Stronger Yen forces Japan to export to itself

Japan Inc. has a new export market: Japan.

For the first time, companies including Nissan Motor Co. (7201) are building products abroad to ship home as a stronger yen, aging workforce and improved skills overseas erode a century-old mantra that what’s sold in Japan should be made there.

Nissan’s decision to import foreign-made vehicles in 2010 paved the way for some of Japan’s biggest companies, including cosmetics company Shiseido Co. (4911) and electronics maker Toshiba Corp. (6502) Shipments home from Japanese producers’ overseas plants have more than doubled in a decade to a record, including a 31 percent jump in the past two years, compared with a 61 percent gain in total importsover the 10 years, government data show.

“Nissan’s decision was epochal,” said Masato Sase, an auto-industry analyst and partner at Deloitte Tohmatsu Consulting Co. in Tokyo. “Before then there was a tacit assumption that cars sold in Japan would be made in Japan.”

The shift reflects one of the biggest departures from an industrial strategy begun by the Meiji leaders who ousted the last shogun in 1868 and set up western-style factories. A “made by Japan” model, where manufacturers base operations with less regard to nationalism, may boost corporate competitiveness at the cost of jobs in the world’s third-biggest economy, deepening deflation pressures.

“People see the sale of cars made abroad as a sign of the times, as globalization,” said Shiro Kakinuma, a salesman at Taiyo Nissan Auto Sales Co.’s Shibaura Chuo showroom in Tokyo, which offers the Thai-made Nissan March subcompact. “When the new March came out there were some articles questioning the quality of a car made in a developing country. Not anymore.”

http://www.bloomberg.com/news/2012-08-29/nissan-ships-cars-home-as-yen-erodes-century-of-made-in-japan.html

EES: Building Forex Systems in September S & C

system developers know, the process of building automated trading systems is complex and filled with biases. A machine is not necessarily a physical mechanical machine. It can be a virtual machine, electrical machine, or in our case, software-based logical trading machine. System trading is the process of building and implementation of algorithm-based systems that execute trades automatically. While many associate this with machine intelligence, only the execution is fully automated.

http://www.traders.com/index.php/sac-magazine/current-contents/feature-articles/54-trading-systems/1721-building-systems-for-forex

EES featured in September Stocks & Commodities magazine

EES: September Global Markets Events

Don't allow the low volatility in August to make you complacent.

Most of the world is on vacation, even in the hard working United States. Kids are off from school, some hedge funds even shut down in August. Those who aren't on vacation, use this as a quiet time for planning so they are ready for a big September.

Read More:
http://seekingalpha.com/article/833991-september-global-markets-events

BofA: 'CODE RED ... RISK OF SELL-OFF IS HIGH'

Yesterday, BofA's top North America economist Ethan Harris penned a bearish note on the the U.S. economy, writing that it "is in the eye of the storm" and that a number of troubling headwinds loom on the horizon.

BofA strategists Arjun Mehra and Cheryl Rowan have a warning more precisely aimed at the stock market. In a note to clients entitled Code Red, Mehra and Rowan claim there is "limited upside from here" and the "risk of a sell-off is high."

Read more: http://www.businessinsider.com/bofa-code-red-risk-of-a-sell-off-is-high-2012-8#ixzz24neMVVRq

Forex Liquidity

Peter from Ireland wrote in asking me to do a piece on liquidity on the forex market. Although the market trades 5 trillion dollars per day in volume, even forex traders face limitations in how much volume they can push through in a short period of time.

A Zero Hedge article on the Reuters 3000 platform outage cited some interesting statistics for the currency markets and where the trading actually occurs. Although I was familiar with Reuters and EBS previously, the Dow Jones article was the first place where I've seen volume statistics published. Apparently Reuters, the biggest platform, trades approximately $130 billion dollars in volume per day.


That's an astronomical amount of money. Intuition makes it feel like hitting the ceiling on executing large transactions might be a problem for only the biggest institutions. Let's take a look at where we might expect to run into problems.

When I went through broker training at FXCM, the team leader cited the EUR and USD as being involved with 60% of all forex trading volume. That number does not imply how much volume occurs in the specific EURUSD pair. Also, that that was seven years ago. I dug around looking for more up to date numbers. Forex trading volume is notoriously hard to track due to it being an over the counter market. The best proxy that I know of is the FX futures market.

The CME publishes FX futures contracts volume (page 16), which I used to estimate the proportion of the EURUSD pair in relation to all traded volume. FX futures contracts, like their spot counterparts,  are all denominated in different currencies. Except for the e-mini and e-micro contracts, which resemble the mini lots of retail forex trading, the contract size is roughly $150,000. I'm counting contracts rather than actual notional value to speed up the calculations. You can double check my calculations by downloading this spreadsheet. The EURUSD pair represents 33% of all forex trading volume based on my rough estimates.

The EURUSD value traded per day on Reuters is 33% of $130 billion, which is 43.33 billion. The average trading consists of 1,440 minutes per day. 43.33 billion trades per day / 1,440 minutes per day yields an average traded amount of $30,092,592 traded per minute. Again, this is a huge number.
Everyone in forex trades on margin. Institutions traditionally keep their margin very low. Assume that 3:1 is the norm for the big players. That means that the actual funding in the account only needs to be $10 million dollars (30/3). That's a lot of money, but that is chump change by institutional standards. That's more on par with a wet behind the ears CTA that launched within the past few years. This scenario is for the most liquid currency pair on the largest currency trading platform in the world.

Dropping down to the retail scenario, the numbers involved get much, much smaller. The Financial Times cites FXCM's average trading volume as $55 billion per day. This is tens of multiples higher than an average broker's volume. I picked it because it's the highest that I know of and I wanted to demonstrate a big scenario. 33% of $55 billion is $18.15 billion traded on the EURUSD. $18.15 billion / 1,440 minutes per day is $12.6 million traded per minute.

Retail traders leverage far higher than institutions. Again, let's be kind and make the assumption that the average retail trader employes 15:1 leverage on the account (hint: it's much higher). $12.6 million / 15 implies that it only takes an account balance of $840,277 to trade all of the expected trading volume in an average minute. One trader is unlikely to have a balance that large, but a segment of a broker's customers most certainly do.

The fragmentation of the market combined with leverage makes it strikingly easy for a group of traders to suck up all of the liquidity available on a given platform. Even though trillions are available across the broader market, the broker or platform where a trader participates is substantially more limited. The scenarios modeled use the EURUSD, the most liquid pair in the world. Liquidity gets exponentially worse when examining exotics or cross currencies. The volumes are far lower, but the available leverage and account balances remain the same.

When too many traders buy the same EA, all orders fire off at the same time. Blockbuster EAs easily reach the combined account equity floor where demand overwhelms supply. Finer details like all of the supply is being one sided make the situation all the worse.

EES: Sell Euro on Spikes

Based on an overwhelming bearish negative bias on the euro (FXE) from multiple sources (individuals, banks, analysts, and fund managers) we believe selling the euro on any run-up is a viable strategy.

http://seekingalpha.com/article/830411-sell-the-euro-on-spikes

A History of Exchange-rate Regimes Infographic

http://www.marketoracle.co.uk/images/2012/Aug/history-of-exchange-rates2.png

Euro nears 1.26 on Spain bailout news

The euro climbed to a fresh seven-week high against the dollar on Thursday on news Spain is negotiating with the euro zone over conditions for international aid to bring down its borrowing costs though the country has not made a final decision to request a bailout.

Earlier, the single currency set a fresh seven-week high against the U.S. dollar after Federal Reserve minutes hinted at more monetary easing in the U.S., while French and German business activity surveys were not as bad as feared.

http://www.cnbc.com/id/48759178

FRANKFURT — New economic data on Thursday bolstered expectations that the euro zone is sliding into recession, adding to the pressure on the leaders of France and Germany as they met to discuss the debt crisis.
http://www.nytimes.com/2012/08/24/business/global/daily-euro-zone-watch.html

http://www.zerohedge.com/news/european-no-action-just-talk-rumor-mill-back

EES Updates Traderstartpage.com

Traderstartpage.com homepage for traders.  News, market info, research, and resources.

www.traderstartpage.com

Please bookmark, use as your homepage.

Analytics must be put centre stage in decision making

In today's volatile business environment, organisations must be ready to reconfigure their strategic priorities at speed, and with certainty.

Crucially, instead of basing major business decisions on intuition, they need to mine the data and information at their disposal to drive rapid decision making.

This is why analytics - the use of data, statistical and quantitative analysis, explanatory and predictive models - has moved centre-stage.

According to market research firm IDC, the market for business analytics software grew 14 percent in 2011 and will hit US$50.7bn by 2016.

Of course, analytics itself is nothing new.

Organisations such as Google, Tesco and Caesars Entertainment are well recognised for their ability to predict market trends, customer behaviours and workforce staffing requirements and turn these into top-line growth and/or bottom line savings.

But for the many other businesses now seeking to take advantage of analytics, there continues to be a lack of clarity around certain fundamental questions.

What is analytics? How can it propel and improve an organisation's competitive positioning or effectiveness?

What does it mean to truly become an analytical organisation? And how does an organisation set out on this critical journey?

Although the development of analytical capabilities and capacity is obviously important, a focus on data, methods and technology alone will not magically deliver the insights needed for competitive edge.

http://www.bbc.co.uk/news/business-19065947?print=true

EES FX #1 on Forex Verified

http://forexverified.com/

Rothschild bets £130m against Euro

Lord Rothschild has taken a near-£130m bet against the euro as fears continue to grow that the single currency will break up.

http://www.telegraph.co.uk/finance/financialcrisis/9484435/Lord-Rothschild-takes-130m-bet-against-the-euro.html

UBS launches quant unit

UBS AG (UBS) is starting a unit aimed at attracting clients among quantitative hedge funds, combining services from its prime brokerage and direct-execution trading businesses.

Scott Stickler in New York will be global head of the operation, called UBS Quant HQ. Strategies across equities, options and futures will be supported with fixed income and foreign exchange to be added later, he said. The business targets startups and established funds with long-short or hedged strategies and those focused on arbitrage.

Investment firms formed as a result of regulations to curb risk-taking within banks are looking for help with technology consulting services, trading and financing, according to Stickler, who was hired in July 2011. The unit began working with more than a dozen hedge-fund clients in the second quarter as it prepared for the Quant HQ introduction, he said.

“One of the trends we’re seeing is a number of startups, folks coming out of big banks because of the Volcker rule and starting their own hedge funds,” Stickler said in a phone interview. “Clients are coming to us who wanted us to be in this business and who want to be able to take advantage of our global presence and our counterparty safety, stock-loan and execution capabilities.”

http://www.bloomberg.com/news/2012-08-20/ubs-starts-unit-providing-services-for-quantitative-hedge-funds.html

EES: SNB on unpeg watch

...how would the SNB handle a volatile situation in the event Finland, Greece, or Austria exit the euro? 

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

Investors Prepare for Euro Collapse

By Martin Hesse

Banks, companies and investors are preparing themselves for a collapse of the euro. Cross-border bank lending is falling, asset managers are shunning Europe and money is flowing into German real estate and bonds. The euro remains stable against the dollar because America has debt problems too. But unlike the euro, the dollar's structure isn't in doubt.

Otmar Issing is looking a bit tired. The former chief economist at the European Central Bank (ECB) is sitting on a barstool in a room adjoining the Frankfurt Stock Exchange. He resembles a father whose troubled teenager has fallen in with the wrong crowd. Issing is just about to explain again all the things that have gone wrong with the euro, and why the current, as yet unsuccessful efforts to save the European common currency are cause for grave concern.
He begins with an anecdote. "Dear Otmar, congratulations on an impossible job." That's what the late Nobel Prize-winning American economist Milton Friedman wrote to him when Issing became a member of the ECB Executive Board. Right from the start, Friedman didn't believe that the new currency would survive. Issing at the time saw the euro as an "experiment" that was nevertheless worth fighting for.
Fourteen years later, Issing is still fighting long after he's gone into retirement. But just next door on the stock exchange floor, and in other financial centers around the world, apparently a great many people believe that Friedman's prophecy will soon be fulfilled.
Banks, investors and companies are bracing themselves for the possibility that the euro will break up -- and are thus increasing the likelihood that precisely this will happen.
There is increasing anxiety, particularly because politicians have not managed to solve the problems. Despite all their efforts, the situation in Greece appears hopeless. Spain is in trouble and, to make matters worse, Germany's Constitutional Court will decide in September whether the European Stability Mechanism (ESM) is even compatible with the German constitution.
There's a growing sense of resentment in both lending and borrowing countries -- and in the nations that could soon join their ranks. German politicians such as Bavarian Finance Minister Markus Söder of the conservative Christian Social Union (CSU) are openly calling for Greece to be thrown out of the euro zone. Meanwhile the the leader of Germany's opposition center-left Social Democrats (SPD), Sigmar Gabriel, is urging the euro countries to share liability for the debts.
On the financial markets, the political wrangling over the right way to resolve the crisis has accomplished primarily one thing: it has fueled fears of a collapse of the euro.

http://www.spiegel.de/international/business/investors-preparing-for-collapse-of-the-euro-a-849747-druck.html