Bubbling Under
http://www.economist.com/businessfinance/displaystory.cfm?story_id=15022457
Petro-fuels seem to be running out, but a little-noticed reprieve may be on the way. America's natural gas supply has suddenly ballooned to what one analyst estimates to be 100 years of supply (this should be no surprise to those of you living in the North Texas area). A technique called "hydraulic fracturing"--basically blasting a mix of water and chemicals into the ground to create a fissure under shale, coal and other geological formations--has opened up enormous new "unconventional" gas reserves.

Now the same thing is happening in Europe, where the International Energy Agency estimates that there are about 35 trillion cubic meters under the floor of France, the UK, Germany, Hungary, Austria, Poland and Sweden.  This is enough to replace 40 years of gas imports at current levels.

Silo But Deadly
http://www.economist.com/businessfinance/displaystory.cfm?story_id=15016132
This article suggests that a big, overlooked contributor to the global banking meltdown is the big banks' outmoded information technology systems.  The investment banks, in particular, were among the first to use computers, and many of them still use decades-old mainframes that are poorly integrated across departments.  As a result, traders and investment managers create their own spreadsheets to hedge positions, trade derivatives and model financial products. Their reporting into the systems is spotty; the same type of asset may be defined differently in different programs, numbers don't add up and there is distrust between departments about others' figures.

The result? When the crisis hit, the banks had to create fact-finding missions to find out what was going on. The article says that investment banks are spending billions to catch up with the relatively modern systems at Deutsche Bank, JPMorgan Chase and Goldman Sachs.

Crash and Carry
http://www.economist.com/businessfinance/economicsfocus/displaystory.cfm?story_id=15065320
Here's a pretty good explanation of the Carry Trade, which is blamed for all sorts of global economic problems, and is a routine investment strategy among hedge funds.  It involves borrowing in a "funding" currency which has low interest rates (think Japan--or, recently, the U.S.), and then buying bonds at higher interest rates in a "target" currency.  This article says that over time this has been a profitable strategy; that is, the high-yielding currencies have tended not to drop in value at a rate equal to the yield difference.  But the profits can be volatile.  In late 2008, the yen suddenly rose by 60% in just two months against the higher-yielding Australian dollar, which made it more expensive to pay back the yen-denominated debt.

A recent study by two professors at University of California at Davis found that it can make sense for traders to buy currencies with fat yields, but only up to a point; the rates could become a symptom of a currency in distress, and the likelihood of a crash escalates as a currency becomes pricier.  Using their model generated monthly returns of 57 basis points, and yet they make no claims that it predicts the direction of exchange rates.  With this peek inside the hedge fund world, you may find yourself wondering how all of this moving money around is creating any value.