Markets

Last September (when bitcoin was trading at $230) we said that "As China Scrambles To Enforce Capital Controls, This Is Great News For Bitcoin" and that it is only a matter of time before Chinese buyers figure out that in a world in which the freeflow of capital out of China is increasingly more suppressed and where physical gold is actively being stored in China but is next to impossible to get it out of the country, it is only a matter of time before bitcoin explodes as China's bubble berserk population scrambles to buy.
One month ago, we showed a chart according to which it was almost time for the bitcoin breakout, in "Is Bitcoin About To Soar?" At the time bitcoin was trading in the low $400s.
Then, just yesterday, something snapped, and as we reported "Bitcoin Surges To 2016 Highs On Rising Chinese Demand."
It is unclear if that something is fears about an imminent round of Chinese devaluation following Friday's dramatic move higher in the US Dollar, something we also hinted at on Friday afternoon...
... or simply because China's $30 trillion in deposits had finally found the most efficient way to get their funds out of the country.
Whatever the reason, moments ago - as we expected - bitcoin finally broke out of its long-term range, and was trading at $520 moments ago on Coinbase...
... the highest price it has hit since the summer of 2014.

What is the reason for this dramatic move higher? It appears to be coming out of China, because moments ago Bitcoin traded in CNY on the Huobi exchange soared as high as 3820, or over $580, implying a massive local-demand driven arb to the US price of "only" $520.
It looks like the Chinese have finally awoken to bitcoin, just as we expected them to last September, when the price of bitcoin was over 50% lower.

With bitcoin now 100% higher than when we first said China would send it soaring,and 15% higher in the past two days, why do we remain in the bullish camp? Simple: China has $30trillion in deposits - which concerns about devaluations will make very "flighty" while the market cap of bitcoin is under $8 billion. If Chinese depositors have finally figured out to use bitcoin to get their funds out of the country, watch out BTC shorts.

Summary

The Brexit would change the dynamic of the EU.
Brexit is bad for the EU, not just the GBP.
A Brexit will impact all who deal with the pound.
Volatility peaking June 23 is guaranteed for GBP-related assets.
For Americans, a referendum is a vote whereby voters determine a political decision. America is largely a Representative Republic. Only some U.S. states, like California, have direct social democracy in which referendums determine state law.
There's a referendum in Great Britain that can change the structure of Europe. The question in this case: Should Great Britain stay in the European Union, or leave? (The BBC has complete coverage of Brexit.)
In Britain, polls show the vote would lead to a stay — but it's very close. From the Financial Times Brexit poll tracking:
Analysts agree a vote to leave the EU would cause major volatility, and the British Pound would decline. From CNBC:
A U.K. vote to leave the European Union on June 23 would cause major currency fluctuations and dent growth in the country, according to Ramin Nakisa, global macro strategist at UBS. He estimated it would have an approximately "2 percent impact on GDP (gross domestic product) in the U.K. over the long term." However, the "biggest effect would be on FX (foreign exchange), so we're saying euro/sterling would go to parity if there was an exit," he told CNBC Friday.
For traders, the ETFs to watch are:
  • The Currency Shares British Pound Sterling Trust ETF (NYSEARCA:FXB)
  • The iPath GBP/USD Exchange Rate fund (NYSEARCA:GBB)
Or in your Forex account, watch all GBP pairs. The vote is June 23, and there is constant polling leading up to this historic vote, to gauge public sentiment.
Because the vote is so close, there's tail risk to any assets connected to the GBP currency and to a lesser extent, to the EU. This will also affect the Euro (EUOFXE).
The European Union is an idea. Great Britain is one of the periphery states that joined the EU but still uses its own currency. This leads to confusion: Is Britain in the EU or not? They are. That means they enjoy the privilege of traveling and doing business inside the EU without visas or permits, taxes, and other barriers that would exist were Britain not in the EU.
If they vote to leave, all that can change. It will be a net negative for the EU as well. Not only will the EU lose economically, it will send a message to other breakaway members: If Britain can leave, you can too! The EU is a fragile idea, and there exists in most European countries strong movements against the EU.
A short list of regions that have the potential to 'breakaway' and form their own states, outside the EU, from The Washington Post:
Venice (Italy), Catalonia (Spain), Corsica (France), Flanders (Belgium), The Basque Region (Spain), Bavaria (Germany), Wales, Cornwall, Northern Ireland (The United Kingdom), Galicia, Aragon (Spain), Silesia (Poland), Frisia (Netherlands, Germany), Sardinia, Brittany, Occitania, Alsace, Savoy (France), and Aaland (Finland).
A yes vote on Brexit could break the threads holding the EU together. Again, the EU is an idea, an economic business plan, and as such it relies on the consensual participation of its members. As explained in Splitting Pennies, Forex is a derivative, just like the EU, an idea that underpins the euro. Ideas can unravel, and if the euro idea unravels, it could lead to a return of European national currencies like the Italian lira, French franc, Spanish peseta, and so on. A country is a currency. Britain maintained their currency and stayed part of the EU. But now, if they completely leave, it will further destabilize the euro.
The boards of many of Britain's largest listed companies have made no contingency plans for a possible Brexit amid polls showing rising public support for leaving the European Union. The Financial Times contacted every FTSE 100 company, and only four- EasyjetPersimmonGKN andStandard Life - said they were engaged in detailed planning for a Brexit. Asked what measures it was taking to prepare, Vodafone, on the other hand, said "none of note required".
Europe often will surprise us, and investors would have been wrong betting against the will of the people. Investments in GBP companies can be partially hedged by trading.
On a longer-term view, the GBP is down from its highs, as seen on this chart:
GBB Chart
GBB data by YCharts
A vote to leave the EU could see the pound go down even further. But it's more likely Britain will stay. If Britain votes to stay, the pound could shoot back up near its highs. Investors should stay tuned to the Brexit channel, because this will be a great straddle trade opportunity, with guaranteed volatility no matter what the outcome of the vote.

As we warned previously, the devaluation, or breaking of the Saudi Riyal peg to the dollar, could be the black swan event for crude oil and the recent weakness in SAR forwards - while not as violent as Nigeria's Naira - certainly signals a renewed market fear that breaking the peg is imminent. It appears Saudi officials are none too pleased with the free markets speculating on this devaluation and as Bloomberg reports, banks in Saudi Arabia are coming under fresh pressure over products that allow speculators to bet against the kingdom’s currency peg, according to people with knowledge of the matter, which were supposedly banned in January.
  • *SAUDI ARABIA SAID TO SEEK DETAILS ON BANKS' FORWARD CONTRACTS
  • *SAUDI ARABIA SAID TO PROBE BANK CURRENCY TRADES AS PEG STRAINS
  • *SAUDI ARABIAN MONETARY AGENCY SAID TO WARN BANKS ON PRODUCTS
SAR Forwards signal a renewed interest in betting on a devaluation...


As Bloomberg reports, The Saudi Arabia Monetary Agency has asked lenders to explain why they are offering dollar-riyal forward structured products to customers less than four months after the regulator banned options contracts that let speculators place wagers on a currency devaluation, the people said. The authority, known as SAMA, didn’t reply to requests for comment.
There has been renewed speculation that the world’s biggest oil exporter won’t be able to maintain the riyal’s peg to the dollar as revenue plunges and the kingdom weighs paying government contractors with IOUs. Riyal forwards for the next 12 months rose to 590 points, the highest since Feb. 19, according to data compiled by Bloomberg, signifying increased speculation of a devaluation.

SAMA is asking banks to explain the rationale and relevance of the structured products for the economy and explain why they’ve entered into the products without informing the central bank, according to the people. It also wants transaction details of the derivatives since Jan. 18.

It’s also seeking to understand the impact of the products on Saudi banks’ U.S. dollar buy positions from the central bank as well as the risks to customers and banks, they said. The central bank warned any future structured derivative product should be submitted to SAMA for review and approval before they’re launched.
As The Telegraph's Ambrose Evans-Pritchard recently wrote, Saudi Arabia faces a vicious liquidity squeeze as capital continues to leak out the country, with a sharp contraction of the money supply and mounting stress in the banking system.
Three-month interbank offered rates in Riyadh have suddenly begun to spiral upwards, reaching the highest since the Lehman crisis in 2008.

Reports that the Saudi government is to pay contractors with tradable IOUs show how acute the situation is becoming. The debt-crippled bin Laden group is laying off 50,000 construction workers as austerity bites in earnest.

Societe Generale’s currency team has advised clients to short the Saudi riyal, betting that the country will be forced to ditch its long-standing dollar peg, a move that could set off a cut-throat battle for global share in the oil markets.

Francisco Blanch, from Bank of America, said a rupture of the peg is this year’s number one “black swan event” and would cause oil prices to collapse to $25 a barrel. Saudi Arabia’s foreign reserves are still falling by $10bn (£6.9bn) a month, despite a switch to bond sales and syndicated loans to help plug the huge budget deficit.

The country’s remaining reserves of $582bn are in theory ample – if they are really liquid – but that is not the immediate issue. The problem for the Saudi central bank (SAMA) is that reserve  depletion automatically tightens  monetary policy.
Bank deposits are contracting. So is the M2 money supply. Domestic bond sales do not help because they crowd out Saudi Arabia’s wafer-thin capital markets and squeeze liquidity. Riyadh now plans a global bond issue.
...
Eventually the next cyclical oil spike will come to the rescue. The question is whether the Saudis can batten down the hatches and make it through the financial storm in a very leaky ship.
As for what happens if (or perhaps "when" is now the more appropriate term) the peg does fall, we close with the following bit from BofAML, who calls the breaking of the riyal peg the "number one black swan event for the global oil market in 2016": 
 
 
For oil, however, the most crucial point is what happens to Middle East currencies and in particular to the Saudi Riyal. In fact, Saudi Arabia’s FX reserves are still high and point to an ample buffer for now, but they have been falling at a relatively fast rate (Chart 21). However, should China allow for significantly faster FX depreciation than is currently priced in by markets, we believe oil prices could fall further. Naturally, the FX reserve drain on Saudi could accelerate to $18bn per month if Brent crude oil prices average $30/bbl (Chart 22), sharply reducing the Kingdom’s ability to retain its currency peg. 


However, if Saudi cannot resist the gravitational forces created by a persistently strong USD and depegs the SAR to follow Russia or Brazil, oil prices could collapse to $25/bbl. Weaker commodity prices would in turn add more downward pressure on EMs (Chart 26). Thus, even if micro supply and demand dynamics are improving, the path for oil prices in 2016 will heavily depend on how the USD moves against the CNY and the SAR. Or on a Saudi supply cut.
http://www.zerohedge.com/news/2016-05-26/saudi-officials-crackdown-fx-market-currency-peg-starts-strain 

Inflation is out of control.  Now, we mostly agree that the Fed's official inflation numbers are just - ridiculous.  But the real inflation, is even harder to quantify, and more subtle - as we explain in Splitting Pennies - Understanding Forex.  What drives inflation is NOT Adam Smith's "Supply and Demand" - an interesting idea but completely static, and completely irrelevant for practical applications - and certainly not useful for business, or economic forcasting.  Inflation is a simple function of monetary policy, multiplied by FX.  That means, in today's world, inflation must be counted including the FX markets because - no matter how much USD the Fed prints, it's constantly being exchanged for Euros and Yen on the open FX markets.  FX is a limited, finite system.  But the USD itself - is not.  It's defined by other currencies, and the market value of the USD vs. others.
Other less quantitative signs of inflation:
  • Reduction of quality
  • Less quantity, but for the same price (less chips in the bag, every year)
  • Intentional, engineered 'appearance' of more (there are less chips, and bag is bigger too)
  • Accompanying marketing 'feel good' slogans 
The best signs of real inflation, not the academic mumbo jumbo Fedspeak produced by The Fed and Federal Economic Departments (like BEA), is FX - and consumer goods.  Because we need energy, we need food.  Without food and energy, society can't function.  We can live without iphones, we can live without Tesla, we can live without many 'industries' - but we can't live without food, at least based on our modern consumption system used by most human beings on this small planet Earth.  And speaking of iphones, they all rely on energy - Apple (AAPL) investors should hedge their bets with energy stocks.  We can expect that high-tech products have inflation, but take a look at the real inflation, the rising prices of raisins:
You wouldn't think this is unusual, based on data from the raisin growers:
So what gives?  Here's the deal.  Recently I learned my wife is pregnant and so we've changed our diet (in addition to our whole lives - that's another topic).  Having a dash of chemicals here and there for an adult is one thing, but for a developing newborn and pregnant mother, it's out of the question.  We have in the south Earthfare, which is notably much more picky and choosy than WholeFoods, their customers more fussy and thus everything is much more expensive.  But the point here is that these raisins, are like the raisins we used to get really cheaply, 20 or 30 years ago.  Now you have to go to a place like Earthfare to get real food, by real I mean not artificial, loaded with chemicals, fillers, and other things that make for a good science experiment.  Health is another topic, but economically speaking - this is an excellent example of what inflation is.  Inflation isn't necessarily when prices go up, although $6.99 a pound for raisins is alot.  It's about deteriorating quality.  When the Fed picks a basket of goods to calculate CPI, what 'goods' do they choose?  Certainly, NOT products from Earthfare or Wholefoods.  Quality is qualitative, so it's hard to overlay a deterioration of quality line against the CPI or do statistical analysis.  There are methods though, to evaluate quality and its deterioration.  
The problem is that - in order to prove the status quo establishment method -  quality is deteriorating, by using methods by establishment institutions, and from data by establishment institutions, is a paradox.  In other words, we have to think outside of the box, and use our intuition.  For example if we look to the CDC for a correlation, we'll get nothing:
But, this is the same CDC that tells us to wash our hands to fight disease, the same CDC that exposed its own worker to Ebola.
You must see for yourself.  The raisins you eat - are they like when you were a child?  How do you remember, the taste of tomato, apple, grape, melon, and veggies?  The organic movement itself is riddled with misleading information and corruption.  But at the end of the day, if a consumer wants a 'real' raisin, not frankenfoods sold by major grocers, you have to pay the price, and buy Organic, or grow your own.
How does FX enter the raisin market?  If the Currency markets were fixed, something could be said about supply and demand.  Raisin growers now compete with farms from around the world.  The world's flat, and payment is instantaneous.  Farmers don't only compete domestically, they compete internationally.  Farmers outside the USD world maybe aren't subsidized like those in the US, but they sure are subsidized (indirectly) by their central banks, who like to make their currencies worthless, thus making the prices of these inferior raisins much cheaper, and more attractive.  Farmers at least can hedge this risk by opening a forex account and trading, but the end result of the current capitalistic system we have in the world is one thing:  garbage.  Our brains are deteriorating, health, quality of life, society, relationships, all the way down the maslow pyramid to what Americans used to love: food.  In major chains there's not much difference between pork and beef.  Not that many could notice the difference.
At least, there are methods to fight this disease we call inflation, as we explain in our book - Splitting Pennies.  We've released a slightly longer paperback edition which is really popular - get a copy for only $14.98.  The book is only the beginning.  It's only a key - you must use it to unlock the door to your new life.

http://www.zerohedge.com/news/2016-05-25/rising-prices-raisins-real-effect-rampant-inflation-and-fx

Common sense has prevailed at the 2nd U.S. Circuit Court of Appeals in litigation over an alleged conspiracy among 16 global banks to manipulate the London Interbank Offered Rate (Libor), a key interest rate benchmark. The appeals court held Monday that price-fixing collusion among competitors is a violation of antitrust law, even if it takes place in the context of an ostensibly cooperative rate-setting process.
The 2nd Circuit’s 61-page opinion, written by Judge Dennis Jacobs for a panel that also included Judges Reena Raggi and Gerard Lynch, vacated a controversial 2013 decision in which U.S. District Judge Naomi Reice Buchwald of Manhattan tossed classwide antitrust claims because the Libor rate-setting process is collaborative, not competitive. The ruling revives the banks’ exposure to potentially billions of dollars in damages from investors who say they were victimized by artificial Libor rates.
Rate and market-rigging class actions against banks have become all the rage among antitrust plaintiffs’ lawyers, who’ve won nearly $2 billion in settlements in consolidated litigation over alleged tampering with the market for credit default swaps and hundreds of millions of dollars in settlements tied to manipulation of foreign exchange benchmarks. The 2nd Circuit’s Libor decision will only make the class action bar more excited about claiming collusion in the rate-setting process.
International regulatory and criminal investigators have levied about $9 billion in fines and penalties against some of the banks involved in the Libor rate-setting process, including Barclays, Deutsche Bank and UBS. Internal documents released in government probes have shown some defendants manipulated the rate-setting process to make themselves appear more stable in the financial crisis and to give particular traders an advantage over counterparties. To derive the Libor rate, banks would submit reports of the rate at which other banks were willing to lend them money; those rates were winnowed and averaged to come up with a daily Libor figure.
Judge Buchwald had said plaintiffs could not show their injury was tied to antitrust violations because banks did not compete with one another in the rate-setting process. The 2nd Circuit, however, said her reasoning was flawed. As sellers of securities that incorporated the Libor rate, the banks are competitors. Investors in Libor-pegged instruments, according to the appeals court, are buyers affected by the conspiracy. Plain and simple.
“Schematically, appellants’ claims are uncomplicated,” the appellate opinion explained. “They allege that the banks, as sellers, colluded to depress LIBOR, and thereby increased the cost to appellants, as buyers, of various LIBORbased financial instruments, a cost increase reflected in reduced rates of return. In short, appellants allege a horizontal pricefixing conspiracy, ‘perhaps the paradigm of an unreasonable restraint of trade.'”
The panel rejected as “immaterial” the banks’ arguments that Libor itself is not a product or a price and that the rules for setting the rate were implemented by the British Bankers’ Association, not by the banks. “The crucial allegation is that the banks circumvented the LIBOR-setting rules, and that joint process thus turned into collusion,” the 2nd Circuit said. Investors “have alleged an anticompetitive tendency: the warping of market factors affecting the prices for LIBORbased financial instruments. No further showing of actual adverse effect in the marketplace is necessary.”
The 2nd Circuit also held there’s no question that investors have raised plausible claims of a conspiracy so their case can’t be dismissed as inadequately pleaded. “Close cases abound on this issue, but this is not one of them,” the opinion said. “These allegations evince a common motive to conspire – increased profits and the projection of financial soundness – as well as a high number of inter-firm communications, including Barclays’ knowledge of other banks’ confidential individual submissions in advance.”
The one sliver of hope for the banks in the appellate opinion is a remand to Judge Buchwald to determine whether investors in Libor-pegged financial instruments are the right plaintiffs to enforce antitrust law. As the panel pointed out, plaintiffs have to meet two requirements to establish antitrust standing: They have to show an antitrust injury and they have to show that they are “efficient enforcers.” Judge Buchwald never reached the second issue in her 2013 decision. Now she will have to decide what the 2nd Circuit called “a closer call” than the question of whether investors properly claimed an antitrust injury.
The banks, taking a cue from the appeals court, will doubtless argue on remand that governments around the world are already punishing them for Libor transgressions. “There are many other enforcement mechanisms at work here,” the appellate opinions said. “This background context bears upon the need for appellants as instruments for vindicating the Sherman Act.”
And even the 2nd Circuit agreed that private litigation may turn out to be a bust if, for instance, “the corrupted LIBOR figure on competition was weak and potentially insignificant, given that the financial transactions at issue are complex, LIBOR was not binding, and the worldwide market for financial instruments – nothing less than the market for money – is vast, and influenced by multiple benchmarks.”
Nevertheless, the 2nd Circuit opinion answers a question about benchmark rates and antitrust claims that has divided trial judges in federal court in Manhattan. At least one of Judge Buchwald’s colleagues followed her reasoning, in a 2014 opinion dismissing a case alleging manipulation of Japanese yen Libor. But, as I’ve written, Judges Lorna Schofield and Jesse Furman squarely rejected Judge Buchwald’s interpretation of antitrust injury in more recent decisions. Schofield and Furman, in cases involving supposed tampering with the foreign exchange and ISDAfix benchmark rates, took care to distinguish the facts the in class actions before them from the Libor allegations. In particular, they emphasized that the forex and ISDAfix rates were determined through actual trades, not just by banks’ voluntary submissions.
They also, however, said Judge Buchwald had misread U.S. Supreme Court precedent to reach her conclusion. In Monday’s opinion, the 2nd Circuit agreed. The important cases to consider, the 2nd Circuit said, are 1940’s U.S. v. Socony Vacuum Oil, the seminal ruling on the per se illegality of horizontal price-fixing schemes; and 1982’s Blue Shield of Virginia v. McCready, which said consumers can sue over supposedly collusive schemes that ended up costing them money.
Investors in the various Libor classes had to go to the U.S. Supreme Court to win the right to bring an interlocutory appeal of Judge Buchwald’s antitrust decision to the 2nd Circuit. Thomas Goldstein of Goldstein & Russell, who won the Supreme Court case, argued for plaintiffs at the appeals court as well. (It took an additional nine pages to list all of the plaintiffs’ firms and amici involved in the 2nd Circuit appeal.) Robert Wise of Davis Polk & Wardwell, who argued at the 2nd Circuit for all of the banks, declined to comment.
For more of my posts, please go to WestlawNext Practitioner Insights
http://blogs.reuters.com/alison-frankel/2016/05/23/2nd-circuit-in-libor-case-v-banks-rigging-rates-is-price-fixing-collusion/

Ask any trader what they believe to be the hallmark feature of any "rigged market" and the most frequent response(in addition to flagrant crime of the type supposedly demonstrated every day by Deutsche Bank and which should not exist in a regulated market) will be an institutionally bifurcated and legitimized playing field, one in which those who can afford faster, bigger, more effective data pipes, collocated servers and response times - and thus riskless trades - outperform everyone else who may or may not know that the market is legallyrigged against them.
Think of it as baseball game for those who take steroids vs a 'roid free game, only here the steroids are perfectly legal for those who can afford them. Or like a casino where the house, or in this case the HFTs, always win.
However, as it turned out, the vast majority of the public had no idea that a small subset of the market was juicing, despite our constant reports on the topic since 2009, until the arrival of Michael Lewis' book Flash Boys, which explained the secret sauce that made all those HFT prop shops into unbeatable "trading titans": frontrunning.
That's really all one had to know about the mystical inner working of the modern market. All Reg NMS did was legitimize and legalize frontrunning at a massive scale for those who could afford (and hide) it, all the while the technology race ran in the background making it increasingly more expensive to stay at the top: fiber optics, microwaves, lasers, FPGAs, PCI-Express and so on.
And, as we have also discovered in recent years especially since the advent of IEX, for many exchanges providing a two-tiered marketplace was the lifeblood of the business model: the bulk of the revenues for "exchanges" such as BATS and Nasdaq would come from selling non-HFT retail and institutional orderflow to HFT clients. Since the HFTs made far more than the invested cost in permitting such perfectly legal frontrunning, they were happy, the exchanges were happy too as they betrayed only those clients who didn't pay up the "extra fee", and only the true outsiders lost. And any time they complained how rigged the system was against them, the HFTs would scream that "they provide liquidity" as they are the real modern-day market makers.
Except that's not true: the only time HFTs provide liquidity it when it is not needed. When liquidity is truly scarce and required in the market, such as on days like the May 2010 flash crash, or August 2015...  they disappear.
Meanwhile, nothing changes, because the regulators are just as corrupt as the exchanges and the HFTs, and their role is not to bring transparency to a broken, manipulated market, but to keep retail investors in the dark about just how rigged everything is.
It appears that the CME was doing just that as well.
According to Bloomberg, the CME Group - the world’s largest exchange operator - just completed an "upgrade" traders said would eliminate a shortcoming that gave some participants an advantage.
Under the old system, data connections that linked customers to CME - where key products like Treasury futures and contracts tied to the Standard & Poor’s 500 Index trade - had noticeably different speeds, opening up the potential for gaming, according to traders and other experts. Those who knew how to gain faster access could increase their odds of being first in line to trade.
The new design supposedly stamps that out.
Oh, so it was a design glitch that allowed those who "knew" how to frontrun everyone else to do so. That's the first time we have heard of the particular excuse. Usually the scapegoat is a "glitch", only in this case the CME didn't even bother.
"It’s an excellent step forward,” said Matthew Andresen, co-owner of Headlands Technologies LLC, a quantitative trading firm. “The new architecture is flat and fair, a great improvement,” said Andresen, whose knowledge of market infrastructure goes back to the 1990s, when he worked for electronic trading pioneer Island ECN.
But, wait... if it is an "excellent step" that some traders can no longer frontrun other traders on the CME, why is it not a "poor step" that virtually every other exchange still enables precisely this kind of tiered marketplace, which is neither flat nor fair?
Actually, scratch that: that's precisely what IEX is trying to resolve. The reaction? An exchange which explicitly profits from providing a two-tiered market and charging an arm and a leg for those who can afford it (and thus frontrun everyone else) namely the Nasdaq, has threatened to sue the SEC if it permits IEX to become a full-fledged stock exchange.
As Bloomberg adds, the situation involving CME’s data connections highlights a fresh set of difficulties ensuring a level playing field in the era of light-speed markets, in which even the smallest bits of a second matter. The race to shave off milliseconds has spurred efforts to carve through mountains, span continents with microwave networks and prompted a backlash championed by the likes of IEX Group Inc., the upstart stock market that delays trading to impose fairness.
Unlike some of today's state of the art means of being faster than everyone else, frontrunning orderflow on the CME was more of a "brute force" mechanism: CME customers are allotted data connections to the exchange. Some have more, some have less. Given that their speeds varied noticeably under the old architecture, the more lines a trading firm had, the better odds it could find a faster one. Trading firms with a lot of links had the chance to fish around for the fastest way to get trades done. Other firms that didn’t have as many connections or the computer programming resources to test around and find the quickest, most efficient way in were at the mercy of the connections they had.
“The performance could vary widely” with data connections under the former CME architecture, Andresen said. By which he meant that those who could afford to pay much more than everyone else, would also be able to frontrun almost everyone else.
But no more. The new system “is an important innovation that will set a new standard for fair and efficient access to the futures markets,” said Benjamin Blander, managing member of Radix Trading, a Chicago-based trading firm.
CME declined to comment on claims the old system was unfair, Bloomberg adds. “We are continuously enhancing our infrastructure in order to provide the latest and best technology architecture for our clients,” said Michael Shore, a spokesman for CME.
CME has been installing the new architecture since February. The last group of futures and options became available on the new system last week, according to CME. Traders aren’t required to switch over to the new system and can keep trading the old way if they want.
This isn’t the first time CME revamped its systems to stamp out an imperfection. Before an upgrade more than two years ago, traders were notified that their own orders were completed before everyone else found out, potentially giving initiators of transactions time to buy or sell on other exchanges with knowledge of their executions.
We expect more violations of "accidentally" rigged markets to be uncovered in time, both on the CME and elsewhere, although we wonder at this time does it even matter: besides central banks trading with other central banks (especially courtesy of the CME's own Central Bank Incentive Program), does anyone else even bother? If judging by the total collapse in trading volumes over the past decade in virtually every product class, the answer is clear.

Do you remember when you were growing up and all your friends were allowed Atari game consoles but you weren’t?
Well, I do and the things seemed as foreign to me as Venus. Mostly because the little time I managed to spend on the gaming consoles when my friends weren’t hogging them I found it all a bit silly. I never “got” computer games, and to this day still have poor comprehension of things like Angry Birds.
I suspect that many people around the world view Bitcoin in the same way as I view Angry Birds: with mild amusement and a general lack of understanding as to what the hell all the fuss is about.
I was thinking of this since a buddy of mine recently started taking notice of Bitcoin. Here’s a hedge fund manager who has been known to investigate some of the more out of the box investment opportunities around and Bitcoin is on his radar.
He figured out pretty quickly how to buy, store, and trade the currency. It’s extremely simple and certainly much easier than opening a typical brokerage account. But I wondered if the broader market saw it the same way?
What about Joe Sixpack who’s seen the Bitcoin checkout option on Amazon and thinks it’s another version of PayPal? Or the desk jockey who’s heard about it from his wayward teenage son and thinks it’s the domain of terrorists and crack dealers? What would it take to provide legitimacy to Bitcoin or any cryptocurrency in the eyes of the masses?
To answer my curiosity I googled it and found an article where some know-all was saying that Bitcoin isn’t a “real” currency because it’s not issued by an authority. This may strike a chord but I think the last time someone was so wrong he was standing in front of a tank in Tiananmen Square.
What gives Bitcoin value is largely the very fact that its NOT issued by any such “authority”.
But being an ardent student of history and lover of psychology I understand that there’s a fair few (the majority actually) among us who find comfort in a man in a uniform with a fluttering flag behind him. If it can’t be ISSUED by an authority, then would some such authority ostensibly legitimising it perhaps do the trick? The local government of a Swiss canton perhaps?
Zug Bitcoin
Or what about a listed investment vehicle that you can buy through your Roth?
Surely the folks at the SEC who are in charge of what gets to be listed and accessible to mainstream investors wouldn’t allow crack peddling currencies onto their exchange. So if the SEC OKs it then that is authority we can trust, right?
And this is where the intersection between what is available on an authorised exchange and what can be freely bought in the open market collides. And in this collision space lies a simply huge arbitrage opportunity.
A quick search on the Internet reveals an interesting animal: the Bitcoin Investment Trust (BIT). Only qualified accredited investors can buy BIT but everyday Joe can buy it as GBTC on the OTC market without restrictions.
Presumably, since it trades on a regulated and known platform, investors sense it is somehow more stable, more authorised, and more safe. It allows institutions and retail investors to have a proxy ownership in Bitcoin. I see nothing wrong with any of these things.
Some people like buying gold ETFs as a proxy for gold, others like the shiny metal in their grubby hands, and yet others prefer futures contracts. It all depends on what you’re looking to achieve so why not Bitcoin?
When I first looked at Bitcoin Investment Trust I had to do a double take. The price didn’t reflect the price of Bitcoin so I double checked the mandate. But no, they simply invest in Bitcoin. It’s specifically meant to track the price of Bitcoin. The thing is, it trades at over a 60% premium!
Bitcoin and Bitcoin Investment Trust
In any other market on this planet, were we to have an asset priced at one level in one place and an entirely different price some other place, the price discrepancy wouldn’t last very long. Traders would buy the asset where it is cheaper while simultaneously selling the asset where it is more expensive and pocketing the difference. Something also known as an arbitrage.
Arbitrage opportunities exist in public markets all the time but the discrepancies are typically extremely small and even more so with higher liquidity. It’s also pretty rare for them to last for any real length of time. Years ago I worked with traders whose sole focus was on arbitrage trading but today algorithmic trading trading has almost eliminated these opportunities and jobs.
Bitcoin’s market cap is now over $7 billion so it can no longer be considered “illiquid”. To have such a huge margin of price difference would be like having Icahn Enterprises (IEP) trading at 54 bucks on the NASDAQ while simultaneously trading for 86 bucks on another exchange, say the LSE. We’d all make a fortune with such an opportunity.
I therefore humbly ask any of the Joe Sixpacks out there who’ve invested in this Bitcoin ETF to provide me a borrow as shorting it is not currently available.
Take another look at the above chart and tell me you, too, wouldn’t want to arbitrage this anomaly?

As we explain in our book Splitting Pennies - the world is not as we think!  Every day, our money is worth less and less, and markets become more cumbersome, regulated, and overall disfunctional (except for an elite group of billionaires that can front run orders due to advanced computer-aided execution because of 'order types').  We explained in an article about America's Big Red Forex Button, now we need to elaborate on the 'nuclear option' - considering that leading generals are saying more and more that war with Russia is 'plausible'if not 'likely'.  Military politics in today's world is a complicated mix of government politics, geopoliti#mce_temp_url#cs, and traditional statecraft.  It's based on REAL geopolitics, meaning - not what you see on TV, but what goes in to build an energy pipeline, such as has been launched in Southern Europe.  This same politics is what goes into Forex.  Forex is a private market, the participants are 90% private banks, and it's not regulated.  There's no exchange.  It's literally - a globalist capitialist free for all.  The rules are determined by the participants.  It's all privatized - no government intervention.  HOWEVER.  The big linchpin is that FOREX markets operate at the licensure of the US Government.  The Fed, is a private bank.  But - the Federal Reserve Act was enacted by Congress, creating the Fed.  All these conspiracy nuts talking about the Fed is private blah blah blah 13 families, they missed the boat.  These people cherry pick facts that suit their pre determined beliefs, whatever they may be (The planet is run by Lizards - my personal favorite).  The point here, the Fed is the most powerful institution in the world, arguably.  Because of their powers, not their connections, not their clients, not their skills.  The Fed can tommorrow, set the benchmark rate to 10%, the world would explode - contracts would default, loans called in, companies bankrupt, the US Dollar would rise by huge a amount - it would be an 8.0 earthquake on the economic Richter scale.  And it's not so far fetched, after all, Paul Volcker did it.  They can do it - and they can do even more.  The Fed can do things, that could literally put an end to the economic system on the planet.  They have all these powers, both legally and physically (meaning that, if the Fed acts electronically - it has the systems to do it, regardless of the legality).
But - the Fed derives its powers from the US Government.
The Fed isn't a GSE, it's in a unique situation.  To use the Military analogy, the CIA outsources an untold number of it's functions, sometimes reported as high as 70% - 80%:
Among the many revelations in the Senate Intelligence Committee’s investigation into the use of torture by the CIA is this crucial detail: The CIA delegated much of its “enhanced interrogation” to others.The report discloses that in 2008, 85 percent of the workforce in the CIA’s Rendition, Detention and Interrogation Group was made up of contractors. Former FBI special agent Ali Soufan, who was at the center of the Sept. 11 investigations, told FRONTLINE that he believes that the CIA’s most troubling interrogation practices can be traced to the agency’s decision to hand over key responsibilities to these outsiders.“They hired people from outside,” said Soufan, who testified to Congress in 2009 about what he saw as the many flaws in the CIA’s procedures. “We hire the best and the brightest to work for the government, and then we outsourced to people who we have no clue who they are.”
This is, in fact, how government works.  The US Government has become the world's largest business enterprise.  Defense was once a need - now it's a business.  Every aspect of life from healthcare to managing your retirement has been commoditized and securitized for your consuming pleasure.
The ones who hold the big stick, it's really the US Government, not the Fed, not the banks.  Because they have the ultimate power - the power to bomb.  Don't take it lightly, and don't misunderstand.  The fact that DC enjoys this power is not a critique or some kind of implication that "America is Evil" or some such nonsense.  Simply that, in REAL geopolitical terms, this is the reality of the world's economy since World War 2.  All other explanations, like "Gunboat Diplomacy" are good metaphors, but the real power is derived from a small suitcase that POTUS carries that can eliminate a continent or the entire planet Earth.  
Is the Petro Dollar system coming to an end?  Yes, but it will be replaced by a new system - the NUCLEAR DOLLAR.  This is why one reason that the only real threat to the USD as a global reserve currency is Russia - not the EU, Africa, or Asia.  But as George Friedman explains in his latest book, the power which controls the trade routes in the Atlantic and Pacific, controls the world.  The United States is uniquely positioned on both coasts, with natural geologic advantages.  This, combined with the largest economy in the world, and Nukes, means that for the forseeable future, the United States will remain the world's superpower.  This article is a must read for any Forex trader, would-be analyst, or conspiracy nut: 
The other part of the world that could produce a rival to the United States is Eurasia. Eurasia is a region of extremely varied geography, and it is the most likely birthplace of an American competitor that would be continental in scope. Geography, however, makes it extremely difficult for such a power (or a coalition of such powers) to arise. In fact, the southern sub-regions of Eurasia cannot contribute to such formation. The Ganges River Basin is the most agriculturally productive in the world, but the Ganges is not navigable. The combination of fertile lands and non-navigable waterways makes the region crushingly overpopulated and poor.
Things like Oil pipelines, can change this.  It's why the politics is so complicated, and why the US has such an aggressive foreign policy promoting the use of US-involved contractors, or US-ally client states.
So while the Fed is a private institution, and Forex is run by private banks (for profit corporations) - it does so because governments authorize them to do so.  States provide banking charters.  States can take away banking charters.  If the US Government wanted to, it could mint its own money, create its own currency, and be its own banker.  Many economists and leading analysts have suggested this as sound monetary policy.  But to understand the FOREX system we have today, and how the Fed operates, one must understand government thinking, as explained in our previous article:
The government approaches work in an entirely different way than in private enterprise.  Healthcare.gov - the world's first billion dollar website, is another great example.  Now imagine the task the Department of Defense is given; protect America from external threats.  Their first step, to identify threats.  In the military, this is done by agencies such as the CIA and the NRO.  Actually if the CIA operated according to its public mission, it would be an analyst agency not much different than those seen on Wall St. - providing information to their DOD bosses who act on it.  Since 911, the potential for financial terrorism has been considered a national security issue.  It's in the laws, it's in the regulations, it's serious.  What if the Saudis flood the market with US Dollars?  What if the Chinese dump treasuries crashing the US Dollar?  What if hackers take control of the NYSE and flood the market with sell orders, causing a crash?  These are all extremely improbably events, so rare there is a higher chance of a giant meteor striking Manhatten this year.  The probability is so low it's difficult to calculate.  But just like the false threat of Russian's launching nukes, billions of dollars have been spent building a Big Red Button to press in case it happens.  It's because government workers have one thing in mind; protect themselves.  Avoid a potential disaster.  The last thing any government worker wants is to be in charge of security on a day like 911, even if the threat is financial.  Although the debate rages about TARP and government actions during the weekend of the Bear Stearns collapse - the financial system was saved.  They pressed the button.  But this wasn't the Forex button.
The Fed is a method of outsourcing.  Government doesn't really DO anything, except collect taxes, make laws, and delegate powers.  Things like USPS and Healthcare.gov are anomalies.  
The US Government maintains the ultimate currency Nuclear option:  Destroy the US Dollar.  The power to destroy, is real power.  They can do it - just like they can create a new currency.  If you think this is irrational or impractical, see hundreds of references where they've done this in the past 100 years, including but not limited to issuing Military Payment Certificates (MPCs) during times of war, and has been often accused of counterfeiting US Dollars.  There's no better 'slush fund' to finance a 'black budget' than REAL currency printed off the books, that no one knows exists.  And why not, it doesn't cost much to print, and as an 'anonymous' Congressman admits in a recent release, they're just a sinkhole of leeches:
More details are being released about the anonymous expose of Washington D.C. corruption and largesse that confirms why Americans hate their national government and have rallied to anti-establishment presidential candidates like Donald TrumpAs NYPost reports, the 65-page manifesto called 'The Confessions of Congressman X' is based on years of transcribed private discussions, which the congressman last November gave editor Robert Atkinson, says more time is spent fundraising than reading bills and calls Washington a "sinkhole of leeches," where money 'corrupts' and House members are "puppets" to lobbyists who bankroll their campaigns.
Recapping the FOREX NUCLEAR OPTIONS that USA has:
  • USA can revoke the powers of the Fed, and create their own government run central bank
  • USA can make null and void, use of the US Dollar as "Legal Tender" - to be replaced by a new currency, something electronically, centrally controlled
  • USA can freeze all incoming and outgoing Foreign Currency transactions (which are processed by the Fed)
This is all possible, and much more.  These are operating powers.  Does it imply that anything like this will ever happen?  Probably not.  But investors should understand the reason WHY NOT.  Because if someone is holding a gun to your head while you work, it's not likely that you're going to throw stones at him.  The French tried that, and Nixon pressed the button.  And finally, they didn't get their Gold that they wanted.  They just got more worthless US Dollars.  

http://www.zerohedge.com/news/2016-05-19/usas-big-red-forex-nuclear-option

Submitted by Nick Cunningham of Oilprice.com
Greek Pipeline Breakthrough To Challenge Russian Gas Dominance
After years of debate, political jockeying and acrimony, a major pipeline project to bring natural gas to Southern Europe has broken ground.
The Trans-Adriatic Pipeline (TAP) will connect the Caspian Sea to European markets, providing Europe with another large source of natural gas that will help the continent diversify away from Russia. The route begins at the Caspian Sea in Azerbaijan, where the South Caucuses Pipeline will carry Caspian gas from the large Shah Deniz-2 gas field, delivering it to the border with Turkey. From Turkey the gas will tie into the Trans Anatolian Pipeline (TANAP), which will take the gas across Turkey to the border with Greece where it will meet up with the aforementioned Trans-Adriatic Pipeline. The Caspian gas will then travel through TAP across Greece, beneath the Adriatic Sea and onto Italy.
South Caucuses Pipeline to TANAP to TAP
The TAP route
The pipeline projects are part of what is often referred to as the “Southern Corridor” for European gas. For years Europe has pressed for a gas pipeline through the southern corridor that would offer it an alternative to Russian gas. But TAP was not always an inevitability – before the consortium of companies took up the project, the European Union favored the Nabucco Pipeline, which instead of sending Caspian gas to Italy, would have resulted in a pipeline snaking its way through the Balkans to Central Europe
And back when Nabucco was in vogue, Russia pushed hard for its own route through Southern Europe. The so-called South Stream Pipeline would have sent Russian gas beneath the Black Sea to Bulgaria. European regulators worked hard to derail that pipeline on anti-competition grounds. Shortly after the death of South Stream, and following in the wake of Russia’s standoff with Europe over its incursion into Ukraine, Russia pushed the “Turkish Stream” project, which would have sent Russian gas to Turkey and then onto Southern Europe. But the project was more of an idea than a reality, and due to a set of differences between Russia and Turkey, not the least of which was the cost of the pipeline and how it would be paid for, the project never really went anywhere.
The complexity of pipeline politics and the web of pipeline routes can be confusing, but suffice it to say the Turkish-Greece-Italy route has won out, through the TANAP and TAP pipelines. On May 17, TAP broke ground in Thessaloniki, Greece. Construction will take several years, but when the $45 billion project is completed in 2020, it will deliver 10 billion cubic meters per year of natural gas from the Caspian Sea to Europe.
Greek Prime Minister Alexis Tsipras was in attendance for the groundbreaking event, as were top officials from Georgia, Azerbaijan, Albania, the EU and even the U.S. State Department. Each have their own reasons for supporting the project. The project developers – BP, the Azerbaijan state-owned oil company SOCAR, and others – obviously have direct profit motives in mind. The national governments see economic opportunities through construction and transit fees. For Greece, in particular, the EU sees TAP as providing an economic stimulus to the indebted nation at a time when debt negotiations continue to torment both sides.
From the perspective of the U.S. government, TAP will reduce Europe’s dependence on and vulnerability to Russia; in essence, it is a major geopolitical victory. U.S. Secretary of State John Kerry, in a congratulatory letter to Greece’s Prime Minister, said that TAP is a “prime example of infrastructure that enhances European energy security.”
Diversity of supply has become one of Europe’s key energy security objectives, along with building an “energy union” between EU member states.
“A single European energy market will allow us to increase our security of supply by allowing energy to flow freely across our borders,” European Commission Vice President for Energy Union Maros Sefovi said at the ceremony. “It will allow us to better negotiate with our external partners, given that the EU is the largest energy importer in the world.”

Call it some no holds barred German bank on German bank action.
After a tumultous start to a year that Germany's largest, and judging by the tens of billions in legal settlements and charges also its most criminal bank, Deutsche Bank, would love to forget, things got worse over the weekend when a note issued by another German bank said that either Deutsche will have to massively dilute its shareholders as a result of "insurmountable" debt, or a fate far worse could await the Frankfurt-based lender.
Berenberg analyst James Chappell pulled no punches and spoke in uncharacteristically frank terms, traditionally reserves for the fringe media, when he said that "facing an illiquid credit market limiting Deutsche Bank’s (DBK) ability to delever and with core profitability impaired, it is hard to see how DBK can escape this vicious circle without raising more capital. The CEO has eschewed this route for now, in the hope that self-help can break this loop, but with risk being re-priced again it is hard to see DBK succeeding." Chappell then broke the cardinal rule of sellside analysts: never issue a Sell rating on a fellow bank. "We downgrade to Sell and cut our price target to EUR9.00."
According to Chappell, the biggest problem, of which DB has many, is that it simply has too much leverage, some 40x to be precise, something we have warned about since 2013.To wit:
Too many problems still: The biggest problem is that DBK has too much leverage. On our measures, we believe DBK is still over 40x levered. DBK can either reduce assets or increase capital to rectify this. On the first path, the markets do not exist in the size nor pricing to enable it to follow this route. Going down the second path also seems impossible at the moment, as the profitability of the core business is under pressure. Seeking outside capital is also likely to be difficult as management would likely find it hard to offer any type of return on new capital invested.
In other words, DB may be frash out of options. But wait, there's more bad news because as Berenberg adds, the entire "industry is in structural decline"
The difficulty in analysing investment banks from the outside is that it is hard to establish core profitability. In an industry in structural decline, investment bank management teams are also likely to face similar challenges. Each weak quarter is seemingly greeted with an excuse that it could have been better if not for the wrong type of volatility, client uncertainty or central bank intervention. Q1  2016 saw the absence of one-off profitable events that have protected revenues in the past. We have perhaps had the first glimpse of what core profitability in the investment banking industry really is (ROEs in the midsingle digits at best) and it could be even worse if the traditional seasonality occurs.
Which brings us to his price target and Sell rating:
Price target cut to EUR9.00: We look at DBK’s valuation in two ways. One is a sum-of-the-parts analysis on the basis of normal conditions returning. This would imply a price target of EUR15.00. The second is a leverage adjusted P/E using the sector average multiple of 10x. This implies a price target of EUR9.00, using tangible book value. Considering “normal” conditions are unlikely to return and risk is re-pricing, we use the latter.
We applaud Chappell and only wish more of his peers had the guts to tell the truth and call it like it is.

Just as we warned was probable, The PBOC sent a message loud and clear to the newly hawkish Fed following today's surge in the dollar after the minutes were released. With the 2nd biggest daily devaluation since the August collapse, China pushed the Yuan fix against the USD down to its lowest since early February - barely above the January lows. As we warned earlier, the China-Panic trade looms loud now as turmoil appears all that is left to stop The Fed unleashing another round of liquidity-suckiong rate hikes sooner than the market wants.
All eyes have been firmly focus on the Yuan's move against the USD but in fact the Yuan has been falling non-stop against the world's major currencies...
The critical issue now is that the U.S. dollar is appreciating again. The
Bloomberg Dollar index is up 2.8% in the last two weeks and another 2%
wouldn’t be an unreasonable consolidation in the context of it dropping
more than 7% in the previous three months.

That previous dollar slide distracted from the fact that yuan depreciation never abated. Against the basket, it’s been weakening at an average rate of almost 1.2% per month for the last five months.



The market’s single-minded focus on USD/CNY is crucial and it’s also why disaster can still be averted. It will require the PBOC to temporarily suspend their yuan-weakening policy for as long as the dollar is climbing.

Otherwise, prepare to batten down the hatches for the coming storm.
It appears that it is the USD's turn to face The PBOC once again... The 2nd biggest daily devaluation of the Yuan fix against the USD since August's collapse.

Simply put, China does not want The Fed sucking the liquidity lifeline out of world markets right as it embarks on another round of desperate credit reflation.
Given The Fed's comments today, the only excuse left for Yellen and her friends (unless they are willing to lose all credibility due to short-term fluctuations in macro-economic data from now to June meeting - as opposed to their mandated long-term view) is if markets turmoil enough to warrant some level of conservatism. As we have warned before - bullish stock market investors should be careful what they wish for - the higher stocks go, the higher the chances of rate hike, and the more likely China pre-taliates with some turmoil-inducing events to stall the unwind... the last time traders panicced about China, bad things happened to stocks...

More details are being released about the anonymous expose of Washington D.C. corruption and largesse that confirms why Americans hate their national government and have rallied to anti-establishment presidential candidates like Donald TrumpAs NYPost reports, the 65-page manifesto called 'The Confessions of Congressman X' is based on years of transcribed private discussions, which the congressman last November gave editor Robert Atkinson, says more time is spent fundraising than reading bills and calls Washington a "sinkhole of leeches," where money 'corrupts' and House members are "puppets" to lobbyists who bankroll their campaigns.
“Like most of my colleagues, I promise my constituents a lot of stuff I can never deliver,” he admits.

“But what the hell? It makes them happy hearing it . . . My main job is to keep my job.”
As NYPost.com reports, the book, published by the small Mill City Press, is based on years of transcribed private discussions, which the congressman last November gave editor Robert Atkinson. Atkinson declined to say whether Congressman X - a Democrat - is a current or former House member.
The title of one chapter sums up his view of congressional leaders: “Harry Reid’s a Pompous Ass,” he says of the Senate Democratic leader.

“We spend money we don’t have and blithely mortgage the future with a wink and a nod. Screw the next generation. It’s about getting credit now, lookin’ good for the upcoming election,” he says.
He said he and his colleagues often lie to try to be all things to all people instead of tackling the nation’s problems.
“I contradict myself all the time, but few people notice,” X says. “One minute I rail against excessive spending and ballooning debt. The next minute I’m demanding more spending on education, health care, unemployment benefits, conservation projects, yadda, yadda, yadda.”
Voters are described as gullible, know-nothing jerks, while the only people who count are the big donors who pour billions of dollars into lobbying.
“Voters are incredibly ignorant. It’s far easier than you think to manipulate a nation of naive, self-absorbed sheep who crave instant gratification . . .,” vents Congressman X.

He says money “corrupts” and House members are “puppets” to lobbyists who bankroll their campaigns.

“Business organizations and unions fork over more than $3 billion a year to those who lobby the federal government. Does that tell you something? We’re operating a f–king casino,” he says.

He describes himself as a “closet moderate” who supports charter schools and tax vouchers to allow poor kids to go to private schools.
But students take a back seat to partisan politics...
“Our education’s in the toilet, and all we do is snipe at each other,” he says.

Congress is too polarized and partisan to get anything done, by the congressman’s account.

“There seems to be a complete disintegration of confidence in government. A fear that government is its own special interest,” he says.

“America’s on an irreversible decline and no one in Washington seems to care . . . God help us.”

X says the cloak of anonymity gave him the freedom to expose ­secrets, including how the public’s money is wasted. New York sources speculated it’s Rep. Steve Israel (D-LI), a moderate who announced he’s retiring and who has complained about the constant need to fundraise to finance re-election campaigns.

I wanted to give a quick run down of the process that I go through to give us set files so everyone isn’t wasting their precious time “throwing darts” but making real steps forward with black & white hard data. I would like to help advance our EA’s (Blessing & Evolution) as well as help other developers/designers with this very efficient process of “tuning” our EA so more people can help in the process as there are just too many combo's to discover (which is nice!). So below is a ROUGH draft of the method I developed testing many-many EA’s over time. It will allow you to rather quickly learn, test and tweak ANY EA out there to the fullest of it’s ability. No mystery, its hardcore gathering data. I spend all day, everyday testing and writing down what the test showed, but this means almost nothing if not gathered in the right logical order.
Allow me to explain my common sense logical approach to tuning EA’s.

My “CHAIN OF COMMAND” METHOD

In the natural world, successful businesses, militaries or even just families have in place a “Chain of Command.” There MUST be order or there is confusion and a computer program is no different. It is this TRUTH that the whole method of EA code breaking with set files comes into play. We M-U-S-T find the Chain of Command, -the “hottest” settings to the least hottest and adjust them accordingly IN THAT ORDER, or it will throw off the “balance” of the EA and it will run “choppy” if at all just like things in the natural world without a tight Chain of Command do.
Example:
Take an “ON/OFF” switch of ANY EA, because the on/off switch IS THE HOTTEST setting if it is in the “off” position every other setting under it in the Chain of Command doesn’t matter, tweak on them all you want the EA is OFF and it does no good. See, how the Chain of Command works and the importance of it? Likewise EVERY setting has lesser settings that follow it’s orders. Our job is to find these “Alpha Male” settings and note them from Alpha to Omega, beginning to end. If we do not follow this order there will be chaos and this will show in the profit graph of a back test as it will be unsmooth. You’ll make no/none/ZERO “solid” progress forward day after day as there is no “logic” behind tuning your set file, and no logic means no “balance,” and no balance means it’s a gamble or like every other EA out there.
BALANCE is defined as the ability of the setting to “read” any market condition correctly with any amount of capital as it is self adjusting to the markets condition as well as handling the money management of the account.
The difference between indicators and an EA is that an indicator just "records" what it is programmed to do, it is never "wrong" as it can only record. An EA using indicators to look for recorded events that point to historical market conditions that can be seen recorded before they happened therefore we can profit from them. I simple example would be a Stochastic indicator and how it can be oversold or overbought and the outcome result of each...
Quick HINTS to keep in mind, then I’ll explain the method step-by-step:
-Never try to find a NEW set file with a back-test with a low amount of money, instead use at least $100,000 with Money Management "OFF."
Why?
A back-tests report “can” show MANY things. For instance, if there is only 50 trades and then an EP hit, what does that tell you? Well, not much, it MIGHT tell you that the setting you are trying is very out of balance, but if you used a $100,000 with Money Management OFF and a fixed lot size of only .01 and start your back-test this should be enough to get you over any DD area which is important because we NEED TO “SEE” what & how our setting is running so we know WHAT TO FIX. You may see that this was the only spot where your setting had trouble and that it ran very well the rest of the test and in fact ISN’T as out-of-balance as you thought. You then can zero in with a VISUAL back-test of that problem area and maybe you see 2-3 long drippy candles that caused this DD area like the USD/JPY or EUR/CHF pairs like to do. If that’s the case, then adjusting the “Delays” in our EA’s should take care of that problem and now you have a great set file to continue working on that you would have missed with a lesser starting amount.
In the above example, if we started with a low back test amount (or MM "on") we would have skipped right over the setting and thought it was “junk” simply because it crashed right away in the back-test. See now why the higher starting amount is NEEDED so we can “SEE” just what we’re dealing with so we can then absorb that into our setting and make it safer when trying to find new set files?
So never back-test with Money Management “on” when finding new set files. With ANY set file you can adjust it so that it’s so aggressive it’ll crash, so how can you know what is too much or too little aggression? We test and note where it starts to get "hot" so then we know for sure where the "comfy" spot of the setting is. What we want are set files that make it through the test period, we ARE NOT looking for profit when finding new set files, not at first, but then we will be looking to “tune” our EA in so that it can “read” the markets conditions correctly and then first see what it can yield in profit.
Profit settings come after we find set files, never before, -how can they???
  • Never use a STOPLOSS when finding a new set file.
When back-testing you never use a stoploss, as this will affect the profit graph and you won’t be able to “SEE” how the underlying EA is running. Back-tests where stop-losses are used are choppy, you simply cannot get a read on how your EA is doing if a stoploss is getting in the way. A SL was NEVER meant to produce profit, if a EA has a stoploss being used to “help it” make profit that is simply a underdeveloped EA. A SL is only used as a LAST DEFENSE should the market throw something at the EA that it wasn’t programmed to deal with (underdeveloped).. Notice our EA’s are very advanced, even the free B3, and we don't have a "stoploss" as they just aren’t needed as the set file is developed and the settings matched to the base setting. Not that we run blind with no safety, no way. We have Max DD% protection levels among other things.
  • And any type of stoploss in an EA is ALWAYS THE VERY L-A-S-T thing to finish your set file as it has NOTHING to do with how your EA runs but is there as a LAST safety device. EA’s on the net that attempt to use a SL as a active part of their set files are giving away tons of profits and their profit graphs in back-tests are choppy because they are way under developed and should be avoided. The more a EA is developed (logically, -Chain of Command) the “smoother” it will trade as its program is more advanced/developed so it deals with market conditions better.
Let’s start, ---Here's what you do.
  • Use 1 notebook for each pair. You will find that the better you keep your notes the more use you’ll get out of them later as you read and go over your notes perhaps looking where there might be a “fork-in-the-road” that you can return to, to perhaps find a better setting. I do this all the time as there are “forks” at each major “step” within the set file. I’ll define these as we go on.
*I highly recommend getting several different colored pens and highlighters, one color for WHAT is being tested, another color for the RESULTS and another highlighter for BEST result. This will allow you to quickly flip back and watch each pairs development and clearly see the “forks” in the roads as you went. You'll be able to quickly SEE "where & what" a set file was born out of which may give a clue to another set files tweaking... This spot will also be a pivotal "fork in the road" where you can return to and try a different path and see a different end outcome (there are MILLIONS of these pathways mixed in the settings to find and explore).
If you’re totally new to the EA, start with 1 setting at a time, notice how "touchy" (hot) it is and rate it, 10 being VERY HOT meaning a small change can EP hit the whole setting. After you have ALL this data on how touchy each setting is, look at which ones are the "hottest" as those are the ones you want to adjust on FIRSTit M-U-S-T be done this way. Do not adjust a not-so-hot setting and then expect to "draw" the higher settings to it, -it CANNOT be "balanced" if we do that. Remember the “on/off switch” example and how it didn’t matter what setting is used if the higher, hotter setting wasn’t “on” first. Map out the Chain of Command, that is your road map to success, without it you’re throwing darts in the dark as the set file will not be logical…
This sounds complex but this is very simple, just do things in the right order is all.
Now, the HOTTEST setting, adjust it up in logical “steps” until it busts and note at every step the:
  1. Profit
  2. DD%'s (Max & Rel)
  3. Win/Loss ratio
  4. Total trades
Let’s talk about Steps as they can be tricky:
[This is where a optimizer can be used with "stepping" different settings looking for a door opener, but ALWAYS double check your findings!]
The Steps are the spacing between numbers that will be tested to give you the data to show you where you need to be looking in DETAIL and at every step. Remember to start with the “hottest” setting… For this example let’s use the GAF setting. If we have a setting of “1” for this we need to know "where" this setting is within the setting, -is it "hot" or cold for example? First run a backtest so you have your "benchmark" to beat. We’ll then test in “steps” with .1 steps and write down the data (1-4) as we did with the benchmark setting. Then test from .1 all the way to 1 (10 tests) the benchmark setting, and note what happens to PROFIT, DD% max/rel, Win/Loss ratio and Total trades at EACH STEP.
Profit of course tells us how well the setting is taking profit and keeping it.
DD%’s will tell us how well the settings are entering trades.
Win/Loss will show the sharpness of entry/exit.
Total Trades will show us how “tight” the settings are, -or how slopped out it is, or if it's "sleepy."
Then adjust the GAF up and do the same, "stepping" the settings upward until bust and filling up pages of data if need be, -data that "shows" where the profits are and where they are not in black & white in your notebook. Now we do this with every setting, taking data by "steps" as we go. Some settings (grid) might be tested in steps of 10, while a GAF setting will be tested in steps of 1, or even smaller, 0.1 or .01 or .05.
You may find that the best setting is a 1.2 GAF for now….
If a setting is set at 3, test at 2 and 1 and even 0.1 to see if it works, -if it does.... -does 0.2 work also??? –if yes keep on even checking to see if .09 works, explore and learn what this setting does by doing these sometime countless tests and NOTE what they do (1-4). You WILL be re-reading these notes later as you “fine tune.” Sometimes there are wide ranges of settings so take “steps” of 5 or 10 as mentioned.
Example: 110, 120, 130,…
Now work your way to the LEAST HOT setting and as you go leave behind you the "trail" of the best settings behind you. Don’t “cheat” and over step settings when testing, you may “miss” a doorway. Note also that with every change in the setting that these are the MAJOR “forks-in-the-road” I was talking about.
So, the “trail behind you” in other words, are the settings that had what you wanted, be it low DD% or Profit or? You KEEP PICKING OUT what you want as you go and that is how you line up a “BASELINE.” The baseline is what all the other indicators are tweaked toYou can baseline low DD settings or baseline the best Profit settings or even a blend like DD% & Profit (my favorite) for a baseline.
So “Baselining” is finding every settings best setting by using the steps data to find what setting each one gives the best result with according to what your baseline is being used for. A simple example would be “Profit.” If you wanted to “baseline” Profit you would work through all the settings and use the settings that produced the best profit for each setting. You would have then “baselined” all the settings to “Profit.”
I’ll repeat, you can baseline anything, DD%, Profit, Number of trades (for you rebate cashback hounds!) or combinations can be baselined. But something MUST be baselined because all the settings have to be pulled to it. That gets rid of the chaos and by doing this in a Chain of Command way you work in the Balance (smoothness) which will be seen in your profit graph of your backtest.
All settings in order of the Chain of Command remember!!!!, TO THE LEAST of the settings. -Or remember they won't be "balanced" and will spin out and a crash will happen. It has nothing to do with a EA being “good or bad” but how you told it to trade.
Let me say it Again, adjusting the "hottest setting first, to least MUST happen." Or you’ll end up with crappy fluky EA settings like all the other guys on the net. Take a look at FapTurbo, this monster coded EA trades only the slow moving Asian market period, and yet they still have yet to produce CONSISTANST profits and try “band-aid” after band-aid fixes but don’t know about “balancing” settings. Instead their approach is to give their followers “new” set files monthly, ---great marketing, but lame. What a joke IMO. Their massive code can’t “read” a slow Asian market trading session, so THEY have to do it by looking (I’m guessing) at higher charts like weekly/monthly and adjust the settings MONTHLY to try to slop out a “lucky” profit. –unreal ~
Would YOU trade YOUR real money like that? Gambling month to month with what someone "thinks" will do good and that changes month by month?...
Could you imagine B3 or the highly advanced Evolution having to be “adjusted” monthly as time goes on?... LMAO ~~
Wouldn’t that be admitting it doesn’t read the market for crap??? Well wouldn't it????......
I want people around me to KNOW what I do so they can start helping, because EV’s combinations for "tuning it in" are limitless now, even B3’s abilities can clearly be seen with honest study. But with all these endless combinations of settings and different pairs (as well as Metals and even stocks like Google as I’ve demonstrated) I simply "can't" do every test that shows me every combination, so an ARMY of "me's" are needed, pure & simple and we hope that is what our "Club EV" does.
I have no reason to keep any secrets as far as what or how I do my job here as Chief of Development and am looking forward to working for years to come with these EA’s that we have and the people who run them. You’re time spent learning them won’t be a waste as the theory of their trading basics can be used in Forex or the Stock market, -and as further developments take form and different EA’s come out you’ll already know how to drive them basically.
There are no “Glass Ceilings” here, and this is one of the reasons why I love these EA’s and why I would love to have a group of people testing, developing and breaking the codes to solid safe profits for years to come.
Now, let’s talk about some troubles that you will run into with the Chain of Command Method: Some settings are pretty much as touchy as another so which do you do first? Also there are some (like grid) that have multiple settings within itself. This is like a whole tuning area within a tuning area, -so how do we tune it?…
If there isn’t a CLEAR defined Chain of Command (ranking) then settings that are out of “balance” will happen. This can usually be cleaned up by adjusting down the MM system. The “cleaner” you can align the Chain of Command the more the setting will want to scream with profit. How do we make them run cleaner???
By revisiting our notes in our notebooks, we look back at the forks in the road and see if there might be a place where we could back up to and start down a different path.
You see each change of a set file changes all the others. Even once you make it through an entire setting and have found all the best settings and have lined them up with your baseline in a Chain of Command order, -you’re not done……
You must now go through the whole order AGAIN… –and yet AGAIN if “any” setting is changed again. Because each setting will need to "settle" into place and what "was" the best setting may not be the best setting by the time you're done going through the whole set file.
But as you go through the settings each time you’ll be able to scan smaller “steps” a couple out both ways up & down and see if in fact the setting that was changed affects the other settings enough to open doors to allow tweaks to their setting. But careful, sometimes you’ll find that a setting can change another setting A LOT, so much that another setting might have to be changed a lot to allow the new doorway to be opened. So just keep in mind that when re-going over the settings after your first time through them it still is better to do a lot of testing of the steps in both directions, and not just a few out each way. You will find that you’ll get a “feel” for things the more you work with it. You should start to develope a feel of if it's running "comfy" or is stressed.
So these area’s are the “forks in the road” where we come back to, to find different roads to go down if we feel the path we are on isn’t where we want to be, and you’ll KNOW it because you’ll be fighting with a setting to much, like it won’t want to become smooth in the finer settings. Because of things like this the balance is affected, but can be offset by lowering LAF or the AGGRESSION of the setting but that’s kind of cheating. It’s ALWAYS better to get it running as “clean” (smooth) as it can.
Multiple Steps within Steps, how to test them:
First, let me say that the advanced settings allow EV to decide for itself where to place trades by the filters it uses. Usually a grid setting is used here to make sure trades don't go off to close together you'll see this more with our "1 Trader" set files.
Now back to multiple steps in steps... Example, our grid has different AMOUNTS of trades, LEVELS of trades and even different Take Profits amounts for each, so how can we set them to a logical interacting setting?
One way, is to Cross Hatch the data.
Test the first setting in steps and note the best, leave it at that best setting and go onto the next. Do this with the whole line. Then go back and retest the entire line, if no more tweaks are found move to the next line. Do the same here, step testing each as you go leaving the best setting behind. Do the same with the Take Profit line.
Then pretend these are just one line and retest and allow each to double check the other. That is, you may have to jump back and fourth up and down the line to try to get the settings to compliment each other. They will slowly weed out which settings are just “hot” and need to be replaced. You’ll know these if you change a setting and it crashes the whole. The more “comfy” the settings are together the move they can be moved around and not crash the back test. The “touchy” hot settings that crash your back test are the ones that are out of balance the most and where your attention should be.
Why $1,000 is used as a base for our backtests.
$1,000 is used because this seems to be the amount that passes when starting right before the biggest historical DD area's and gets through them with no problems. We wouldn't want to just start trading our EA and get wiped out because it turns out we started right on a trend change DD area so the $1000 is our insurance against the unknown. So from now on back tests won't be posted with a lower amount then $1000, although they will go lower and pass most times. Sometimes as low as $100, but should your account not have enough time to build equity to survive a DD you may bust, -take the “insurance” and start with $1000 per pair IMO.
If anyone gets a new setting to pass a back test with $1000 for a new pair please post. But remember for SAFETY’S sake we start with a balance of $1,000 as no DD area “should” be able to shut us down by using this amount, --- PROVIDED our starting Lot size is .01 and not extremely high because of a hot set MM setting…. But remember when trying to find totally NEW set files start with using a bigger starting amount when back-testing ($100,000 with MM "OFF") so you can SEE what is causing trouble and fix it. A $1000 start is for tweaking in a set file that already passes the test period.
Of course even if you’re just having fun and “throwing darts” and changing settings and feel you got lucky, post what you found. There are nights when I “throw darts” myself. I know this is worthless as an approach but there is always the factor of blind educated LUCK when doing this. But as you can hopefully see now from reading this, “luck” isn't the method of choice with our EA’s, -we'll leave that to FapTurbo’s monthly guessing game set files...
Our EA’s “read” the markets in every trading session, news or no news, gaps or no gaps because they are programmed that way, and we’re ever learning and knowledge never stops with the development team under Jeff Talon, from the best free EA on the net (Blessing3) to the sophisticated Professional “Evolution” EA.
We “read” the markets, not guess at them.
What drives me is that I can sit down every night and get one more step closer to having these EA’s run so steady and smoothly that more & more they become my source of income for my family. I welcome anyone who’s serious along for the ride for as we make new benchmark settings together upon new benchmarks we’ll together realize some of our dreams start to materialize because it’s a progressive method, and not “dart throwing.”
May our accounts always be GREEN my friends!
Ratz
Real Analysis of Technical indicatorZ.

by Wayne Madsen, via Strategic Culture
The recent declassification of over 3800 documents by the Central Intelligence Agency provides detailed proof that since 1953 the CIA operated two major programs intent on not only destabilizing Ukraine but Nazifying it with followers of the World War II Ukrainian Nazi leader Stepan Bandera.
The CIA programs spanned some four decades.  Starting as a paramilitary operation that provided funding and equipment for such anti-Soviet Ukrainian resistance groups as the Ukrainian Supreme Liberation Council (UHVR); its affiliates, the Organization of Ukrainian Nationalists (OUN) and Ukrainian Insurgent Army (UPA), all Nazi Banderists. The CIA also provided support to a relatively anti-Bandera faction of the UHVR, the ZP-UHVR, a foreign-based virtual branch of the CIA and British MI-6 intelligence services. The early CIA operation to destabilize Ukraine, using exile Ukrainian agents in the West who were infiltrated into Soviet Ukraine, was codenamed Project AERODYNAMIC.
A formerly TOP SECRET CIA document dated July 13, 1953, provides a description of AERODYNAMIC: «The purpose of Project AERODYNAMIC is to provide for the exploitation and expansion of the anti-Soviet Ukrainian resistance for cold war and hot war purposes. Such groups as the Ukrainian Supreme Council of Liberation (UHVR) and its Ukrainian Insurgent Army (OUN), the Foreign Representation of the Ukrainian Supreme Council of Liberation (ZPUHVR) in Western Europe and the United States, and other organizations such as the OUN/B will be utilized». The CIA admitted in a 1970 formerly SECRET document that it had been in contact with the ZPUHVR since 1950.
The OUN-B was the Bandera faction of the OUN and its neo-Nazi sympathizers are today found embedded in the Ukrainian national government in Kiev and in regional and municipal governments throughout the country.
AERODYNAMIC placed field agents inside Soviet Ukraine who, in turn, established contact with Ukrainian Resistance Movement, particularly SB (intelligence service) agents of the OUN who were already operating inside Ukraine. The CIA arranged for airdrops of communications equipment and other supplies, presumably including arms and ammunition, to the «secret» CIA army in Ukraine. Most of the CIA’s Ukrainian agents received training in West Germany from the US Army’s Foreign Intelligence Political and Psychological (FI-PP) branch. Communications between the CIA agents in Ukraine and their Western handlers were conducted by two-way walkie-talkie (WT), shortwave via international postal channels, and clandestine airborne and overland couriers.
Agents airdropped into Ukraine carried a kit that contained, among other items, a pen gun with tear gas, an arctic sleeping bag, a camp axe, a trenching tool, a pocket knife, a chocolate wafer, a Minox camera and a 35 mm Leica camera, film, a Soviet toiletry kit, a Soviet cap and jacket, a .22 caliber pistol and bullets, and rubber «contraceptives» for ‘waterproofing film’. Other agents were issued radio sets, hand generators, nickel-cadmium batteries, and homing beacons.
An affiliated project under AERODYNAMIC was codenamed CAPACHO.
CIA documents show that AERODYNAMIC continued in operation through the Richard Nixon administration into 1970.
The program took on more of a psychological warfare operation veneer than a real-life facsimile of a John Le Carré «behind the Iron Curtain» spy novel. The CIA set up a propaganda company in Manhattan that catered to printing and publishing anti-Soviet ZPUHVR literature that would be smuggled into Ukraine. The new battleground would not be swampy retreats near Odessa and cold deserted warehouses in Kiev but at the center of the world of publishing and the broadcast media.
The CIA front company was Prolog Research and Publishing Associates, Inc., which later became known simply as Prolog. The CIA codename for Prolog was AETENURE. The group published the Ukrainian language «Prolog» magazine. The CIA referred to Prolog as a «non-profit, tax exempt cover company for the ZP/UHVR’s activities». The«legal entity» used by the CIA to fund Prolog remains classified information. However, the SECRET CIA document does state that the funds for Prolog were passed to the New York office «via Denver and Los Angeles and receipts are furnished Prolog showing fund origin to backstop questioning by New York fiscal authorities».
As for the Munich office of Prolog, the CIA document states that funding for it comes from an account separate from that of Prolog in New York from a cooperating bank, which also remains classified. In 1967, the CIA merged the activities of Prolog Munich and the Munich office of the Ukrainian exiled nationalist «Suchasnist» journal. The Munich office also supported the «Ukrainische Gesellschaft fur Auslandstudien». The CIA documents also indicate that US Federal Bureau of Investigation (FBI) agents may have interfered with AERODYNAMIC agents in New York. A 1967 CIA directive advised all ZPUHVR agents in the United States to either report their contacts with United Nations mission diplomats and UN employees from the USSR and the Ukrainian SSR to the FBI or their own CIA project case officer. CIA agents in charge of AERODYNAMIC in New York and Munich were codenamed AECASSOWARY agents. Apparently not all that taken with the brevity of MI-6’s famed agent «007», one CIA agent in Munich was codenamed AECASSOWARY/6 and the senior agent in New York was AECASSOWARY/2.
AECASSOWARY agents took part in and ran other AERODYNAMIC teams that infiltrated the Vienna World Youth Conference in 1959. The Vienna infiltration operation, where contact with made with young Ukrainians, was codenamed LCOUTBOUND by the CIA.
In 1968, the CIA ordered Prolog Research and Publishing Associates, Inc. terminated and replaced by Prolog Research Corporation, «a profit-making, commercial enterprise ostensibly serving contracts for unspecified users as private individuals and institutions».
The shakeup of Prolog was reported by the CIA to have arisen from operation MHDOWEL. There is not much known about MHDOWEL other than it involved the blowing of the CIA cover of a non-profit foundation. The following is from a memo to file, dated January 31, 1969, from CIA assistant general counsel John Greany, «Concerns a meeting of Greaney, counsel Lawrence Houston and Rocca about a ‘confrontation’ with NY FBI office on January 17, 1969. They discussed two individuals whose names were redacted. One was said to be a staff agent of the CIA since 8/28/61 who had been assigned in 1964 to write a monograph, which had been funded by a grant from a foundation whose cover was blown in MHDOWEL (I suspect that is code for US Press).One of the individuals [name redacted] had been requested for use with Project DTPILLAR in November 1953 to Feb. 1955 and later in March 1964 for WUBRINY. When the Domestic Operations Division advised Security that this person would not be used in WUBRINY, Rocca commented that ‘there are some rather ominous allegations against members of the firm of [redacted],’ indicating one member of that firm was a ‘card-carrying member of the Communist Party.’ The memo went on to say that Rocca was investigating the use of the individual in Project DTPILLAR concerning whether that person had mentioned activities in Geneva in March 1966 in connection with Herbert Itkin». Raymond Rocca was the deputy chief of the CIA’s Counterintelligence Division. Itkin was an undercover agent for the FBI and CIA who allegedly infiltrated the Mafia and was given a new identity in California as «Herbert Atkin» in 1972.
In 1969, AERODYNAMIC began advancing the cause of the Crimean Tatars. In 1959, owing to Canada’s large Ukrainian population, Canada’s intelligence service began a program similar to AERODYNAMIC codenamed «REDSKIN».
As international air travel increased, so did the number of visitors to the West from Soviet Ukraine. These travelers were of primary interest to AERODYNAMIC. Travelers were asked by CIA agents to clandestinely carry Prolog materials, all censored by the Soviet government, back to Ukraine for distribution. Later, AERODYNAMIC agents began approaching Ukrainian visitors to eastern European countries, particularly Soviet Ukrainian visitors to Czechoslovakia during the «Prague Spring» of 1968. The Ukrainian CIA agents had the same request to carry back subversive literature to Ukraine.
AERODYNAMIC continued into the 1980s as operation QRDYNAMIC, which was assigned to the CIA’s Political and Psychological Staff’s Soviet East Europe Covert Action Program. Prolog saw its operations expanded from New York and Munich to London, Paris, and Tokyo. QRDYNAMIC began linking up with operations financed by hedge fund tycoon George Soros, particularly the Helsinki Watch Group’s operatives in Kiev and Moscow. Distribution of underground material expanded from journals and pamphlets to audio cassette tapes, self-inking stamps with anti-Soviet messages, stickers, and T-shirts.
QRDYNAMIC expanded its operations into China, obviously from the Tokyo office, and Czechoslovakia, Poland, Estonia, Lithuania, Latvia, Yugoslavia, Afghanistan, Soviet Central Asia, the Soviet Pacific Maritime region, and among Ukrainian-Canadians. QRDYNAMIC also paid journalist agents-of-influence for their articles. These journalists were located in Sweden, Switzerland, Australia, Israel, and Austria.
But at the outset of glasnost and perestroika in the mid-1980s, things began to look bleak for QRDYNAMIC. The high cost of rent in Manhattan had it looking for cheaper quarters in New Jersey.
Assistant Secretary of State for European/Eurasian Affairs Victoria Nuland, the baked goods-bearing «Maiden of Maidan,» told the US Congress that the United States spent $5 billion to wrest control of Ukraine from the Russian sphere since the collapse of the Soviet Union. With the recent disclosures from the CIA it appears that the price tag to the American tax payers of such foreign shenanigans was much higher.

Wayne Madsen is an investigative journalist, author and syndicated columnist. He is a member of the Society of Professional Journalists (SPJ) and the National Press Club.

Two of the world’s biggest currency-trading platforms plan to restrict a controversial industry practice in which banks can pull out of trades at the last moment if the market moves against them.
Thomson Reuters Corp. and BATS Global Markets Inc. will limit the practice, known as “last look,” on their platforms in coming weeks, in a move aimed at increasing transparency in the foreign-exchange market.
The change comes amid a broader shake-up of the trading industry prompted by concerns about traders’ efforts to manipulate a range of financial markets. Markets for precious metals, interest rates, stocks and currencies have all come under scrutiny from regulators in recent years because of allegations of inappropriate behavior.
Regulators in the U.K., the global hub for foreign-exchange trading, are expected to report next month on their own review into the supervision and transparency of some markets, including the foreign-exchange market. The so-called Fair and Effective Markets Review, or FEMR, specifically asked asset managers and other bank clients about their views on last look.
While some foreign-exchange platforms already don’t permit last look, it is still allowed on some large venues, including Hotspot, owned by BATS; and FXall, owned by Thomson Reuters. Hotspot and FXall account for about 25% of clients’ electronic forex trading, according to financial-industry consultants Greenwich Associates.
The last look practice is a legacy of over-the-phone currency trading, when traders would take a final check of the market before executing an order. It has survived even as foreign-exchange trading moved onto electronic platforms, leaving banks with the option to back out of an order after it was accepted by a client.
Thomson Reuters and BATS plan to tighten the time frame for canceling quotes and introduce a minimum acceptance rate banks have to respect.
Phil Weisberg, global head of foreign exchange at Thomson Reuters, said last look requires “more clarity.” Some clients don’t understand “the rules of engagement with the bank” and “are confused about trading protocols,” he added, referring to the exact conditions banks have to respect on the execution of each specific trade.
William Goodbody, head of FX at Hotspot, said, “Last look is a widely used practice in the industry. To make it work, it needs a clear set of guidelines.”
In June 2014, the U.K. Treasury, the Bank of England and the Financial Conduct Authority, the U.K.’s financial watchdog, launched the FEMR to consider ways to improve the supervision and transparency of some markets. FEMR findings, due to be released on June 10, are expected to establish rules on the execution of currency trades.
Foreign exchange is a highly unregulated market, compared to stock trading, as currencies aren’t traded on exchanges.
Banks’ foreign-exchange trading clients are likely to welcome the move to curb last look, said Kevin McPartland, a principal at Greenwich Associates.
“Giving market participants more visibility into where, how and with whom their orders are executed is a good thing,” Mr. McPartland said.
Javier Paz, a senior consultant at Aite Group, said last look echoes the equity-market practice of “spoofing,” an illegal strategy in which traders place orders they don’t intend to execute to move the market to their advantage.
But there are also some significant differences, he said. In spoofing, a trader places an offer to buy or sell, then cancels it quickly, whereas in last look, there’s always a client willing to execute one side of the trade, Mr. Paz said.
Write to Chiara Albanese at chiara.albanese@wsj.com
The Justice Department has begun looking into a common practice in foreign-exchange markets that allows banks to back out of unfavorable trades at the last moment, a person briefed on the matter said.
Prosecutors, along with the Securities and Exchange Commission, have asked Barclays Plc for information related to its electronic-trading platform, which contains a program that allows traders to take a “last look” at an order before executing it, according to the person, who asked not to be named because the matter isn’t public.
Prosecutors’ interest in the last-look practice has grown out of a broader investigation into the manipulation of benchmarks and client orders in the $5.3 trillion-a-day currency market. The inquiries follow an investigative path laid out in recent months by Benjamin Lawsky, New York’s banking regulator.
Barclays said earlier Tuesday that it set aside an additional 750 million pounds ($1.2 billion) to cover the cost of settling the currency-rigging investigation, bringing its total expected cost to about 1.25 billion pounds.

Vestige Practice

The last-look option is a vestige of the early computer era when the time lag between an order being entered at one bank and confirmed at another was long enough to expose the market maker to unpredictable price fluctuations. As that lag tightened, banks retained the right to halt currency trades on a last-look basis.
Critics of the practice say it’s obsolete and can harm investors.
“Last look is a hangover from a technology problem that no longer exists, yet still allows traders to reject trades and re-quote orders to the disadvantage of clients,” David Mercer, chief executive of LMAX Exchange, a forex trading platform, said in a Feb. 20 statement.
BlackRock Inc. said last month that last looks can cause market participants to experience so-called phantom liquidity where prices that appear to be available suddenly disappear, in response to the Bank of England’s Fair and Effective Markets Review. Making completed trades available and transparent would make the market better, BlackRock said.
“These developments, would in our view, facilitate fairer outcomes for end investors and increase market effectiveness and efficiency,” BlackRock said.

New Front

It isn’t clear whether the Justice Department’s review of last-look practices will lead to a new front in its forex investigation. The SEC is exploring whether any elements of the practice violate disclosure laws, another person briefed on the matter said.
Peter Carr, a Justice Department spokesman, declined to comment on any inquiry specifically into last-look practices, as did Florence Harmon of the SEC.
Until now, regulators in the U.K., Switzerland and the U.S. have been primarily focused on manipulation of benchmark currency exchange rates by traders at some 30 global banks, with an emphasis on collusive behavior. The last-look review indicates that regulators and prosecutors are turning their focus to established practices that could make markets unfair.
The prosecutors’ request appears to bolster a line of inquiry opened up by Lawsky, superintendent of New York’s Department of Financial Services, who said last month that he was looking into the practice.
In its annual report released Tuesday, Barclays said that various “regulatory and enforcement authorities,” including the Justice Department, SEC and Lawsky’s agency, “are investigating a range of issues associated with Foreign Exchange sales and trading, including electronic trading.” Kerrie Cohen, a spokeswoman for Barclays, declined to comment.

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