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Phil Albinus
Phil Albinus
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Stuck in the Mud: Can the Economic Engine Pull Itself Out of Financial Crisis?

Hidden dangers in dark pools and the buy side's intensifying pursuit of low latency, and the Pipeline saga seem to indicate that there are more storm clouds ahead for the financial industry.

As an avid reader of history books, I often wonder how the current era will be viewed 100 years from now. Looking back a century ago, we see a rising America trying to avoid becoming entangled in a long-brewing war in Europe. And while the military experts in Barbara Tuchman's magisterial "The Guns of August" said at the time that the coming War to End All Wars would last no longer than four months, the entire world seemed stuck in the muddy trenches in France for years.

Back in modern times, Europe is stuck in the mud again. As the economies of Greece, Spain and Italy remain mired in near-collapse, the Old Continent's true powers -- Germany and France — refuse to act, fearful that the measures are too costly and too uncertain. Meanwhile, England is helpless. Relieved to have not signed onto the euro as its main currency, Britain's pound is just as tied to the euro as it is to the U.S. dollar and the Chinese Yuan. In the way that protestors once said the personal is political, the regional is now global.

So the buy side waits for the markets to decide how to react. And even as everyone agrees that the next big investment opportunities lie elsewhere — Latin America, Asia, perhaps money-soaked Russia — there still are asset managers who have tied their fortunes to the euro. Despite the ongoing, slow-motion train wreck, there are plenty of portfolio managers waiting to pull out of the addled euro at just the right moment. For the average investor, it's like watching a silent film from a century ago: Will our comic hero drive his jalopy out of the way of the collapsing factory wall?

[Market Behavior Continues to Defy Logic When It Comes to Risk Management.]

But the current state of the markets is no pratt fall. Senior editor Justin Grant shines a light on the hidden danger in dark pools: too much dark liquidity can obscure price discovery in the lit markets, costing investors in the end. Grant also takes a closer look at the buy side's intensifying pursuit of low latency, questioning whether traditional asset managers really can afford that much speed. Meanwhile, editor-at-large Ivy Schmerken dives into the soap opera starring Pipeline, the dark pool that was caught earlier this year fudging its executions, and examines a Paris-based fund manager's efforts to profit from the Eurozone's volatile credit markets by teaming with S&P Capital IQ.

We're not out of the mud yet, and this summer's economic news seems to forecast more storm clouds ahead. Let's hope the wheels of the economic engine pull free from the muck before historians are calling it the Financial Crisis to End All Crises.

Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio
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