Trade Triangles: The Greenback

I am buying Dollar Calls here! Bernanke just announced lower inflation from this point on. Combine that with the Weekly Up Trade Triangle that we received over the weekend in the Greenback, I am taking the trade. (I am not sure about how wide a stop I will use yet.)

Martin Weiss TERRIFIES me...yet again.

Martin has been predicting, with a lot of confidence I might add, this nice rise we have had in Gold for at least 2 years now.

The following is something he also wrote (the other day,) which is really scary, really realistic, and, if things keep going the way they are going...really PROBABLE!

The Biggest Rip-oof of All Time

In the scenario I'm about to paint for you, the dialog is fictional, but all the facts and figures are real.

The time: 1 AM, November 23, 2011, exactly two years from now.

The place: the White House, suddenly and unexpectedly under siege as a new financial crisis erupts.

The economic booms of 2010 have morphed into super booms ... the super booms into bubbles ... and the bubbles into busts.

Large banks are again on the brink. Financial markets are again in turmoil.

Wall Street giants like Goldman Sachs, JPMorgan Chase, and Morgan Stanley - the outstanding survivors of an off-again-on-again debt crisis - are now its primary victims.

Investments like long-term U.S. Treasury bonds - long sought as safe harbors - are now collapsing in price, turning into torpedoes that can sink even the sturdiest of portfolios.

But most important, the government's too-big-to-fail bailouts, shotgun mergers, and mad money printing - previously hailed as cures that killed the contagion of 2008 - are now widely viewed as far worse than any disease.

President Obama and Treasury Secretary Geithner have huddled in the Oval Office for hours, struggling to find new solutions to old problems: Wall Street meltdowns, renewed threats of a great depression, millions more thrown out of work.

After a long and heated debate, the president slumps back into his armchair, signaling it's time to talk more frankly - to reminisce about past policies and rethink what might have gone wrong.

"With 20-20 hindsight," he remarks after an introspective pause, "it's clear we were overly focused on the intended consequences of our efforts - the economic recovery, the bounce back in markets, the jobs saved. Meanwhile, we were blindsided by the unintended consequences, many of which have proven to be bigger, more durable and, ultimately, more impactful than the benefits we did achieve."

The Treasury Secretary, weary from marathon meetings on precisely the same subject, nods in silent agreement.

"So, perhaps one of our tasks," continues the president, "should be to document two basic issues: What precisely are the unintended consequences? And what exactly did we do to cause them?"

"We don't have to," says Geithner sheepishly.

"Why not?"

"Because it's already been done. Those issues have already been thoroughly documented."

"Since when?"

"Since the fall of 2009. That's when SIGTARP - the Special Inspector General for the Troubled Asset Relief Program - revealed the mistakes we made with the giant AIG bailout. And that's also around the time the public began to react to the enormous contradiction between massive unemployment on Main Street and the monster we helped to create on Wall Street."

Monster Bonuses

"Monster?" queries Obama. "You mean the giant bonuses?"

"Exactly. We already knew Wall Street execs had been giving themselves mega bonuses for most of the decade -
- $29 billion for Citigroup's Weill in 2003 ... $27 billion for Blankfein at Goldman Sachs in 2006 ... another $106 billion for Jon Winkelried and Gary Cohn, also at Goldman Sachs, in 2006-2007 ... and many more. We already knew how the money from these obscenely large bonuses alone could have been enough to save millions of jobs."

"Yes."

"But what we did not know is how soon after the bailouts Wall Street would be at it again - first, dishing out mega bonuses to heavy hitters in their trading rooms ... then to sluggers in their sales departments ... and later, as soon as the public tired of protesting, to themselves."

"Exactly how soon?"

Geithner answers with questions of his own. "When was Wall Street on the verge of a total meltdown? In September of 2008! When were the record bonuses paid out? In December of 2009! So that's 14 months. It was just 14 months later that the employee bonuses at the three big Wall Street survivors - Goldman Sachs, JPMorgan Chase, and Morgan Stanley - exceeded all prior records."

"Even the record bonuses they paid out before the crisis?" the president asks with a mix of disbelief and disdain.

"Yes, even bigger than their record bonuses paid out before the crisis."

"But why do we blame ourselves for all this?" the president wonders out loud.

The Bungled AIG Bailout

"In public, we don't ... and hopefully never will," responds Geithner furtively. "But in private, we must admit that we screwed up - particularly with the AIG bailout."

"Why?"

"For the simple reason that we - the Treasury and FRBNY, the Federal Reserve Bank of New York - didn't just bail out AIG. Indirectly, we also bailed out all of AIG's major counterparties, the biggest of which were Soci?t? G?n?rale and Goldman Sachs."

"Said who?"

"Said SIGTARP, the Special Inspector General for the Troubled Asset Relief Program, in its special report of November 2009. I have a copy of the report right here."

"What precisely did SIGTARP find?" asks the president.

"In essence, they found that AIG's counterparties - 16 major global banks - should have lost money in their trades with AIG, just like most investors lost money when other companies failed. But instead, AIG's counterparties did not lose money. We made those creditors whole, practically to the penny."

"How much did we pay 'em?"

Before responding, the Treasury secretary flips to page 20 of the SIGTARP report and glances down at Table 2 - Total Payments to AIG Default Swap Counterparties.

"Soci?t? G?n?rale," he says, "got $9.6 billion in collateral payments from the money we had loaned earlier to AIG. Plus, we paid Soci?t? G?n?rale another $6.9 billion through a special purpose vehicle we created, called Maiden Lane III. In total, the French bank walked off with $16.5 billion.

"Goldman Sachs," continues Geithner, "got $8.4 billion in collateral payments, plus another $5.6 billion from Maiden Lane, adding up to $14 billion. "Deutsche Bank got a total of $8.5 billion ... Merrill Lynch - $6.2 billion ... UBS - $3.8 billion ... plus ..."

"Please cut to the chase," says the president impatiently. "How much overall?"

"They got $62.1 billion, plus another $2.5 billion we agreed to pay to compensate them for shortfalls in their collateral. Grand total - $64.6 billion."

"Wait a minute!" interjects the president. "A lot of these big banks, notably Goldman Sachs, have forever insisted that they never wanted a bailout, never needed one, and never got one."

Geithner picks up the report and waves it for emphasis. "And SIGTARP has forever disagreed."

"What's their conclusion?"

"In effect, SIGTARP concluded that, via this back door, the 16 banks not only got big bailouts ... they never had to pay back a dime of the money."

The Sad Saga of How Taxpayers Were Sold Out

"What do you think really happened?" asks the president.

"I don't think; I know. Remember, I was not only there, I was mostly in charge. So I can tell you flatly: We had our backs to the wall. Sure, we asked 12 of the biggest AIG counterparties to take haircuts, to accept some losses. But 11 out of the 12 refused. So we had no choice but to give them everything they wanted."

"Why didn't you press harder?"

"We had no negotiating leverage. Later, with GM and Chrysler, we forced creditors to make concessions by threatening to let the automakers fail. But with AIG, we had already declared, in effect, that we'd never let it fail."

"When?"

"Several weeks earlier - when we loaned $86 billion to AIG, the biggest bailout in history. The end result was that, when it came time to negotiate with AIG's creditors, we could no longer function as unbiased regulators. We were already in deep - as the company's biggest stakeholder. The creditors knew they had us over a barrel. There was no way we could twist their arms.

"If that wasn't bad enough," Geithner continues, "I then compounded the problem by adhering too strictly to one of FRBNY's core values - the concept of treating all counterparties equally. That doomed the negotiations because it gave each party effective veto power over any possible concession from any other party. The way I set things up, either all the banks had to agree to concessions ... or none of the banks would agree to concessions. So, needless to say, none agreed to concessions. They got everything."

Profound Impacts

My fictional scenario ends here. But the impacts of those fateful decisions of late 2008 and early 2009 do not.

The AIG rescue was the biggest taxpayer rip-off of all time. Worse, it was the master seed that sprouted a whole series of similar taxpayer rip-offs on Wall Street.

Just connect a few of the dots, and you'll see what I mean:

1. The U.S. Treasury rushes to bail out AIG. That alone helps protect AIG's counterparties from the direct losses they'd otherwise suffer in an AIG failure.

2. The Federal Reserve Bank of New York creates a special entity to pay off AIG's creditors in full. While ordinary U.S. investors lose fortunes even in companies that are financially viable, 16 major banks don't lose a penny even in a company that would otherwise be bankrupt - all thanks to the Fed's largesse.

3. Prominent among these government-blessed banks is Goldman Sachs, Wall Street's most extravagant giver of executive bonuses in 2006 and 2007 ... and also Wall Street's most lavish payer of employee bonuses in 2009.

The money flow is clear:

* From taxpayers to AIG ...
* From AIG and the Fed to big Wall Street investment banks like Goldman Sachs, and then ...
* From Goldman Sachs to its employees in the form of lavish bonuses.

It is, by far, the greatest taxpayer rip-off off all time!

Don't get sucked up into this madness.

By, Martin D. Weiss, Ph.D.

A Dollar Update...

Is the Dollar index ready for the big reversal? Market Club does a short video here on the subject...but just looking at the charts, you can see that we are at very long term support here. In this short video, they outline the key areas to watch for and one important component that you may not have seen (and I hadn't thought of.)

(Could this factor be a short term game changer?)

The Great Recovery Hoax of 2009-2010

I love this article, despite how terrifying it is:

By Marin D. Weiss, Ph.D.

There can be no debate that, in each of these episodes, things did go up: The Nasdaq soared before it crashed. The median price of U.S. homes skyrocketed before it collapsed. And now, the U.S. economy has reversed course - from four consecutive quarters of contraction to at least one quarter of expansion.

There also can be no doubt that these trends do not end overnight. They can continue for months - often plowing over skeptics and even exceeding the expectations of believers.

Most important, however, there can be no question that all three of these episodes have had one key element in common that ultimately self-destructs: Massive intervention, support, and free money from Washington.

To get a solid sense of how that's unfolding this time around, pay close attention to these three independent economists:

Jim Grant, Founder and Editor,
Grant's Interest Rate Observer

Jim Grant, originator of the "Current Yield" column in Barron's and founder of Grant's Interest Rate Observer, demonstrates not only that today's recovery is bought and paid for by Washington ... but also that the relative size of Washington's intervention is even larger than you might think.

In the ten prior U.S. postwar recessions, the government responded, on average, with fiscal stimulus of 2.6 percent of GDP plus monetary stimulus of another 0.3 percent of GDP.
Combined stimulus: only 2.9 percent of GDP.

In contrast, during the current recession, the government has counter-attacked with fiscal stimulus amounting to an estimated 18 percent of GDP ... plus monetary stimulus of an estimated 11.9 percent of GDP.
Combined stimulus: a whopping 29.9 percent of GDP.
That's an unprecedented - and unimaginable - ten times more than the average stimulus of prior recessions.

Grant's comparison of today's government stimulus with that of the Great Depression is even more striking:

He points out that, in the early 1930s, GDP fell 27 percent, while the government responded with monetary and fiscal stimulus adding up to 8.3 percent of GDP.
Thus, using Grant's numbers, I calculate that, for each percentage point our economy contracted, the U.S. government came forward with 0.31 percentage points of stimulus.

In contrast, in the current recession, U.S. GDP contracted 1.8 percent (at the time of Grant's study) ... while, as we just noted, the government's stimulus has amounted to 29.9 percent of GDP.
Thus, for each percentage point that our economy contracted, the U.S. government has jumped in with 16.61 percentage points of stimulus.

Conclusion:

Relative to the disease, the government's "cure" for the Great Recession today packs 54 times more firepower than the government's response to the Great Depression of the early 1930s. And this does not even include trillions more in U.S. government guarantees to shore up the financial system.

Proponents of the government's intervention may try to convince you "this is what it takes to avoid another depression: We've got to attack the contagion with big guns!"

However, Grant worries, rightfully so, that the cure may be far worse than the disease:

"If it's taking this much to revive today's economy," he asks, "what kind of jolt might be necessary to succor tomorrow's? An even bigger shock, we surmise, if tomorrow's economy is no less encumbered than today's. But it's almost certain to be more encumbered, since the active ingredient of the Bush-Obama palliative is credit formation, the very hair of the dog that bit us. Skipping down to the bottom line, we renew our doubts as to the staying power of the paper currencies and to the creditworthiness of the governments that print them."1

John Williams, Founder and Editor,
Shadow Government Statistics

John Williams is the economist who has single-handedly and repeatedly poked big holes in the government's data that tracks price inflation, unemployment, money supply and the economy as a whole.

In his Shadow Government Statistics alert of October 29, he pokes an equally large hole in Washington's pitch that the third-quarter rise in GDP announced last week is "sustainable." His main points:

All U.S. recessions in the last four decades have had at least one positive quarter-to-quarter GDP reading, followed by a renewed downturn. This one could turn out to be no different.
The estimate of 3.5 percent annualized real growth for third-quarter GDP included a 1.7 percent gain from auto sales, a 0.6 percent gain from new residential construction, and a 0.9 percent gain from a largely-involuntary inventory buildup (caused by sales declines which are deeper than corporate planners expect).
In sum, these one-time stimulus or inventory items represented 92 percent of the reported quarterly growth.2 Chris Edwards, Director of Tax Policy Studies Cato Institute

Chris Edwards - formerly a senior economist on the congressional Joint Economic Committee examining tax issues and currently a Director at the Cato Institute - exposes another gaping hole in the 3.5 percent growth reported by the government last week:

While the government's share of the economy has grown steadily ... the contribution from private investment has fallen through the floor.

He writes:

"The third quarter GDP numbers show that the economy is only starting to 'recover' because of growing government and expanding consumption, which has been artificially inflated by large government transfers.

"Business investment continues to be in a deep recession. Companies are simply not building factories or buying new machines and equipment.

"Why not? I suspect that many firms are scared to death of higher taxes, inflation, health care mandates, increased labor regulation, and other profit-killers coming down the road from Washington."3

Edwards goes on to say that it's too soon to speculate on underlying causes. But I would add that an equally bloody killer of private investment is the diversion of scarce credit from small and medium-sized businesses to wild-and-wooly Wall Street speculation, as Mike Larson has pointed out here week after week.

It's all part and parcel of the Great Recovery Hoax of 2009-2010.

Like the great bubbles of recent memory, it could continue. But it will ultimately end in disaster.

Will we ever learn?

0% interest rates...it's no wonder the markets are doing so well...

But I still am not buying (unless it's a Manny Backus or Flag Trader short term long.)

Larry Levin edited this Wall St. Journal article for us...and, all I can say is, I might consider buying some way OTM, cheap puts. This is worth reading, especially since this is supposed to be a Forex blog:

For many investors, in fact, the cost of money is effectively less than zero, as economist Nouriel Roubini likes to point out. If you borrow dollars at near zero percent interest in the United States, exchange the dollars for Thai bhat, and invest the bhat in government bonds paying 4 or 5 percent, you not only get the benefit of the interest rate arbitrage but you also gain when you sell the bond and exchange the bhat back into dollars that have since depreciated. Roubini calls it "the mother of all carry trades," and in recent months he calculates that it has been generating annualized returns for investors of 50 to 70 percent.

This carry trade is now so widespread that it has become a major factor driving down the value of the dollar against many other currencies and driving up the flow of hot money into a number of developing countries. Not only has it spawned stock, bond, or real estate bubbles in those countries, but it's also driven up the value of their currencies to the point that their exports are less competitive relative to countries, including China, that peg their currencies to the U.S. dollar. To counteract these trends, central banks in Thailand, South Korea, Russia and the Philippines have intervened in currency markets, buying up dollars and selling their own currencies. Hong Kong has tightened up on lending rules, while Brazil has put a 2 percent tax on capital inflows. Taiwan has banned foreigners from making certain types of bank deposits.

There's no way to know how long all this can continue before one of these bubbles finally bursts, the dollar spikes upward and investors all rush to unwind their trades at the same time. But it is a good guess that it will last as long as the Fed and other central banks indicate there is no end in sight for the current cheap-money regime. The longer they wait, the bigger the bubbles, and the bigger the mess to clean up.

All of which is why the recent statements by policymakers were so disappointing -- and so dangerous.

Despite the junk-bond and real estate bubbles of the late 1980s, the tech bubble and Asian financial crises of the 1990s and the credit bubble of recent years, the Fed stubbornly clings to an outmoded way of thinking and talking about the economy and monetary policy. Fed officials tend to give little weight to such "extraneous" factors such as asset prices, currency movements and capital flow, at least in public, and fear that focusing on them will cause them to lose sight of their core inflation-fighting mission. Moreover, like his predecessor, Fed Chairman Ben Bernanke still believes central bankers aren't smart enough to tell when a bubble has developed -- and even if they could, it would probably cause more harm than good to try to do something about it.

New possible trades

9:28 a.m. Looking to short sell SPWRA at or close to $23, and to buy MRVL at or close to $16

Real Trading techniques

I keep telling all my readers how great the accounts in this blog are doing in large part to Adam Hewison and Market Club...AND I'M EXHAUSTED!

So, I decided to let Adam do the talking about something that is near and dear to my heart:

First of all I want to thank you for having me as a guest today!

My name is Adam Hewison. You might want to Google Me to confirm what I am about to share with you.

There are plenty of people out there that create “exclusive email courses” with little or no credentials to actually backup their teachings. So, I think it’s right that I share a little bit about myself with you before we even start.

I was a former floor trader on the IMM, IOM, NYFE and LIFFE as well as a risk manager of a large, multinational corporation in Geneva, Switzerland. I also have written books on forex trading and trend following. In 1995, I founded INO.com and later co-founded MarketClub. I’ve been in the trading biz for over three decades and have seen it all. I created this course as a way to give back and share trading tips and techniques that I still use in my trading today.

In my Free Mini Email Course, I will show and explain the tools and strategies you need to increase your success rate in the marketplace.

(1) The importance of psychology in price movement

(2) How to spot mega trends

(3) Understanding of technical price objectives

(4) How to picture price objectives

(5) How to trade with moving averages

(6) How to use point and figure trading techniques

(7) How to use the RSI indicator

(8) How to correctly use stochastics in your trading

(9) How to use the ADX indicator to capture trends

(10) How to capitalize on natural market cycles.

Plus, you will you will learn all about fibonacci retracements, MACD, Bollinger Bands and much more.

Just fill out the form and we’ll get you started right away.

Every success,
Adam Hewison
President, INO.com & Co-Creator, MarketClub

Is the Party Over in Oil?

Fundamentally...all I ever hear on CNBC is how much inventory there is in oil. It's stored 'here' and 'there'...and then you hear stories about how a huge part of the Chinese coastline is dotted with tankers full of oil.

Then today Market Club came out with a new DOWN arrow in oil on the weekly. Weekly indicators are much more valuable. Guys...it's free for 30 days...try it. This blog's accounts are doing great, and a lot of that is due to Market Club.

This is the kind of email I get every few hours....

MarketClub Smart Scan Alert for CL.Z09.E Weekly Trade Triangles CRUDE OIL Dec 2009 (E) (NYMEX_CL.Z09.E) is trading at 76.94 +0.59 (+0.77%) and has triggered a new LOW for a Red Weekly Trade Triangle.

CL.Z09.E Streaming Chart
http://www.ino.com/info/191/CD3603/&dp=0&l=0&campaignid=8
CL.Z09.E Chart Analysis Details
http://www.ino.com/info/191/CD3603/&dp=0&l=0&campaignid=8

This guy is amazing...works really well too

Does anybody know who Guy Cohen is? Google his name, and then come back to see what I just bought. I am amazed at myself...because it's not like me to do such an insane thing!!

(But it made total sense...)

What we don't know won't hurt us, right?

I don't like politics or politicians too much, and I don't want to get started here. However, on very rare occasions, there will be one who knows a little. In this case, Senator Kaufman of Delaware. I hereby show you his address the other day (which is somewhat directed at our president.)

The best part about this speech is the way it goes into MOST of the problems that did, and still do affect our world economy (problems that are being exacerbated by the same people we have trusted to get us through them:)

Mr. President, I rise today because I am deeply concerned that just over one year since the collapse of Lehman Brothers, a failure that helped send us to the brink of depression, Wall Street is essentially unchanged.

Congress and the SEC have not enacted any reforms. And the American people remain at risk of another financial debacle - not just because the same practices that led to the crisis 14 months ago are continuing, but from new practices which are leading to new problems and new systemic risks.

Mr. President, last year, the financial world almost came to an end. And yet most of Wall Street then believed that no government review or additional regulation was necessary - right up until the moment government had to step in to save it.

We had been assured that the system was sound. We were assured that a host of checks and balances were in place and would suffice. We were assured that:

- companies have to report their financial holdings with full disclosure and transparency;

- accountants have to verify those financial assets and statements;

- markets price stocks on the basis of all available information;

- due diligence is conducted on every deal and transaction;

- boards of directors have a fiduciary duty to undertake prudent risk management;

- management want their companies to thrive over the long-term;

- and, most importantly, regulatory bodies and law enforcement agencies are in place to police the system.

But those safeguards did not prevent us from disaster, because in the past 10 years or more, one of the most important safeguards, the regulators, had simply given up on the importance of regulation.

We believed the markets could police themselves, that they would self-regulate. And so, in effect, we pulled the regulators off the field.

We now know the confluence of events that led to disaster. And there is blame enough to go around:

- We failed to regulate the derivatives market;

- government-backed agencies like Fannie Mae and Freddie Mac pushed to make housing affordable for greater numbers of people;

- unscrupulous mortgage brokers pushed sub-prime mortgages at every opportunity;

- investment bankers pooled and securitized those sub-prime mortgages by the trillions of dollars and sold them like hot cakes;

- rating agencies - left unmonitored by the SEC - incredibly stamped these pools with Triple A ratings;

- the SEC, which changed the capital-to-leverage ratio for investment banks to 30-and-50-to-1, allowed these banks to buy up huge pools of these soon-to-be-toxic assets; and

- investment banks wrote credit default swaps and then hedged those risks without any central clearinghouse, without any understanding of who was writing how much or what it all meant - all this without any regulation or oversight.

So as the chart so straightforwardly conveys: Banks were involved in high-risk, high-return investments that were unregulated.

Then - CRASH. The housing bubble burst and a disaster of truly monumental proportions struck.

Americans lost $20 trillion in housing and equity value during the ensuing financial meltdown. The economy lurched into freefall and Gross Domestic Product shrunk by a staggering percentage not seen since the 1950s.

What happened next? The American taxpayer, the deep pocket and lender of last resort, had to ride to the rescue.

Mr. President, we can barely even count the trillions of dollars of taxpayer money that have gone into bailing out the banks, bailing out AIG, bailing out a number of financial institutions.

And that's not including the billions of taxpayer dollars we have had to spend to stimulate the economy.

Mr. President, we must never let this happen again.

Yet here we are. One year later. With no immediate crisis at hand, we are falling back into complacency.

The credit default swap market remains unregulated. The credit rating agencies have not yet been reformed.

And the banks are back to their old habits: paying out billions of dollars in bonuses for employees who are still engaged in high-risk, high-reward practices.

What is the great lesson we should have learned from the Financial Debacle of 2008?

When markets develop rapidly and change dramatically, when they are not regulated, and when they are not fully transparent - it can lead to financial disaster.

That is what happened in the credit default swap market.

Mr. President, we must never let this happen again.

And so I look forward to working with my colleagues to regulate the derivatives markets - to ensure that credit default swaps are traded on an exchange or at least cleared through a central clearinghouse with appropriate safeguards enforced.

And to enact meaningful financial regulatory reforms.

Mr. President, at the same time, we need to be looking carefully to see if these three deadly ingredients - rapid technological development, lack of transparency, and a lack of regulation - are appearing again in other markets.

Mr. President, there is no question in my mind that in today's stock markets, those three ingredients do exist.

Due to rapid technological advances in computerized trading, the stock markets have changed dramatically in recent years.

They have become so highly fragmented that they are opaque -- beyond the scope of effective surveillance. And our regulators have failed to keep pace.

The facts speak for themselves. We've gone from an era dominated by a duopoly of the New York Stock Exchange and Nasdaq to a highly fragmented market of more than 60 trading centers.

Dark pools, which allow confidential trading away from the public eye, have flourished, growing from 1.5 percent to 12 percent of market trades in under five years.

Competition for orders is intense and increasingly problematic.

Flash orders, liquidity rebates, direct access granted to hedge funds by the exchanges, dark pools, indications of interest, and payment for order flow are each a consequence of these 60 centers all competing for market share.

Moreover, in just a few short years, high frequency trading - which feeds everywhere on small price differences in the many fragmented trading venues - has skyrocketed from 30 to 70 percent of the daily volume.

Indeed, the chief executive of one of the country's biggest block trading dark pools was quoted two weeks ago as saying that the amount of money devoted to high-frequency trading could "quintuple between this year and next."

Mr. President, we have no effective regulation in these markets.

Last week, Rick Ketchum, the Chairman & CEO of the Financial Industry Regulatory Authority - the self-regulatory body governing broker-dealers - gave a very thoughtful and candid speech, which I applaud.

In it, Mr. Ketchum admitted that we have inadequate regulatory market surveillance.

His candor was refreshing but also ominous: "There is much more to be done in the areas of front-running, manipulation, abusive short selling, and just having a better understanding of who is moving the markets and why."

Mr. Ketchum went on to say: "[T]here are impediments to regulatory effectiveness that are not terribly well understood and potentially damaging to the integrity of the markets...The decline of the primary market concept, where there was a single price discovery market whose on-site regulator saw 90-plus percent of the trading activity, has obviously become a reality. In its place are now two or three or maybe four regulators all looking at an incomplete picture of the market and knowing full well that this fractured approach does not work."

Mr. President, at the same time that we have no effective regulatory surveillance, we have also learned about potential manipulation by high frequency traders.

Last week, the Senate Banking Subcommittee for Securities, Insurance, and Investment held a hearing on a wide range of important market structure issues.

At the hearing, Mr. James Brigagliano, Co-Acting Director of the Division of Trading and Markets, testified that the Commission intends to take a "deep dive" into high frequency trading issues, due to concerns that some high frequency programs may enable possible front-running and manipulation.

Mr. Brigagliano's testimony about his concerns were troubling:

"...if there are traders taking positions and then generating momentum through high frequency trading that would benefit those positions, that could be manipulation, which would concern us. If there was momentum trading designed - or that actually exacerbated intra-day volatility - that might concern us because it could cause investors to get a worse price. And the other item I mentioned was if there were liquidity detection strategies that enabled high-frequency traders to front-run pension funds and mutual funds that would also concern us."

Reinforcing the case for quick action, several panelists acknowledged that it is a daily occurrence for dark pools to exclude certain possible high frequency manipulators.

For example, Robert Gasser, President and CEO of Investment Technology Group, asserted that surveillance is a "big challenge" and that improving market surveillance must be a regulatory priority:

"I can tell you that there are some frictional trades going on out there that clearly look as if they are testing the boundaries of liquidity provision versus market manipulation."

But none of the panelists, when asked, felt a responsibility to report any of their suspicions of manipulative activity to the SEC. That is up to the regulators and their surveillance to stop, they apparently believe.

Finally, at the end of the hearing, Subcommittee Chairman Reed asked about the reported arrest of a Goldman Sachs employee who had allegedly stolen code from Goldman used for their high frequency trading programs.

A Federal prosecutor, arguing that the judge should set a high bail, said he had been told that with this software there was the danger that a knowledgeable person could manipulate the markets in unfair ways.

The SEC has said it intends to issue a concept release to launch a study of high frequency trading. According to news reports, this will happen next year.

Mr. President, I don't believe next year is soon enough. We need the SEC to being its study immediately.

Where is the sense of urgency?

Mr. President, our stock markets are also opaque. Again, I refer to Chairman Ketchum's speech: "There are impediments to regulatory effectiveness that are not terribly well understood and potentially damaging to the integrity of the markets."

He went on to say:

"We need more information on the entities that move markets - the high frequency traders and hedge funds that are not registered. Right now, we are looking through a translucent veil, and only seeing the registered firms, and that gives us an incomplete - if not inaccurate - picture of the markets."

Senator Schumer echoed this theme at last week's hearing: "Market surveillance should be consolidated across all trading venues to eliminate the information gaps and coordination problems that make surveillance across all the markets virtually impossible today."

Let me repeat: market surveillance across all the markets is "virtually impossible today."

And none of the industry witnesses disagreed with Senator Schumer.

That is why the SEC must not let months go by without taking meaningful action. We need the Commission to report now on what it should be doing sooner to discover and stop any such high frequency manipulation.

Mr. President, where is the sense of urgency?

Mr. President, we must also act urgently because high frequency trading poses a systemic risk. Both industry experts and SEC Commissioners have recognized this threat.

One industry expert has warned about high-frequency malfunctions: "The next Long Term Capital meltdown would happen in a five-minute time period . . . . At 1,000 shares per order and an average price of $20 per share, $2.4 billion of improper trades could be executed in [a] short time frame."

This is a real problem, Mr. President. We have unregulated entities -- hedge funds - using high frequency trading programs interacting directly with the exchanges.

As Chairman Reed said at last week's hearing, nothing requires that these people even be located within the United States. Known as "sponsored access," hedge funds use the name of a broker-dealer to gain direct trading access to the exchange - but do not have to comply with any of the broker-dealer rules or risk checks.

SEC Commissioner Elisse Walter has recognized this threat: "[Sponsored access] presents a variety of unique risks and concerns, particularly when trading firms have unfiltered access to the markets. These risks could affect several market participants and potentially threaten the stability of the markets."

Let me repeat that: "These risks could affect several market participants and potentially threaten the stability of the markets."

Even those on Wall Street responsible for overseeing their firms' high frequency programs are not up to speed on the risks involved, according to a recent study conducted by 7city Learning. In a survey of quantitative analysts, who design and implement high frequency trading algorithms, two-thirds asserted their supervisors "do not understand the work they do."

And though quants and risk managers played a central role exacerbating last year's financial crisis, 86% of those surveyed indicated their supervisors' "level of understanding of the job of a quant is the same or worse than it was a year ago," and 70% said the same about their institutions as a whole.

I agree with market expert and 7city Director Paul Wilmott, who said: "These numbers are alarming. They indicate that even with the events of the past year, financial institutions are still not taking the importance of financial education seriously."

Mr. President, where is the sense of urgency?

Time is of the essence.

We must act now.

The Decoupling of Gold

Yesterday Gold finally broke free from the dollar and other indicators. I have long been out of Gold...but it still flies. Adam has been pegging Gold since it was at $867...what is his newest call on the yellow metal?

Genius Trader that you need to Google

Any of you know me, and have been following this blog, know that I am always serious. Which is why I can't explain this: I have traded equities, Forex and numerous other instruments for many years and yet, it's only been seven months since I first heard about Guy Cohen.

Do yourself a huge favor and Google a guy with the name of Guy Cohen. He is a best-selling author of trading books worldwide (millions of copies.) Take a look at his resume...and you will see what he has done with his life. You will then understand why the following software program of his is just downright amazing!

If you’ve ever sweat blood over a trading system, or failed miserably because it was too difficult, complicated or time consuming, then this is your answer, because he does work for the NYSE and has hundreds of other clients.

Guy Cohen has been burning the midnight oil on something astonishing for the past 6 months now. I was one of the first to get it, and I love it. I made money the first time I traded with it. (Just don't forget your stops.)

It’s so simple that, just like they describe it; a 12-year-old could follow it …and yes, it's so easy that it just takes just 20 minutes a day…and so devastatingly effective that £7,000 a month profit from home is well within your grasp.

If nothing else, check out the testimonials of people who’ve been given a privileged secret opportunity to be guinea pigs on this. The other day I did a blog entry titled," £20,000 in 30 Days...110% Profit in 6 days...30% in Two Days."
Those are real numbers...

Brad

P.S. This just became available. Be one of the first to hear about it.