The super-computers even confuse Bloomberg

Oil Mar11a.pngThe blog has worried for some time about the growing dominance of super-computers in financial markets. Their activities are based on arbitrage between markets, not on fundamental analysis. And their power means that no financial market now knows what it is actually pricing.

The headlines above, from today’s Bloomberg Energy page, highlight the issue. Even Bloomberg’s experienced editors and reporters are now totally confused by what the markets are doing. Thus they report that:

• Oil prices retreated 0.6% on worries of lower Japanese consumption
• Oil prices increased 1.6% on hopes of higher Japanese consumption

All that has really happened is that the super-computers had spotted a brief opportunity to make money by forcing prices down for a nano-second or two, after forcing them up previously.

This is a very dangerous situation for anyone, like the chemical industry, who depends on markets for price discovery.

UPDATE: This afternoon, a leading US Fed Governor, Richard Fisher, said he thought the Fed’s actions had produced “extraordinary speculative activity“, and added that “there is an enormous amount of liquidity sloshing around the US economy.” Its just a pity he only recognises this now, after the damage has been done.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.


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