Monday, June 30, 2014

The USD Is Tumbling; Near 2 Month Lows

Equities have flip-flopped this morning, giving up the new normal opening-squeeze higher gains as USDJPY fades. Bonds are rallying. But it is the USD Index that is the most notable this morning as it tumbles back towards 2-month lows in a hurry... This is the biggest 2-day plunge in 3 months.

Pushing the USD to 2-month lows...

The USD Is Tumbling; Near 2 Month Lows | Zero Hedge

A great time to Open a Forex Account and Buy the USD

Sunday, June 29, 2014

BIS: Central banks warned of 'false sense of security'

The Bank for International Settlements (BIS) has warned that ultra-low interest rates have lulled governments and markets "into a false sense of security".
The Basel-based organisation - usually dubbed the "central banks' central bank" - urged policy makers to begin to normalise rates.
"The risk of normalising too late and too gradually should not be underestimated," the BIS said.
Markets have rallied since January.
The FTSE all-world share index is up 5% so far this year, while the Vix, a measure of implied US market volatility known as the "fear index" , is at a seven-year low.

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Growth has disappointed even as financial markets have roared: The transmission chain seems to be badly impaired”
"Overall, it is hard to avoid the sense of a puzzling disconnect between the markets' buoyancy and underlying economic developments globally," the BIS said in its annual report.
It said that low interest rates had helped increase demand for higher risk investments on stock markets as well as in property and corporate bonds markets.
Disappointing growth
The BIS doesn't set policy but serves as a forum for central bankers to exchange views on relevant topics from the global economy to financial markets.
While global growth has improved, the BIS said it was still below its pre-crisis levels.
"Growth has disappointed even as financial markets have roared: The transmission chain seems to be badly impaired," the BIS said.
It said policy makers should take advantage of the current upturn in the global economy to reduce the emphasis on monetary stimulus.
'Behind the curve'
And it warned that taking too long to do this could have potentially damaging consequences, by encouraging investors to take too much risk.
"Over time, policies lose their effectiveness and may end up fostering the very conditions they seek to prevent," it said.
"The predominant risk is that central banks will find themselves behind the curve, exiting too late or too slowly," it added.
The BIS was founded in 1930 and is the world's oldest international financial institution.
Its 60-strong membership includes the Bank of England, the European Central Bank, the US Federal Reserve, the People's Bank of China and the Bank of Japan.

Thursday, June 26, 2014

Gazprom Ready To Drop Dollar, Settle China Contracts In Yuan Or Rubles

A little over a month ago, when Russia announced the much anticipated "Holy Grail" energy deal with China, some were disappointed that despite this symbolic agreement meant to break the petrodollar's stranglehold on the rest of the world, neither Russia nor China announced payment terms to be in anything but dollars. In doing so they admitted that while both nations are eager to move away from a US Dollar reserve currency, neither is yet able to provide an alternative. This changed rather dramatically overnight when in a little noticed statement, Gazprom's CFO Andrey Kruglov uttered the magic words (via Bloomberg):
In other words just as the US may or may not be preparing to export crude - a step which would weaken the dollar's reserve status as traditional US oil trading partners will need to find other import customers who pay in non-USD currencies - the world's two other superpowers are preparing to respond. And once the bilateral trade in Rubles or Renminbi is established, the rest of the energy world will piggyback.
But wait, there's more. Because only now does Gazprom appear to be unveiling all those "tangents" that were expected to hit the tape in May. Among Kruglov's other revelations were that Gazprom is in talks on a Hong Kong listing and is weighing the issuance of Yuan bonds. Gazprom is also considering selling bonds in Singapore dollars, the CFO said at briefing in Moscow. Wait, you mean that by alienating and embargoing Russia from western (USD, EUR-denominated) funding markets, it has pushed the country to turn to its pivoting partner, China and thus further cementing the framework for the next Eurasian strategic alliance?
But wait, there's still more, because it is  not just Gazprom. As the PBOC announced overnight,  PBOC Assistant Governor Jin Qi and Russian central bank Deputy Chairman Dmitry Skobelkin led a meeting held yesterday and today in Shanghai.  The meeting discussed cooperating on project and trade financing using local currencies. The meeting discussed cooperation in bank card, insurance and financial supervision sectors.
In other words, central bankers of China and Russia discussed how to replace the dollar with Rubles and Yuan. From the PBOC:
In retrospect it will be very fitting that the crowning legacy of Obama's disastrous reign, both domestically and certainly internationally, will be to force the world's key ascendent superpowers (we certainly don't envision broke, insolvent Europe among them) to drop the Petrodollar and end the reserve status of the US currency.

Wednesday, June 25, 2014

"We Are In Uncharted Waters" Singapore Central Bank Warns Of "Uneasy Calm"

Submitted by Simon Black of Sovereign Man blog,
Well, at least someone gets it.
While just about every other central bank on the planet is giving everyone two thumbs up on the economy, the deputy chair of the Monetary Authority of Singapore (Lim Hng Kiang) said last night at a dinner that “an uneasy calm seems to have settled in markets” and that “we remain in uncharted waters.”
It was pretty amazing, really, to see such pointed language from a central banking official.
Mr. Lim jabbed at the “obvious” risks and said there would be “bumps on the road” ahead. That’s putting it mildly.
Warren Buffet once said that ‘only when the tide goes out do you discover who’s been swimming naked.’ (In my mind he says it like ‘nekked’ but I seriously doubt he pronounces it that way…)
That’s exactly what happens in severe financial crises. You find out which banks have been playing it safe… and which have so mind-numbingly stupid it’s a miracle they’re still around.
There are a number of ways to judge how safe a bank is. One way is by looking at its liquidity; my preferred metric is to calculate how much cash a bank has on hand as a percentage of customer deposits.
Note- this doesn’t mean physical currency, as in bricks of paper cash stacked up in a vault. Those days went away long ago. I’m talking about electronic currency– typically deposits with central banks.
The more cash a bank has on hand, the safer it is. Because in a financial crisis, people tend to panic (hence the crisis) and want to withdraw their money.
Banks bleed cash. And if they don’t have enough of it on hand, the bleeding turns into a sucking chest wound.
It’s at this point that they’ve been caught red handed swimming naked, and they need to go raise cash from somewhere, anywhere else.
So they start selling assets– loans, securities, and even shares of the bank itself.
But this is not an orderly liquidation in a well-functioning market. It’s a distress sale brought on by a full blown crisis. Asset prices are collapsing, fear has taken hold, and it’s difficult to find a buyer.
You never get full price in a crisis (unless you’re Goldman Sachs and can call up your BFF the Treasury Secretary). So in the process of raising cash, banks end up taking heavy losses on their balance sheets.
Now, banks that have healthy balance sheets will be able to withstand these losses.
But banks with razor thin capital ratios (i.e. a bank’s net equity as a percentage of total assets) will fold. Or go to the taxpayer with their hats in their hand claiming to be too big to fail.
This is precisely what happened to the US financial system back in 2009. Lehman Brothers. Wachovia. Washington Mutual. Etc. They were all swimming naked, with very little liquidity and miniscule capital levels.
Singapore’s monetary authority is obviously concerned about financial markets. They understand that you can’t expect to conjure trillions of dollars out of thin air without creating epic bubbles and even more epic consequences.
Sure, you can shuffle those consequences out a few months… even a few years. But at some point those bubbles must be reckoned with.
Perhaps the greatest concern is how few people seem to care.
Central banks and institutional investors turn a deaf ear to obvious risks and fundamentals that are screaming out in desperation hoping some conservative steward will notice that we are tap dancing on a knife’s edge, where nearly every single financial market is simultaneous at/near an all-time high, and central bankers keep pumping money into economies that they claim to be ‘recovered’.
This is the ‘uneasy calm’ that Mr. Lim discussed– a prevailing attitude that there’s nothing to see here; keep calm and buy the all-time high.
And he’s telling banks to get ready for something to happen.
Curiously, Singapore’s banks are already better capitalized and more liquid than most western banking systems. Back in 2008, Singapore demonstrated a lot of resilience as a financial center, sidestepping most of the problems with zero bank failures.
But for a country that went from third world to first world in just a few decades, complacency is not a cultural norm.
According to Mr. Lim, Singapore’s experience with the 2008 crisis “shows how the buildup of risks can severely destabilise even the most developed and sophisticated financial markets.”
So he wants them to increase their capital and liquidity even more.
If a senior official presiding over one of the world’s safer banking jurisdictions wants his banks to become even safer, a rational person would certainly wonder– “What do these guys know about the financial system that I don’t?”
They must be expecting the mother of all busts.

The Simple Reason Why Everyone's Wrong On The 'Short Euro' Trade (Including Draghi)

We live in stirring times. The president of the European Central Bank (ECB), Mario Draghi, crossed the monetary policy Rubicon and cut one of the Euro area’s key interest rates into negative territory. This is dramatic stuff, as even the most economically oblivious are likely to recognize that negative interest rates are a radical policy. At the same time the United States Federal Reserve is gracefully gliding out of its quantitative policy position — and by October that money printing process is likely to be effectively at an end.
The question from most investors is therefore “what next for US monetary policy?” The answer is likely to be an increase in US interest rates, and those increases may start earlier and take place faster than many investors currently assume. The Bank of England has been even more explicit in signaling a desire to tighten interest rates sooner than financial investors had expected.
Euro area monetary policy and Anglo-Saxon monetary policy are taking different directions — radically so. It has been a decade since the Fed last embarked on a tightening cycle, and Euro area rates have never gone negative before. The bias in discussions is whether the Fed and the ECB both do more than is currently expected; the difference is that “more” for the Fed means “more tightening”, while “more” for the ECB means “more policy accommodation”. With the expectations and the reality of the direction of interest rates diverging in this manner the instinct of most in financial markets is to assume that the Euro will weaken against the US dollar.
A weaker Euro has been forecast by financial markets for some time — and financial markets have been spectacularly wrong in their forecasts. The Euro weakened a little in the wake of the nudges and hints on policy from ECB President Draghi, but it still remains at a high level. How can this be explained? How is it that the Euro is not behaving the way everyone says it should?
A key part of the explanation for the Euro’s defiance of divergent monetary policy lies in a revolution that has taken place in the world economy. Put simply, globalization has collapsed dramatically since 2007, and that collapse in globalization has profound implications for financial markets.
The collapse in globalization is nothing to do with global trade. Global exports (as a share of the world economy) are at a higher level than they were in 2007 — here there has been a complete recovery. Instead the collapse has taken place in the realm of global capital flows.Global capital flows (again as a share of the world economy) are running at roughly a third of their pre-crisis peak, and around half the levels seen in the decade before the global financial crisis.
The collapse of global capital flows has been brought about by several factors coming together. Investors, in particular banks, are more regulated than before the crisis. With that regulation has come about a bias to investment in domestic markets — in some cases as an unintended consequence of regulation, in some cases as a direct policy objective. In addition the more political nature of several developed financial markets has acted as a deterrent to international investors, who are likely to have less understanding of politics in remote markets.
When capital flows were abundant, an economy with a current account deficit did not have too many problems finding the capital inflows necessary to finance the current account position. Only a tiny proportion of the huge amount of capital sloshing around the world had to be diverted to provide the funding. Now, with capital flows reduced to a thin trickle, a current account deficit country has to work a lot harder to attract the capital that they need. Crudely put, it is three times more difficult to finance a current-account deficit, now that capital flows are one third their pre-crisis levels.
This helps to explain the Euro. The Euro area is a current account surplus area. The United States is a current-account deficit area. The interest rate differential argues for a weaker Euro. The current account position argues for a stronger Euro. These two forces battle it out in the foreign exchange markets, and the result is less Euro weakness than many had expected.
This new model for foreign exchange has implications that reach far beyond the errors of Euro/dollar forecasting. Reduced capital flows means reduced capital inflows into Asian markets — something that has already slowed the pace of foreign exchange reserve accumulation. Reduced capital flow may mean a less efficient global allocation of capital resources. Global capital flows have been hidden from the headlines, but the collapse of globalization may turn out to be one of the most important economic changes of the past decade.

Tuesday, June 24, 2014

Currency Spikes at 4 P.M. in London Provide Rigging Clues

In the space of 20 minutes on the last Friday in June, the value of the U.S. dollar jumped 0.57 percent against its Canadian counterpart, the biggest move in a month. Within an hour, two-thirds of that gain had melted away.
The same pattern -- a sudden surge minutes before 4 p.m. in Londonon the last trading day of the month, followed by a quick reversal -- occurred 31 percent of the time across 14 currency pairs over two years, according to data compiled by Bloomberg. For the most frequently traded pairs, such as euro-dollar, it happened about half the time, the data show.
The recurring spikes take place at the same time financial benchmarks known as the WM/Reuters (TRI) rates are set based on those trades. Now fund managers and scholars say the patterns look like an attempt by currency dealers to manipulate the rates, distorting the value of trillions of dollars of investments in funds that track global indexes. Bloomberg News reported in June that dealers shared information and used client orders to move the rates to boost trading profit. The U.K. Financial Conduct Authority is reviewing the allegations, a spokesman said.
“We see enormous spikes,” said Michael DuCharme, head of foreign exchange at Seattle-based Russell Investments, which traded $420 billion of foreign currency last year for its own funds and institutional investors. “Then, shortly after 4 p.m., it just reverts back to what seems to have been the market rate. It adds to the suspicion that things aren’t right.”

Global Probes

Authorities around the world are investigating the abuse of financial benchmarks by large banks that play a central role in setting them.
Barclays Plc (BARC)Royal Bank of Scotland Group Plc andUBS AG (UBSN) were fined a combined $2.5 billion for rigging the London interbank offered rate, or Libor, used to price $300 trillion of securities from student loans to mortgages. More than a dozen banks have been subpoenaed by the U.S. Commodity Futures Trading Commission over allegations traders worked with brokers atICAP Plc (IAP) to manipulate ISDAfix, a benchmark used in interest-rate derivatives. ICAP Chief Executive Officer Michael Spencersaid in May that an internal probe found no evidence of wrongdoing.
Investors and consultants interviewed by Bloomberg News say dealers at banks, which dominate the $4.7 trillion-a-day currency market, may be executing a large number of trades over a short period to move the rate to their advantage, a practice known as banging the close. Because the 4 p.m. benchmark determines how much profit dealers make on the positions they’ve taken in the preceding hour, there’s an incentive to influence the rate, DuCharme said. Dealers say they have to trade during the window to meet client demand and minimize their own risk.

Currency Patterns

“There are some patterns in currencies that are very similar to what I have seen in other markets, such as the way the price-fixings’ effects disappear so often by the following day,” said Rosa Abrantes-Metz, a professor at New York University’s Stern School of Business, whose August 2008 paper, “Libor Manipulation?,” helped trigger the probe into the rigging of benchmark interest rates. “You also see large price moves at a time of day when volume of trading is high and hence the market is very liquid. If I were a regulator, it’s certainly something I would consider taking a look at.”
WM/Reuters rates, which determine what many pension funds and money managers pay for their foreign exchange, are published hourly for 160 currencies and half-hourly for the 21 most-traded. The benchmarks are the median of all trades in a minute-long period starting 30 seconds before the beginning of each half-hour. Rates for less-widely traded currencies are based on quotes during a two-minute window.

London Close

Benchmark providers such as FTSE Group and MSCI Inc. base daily valuations of indexes spanning different currencies on the 4 p.m. WM/Reuters rates, known as the London close. Index funds, which track global indexes such as the MSCI World Index, also trade at the rates to reduce tracking error, or the drag on funds’ performance relative to the securities they follow caused by currency fluctuations.
The data are collected and distributed by World Markets Co., a unit of Boston-based State Street Corp. (STT), and Thomson Reuters Corp. Bloomberg LP, the parent company of Bloomberg News, competes with Thomson Reuters and ICAP in providing news and information as well as currency-trading systems.
Reuters and World Markets referred requests for comment to State Street. Noreen Shah, a spokeswoman for the custody bank in London, said in an e-mail that the rates are derived from actual trades and the benchmark is calculated anonymously, with multiple review processes to monitor the quality of the data.
“WM supports efforts by the industry to determine and address any alleged disruptive behavior by market participants and we welcome further discussions on these issues and what preventative measures can be adopted,” Shah said.

Opaque Market

The foreign-exchange market is one of the least regulated and most opaque in the financial system. It’s also concentrated, with four banks accounting for more than half of all trading, according to a May survey by Euromoney Institutional Investor Plc. Deutsche Bank AG (DBK) is No. 1 with a 15 percent share, followed byCitigroup Inc. (C) with almost 15 percent and London-based Barclays and Switzerland’s UBS, which both have 10 percent. All four banks declined to comment.
Because they receive clients’ orders in advance of the close, and some traders discuss orders with counterparts at other firms, banks have an insight into the future direction of rates, five dealers interviewed in June said. That allows them to maximize profits on their clients’ orders and sometimes make their own additional bets, according to the dealers, who asked not to be identified because the practice is controversial.

‘Incredibly Large’

Even small distortions in foreign-exchange rates can cost investors hundreds of millions of dollars a year, eating into returns for savers and retirees, said James Cochrane, director of analytics at New York-based Investment Technology Group Inc., which advises companies and investors on executing trades.
“What started out as a simple benchmarking tool has become something incredibly large, and there’s no regulatory body looking after it,” said Cochrane, a former foreign-exchange salesman at Deutsche Bank who has worked at Thomson Reuters. “Every basis point is worth a tremendous amount of money.”
An investor seeking to change 1 billion Canadian dollars ($950 million) into U.S. currency on June 28 would have received $5.4 million less had the trade been made at the WM/Reuters rate instead of the spot rate 20 minutes before the 4 p.m. window.
“Funds that consistently trade using the WM/Reuters fix are basically trading against themselves, and their portfolio is taking a hit,” Cochrane said.

FCA Complaint

One of Europe’s largest money managers, who invests on behalf of pension holders and savers, has complained to the FCA, alleging the rate is being manipulated, said a person with knowledge of the matter who asked that neither he nor the firm be identified because he wasn’t authorized to speak publicly.
The regulator sent requests for information to four banks, including Frankfurt-based Deutsche Bank and New York-based Citigroup, according to a person with knowledge of the matter. Chris Hamilton, a spokesman for the FCA, declined to comment, as did spokesmen for Deutsche Bank and Citigroup.
Bloomberg News counted how many times spikes of at least 0.2 percent occurred in the 30 minutes before 4 p.m. for 14 currency pairs on the last working day of each month from July 2011 through June 2013. To qualify, the move had to be one of the three biggest of the day and have reversed by at least half within four hours, to exclude any longer-lasting movements.
The sample was made up of currency pairs ranging from the most liquid, such as euro-dollar, to less-widely traded ones such as the euro to the Polish zloty.

Pounds, Kronor

End-of-month spikes of at least 0.2 percent were more prevalent for some pairs, the data show. They occurred about half the time in the exchange rates for U.S. dollars and British pounds and for euros and Swedish kronor. In other pairs, including dollar-Brazilian real and euro-Swiss franc, the moves occurred about twice a year on average.
Such spikes should be expected at the end of the month because of a correlation between equities and foreign exchange, said two foreign-exchange traders who asked not to be identified because they weren’t authorized to speak publicly on behalf of their firms. A large proportion of trading at that time is generated by index funds, which buy and sell stocks or bonds to match an underlying basket of securities, the traders said.
Banks that have agreed to make transactions for funds at the 4 p.m. WM/Reuters close need to push through the bulk of their trades during the window where possible to minimize losses from market movements, the traders said. That leads to a surge in trading volume, which can intensify any moves.

Index Funds

For 10 major currency pairs, the minutes surrounding the 4 p.m. London close are the busiest for trading at the end of the month, quarter and year, according to Michael Melvin and John Prins at BlackRock Inc. who examined trading data from the Reuters and Electronic Broking Services trading platforms from May 2, 2005, to March 12, 2010.
Reuters and ICAP, which owns EBS, declined to provide data on intraday trading volumes for this article.
Index funds, which manage $3.6 trillion according to Morningstar Inc., typically place the bulk of their orders with banks on the last day of the month as they adjust rolling currency hedges to reflect relative movements between equity indexes in different countries and invest inflows from customers over the previous 30 days. Most requests are placed in the hour preceding the 4 p.m. London window, and banks agree to trade at the benchmark rate, regardless of later price moves.

Opposite Effect

“Since the major fix-market-making banks know their fixing orders in advance of 4 p.m., they can ‘pre-position’ or take positions for themselves prior to the attempt to move prices in their favor,” Melvin and Prins wrote in “Equity Hedging and Exchange Rates at the London 4 P.M. Fix,” an update of a report for a 2011 Munich conference. “The large market-makers are adept at trading in advance of the fix to push prices in their favor so that the fixing trades are profitable on average.”
Recurring price spikes, particularly during busy times such as the end of the month, can indicate market manipulation and possibly collusion, according to Abrantes-Metz.
“If the volume of trading is high, each trade has less importance in the overall market and is less likely to impact the final price,” said Abrantes-Metz, who’s also a principal at Chicago-based Global Economics Group Inc. and a World Bank consultant. “That’s exactly the opposite of what we’re seeing here. That could be a signal of a problem in this market.”

‘Massive Trades’

U.S. regulators have sanctioned firms for banging the close in other markets. The CFTC fined hedge-fund firm Moore Capital Management LP $25 million in April 2010 for attempting to manipulate the settlement price of platinum and palladium futures. The regulator ordered Dutch trading firm Optiver BV to pay $14 million in April 2012 for trying to move oil prices by executing a large number of trades at the end of the day.
Melvin, head of currency and fixed-income research at BlackRock’s global markets strategies group in San Francisco, and Prins, a vice president in the group, said that because banks could lose money if the market moves against them, their profit may be viewed as compensation for the risk they assume. Both declined to comment beyond their report.
“Part of the problem is it’s all concentrated over a 60-second window, which gives such an opportunity to bang through massive trades,” said Mark Taylor, dean of the Warwick Business School in Coventry, England, and a former managing director at New York-based BlackRock.
World Markets, the administrator of the benchmark, could extend the periods during which the rates are set to 10 minutes or use randomly selected 60-second windows each day, said Taylor, who began his career as a currency trader in London.

‘Fiduciary Duty’

Trading at the highly volatile 4 p.m. close instead of at a daily weighted average could erase 5 percentage points of performance annually for a fund tracking the MSCI World Index, according to a May 2010 report by Paul Aston, then an analyst at Morgan Stanley. (MS) For an asset manager trading $10 billion of currencies, that equates to $500 million that would otherwise be in the hands of investors. Aston, now at TD Securities Inc. in New York, declined to comment.
Fund managers rarely complain about getting a bad deal because they’re assessed on their ability to track an index rather than minimize trading costs, according to consultants hired by companies and investors to help execute trades efficiently.
“Where possible, I would always advise clients not to trade at the fix -- but minimizing tracking error is so important to them,” said Russell’s DuCharme. “That doesn’t seem to be the right attitude to take when you have a fiduciary duty to seek the best execution for pension holders.”

NFA's Board approves prohibition of credit cards to fund retail forex accounts

June 23, Chicago — National Futures Association (NFA) announced that its Board approved a ban on the use of credit cards to fund retail forex and futures accounts. This prohibition is subject to approval by the Commodity Futures Trading Commission. Although NFA's proposed rule prohibits the use of credit cards to fund both futures and retail forex accounts, NFA determined through its study that futures commission merchants currently don't permit this practice.
"Since our inception, NFA has been committed to protecting investors," says NFA President and CEO Dan Roth. "Forex and futures markets are both high-risk and volatile, and individuals who wish to participate should use only risk capital to fund their accounts. Allowing customers to fund accounts with credit cards encourages them to trade with borrowed money."
This prohibition is a direct result of an extensive study by NFA of forex dealer members' business practices. NFA looked at more than 15,000 retail forex accounts and noted that an overwhelming amount of these accounts were funded by small retail customers using a credit card or borrowed funds, and a majority of these accounts were unprofitable.
"Over the last decade, NFA has made significant strides in its regulation of the retail forex markets," Roth says. "From the increase in capital requirements to mandating content requirements so that all customers could receive comprehensive and accurate account information, this proposal is just another very important step to fulfill our mission to protect customers."

Sunday, June 22, 2014

"End The Fed" Rallies Are Exploding Throughout Germany

This is a fascinating development and one that I had no idea was happening until today. It seems that rallies are spreading throughout Germany protesting the corrupt and dying global status quo. One of the key targets of these groups is the U.S. Federal Reserve system, which as I and many others have maintained, is the core cancer infecting the entire planet.
According to the organizer of these rallies, they have now spread to up to 100 cities and have a combined attendee base of around 20,000.What is also interesting, is that the mainstream media in Germany is calling them Nazis. In Germany, if you don’t support Central Banking, this apparently means you are a Nazi. What a joke. Just more proof mainstream media everywhere is complete and total propaganda. It is also a good sign, since it shows the desperate lengths to which the power structure will go to keep their criminal ponzi alive. 

Friday, June 20, 2014

Prime XM and CNS in latency network battle over 1.5 ms

PrimeXM is a company providing FOREX brokers with an aggregation engine and access to liquidity  providers.   Some broker’s MT4 servers are located at PrimeXM. 
As you know, CNS provides hosted virtual desktops for FOREX traders.  PrimeXM has been directly connected to our network in NYC and UK, which we call “ON NET” for some time now.  Through these connections, CNS traders utilizing brokers hosted with PrimeX M have been enjoying ultra-low latency and high redundancy connectivity to their FOREX brokers.  This is no doubt a mutual benefit to all parties involved, including the brokers (PrimeXM customers) and the end-traders.
Additionally, the CNS network will soon directly connect to nearly 5000 ISP’s and corporate networks and PrimeXM, thru their ON NET connectivity, stood only to gain from their free connection to the CNS network.  This type of connectivity would normally cost thousands of dollars each month.
Typically the cost of connecting each network in a mutually beneficial peering arrangement is split down the middle  (the datacenter charges a  fee).  However, Instead of splitting the monthly cost for the PrimeXM  x-connects in NYC and UK,  CNS has been paying the full fee as a courtesy from the start.
Late yesterday we were notified by PrimeXM that they intend to charge a flat monthly fee to all external hosting providers that utilize  PrimeXM's network as of July 1st.  This does not include the cross connect fee.
We believe any fee to PrimeXM is unreasonable given the great mutual benefits the ON NET connectivity provides.  CNS is bringing traders closer to the brokers, who are PrimeXM customers.  Some of these brokers include:

ADS Securities
Armada Markets
Bank Direct FX
Benchmark Group
Divisa Capital
FXCM Mena (UK)
Sensus Captial markets
Synergy FX
Traders Trust

Unless PrimeXM changes their position, ON NET connectivity to these brokers will be terminated on August 1st.   Traders utilizing these brokers will still be able to connect to their broker, however latency is expected to increase to somewhere between 1-1.5ms.
We should extend some caution:  PrimeXM has threatened to cut the x-connects this coming weekend, but are now setting the date as August 1.  We will update you again if anything changes.
If you disagree with this decision by PrimeXM then please contact your broker right now and let them know.  The brokers are PrimeXM customers and are in the best position to make PrimeXM understand the errors in their decision.
We are now reaching out to individual brokers.  We will post updates to this developing situation on our Helpdesk News Page.
Barry Bahrami

I'm not sure how PrimeXM could possibly be subsidizing any VPS company.  In our case, the opposite is true.  We have been providing PrimeXM with free ON NET access to thousands of CNS traders for some time - at our own expense.  This has made PrimeXM more attractive to end brokers - PrimeXM customers - who have mutual subscribers with CNS.  Certainly there are many traders who would not be with any PrimeXM broker if it was not for CNS.  If Mr. Diethelm can't understand that then maybe his brokers will help him grasp it.  At the end of the day, he is degrading their quality of service too while giving a competitive advantage to our other connected brokers at the same time.
If you look at the Comcast/Netflix dispute, it was the ISP  connecting all the end-users to the content provider that demanded - and received - a fee from the content provider.  In this case, I believe Mr. Diethelm got it backwards.  It is CNS who is bringing thousands of  traders to PrimeXM, not the other way around.
Mr. Diethelm has told me that their hosting end has made losses and they need to break even.  While I can understand that, I don't believe he fully understands his own business and how this technology works.  We do not charge brokers to connect to ON NET because it makes good business sense – but it is very costly.
He also does not understand that in his business, hosting may be a loss leader.  That is, they would not have the back-end – from which they are likely making hundreds of thousands of dollars each month for a decent sized broker - if it were not for the hosting.  Instead, Mr. Diethelm wants to split it and somehow make the hosting side pay for itself.  If real world business could only be so easy….  It would be like KFC charging for napkins.
Instead of saving money during a cash crunch, Mr. Diethelm seems determined to waste it.  By cutting the free connection PrimeXM is receiving from CNS, IP traffic will simply route around to their  paid Internet interfaces - increasing  their Internet transit costs.  On the other hand, our network will directly connect to nearly 5000 ISP's and corporate networks by end of this month and so all he is really doing is saving CNS money on x-connect fees and shooting himself in the foot at the same time.  If there is a complaint to be levied regarding networking costs, it should be coming from us.   The cost of operating our network likely dwarfs what PrimeXM pays to operate theirs.
Mr. Diethelm has the real-world model all backwards and I don't believe any VPS hosting provider will agree to pay these fees.  Certainly any new fees will need to be covered by the end-traders and I'm not willing to do that.  It would be wrong.  At this point, CNS will dispute a new fee from PrimeXM to any currently connected VPS provider.  It would set a very bad precedent  in which the only possible outcome is higher fees to end-traders.  We  are just not willing to go down that road.

Barry Bahrami

I just read Mr. Swann's response in its entirety. Our previous response only addressed the points in the article. I should address a couple points:
Despite their claims, I don't believe any VPS provider has agreed to their fee.  We also do not pay fees for any of our other x-connects to other providers.  They obviously appreciate the mutual business we bring each other.
When Mr. Diethelm contacted me that morning, he informed me that they would be cutting the x-connects this coming weekend. Clearly - we have an obligation to inform our subscribers and partner brokers, most especially after his reckless reply of a "disconnect this weekend". It demonstrates some concerning and unpredictable behavior. And so I believe informing our subscribers and partner brokers was the proper course of action. (1-1.5ms is a lot to some traders.)
I can post the entire transcript of our email conversation if it becomes necessary. I prefer they rescind the decision so we can all get on with more productive business.
Finally - as it relates to support: Really the only time CNS Support needs to contact PrimeXM is due to a technical issue on their side. It's usually initiated by a trader with one of their brokers. They should be happy to resolve their issues. The fact is our connections save PrimeXM money and bring in traffic that generates revenue for them. Trades start at the traders terminal, not PrimeXM. PrimeXM should welcome the connectivity we provide.

Monday, June 16, 2014

Russia Halts Gas Supplies To Ukraine

After weeks of worthless foreplay whose outcome was known from the beginning despite just as worthless EU middleman Oettinger assuring everyone a deal was imminent any second now, overnight we got the long-anticipated mutual defection outcome and - as we warned - negotiations between Gazprom and Ukraine/EU fell apart with the Russian energy giant halting supplies to Ukraine unless Kiev prepays any and all gas deliveries from now on. Gazprom said it hadn't received payment for a debt it put at $4.458 billion by the Monday deadline it had set. "Ukraine will receive gas only in the amounts it has paid for," Gazprom said.
The reason for the collapse in talks: Kiev wants to pay $268.5 per 1,000 cubic meters of gas - the price it had been offered when Yanukovich was in power - but, in a compromise last week, said it would agree to pay $326 for an interim period until a lasting deal was reached. Moscow had sought to keep the price at the 2009 contract level of $485 per 1,000 cubic meters, but had offered to waive an export duty, bringing down prices by about one-fifth to $385, which brings it broadly into line with what Russia charges other European countries.
In other words, the delta was less than $60, and certainly a "fair" offer to Ukraine considering it is what Europe pays. However, it wasn't low enough for Kiev, which certainly is out of money once again having to spend the bulk of its IMF/EU aid to keep its military armed, and the only logical outcome - one in which the country would no longer receive something for nothing - transpired.
This hardly will be surprising to anyone: moments ago Gazprom CEO Miller added that Ukraine is unable to pay for its gas obligations in arrears, something the Ukraine side had confirmed previously when Miller added Kiev had been pumping Russian gas in its underground storage facilities at a blistering pace preparing for just this eventuality.
End result, a few hours ago, Gazprom made the following announcement: "Today, from 10:00 a.m. Moscow time, Gazprom, according to the existing contract, moved Naftogaz to prepayment for gas supplies ... Starting today, the Ukrainian company will only get the Russian gas it has paid for."
Gazprom also warned EU on "possible gas transit risks", meaning since all the gas sent to Europe transits Ukraine, it was quite possible Kiev would simply continue to siphon off Russian gas without paying for it. The problem there, however, is that the parties impacted would be Ukraine's BFFs: Germany, central Europe, and, of course, the UK. And what better way to sow discord among otherwise bosom friends than have them start fighting for Russia's energy scraps...
And now the question: how long before Ukraine's alleged 14 BCM in gas held in storage runs out and Kremlin once again has all the leverage. According to simple estimates, a few months at most, and certainly just in time for Ukraine's winter.
Gazprom said on Monday it had filed a lawsuit at the Stockholm arbitration court to try to recover the debt, while Ukraine's Naftogaz said it was filing a suit at the same court to recover $6 billion in what it said were overpayments.

A source at Gazprom said supplies to Ukraine had been reduced as soon as the deadline passed. EU data suggested that volumes were broadly stable as of 0630 GMT (7.30 a.m. BST), but it could take hours for data on Russian gas flows via Ukraine to reflect any reduction in supply in Slovakia or elsewhere.

Any reduction of supply could hit EU consumers, which get about a third of their gas needs from Russia, around half of it through pipelines that cross Ukraine. Earlier price disputes led to the 'gas wars' in 2006 and 2009 and Russian accusations that Ukraine stole gas destined for the rest of Europe.

"The gas for European consumers is being delivered at full volume and Naftogaz Ukraine is required to transit it," Gazprom spokesman Sergei Kupriyanov told reporters.

Ukraine's Naftogaz declined to comment, saying it would issue a statement later in the day, but its pipeline operator Ukrtransgaz said it was operating normally.
The "market" was quick to react and "punish" Gazprom:
Russian shares fell on the talks' collapse, which will increase tensions between Moscow and the West and could make it harder to arrange a truce in east Ukraine, where Ukrainian troops are fighting rebels who want the region to be absorbed by Russia.

At 0740 GMT, the dollar-denominated RTS index was down 2.2 percent at 1344 points, while the rouble-based MICEX slid 1.7 percent to 1,476 points, with investors fearful of growing tensions after the failure of talks.

Western countries see the talks as a gauge of Putin's willingness to compromise and had been looking for signs that he was trying to avert the threat of more Western sanctions.

Tensions were already high following Russia's annexation of Crimea after Moscow-leaning president Viktor Yanukovich was ousted and pro-Western leaders took over power in Kiev.
And now that Russia has not only cut off Ukraine but is allegedly once again piling up troops at the border following this weekend's bloodiest escalation yet, it is surely time to BTFD and BTFATH at the same time, because very soon it will surely be time for "Mr Chairman/woman to get to work" and inject gobs more liquidity to give the impression that all is still well.