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European banks under fire in global forex probe

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More light has been shed on a global probe into the possible manipulation of the $5.3 trillion-a-day currency market, as three major European banks confirmed they are being examined by regulators.

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In the past two days, UBS (UBS), Deutsche Bank (DB) and Barclays (BCBAY) have issued statements acknowledging requests from authorities and are co-operating with their investigations.

Barclays and UBS also said they are conducting internal reviews of their forex trading businesses.

A fourth bank, Royal Bank of Scotland (RBS), says it is "considering processes around the benchmark service."

This group represents some of the biggest participants in the international foreign exchange market. London is the world's largest currency trading hub.

Authorities in Europe and Asia revealed earlier this month they are on the hunt for evidence that banks may have tried to rig exchange rates. The global sweep includes European Union regulators, as well as counterparts in the U.K., Switzerland and Hong Kong.

In the U.S., the Justice Department has "an active, ongoing investigation into possible manipulation of foreign exchange rates," Acting Assistant Attorney General Mythili Raman said.

The push is part of a wider crackdown into financial industry misconduct.

A worldwide probe by authorities into the setting of the London Interbank Offered Rate, or Libor, has yielded criminal charges against several traders, regulatory reforms and billions of dollars in fines.

The four banks that have already reached settlements over Libor manipulation -- UBS, Barclays, Rabobank and the Royal Bank of Scotland -- are required to turn over all information that the Justice Department requests for at least two years, which could aid the foreign exchange probe and other investigations.

Banks are increasingly seeing earnings drained by mounting legal costs as regulators penalize bad behavior. On Tuesday, Germany's Deutsche Bank (DB) revealed a sharp third-quarter profit plunge as it put aside 1.2 billion euros ($1.7 billion) to cover legal expenses. UBS also faces a slimmer profit as Swiss authorities require the bank to hold more capital to meet future litigation costs.

Fines are also rising in the U.S., where so far this year banks have agreed to fork out more than $17 billion in settlements with regulators.

Currency Traders Put on Leave Amid Investigation

LONDON — Nearly a dozen traders have been placed on leave at five large banks in recent days amid a wide-ranging investigation into potential manipulation of the foreign-exchange market.

Authorities in Britain, the United States, Switzerland and Hong Kong are investigating whether traders colluded to rig some areas of currency trading, a market that overall generates more than $5 trillion of trades daily.

In particular, they are looking at discussion logs in chat rooms between currency traders at various firms and whether those discussions corresponded with improper trading activity, according to people briefed on the investigation.

On Friday, two British banks, Barclays and Royal Bank of Scotland, both placed traders on leave amid heightened scrutiny by regulators, according to people briefed on the investigation.

Six traders were placed on leave at Barclays and two traders were placed on leave at Royal Bank of Scotland, these people said.

They join currency traders who were placed on leave at Citigroup, Standard Chartered and JPMorgan Chase in recent weeks. In many cases, the traders have been placed on paid leave pending the outcome of the investigation, according to people briefed on the matter.

On Tuesday, UBS said it had “taken and will take appropriate action with respect to certain personnel as a result of our review, which is ongoing.” However, the bank declined to say what those actions might be or whether anyone had been placed on leave.

All the banks declined to comment Friday, citing their policies not to discuss personnel matters.

The latest investigation is another distraction for banks in London, which have been dealing with the fallout from accusations that they manipulated global interest rate benchmarks, including the London interbank offered rate, or Libor.

Libor is used as a base interest rate for a variety of financial products and is also used to help set interest rates for mortgages, credit cards and other loans.

On Tuesday, the Dutch lender Rabobank agreed to pay more than $1 billion in criminal and civil penalties to settle investigations by British, United States and other authorities and admitted to criminal wrongdoing by its employees in manipulating Libor and other global benchmark rates. The bank entered into a deferred prosecution agreement, in which it will avoid criminal prosecution as long as it avoids further wrongdoing.

Barclays, UBS, R.B.S. and the British financial firm ICAP have paid more than $2.5 billion combined over the last year to settle accusations that they manipulated Libor.

Deutsche Bank, Citigroup and other large United States banks also remain under investigation in the Libor case. Yet it is unclear whether any American banks will face action in the case, people briefed on the matter have said.

Since last June, Britain’s Financial Conduct Authority has been looking into accusations of currency market manipulation. Last month, it said it was starting a formal investigation into the matter, which the authority has described as being at an “early stage.”

The Swiss Financial Market Supervisory Authority said in October that it was investigating several Swiss financial institutions in connection with possible manipulation of foreign exchange markets.

Regulators have been looking into allegations that traders rigged the so-called WM/Reuters rates and other benchmark currency rates, which are used by fund managers to calculate the value of their holdings as well as the FTSE Group and other stock-market index providers.

In part, they’re looking into a group of traders who were nicknamed by others as “the Cartel” and “the Bandits Club” and may have used those nicknames in their chats, according to a person briefed on the investigation.

Despite being one of the largest markets in the financial world, the foreign-exchange market is largely unregulated. More than 40 percent of all currency trades take place in London, by far the most concentrated market for such trades, according to industry figures.

In recent days, UBS, Deutsche Bank, Citigroup, JPMorgan, R.B.S. and Barclays have all acknowledged that they have undertaken their own internal investigations and been asked by regulators to turn over documents related to their foreign-exchange trading.

Urs Rohner, chairman of Credit Suisse, also told a Swiss newspaper last month that the bank had received inquiries from regulators but that it had found no evidence of manipulation so far in its own review.

Thanks for sharing matfx

HSBC Drawn into global currency market investigations

HSBC has become the latest bank to admit it is co-operating with the global investigation into possible manipulation of the £3tn-a-day currency markets.

The admission came on Monday as the UK's biggest bank revealed it had more than doubled the number of staff dealing with legal and regulatory issues to 4,700.

Reporting a 30% rise in profits to $4.5bn (£2.8bn) in the third quarter, the bank also disclosed it was reviewing sales to 200,000 customers in the UK who bought wealth management products after 2008. It also said it needed to increase its provisions against possible regulatory action by US authorities over US residents with accounts at its Swiss banking operations.

Stuart Gulliver, HSBC's chief executive, said the bank had increased the number of staff working on regulatory issues from 2,000 at the start of 2011, hiring 1,600 more compliance staff since the end of December alone to bring the total to 4,700. Gulliver has set the bank on a track to cut costs, making $4.5bn of savings since 2011 – some of which has now been ploughed into expanding the bank's compliance functions.

HSBC's shares were the biggest risers in the FTSE 100 in early trading, gaining 2% to 700p even though there was some anxiety that the bank might miss its own targets for returns to shareholders. Its upbeat outlook statement – pointing to better growth in China and the UK – helped bolster sentiment.

Hit last year by a record £1.2bn fine for breaching money laundering laws in the US and allowing drug traffickers to move money around the financial system, HSBC has been forced to take a series of steps to increase its compliance and legal functions. Other banks have been doing the same – America's biggest bank, JP Morgan, has hired 3,000 compliance staff this year. In the third quarter, HSBC set aside an additional $514m for the cost of compensating customers mis-sold payment protection insurance and $132m for businesses mis-sold interest rate products.

Gulliver said a new investigation into the way its wealth management division had sold products had led to a $149m provision after the Financial Conduct Authority (FCA) conducted a mystery shopping exercise into its sales practices. The bank had to appoint Grant Thornton as a "skilled person" under the instruction of the regulators to review its sales practices and now expects to pay out up to $30m in compensation, the rest of the $149m being administrative costs.

Gulliver said the bank had not had to suspend anyone in connection with the investigation into the possible manipulation of a foreign exchange benchmark that has been under way around the globe for the past few weeks. The FCA is among a number of regulators known to be looking at the way a price for currencies is set during a 60-second trading window. The "names we've been given" no longer worked at the bank, Gulliver said.

HSBC is adding its name to the growing list of banks admitting to co-operation with the regulators, including Royal Bank of Scotland, Deutsche Bank, UBS, JP Morgan and Citigroup. Gulliver would not deviate from a statement issued by the bank. "The Financial Conduct Authority is conducting investigations alongside several other agencies in various countries into a number of firms, including HSBC, relating to trading on the foreign exchange market. We are co-operating with the investigations, which are at an early stage."

The bank said there was uncertainty about the amount of capital it might need to hold because of changes being discussed with regulators. Gulliver gave few clues as to how the bank would deal with the cap on bonuses being imposed by the EU after the bank had warned in the summer it was considering increasing salaries.

Gulliver was upbeat about the UK and Hong Kong, and appeared to express commitment to the UK, where the bank has been headquartered since taking over Midland Bank in the mid-1990s.

"Our home markets of the UK and Hong Kong contributed more than half of the group's underlying profit before tax. Hong Kong performed well in the quarter, reflecting broad-based revenue growth. Hong Kong continues to benefit from its close economic relationship with mainland China. We remain well positioned to capitalise on improving economic conditions in these markets," Gulliver said.

He was positive about China and also the UK, which he said "should see positive growth and outperform the eurozone". But he warned that economic growth in Latin America would remain slow, although the Mexican economy should strengthen in 2014.

The bank's forecasts for global growth remain constant at 2.0% in 2013 and 2.6% in 2014.

Reminiscences Of A Stock Operator



First published in 1923, Reminiscences of a Stock Operator is the fictionalized biography of Jesse Livermore, one of the greatest speculators who ever lived. Now, more than 80 years later, it remains the most widely read, highly recommended investment book ever written. Generations of investors
have found that it has more to teach them about themselves and other investors than years of experience in the market. They have also discovered that its trading advice and keen analyses of market price movements ring as true today as in 1923.

Jesse Livermore won and lost tens of millions of dollars playing the stock and commodities markets during the early 1900s. So potent a market force was he in his day that, in 1929, he was widely believed to be the man responsible for causing the Crash.

Originally reviewed in The New York Times as a nonfiction book, Reminiscences of a Stock Operator vividly recounts Livermore’s mastery of the markets from the age of 14. Always good at figures, he learns, early on, that he can predict which way the numbers will go. Starting out with an investment of five dollars, he amasses a fortune by his early twenties and establishes himself as a major player on the Street. Bullish in bear markets, and bearish among bulls, he claims that only suckers gamble on the market. The trick, he advises, is to protect yourself by balancing your investments, and selling big on the way down. Livermore goes broke three times, but he comes back each time feeling richer for the learning experience.

Offering profound insights into the motivations, attitudes, and feelings shared by every investor, Reminiscences of a Stock Operator is a timeless instructional tale that will enrich the lives – and the portfolios – of today’s traders as it has those of generations past.

Originally Posted by matfx

Reminiscences Of A Stock Operator



First published in 1923, Reminiscences of a Stock Operator is the fictionalized biography of Jesse Livermore, one of the greatest speculators who ever lived. Now, more than 80 years later, it remains the most widely read, highly recommended investment book ever written. Generations of investors
have found that it has more to teach them about themselves and other investors than years of experience in the market. They have also discovered that its trading advice and keen analyses of market price movements ring as true today as in 1923.

Jesse Livermore won and lost tens of millions of dollars playing the stock and commodities markets during the early 1900s. So potent a market force was he in his day that, in 1929, he was widely believed to be the man responsible for causing the Crash.

Originally reviewed in The New York Times as a nonfiction book, Reminiscences of a Stock Operator vividly recounts Livermore’s mastery of the markets from the age of 14. Always good at figures, he learns, early on, that he can predict which way the numbers will go. Starting out with an investment of five dollars, he amasses a fortune by his early twenties and establishes himself as a major player on the Street. Bullish in bear markets, and bearish among bulls, he claims that only suckers gamble on the market. The trick, he advises, is to protect yourself by balancing your investments, and selling big on the way down. Livermore goes broke three times, but he comes back each time feeling richer for the learning experience.

Offering profound insights into the motivations, attitudes, and feelings shared by every investor, Reminiscences of a Stock Operator is a timeless instructional tale that will enrich the lives – and the portfolios – of today’s traders as it has those of generations past.

My favorite book... I read it atleast once per year

Originally Posted by TCT

My favorite book... I read it atleast once per year

One of my favorite too.

Technical Analysis Of The Financial Markets-John J Murphy



John J. Murphy has now updated his landmark bestseller Technical Analysis of the Futures Markets, to include all of the financial markets.

This outstanding reference has already taught thousands of traders the concepts of technical analysis and their application in the futures and stock markets. Covering the latest developments in computer technology, technical tools, and indicators, the second edition features new material on candlestick charting, intermarket relationships, stocks and stock rotation, plus state-of-the-art examples and figures. From how to read charts to understanding indicators and the crucial role technical analysis plays in investing, readers gain a thorough and accessible overview of the field of technical analysis, with a special emphasis on futures markets. Revised and expanded for the demands of today's financial world, this book is essential reading for anyone interested in tracking and analyzing market behavior.

High Probability Trading Strategies-Robert Miners



Trading today's markets—including stocks, futures, or Forex—can be a challenging and difficult endeavor. But it is possible to achieve consistent success in this field, if you're prepared to learn a complete trading plan from entry to exit.

In High Probability Trading Strategies, author and well-known trading educator Robert Miner skillfully outlines every aspect of a practical trading plan—from entry to exit—that he has developed over the course of his distinguished twenty-plus-year career. The result is a complete approach to trading that will allow you to trade confidently in a variety of markets and time frames.

With this book as your guide, you'll quickly learn how to recognize high-probability trading opportunities, pinpoint exact entry and stop prices, and manage a trade until it's completely closed out. You'll discover how the four key factors of dual-time-frame-momentum, pattern, price, and time can guide you down the path to trading profits. As you become familiar with the proven strategies and techniques taught in High Probability Trading Strategies, you'll also come to understand the type of market information you can use to make specific trade decisions and how to execute those decisions from start to finish.

Miner teaches in a practical, step-by-step manner until a complete trading plan is developed. While the ideas found here are essential to trading success, the best way to learn is by example. That's why Miner has devoted an entire chapter—called "Real Traders, Real Time"—to trade examples submitted by his past students. In it, you'll see how they apply the strategies taught throughout the book to markets around the world.

A companion website completes this comprehensive learning package. It's not a word-for-word review of the material in the book, but rather an additional tool to illustrate more examples. With it, you'll learn how to put high-probability trading strategies into practice, day by day and bar by bar, for many different markets and time frames.

Written with the serious trader in mind, High Probability Trading Strategies details a practical approach to analyzing market behavior, identify-ing profitable trade setups, and executing and managing trades—from entry to exit—that will allow you to both preserve and grow your capital. If you're looking to make the most of your time in today's markets, look no further than High Probability Trading Strategies.

Introduction

Intermarket analysis is a branch of technical analysis that examines the correlations between four major asset classes: stocks, bonds, commodities and currencies. In his classic book on Intermarket Analysis, John Murphy notes that chartists can use these relationships to identify the stage of the business cycle and improve their forecasting abilities. There are clear relationships between stocks and bonds, bonds and commodities, and commodities and the Dollar. Knowing these relationships can help chartists determine the stage of the investing cycle, select the best sectors and avoid the worst performing sectors. Much of the material for this article comes from John Murphy's book and his postings in the Market Message at Stockcharts.com.



Inflationary Relationships

The intermarket relationships depend on the forces of inflation or deflation. In a "normal" inflationary environment, stocks and bonds are positively correlated. This means they both move in the same direction. The world was in an inflationary environment from the 1970's to the late 1990's. These are the key intermarket relationships in a inflationary environment:

- A POSITIVE relationship between bonds and stocks
- An INVERSE relationship between interest rates and stocks
- Bonds usually change direction ahead of stocks
- An INVERSE relationship between commodities and bonds
- A POSITIVE relationship between commodities and interest rates
- Commodities usually change direction after stocks
- An INVERSE relationship between the US Dollar and commodities

POSITIVE: When one goes up, the other goes up also. INVERSE: When one goes up, the other goes down. Interest rates move up when bonds move down



In an inflationary environment, stocks react positively to falling interest rates (rising bond prices). Low interest rates stimulate economic activity and boost corporate profits. As interest rates fall and the economy strengthens, demand for commodities increases and commodity prices rise. Keep in mind that an "inflationary environment" does not mean runaway inflation. It simply means that the inflationary forces are stronger than the deflationary forces.

Deflationary Relationships

Murphy notes that the world shifted from an inflationary environment to a deflationary environment around 1998. It started with the collapse of the Thai Baht in the summer of 1997 and quickly spread to neighboring countries to become known as Asian currency crisis. Asian central bankers raised interest rates to support their currencies, but high interest rates choked their economies and compounded the problems. The subsequent threat of global deflation pushed money out of stocks and into bonds. Stocks fell sharply, Treasury bonds rose sharply and US interest rates decline. This marked a decoupling between stocks and bonds that would last for many years. Big deflationary events continued as the Nasdaq bubble burst in 2000, the housing bubble burst in 2006 and the financial crisis hit in 2007.



The intermarket relationships during a deflationary environment are largely the same except for one. Stocks and bonds are inversely correlated during a deflationary environment. This means stocks rise when bonds fall and visa versa. By extension, this also means that stocks have a positive relationship with interest rates. Yes, stocks and interest rates rise together.




Obviously, deflationary forces change the whole dynamic. Deflation is negative for stocks and commodities, but positive for bonds. A rise in bond prices and fall in interest rates increases the deflationary threat and this puts downward pressure on stocks. Conversely, a decline in bond prices and rise in interest rates decreases the deflationary threat and this is positive for stocks. The list below summarizes the key intermarket relationships during a deflationary environment.

- An INVERSE relationship between bonds and stocks
- A POSITIVE relationship between interest rates and stocks
- An INVERSE relationship between commodities and bonds
- A POSITIVE relationship between commodities and interest rates
- A POSITIVE relationship between stocks and commodities
- An INVERSE relationship between the US Dollar and commodities

Dollar and Commodities

While the Dollar and currency markets are part of intermarket analysis, the Dollar is a bit of a wild card. As far as stocks are concerned, a weak Dollar is not bearish unless accompanied by a serious advance in commodity prices. Obviously, a big advance in commodities would be bearish for bonds. By extension, a weak Dollar is also generally bearish for bonds. A weak Dollar acts an economic stimulus by making US exports more competitive. This benefits large multinational stocks that derive a large portion of their sales overseas.



What are the effects of a rising Dollar? A countries currency is a reflection of its economy and national balance sheet. Countries with strong economies and strong balance sheets have stronger currencies. Countries with weak economies and big debt burdens are subject to weaker currencies. A rising Dollar puts downward pressure on commodity prices because many commodities are priced in Dollars, such as oil. Bonds benefit from a decline in commodity prices because this reduces inflationary pressures. Stocks can also benefit from a decline in commodity prices because this reduces the costs for raw materials.

Industrial Metals and Bonds

Not all commodities are created equal. In particular, oil is prone to supply shocks. Unrest in oil producing countries or regions usually causes oil prices to surge. A price rise due to a supply shock is negative for stocks, but a price rise due to rising demand can be positive for stocks. This is also true for industrial metals, which are less susceptible to these supply shocks. As a result, chartists can watch industrial metals prices for clues on the economy and the stock market. Rising prices reflect increasing demand and a healthy economy. Falling prices reflect decreasing demand and a weak economy. The chart below shows a clear positive relationship between industrial metals and the S&P 500.



Industrial metals and bonds rise for different reasons. Metals move when the economy is growing and/or when inflationary pressures are building. Bonds decline under these circumstances and rise when the economy is weak and/or deflationary pressures are building. A ratio of the two can provide further insights into economic strength/weakness or inflation/deflation. The ratio of industrial metal prices to bond prices will rise when economic strength and inflation are prevalent. This ratio will decline when the economic weakness and deflation are dominant.



Staples/Discretionary Ratio

Chartists can also compare the performance of the consumer discretionary sector to the consumer staples sector for clues on the economy. Stocks in the consumer discretionary sector represent products that are optional. These industry groups include apparel retailers and produces, shoe retailers and produces, restaurants and autos. Stocks in the consumer staples sector represent products that are necessary, such as soap, toothpaste, groceries, beverages and medicine. The consumer discretionary sector tends to outperform when the economy is buoyant and growing. This sector underperforms when the economy is struggling or contracting.



Chartists can compare the performance of these two with a simple ratio chart of the Consumer Discretionary SPDR (XLY) divided by the Consumer Staples SPDR (XLP). The chart above shows this ratio with the S&P 500. The ratio was rather choppy in 2004, 2005 and 2006. A strong downtrend took hold in 2007 as the consumer discretionary sector underperformed the consumer staples sector. Put another way, the consumer staples sector outperformed the consumer discretionary sector. Also notice that this ratio peaked ahead of the S&P 500 in 2007 and broke support ahead of the market. The ratio bottomed ahead of the S&P 500 in late 2008 and broke resistance as the S&P 500 surged off the March 2009 low.

Business Cycle


The graph below shows the idealized business cycle and the intermarket relationships during a normal inflationary environment. This cycle map is based on one shown in the Intermarket Review by Martin J. Pring (Pring Research). The business cycle is shown as a sine wave. The first three stages are part of an economic contraction (weakening, bottoming, strengthening). Stage 3 shows the economy in a contraction phase, but strengthening after a bottom. As the sine wave crosses the centerline, the economy moves from contraction to the three phases of economic expansion (strengthening, topping and weakening). Stage 6 shows the economy in an expansion phase, but weakening after a top.




- Stage 1 shows the economy contracting and bonds turning up as interest rates decline. Economic weakness favors loose monetary policy and the lowering of interest rates, which is bullish for bonds.
- Stage 2 marks a bottom in the economy and the stock market. Even though economic conditions have stopped deteriorating, the economy is still not at an expansion stage or actually growing. However, stocks anticipate an expansion phase by bottoming before the contraction period ends.
- Stage 3 shows a vast improvement in economic conditions as the business cycle prepares to move into an expansion phase. Stocks have been rising and commodities now anticipate an expansion phase by turning up.
- Stage 4 marks a period of full expansion. Both stocks and commodities are rising, but bonds turn lower because the expansion increases inflationary pressures. Interest rates start moving higher to combat inflationary pressures.
- Stage 5 marks a peak in economic growth and the stock market. Even though the expansion continues, the economy grows at a slower pace because rising interest rates and rising commodity prices take their toll. Stocks anticipate a contraction phase by peaking before the expansion actually ends. Commodities remain strong and peak after stocks.
- Stage 6 marks a deterioration in the economy as the business cycle prepares to move from an expansion phase to a contraction phase. Stocks have already been moving lower and commodities now turn lower in anticipation of decreased demand from the deteriorating economy.

Keep in mind that this is the ideal business cycle in an inflationary environment. Stocks and bonds advance together in stages 2 and 3. Similarly, both decline in stages 5 and 6. This would not be the case in a deflationary environment, when bonds and stocks would move in opposite directions.