Stock Trading Is About to Get 5.2 Milliseconds Faster

In April the Canadian research ship Coriolis II will set out from Halifax to survey parts of the continental shelf stretching 1,000 miles off the east coast of Nova Scotia. The ship has been hired by Hibernia Atlantic, a Summit (N.J.)-based company that operates undersea telecom cables, to map out a new $300 million transatlantic fiber-optic line called Project Express. The cable will stretch 3,000 miles beneath the North Atlantic, connecting financial markets in London and New York at record transmission speeds. A small group of U.S. and European high-speed trading firms will pay steep fees to use the cable.

When it opens in 2013, Project Express will be the fastest cable across the Atlantic, reducing the time it takes data to travel round-trip between New York and London to 59.6 milliseconds from the current top speed of 64.8 milliseconds, according to Hibernia Atlantic. Those five milliseconds might not seem like a big deal, but to the handful of electronic trading firms that will have exclusive access to the cable, it will be a huge advantage. “That extra five milliseconds could be worth millions every time they hit the button,” says Joseph Hilt, senior vice president of financial services at Hibernia Atlantic.

Read More at Businessweek

Greece's Fringe Parties Surge Amid Bailout Ire

ATHENS—Weeks after agreeing to an agonizing bailout deal with Europe, Greece is splintering politically ahead of national elections, raising the risk that it won't be able to make the economic sacrifices still needed to keep it in the euro.

The election, not yet scheduled but expected in April or May, is shaping up as a public revolt against Greece's political establishment, which has backed the austerity policies that are the price of financial life support from Europe and the International Monetary Fund. Mainstream politicians are increasingly painted as leading Greece into a debt trap, then impoverishing it in trying to escape.

Weeks after agreeing to an agonizing bailout deal with Europe, Greece is splintering politically ahead of national elections. Dow Jones's Costas Paris has the details. Photo: Reuters

As a result, Greece's major parties, which have promised Europe they will enact yet another round of deep public-spending cuts by summer, are struggling for support.

Read More at The WSJ

Europe's Debt Woes Getting a Spanish Accent

Could Europe’s next debt crisis have a Spanish accent? From swelling government debt to banks burdened with bad loans, the news from the euro zone’s fourth-largest economy is getting worse by the day.

Spain is tipping into its second recession since 2009, with the economy forecast to contract 1.7 percent this year under pressure from deep austerity measures and flagging exports. Public debt has soared to 68.5 percent of gross domestic product, the highest rate in at least two decades, and the government of Prime Minister Mariano Rajoy has had to scale back plans to reduce budget deficits. “Spain seems to be the main risk in the near future for Europe,” says Stéphane Déo, chief European economist for UBS (UBS). “The market is losing patience.”

Read More at Bloomberg Businessweek

The U.S. Cruises Toward a 2013 Fiscal Cliff

At some point, the spectacle America is now calling a presidential campaign will turn away from comedy and start focusing on things that really matter—such as the "fiscal cliff" our federal government is rapidly approaching.

The what? A cliff is something from which you don't want to fall. But as I'll explain shortly, a number of decisions to kick the budgetary can down the road have conspired to place a remarkably large fiscal contraction on the calendar for January 2013—unless Congress takes action to avoid it.

Well, that gives Congress plenty of time, right? Yes. But if you're like me, the phrase "unless Congress takes action" sends a chill down your spine—especially since the cliff came about because of Congress's past inability to agree.

Read More at the Wall Street Journal

Goldman's Double Game

Goldman Sachs (GS) was once a punchline. During the Great Depression, the then-small partnership on Pine Street became a target of national ridicule because of a scandal involving the Goldman Sachs Trading Corporation, a publicly traded investment trust that blew up after the stock market crash of 1929. For years, comedian Eddie Cantor, who had lost $100,000 and sued Goldman for $100 million, made Goldman Sachs a running joke in his stand-up routines. In one of his bits, Cantor would appear onstage with a stooge who tried to squeeze juice from a dry lemon. “Who are you?” Cantor would ask. Without missing a beat, the stooge would say, “The margin clerk for Goldman Sachs.”

Ever since being subjected to Cantor’s barbs, Goldman Sachs has cultivated an image not just as Wall Street’s preeminent firm but also as a paragon of financial virtue. But Goldman’s supposedly pristine reputation has always been more invented than earned. In 2010 the Securities and Exchange Commission, Goldman’s principal regulator at the time, sued the firm for failing to make adequate disclosures regarding a synthetic collateralized debt obligation it manufactured and sold at the height of the housing bubble. Rather than fight the SEC, Goldman settled the charges for $550 million, the largest fine ever extracted from a Wall Street firm.

Read More at Bloomberg Businessweek

A Political Shocker in China Has Implications for the Economy

In a terse announcement, China’s official Xinhua News Agency announced March 15 that the charismatic Chongqing party leader and princeling, Bo Xilai, has been replaced. It is the biggest setback for a senior Chinese Communist Party leader since at least the sacking of former Shanghai party secretary Chen Liangyu in a corruption scandal in 2006. “Bo will no longer serve as secretary, standing committee member, or member of the CPC Chongqing municipal committee,” according to the Xinhua announcement.

While Bo is still listed on a government website as one of the 25 members of China’s ruling Politburo, it is unclear whether he will also have to step down from that body. Even if he doesn’t, Bo’s political future seems finished, and his once-likely appointment to the nine-member Standing Committee of the Politburo—with seven positions up for grabs this fall in a major leadership transition—is finished.

Read More at Bloomberg Businessweek

U.S. hedge fund wins claim against Dubai's Drydocks

Monarch Alternative Capital said in an emailed statement that Drydocks, a unit of Dubai World DBWLD.UL, has been ordered to pay the entirety of the sum of $45.5 million claimed plus Monarch's legal costs.

Monarch sued Drydocks last year in the High Court of London casting a blow to the restructuring talks.

A week ago, Drydocks proposed repaying creditors in five years and said it was seeking more working capital as it tried to restructure a $2.2 bln loan facility, ending lengthy and complex debt talks.

The restructuring had been scheduled to be completed by April 2011, but it was slowed by a lack of government support and opposition from hedge fund creditors, including Monarch.
When asked how the judgment would affect its restructuring Khamis Juma Buamim, Drydocks World chairman, said:

"As made clear at all lender meetings, the company is confident that it can still implement its restructuring if it transpires that Monarch do not accept the terms on offer."
"But I would very much hope that notwithstanding their legal action Monarch will accept the very reasonable restructuring proposal." Read more at Reuters...

South Korea embraces free trade as US deal kicks in

South Korea's free trade agreement (FTA) with the US has been a long time coming.

First signed by both countries in 2007, it was renegotiated in 2010, and only ratified by the South Korean parliament at the end of last year.

Under the deal, tariffs on 80% products traded between the two countries will disappear immediately, with 95% of trade being covered within five years.

Breathless reports in newspapers on both sides of the Pacific have salivated or sniffed at the opening of US law offices in Seoul, or the shipping of extra Korean cars.

Iconic Harley-Davidson motorcycles have already had their prices clipped at their Seoul showroom this week in anticipation of their 8% tariff being cut to zero.

But on the streets of Myeongdong, the afternoon shoppers were less convinced about the benefits of the deal. Read more at BBC...

Gas Prices Too High. Blame India?

Who's to blame for gas prices now hovering near a national average of $3.80 a gallon? Take your pick: Iran, market speculators, oil companies, India.

India? Really?

Yes. Already the fourth largest energy consumer in the world, India's demand for oil looks set to rise inexorably as more of its people buy cars and take to the road. Ditto for China and other emerging markets. Their rising demand is pushing up prices for everyone.
This consumer competition is usually subtle. For decades, Americans were king of the road. When they put the pedal to the metal, the world rushed to produce the oil and gasoline to fuel the ride. (The exceptions, from OPEC nations, were temporary.)
Now, however, world producers of oil and gas are not going to jump quite so fast. There are other, more dynamic markets to serve than the United States. Read more at CNBC...

Is Warm Weather Putting a False Shine on the Economy?

Stocks jumped on Tuesday off news that February retail sales rose 1.1 percent from January, the best monthly gain since September 2011. The Standard & Poor’s 500-stock index closed up 1.8 percent, and the Dow Jones industrial average breached the 13,000 mark again with a 217-point gain. Outside of gas stations, which grew sales by 3.3 percent in February on the back of higher gasoline prices, consumers increased spending the most on cars and clothes. Auto sales were up 1.6 percent in February compared with a month earlier, and were 6.9 percent higher than a year earlier. Consumers are now buying cars at the fastest pace in four years. Shares of General Motors (GM) rose 2.68 percent on Tuesday. Consumers drove retail clothing sales up 1.8 percent for the month, adding steam to shares of Gap (GPS) and Target (TGT).

Coupled with last week’s strong jobs report, the retail numbers seem to add further fuel to the view that the recovery is becoming stronger by the day. But have you looked outside lately? Chances are it’s unusually warm where you live. This is causing some analysts, even bullish ones, to start casting a more skeptical eye on all this sunny economic data. They say the unseasonably warm weather we’ve had this winter is making the numbers look better than they are, and is actually stealing economic activity from the spring. Read more at the Bloomberg Weekly...

Why I Am Leaving Goldman Sachs

Today is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief. Read more at NY Times

Not Retired: Will Older Baby Boomers Find Jobs?

Maybe the recession really is over. Yes, the economic mandarins at the National Bureau of Economic Research—the official date-keepers of America’s booms and busts—declared the downturn finished in June 2009. Not many people bought into their judgment considering the unemployment rate was 9.5 percent at the time. The latest figures show that nonfarm payrolls rose in February, with the unemployment rate at 8.3 percent.

Sticking with jobs, downturns quicken the pace of economic change. Case in point: the older worker. Think tanks, blue chip commissions, and scholars have issued thousands upon thousands of reports calling for an aging baby boom generation to work well into the traditional retirement years. The downturn forced many boomers to get the message. They had borrowed too much, saved too little, and had the bad luck to watch their homes and 401(k)s plunge in value in recent years. The labor force participation rate for those aged 55 and older is higher than its level before the economic downturn. Among those 65 and over, it rose from 16.3 percent when the recession started in December 2007 to 18 percent in January 2012.

Read More at Bloomberg Businessweek

Apple Woulda-Coulda Had the Dow at 15,290

Back in the lapsarian fog of June 2009, the keepers of the Dow Jones Industrial Average finally got around to tapping Cisco (CSCO), networking stalwart, to replace the bankrupt General Motors (GM). Cisco, remarked a managing Dow Joneser, was added because its products are “vital to an economy and culture still adapting to the Information Age—just as automobiles were essential to America in the 20th century.” Prescient catch: In the nearly two decades between its debut and Dow induction, a period that saw a router in every American garage, Cisco’s stock had already returned north of 22,000 percent.

So how did that 2009 decision turn out for the Dow? Depending on how you analyze it, either unfortunate or atrocious. Since its induction into the blue-chip average, Cisco has inched up 1.3 percent, substantially underperforming the Dow’s 48 percent rise.

Read More at Bloomberg Businessweek

The Economic Fallout From Bombing Iran

“Nobody’s announced a war, young lady,” President Barack Obama said in New York on March 2, wagging his finger at an audience member who decried the possibility of U.S. military action against Iran. “But we appreciate your sentiment.” The crowd cheered, and a smile crossed the president’s face.

It’s too soon to say when, or whether, the long-simmering dispute over Iran’s nuclear program will erupt in armed conflict. “There is still a window that allows for a diplomatic resolution,” Obama said before meeting with Israeli Prime Minister Benjamin Netanyahu on March 5. A raft of Western economic sanctions against Tehran, including a looming embargo on Iranian oil exports to the European Union, has made the country’s rulers more willing to “recommence negotiations without preconditions, which isn’t something they were amenable to last year,” according to Karim Sadjadpour, an Iran analyst at the Carnegie Endowment for International Peace. War with Iran in 2012 “is plausible but not probable,” he says.

Read More at Bloomberg Businessweek

Goldman’s Secret Greece Loan Reveals Sinners

Greece’s secret loan from Goldman Sachs Group Inc. (GS) was a costly mistake from the start.

On the day the 2001 deal was struck, the government owed the bank about 600 million euros ($793 million) more than the 2.8 billion euros it borrowed, said Spyros Papanicolaou, who took over the country’s debt-management agency in 2005. By then, the price of the transaction, a derivative that disguised the loan and that Goldman Sachs persuaded Greece not to test with competitors, had almost doubled to 5.1 billion euros, he said.

Papanicolaou and his predecessor, Christoforos Sardelis, revealing details for the first time of a contract that helped Greece mask its growing sovereign debt to meet European Union requirements, said the country didn’t understand what it was buying and was ill-equipped to judge the risks or costs.

“The Goldman Sachs deal is a very sexy story between two sinners,” Sardelis, who oversaw the swap as head of Greece’s Public Debt Management Agency from 1999 through 2004, said in an interview.

Read More at Bloomberg

Angry About High Gas Prices? Blame Shuttered Oil Refineries

The average price of gas is up more than 10 percent since the start of the year, a point repeatedly made during Wednesday’s Republican Presidential debate. Predictably, the four GOP candidates blamed President Barack Obama for the steep increase.

Actually, the President doesn’t have that kind of pricing power. The more likely reason behind the price increase, though certainly less compelling as a political argument, is the recent spate of refinery closures in the U.S. Over the past year, refineries have faced a classic margin squeeze. Prices for Brent crude have gone up, but demand for gasoline in the U.S. is at a 15-year low. That means refineries haven’t been able to pass on the higher prices to their customers.

As a result, companies have chosen to shut down a handful of large refineries rather than continue to lose money on them. Since December, the U.S. has lost about 4 percent of its refining capacity, says Fadel Gheit, a senior oil and gas analyst for Oppenheimer. That month, two large refineries outside Philadelphia shut down: Sunoco’s plant in Marcus Hook, Pa., and a ConocoPhillips plant in nearby Trainer, Pa. Together they accounted for about 20 percent of all gasoline produced in the Northeast.

Read More at Businessweek

India: Miracle, Interrupted

Indian scholars and authors like to write about something they call the “idea of India,” a loosely defined concept of national identity. It’s an attempt to impose a measure of coherence on the messiness of a country of 1.2 billion people. That messiness, however, is real. From the ground, it’s hard to imagine how a single idea could ever capture India’s reality.

Perhaps that’s why observers of the subcontinent (both domestic and foreign) tend to retreat to easy generalizations and simplistic narratives. For much of India’s post-independence history, the country was an economic basket case—a textbook example of financial mismanagement, wasted potential, and stunted growth. Then, in the 1990s, after India embarked on market reforms and began opening its closed, semi-socialist economy, the narrative changed. As native companies aggressively acquired international brands, and as growth rates approached double digits, the media was full of triumphalist rhetoric about impending “economic superpowerhood.”

Over the last few months the narrative appears to have shifted again. Growth has slowed from more than 10 percent in 2010 to around 7 percent today. Inflation is persistently high, agricultural productivity has declined, and foreign investment and the stock market are down. Social unrest and deteriorating law and order in many parts of the country have potential investors spooked. Corruption is estimated to cost India at least $18.4 billion a year.

Read More at Businessweek