Forex volume slows, carry trades less profitable

The $4 trillion-a-day foreign-exchange market is losing confidence in central banks’ abilities to boost a struggling world economy.

Rather than sparking bets on growth, the JPMorgan Chase & Co. G7 Volatility Index, which more than doubled in 2007 to 2008 before policy makers employed extraordinary measures to address faltering global expansion, has dropped to a five-year low. While small foreign-exchange swings historically favor the strategy of borrowing in low-yielding currencies to buy those with higher returns, a UBS AG index that tracks profits from the so-called carry trade has fallen to the lowest level since 2011.


Average daily volume in foreign exchange fell 39 percent in September from a year earlier, according to data from ICAP Plc’s EBS trading platform. That’s also harming currency managers’efforts to boost returns.

http://www.bloomberg.com/news/2012-10-21/worst-carry-trades-show-central-banks-reaching-stimulus-limits.html 

Swiss Banks Shun Yanks

When Scott Schmith finally got his Swiss passport last month, it was time for him to take a drastic step: hand back his American one.

Among the reasons was a pending U.S. regulation aimed at tracking down tax cheats that is making life difficult for some Americans abroad. These expatriates say that foreign banks, which have expressed concern about compliance costs and potential penalties for failing to report on their American clients, are turning away their business.

http://online.wsj.com/article/SB10000872396390444592704578062570295543436.html?mod=WSJ_hp_LEFTWhatsNewsCollection

EU summit: France says bank deal helps eurozone fusion

The French president says a deal to start building a banking union on 1 January will enable the eurozone to speed up economic integration.

"Thanks to this we can advance more quickly and with more assurance," Francois Hollande said in Brussels.

He was speaking after EU leaders agreed to set up a single banking supervisor for the 17-nation eurozone - a key step towards a banking union.

But Mr Hollande also said EU states "need different speeds" of integration.

"We should have a council of the eurozone to meet on a regular basis... We need different speeds - that's agreed by everyone now, and there are even some moving backwards," he told a news conference.

Germany's Chancellor Angela Merkel insisted again that "quality takes precedence over speed" in setting up the banking union.

http://www.bbc.co.uk/news/world-europe-20005100?print=true

EES: Is Google Error a sign of things to come

A Google (GOOG) earnings report that was released early caused the stock to drop by 9% today, and shares were subsequently halted. As of 1:25 p.m. ET, Bloomberg reported that Google has blamed the early release on it's printer R.R. Donnelley (RRD), whose stock is also down on the news.

http://seekingalpha.com/article/933031-is-google-error-a-sign-of-things-to-come

Stocks Dip; Google Halted After 9% Drop

Stocks drifted lower again Thursday as techs dragged sharply following Google's surprise earnings announcement that disappointed investors.

Google shares were halted following a 9-percent plunge after the search-engine giant unexpectedly released its earnings report in midday trading. The company posted earnings of $9.03 a share on revenue of $11.33 billion, missing expectations for $10.65 a share on sales of $11.86 billion. The company was scheduled to post after the closing bell.

http://www.cnbc.com/id/49461731

More research:

http://www.zerohedge.com/news/2012-10-18/google-reports-early-huge-miss-sends-stock-plunging

http://www.zerohedge.com/news/2012-10-18/165-hedge-fund-suddenly-cried-out-terror-and-were-suddenly-silenced

U.S. Dollar Index Disguises Global Inflation Threat

When the U.S. Dollar Index peaked at 120.51 in January of 2002, few suspected that it was on the brink of a one-directional correction that would ultimately erase a third of its value. In fact, in just three short years, the dollar index shed, on average, a point a month before ultimately hitting a low of 80.77 in January of 2005. This sharp decline in the dollar index coincided with, and largely fueled, the first few years of the now decade-old bull market in gold.

http://www.marketoracle.co.uk/Article37053.html

EES: US Dollar Carry Trade Portfolio

This article will explain how to take advantage of the Fed's QE Infinity policy. It assumes that over the long run, the USD will decline most significantly against emerging market and high interest yield currencies. We will explore a few options how to execute this model U.S. Dollar carry trade portfolio.

Read More:  http://seekingalpha.com/article/924091-usd-carry-trade-portfolio

The Inflation Monster

Central banks are currently flooding cash-strapped industrialized nations with money. This may help governments reduce their debt load, but it also erodes the value of people's savings. A massive redistribution of wealth is threatening to take place in Germany and Europe -- from the bottom to the top.

Germany's central bank, the Bundesbank, has established a museum devoted to money next to its headquarters in Frankfurt. It includes displays of Brutus coins from the Roman era to commemorate the murder of Julius Caesar, as well as a 14th-century Chinese kuan banknote. There is one central message that the country's monetary watchdogs seek to convey with the exhibit: Only stable money is good money. And confidence is needed in order to create that good money.
The confidence of visitors, however, is seriously shaken in the museum shop, just before the exit, where, for €8.95 ($11.65) they can buy a quarter of a million euros, shredded into tiny pieces and sealed into plastic. It's meant as a gag gift, but the sight of this stack of colorful bits of currency could lead some to arrive at a simple and disturbing conclusion: A banknote is essentially nothing more than a piece of printed paper.
It has been years since Germans harbored the kind of substantial doubts about the value of their currency that they have today in the midst of the debt crisis. A poll conducted in September by Faktenkontor, a consulting company, and the market research firm Toluna, found that one in four Germans is already trying to protect his or her assets from the threat of inflation by investing in material assets, for example.

http://www.spiegel.de/international/europe/how-central-banks-are-threatening-the-savings-of-normal-germans-a-860021-druck.html 

Global financial risks have increased, says IMF

Risks to global financial stability have increased in the past six months despite efforts by policymakers to make the financial system safer, according to the International Monetary Fund.

It said little progress had been made in making the system more transparent and less complex, and that confidence in it had become "very fragile".

http://www.bbc.co.uk/news/business-19888996?print=true

Mysterious Algorithm Was 4% of Trading Activity Last Week

A single mysterious computer program that placed orders — and then subsequently canceled them — made up 4 percent of all quote traffic in the U.S. stock market last week, according to the top tracker of high-frequency trading activity. The motive of the algorithm is still unclear.

The program placed orders in 25-millisecond bursts involving about 500 stocks, according to Nanex, a market data firm. The algorithm never executed a single trade, and it abruptly ended at about 10:30 a.m. Friday.

http://www.cnbc.com/id/49333454

BUSTED: Mario Draghi And ECB VP Caught On Microphone Joking About Whether Their Words Will Move Markets

At the conclusion of the Q&A following last week's ECB press conference, ECB president Mario Draghi and vice president Vítor Constâncio forgot to mute their mics before sharing the following exchange:

• Draghi: "Well, I don't think, there shouldn't be any market reaction."
• Constancio: "No, no."
• Draghi: "I guess, no? If there is, I don't know what to say."
• Constancio: "No, no."
• Draghi: "It's more boring..."
• Constancio: "No, markets were not expecting much…"
• Draghi: "Ok."

Trust them – they know what they're doing.

Read more: http://www.businessinsider.com/mario-draghi-ecb-live-microphone-2012-10#ixzz28jty9qsQ

Spending Cuts No Longer Yield Earnings Growth for U.S. Companies

Profit gains earned through job cuts and factory closings in the absence of a global economic recovery are starting to reach their limit.

Third-quarter profits and sales for the Standard & Poor’s 500 Index (SPX) probably fell in unison for the first time in three years, according to analysts’ estimates compiled by Bloomberg. Per-share earnings may have dropped 1.7 percent on average after they were little changed in the second quarter. Sales may have slipped 0.6 percent, the data show.

While most companies plan to keep a lid on spending, lower expenses aren’t leading to the same kinds of increases they reported earlier this year. Hewlett-Packard (HPQ) Co., the world’s largest personal-computer maker, already forecast full-year profit that trailed analysts’ estimates, FedEx Corp. (FDX) cut its annual earnings forecast and Intel Corp. (INTC) projected lower third- quarter sales, with all three citing softening demand.

“A lot of the earnings growth that we’ve seen has been related to cost reductions,” said Peter Jankovskis, co-chief investment officer for Oakbrook Investments in Lisle, Illinois, which manages more than $3 billion. “Now many of those cost reduction efforts have run their course. Without revenue growth, there is no room for profit to expand further.”

Alcoa Inc. (AA), the largest U.S. aluminum maker, kicks off the third-quarter earnings season tomorrow and is projected by analysts to report a 13 percent drop in sales, the biggest drop in three years, on plunging prices for the commodity. That may wipe out per-share earnings, according to estimates.

http://www.bloomberg.com/news/print/2012-10-08/spending-cuts-no-longer-yield-earnings-growth-for-u-s-companies.html

Jack Welch says White House manipulates data, Krueger admits

Former General Electric Co. (GE) Chief Executive Officer Jack Welch, writing on his Twitter account, accused the Obama administration of manipulating U.S. employment data for political advantage.

http://www.bloomberg.com/news/2012-10-05/former-ge-ceo-jack-welch-says-white-house-manipulates-jobs-data.html

“No serious person would question the integrity of the Bureau of Labor Statistics,” Krueger said in the Bloomberg Television interview. “These numbers are put together by career employees. They use the same process every month. So I think comments like that are irresponsible.”

Forex volume slows first time in 6 years

Growth is slowing down for the first time in six years, according to a report prepared by analyst Sreekrishna Sankar.

Despite a widespread shift to electronic trading in the past decade and the emergence of technical platforms that cater to institutions, near-zero interest rates and fears of recession in many parts of world are causing banks and asset managers to pull back from foreign exchange trading. 

The result: Volume is at $4.3 trillion a day this year, down from peak of $4.7 trillion in October, Celent says.

This remains above 2010 levels. But the only country where volumes are up is the United States, which is showing what Celent calls a “minimal increase.” All other parts of the world are showing a drop in volume from 2011.

Economic crises in Eurpe and elsewhere are slowing FX growth. The biggest drop is in spot markets, Celex said. That is where investors had begun to treat foreign currencies as a new asset class, representative of the strength of different economies.

http://www.tradersmagazine.com/news/institutions-pull-back-from-fx-trading-110369-1.html

Black market currency traders fight riot police in Tehran as rial drops by 40 percent

TEHRAN — Clashes and at least one spontaneous protest erupted in Tehran on Wednesday over the plunging value of Iran’s currency, as black-market money-changers fought with riot police who were dispatched to shut them down, and hundreds of angry citizens demonstrated near the capital’s sprawling merchant bazaar, where many shops had closed for the day. The official media reported an unspecified number of arrests including two Europeans.

http://www.reuters.com/article/2012/09/28/us-cftc-positionlimits-idUSBRE88R1C120120928

U.S. Leads in High-Frequency Trading, Trails in Rules

Given the missteps that have prolonged and deepened the European debt crisis, one wouldn’t necessarily expect the continent to be home to far-sighted financial reform. But that is exactly what seems to be happening in the realm of high-frequency, computer-driven trading.

High-speed trading comes with real benefits: lower trading expenses, better prices for investors and increased market liquidity. The costs, however, are fairly significant and can be seen in wild volatility and destabilizing trading snafus.

http://www.bloomberg.com/news/2012-10-01/u-s-leads-in-high-frequency-trading-trails-in-rules.html

The U.S. Securities and Exchange Commission, stung by criticism that it lacks the knowledge to analyze the computerized trading that has come to dominate American stock markets, is planning to catch up.

Initiatives to increase the breadth of data received from exchanges and to record orders from origination to execution are at the center of the effort. Gregg Berman, who holds a doctorate in physics from Princeton University, will head the commission’s planned office of analytics and research.

http://www.businessweek.com/news/2012-10-01/sec-leads-from-behind-as-high-frequency-trading-shows-data-gap

High frequency trading, which some consider the root of all evil in today’s markets, may be on the verge of new regulations that could help avert future catastrophe. The problem is the potential new rules may not solve all of the market’s problems.

At least that’s what Larry Tabb, founder and CEO of the research firm Tabb Group, concludes in prepared commentary ahead of today’s roundtable discussion between the Securities and Exchange Commission and several companies within the industry. High frequency trading is often characterized as the use of supercomputers by sophisticated trading outfits to jump rapidly in and out of markets.

http://blogs.wsj.com/marketbeat/2012/10/02/high-frequency-trading-the-evil-red-headed-stepchild/

China shows more signs of slowing down

HONG KONG (CNNMoney) -- Activity in China's factory sector continued to slide last month, bringing more bad news for the country's political class as they prepare for a once-a-decade leadership transition.

The Chinese government said Monday that its official manufacturing index hit 49.8 in September, up from 49.2 in August. Any reading below 50 indicates that factory activity is shrinking rather than growing.

http://money.cnn.com/2012/09/30/news/economy/china-pmi/index.html?iid=HP_River

Baltic Dry Index near all time low

http://www.marketoracle.co.uk/images/2012/Sept/baltic_dry_index-1985.png

http://en.wikipedia.org/wiki/Baltic_Dry_Index Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various markets (supply and demand).

The supply of cargo ships is generally both tight and inelastic—it takes two years to build a new ship, and ships are too expensive to take out of circulation the way airlines park unneeded jets in deserts. So, marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly. e.g. "if you have 100 ships competing for 99 cargoes, rates go down, whereas if you've 99 ships competing for 100 cargoes, rates go up. In other words, small fleet changes and logistical matters can crash rates..."^[5] The index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as building materials, coal,metallic ores, and grains.

Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, such as concrete, electricity, steel, and food, the index is also seen as an efficient economic indicator of future economic growth and production. The BDI is termed a leading economic indicator because it predicts future economic activity.^[6]

The end of the euro’s Indian summer

THE sugar-rush brought on by the European Central Bank’s pledge to intervene in bond markets to help troubled euro-zone countries—some diplomats call it “Mario Draghi’s ice cream”—was bound to fade at some point. But nobody expected it to fade quite so suddenly this week.

http://www.economist.com/node/21563774/print

At some point, it will get the balance wrong. And then either Spain will be forced out of the euro. Or the Germans will walk.     http://blogs.wsj.com/eurocrisis/2012/09/28/europes-never-ending-crisis/tab/print/

Listen to EES on Traders Radio Network Friday Sept 28th 3pm EST

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The Traders Network stays ahead of the curve by featuring leading market and business professionals, sophisticated technology, and the analytics needed to identify the most lucrative investment strategies.

Successful performance depends on finding the right opportunities.

So...Shift your thinking and join us as we deliver “tomorrow’s trade today” on The Traders Network weekdays from 1-3pm on KFXR/1190-AM.

Tune in tomorrow at 3pm EST

http://www.yorbamedia.com/radio Instructions

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Social unrest in Spain, fears of Catalonia secession

(Reuters) - Violent protests in Madrid and growing talk of secession in Catalonia are piling pressure on Spanish Prime Minister Mariano Rajoy as he moves closer to asking Europe for rescue money.

In public, Rajoy has been resisting calls from bankers at home and the leaders of France and Italy to move quickly to request assistance, but behind the scenes he is putting together the pieces to meet the stringent conditions for aid.

With protesters stepping up anti-austerity demonstrations, Rajoy presents painful economic reforms and a tough 2013 budget on Thursday, aiming to persuade euro zone partners and investors that Spain is doing its deficit-cutting homework despite a recession and 25 percent unemployment.

 http://www.reuters.com/article/2012/09/26/us-spain-rajoy-idUSBRE88P09F20120926

Study Reveals Germans Less Confident than they Seem

Despite the euro crisis, Germany has largely flourished in recent years. So why are its people always complaining? A recent study shows they're plagued by self-doubt and fears of losing their prosperity. There may be something to the stereotype of the tortured German soul after all.

http://www.spiegel.de/international/germany/study-reveals-germans-less-confident-than-they-seem-a-857918.html

German High-Frequency Bill to Affect Hedge Funds, Official Says

Chancellor Angela Merkel’s Cabinet will vote on a bill tomorrow that limits high-frequency trading even for market participants outside Germany and requires automated orders to be marked as such, a government official said.

High-frequency traders will have to seek authorization and will be supervised under the legislation proposal, the official told reporters in Berlin today on condition of anonymity because the bill has not yet been published. High-frequency trade will be curbed and market abuse will be punished, he said in Berlin.

http://www.bloomberg.com/news/2012-09-25/german-high-frequency-bill-to-affect-hedge-funds-official-says.html

EES: Has the Euro Peaked

The EUR/USD has surprised many with its run up to 1.3172, but it had a lot of help from the Fed with the announcement of a new round of QE3.We've been waiting for the EUR/USD to stop going up for an opportunity to sell -- is this it?

http://seekingalpha.com/article/881041-has-the-euro-peaked

Bankers among the least trusted, says Which?

Mis-selling scandals and the financial crisis means bankers are now less trusted than estate agents, according to consumer group Which?.

But the group's survey suggested that bankers remained more trusted than journalists and politicians.
Which? said that recent banking scandals meant there was an urgent need for a "fundamental change" in banking culture and practice.
An industry body said that there was a commitment for change among banks.
Which? conducted a survey of 2,060 people, asking how much they trusted various professions. Nurses, doctors and teachers were the most trusted, with bankers, journalists and politicians in the bottom three.
The consumer group said that bankers should comply with a code of conduct or be struck off. They should also be punished for mis-selling, with bonuses clawed back.

http://www.bbc.co.uk/news/business-19639795?print=true

System Expectations

I found myself outside today looking for an excuse to make a video. It's 80°F / 27°C, sunny skies and a soft breeze in Dallas. The last place anyone wants to be is in front of the computer when the weather is this nice.

No doubt that some active daytraders or people that hate their jobs are thinking the same thing. I suspect that the motivation for most people making automated expert advisors is the dream of making money without doing anything. Turn on the software and wait for the trading profits to roll in. That was certainly the case with the company Forex Made Sleazy... I mean, Forex Made Easy several years ago.

We do have a handful of customers that trade profitably, but even then, it takes a long time for an automated system to get to the point where it's largely hands off. The best conceived ideas, which I would define as plausibly worthy of my own investment funds, takes a bare minimum of several months to execute from start to finish. This also presumes the unlikely notion that the idea has genuine potential to start with.

Even the most simple, valid concepts encounter substantial setbacks before the system can truly run hands-free. It's usually not some kind of epic programming disaster where the client wants black and the programmer makes white. Don't get me wrong; communication is critical. The smoothest projects are always the ones where both parties understand one another readily.

Nonetheless, even the most well-oiled team experiences countless hiccups in the process of morphing from idea to reality. Simple ideas often fall the most vulnerable to real world problems. Trade execution stands out as the most common obstacle. If anything goes remotely unexpected, a potentially profitable scenario may lead to unexpected losses.

I worked with one client that came up with a simple idea that mathematically showed a heavy positive expectation. Yet when we launched the idea in the real world, the prices that the system absolutely required in order to function never came through. Slippage occurred precisely when it was the most damaging.

We had to go back to the drawing board looking for ways to re-engineer the expert advisor where the importance of execution declined. That setback alone took several months to overcome in any meaningful sense.

The take away here is that it's totally unreasonable to expect to hire a forex programmer and expect a dramatic shift in profits and life style. The best ideas take several months before they are worthy of running their full account balance. Unfortunately, most of the ideas out there are not good to begin with. That's why making an EA that is profitable over the long run is so incredibly difficult.

Deutche Bank: Gold is Money

Deutsche Bank analysts Daniel Brebner and Xiao Fu  have just released a new report saying that gold is money (via Business Insider):
http://www.zerohedge.com/contributed/2012-09-19/deutsche-bank-gold-money

Financial Times reported in 2010:

Intercontinental Exchange, the US futures exchange group, has followed rival CME Group by allowing its European clearing house to accept gold bullion as collateral for transactions.

JP Morgan accepts gold bullion as collateral.

So does Donald Trump.

China is paying for oil with gold.  India is probably doing so as well.

And central banks are considering allowing banks to hold gold as a risk-free, tier 1 asset.

Caveats:  Be careful with unallocated accounts, accounts held by big banks,  paper forms of gold and tungsten (see this,this, this and this).

Finally, note that FDR was not the only leader to confiscate gold.  Gary North alleges:

When World War I broke out in 1914.  The banks suspended redemption of gold for paper money.  This broke their contracts, but the governments all ratified this action.  Then the governments had their central banks confiscate the gold that had been stored in the vaults of the commercial banks.

Hitler, Mao and Stalin also allegedly confiscated gold.

Coin mintage collapsed the Roman Empire. Is history repeating itself?

In the third century AD, the Roman Empire went through a hard period, know as the “military crisis”. This period is characterized by political problems, such as the violent death of the emperors and their family, caused by revolts, plots and military uprisings, military problems caused by the invasion of the empire by the barbarian populations such as the Goths and economic problems such as the lack of production, the decrease of the population, famine in some cases and inflation.

http://www.coins-auctioned.com/docs/coin-articles/coin-mintage-collapsed-the-roman-empire-is-history-repeating-itself

EES: QE3 to start new US Dollar Carry Trade

With the new QE3 announcement, and the Fed stating it will not raise interest rates before 2015, it's likely that the US Dollar will be the new carry trade. The idea is to borrow cheaply in US Dollars and invest anywhere outside of the USD. This will be most felt in emerging markets, which rallied after the Fed announcement.

http://seekingalpha.com/article/872541-qe3-to-start-new-u-s-dollar-carry-trade 

EES: Competitive Devaluation of Currencies via QE3

The Fed's recent announcement of QE3 has undoubted effects on financial markets; but what does it mean for Forex?

The initial reaction would be that it's bad for the US Dollar (UUP) (UDN) which was reflected in Friday's move of EURUSD (FXE) to above 1.31 against the US Dollar. But just last week, traders were expecting a collapse of the EURUSD as the European financial crisis deepens.

http://seekingalpha.com/article/870971-competitive-devaluation-of-currencies-what-qe3-means-for-forex

Swiss banks seek new model as secrecy gone

With their long-cherished secrecy practices increasingly under attack, Swiss banks are scrambling for a new way to attract wealthy foreign clients.

"Banking secrecy is no longer there. That's gone. It is over," international wealth management consultant Osmond Plummer told a gathering of Swiss bankers in Geneva last week.

And once the secrecy ends, he stressed, Swiss financial institutions will have to come up with a new magnet if they want to remain attractive for large foreign placements.

"Something has to change in Switzerland," he told the seminar, focused on wealth management and banking secrecy.

http://www.breitbart.com/system/wire/CNG---64c9d82eeec0f159687294d96a88241d---691

Japan Hints at Possible Yen Intervention

The yen tumbled as Japan looked increasingly likely to intervene to weaken its currency, which had soared to a seven-month high against the dollar earlier this week.

Japanese Finance Minister Jun Azumi strongly hinted Friday that market intervention to tackle the strong yen may be imminent and urged the Bank of Japan to act, as the currency's strength increasingly threatens to worsen the country's economic slowdown.

The dollar traded ¥78.36 Friday afternoon in New York, up from ¥77.49 late Thursday, its strongest close since Feb. 8, and the seven-month low of ¥77.13 earlier that day. Traders with Citigroup said the dollar began to rise and the yen to fall Thursday after the Bank of Japan inquired with market participants about trading activity in the yen, a move known in the market as a rate check and which can serve as a final warning before an intervention. Japan last intervened in the market in October, when the dollar traded as low as ¥75.31.

http://online.wsj.com/article/SB10000872396390444709004577650632272233176.html

TOKYO—A Japanese ruling-party heavyweight said the government must intervene in the currency markets if the yen's rise accelerates sharply, adding to the level of jawboning aimed at controlling the currency's moves and its impact on the economy.

"It will be imperative for [the government] to take steps such as intervention," if the yen surges to threaten Japan's export-reliant economy, Hirohisa Fujii, a former finance minister and current tax policy chief of the ruling Democratic Party of Japan, said in an interview Wednesday.

"I believe that the yen's current high levels are out of line with the real economy," he said

http://online.wsj.com/article/SB10001424052702303879604577407743768560590.html

US cannot continue the endless sugar rush

America’s central bank is to launch a third round of “quantitative easing”, Fed chairman, Ben Bernanke, announced, while extending the length of its pledge to keep interest rates at rock-bottom. On cue, global equities surged, as confidence grew that the world’s leading central banks have “finally taken decisive action” to buttress both the US and European economies.

Bernanke’s move, of course, followed news in early September that the European Central Bank is to engage in “unlimited” buying of the sovereign bonds of “peripheral” eurozone members. This encouraged the belief that monetary union is less likely to crumble, which cheered up global equity markets just before last weekend.

Many traders are celebrating this weekend too, following Bernanke’s words on Thursday, which caused the S&P 500 to extend a rise that has now pushed the index to its highest level since 2007. European shares also reached highs not seen for over a year.

Specifically, Bernanke said that rather than buying US Treasuries, this round of QE will focus on mortgage-backed securities (MBS) – financial instruments linked to bundles of loans previously extended to home-buyers.

http://www.telegraph.co.uk/finance/comment/9545441/US-cannot-continue-the-endless-sugar-rush.html

US Credit rating cut to AA - as Fed increases QE

Ratings firm Egan-Jones cut its credit rating on the U.S. government to "AA-" from "AA," citing its opinion that quantitative easing from the Federal Reserve would hurt the U.S. economy and the country's credit quality.

http://www.cnbc.com/id/49037337

Perma-QE: Lessons from Bernanke's Latest Splurge

http://www.marketoracle.co.uk/Article36525.html

The Fed’s launch of QE3 looks more than a tad desperate. If you believe the central premise of the Fed’s action, that propping up asset price gains would have enough effect on consumptions to lift the economy out of stall speed, it would seem logical to sit back a bit and let the recent stock market rally and the (supposed) housing market recovery do their trick. But the Fed has finally taken note of the worsening state of the job creation in an already lousy employment market and has decided it needed to Do Something More.
Read more at http://www.nakedcapitalism.com/2012/09/the-feds-qe3-no-exit.html#Gv1iHbCxHdDBXjPh.99

Global stock markets have risen after the US Federal Reserve moved to kick-start recovery by pumping more money into the economy.

It followed the Fed's decision on Thursday to inject $40bn (£25bn) a month into the US economy.

http://www.bbc.co.uk/news/business-19596238

Marc Faber: The Fed will destroy the world

Complex Systems Theorists predict global riots in one year

What's the number one reason we riot? The plausible, justifiable motivations of trampled-upon humanfolk to fight back are many - poverty, oppression, disenfranchisement, etc - but the big one is more primal than any of the above. It's hunger, plain and simple. If there's a single factor that reliably sparks social unrest, it's food becoming too scarce or too expensive. So argues a group of complex systems theorists in Cambridge, and it makes sense. 

In a 2011 paper, researchers at the Complex Systems Institute unveiled a model that accurately explained why the waves of unrest that swept the world in 2008 and 2011 crashed when they did. The number one determinant was soaring food prices. Their model identified a precise threshold for global food prices that, if breached, would lead to worldwide unrest. 

The MIT Technology Review explains how CSI's model works: "The evidence comes from two sources. The first is data gathered by the United Nations that plots the price of food against time, the so-called food price index of the Food and Agriculture Organisation of the UN. The second is the date of riots around the world, whatever their cause." Plot the data, and it looks like this: 

http://www.sott.net/articles/show/251073-We-Are-Now-One-Year-Away-From-Global-Riots-Complex-Systems-Theorists-Say

Germany Can Ratify ESM Fund With Conditions, Court Rules

Germany’s top constitutional court rejected efforts to block a permanent euro-area rescue fund, handing a victory to Chancellor Angela Merkel, who championed the 500 billion-euro ($645 billion) bailout.

http://www.bloomberg.com/news/2012-09-12/germany-can-ratify-esm-bailout-fund-with-conditions-court-rules.html

EES: Short-Term Euro To Breakout Higher, Then Its Time To Short

Based on the financial crisis in Europe, we wrote an article about a euro shorting opportunity, "Sell the euro on spikes." On Friday, the euro (FXE) reached recent highs above $1.28. This is clearly a spike. However, the euro may be in for a short-term rally, so traders should wait until the momentum subsides before shorting. It seems the spike is not over.

http://seekingalpha.com/article/854961-short-term-euro-to-breakout-higher-then-its-time-to-short

Jim Rogers on the EU, the U S election, and the next big investment opportunity

EUR/USD nears 1.28 on ECB bond buying program

FXstreet.com (San Francisco) - The Euro has accelerated in the last hour against the Dollar and following the US employment data the EUR/USD has jumped around 100 pips from 1.2685 to reach highest level since May 22nd at 1.2775. 

http://www.fxstreet.com/news/forex-news/article.aspx?storyid=66e94ca2-c527-48a4-b1f0-65243a38740e

The euro has strengthened to a two-month high against the US dollar, as the European Central Bank's bond-buying plans continued to please the markets...   http://www.bbc.co.uk/news/business-19516323

Since there have been tens of thousands of lawsuits filed internally in Germany with its constitutional court alleging the ESM is illegal, it was only a matter of time before the Germans decided to sue the ECB as well for its "unlimited" bond buying. The time has arrived. From Bloomberg:

• TILLICH SUPPORTS LEGAL STEPS AGAINST ECB BOND BUYING: WELT
• TILLICH SAYS ECB BOND BUYING SIGNALS EFSF, ESM NOT ENOUGH: WELT
• TILLICH: ECB MANDATE SHOULD NOT INCL. UNLIMIT. BOND BUYING:WELT

Perhaps all those rumors of the Bundesbank's death were, as we expected, rather exaggerated.

http://www.zerohedge.com/news/german-state-saxony-supports-legal-action-against-ecb

EUR/CHF breaks away from 1.20 peg

FXstreet.com (Barcelona) - EUR/CHF is currently moving higher printing fresh 3-month highs at 1.2058, last at 1.2054, a +0.36% higher from previous Asia-Pacific open yesterday, on the back of mounting rumors of SNB rising the peg to 1.22 in the first place.

According to Commerzbank's strategist Peter Kinsella , as reported by Clare Connaghan for DowJones: "ECB bond purchasing basically removes tail risk of a euro-zone breakup," the analyst says, as reflection of previous Franc strength based on fears of a euro area breakup. Rising the peg could bring many positive effects for Switzerland, but according to Citi, it could also bring extra risks as the foreign currency reserves might reach as high as 100% of its GDP, making the country very vulnerable to Euro exposure in case can't be able to sustain the peg, reported Ira Iosebashvili for DowJones.

Immediate resistance to the upside for EUR/CHF comes at recent session and 3-month highs at 1.2058, followed by March 27 highs at 1.2069, and May 24 highs at 1.2075. For the downside, nearest term support shows at yesterday's highs 1.2046, followed by Feb 27 lows/June 29 highs at 1.2038, and Aug 02 highs at 1.2029.

http://www.fxstreet.com/news/forex-news/article.aspx?storyid=ebaa98d8-19b6-43dd-93dc-e6df7b16733f

http://seekingalpha.com/article/816681-is-the-snb-going-to-unpeg-the-eur-chf

EES: Europe's problems much deeper than Euro currency

While traders are bearish on the euro we need to remember the greater context of Europe and the origins of the euro currency. The euro as an economic union was built on a similar U.S. model, that of a Federal State comprised of individual "united" states. However, Europe is much different than the U.S. historically, demographically, and geopolitically.

http://seekingalpha.com/article/845531-europe-s-crisis-much-deeper-than-euro-currency

Moody’s Changes Euro Zone Rating Outlook to ‘Negative’

Moody's Investors Service has changed its outlook on the Aaa rating of the European Union to “negative,” warning it might downgrade the bloc if it decides to cut the ratings on the EU's four biggest budget backers: Germany, France, the U.K., and the Netherlands.

http://www.cnbc.com/id/48888752

Spaniards Pull Out Their Cash and Get Out of Spain

After working six years as a senior executive for a multinational payroll-processing company in Barcelona, Spain, Mr. Vildosola is cutting his professional and financial ties with his troubled homeland. He has moved his family to a village near Cambridge, England, where he will take the reins at a small software company, and he has transferred his savings from Spanish banks to British banks.

“The macro situation in Spain is getting worse and worse,” Mr. Vildosola, 38, said last week just hours before boarding a plane to London with his wife and two small children. “There is just too much risk. Spain is going to be next after Greece, and I just don’t want to end up holding devalued pesetas.”

http://www.cnbc.com/id/48889555

Eurozone manufacturing PMI falls again in August

Manufacturing output across the 17-country eurozone shrank again in August, according to a widely-watched survey.

The Purchasing Managers Index (PMI) showed the region's manufacturing sector contracted despite factories cutting prices.

Markit's final PMI was 45.1, above July's three-year low of 44.0.

However, the figure was the 13th month in a row that it was below the 50 mark that indicates growth.

The latest figures from China showed its manufacturing activity fell, too, to a nine-month low in August, adding to fears that its economy is slowing faster than estimated.

China's PMI fell to 49.2, the lowest reading since November 2011.

Meanwhile, in the UK, the downturn in manufacturing unexpectedly eased last month as domestic orders boosted output, with its PMI rising to a four-month high of 49.5 in August from a downwardly revised 45.2 in July.

http://www.bbc.co.uk/news/business-19462611?print=true