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Every year, the world's richest and most powerful business executives, bankers, media heads and politicians sit down in some luxurious and heavily guarded venue, and discuss how to shape the world in a way that maximizes profits for all involved, while perpetuating a status quo that has been highly beneficial for a select few, even if it means the ongoing destruction of the middle class. We are talking, of course, about the annual, and always secretive, Bilderberg meeting.
And, as the Guardian notes, "you know Bilderberg’s about to begin when you start seeing the guns."

Workers erect a barricade outside the Taschenbergpalais hotel in Dresden
The Taschenbergpalais hotel in Dresden - the venue of "Bilderberg 2016" which starts tomorrow and continues until June 12 - is filling up with pistol-packing plainclothes security as the last guests are ushered out. The frowning gunslingers head up and down the corridors with their hotel maps, trying door handles and checking the lay of the land while, down in the hotel lobby, corporate goons gather in muttering huddles.
A glimpse at what is about to unfold: according to the local newspaper DNN, at least 400 police officers will be surrounding the venue for the three days of the talksThere’s already a ring of concrete blocks around the entrance.

Is that not enough? What are they expecting? The charge of the light brigade?

The hotel is being trussed up tighter than Reid Hoffman’s trousers. No one gets in or out without the right lanyard. As Ed Balls remembers only too well, from that awkward business in Copenhagen. Inside the security cordon, the final nervy tweaks are being made by conference staff. They’ve got to make sure Henry Kissinger’s curtains don’t let any light in. A single ray could be fatal.
Year after year, a sizeable number of extremely rich and powerful workaholics seem to think it’s worth strapping on their Bilderberg lanyard. But why? What’s getting the head of Google, two prime ministers, a vice-president of the European commission and the chairman of HSBC together in the same hotel basement for the same three days in June?  On its official website, Bilderberg attempts an answer. It describes itself as “a forum for informal discussions” that are “designed to foster dialogue between Europe and North America”. Dialogue which is designed to foster dialogue. Talk for talk’s sake.
Of course, as Charlie Skelton notes, that’s nonsense. And yet Bilderberg insists “there is no desired outcome”. That’s like a Club 18-30 rep saying there’s no desired outcome of his tequila groin-slurping contest. Someone’s getting something out of the event. Even if that something is chlamydia.

Taschenbergpalais hotel in Dresden
What is really discussed is how to take the existing trends in the world, some favorable, some undesired, and mold them in such a way as to create even more wealth for the world's 0.01%, while perpetutating the existing system, one which even the IMF agrees is no longer working.
This time, as Paul Joseph Watson infers, the secretive Bilderberg Group whose Steering Committee Advisory Group consists of one David Rockefeller, will discuss how to prevent Donald Trump from becoming president, the possibility of mass riots as a result of wealth inequality, the migrant crisis, as well as the United Kingdom’s vote on leaving the European Union.
As noted above, the official list of "key topics" to be discussed is both broad quite vague and includes:
  1. Current events
  2. China
  3. Europe: migration, growth, reform, vision, unity
  4. Middle East
  5. Russia
  6. US political landscape, economy: growth, debt, reform
  7. Cyber security
  8. Geo-politics of energy and commodity prices
  9. Precariat and middle class
  10. Technological innovation
That's just for public consumption. After all, who needs massive concrete blocks and 400 police officers for protection to discuss "technological innovation" - better yet, just open up the session to the press and public.
Of course, that won't happen, because the real agenda must remain under wraps. However one can infer from the agenda and some of the names on the participant list what the group will be discussing in more detail. As PJW writes, the attendance of anti-Trump Senator Lindsey Graham is an obvious sign that Donald Trump will be a prominent topic of discussion at this year's Bilderberg meeting, with the likely focus on how to prevent Trump from defeating Bilderberg’s chosen candidate, Hillary Clinton, who has already raked in tens of millions in fees from "speaking" before numerous participants at the meeting that begins tomorrow.
In 2015, the Bilderberg elite was confident that Clinton could shake off her GOP challengers, but Trump’s self-funded campaign and his public opposition to globalism and internationalist trade deals like NAFTA has shocked the Bilderberg elitists. As a result, it will now have to spend much more time dealing with the damage control.
Brexit will be another major topic. With the British referendum vote to leave the EU taking place in just two weeks, and withDavid Cameron getting concerned, a vote to secede threatens the future of the European Union federal superstate that was the brainchild of Bilderberg in the first place.
The inclusion of “precariat and middle class” on the list also means that the powerful lobby group will be ruminating on how they can exploit and manage the inevitability of more riots and civil unrest in the west - and increasingly, the east with an emphasis on China whose government is terrified about the prospect of rising social unrest - a topic that elitists were also concerned about at the 2015 Davos Economic Summit. “Precariat” describes those who are struggling to survive in today’s economy and who have no long term wage security. Studies have shown that wealth inequality increases the likelihood of mass social disorder. Furthermore, as the Fed itself admitted recently, it is the Fed, by way of manipulating markets higher, that has been an instrumental catalyst behind record wealth inequality.
The flooding of Europe with third world migrants, a process which has driven European voters into the arms of nationalist parties that typically oppose Bilderberg’s wider agenda, will also be a key topic of discussion, as per bullet point 3.
As Watson observes, aone interesting name that pops up on this year's list is that of Richard Engel, NBC News’ chief foreign correspondent.  "Normally, a semi-secret meeting of over 100 of the most powerful people on the planet would be a monumental news scoop, but don’t expect Engel to utter a word." After all, real journalists are not allowed anywhere on the premises; Engel likely has to sign an NDA.
Indeed, Bilderberg operates under Chatham House Rules, which means that none of the participants are able to reveal any comments made during the conference. As the Guardian floridly puts it, "after the politicians drag their drained and bloodless bodies back to their respective parliaments, they don’t say a word about what happened. They act like abuse victims. “It’s just our little secret,” murmurs Kissinger as he pops the politicians back in their limos. “Chatham House rules. You remember? Yes, of course you do. Now off you go.” And he nimbly licks a heart shape on to the car window with his black tongue before it speeds off."
Although it was reported in the German media that German Chancellor Angela Merkel would attend this year’s conference, her name does not appear on the list. However, it is a common practice for Bilderberg to omit names from the official list if the individual’s attendance is politically sensitive.
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So what do the politicians and public officials get from the deal? For the more ruthless, it’s a chance to line up future employment. As the Guardian reminds us of the then head of MI6, Sir John Sawers, networking with the chairman of BP on a Copenhagen patio in 2014. A year later he was sitting on the oil firm’s board of directors.
For those who don't use the event as a glorified LinkedIn mixed for billionaires, the motive is far simpler: make even more money. In this regard the Guardian's amusing conclusion is spot on:
Tony Blair admitted he found the 1993 conference “useful”. And I’m sure it was. It’s useful to know in what direction in the world is being led by the people that own it, so you can trot along in the right direction. And if you learn to play the game, to fit in with the in crowd, then maybe, like Blair, you can end up with a cushy job with US investment bank JP Morgan.
Ultimately, what is decided will never see the light of day, or rather it won't over the next 4 days. Instead it will emerge as official policy, fiscal but mostly monetary as central bankers live to serve the Bilderberg elite, laws, regulations, and social norms. And if history is any indicator, it will only make the current global situation even worse.
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CHAIRMAN
  • Castries, Henri de (FRA), Chairman and CEO, AXA Group
  • Aboutaleb, Ahmed (NLD), Mayor, City of Rotterdam
  • Achleitner, Paul M. (DEU), Chairman of the Supervisory Board, Deutsche Bank AG
  • Agius, Marcus (GBR), Chairman, PA Consulting Group
  • Ahrenkiel, Thomas (DNK), Permanent Secretary, Ministry of Defence
  • Albuquerque, Maria Luís (PRT), Former Minister of Finance; MP, Social Democratic Party
  • Alierta, César (ESP), Executive Chairman and CEO, Telefónica
  • Altman, Roger C. (USA), Executive Chairman, Evercore
  • Altman, Sam (USA), President, Y Combinator
  • Andersson, Magdalena (SWE), Minister of Finance
  • Applebaum, Anne (USA), Columnist Washington Post; Director of the Transitions Forum, Legatum Institute
  • Apunen, Matti (FIN), Director, Finnish Business and Policy Forum EVA
  • Aydin-Düzgit, Senem (TUR), Associate Professor and Jean Monnet Chair, Istanbul Bilgi University
  • Barbizet, Patricia (FRA), CEO, Artemis
  • Barroso, José M. Durão (PRT), Former President of the European Commission
  • Baverez, Nicolas (FRA), Partner, Gibson, Dunn & Crutcher
  • Bengio, Yoshua (CAN), Professor in Computer Science and Operations Research, University of Montreal
  • Benko, René (AUT), Founder and Chairman of the Advisory Board, SIGNA Holding GmbH
  • Bernabè, Franco (ITA), Chairman, CartaSi S.p.A.
  • Beurden, Ben van (NLD), CEO, Royal Dutch Shell plc
  • Blanchard, Olivier (FRA), Fred Bergsten Senior Fellow, Peterson Institute
  • Botín, Ana P. (ESP), Executive Chairman, Banco Santander
  • Brandtzæg, Svein Richard (NOR), President and CEO, Norsk Hydro ASA
  • Breedlove, Philip M. (INT), Former Supreme Allied Commander Europe
  • Brende, Børge (NOR), Minister of Foreign Affairs
  • Burns, William J. (USA), President, Carnegie Endowment for International Peace
  • Cebrián, Juan Luis (ESP), Executive Chairman, PRISA and El País
  • Charpentier, Emmanuelle (FRA), Director, Max Planck Institute for Infection Biology
  • Coeuré, Benoît (INT), Member of the Executive Board, European Central Bank
  • Costamagna, Claudio (ITA), Chairman, Cassa Depositi e Prestiti S.p.A.
  • Cote, David M. (USA), Chairman and CEO, Honeywell
  • Cryan, John (DEU), CEO, Deutsche Bank AG
  • Dassù, Marta (ITA), Senior Director, European Affairs, Aspen Institute
  • Dijksma, Sharon A.M. (NLD), Minister for the Environment
  • Döpfner, Mathias (DEU), CEO, Axel Springer SE
  • Dyvig, Christian (DNK), Chairman, Kompan
  • Ebeling, Thomas (DEU), CEO, ProSiebenSat.1
  • Elkann, John (ITA), Chairman and CEO, EXOR; Chairman, Fiat Chrysler Automobiles
  • Enders, Thomas (DEU), CEO, Airbus Group
  • Engel, Richard (USA), Chief Foreign Correspondent, NBC News
  • Fabius, Laurent (FRA), President, Constitutional Council
  • Federspiel, Ulrik (DNK), Group Executive, Haldor Topsøe A/S
  • Ferguson, Jr., Roger W. (USA), President and CEO, TIAA
  • Ferguson, Niall (USA), Professor of History, Harvard University
  • Flint, Douglas J. (GBR), Group Chairman, HSBC Holdings plc
  • Garicano, Luis (ESP), Professor of Economics, LSE; Senior Advisor to Ciudadanos
  • Georgieva, Kristalina (INT), Vice President, European Commission
  • Gernelle, Etienne (FRA), Editorial Director, Le Point
  • Gomes da Silva, Carlos (PRT), Vice Chairman and CEO, Galp Energia
  • Goodman, Helen (GBR), MP, Labour Party
  • Goulard, Sylvie (INT), Member of the European Parliament
  • Graham, Lindsey (USA), Senator
  • Grillo, Ulrich (DEU), Chairman, Grillo-Werke AG; President, Bundesverband der Deutschen Industrie
  • Gruber, Lilli (ITA), Editor-in-Chief and Anchor “Otto e mezzo”, La7 TV
  • Hadfield, Chris (CAN), Colonel, Astronaut
  • Halberstadt, Victor (NLD), Professor of Economics, Leiden University
  • Harding, Dido (GBR), CEO, TalkTalk Telecom Group plc
  • Hassabis, Demis (GBR), Co-Founder and CEO, DeepMind
  • Hobson, Mellody (USA), President, Ariel Investment, LLC
  • Hoffman, Reid (USA), Co-Founder and Executive Chairman, LinkedIn
  • Höttges, Timotheus (DEU), CEO, Deutsche Telekom AG
  • Jacobs, Kenneth M. (USA), Chairman and CEO, Lazard
  • Jäkel, Julia (DEU), CEO, Gruner + Jahr
  • Johnson, James A. (USA), Chairman, Johnson Capital Partners
  • Jonsson, Conni (SWE), Founder and Chairman, EQT
  • Jordan, Jr., Vernon E. (USA), Senior Managing Director, Lazard Frères & Co. LLC
  • Kaeser, Joe (DEU), President and CEO, Siemens AG
  • Karp, Alex (USA), CEO, Palantir Technologies
  • Kengeter, Carsten (DEU), CEO, Deutsche Börse AG
  • Kerr, John (GBR), Deputy Chairman, Scottish Power
  • Kherbache, Yasmine (BEL), MP, Flemish Parliament
  • Kissinger, Henry A. (USA), Chairman, Kissinger Associates, Inc.
  • Kleinfeld, Klaus (USA), Chairman and CEO, Alcoa
  • Kravis, Henry R. (USA), Co-Chairman and Co-CEO, Kohlberg Kravis Roberts & Co.
  • Kravis, Marie-Josée (USA), Senior Fellow, Hudson Institute
  • Kudelski, André (CHE), Chairman and CEO, Kudelski Group
  • Lagarde, Christine (INT), Managing Director, International Monetary Fund
  • Levin, Richard (USA), CEO, Coursera
  • Leyen, Ursula von der (DEU), Minister of Defence
  • Leysen, Thomas (BEL), Chairman, KBC Group
  • Logothetis, George (GRC), Chairman and CEO, Libra Group
  • Maizière, Thomas de (DEU), Minister of the Interior, Federal Ministry of the Interior
  • Makan, Divesh (USA), CEO, ICONIQ Capital
  • Malcomson, Scott (USA), Author; President, Monere Ltd.
  • Markwalder, Christa (CHE), President of the National Council and the Federal Assembly
  • McArdle, Megan (USA), Columnist, Bloomberg View
  • Michel, Charles (BEL), Prime Minister
  • Micklethwait, John (USA), Editor-in-Chief, Bloomberg LP
  • Minton Beddoes, Zanny (GBR), Editor-in-Chief, The Economist
  • Mitsotakis, Kyriakos (GRC), President, New Democracy Party
  • Morneau, Bill (CAN), Minister of Finance
  • Mundie, Craig J. (USA), Principal, Mundie & Associates
  • Murray, Charles A. (USA), W.H. Brady Scholar, American Enterprise Institute
  • Netherlands, H.M. the King of the (NLD)
  • Noonan, Michael (IRL), Minister for Finance
  • Noonan, Peggy (USA), Author, Columnist, The Wall Street Journal
  • O'Leary, Michael (IRL), CEO, Ryanair Plc
  • Ollongren, Kajsa (NLD), Deputy Mayor of Amsterdam
  • Özel, Soli (TUR), Professor, Kadir Has University
  • Papalexopoulos, Dimitri (GRC), CEO, Titan Cement Co.
  • Petraeus, David H. (USA), Chairman, KKR Global Institute
  • Philippe, Edouard (FRA), Mayor of Le Havre
  • Pind, Søren (DNK), Minister of Justice
  • Ratti, Carlo (ITA), Director, MIT Senseable City Lab
  • Reisman, Heather M. (CAN), Chair and CEO, Indigo Books & Music Inc.
  • Rutte, Mark (NLD), Prime Minister
  • Sawers, John (GBR), Chairman and Partner, Macro Advisory Partners
  • Schäuble, Wolfgang (DEU), Minister of Finance
  • Schieder, Andreas (AUT), Chairman, Social Democratic Group
  • Schmidt, Eric E. (USA), Executive Chairman, Alphabet Inc.
  • Scholten, Rudolf (AUT), CEO, Oesterreichische Kontrollbank AG
  • Schwab, Klaus (INT), Executive Chairman, World Economic Forum
  • Sikorski, Radoslaw (POL), Senior Fellow, Harvard University; Former Minister of Foreign Affairs
  • Simsek, Mehmet (TUR), Deputy Prime Minister
  • Sinn, Hans-Werner (DEU), Professor for Economics and Public Finance, Ludwig Maximilian University of Munich
  • Skogen Lund, Kristin (NOR), Director General, The Confederation of Norwegian Enterprise
  • Standing, Guy (GBR), Co-President, BIEN; Research Professor, University of London
  • Svanberg, Carl-Henric (SWE), Chairman, BP plc and AB Volvo
  • Thiel, Peter A. (USA), President, Thiel Capital
  • Tillich, Stanislaw (DEU), Minister-President of Saxony
  • Vetterli, Martin (CHE), President, NSF
  • Wahlroos, Björn (FIN), Chairman, Sampo Group, Nordea Bank, UPM-Kymmene Corporation
  • Wallenberg, Jacob (SWE), Chairman, Investor AB
  • Weder di Mauro, Beatrice (CHE), Professor of Economics, University of Mainz
  • Wolf, Martin H. (GBR), Chief Economics Commentator, Financial Times
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Finally, for those who are skeptical about the massive power and reach of the relatively small Bilderberg group, here is a recent graph which shows the members' connections to virtually every important and relevant organization, company and political entity in the world.

With Saudi Riyal forwards plunging back above 3.81, dramatically weaker than the current pegBloomberg reports that Saudi authorities are cracking down on currency traders as speculation mounts that the world’s biggest oil exporter won’t be able to maintain the riyal’s peg to the dollar as revenue plunges.
Saudi Arabia ordered banks in the kingdom to stop selling some products that allow speculators to bet against its currency peg just days after demanding information from lenders on the offerings, according to people with knowledge of the matter.

he Saudi Arabia Monetary Agency sent a circular to banks this week saying that dollar-riyal forward structured contracts are banned with immediate effect, said the people, asking not to be identified because they are not authorized to comment publicly. Forward foreign-currency transactions backed by actual goods and services will still be allowed, the people said.

The regulator, also known as SAMA, has asked lenders for details on derivative deals dating to January, saying they hadn’t informed the central bank about some products. An e-mailed request for comment to the agency outside of normal office hours on Friday wasn’t immediately returned.
"The directive shows the continuing disconnect between the Saudi foreign-exchange policy and market expectations,"Raza Agha, VTB Capital’s chief economist for the Middle East and Africa, said by e-mail. "SAMA appears committed to the exchange-rate peg despite the cost to foreign-exchange reserves, large fiscal deficits and consensus forecasts that see only a very gradual rise in oil prices."
SAMA ordered banks to stop selling options contracts on riyal forwards at a meeting in Riyadh on Jan 18., people with knowledge of the matter said at the time, which explains the surge in the chart at that time, but it appears funds have found another vehicle to implement their bets.
It makes sense, since as Bawerk.net's Eugen von Bohm-Bawerk explains, the Saudis have two tough choices:
1) maintain the peg, control price inflation through continued deflation of the money supply and get a full-blown banking crisis; or

2) alternatively, reflate the money supply, increase speculation in riyal forwards, devalue and get massive price inflation through the extremely important import channel.
During the reign of the mighty petro-dollar standard, it was necessary for major oil exporters to recycle their dollar holdings back into the dollar-based financial system to maintain their self-imposed exchange rate pegs. US government bonds are the very centrepiece of this elaborate system and it is thus no surprise to see the dollar price correlate well with overall OPEC TSY holdings. In other words, when oil prices were high, oil exporters amassed a capital surplus that were channelled into, among other things, US treasury bonds. When oil prices fell, oil exporters had to liquidate TSY holdings to cover capital shortfalls.
 Oil Price vs OPEC TSY Holdings
It is interesting to note that the more money and credit issued in the US the more foreign goods could be purchased by Americans and by extension the more foreign demand for US TSYs rose. The savings glut proposed by Bernanke was, and still is, nothing more than exported dollar inflation. There were no savings glut, but rather an indirect form of QE long before QE became an official policy. Home equity withdrawal lines through commercial banks, based on phony asset appreciation promoted by an accommodative Federal Reserve policy stance, increased Americans purchasing power, which inevitably leaked into global markets. Growing financial imbalances were exacerbated by the fact that there were no functioning pricing mechanisms to correct these flows.
With dollars flowing into oil exporting countries it would be natural for the recipient exchange rate to appreciate whilst the dollar depreciate. However, many oil exporters have pegged their exchange rate to the dollar so no such effect took place. Instead, local monetary authorities bought up dollars by inflating their own local currency to maintain the pre-set price. As the chart below shows, in a fixed exchange rate system pegged to a freely floating, and thus rapidly inflating and deflating, currency the LCU will have to inflate and deflate accordingly. With no price effect to soften the impact, any change in demand will be borne by supply. Compared to a flexible exchange rate regime, the inflation and deflation of the LCU will have to be larger with a fixed price of the LCU in relation to the dollar.
    Fixed and flexible FX regime
In the boom time it is easy to adjust as the monetary authorities can inflate the LCU to buy up dollars and create the consequent phony boom in the domestic economy. Local businesses thrive, credit is plentiful and asset prices rises. Very few complain.
However, as the dollar deflation takes hold the very opposite effect must by necessity occur. To maintain the exchange rate peg monetary authorities must buy up LCU through sales of previously accumulated dollars.
The key metric to watch for dollar dependent economies with exchange rate pegs is the value of domestic money supply (at the fixed dollar price) relative to FX reserves. If domestic claim to dollars, id est money supply, exceed FX reserves it is highly likely that the monetary authorities will be forced to devalue in order to realign the two metrics. If we look at an economy like Saudi Arabia, where there have been a lot of talk about devaluation, we find that there are more than enough FX reserves to cover the outstanding money supply. Since there will be no positive effect from a devaluation, there are no immediate devaluation threat.
SA FX vs M2
However, at current trends the FX reserves will drop below M2 by late 2017 or early 2018. Current trends does not lead to very pleasant outcomes for the Saudi economy because the domestic money supply is and will continue to deflate. This will expose internal malinvestements, which will show up as increasing NPLs in the banking sector, which in turn will lead to further deflation.
It is thus tempting for the Saudi government to reflate their economy by pushing more Riyals into the system; but this runs the risk of exacerbating the possibility of devaluation as the money supply will soon exceed falling FX reserves.
As most of the rest of the world, also the Saudis have become path dependent; 1) maintain the peg, control price inflation through continued deflation of the money supply and get a full-blown banking crisis; or 2) alternatively, reflate the money supply, increase speculation in riyal forwards, devalue and get massive price inflation through the extremely important import channel.
This obviously begs the question; at what oil price can the Saudi’s mange to muddle through without ending up in either 1 nor 2.  At today’s price of around USD50 / bbl Saudi Arabia will burn through USD90bn worth of reserves per year.Change in FX reserves vs oil price
This means under a mild deflationary scenario FX reserves will fall below M2 already by early 2018; even with a 10 per cent cost reduction. At 60 dollar and only 2 per cent reduction in cost Saudi Arabia will probably not have to worry about severing the peg. FX vs M2 under different scnearios
Unless prices continue upwards, it will be interesting see what route, and which risks, the Saudi government is willing to take on.For now it appear route 1 is the preferred one, but as the banking crisis escalates we expect a gradual movement toward route 2. Unless oil prices spikes back to USD60 /bbl plus, and save the day. We doubt it!
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Finally, given the ban on FX products - and the seemingly inevitable de-pegging discussed above - one potential way to play the devaluation is via CDS...

In fact, as the FX ban comes into play, it's clear CDS is starting to become more active and more indicative of Saudi stress that forwards.

Elite E Services has released Liquidity version 3.3 - in this version, we've included an optional trailing stop on all orders.  See Liquidity on the MQL Marketplace

Checkout the parameters:

  • BuyOrSell = B (default) or S – Buy or Sell. This parameter defines if the system is in buy mode, or sell mode. If set to “B” the system will only Buy. If set to “S” the system will only sell. To use liquidity in grid fashion – load the EA on 2 charts – set one to “B” and the other to “S”
  • GridLevel = Ladder – This is the level, in pips, the system will place a buy or sell order. Default is set to 5.
  • Lots = Lots – Number of lots for each order. (static value)
  • TakeProfit = Take Profit – Take profit for each order. (static value)
  • UseTrailing = Use Trailing? Yes or No. Default is No. This means a trailing stop will be placed on each individual trade.
  • TrailingStop = Trailing Stop (10) Default is 10. Only applicable if UT is set to Yes. If UT is Yes, place a TP and Trailing stop on all new orders.
  • UseGPoint = Use G? Yes or No. Default is Yes. If No, do not utilize the below parameter, and subsequent functions.
  • G = Point at which system reset and reverse. Default is 0 – meaning whatever price the system is loaded at, will always be the price where system reverse. In the chart example, once the price reach the original price, the system will go into buy again mode. If G value is 10 (in pips), then add 10 pips to the price when system will reverse from buy mode to sell mode. (number of legs before reverse)
  • F = Pips to go into the reverse trade. Default is 5, should be same default as ladder. (To count the number of legs to wait to enter, multiply by the ladder value, i.e. 2 legs, if ladder is 5, this value should be 10.)
  • P = Account protection, in % equity from peak. Default is 10 (which is 10% peak to valley, for this EA only NOT the entire account). This means if the peak to valley draw-down is 10%, close all positions, and display the message “Account Protection Hit – Restart to resume trading”
  • CloseAll = Close All – Default is “No” – If set to Yes, EA will close All trades for this EA only, and stop trading.


One of the recurring concerns voiced by Bank of America's Michael Hartnett is that with May now in the rearview mirror, we are entering "the event risk month" of June (incidentally,over the weekend, the credit strategist presented several ideas how to trade said event risk, either bullish or bearish). Now it is UBS' turn to reiterate the warning that June may see a spike in volatility due to "an unusual number of known unknowns."
According to UBS, in June there will be "an unusual number of known unknowns from several sources. June 2016 is a month in which the number of event risks is particularly high. In our baseline scenarios we do not see market upsets, but the potential is there: Japanese fiscal policy; meetings of the ECB, Fed and BoJ; new ECB policy implementation; a German Constitutional Court ruling; the UK referendum; elections in Spain; and a decision on the FTT are all thrown into the mix."
Here is the full breakdown, first in table format.
And then the chronological narrative:
1 June: Closing day of the Japanese Diet – new fiscal action?
We expect Japanese Prime Minister Shinzo Abe to announce new fiscal policy on 1 June – the closing day of the current session of the Japanese Diet. We think that the scheduled rise in the consumption tax will be delayed and a supplementary budget of ¥5-10tn could be announced. It is also possible that the Lower House is dissolved and new elections called.
2 June-16 June: Central bank meetings
On balance, we do not expect any change in monetary policy to be announced by the ECB, the Federal Reserve or the BoJ in June, but statements and guidance will be watched closely.
First up is the ECB on 2 June. The ECB will present its new staff forecasts at the press conference. We think the key challenge for Mr Draghi will be to not appear too hawkish amid rising oil prices and robust Eurozone Q1 GDP growth, and we believe it too early for the ECB to send strong signals about the duration of QE beyond March of next year. But much will be discussed.
After that, the FOMC will meet on 15 June. We think that it will wait until September before it next raises rates (in part because of upcoming event risk). However, the minutes of the April meeting and recent Fed rhetoric has kept this meeting “live” and expectations higher than they might otherwise have been.
We don’t think that the BoJ will announce a further easing on 16 June, but it will be a close call. We see a 40% chance that it does, and a 60% chance that this takes place by July. If conducted in combination with a fiscal expansion (see above), Japan would in effect be conducting a policy of 'helicopter money' and we would expect the polemic to increase in global markets on this subject
6-10 June / 24 June: TLTROs, and other ECB policy implementation
While we do not expect new ECB policy to be announced at the June meeting (see above), June is the month in which some already-announced policies are implemented for the first time. The first auction of the new Targeted Long-Term Refinancing Operations (TLTRO II) will take place on 23 June, with the publication of the results on 24 June. Market focus has been on the ability of banks to borrow 4-year money at an interest rate (to be set by ex-post calculations) as low as the current deposit rate of -0.40%.
However, we think that more important will be the first voluntary repayment of TLTRO I to be announced at 11.00am London time / 12.00pm CET on 10 June. (The repayment itself will take place on 29 June, coinciding with the first settlement date of TLTRO I). It is likely that the bank repayment of  LTRO I will be larger than the take-up of TLTRO II – and result in the first significant reduction of the ECB's balance sheet since QE began in March of last year. In turn, this might appear as an involuntary tightening of monetary policy.
The reason this might happen is that one of the effects of QE has been a largescale creation of deposits in euro area banks. But TLTRO I took place before QE was announced and banks have been unable to repay it until now. Many of them – particularly in core countries – have been burdened with large excess liquidity as a result. In turn, this has meant a drag on Net Interest Margins (NIM) for these banks as risk free rates have been negative while they are (by and large) paying 0% to depositors.
Also in June, we expect the Eurosystem to begin its purchases of corporate bonds in its Corporate Sector Purchase Programme (CSPP). It is likely that this will begin in the days shortly after the ECB’s press conference on 2 June. The corporate bond market will be watching the implementation of purchases on a daily basis. We believe that once the CSPP settles in, the Eurosystem will be buying around €12bn a month in corporate bonds. Last Wednesday Reuters reported that – citing “several bank sources” – these will amount to €5-10bn per month initially.
21 June: German Constitutional Court ruling on OMTs
On 21 June, the German Federal Constitutional Court in Karlsruhe will give its final ruling on the acceptability of the ECB’s Outright Monetary Transactions (OMTs) programme in the field of German law. In our view, this represents less of an immediate market risk than a contingent one. In a scenario where the Court ruled against OMTs, uncertainty might increase over the ability of the ECB to respond to another period of extreme volatility in European sovereign markets
Some appear to think that a ruling against OMTs might impede the purchase of peripheral bonds in the ECB’s current QE programme. We believe this to be unlikely. Bundesbank opposition to QE as a monetary policy tool in principle (even if not in timing) seems slight.
It is widely accepted that the announcement of OMTs in the summer of 2012 was the beginning of the end of the sovereign debt crisis in Europe. But in October 2014, the German Constitutional Court found that the policy was “incompatible with primary law”. At the same time, the judges in Karlsruhe passed it on to the European Court of Justice for review, which last year came to the opposite conclusion (though in the context of European law).
24 June: Result of the UK referendum on EU membership
The recent rally in sterling and the tightening of peripheral sovereign spreads have been widely attributed in the media to an increase in confidence that the UK referendum will result in a vote to remain. If correct, this would mean that there would be potential for sterling to fall and peripheral spreads to widen once more in a scenario where there is either a vote to leave or if opinion polls showed increased support for that outcome.
Figure 3: Average Italy and Spain 10-year spread to Germany and EURGBP; past 6 months
26 June: Elections in Spain
Spain will hold another general election on 26 June, after its 21 December 2015 election resulted in no government being formed. In general, we think that Spanish yield spreads to Germany should tighten over the coming months as the relatively strong growth heals the economy and improves debt dynamics.
However, Spain missed on its deficit targets in 2015 by a wide margin and is likely to miss again this year, according to the European Commission. In part, this can be attributed to the dominance of elections in the public calendar. But there is a risk to sovereign spreads if a government is formed after the elections which might take an anti-austerity stance and widen the public deficit even more.
30 June: A decision on the European Financial Transaction Tax
A group of European governments have been proposing a European Financial Transaction Tax (FTT) for several years. In the most recent statement, the proponent governments indicated that “taxation should be based on the principle of the widest possible base and low rates and it should not impact the cost of sovereign borrowing”.
The statement also directs governments to decide on further details – including, importantly, the levels of the tax – by the end of June: “in order to prepare the next step, experts in close coordination with the commission should elaborate adequate tax rates for the different variants. A decision on these open issues should be made until the end of June 2016.”
It should be noted, however, that aside from the 10 countries currently promoting the tax there is opposition among other EU member states, most notably the UK. Under the “Enhanced Cooperation” framework, the countries will pursue the policy only if 9 or more member states support it. In December, Estonia withdrew its support for the project.

DAHLGREN, Va.—A warning siren bellowed through the concrete bunker of a top-secret Naval facility where U.S. military engineers prepared to demonstrate a weapon for which there is little defense.
Officials huddled at a video screen for a first look at a deadly new supergun that can fire a 25-pound projectile through seven steel plates and leave a 5-inch hole.
The weapon is called a railgun and requires neither gunpowder nor explosive. It is powered by electromagnetic rails that accelerate a hardened projectile to staggering velocity—a battlefield meteorite with the power to one day transform military strategy, say supporters, and keep the U.S. ahead of advancing Russian and Chinese weaponry.
In conventional guns, a bullet loses velocity from the moment the gunpowder ignites and sends it flying. The railgun projectile instead gains speed as it travels the length of a 32-foot barrel, exiting the muzzle at 4,500 miles an hour, or more than a mile a second.
“This is going to change the way we fight,” said U.S. Navy Adm. Mat Winter, the head of the Office of Naval Research.
Watch the Video: Pentagon officials believe the high-tech railgun could pave the way for a military advantage defending assets on sea and on land. Photo: U.S. Department of Defense
The Navy developed the railgun as a potent offensive weapon to blow holes in enemy ships, destroy tanks and level terrorist camps. The weapon system has the attention of top Pentagon officials also interested in its potential to knock enemy missiles out of the sky more inexpensively and in greater numbers than current missile-defense systems—perhaps within a decade.
The future challenge for the U.S. military, in broad terms, is maintaining a global reach with declining numbers of Navy ships and land forces. Growing expenses and fixed budgets make it more difficult to maintain large forces in the right places to deter aggression.
“I can’t conceive of a future where we would replicate Cold War forces in Europe,” said Deputy Secretary of Defense Robert Work, one of the weapon’s chief boosters. “But I could conceive of a set of railguns that would be inexpensive but would have enormous deterrent value. They would have value against airplanes, missiles, tanks, almost anything.”
Inside the test bunker at Dahlgren, military officials turned to the video monitor showing the rectangular railgun barrel. Engineer Tom Boucher, program manager for the railgun in the Office of Naval Research, explained: “We are watching the system charge. We are taking power from the grid.”
Wires splay out the back of the railgun, which requires a power plant that generates 25 megawatts—enough electricity to power 18,750 homes.
The siren blared again, and the weapon fired. The video replay was slowed so officials could see aluminum shavings ignite in a fireball and the projectile emerge from its protective shell.
“This,” Mr. Boucher said, “is a thing of beauty going off.”
The railgun faces many technical barriers before it is battle ready. Policy makers also must weigh geopolitical questions. China and Russia see the railgun and other advances in U.S. missile defense as upending the world’s balance of power because it negates their own missile arsenals.
The railgun’s prospective military advantage has made the developing technology a priority of hackers in China and Russia, officials said.
Chinese hackers in particular have tried to penetrate the computer systems of the Pentagon and its defense contractors to probe railgun secrets, U.S. defense officials said. Pentagon officials declined to discuss the matter further.
The Navy began working on the railgun a decade ago and has spent more than half a billion dollars. The Pentagon’s Strategic Capabilities office is investing another $800 million—the largest share for any project—to develop the weapon’s defensive ability, as well as to adapt existing guns to fire the railgun’s high-tech projectiles.

Railgun Components

Power
A 25 megawatt power plant and large capacitor bank are required to provide enough pulse power to fire the weapon 10 times a minute.
Electromagnetic railgun
32 feet
Projectile
A non-explosive bullet filled with tungsten pellets; weight: approx. 25 pounds.
Shoe
An aluminum jacket that supports the bullet in the gun barrel; also provides a bridge for the current between the rails.
Approx. 24 inches
Source: Office of Naval Research
Some officials expressed concern the technology has commanded too large a portion of resources and focus. “This better work,” one defense official said.
The age of the gun faded after World War II, hampered by the limited range and accuracy of gunpowder weapons. Missiles and jet fighters dominated the Cold War years, prompting the Navy to retire its big-gun battleships. The railgun—and its newly developed projectiles—could launch a new generation of the vessels.
“Part of the reason we moved away from big guns is the chemistry and the physics of getting the range,” said Jerry DeMuro, the chief executive of BAE Systems, a railgun developer. “The railgun can create the kind of massive effect you want without chemistry.”
The Navy’s current 6-inch guns have a range of 15 miles. The 16-inch guns of mothballed World War II-era battleships could fire a distance of 24 miles and penetrate 30 feet of concrete. In contrast, the railgun has a range of 125 miles, officials said, and five times the impact.
“Anytime you have a projectile screaming in at extremely high speeds—kilometers per second—the sheer kinetic energy of that projectile is awesome,” Mr. Work said. “There are not a lot of things that can stop it.”
Star Wars sequel
Railguns have for years been limited to laboratories and videogames.
Former President Ronald Reagan ’s Strategic Defense Initiative—the so-called Star Wars missile defense—at one time envisioned using the railgun to shoot down nuclear missiles. Those plans were stalled by 1980s technology. One problem was that the gun barrel and electromagnetic rails had to be replaced after a single shot.
The Navy now believes it has a design that soon will be able to fire 10 times a minute through a barrel capable of lasting 1,000 rounds.
Besides speed, the railgun also has a capacity advantage. A typical U.S. Navy destroyer can carry as many as 96 missiles—either offensive cruise missiles or defensive interceptors. A ship armed with a railgun could potentially carry a thousand rounds, allowing the vessel to shoot incoming missiles or attack enemy forces for longer periods and at a faster rate of fire.
Unlike the Reagan-era initiative, the Pentagon doesn’t see the railgun as a shield against intercontinental ballistic missiles but defense against shorter-range conventional missiles.
The U.S. has kept its military dominance over the past quarter-century largely through such precision weaponry as guided missiles and munitions. It also has spent billions of dollars on interceptor-missile based defense systems to shoot down ballistic missiles fired at the U.S. or its allies.
That monopoly is about over. China is perfecting a ship-killing ballistic missile. Russia mostly impressed U.S. military planners with the power and precision of its cruise missiles deployed in Syria, and its improved artillery precision revealed in Ukraine.
“I am very worried about the U.S. conventional advantage. The loss of that advantage is terribly destabilizing,” said Elbridge Colby, a military analyst with the Center of a New American Security.
Defense planners believe the U.S. needs new military advances. Russia, for example, is believed to be developing longer-range surface-to-air missiles and new electronic warfare technology to blunt any forces near its borders.
Prospects for an armed conflict among the great powers still seem remote. But for the first time since the end of the Cold War, the Pentagon is again looking closely at responses to rising tensions with China and Russia.
Military planners say the railgun would be useful if the U.S. had to defend the Baltic states against Russia, or support an ally against China in the South China Sea.
Moscow and Beijing are investing in missile systems aimed at keeping the U.S. out of those respective regions. A railgun-based missile defense could defend naval forces or ground troops, making it easier to move U.S. reinforcements closer to the borders of Russia or China, officials said.
Deputy Secretary of Defense Robert Work, right, views the hole made in a steel plate by a railgun projectile during testing last year at a top-secret Naval facility in Dahlgren, Va.
Deputy Secretary of Defense Robert Work, right, views the hole made in a steel plate by a railgun projectile during testing last year at a top-secret Naval facility in Dahlgren, Va. PHOTO: U.S. DEPARTMENT OF DEFENSE
“You can’t ignore the fact that Russia has great ability to mass conventional munitions and fire them over great range. We have to be able to fight through those salvos,” said Mr. Work, of the Pentagon. “And the railgun potentially will give us the means to do that.”
Russian officials, meanwhile, including Alexander Grushko, Moscow’s envoy to the North Atlantic Treaty Organization, have said technological advances by the U.S., including missile defense, could undermine the strategic stability currently guaranteed by the relative balance between the Russian and U.S. nuclear arsenal.
Faster, smarter
Hitting a missile with a bullet—a technical obstacle that hampered Mr. Reagan’s initiative—remains a challenge. Railgun research leans heavily on commercial advances in supercomputing to aim and on smartphone technology to steer the railgun’s projectile using the Global Positioning System.
“Ten years ago, we wouldn’t have been able to build a projectile like this because the cellphone industry, the smartphone industry, hadn’t perfected the components,” said William Roper, the director of the Pentagon’s Strategic Capabilities Office. “It is a really smart bullet.”
Development of the railgun guidance system is about done, officials said, but circuits in the projectile must be hardened to withstand gravitational forces strong enough to turn most miniaturized electronics to scrap.
Missile defense by the railgun is at least a decade away, but Pentagon officials believe the weapon’s projectiles can be used much sooner. They are filled with tungsten pellets harder than many kinds of steel, officials said, and will likely cost between $25,000 and $50,000, a bargain compared with a $10-million interceptor missile.
The electrical energy required to fire a railgun means it is likely to be used first as a ship-mounted weapon. Only one class of Navy ship, the Zumwalt-class destroyer, has such a power plant, officials said. The Navy is building just three of those destroyers, so the Pentagon is working to adapt the projectile to use in existing Naval guns on other vessels, as well as for Army artillery.
While slower than a railgun, a powder-fired railgun projectile still flies at 2,800 miles an hour, which extends the range and power of existing weapons.
At Dalhgren last year, military engineers test-fired 5- and 6-inch Navy guns loaded with a version of the railgun projectile. The range of the Navy’s 6-inch guns was extended to 38 miles from 15 miles.
The Pentagon also tested the railgun projectile in 155mm Army howitzers, successfully extending its range.
“The Navy is on the cusp of having a tactical system, a next generation offensive weapon,” Mr. Roper said. “It could be a game changer.”

http://www.wsj.com/articles/a-first-look-at-americas-supergun-1464359194?mod=WSJ_article_EditorsPicks_0

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...

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