cards, as previously announced by the two companies. Amazon will also drop a 0.5% surcharge on Visa credit card transactions in Singapore and Australia, which it introduced last year.

Last month, Amazon said it had dropped plans to stop accepting Visa credit cards in Britain, two days before the change was expected to take place. The companies said at the time that they would continue talks on a broader resolution to their spat.
“We’ve recently reached a global agreement with Visa that allows all customers to continue using their Visa credit cards in our stores,” an Amazon spokesperson told CNBC via email. “Amazon remains committed to offering customers a payment experience that is convenient and offers choice.”
Amazon has been piling pressure on Visa to lower its fees, in a series of moves that signaled growing frustration from retailers over the costs associated with major card networks, as well as the e-commerce giant’s market power and sway over its partners.
The likes of Visa, Mastercard and American Express now face intense competition from a flood of fintech challengers, from “buy now, pay later” services like Klarna to open banking, a technology that lets start-ups effectively bypass traditional payment rails such as cards.
In an emailed statement to CNBC, Visa said its agreement with Amazon would also see the two collaborate on “new product and technology initiatives to ensure innovative payment experiences for our customers in the future.”

Both companies declined to comment further on the terms of their agreement when asked by CNBC.
So-called “swipe” fees, which are charged to merchants each time a customer uses their card, have long been a point of contention for businesses.
Roger De’Ath, U.K. country manager at fintech firm TrueLayer, said the Amazon-Visa spat highlighted the “fundamental need for new payment solutions.”
“For too long, cards have been retrofitted into online checkouts, creating an invisible web of hidden costs and unwieldy payment structures that affect the cost base of every single retailer,” De’Ath said via email.

WATCH LIVEWATCH IN THE APP More

Check out the companies making headlines before the bell:
Walmart (WMT) – Walmart stock rose 2.9% in the premarket after the retail giant reported better-than-expected quarterly results. Walmart earned an adjusted $1.53 per share, 3 cents above estimates, issued an upbeat forecast, and announced a dividend hike.

AutoNation (AN) – The auto retailer earned an adjusted $5.76 per share for the fourth quarter, beating the consensus estimate of $4.96. Revenue was also above estimates, driven by a 55% surge in used vehicle sales. AutoNation shares jumped 3% in premarket trading.
DoorDash (DASH) – DoorDash soared 24.1% in premarket trading after the food delivery service issued an upbeat outlook for the current quarter. Doordash reported a fourth-quarter loss but saw a 69% surge in revenue for 2021 even as restaurants reopened for dine-in service.
Cisco (CSCO) – Cisco beat estimates by 3 cents with adjusted quarterly earnings of 84 cents per share. The networking equipment and software maker also reported better-than-expected revenue and issued an upbeat full-year forecast as it sees particularly strong demand from cloud computing companies. Cisco rose 3.5% in the premarket.
Nvidia (NVDA) – Nvidia reported adjusted quarterly earnings of $1.32 per share, 10 cents above estimates. The graphics chip maker also reported better-than-expected revenue for the quarter and gave an upbeat outlook. However, the stock came under pressure on concerns about flat profit margins and its exposure to the cryptocurrency market. Nvidia was down 2.5% in premarket action.
Palantir Technologies (PLTR) – The software platform provider’s stock slid 8% in premarket trading after quarterly earnings fell short of forecasts. Palantir’s adjusted profit of 2 cents per share was half of what analysts predicted, although revenue exceeded forecasts.

Tripadvisor (TRIP) – Tripadvisor tumbled in the premarket after reporting an unexpected quarterly loss and revenue that fell short of analyst forecasts. The travel review site operator said it expects significant improvement in the travel market this year after what it called “unexpected periods of virus resurgence” in 2021. Shares tumbled 7.9% in premarket trading.
Fastly (FSLY) – Fastly shares plummeted 31.9% in the premarket after the internet content delivery company gave lower-than-expected 2022 guidance. Fastly reported a narrower-than-expected fourth-quarter loss and revenue that came in above consensus estimates.
Hasbro (HAS) – Hasbro rallied 4% in premarket trading after activist investor Alta Fox Capital Management nominated five directors to the toy maker’s board. Alta Fox is pushing for Hasbro to spin off its fast-growing games unit.
Cheesecake Factory (CAKE) – The restaurant operator’s shares jumped 4% in the premarket even though earnings came in below forecasts. A revenue beat was negated by increased input costs, but Cheesecake Factory is planning a price hike in new menus now being printed and said it may lift prices further later this year.

WATCH LIVEWATCH IN THE APP More