By Michael Trinkle, ForexTraders

Two of the most powerful people in the world will speak Thursday morning concerning the global economic outlook.  The EUR/USD has moved up slightly during the London session on the heels of positive bond auctions in Spain and France; however, the market was unable to bid prices up beyond yesterday’s HI’s at 1.2855 as investors wait for European Central Bank President Jean-Claude Trichet to speak at 8:30 am and Fed Chairman Ben Bernanke at 9:00 am.

Although today is heavy with key risk events, the market may not break out of its trading range until the Non-Farm Payroll release tomorrow morning.  NFP tends to be one of the most revered key leading indicators of economic health, and the market may be hesitant to commit to large directional positions before the NFP confirms economic direction.

Trichet

As stated, the euro found strong support this morning as a result of strong bond auctions in France and Spain.  Strong bond auctions are expected in France, but the market is still watching Spain, Portugal, Greece, Italy, and Ireland very closely.  For several months now, we have been writing about the possibility of the EuroZone Debt Crisis re-emerging this fall.  One of the leading indicators that will show the EuroZone is again in serious trouble will be when and if these struggling countries face difficult bond auctions.  As of yet, there is still plenty of investor demand for these bonds, but if the fiscal concerns do become serious enough that investors are unwilling to buy Greece, Portugal, Spain, Ireland, or Italy’s bonds, then there will most likely be a huge bout of risk aversion that sweeps the market once again.

European equity markets remained subdued even in light of the positive bond auctions as investors were unwilling to bid prices up before Trichet speaks this morning.  The market will be watching and listening closely to see whether Trichet formally commits to extending liquidity to help the European banking system.  GDP blew past market expectations in the 2nd quarter.  The expected figure was 0.7%, and the actual figure came out at 1.0%, which was quite surprising considering the systemic problems the EuroZone faced during the Q2 with its Debt Crisis.  However, Germany was able to benefit enormously from a cheap euro as its exports were much more attractive to foreign buyers, and that increased exporting activity in Germany helped overall EuroZone GDP tremendously.  Now, many economists are concerned that economic growth will slow significantly in Q3 as the euro has strengthened during the last 3 months.

Trichet is also expected to cast a cautious tone concerning economic outlook, but traders will be listening closely for any new verbiage or departure from his normal mood of cautious optimism.  Trichet has also been championing fiscal austerity in developed nations, saying that countries such as the U.S. should turn to decreasing government spending.  Interestingly enough, Fed Chairman Ben Bernanke is actually about to the do the exact opposite as he and the rest of his Board Members at the Fed are currently preparing to inject another round of fiscal stimulus into the U.S. economy.

Bernanke

Today, Fed Chairman Ben Bernanke will be testifying before the Financial Crisis Enquiry Commission in Washington DC.  Bernanke’s testimony comes in 2 parts:  a written, prepared statement and an open Q&A session with the Congressional board.  The prepared statement does not generally move the market as most of his verbiage will most likely be as expected, but during the Q&A, his answers to tough questions oftentimes offer a clearer picture to investors concerning the Federal Reserve’s next steps.

The most likely scenario in the United States is that the economy will enter into a prolonged period of very sluggish growth.  Mr. Bernanke has been communicating this view consistently, but he is concerned that the very sluggish growth could pull the U.S. into a deflationary period, which can be disastrous for an economy and can lead to a decade or more of virtually no economic growth.  This fear is why Mr. Bernanke and the Federal Reserve are seriously considering yet another round of quantitative easing.  They are willing to do anything to stimulate the economy back into robust growth.

Market Price Action

Yesterday, we mentioned the euro was beginning to put pressure on resistance to the upside.  We currently have some very fascinating price action beginning to develop between the euro, pound, and dollar.  Generally, the EUR/USD and GBP/USD move in very tight correlation.  However, we have been seeing that correlation break down over the last few days.  This morning, U.K. Nationwide HPI came out below the market expectation of -0.3% at -0.9%.  This surprise to the downside led the pound to move lower in the immediate aftermath of the release and then to drift sideways and lower throughout the London session.
 
On the other hand, the euro has again moved to the upside during the London session today.  The economic outlook and Central Bank leaders in the U.S, U.K. and EuroZone are diverging.  In the EuroZone, Trichet is by far the most hawkish concerning interest rates and monetary conditions, and the EuroZone is also posting pretty good economic data relative to these other countries.  Therefore, the euro is beginning to move higher, and if economic data continues to back up Trichet’s decisions, we could see the euro move up quite a bit versus both the dollar and pound in the coming weeks.

Of course, the elephant in the room concerning the EuroZone is the possibility that any day the EuroZone Debt Crisis could begin to erupt again, but currently those fears seem to be on the backburner.  If the sovereign default concerns in the EuroZone can remain contained, then the euro could move up quite nicely in the next few months.

We have been calling for a huge drop in the euro at some point in the latter part of 2010, but the reality is that will most likely not happen as long as the Debt Crisis remains under control.  As a trader, be on the lookout for the first signs of major fiscal trouble in struggling EuroZone countries.

More articles from ForexTraders….

By Robert Reich, Robert Reich

What passes for business reporting in the United States is too often a series of breathless reports about the stock market. When the Dow rises precipitously, as it did today (Wednesday), the business press predicts an end to the Great Recession. When the stock market plummets, as it did last week, the Great Recession is said to be worsening.

Pay no attention. The stock market has as much to do with the real economy as the weather has to do with geology. Day by day there’s no relationship at all. Over time, weather and geology interact but the results aren’t evident for many years. The biggest impact of the weather is on peoples’ moods, as are the daily ups and downs of the market.

The real economy is jobs and paychecks, what people buy and what they sell. And the real economy — even viewed from a worldwide perspective — is as precarious as ever, perhaps more so.

Today’s rally was triggered by news that one of China’s official measures of its growth – its Purchasing Managers Index – rose. The index had been in decline for three straight months.

Why should an obscure measurement on the other side of the world cause stock markets in New York, London, and Frankfurt to rally? Because China is so large and its needs seemingly limitless that its growth has been about the only reliable source of global demand.

Many big American companies have been showing profits because they’re doing ever more business in China while cutting payrolls at home. American consumers aren’t buying much of anything because they’ve lost their jobs or are worried about losing them, and are still trying to get out from under a huge debt load (the latest figures show more consumer debt delinquent now than last year and a surge in personal bankruptcies). The U.S. housing market is growing worse, auto and retail sales are dropping, and the ranks of the jobless continue to swell.

Europe is in almost as much a mess. The problem there isn’t just or even mainly that Greece and other nations on the “periphery” have too much public debt. A bigger problem is European consumers aren’t buying nearly enough to generate more jobs. Unemployment remains high, and the trend is bad. Manufacturing growth there has slowed to its weakest pace in six months. Yet bizarrely, Europe’s large economies – Britain, Germany, and France – are paring back their public budgets. It’s exactly the wrong time, and a recipe for disaster.

Germany’s so-called “job miracle” (as Chancellor Angela Merkel calls it) is more mirage than miracle. Most of the gains in employment there have come from part-time jobs, often at low pay. Average annual net income per German employee continues to drop. This explains why domestic demand there is so sluggish and why Germany is desperately dependent on its exports of machinery and manufacturing components to Asia, especially China.

Meanwhile, Japan, now the world’s third-largest economy, is a basket case. Japanese consumers aren’t buying much of anything, and why would they? The country is still in the grip of a deflationary cycle that shows no end. Japanese consumers reason if they can buy it cheaper next week there’s no reason to buy now. Basically the only thing keeping Japan’s economy going are its exports of cars and electronic components to China.

Australia is booming, but look closely and you see the same buyer. Australia is making a boatload of money selling its minerals and raw materials to China (Australia is fast becoming one big Chinese mine shaft). The Brazilian economy is soaring. Why? Exports of wheat and cattle to China. Middle East oil producers are getting richer. Why? China’s insatiable thirst for oil.

Elsewhere around the globe the picture is as uncertain. Much of Pakistan is under water. Much of the rest of the Middle East is under tyrannical or corrupt regimes. Russia has suffered such a dry spell it’s hoarding wheat. Despite its wealthy few, India’s masses are still terribly poor.

The stock market could plunge tomorrow or the next day because the world’s economic fundamentals are so precarious.

The global economy cannot be sustained by one big, voracious nation – especially one that’s suffering bouts of civil unrest, actively repressing dissent, suffocating under a blanket of pollution and coping with other environmental hazards, and whose biggest companies are run by the state.

More articles from Robert Reich….

The Daily Reckoning

Labor Greens Unite!

Change climate with carbon price

Parasitic kids

Well that’s a good sign. Not twelve hours after we went to press with our latest newsletter – highlighting how September is historically the market’s worst month – and describing a Long Depression, stocks in New York rally by almost three percent. How is that good sign?

The Bear had everyone feeling pretty bearish about him. You can measure this in the number of put option buyers or in surveys. But this morning, we went to Google Trends to see how many people were searching for what you might describe as bearish topics like, say, economic collapse.

Click here to enlarge

You can see that thanks to the publication of two fairly high profile stories that went live late in August by Forbes and CNN, the conversation on collapse got a whole lot louder in the echo chamber that is the internet.

This more or less proves that if you wait on the mainstream press to validate your own thinking, you’ll always be late. It’s only safe for the papers to report on something once everyone’s thinking about it, and by then it’s too late to trade it.

But just to be safe, we asked our own in-house trading guru Murray Dawes what he thought. He wrote back that, “There is the possibility that the market has been ‘caught short’. By that I mean that traders could be overly bearish and short the market as a whole. The good GDP data could be squeezing them out of those positions and causing a short, sharp rally.”

“If this is the case,” he continued, “then you will see the market fall over again soon. If we see the ASX 200 close under the Point of Control of 4,400 in the next week or so then I would be confident that this current buying was a short squeeze and I would expect to see much lower prices in the near future. But until that occurs, this surprise rally should be respected.”

Murray’s article, by the way, was called, “Beware the false break out.” That term, “the false break out,” along with “the point of control” is key to his method of trading the markets. You can find out more by reading about Slipstream Trader.

Now we have to do something that’s required from time to time if you’re not familiar with our business model. We don’t like talking about our business model because you’d probably rather be reading about the stock market or the economy. So we’ll be quick about it!

The Daily Reckoning is free. So is the other e-letter which we publish, Money Morning. In them, you read independent and provocative ideas about the share market and the world that we hope are useful and maybe even profitable. A whole back office team supports getting these e-mails out to about 100,000 people combined each day.

The Daily Reckoning and Money Morning also contain the views of our independent analysts, Kris Sayce, Alex Cowie, Murray Dawes, and Greg Canavan. All of these analysts have chosen to work with us because, like you I suspect, they value a perspective that’s not compromised by any other agendas. They’re free to research and write about whatever they think will make you money, or keep you from losing it.

The newsletters which all of those analysts write cost money. The subscription fee supports the whole operation, including keeping the free e-letters free. To sell subscriptions, we include advertisements. Without the advertisements – which usually feature our latest and best ideas – we find it’s hard to sell subscriptions.

Of course not everybody likes advertising. Not everybody likes vegemite either. But nearly everyone likes free. Of course nothing is ever free. So the price of you receiving a free e-letter that you may occasionally find value from is that you’ll see advertisements for products to which you may already subscribe or to which you have no intention of ever subscribing.

We hope it’s not asking too much that even if you don’t like the ads and don’t want to subscribe, you recognise that we’re in a business and this is how we can provide the e-letters for free. And if you recently received a note from Alex talking about a resource stock that Kris was recommending and wondered why Alex didn’t’ recommend it, the simplest answer is that Alex is not Kris.

That is, Alex writes about resource stocks exclusively and does he research in his own way. It starts with a lot of spreadsheets and lately has included a lot mine site visits and phone conversations with geologists. Alex is well-versed in the resource sector and its nuances.

Kris is a small-cap specialist. There are a lot of small-cap stocks in Australia. There are also a lot of resource stocks in Australia. Many of the small-cap stocks are also resource stocks. Thus, Kris will, from time to time, recommend a small-cap stock that is also a resource stock.

We’ve found that some readers prefer Kris. Some prefer Alex. And some value what both are doing and realise that both are doing their own thing in their own way. If that troubles you…well…it shouldn’t. And if it realllly troubles you, we invite you to take up our offer and request a refund.

Finally, we see that the Greens and Labor have made a deal and that U.S. police have shot an armed man at the headquarters of the Discovery Channel in Maryland after he took people inside the building hostage. And we see that in some strange way, the events are not unrelated. Not causally, mind you, but philosophically.

Part of the big agreement yesterday announced by Labor and Green honchos was the set-up of a multi-party parliamentary committee to put a price on carbon. You can read about it here. But when you read about it, it’s clear that it’s a pretty undemocratic way of pretending to have a debate without having a debate. Typical, but pretty cynical. And as ever with the political class, it defers to the exalted power of “experts.”

Green’s Senator Christine Milne says that this very European process will, “Set up a parliamentary committee representing all the interests in the parliament committed to a certain idea and then enabling the appointment of experts to that committee. So the experts are not just to give evidence to the committee. The experts are part of the deliberations of that committee and that way you create the space in a parliament for people to talk through their own perspectives, nuance those perspectives and try to come up with a parliamentary consensus which has the support of everyone around the idea. “

Emphasis added is our own. But really, how much nuance can you have when everyone on the committee can only be on the committee if they are already committed to a certain idea? How hard is it to build consensus when you exclude everyone who might disagree from participating?

Milne continued: “You will note in the agreement the proviso for membership of the committee is that the people going onto it are committed to a carbon price. They may not all agree with the mechanism of achieving a carbon price but they all want to a carbon price and the idea is to invite everyone to it and the Coalition clearly if they were in opposition would be invited to join it on that proviso. So, it really is about grown up politics in Australia. It’s about ending the all or nothing, it’s about ending the accusations of back flips and sell outs and back downs and so on.”

In order to end the all or nothing false choice, it was necessary to create an all or nothing committee. Everyone who’s on it has to be all for a carbon price. No one who’s against a carbon price can be on it. That really is an effective way to end the argument. By not having it all and excluding other points of view.

Of course the justification for this is that the people against a carbon price are really whack jobs who don’t believe in global warming OR climate change. What’s more, they aren’t even experts. They’re just people, people who believe that common sense is more valuable than credentials. They’re just people. Very little people.

Milne says, “It’s a process we adopted in Tasmania to a very small degree when we achieved gay law reform by bringing in experts from the university, the justice department and so on to work with the parliamentarians. This I think can resolve this issue of a carbon price. It’s very important to us. We want one as soon as possible and we think this mechanism is the best way of delivering it.”

In other words, the best mechanism of delivering an outcome that the public hasn’t clearly endorsed is to use a non-democratic process that only includes people committed to the desired outcome. And that’s democratic how?

Honestly, we have to give credit where credit was due on this one. Julia Gillard had it right. Get a phone book from each city of 10,000 people or more in Australia. Pick ten people at random from each phone book. Put them on a Climate Change Committee. Put them in a three-star hotel outside the airport in Adelaide and give them six days to debate the issue and, if they decide, come up with a law.

What could be more democratic than that? If a random jury of your peers is good enough to deliver equal justice under law in the criminal justice system – where judges and juries must deal with complex evidence and experts – why is it not good enough to for public policy too?

In fact, the more we think about it, legislative conscription may be the best way to run the country after all. Each term, a new randomly selected group of conscripts is drafted to serve in Canberra. They are paid the minimum wage. You can be sure Parliament wouldn’t sit for long and that the government would generally stay out of most people’s lives and wallets, affording Australians the time and money to be good parents and neighbours.

Let’s have a vote! All in favour? All opposed?

But wait, what does this have to do with eco-terrorist James Lee’s bizarre actions and manifesto earlier today? Well, in point one of Lee’s manifesto, he seems to endorse Senator Milne’s committee of experts idea. We’ve reproduced the whole point here so we’re not selectively quoting, although the emphasis added is ours and not Lee’s:

The Discovery Channel and its affiliate channels MUST have daily television programs at prime time slots based on Daniel Quinn’s “My Ishmael” pages 207-212 where solutions to save the planet would be done in the same way as the Industrial Revolution was done, by people building on each other’s inventive ideas. Focus must be given on how people can live WITHOUT giving birth to more filthy human children since those new additions continue pollution and are pollution. A game show format contest would be in order. Perhaps also forums of leading scientists who understand and agree with the Malthus-Darwin science and the problem of human overpopulation. Do both. Do all until something WORKS and the natural world starts improving and human civilisation building STOPS and is reversed! MAKE IT INTERESTING SO PEOPLE WATCH AND APPLY SOLUTIONS!!!!

If poor Mr. Lee had just decided to run for office in Australia, he could be earning a public wage now instead of cooling in a morgue somewhere. He certainly has the right instincts to be in politics. He believes in coercion. He believes in State control of the media. He thinks “top down” solutions imposed from above should trump individual choices. He believes in expert scientists of a certain point of view. He’s against human civilisation and believes that children are filthy pollution.

Point four of his manifesto gets to the heart of his pro-planet, anti-human life message. He writes that, “Civilisation must be exposed for the filth it is. That, and all its disgusting religious-cultural roots and greed. Broadcast this message until the population of the planet is reversed and the human population goes down! This is your obligation. If you think it isn’t, then get the hell off the planet! Breathe Oil! It is the moral obligation of everyone living otherwise what good are they??”

Gee. That’s pretty much straight out of the tyrant’s modern political play book, isn’t it? Civilisation is filth? Check! Religion and culture and tradition are disgusting? Check! Human population should go down because it’s a pestilence? Check! Your obliged to agree? Check! If you disagree, go to hell? Check! If you disagree, you’re immoral? Check!

You get the feeling that some people just don’t like humanity. You get the feeling that some people view human life as a problem to be solved. That solution is vague, but usually involves somebody else dying without being killed. You get the feeling that deep down, some people view human beings as parasites on the planet. You get the feeling some people don’t feel very good about themselves but would like to take it out on the rest of us.

We also get the feeling that some people don’t view human life as the Ultimate Resource, as economist Julian Simon put it. Our view is that these people are themselves very selfish. They can’t imagine the world they live in coping with all the problems they perceive. So they want to destroy the world as it is and remake it into the world they want to live in, even if that world doesn’t include you and me.

It’s all very self-centred, moralistic, and unimaginative. And of course, Lee was plain crazy. He wrote, as this paragraph proves:

The world needs TV shows that DEVELOP solutions to the problems that humans are causing, not stupefy the people into destroying the world. Not encouraging them to breed more environmentally harmful humans. Saving the environment and the remaining species diversity of the planet is now your mindset. Nothing is more important than saving them. The Lions, Tigers, Giraffes, Elephants, Froggies, Turtles, Apes, Raccoons, Beetles, Ants, Sharks, Bears, and, of course, the Squirrels.

Of course the Squirrels!

TV will save us!

Save the froggies.

It would all be absurd and sad if there weren’t real live crazy people trying to run the government who didn’t’ share more or less the same anti-human, anti-civilisation worldview.

Dan Denning
for The Daily Reckoning Australia

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More articles from The Daily Reckoning….

Oil Price Ignores Long-Term Supply Worries

You could be excused for seeing a grim metaphor for the death of the oil age in the scenes of destruction visited on the U.S. Gulf coast this summer.

However, production from the ocean floor is growing more quickly than from any other type of reserve and is supposed to allay concerns about ‘peak oil’, the idea that the amount of crude the world can produce might suddenly decline.

Now, so far, this notion hasn’t had much of an impact on energy prices.

But, as cheaper oil fields are run down and more crude is drawn from expensive, hard-to-reach offshore reserves, the costs of energy supply are starting to rise.

Drilling agency imposes conflict-of-interest rules

WASHINGTON – Scandalized by federal regulators who had sex with oil company executives and negotiated with them for jobs, the agency that oversees offshore drilling is imposing a first-ever ethics policy that bars inspectors from dealing with a company that employs a family member or personal friend.

Michael Bromwich, head of the Bureau of Ocean Energy Management, said the new policy should help restore credibility to his beleaguered agency, which was widely criticized under its former name — the Minerals Management Service — for being too close with oil and gas companies.

President Barack Obama and Interior Secretary Ken Salazar have pledged to end the agency’s “cozy relationship” with industry and slow the revolving door between government and the energy industry.

Pemex looks to shale

Pemex is considering opening an entire line of exploration that concentrates on shale gas wells in the northern state of Coahuila.

Pemex board member Hector Moreira told Market News International the new line could reduce the company’s dependence on natural gas imports.

OPEC oil output falls to lowest since Nov 2009

LONDON (Reuters) – OPEC crude oil supply fell in August to the lowest since November 2009 as reduced supplies from Nigeria, the United Arab Emirates and Iraq offset increased output in Angola, a Reuters survey showed on Wednesday.

Supply from the 11 members of the Organization of the Petroleum Exporting Countries with output targets, all except Iraq, averaged 26.83 million barrels per day (bpd) last month, down from 26.95 million bpd in July, according to the survey of oil companies, OPEC officials and analysts.

The Gas Bulls of Summer Turn into Bears

Recently, the last of the raging bulls on natural gas prices traded in their horns for bear uniforms – and we don’t mean the Monsters of the Midway variety! By throwing in the towel on gas prices for this year, these bulls-turned-bears then proceeded to claw their future gas price forecast by stating they expected $6 per thousand cubic feet (Mcf) to be the long-term average. The reality is that these bulls of summer were really merely acknowledging the power of the market as natural gas prices are about two dollars per Mcf below where they were at the start of 2010, and well below the $7.50/Mcf average gas price the bulls had forecast.

Feds downplay risk of leak when well cap moved

The federal government’s point man on the Gulf of Mexico spill response said Wednesday there is no “significant risk” that more oil will leak into the sea when engineers remove the temporary cap Thursday that first contained the gusher in mid-July.

Retired Coast Guard Adm. Thad Allen said vessels will remain on standby just in case to collect any leaking oil.

FACTBOX – Key political risks to watch in Uganda

(Reuters) – Uganda expects to become an oil-producing nation in 2011, but a protracted dispute with British exploration firm Heritage Oil may delay production and risks unsettling other investors.

With the potential to be a top 50 oil producer, Uganda stands to reduce its budget dependence on foreign aid and improve poor infrastructure.

Nissan starts selling all-electric Leaf sedan today

At long last, Nissan begins taking actual orders today for the first next-generation fully electric car from a major automaker, the Leaf.

Carpooling

Passengers might be the most under-appreciated factor in how much fuel and money you waste. As I write this, for example, a business headline boasts of Toyota’s multi-million-dollar plan to boost fuel efficiency by 25 percent, with the usual discussion of what this will mean for the economy and the climate. Any of us, however, can boost the efficiency of our cars by several hundred percent instantly, with no additional expense or technology, simply by getting more people in the car.

This fact is also forgotten when we judge car owners by the wastefulness of their vehicles. An SUV is a spectacularly inefficient machine compared to a Prius, for example, but pack that Dodge Durango full of people and suddenly it is greener than the electric hybrid driven alone.

Transit systems easier to predict with smart phone apps

Allen Stern says he had a 40-minute wait between buses when he lived in Manhattan. Using a free mobile app that became available about a year ago, he could at least tap into the Metropolitan Transit Authority with his cellphone and find out exactly how far away the next bus was from his stop.

Jatropha: A new form of energy

SINGAPORE – Biotechnology firm JOil is confident that it can breed and genetically engineer the Jatropha plant to be a more sustainable alternative to fossil fuel and other biofuels.

It plans to create a Jatropha hybrid that can produce more fruits and match the four to six tonnes of oil per hectare that palm trees can generate.

Pedal power takes off as exercise produces electricity

Pedal power is gaining traction as thousands of bikes and elliptical machines are retrofitted to produce electricity.

Gyms are using sweat equity to help power their facilities. A Brooklyn eatery uses it to make smoothies. Female inmates at a Phoenix jail pedal to power their TV to watch soap operas. Actor Ed Begley Jr. bikesrides a bike to run his toaster.

Obama lobbied to add solar panels to White House

A campaign to make the White House greener is intensifying as a group of environmentalists plan this month to give President Obama a solar panel that used to sit atop 1600 Pennsylvania Avenue.

Points of departure

There is a strong correlation between energy consumption and economic growth. We can for sure hope for “decoupling” – to be able to have continued economic growth while maintaining or even reducing energy use – but no country has ever managed this Indian rope trick and that does not bode well. Maybe we are high on energy, listening a little to closely to the voice of intoxication, but it will unfortunately all too soon be replaced by a massive hangover.

The Peak Oil Crisis: Prospects for China

The key question in all this is how much longer China’s economic miracle can continue before the realities of finite mineral resources force a slowdown? Another five years of 10 percent annual economic growth will result in Beijing increasing its oil consumption by another 2.5-3 million barrels per day. This alone would likely mop up much of the world’s spare capacity to produce oil and result in very large price increases. When China’s ever growing demand is added to that of India, Brazil and the oil exporting states, the likelihood that we will see a substantial increase in oil prices within the next five years becomes very high.

Secret German military study warns of dramatic oil crisis

Berlin : A confidential German army study warned of a looming oil crisis which could have dramatic political and economic consequences for the world, the Hamburg-based weekly news magazine Der Spiegel said Tuesday.

According to the report, a think-tank of the German army has for the first time ever analyzed the security policy dimensions of the peak oil problem.

Peak Oil from a Security Studies Perspective

The Strategic Institute of the German Bundeswehr has now published a document on the implications of peak oil for security (more precisely: the study was leaked). The study is very well written and recommended as an essential read not only for geostrategist but especially for those involved in global sustainability questions. In fact, at least in wording the authors care about such diverse issues as environmental impact of unconventional oils and the impact of global-marked-induced land-use change on indigenous populations. It is worthwhile to have a closer look on some of their results:

Remembering Matt Simmons

Matt Simmons, a long time friend of the Maine coast and its islands and a student of the winds and waters of Gulf of Maine, loved to tell the story of his first trip to Maine, courtesy of a labor strike while he worked construction one summer as a college student in his home state of Utah. When a labor dispute suddenly shut down the construction site, he and a buddy were only too happy to collect their strike checks and head out on a jaunt. They went north into the Canadian Rockies then turned right and headed toward the Inscrutable East, dipping back down into the United States via the border at Jackman, where they drove along the shores of Moosehead Lake before ending up in Boston. On a lark, Matt ducked into the Harvard Business School, which had not had a long history at that point of actively recruiting students from Mormon country in Utah, but the visit was enough to entice him to apply and enroll. Matt loved telling that story because it held the kinds of mutually opposed contradictions he loved to explore-a businessman who owed his right future to a labor strike. If genius is the ability to hold mutually opposing ideas in the mind at the same time without being paralyzed, Matt Simmons would certainly qualify.

Oil Drops, Caps Worst Month Since May, as Hurricane Earl Threatens Demand

Oil tumbled, capping its worst month since May, on forecasts Hurricane Earl will pelt the U.S. East Coast, curbing fuel demand during the Labor Day holiday weekend.

Crude dropped the most in 12 weeks amid speculation that stormy weather will keep beachgoers and travelers at home. Labor Day is the traditional end of the U.S. summer driving season, the peak gasoline demand period. U.S. gasoline demand slid to a 12-week low last week, MasterCard Inc. reported today.

“It’s the last thing we need,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “It’s a big gasoline consumption weekend. Given how poor the gasoline demand has been, it will be a final parting blow for the summer driving season if people won’t hit the beach in droves.”

Ethanol Surpasses Gasoline for First Time Since December

For the first time since December, ethanol prices are higher than gasoline as corn surges and refiners profit from tax breaks.

Gas Prices Explained

So what determines the price of gasoline? Speculators? Evil conspiring oil companies? Well, actually no. It’s demand and supply, of course. On the demand side the American automobile fleet gets better gas mileage than it did a few years ago and Americans, whacked by the recession and high unemployment rates, are driving a bit less than they used to. In addition, thanks to government subsidies, about 9 percent of what goes into our gas tanks is ethanol produced from corn, which also reduces the demand for refined crude. On the supply side, global oil supplies are ample and refiners in the U.S. evidently believed the Obama administration’s rosy “recovery summer” scenarios and stockpiled a lot of gasoline.

Sinopec Plans to Cut September Oil Processing by 4% at Refinery in Hainan

China Petroleum & Chemical Corp., Asia’s biggest refiner, will process 4 percent less crude oil at its Hainan plant in September compared with last month, an official at the refinery said.

FACTBOX-Key political risks to watch in Saudi Arabia

(Reuters) – Saudi Arabia, under the rule of an ageing King Abdullah, has the dilemma of making reforms that keep the austere clerical establishment that opposes change on side and violent Islamist militants at bay.

Any instability at the helm of Saudi Arabia, which controls more than a fifth of the world’s crude oil reserves and is a regional linchpin of U.S. policy in the Middle East, would be a concern for the rest of the Arab Gulf region.

FACTBOX-Key political risks to watch in Yemen

(Reuters) – Rising al Qaeda militancy, a surge in violence in a secessionist south and crushing poverty will be this year’s critical tests for Yemen, neighbour to top oil exporter Saudi Arabia.

Reid hopeful for GOP energy votes after elections

WASHINGTON (Reuters) – Senate Majority Leader Harry Reid said he hoped to pick up Republican votes for a pared-down energy bill after the midterm congressional elections.

“Maybe after the elections we can get some more Republicans to help us on these issues,” Reid, a Democrat, told reporters in a teleconference on Tuesday.

Sinopec Sees Solid Gas Growth Ahead

While oil production experienced sluggishness in the first half, natural gas production showed solid growth. China is ramping up gas production as it seeks to find alternatives to coal, which emits high carbon levels. It is set to raise the country’s energy needs from the current 3% to 10% by 2020.

Insurance likely to reduce BP’s liability for Gulf of Mexico oil spill

BP PLC has taken on some of the blame for the Deepwater Horizon rig that spilled millions of gallons of oil into the Gulf of Mexico earlier this year, but the company is still expected to have limited liability for mistakes made misreading pressure data that indicated a blowout was imminent.

BP Raises $363 Million in Malaysian Asset Sale to Help Pay for Gulf Spill

BP Plc, seeking cash to help pay for the worst U.S. oil spill, agreed to sell its Malaysian chemical assets to Petroliam Nasional Bhd. to focus on projects in China and India.

BP will sell its 15 percent stake in Ethylene Malaysia Sdn and 60 percent interest in Polyethylene Malaysia Sdn for $363 million, the London-based company said today in a statement. It will also be eligible for a possible $48 million dividend from the ethylene unit.

A Nuclear Giant Moves Into Wind

Exelon, a nuclear giant that recently backed away from building new nuclear plants, is moving into wind.

Canada company builds major waste-to-biofuel plant

VANCOUVER, British Columbia (Reuters) – A Canadian company started construction on Tuesday on what it says is the world’s first industrial-scale plant to turn municipal waste into biofuel.

Privately-owned Enerkem Inc said the C$80 million ($75 million) facility in Edmonton, Alberta, will produce enough biofuel to keep more than 400,000 cars a year running on a 5 percent ethanol fuel blend.

Thorium Cures the Free Market

Obama could kill fossil fuels overnight with a nuclear dash for thorium … If Barack Obama were to marshal America’s vast scientific and strategic resources behind a new Manhattan Project, he might reasonably hope to reinvent the global energy landscape and sketch an end to our dependence on fossil fuels within three to five years.

New Warnings About Costs of Nuclear Power

As anticipation grows about a possible renaissance for the nuclear power industry — and about its potential for curbing greenhouse gas emissions — some politicians are stepping up warnings about the high cost of such projects.

Last week, Traicho Traikov, the Bulgarian economy and energy minister, said the cost of building a second plant near the Danube River had reached 9 billion euros, or $11.4 billion, according to the Sofia News Agency.

The original cost of the project for two reactors was expected to be just under $4 billion.

Homeowners Must Pay Off Energy Improvement Loans

Many homeowners who participated in a program that let them repay the cost of solar panels and other energy improvements through an annual surcharge on their property taxes must pay off the loans before they can refinance their mortgages, two government-chartered mortgage companies said Tuesday.

The guidance came from Fannie Mae and Freddie Mac as efforts to resolve a dispute over the program — called Property Assessed Clean Energy, or PACE — have failed.

Calif. rejects ban on plastic shopping bags

SACRAMENTO, Calif. – California lawmakers have rejected a bill seeking to ban plastic shopping bags after a contentious debate over whether the state was going too far in trying to regulate personal choice.

The Democratic bill, which failed late Tuesday, would have been the first statewide ban, although a few California cities already prohibit their use.

A Greener Champagne Bottle

“This is how we’re remaking the future of Champagne,” he said, pointing to the area just below the neck. “We’re slimming the shoulders to make the bottle lighter, so our carbon footprint will be reduced to help keep Champagne here for future generations.”

The Champagne industry has embarked on a drive to cut the 200,000 metric tons of carbon dioxide it emits every year transporting billions of tiny bubbles around the world. Producing and shipping accounts for nearly a third of Champagne’s carbon emissions, with the hefty bottle the biggest offender.

Cleaner Cars, A to D

The Obama administration has proposed new stickers for cars and light trucks that will make it easier to see whether you are buying a fuel-efficient one or a guzzler, and how much it contributes to global warming. The stickers are a symbol of how far this country has come in providing a wider range of environmentally responsible choices to help ensure cleaner air and a healthier planet.

L.A. mayor, Latino activists take on oil companies over Proposition 23

They say the ballot initiative to suspend the state’s climate change law would hurt low-income communities already suffering the most from pollution.

Jeff Rubin: High energy prices make Copenhagen green

There is certainly much to be said for Denmark’s leadership in green energy. While North American carbon emissions have risen by around 30 per cent since 1990 (the reference point for the Kyoto Accord), Denmark’s emissions are actually lower than they were two decades ago. That’s generally ascribed to the fact that a world-leading 20 per cent of the power generated in Denmark comes from wind.

Less commonly known is the source of the other 80 per cent. I was surprised to discover that it comes from good old King Coal. In fact, coal’s share of power generation in Denmark’s power grid is basically the same as it is in China.

Tiny creatures reveal ancient sea levels

“It was a very big surprise,” says David Barnes, lead author of the study at the British Antarctic Survey, of the find of similar bryozoans 2400 kilometres apart in seas on either side of the West Antarctic ice sheet, which is 2 kilometres thick.

“The most likely explanation of such similarity is that this ice sheet is much less stable than previously thought and has collapsed at some point in the recent past,” he says.

“And if the West Antarctic ice shelf has been lost in recent times we have to re-think the possibility of loss in future with climate change.”

By Michael Trinkle, ForexTraders

After nearly 2 weeks of trading within a tight 150 pip range, the euro broke upside resistance at 1.2780 during the London session early Wednesday morning.  The euro actually broke through 2 key swing HI’s on the hourly chart as it broke to the upside, so we could see further euro gains in the coming days.  
 
In this chart, you can see the two clear swing HI’s in the green-shaded boxes that the euro broke above in order to post new HI’s this morning.  Then, the euro continued to push higher in early New York trading as buyers bid EUR/USD up to the 1.2850 area.  The euro will face heavy resistance in the 1.2900 area and should see sellers protect the area initially.  If the euro moves higher during the NY trading session and pressures the 2900 level, there may be very strong selling interest today.  The euro has already moved beyond its daily range at the start of the NY session, and when a currency pair is overbought as the euro is today, it oftentimes has strong difficulty breaking through key areas of support and resistance.

The push from 1.2800 to 1.2850 during early NY trading was due to the ADP Employment figure that came out at 8:15 est.  The number was a big disappointment as it posted at -10k versus the expected figure of +15k.  This means there was a loss of 10,000 jobs instead of the expected gain of 15,000.  The focus in the United States is heavily on employment figures.  The very poor labor market conditions are weighing on economic recovery and this number today is yet another confirmation that the U.S. economy is really struggling.  Economists and investors know this, but each disappointing figure just makes it worse.

The ADP Employment number can also be a leading indicator for Friday’s Non-Farm Payroll, and if it is in this case, we could see a very strong bout of risk aversion enter the market.  The question is which direction will the Dollar go?

Case for Dollar Weakness

Generally, when U.S. data comes out very poor, the Dollar tends to get strong as investors rush into the safety of the U.S. Dollar.  Then, as U.S. data comes out good, investors tend to sell the Dollar as they rush out of the low-yielding Dollar and into higher-yielding currencies.  However, during the last 3 months we have seen this correlation break down.  During the months of June and July, market participants aggressively sold the U.S. Dollar as key economic data came out negative.  Let’s break down why this has been happening.

The current global recovery is facing a major wall of resistance as the U.K., U.S., China, and the EuroZone are all facing uncertain financial conditions.  The U.S., however, seems to be facing the most difficulty at the moment.  China is still moving forward in very strong fashion, they are simply going through a period of slower than usual growth.  The same seems to be true in the U.K. and the EuroZone.  The U.S. is in a different place, though.  In the U.S., the threat is not only an economic slow-down, but an actual economic contraction.  Key economic indicators seem to be pointing to a possible double-dip recession in the United States, and some economists are beginning to predict that the Q3 GDP may read negative in the U.S.  Two consecutive quarters of negative GDP constitutes a recession.  Since the U.S. is really facing this potential threat alone, investors are beginning to raise the possibility of selling the U.S. Dollar as U.S. news continues to come out negative.

If this phenomenon continues, it could serve disastrous for the U.S. Dollar.  Investors have long been not interested in holding the Dollar during good times because of the incredibly low yield offered.  However, the market has tended to hold the Dollar during bad times since investors want the safety of their capital above everything else.  What will happen if the U.S. heads into economic contraction and other developed nations do not?  How will this affect the U.S. Dollar?

Most likely the U.S. Dollar will weaken significantly because there will be no reason for investors to hold it.  This could be the beginning of the great U.S. Dollar bear run that many economists and experts have been predicting for some time.  We have seen hints of this phenomenon unfold during June and July and we have seen it again today.

Case for Dollar Strength

Unfortunately, it seems that the only case for real U.S. Dollar strength during the 2nd half of 2010 and into 2011 is if the global economy slows significantly.  Currently, investors are unsure of the economic outlook.  There are many mixed signals in the market, and the economic outlook is probably more uncertain right now than in recent history.  At the beginning of The Great Recession, at least investors knew we were in trouble.  Now, no one is sure.  Are we going to rebound and move up from here, or is there still significant downside risk?  Of course, there is downside risk, but no one knows how far we will fall, if we will fall, or when we will fall if we do.  The outlook is very uncertain.

As long as the global outlook remains uncertain, the U.S. Dollar should find strength as investors are unwilling to completely depart from the safety of U.S. Treasuries.  However, if the global economy does deteriorate during the next month to several months, and it becomes clear that other countries are in the same degree of trouble as the U.S., then the Dollar should remain in bullish mode.

Lately, we have seen poor U.S. news come out, the market sells the Dollar aggressively, and then after 15-30 minutes of Dollar selling, the market reverses course and begins buying the Dollar only to retrace all the Dollar weakness and actually move into further Dollar strength within several hours.  This is what is playing out during the NY trading session at the moment, as investors remain very uncertain of the economic outlook.

More articles from ForexTraders….

Zero Hedge

Submitted by Econotwist

Flight to Mystery

Assets managed by European UCITS
III funds have increased to $52.3 billion over the last two years.
These special purpose vehicles are about to kill the traditional hedge fund industry, and are emerging as the new generation of sophisticated investment strategies.

“Using cautious estimates, projections for 2012 indicate that
over €8,000 billion will be invested in UCITS products, an increase
of 60% – from €5,000 billion at end 2007.”

Eurekahedge Pte.

UCITS – also called NEWCITS

Finally, some happy news for all the bankers who have been living in fear lately of how the new financial regulations – also known as the Dodd-Frank Legislation – will affect their business. I’m proud to announce: Problem solved!

It was Morgan Stanley who put me on the track to this brilliant solution a couple of weeks ago when they announced the launching of its first UCITS III Fund on the Firm’s FundLogic trading  platform.

Since then, I’ve discovered that all the big US, and all global non-European, banks are doing the exact same thing.

They are in practice outsourcing their investment bank activity to Europe.

The new financial regulations in both US and EU are aimed at traditional hedge
funds (who have been blamed for everything from causing the financial
meltdown to climate change) and the well-known tax heavens – also known
as offshore banking.

But the financial industry seems to have found an alternative in EU’s UCITS III Funds. (Undertakings for Collective Investments in Transferable Securities).

And the alternative is about to get even better with the introduction of UCITS IV in 2011.

In fact, it’s so good that several financial institutions are
bringing their offshore accounts from places like Calman Island and
Bermuda onshore – inside the EU area.

A collective investment fund may apply for UCITS status in order to allow EU-wide marketing.

UCITS’ are a set of European Union directives that aim to allow collective investment schemes to operate freely throughout the EU on the basis of a single authorization from one member state.

In practice many EU member nations have imposed additional regulatory
requirements that have impeded free operation with the effect of
protecting local asset managers.

In other words; the EU countries are now competing to offer the funds
the best possible framework, with as few regulations as possible.

At the moment Ireland and Luxembourg is leading the race.

Morgan Stanley’s UCITS III Fund will be managed by by P.Schoenfeld Asset Management LP (PSAM) in Ireland.

Shahzad Sadique, Executive Director and Head of FundLogic at Morgan Stanley says in a statement: “We
are seeing a huge level of interest from investors to access
alternative asset manager expertise through UCITS Funds and are
delighted that PSAM has partnered with Morgan Stanley. We are currently
seeking regulatory approval for a number of funds managed by leading
alternative asset managers and look forward to launching more UCITS
funds on FundLogic in the next few months.”

(Morgan Stanley Press Release)

Mostly Illegal

UCITS III Funds are illegal to offer and sell in the US and most
other countries around the world, except within the 30 countries
connected to the European Economic Area (EEA).

The idea behind the UCITS is to create a single market in
transferable securities across the EU. With a larger market the
economies of scale will reduce costs for investment managers which can
be passed on to consumers.

However, many asset managers are using UCITS as a main channel for
globalizing their businesses with considerable interest outside the EU
and as far out as Asia and South America.

UCITS III Funds   is the second version of the EU Commission’s
directive outlining a framework for investment funds suitable for
marketing to retail investors and has standardized rules for
authorization, supervision, structure and activities of collective
investment undertakings in the EEA and so to enable them to be
distributed throughout the EEA.

This significantly enlarges the range of investment instruments that could be used, notably allowing use of derivatives.

It makes it possible for hedge fund managers to launch versions of
their strategies in a UCITS version so many more investors can access
them.

According to the EU directives, a UCITS fund must be open-ended, liquid, well-diversified, invest only in certain “eligible”
assets (i.e. quoted securities, money market instruments, deposits,
certain derivatives and units in other UCITS) and can only employ
limited leverage.

Examples of Financial Derivative Instruments that can be used:

• CFDs:
Under UCITS III rules, the manager can be long up to 100% in directly
held equity securities and short up to 100% using stock specific
derivatives such as contracts for difference (CFDs) or stock specific
futures. Therefore, the fund can be leveraged up to 100% of NAV.

• Total Return Swaps: This involves investing in a portfolio and
swapping its return through a total return swap for a return that is
related to a reference basket (or index). Examples of a suitable
reference basket could be an equity long/short strategy or a commodity
index. This structure is ideal for managers that find the restrictions
of the previous option too onerous as the reference basket itself does
not have to comply fully with the UCITS rules.

• Credit Default Swaps:
CDS can be used in a number of ways in fixed income strategies, for
example hedging exposures and buy/write protection, or playing the basis
between the CDS and underlying corporate spreads.

* Certificates (either individually or in a
series) can also be used within the UCITS III framework to replicate the
risk/return profile of FOHFs. Alternatively, a UCITS eligible index can
be created to replicate all of the underlying hedge fund strategies;
the index needs to meet the UCITS criteria of eligibility though.

With any of the techniques mentioned, distribution is paramount to
global take-up of UCITS III, and has become the most dominant channels
for cross-border sales of UCITS funds, owned by third-party distributors
and open architecture platforms.

Hedge fund managers, sitting in a larger asset management company
with existing mutual fund platforms, are ideally positioned to
distribute UCITS III funds offerings, benefiting from access to a wider
spectrum of clients.

Road to Freedom

Because the UCITS lies outside the scope of the European draft
Alternative Investment Fund Managers Directive, which is likely to
impact unregulated offshore hedge funds in yet undefined ways, this is
potentially beneficial as the AIFM Directive is likely to impose
constraints on European investors investing in third-country funds, and
most likely include those domiciled in offshore jurisdictions such as
Cayman Islands and Bermuda.

However, Morgan Stanley is not one of the pioneers in this area.

Last month it emerged the world’s third largest hedge fund, Paulson & Co, is coming to Europe.

Founder John Paulson, who made a 589% and 351% profit in his two
Credit Opportunities hedge funds on the US subprime collapse, is making
himself available via a UCITS fund later this year.

But neither Paulson is the first to make his skills available to retail investors via funds domiciled inside Europe.

Others are bringing Caribbean-based product onshore because of the
EU’s plans to regulate hedge funds in such a way that non-EU managers,
including Paulson, and offshore funds, would be barred from taking money
from European investors.

One way for such managers to get around this is launching portfolios in Europe.

Marshall Wace is shifting all its Cayman Islands portfolios to Europe.

Rival Majedie Asset Management did so, too.

Gartmore and RWC Partners will make regulated variants of every offshore fund they launch now, too.

Investors seem increasingly to opt for onshore funds where one is available.

However, Dalton Strategic Partnership has drawn a line in the
Caribbean sand, and is taking steps specifically focused on keeping
offshore fund clients.

The European UCITS long/short fund of Dalton Strategic Partnership
grew from €4m at launch in February to €50m now, during which assets in
its Melchior European hedge fund stayed static, for example.

Similar stories are told at Man Group for AHL, RWC Partners for US equities funds and Gartmore for various portfolios.

The transparency, liquidity and regulatory oversight required in a
UCITS addresses investor concerns in a post-Madoff, post-credit 2008
crunch environment.

However, the regulation allows an even greater risk taking, in fact, it encourages greater risks.

Dalton’s onshore funds will double the risk-taking appetite of Melchior.

Magnus Spence, partner, explains:

“We are differentiating the products one from another, and need
to recognize and meet the different needs of investors in offshore hedge
funds and UCITS III hedge funds. Investors in UCITS hedge funds tend to
seek lower-risk strategies, which typically offer return targets of
between 5% and 10% per year.”

“In contrast, many traditional investors in offshore hedge funds
are prepared to accept a considerably higher level of investment risk in
return for performance greater than 10%.”

What Dalton’s latest move shows is that not everyone is so keen on “on-shoring” after all.

Barclay’s are among the big banks who still offer offshore products to its clients, now within the UCITS framework:

“The Structured UCITS Funds for Offshore Bonds range allows
investors access to a leading range of Funds, all approved under the EU
UCITS III Directive. A UCITS III fund refers to any collective
investment scheme set up under the UCITS Directive of 1985, as modified
by the amending proposal of 2001. As the UCITS Directive is a
pan-European directive, the main benefit of UCITS III is that it makes
it easier to passport and market such funds throughout Europe. UCITS III
allows funds to invest in a wide range of financial instruments,
opening up the range of investment strategies available to fund
managers,” Barclay’s write on their website.

Adding: “Our Fund range is developed by our asset class neutral
structuring team. Our team creates innovative products across asset
classes – developing solutions to help clients achieve optimal asset
allocation as well as manage risk. Our team specializes in delivering
quantitative asset allocation strategies within a UCITS III compliant
fund format.”

Read the full post at The Swapper:

More articles from Zero Hedge….

By Karl Denninger, The Market Ticker

Supposedly….

Sept. 1 (Bloomberg) — JPMorgan Chase & Co. told traders who bet on commodities for the firms account that their unit will be closed as the company, the second-biggest U.S. bank by assets, starts to shut down all proprietary trading, according to a person briefed on the matter.

Uh huh. I’m supposed to believe this?

Note what comes with this "announcement"

Closing the proprietary trading desk for commodities affects fewer than 20 traders, one in the U.S. and the rest in the U.K., the person said.

20 people.  Wow, that’s a lot. 

But wait a second…. didn’t I see something earlier this year about JPM buying a commodities outfit?

LONDON -(Dow Jones)- Royal Bank of Scotland PLC (RBS: 13.63, 0, 0%) Tuesday said that JPMorgan Chase & Co. (JPM: 36.75, 0.41, 1.13%) had agreed to buy the European and Asian parts of RBS Sempra Commodities, the energy-trading business owned by RBS and Sempra Energy (SRE: 50.89, 0, 0%) for $1.7 billion.

Oh yeah, I did!  And that was February too.

So let me see….. this "acquisition" only involved 20 people eh?  Uh, I kinda doubt it.

Something smells here…… not quite sure what, but the claim that JP Morgan is "abandoning" proprietary trading in the commodities space due to the "Volcker Rule", and it will only cut 20 jobs doing so with only one of them in the US doesn’t fit so well with this recent acquisition.

Here’s my question: Is this yet another "intentional leak" of something that’s not true for the explicit purpose of trying to sway Congressional – and public – opinion?

More articles from the Market Ticker….

Richard Suttmeier submits:

The yield on the 10-Year US Treasury continues to trade around my quarterly pivot at 2.495. A new monthly pivot is 2.562 with my semiannual risky level at 2.249. Gold is trekking towards its all time high at $1266.5 set on June 21st with my semiannual and monthly risky levels at $1260.8 and $1263.8. Crude oil has a new monthly pivot at $74.45. The euro remains below its 50-day simple moving average at 1.2789. The Dow shows a new monthly pivot at 10,164 for September with today’s value level at 9,876. The miss-interpretation of economic data.

Read more…. »

The best reason to buy euros is because this man likes ‘em! Premier Wen Jiabao, the leader of China said last night that China and Western Countries should work together to enhance the world’s confidence in the euro and the European Union’s economy. China will be working directly with Spain on this initiative as Wen invited Chinese investors to invest in Spain’s financial, renewable resources and electric cars industries, the report said.

According to the WSJ, Wen has made similar comments earlier this year on the euro’s importance, such as in mid-July when he met German Chancellor Angela Merkel he said Europe remains a key market for China’s foreign-reserve investment. China has said it aims to make better return on its vast holding of foreign-exchange reserves and ensure safety of its investment of the foreign-exchange assets.

Read more….

This morning the Bank of International Settlements released its Triennial FX survey which is basically the market’s benchmark for forex volume and turnover. To no one’s surprise, volume has surged over the past 3 years. Between April 2007 and April 2010, global foreign exchange market increased by 20 percent from $3.3 trillion to $4.0 trillion, which is now the golden number for forex volume.

Reading between the lines, we can tell that a large part of the increase in volume is due to the trading activities of RETAIL traders! (Yes, we are making a BIG difference) According to the BIS report, 48% of the growth was in spot transactions which represents 37% of the total turnover (or total FX flow). Although swaps became more popular to trade, all other related foreign exchange instruments saw only a 7 percent increase in volume. The report also says that “the higher global foreign exchange market turnover is associated with the increased trading activity of “other financial institutions” (think retail forex brokers). Turnover in this category rose 42% and for the first time ever, reporting dealers (banks) did more transactions with “other financial institutions” than with other banks.

Having just come back from Singapore where shelves and shelves were filled with forex trading books, I am in no way surprised that the BIS has confirmed the popularity of forex trading.

The foreign exchange market also became more global with cross-border transactions representing 65% of trading activity in April 2010, while local transactions account for 35%.

U.S. Dollar Becoming Less Important

Back in 2001, the U.S. dollar was involved in 90% of all currency transactions and as of April 2010, this fell to 84.9%. The decline in trading of dollars has benefited the euro, which gained 2 percentage points in market share since the last survey and accounts for 39% of all transactions. “The Japanese yen also increased its market share by 2 percentage points to 19%, a recovery relative to the 2007 survey but still below its peak of 23.5% reached in 2001. The pound sterling gave up most of its post-euro gains, with its share returning to the immediate post-euro level of around 13%. Trading in the Swiss franc also declined marginally to 6.4% from 6.8% in April 2007. The Australian and Canadian dollars both increased their share by around 1 percentage point, to 7.6% and 5.3%, respectively.”

“The percentage share of the US dollar has continued its slow decline witnessed since the April 2001 survey, while the euro and the Japanese yen gained relative to April 2007. Among the 10 most actively traded currencies, the Australian and Canadian dollars both increased market share, while the pound sterling and the Swiss franc lost ground. The market share of emerging market currencies increased, with the biggest gains for the Turkish lira and the Korean won.”

Of the major currency pairs, trading of EUR/USD and USD/JPY have increased while trading of the GBP/USD has decreased.

The U.K. is still the largest trading center for forex but the relative ranking of foreign exchange trading centres has changed slightly from the previous survey. The United Kingdom continued to be the most active location with a share of 46% of worldwide trading, followed by the United States with a share of 24%, slightly down from 2007. Outside these two centres, trading took place primarily in France (7%) and Japan (3%), both slightly down from 2007, Singapore (3%) and Switzerland (3%), both slightly up. Turnover in Germany almost halved to less than 2% in April 2010 compared with 2007. Banks located in the United Kingdom accounted for 36.7%, against 34.6% in 2007, of all foreign exchange market turnover, followed by the United States (18%), Japan (6%), Singapore (5%), Switzerland (5%), Hong Kong SAR (5%) and Australia (4%).

Lower Forex Margin Should Temper Volume Increases in the Future

However the pace of growth will most likely be moderated by the reduction in leverage announced in the U.S. and Japan. Last month, Japan reduced leverage to 50:1 and plans to bring this down even further to 25:1 next year. U.S. regulators announced earlier this week that leverage will be capped at to 50:1 for major currencies and 20:1 for all other currencies. This will go into effect on October 18. Lower leverage will make forex trading less attractive to some participants but 50:1 is still very generous leverage by all counts and so it will not be catastrophic for the retail forex industry. We should still see retail trading contribute positively to forex volume, but probably not by the double digit levels seen in past years.

Read more….