AN INTERESTING ARTICLE ON THE CHF FROM THE WSJ

Below is a very interesting article which i found in the wall street journal last week 

"After hibernating for months, the Swiss franc is starting to stir.

The franc's recent move lower, a more than one-cent drop against the euro over about a week, comes as the currency pair has barely budged this year. Outside of a few isolated trades, the franc hasn't strayed by more than a few hundredths of a cent from 1.20 francs to the euro, the strongest level Switzerland's central bank says it will allow.Trading volume in the euro-franc pair hit a record on Wednesday on the CME. Above, a bank worker counts Swiss francs.

This floor, put in place a year ago to avoid deflation and protect Swiss exporters, froze what was previously one of the world's most heavily traded currencies. A stronger franc makes goods sold abroad more expensive. Since then, investors either bought the franc as a haven from Europe's debt problems or as a bet the Swiss National Bank's floor would fail. Mostly, they avoided the currency entirely. 

With the franc on the move, the currency is regaining its broad appeal."Two months ago, when the euro was on its knees, euro-Swiss was basically a one-sided trade," said Steven Englander, global head of G-10 currency strategy at Citigroup. "If we stay in this range above the SNB's floor, it will become a tradable pair again."

The franc retreated this month as the outlook for Europe improved. In July, European Central Bank President Mario Draghi said he would do "whatever it takes" to save the euro. And on Sept. 6, the ECB said it would buy sovereign bonds to lower borrowing costs for countries that asked for help.

Trading volume in the euro-franc pair immediately climbed, with a record 8,253 contracts trading Wednesday on the Chicago Mercantile Exchange. The number of contracts outstanding hit an all-time high of 11,847 on Wednesday, up 78% since before Mr. Draghi spoke in July. Futures contracts are a small part of the foreign-exchange market but often reflect activity in the far larger spot market.

Enlarge Image

Late Thursday in New York, the franc traded at 1.2148 against the euro, its weakest since Jan. 9, compared with 1.2090 francs late Wednesday.

"A lot of people cashed out on this" drop in the Swiss franc, said Tom Liravongsa, co-founder of Michigan-based Holland Global Trading LLC. He said his firm placed short-term bets that the euro would rise against the franc ahead of the ECB's meeting Sept. 6 but has since pulled back.

Some investors are staying on the sidelines."We won't take a position right now," said Bob Marcellus, president and founder of Richmond Optimus, which manages about $100 million in assets for sovereign-wealth funds, banks and pension funds. "The risk-reward opportunity is just not there." He said he expects the SNB's floor for the euro to give way eventually, but it's "not likely to happen for a while. Their central bank is healthier than most."

Analysts and investors said the fact that the franc—perceived as one of the most attractive shelters in times of uncertainty due to Switzerland's stable finances and relatively strong economy—is finally slipping from its perch is a clear vote of confidence in the ECB's latest plan to provide relief to bond markets.But the SNB's next move matters as well. 

The euro's jump takes some of the pressure off the SNB, which has been forced to expand its balance sheet, buying euros to keep the common currency above the 1.20-franc floor. The central bank has accumulated 476.3 billion Swiss francs ($508.2 billion) in foreign reserves through July, a 50% increase since August, before it announced the floor in September.

On Thursday, the SNB kept its floor unchanged at a policy meeting. SNB President Thomas Jordan said the bank would use "utmost determination" to defend the 1.20 francs-to-euro minimum exchange rate. Switzerland's economy also is showing signs of fatigue, contracting in the second quarter as exports to the euro zone declined. That means the central bank isn't likely to abandon its defensive policy soon. Some analysts and investors believe the SNB eventually will raise its floor now that the franc is sliding. "A small break is blessed relief [for the SNB], but it's far from a victory," said Christopher L. Cruden, chief executive at Insch Capital Management in Lugano, Switzerland. His firm trades currencies for large banking clients and took a short-term bet this week that the euro will gain further against the Swiss franc."

 http://online.wsj.com/article/SB10000872396390444023704577649650388222164.html

WHY GERMANY SHOULD LEAD OR LEAVE - GEORGE SOROS

Europe has been in a financial crisis since 2007. When the bankruptcy of Lehman Brothers endangered the credit of financial institutions, private credit was replaced by the credit of the state, revealing an unrecognized flaw in the euro. By transferring their right to print money to the European Central Bank (ECB), member countries exposed themselves to the risk of default, like Third World countries heavily indebted in a foreign currency. Commercial banks loaded with weaker countries’ government bonds became potentially insolvent.

There is a parallel between the ongoing euro crisis and the international banking crisis of 1982. Back then, the International Monetary Fund saved the global banking system by lending just enough money to heavily indebted countries; default was avoided, but at the cost of a lasting depression. Latin America suffered a lost decade.

Germany is playing the same role today as the IMF did then. The setting differs, but the effect is the same. Creditors are shifting the entire burden of adjustment on to the debtor countries and avoiding their own responsibility.

The euro crisis is a complex mixture of banking and sovereign-debt problems, as well as divergences in economic performance that have given rise to balance-of-payments imbalances within the eurozone. The authorities did not understand the complexity of the crisis, let alone see a solution. So they tried to buy time.

Usually, that works. Financial panics subside, and the authorities realize a profit on their intervention. But not this time, because the financial problems were combined with a process of political disintegrattion.When the European Union was created, it was the embodiment of an open society – a voluntary association of equal states that surrendered part of their sovereignty for the common good. The euro crisis is now turning the EU into something fundamentally different, dividing member countries into two classes – creditors and debtors – with the creditors in charge.

As the strongest creditor country, Germany has emerged as the hegemon. Debtor countries pay substantial risk premiums for financing their government debt. This is reflected in their cost of financing in general. To make matters worse, the Bundesbank remains committed to an outmoded monetary doctrine rooted in Germany’s traumatic experience with inflation. As a result, it recognizes only inflation as a threat to stability, and ignores deflation, which is the real threat today. Moreover, Germany’s insistence on austerity for debtor countries can easily become counterproductive by increasing the debt ratio as GDP falls.

There is a real danger that a two-tier Europe will become permanent. Both human and financial resources will be attracted to the center, leaving the periphery permanently depressed. But the periphery is seething with discontent.

Europe’s tragedy is not the result of an evil plot, but stems, rather, from a lack of coherent policies. As in ancient Greek tragedies, misconceptions and a sheer lack of understanding have had unintended but fateful consequences.

Germany, as the largest creditor country, is in charge, but refuses to take on additional liabilities; as a result, every opportunity to resolve the crisis has been missed. The crisis spread from Greece to other deficit countries, eventually calling into question the euro’s very survival. Since a breakup of the euro would cause immense damage, Germany always does the minimum necessary to hold it together.

Most recently, German Chancellor Angela Merkel has backed ECB President Mario Draghi, leaving Bundesbank President Jens Weidmann isolated. This will enable the ECB to put a lid on the borrowing costs of countries that submit to an austerity program under the supervision of the Troika (the IMF, the ECB, and the European Commission). That will save the euro, but it is also a step toward the permanent division of Europe into debtors and creditors.

The debtors are bound to reject a two-tier Europe sooner or later. If the euro breaks up in disarray, the common market and the EU will be destroyed, leaving Europe worse off than it was when the effort to unite it began, owing to a legacy of mutual mistrust and hostility. The later the breakup, the worse the ultimate outcome. So it is time to consider alternatives that until recently would have been inconceivable.

In my judgment, the best course of action is to persuade Germany to choose between either leading the creation of a political union with genuine burden-sharing, or leaving the euro.

Since all of the accumulated debt is denominated in euros, it makes all the difference who remains in charge of the monetary union.If Germany left, the euro would depreciate. Debtor countries would regain their competitiveness; their debt would diminish in real terms; and, with the ECB under their control, the threat of default would disappear and their borrowing costs would fall to levels comparable to that in the United Kingdom.

The creditor countries, by contrast, would incur losses on their claims and investments denominated in euros and encounter stiffer competition at home from other eurozone members. The extent of creditor countries’ losses would depend on the extent of the depreciation, giving them an interest in keeping the depreciation within bounds.

After initial dislocations, the eventual outcome would fulfill John Maynard Keynes’ dream of an international currency system in which both creditors and debtors share responsibility for maintaining stability. And Europe would avert the looming depression.

The same result could be achieved, with less cost to Germany, if Germany chose to behave as a benevolent hegemon. That would mean implementing the proposed European banking union; establishing a more or less level playing field between debtor and creditor countries by establishing a Debt Reduction Fund, and eventually converting all debt into Eurobonds; and aiming at nominal GDP growth of up to 5%, so that Europe could grow its way out of excessive indebtedness.

Whether Germany decides to lead or leave, either alternative would be better than creating an unsustainable two-tier Europe.

The above article has been originally published in  the project syndicate website :  http://www.project-syndicate.org/commentary/why-germany-should-lead-or-leave-by-george-soros

ENDING THE FINANCIAL ARMS RACE - KENNETH ROGOFF

People often ask if regulators and legislators have fixed the flaws in the financial system that took the world to the brink of a second Great Depression. The short answer is no.

Yes, the chances of an immediate repeat of the acute financial meltdown of 2008 are much reduced by the fact that most investors, regulators, consumers, and even politicians will remember their financial near-death experience for quite some time. As a result, it could take a while for recklessness to hit full throttle again.

But, otherwise, little has fundamentally changed. Legislation and regulation produced in the wake of the crisis have mostly served as a patch to preserve the status quo. Politicians and regulators have neither the political courage nor the intellectual conviction needed to return to a much clearer and more straightforward system.

In his recent speech to the annual, elite central-banking conference in Jackson Hole, Wyoming, the Bank of England’s Andy Haldane made a forceful plea for a return to simplicity in banking regulation. Haldane rightly complained that banking regulation has evolved from a small number of very specific guidelines to mind-numbingly complicated statistical algorithms for measuring risk and capital adequacy.

Legislative complexity is growing exponentially in parallel. In the United States, the Glass-Steagall Act of 1933 was just 37 pages and helped to produce financial stability for the greater part of seven decades. The recent Dodd-Frank Wall Street Reform and Consumer Protection Act is 848 pages, and requires regulatory agencies to produce several hundred additional documents giving even more detailed rules. Combined, the legislation appears on track to run 30,000 pages.

As Haldane notes, even the celebrated “Volcker rule,” intended to build a better wall between more mundane commercial banking and riskier proprietary bank trading, has been hugely watered down as it grinds through the legislative process. The former Federal Reserve chairman’s simple idea has been co-opted and diluted through hundreds of pages of legalese.

he problem, at least, is simple: As finance has become more complicated, regulators have tried to keep up by adopting ever more complicated rules. It is an arms race that underfunded government agencies have no chance to win.

Even back in the 1990’s, regulators would privately complain of the difficulty of retaining any staff capable of understanding the rapidly evolving derivatives market. Research assistants with one year of experience working on derivatives issues would get bid away by the private sector at salaries five times what the government could pay.

Around the same time, in the mid-1990’s, academics began to publish papers suggesting that the only effective way to regulate modern banks was a form of self-regulation. Let banks design their own risk management systems, audit them to the limited extent possible, and then severely punish them if they produce a loss outside agreed parameters.

Many economists argued that these clever models were flawed, because the punishment threat was not credible, particularly in the case of a systemic meltdown affecting a large part of the financial system. But the papers were published anyway, and the ideas were implemented. It is not necessary to recount the consequences.

The clearest and most effective way to simplify regulation has been advanced in a series of important papers by Anat Admati of Stanford (with co-authors including Peter DeMarzo, Martin Hellwig, and Paul Pfleiderer). Their basic point is that financial firms should be forced to fund themselves in a more balanced fashion, and not to rely so heavily on debt finance.

Admati and her colleagues recommend requirements that force financial firms to generate equity funding either through retained earnings or, in the case of publicly traded firms, through stock issuance. The status quo allows banks instead to leverage taxpayer assistance by holding razor-thin equity margins, relying on debt to a far greater extent than typical large non-financial firms do. Some large firms, such as Apple, hold virtually no debt at all. Greater reliance on equity would give banks a much larger cushion to absorb losses.

The financial industry complains that efforts to force greater equity funding would curtail lending, but this is just nonsense in a general equilibrium setting. Nevertheless, governments have been very timid in advancing on this front, with the new Basel III rules taking only a baby step toward real change.

Of course, it is not easy to legislate financial reform in a stagnant global economy, for fear of impeding credit and turning a sluggish recovery into a full-blown recession. And, surely, academics are also to blame for the inertia, with many of them still defending elegant but deeply flawed models of perfect markets that create an illusion of safety for a system that is in fact highly risk-prone.

The fashionable idea of allowing banks to issue “contingent capital” (debt that becomes equity in a systemic crisis) is no more credible than the idea of committing to punish banks severely in the event of a crisis. A simpler and more transparent system would ultimately lead to more lending and greater stability, not less. It is high time to restore sanity to financial-market regulation.

The above article has been originally published in  the project syndicate website :  (http://www.project-syndicate.org/commentary/ending-the-financial-arms-race-by-kenneth-rogoff)

MAN AND THE MACHINE -RAY DALIO

“THE most beautiful deleveraging yet seen” is how Ray Dalio describes what is now going on in America's economy. As America has gone through the necessary process of reducing its debt-to-income ratio since the financial crash of 2008, he reckons its policymakers have done well in mixing painful stuff like debt restructuring with injections of cash to keep demand growing. Europe's deleveraging, by contrast, is “ugly”.

Mr Dalio's views are taken seriously. He made a fortune betting before the crash that the world had taken on too much debt and would need to slash it. Last year alone, his Bridgewater Pure Alpha fund earned its investors $13.8 billion, taking its total gains since it opened in 1975 to $35.8 billion, more than any other hedge fund ever, including the previous record-holder, George Soros's Quantum Endowment Fund.

Mr Dalio, an intense 62-year-old, is following in the footsteps of Mr Soros in other ways, too. Mr Soros has published several books on his theories, and is funding an institute to get mainstream economists to take alternative ideas seriously. Mr Dalio, too, is now trying to improve the public understanding of how the economy works. His economic model “is not very orthodox but gives him a pretty good sense of where the economy is,” says Paul Volcker, a former chairman of America's Federal Reserve and one of Mr Dalio's growing number of influential fans.

Whereas Mr Soros credits the influence of Karl Popper, a philosopher who taught him as a student, Mr Dalio says his ideas are entirely the product of his own reflections on his life as a trader and his study of economic history. He has read little academic economics (though his work has echoes of Hyman Minsky, an American economist, and of best-selling recent work on downturns by Carmen Reinhart and Kenneth Rogoff) but has conducted in-depth analysis of past periods of economic upheaval, such as the Depression in America, post-war Britain and the hyperinflation of the Weimar Republic. He has even simulated being an investor in markets in those periods by reading daily papers from these eras, receiving data and “trading” as if in real time.

In the early 1980s Mr Dalio started writing down rules that would guide his investing. He would later amend these rules depending on how well they predicted what actually happened. The process is now computerised, so that combinations of scores of decision-rules are applied to the 100 or so liquid-asset classes in which Bridgewater invests. These rules led him to hold both government bonds and gold last year, for example, because the deleveraging process was at a point where, unusually, those two assets would rise at the same time. He was right.

What Mr Dalio calls the “timeless and universal” core of his economic ideas is set out in a 20-page “Template for Understanding” that he wrote shortly after the collapse of Lehman Brothers in 2008 and recently updated. The document begins: “The economy is like a machine.” This machine may look complex but is, he insists, relatively simple even if it is “not well understood”. Mr Dalio models the macroeconomy from the bottom up, by focusing on the individual transactions that are the machine's moving parts. Conventional economics does not pay enough attention to the individual components of supply and, above all, demand, he says. To understand demand properly, you must know whether it is funded by the buyers' own money or by credit from others.

A huge amount of Bridgewater's efforts goes into gathering data on credit and equity, and understanding how that affects demand from individual market participants, such as a bank, or from a group of participants (such as subprime-mortgage borrowers). Bridgewater predicted the euro-zone debt crisis by totting up how much debt would need to be refinanced and when; and by examining all the potential buyers of that debt and their ability to buy it. Mr Volcker describes the degree of detail in Mr Dalio's work as “mind-blowing” and admits to feeling sometimes that “he has a bigger staff, and produces more relevant statistics and analyses, than the Federal Reserve.”

Two sorts of credit cycle are at the heart of Mr Dalio's economic model: the business cycle, which typically lasts five to eight years, and a long-term (“long wave”) debt cycle, which can last 50-70 years. A business cycle usually ends in a recession, because the central bank raises the interest rate, reducing borrowing and demand. The debt cycle ends in deleveraging because there is a “shortage of capable providers of capital and/or a shortage of capable recipients of capital (borrowers and sellers of equity) that cannot be rectified by the central bank changing the cost of money.” Business cycles happen often, they are well understood and policymakers are fairly adept at managing them. A debt cycle tends to come along in a country once in a lifetime, tends to be poorly understood and is often mishandled by policymakers.

An ordinary recession can be ended by the central bank lowering the interest rate again. A deleveraging is much harder to end. According to Mr Dalio, it usually requires some combination of debt restructurings and write-offs, austerity, wealth transfers from rich to poor and money-printing. A “beautiful deleveraging” is one in which all these elements combine to keep the economy growing at a nominal rate that is higher than the nominal interest rate. (Beauty is in the eye of the beholder: Mr Dalio expects America's GDP growth to average only 2% over a 15-year period.)

Print too little money and the result is an ugly, deflationary deleveraging (see Greece); print too much and the deleveraging may become inflationary, as in Weimar Germany. Although Mr Dalio says he fears being misunderstood as saying “print a lot of money and everything will be OK, which I don't believe, all deleveragings have ended with the printing of significant amounts of money. But it has to be in balance with other policies.”

Mr Dalio admits to being wrong roughly a third of the time; indeed, he attributes a big part of his success to managing the risk of bad calls. And the years ahead are likely to provide a serious test of whether the economic machine is as simple as he says. For now, he is in a more optimistic mood thanks to the European Central Bank's recent moves, in effect, to print money. Although he still expects debt restructuring in Spain, Portugal, Italy and Ireland, on top of that in Greece, he says that the “risk of chaos has been reduced and we are now calming ourselves down.” Here's hoping he is right again.

The above is an article published in the economist website on the 10/03/2012 economist

(http://www.economist.com/node/21549968)

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G7 OUTLOOK FOR THE WEEK 10 SEPTEMBER - 15 SEPTEMBER 2012

BIAS	MODE	OSCHILATORS	CURENCIES	DAILY		WEEKLY
S/L	DAILY	RSI	DAILY DATA'!A1	TREND	WAVE	TREND	WAVE
		CCI
BUY	TREND	OVERBOUGHT	EURUSD	↑	↑	↓	↑
1,2440		OVERBOUGHT		5	5	-5	5
BUY	TREND	OVERBOUGHT	EURJPY	↑	↑	↓	↑
97,67		OVERBOUGHT		5	5	-7	3
BUY	TREND	OVERBOUGHT	EURAUD	↑	↑	↓	↑
1,2054		BUY		5	5	-5	3
BUY	TREND	OVERBOUGHT	EURCHF	↑	↑	↓	↑
1,2030		OVERBOUGHT		7	5	-1	5
SELL	TREND	SELL	USDCHF	↓	↓	↑	↓
0,9726		SELL		-5	-5	3	-5
BUY	RANGE	BUY	GBPUSD	↑	↑	↑	↑
1,5746		OVERBOUGHT		7	5	5	5
BUY	RANGE	SELL	USDJPY	↓	↓	↓	↓
78,12		SELL		-7	-5	-7	-5
SELL	RANGE	BUY	AUDUSD	↑	↓	↑	↑
1,0414		BUY		1	-1	7	5
BUY	TREND	OVERBOUGHT	GOLD	↑	↑	↑	↑
1652		BUY		7	5	7	5

END OF AUGUST P/L REPORT - [+285 PIPS]

Below are the details of the trade I took on August .

1. Long EURUSD @ 1.2405 , S/L 1.2200 and T/P 1.2690 -->  Closed at 1.2690 (+285 pips PROFIT)

During June, July i did not undertook any trades

I have also two open working positions

• Long entry EURCHF @ 1.21 - S/L 1.20 - T/P 1.35 --->  Still working
• Long entry USDJPY @ 79.64 - S/L 75.4 - T/P 90.0---> Still working

  My equity since the beginning of the year is  at +970 pips

G7 OUTLOOK FOR THE WEEK 03 SEPTEMBER - 08 SEPTEMBER 2012

CURENCIES	DAILY		WEEKLY
DAILY DATA'!A1	TREND	WAVE	TREND	WAVE
EURUSD	↑	↑	↓	↑
	3	5	-7	1
EURJPY	↑	↑	↓	↑
	3	5	-7	1
EURAUD	↑	↑	↓	↓
	3	5	-5	-5
EURCHF	↓	↓	↓	↓
	-5	-5	-5	-1
USDCHF	↓	↓	↑	↓
	-5	-5	5	-3
GBPUSD	↑	↑	↑	↑
	7	5	1	5
USDJPY	↓	↓	↓	↓
	-7	-5	-7	-5
AUDUSD	↓	↓	↑	↑
	-3	-5	5	5
GOLD	↑	↑	↑	↑
	7	5	5	5