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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