Thursday, August 2, 2012

Computers trade quickly, not always sensibly; British economy is no Olympic winner; When states file for bankruptcy; Blackout exposes India diesel dependence

1 Computers trade quickly, not always sensibly (The New York Times) Financial markets have greatly improved over the past quarter-century. Trading costs, whether for small individual investors or large institutional investors, have declined sharply. The cuts going to middlemen are smaller, and many markets are deeper and more liquid than ever. Most of the time.

Unfortunately, the improved markets also are more prone to disaster. The same computerization and increased competition that provided the benefits also weeded out people who had the obligation to step up in times of stress, and virtually eliminated the ability of people and institutions to slow or halt markets when something goes badly wrong. Regulators can require changes that will prevent an exact repeat of any given disaster, as they did after the flash crash of May 6, 2010, but there appears to be no way to guess what will be the immediate cause of the next problem.

And that problem may be huge. On Wednesday, computers at Knight Capital Group, a firm that executes millions of stock trades every day, went haywire. Unintended orders spewed forth and some stocks gyrated wildly. It took the firm the better part of an hour to turn off its computers, and on Thursday it estimated its losses at $440 million. Knight, one of the biggest players in the stock market, said it was exploring strategic alternatives. That is a polite way of saying it is desperately searching for a buyer.

2 British economy is no Olympic winner (The Guardian) An influx of foreign tourists. An orgy of consumer spending. A nationwide feel-good factor brought on by the sight of Briton after Briton climbing the podium to collect a gold medal. That was how the government envisioned the economic impact of the London Olympics, at a time when the country has rarely been in direr need of a growth fillip.

A week in and expectations of a major boost to growth are rapidly being downgraded. There are certainly plenty of overseas tourists in London, but net tourism would be down if the number of potential visitors deterred by horror stories about gridlock exceeded the numbers coming to London. Evidence of half-full hotels suggests this may be the case. An additional issue is the per-capita spend of the two categories of tourists. Someone coming to London to watch sport for two weeks is likely to spend less than someone who hits the shops of the West End and Knightsbridge every day for a fortnight.

The second reason there may be little or no Olympics boost is that Britons appear to be giving London a miss. Some employees have been told to work from home for the duration of the Games, where the temptation to channel surf may not do wonders for their productivity. In addition, shopping trips to central London appear to have been put on hold, contributing to the stories of empty shops, while the wet weather has led to a last-minute increase in sales of foreign holidays.

3 When states file for bankruptcy (Khaleej Times) Filing for bankruptcy is certainly a painful act. It is more horrendous if Chapter 9, as the bankruptcy law is referred to, is invoked by a legal-state entity. California’s city of San Bernardino is a case in point. Becoming the third city in the progressive West Coast to post bankruptcy in less than 30 days, it has brought to fore a very dangerous trend underway in the US economy. The tune of protection sought is for a deficit of around $46 million, which goes on to establish that public sector is poised with a vulnerable equation. Stockton and Mammoth Lakes are the other cities that are now in litigation for financial collapse.

The Wall Street fiasco, it seems, is there to stay and is eating into the vitals of corporate and state-centric organisations. One of its major impacts throughout the US has been the curbs that it has brought on the public sector, forcing state governments to cut back on jobs and other subsidies. Though an incident in isolation, San Bernardino, and the like, just go to point out the fissures that are building on the economies worldwide, and the very bitter fact that recession is here to stay.

With elections to the presidency less than 100 days away, the US public discourse is now conveniently focused on the economy. Healthcare, petroleum prices and taxes are issues of concern, as they have to be tendered to by the government, irrespective of the mess it is in. The Obama administration that had tried to buoy a sinking economy with stimulus packages is still not of the woods, as microeconomic indicators haven’t responded in a productive manner. The crisis in California could merely be the tip of the iceberg.

4 Blackout exposes India diesel dependence (The Wall Street Journal) When the lights go out in India and diesel generators kick in to provide backup power to tens of millions, Indians' use of diesel as a fuel of last resort, and the country's weight in the regional market, come into sharp relief. "The demand for diesel, irrespective of seasonal variations, has been continuously on the increase. There is more demand because diesel is being consumed more in every sector," Indian Oil Minister Jaipal Reddy said.

This need coincides with an increasing Asian diesel supply deficit and a growing gasoline surplus, which is expected to prompt refiners in emerging Asian economies to adjust their output levels of the two fuels, Wood Mackenzie energy analyst Sushant Gupta said in a report.  “Total Asian demand for diesel/gasoil is expected to grow from 8.65 million barrels per day to 9.78 million barrels a day from 2012 to 2015," he said.

This week's blackouts in India forced countless shops and businesses to fall back on diesel-powered generators, causing a temporary surge in use of the fuel at a time when demand was already high due to water pumping in the drought-hit in parts of the country, and government subsidies that keeps domestic diesel prices low. India's diesel use rose 13.7% on year in June and a "dieselization of the economy" is becoming more pronounced as it is substituting not only fuel oil and gasoline, but also natural gas, the government said in a recent report.

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