Marketplace Scratch Pad

Morning Report

Scott Jagow Jul 29, 2009

This morning, moving to Norway sounds like a fine idea. So does a package of blue M&M’s. So does… well, just read on:

The New York Times has a good op-ed piece about the dangers of high-frequency trading. There’s been a lot of talk about these algorithms since a former Goldman Sachs guy was accused of stealing Goldman’s “secret formula” for executing trades at lightning speeds. Paul Wilmott, who writes a journal of quantitative finance, says this in the Times:

… the problem with the sudden popularity of high-frequency trading is that it may increasingly destabilize the market. Hedge funds won’t necessarily care whether the increased volatility causes stocks to rise or fall, as long as they can get in and out quickly with a profit. But the rest of the economy will care.

Buying stocks used to be about long-term value, doing your research and finding the company that you thought had good prospects. Maybe it had a product that you liked the look of, or perhaps a solid management team. Increasingly such real value is becoming irrelevant. The contest is now between the machines — and they’re playing games with real businesses and real people.

We learned earlier this week that the Commodities Futures Trading Commission may be ready to crack down on speculation in the oil market. Jon Birger writes in Fortune… be careful what you wish for:

If you tell investors that they have to take delivery in order to invest in oil, that’s exactly what they will do. They will store oil in every onshore oil tank or offshore supertanker they can get their hands on, thereby siphoning off oil that would otherwise be available to consumers. It will be a replay of the late 1970s, when the Hunt Brothers took delivery of 10% of the world’s silver supply, causing silver prices to quadruple…

So if Congress and President Obama really want to enact regulation that encourages hoarding, I say go right ahead. It will prove my point — albeit at the expense of 300 million American consumers.

You know who’s really got their act together as a country? Norway. NPR had a great piece this morning about why Norwegians are practically oblivious to the recession:

While most nations spent during boom years, Norway saved. Today, housing prices and consumption are rising, interest rates are low, and frugal management of income from Norway’s huge oil and natural gas reserves have helped the country build one of the world’s biggest investment funds…

But it wasn’t just oil and gas revenue that saved Norway. The nation severely tightened banking oversight after a banking crisis in the early ’90s. Since then, Norwegian banks have loaned more prudently. There was no housing bubble here. And during the frenzy of the last decade, the banks largely stayed away from exotic investments and financial products.

I’d rather be boring than broke. Besides, Norway is absolutely gorgeous.

If you thought blue M&M’s were just a marketing ploy, check this out. Researchers say tests on rats prove the dye in blue M&M’s (Brilliant Blue G or BBG) can mend spinal cord injuries. From the Daily Telegraph:

Those treated with BBG were later able to walk, although with a limp. Rats that did not receive the BBG solution never regained the ability to walk.

On the downside, the treatment causes the skin to temporarily turn bright blue and BBG needs to be injected soon after the trauma.

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