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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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

Brussels pushes for ECB supervision of eurozone banks

All banks in the eurozone would be supervised directly by the European Central Bank in Frankfurt under new EU proposals to be unveiled next month. The European Commission wants to create a single supervisory mechanism for the 6,000 banks, with the ECB at its heart. It would replace the current system of national regulators supervising banks. But it requires EU leaders' approval. In many cases the national authorities failed to foresee and deal with banks that got into funding difficulties. The banks then needed to be bailed out by national governments. This in turn increased the pressure on public finances. The Commission proposals form a crucial part of the plans being worked on to help stabilise the single currency, and to avoid a repetition of the current chronic debt problems damaging public finances across the region. Officials hope it could be in place by early next year. It is one step towards creating a genuine banking union for the euro. Policy makers say such a union is necessary to help convince markets that mechanisms are in place to safeguard the single currency's future.

 http://www.bbc.co.uk/news/world-europe-19438439?print=true

World hyperinflations: A paper

Hyperinflation s