by Paul Springer

So far this week, news from Europe has been driving the direction for U.S. equity markets. It’s usually the other way around. Trading has been reflective of the classic good-news-and-bad-news situation.

Stocks don’t necessarily plunge, but are weak and biased to the downside. Traders know that the bad news – at best – will linger for some time as investors worry that Greek sovereign debt problems would destroy the Euro or even the European Union itself.

Indeed, news from Greece just keeps getting worse. Bloomberg has reported that markets reflect a 98% chance that Greece will default on its debt in the next few years. But market players are looking for something in the much nearer future:

“Everyone’s pricing in a pretty near-term default and I think it’ll be a hard event,” said Peter Tchir, founder of hedge fund TF Market Advisors in New York. “Clearly this austerity plan is not working.”

It’s probably not a coincidence that the S&P choked a bit around the same time as that report hit the wires.

In response (anticipation?), the Euro fell to a seven-month low against the U.S. Dollar, AP reports.

The idea of a global economy once sounded pleasant, but the interconnectedness in Europe continues to pose problems. “French banks reportedly have some of the biggest exposure to Greece and could be vulnerable if the government defaults on its debt,” according to Reuters, which says people are buying Euro puts at a time when the Euro hit a ten-year low against the Yen. Several French banks were downgraded by Moody’s Wednesday.

EU critic Dennis Gartman says the Union is pretty nearly kaput at this point, according to The Wall Street Journal’s reading of his investment letter. Here’s what Gartman is saying now:

This thing that was European Monetary… and eventually European political… Union was a chimera. A falsehood . . . The end-game is upon us. The experiment, from our perspective, is over, and all that is left is the final recognition of that fact.

A report from MarketWatch says some investors are planning for the Euro to exist stage left — and using various rationales for Euro pessimism. One factor is a spike in the Euro/Dollar exchange rate volatility. Another is less well known:

More worrying, a wonky gauge called a “risk reversal,” which tracks investor demand for bearish put options on the euro/dollar rate relative to bullish calls, is at its most extreme level since the euro was created in 1999. This suggests investors are scrambling to buy puts that grant the right to sell the euro at a predetermined rate in the future to avoid losing money if the euro collapses.

While it’s premature to write an epitaph for the Euro or the EU, there is little in the way of obvious solutions to economic problems in the U.S. or Europe.

A BNY ConvergEx Group managing director told The Economic Times that it was not so much the Europe problem as the lack of a solution that’s sucking life out of markets: “We have no timeline about when we could get any clarity, and financials will continue to be the most egregiously hit in this environment.”

Meanwhile, as the economic masters of the universe wonk away about Europe’s sovereign debt difficulties, this is one crisis that is also hitting at the guy on the street who might normally remain oblivious to economic currents.

This is certainly the case in Greece, whose new austerity plan brings layoffs, new taxes, and wealth cuts seemingly directed at higher income earners.

The austerity is already threatening to trickle down, according to The Sydney Morning Herald:

Though designed to target mainly high earners, the tariff could further anger the crisis-weary middle class and pose political risks for the socialist government, which repeatedly has pledged to protect households from being hurt by further austerity measures.

People are rioting in Greece over the new austerity plan, and photos in The Herald and elsewhere paint a grim picture.

In the U.S., we’re fortunate the market’s difficulties since last spring have played out in the indexes and not the streets. Some other nations aren’t having it so lucky.

by Paul Springer

It takes a lot of chicanery to earn a permanent ban from the National Futures Association. But California Capital Trading Group pulled it off.

The firm and two of its brokers got the permanent shoe for a customer-crushing combination of bad trade recommendations and commission fluffing.

As the NFA puts it in its complaint, Whittier, Calif.-based California Capital “maximized commissions but left little opportunity for the customers to achieve and overall profit.”

The company did not dispute a variety of findings, including the NFA’s contention that fat commissions meant that trades typically feature a breakeven point in the 50% to 99% range.

Total round-turn fees were in the $90 to $95 range, way more than anyone needs to pay.

At the same time, the firm used the increasingly popular trick of trebling commissions by recommending mini e-trades when regular contracts would have made more sense – and generated fewer fees.

The NFA alleged that commission trebling was one of the maneuvers that earned broker Oscar Morales a permanent ban because of improper activities at California Capitol and Patriot Financial:

On Morales’ recommendation, [client] Tovenati purchased 45 mini-gold contracts. The same trading objective could have been accomplished with only 15 standard-sized gold contracts, as mini-gold contracts represent one-third of a standard gold contract. Morales’ advice resulted in Tovenati paying $3,735 in commissions and fees on the 45 mini-gold contracts when he could have traded 15 standard gold contracts for only $1,245 in commissions and fees.

And Tovenati lost $2,088 on the trade, in addition to fees. Tovenati deposited over $68,000 into his account in 14 months.

By the time it was over, the NFA says, the client had only $375 left. But Morales and California Capital had allegedly raked in over $51,000 in commissions.

In one pair of trades, Morales recommended a 10-lot call spread on gold and a 10-lot call spread on silver, trades with a 61.97% breakeven point. Morales claimed he had “insider information” that would double the client’s money. The client actually lost money on the trades – and paid $3,718 in fees.

The NFA banned Morales after he failed to respond to its accusations. Morales “lined his pockets with commissions without any regard for whether the trades were in his customers’ best interests,” according to the decision to ban him. “The Committee sees no purpose to be served by ever allowing Morales to have any future association with the NFA,” the decision says.

Broker Jason Lovely also received a permanent ban. Lovely allegedly told an NFA auditor posing as a customer that the customer would have to “unlearn everything he knows about trading” and stick to Lovely’s recommendations.

Lovely recommended option spreads, claiming the average customer made 10% on a monthly basis. In reality, the firm’s clients regularly suffered “substantial losses” on spread trades, the NFA says.

The NFA and CTFC have various documents warning retail customers about the risks of derivative investing. Maybe they just give people a copy of the NFA’s complaint in this case.

by Paul Springer

Regulators of all stripes have been coming down on forex and futures frauds, including one that involves conservative Christian radio host Pat Kiley.

In contrast to the typical forex trading bust, which may involve only a few retail clients and chump change, something nearer to $200 million was obtained from investors in the Kiley debacle, allegedly under fraudulent pretenses.

The Securites and Exchange Commission’s civil investigation started in 2009 and wouldn’t be news now except for one thing of considerable interest to the public – and the alleged perpetrators. The SEC says the U.S. Attorney in Minnesota filed criminal charges against three individuals: Bo-Alan Beckman, Gerald Joseph Durand, and Patrick Joseph Kiley.

Kiley is also the host of the Christian Radio show Follow the Money, the Star Tribune in Minneapolis says:

Conservative radio show host Pat Kiley claims he was just reading from a script when he told his worldwide radio audience in weekly broadcasts that he was a senior financial adviser and they could avoid financial Armageddon by entrusting him and his business partners with their money.

Criminal charges often come down the pipe after the beginning of a civil inquiry, but two years is a long time. Long enough to build a convincing case. Two other fellows, purported ringleader Trevor Cook and Christopher Pettengill, already settled. Cook agreed to pay $155 million in restitution.

The alleged dissipation of funds raised was more brazenly diverse than the usual fast cars and credit card bills, the SEC says:

The SEC alleges that Cook and Kiley misappropriated $42.8 million of investors’ money, including $18 million that Cook used to buy ownership interests in two trading firms; $12.8 million that Cook and Kiley transferred to Panama to purportedly finance the construction of a casino; $2.8 million that Cook used to acquire the Van Dusen Mansion and $4.8 million that Cook lost through gambling. Cook and Kiley also misspent approximately $51 million to make Ponzi-like payments to earlier investors. The SEC further alleges that Cook and Kiley placed $108 million of investors’ funds into banking and trading accounts in the names of their various shell companies and used some of this money to trade foreign currencies, resulting in losses of at least $48 million.

The National Futures Association announced a crack down on a smaller scale, but one that permanently barred Los Angeles firm Statewide FX from NFA registration. The principals can come back, but only after five years – and they have to pay $30,000 fines just to reapply.

In settling the case, the principals did not dispute various charges in the NFA’s complaint. The company’s brokers allegedly did not mention the fact that 95% of its customers lost money. Customers were advised to place trades that generated gains mostly in the form of commissions and fees.

Option and bull call spreads required returns of 30% to 50% just to reach a break even point.

The complaint cited ample trades:

100 September Eurodollar long put options that needed to make a return of 50% to break even; a 10 lot May 10 sugar #11 long put option that needed to make a return of 45% to break even; and a 15 lot March 10 Eurodollar long put option that needed to experience a 40% return to break even.

Not coincidentally, Statewide’s commissions tended to equate roughly with client losses. Behold the fee structure as a wealth transfer mechanism!

The Commodity Futures Trading Commission isn’t idling this summer either. The commission just put the clamps on a commodity futures Ponzi scheme in California and forex fraud with operations in New York.

The Ponzi targeted Spanish-speaking investors who were told they would double their money. The CFTC says one alleged perpetrator, who used customer money to buy a Mercedes and pay for airline tickets, won’t be taking any long trips in the near future — thanks to an 11-year prison sentence.

The CFTC started the other case against Forex Capital Trading Group, Forex Capital Trading Partners, and Highland Stone Capital Management. The alleged scoundrels enticed customers with reports of 51% gains. In reality, the commission says, customers lost 86% of their money.

by Paul Springer

Federal Reserve Chairman Ben Bernanke hinted at further stimulus this morning, which naturally pushed currencies around in various ways for the short term. Action Forex reviews some of the immediate effects and considers broader reactions of more easing.

“We were not disappointed as his written testimony caused a sharp surge in risk appetite, boosting U.S. equities, and causing higher yielders such as the EUR and commodity currencies like the AUD and CAD to gain on the safe-haven USD,” Action Forex said.

Now Charles Schwab is jumping into the currency trading arena, but not in the typical way.

Schwab said in a statement today that it is teaming up with Broadridge Financial Solutions (BR), a provider of securities processing and business process outsourcing services for financial services firms. The arrangement is not designed for direct trading in currencies. Instead, investors will be able to trade in foreign issues in their local currencies.

“Key to these enhancements will be the launch of a robust, multi-country and multi-currency offering in Q1 2012, where Schwab clients can initially trade in 12 markets and eight currencies,” Schwab said in the statement.

If handled adroitly, trading in the local currencies could allow investors to avoid exchange-rate risk. If not, well, it’s one more way to go broke.

Speaking of broke, the Commodity Futures Trading Commmission alleged it was pretty easy to go that way with Vero Beach, Fla., resident David Ortiz and two of his Forex firms, Goyep International and Royal Returns. The commission says an investigation that started earlier in the year resulted in an order requiring Ortiz to return $1 million to customers who were defrauded in an off-exchange foreign currency scam.

Ortiz and his companies did not respond to the complaint until after the response deadline, the commission said in an order barring Ortiz. Ortiz allegedly lured customers with tales of 10% monthly returns. Old investors were sometimes paid Ponzi-style with new clients’ funds. Some $232,000 was went to “personal shopping at retail department stores, travel, resort hotels, restaurants, utility bills, car payments, and personal credit cards.”

Strange things can happen in the execution of Forex orders, and it’s well worth reading FXCM’s “What FX Brokers Don’t Want You to Know.”

In currency news from Mongolia, The Wall Street Journal said it can be difficult to hedge against moves in currencies like the Mongolian Togrog. While the big banks tend to be pretty good at hedging obscure risks, the Journal says, microlenders face major challenges lending to people in country’s with currencies that don’t see a lot of trading.

The problem is, the countries that are poor enough to need microfinance lending usually have extremely illiquid currencies, which make them all but impossible to hedge against. Banks are afraid to send large sums of their currencies there because if the local currency suddenly devalues, the borrowers can’t pay back their loans and the lenders end up short.

Back in the U.S., CME Group says it is planning to offer futures contracts on the yuan near the end of August:

In order to meet growing global customer demand for products denominated in the Chinese currency, these innovative new futures contracts will be quoted in interbank (European) terms, reflecting the number of CNY per US dollar. These futures products are aligned with the OTC market convention for non-deliverable forwards while providing the benefits of counterparty risk mitigation from exchange-traded derivatives.

While trading in the yuan is attractive to institutions for a variety of reasons, CME is also offering contracts scaled to smaller players.

“In order to serve both the institutional as well as the retail market, CME Group will list both a full-sized USD/RMB (CNY) contract as well as an E-micro version,” CME said in its news release.

by Paul Springer

China retained its 800-pound gorilla distinction in the currency department Friday, when the U.S. Treasury Department declined to cite China for manipulating its currency.

“U.S. manufacturers believe China’s currency is undervalued against the dollar by as much as 40 percent,” the Associated Press said. “This makes Chinese goods cheaper in the U.S. market and American products more expensive in China.”

A number of media and market players have noted that the U.S. trade deficit with China last year was around $270 billion last year, a number that exceeds deficits with all other nations.

The Treasury’s report delineated numerous issues with China’s currency management, arguing that an undervalued renminbi poses problems for a variety of other countries and for China’s citizens, who face continuing inflation.

The report avoids accusations of manipulation and often seeks to praise China for making an effort. At times the document sounds like a grade school teacher struggling to explain a poor student’s behavior in positive language.

“Progress thus far is insufficient and… more progress is needed,” the report says.

The Treasury could “cite” China for manipulation, but this choice would have unknown political and economic repercussions. Besides, the Treasury pretty much never cites anyone.

“No nation has been cited since China was named in 1994,” The Wall Street Journal said.

One economist told Reuters that the Treasury’s twice yearly currency report cards are losing credibility:

Derek Scissors, a research fellow with the Heritage Foundation, said he agreed with Treasury’s decision not to cite China because it should be focused on other Chinese policies that are much more damaging to the United States.

However, the department has turned the report into a “minor joke” by repeatedly delaying its release, he said.

At this point it’s safe to say that no government wants to get into a currency war with China. So maybe we should take Scissors’ advice and focus on some of those “other policies,” like the ones involving human rights.

Here again the specter of virtual currency appears. According to one former Chinese prisoner’s account, The Guardian reported, prison bosses have found a way to make extra money by forcing inmates to follow up the day’s hard labor by playing World of Warcraft and other video games. And not for recreation.

The practice, known as gold farming, involves accumulation of virtual credits that can be sold for real cash. It’s not life-changing for one player, but guards were able to make hundreds of dollars a day by making large numbers of prisoners play games and aggregating the credits.

Punishment for playing poorly was purportedly not virtual, according to the prisoner:

“If I couldn’t complete my work quota, they would punish me physically. They would make me stand with my hands raised in the air and after I returned to my dormitory they would beat me with plastic pipes. We kept playing until we could barely see things,” he said.

That sounds pretty harsh. Then again, the U.S. might be an economically safer place if we had incorporated such treatment into the TARP plan rather than converting taxpayer money into big bonuses for executives.

by Paul Springer

The International Monetary Fund was already busy with little problems like trying to keep a straight face about China’s currency policies. But now the organization is at the center of a media maelstrom over accusations that IMF Managing Director Dominique Strauss-Kahn sexually assaulted a maid in a New York hotel.

“The Euro fell half a cent to $1.4063 when Asian markets opened on Monday – a six-week low against the dollar – reflecting concerns about the impact the arrest could have on the bailout talks,” according to the BBC.

Strauss-Kahn pleaded not guilty to attempted rape charges, according to an account in The Australian that said a judge in a Manhattan criminal court denied bail and sent the accused off to Rikers Island pending a hearing later in the week.

Strauss-Kahn lawyered up with attorneys including Benjamin Brafman, who has variously represented Michael Jackson and “P. Diddy” Sean Combs.

The accusation comes at a time when Strauss-Kahn was deemed a likely Socialist party candidate in France’s presidential election next year.

The IMF said in a statement that First Deputy Managing Director John Lipsky serves as acting managing director whenever the official managing director is not in Washington, D.C.

While the charges made for sensational headlines, Strauss-Kahn will not be the only one affected if he does not resume his responsibilities with the IMF. The possibility that Strauss-Kahn would end his work with the IMF and run for president already had people wondering about who might replace him at the IMF.

Strauss-Kahn has changed the balance of power at the IMF, Reuters said:

Since Strauss-Kahn’s selection in 2007 as managing director, there has been a major shift within the International Monetary Fund that has elevated China to No. 3 in voting power and given countries such as India, Russia and Brazil a greater voice.

Now speculation has arisen over possible replacements at the IMF, where some say a non-European could take the helm, continuing the trend toward empowerment of emerging nations.

“Among those being mentioned as possible successors to Strauss-Kahn are Kemal Dervis, a former finance minister for Turkey who is now at the Brookings Institution, and Mohammad El-Erian, an Egyptian who heads the giant Pimco bond fund,” the Associated Press said.

A change in top management could be challenging for the IMF, whose many problematic debt situations include Portugal, Greece and Ireland.

A sudden change brings just the kind of uncertainty no one likes. Still, The Telegraph provides a strong argument that a dramatic change may not be something to fear: “To the contrary, it might even bring about a rethink of the currently doomed strategy of throwing good money after bad.”

by Paul Springer

Anyone can put up an investment website claiming outsized returns. But many of these websites are fronts for unscrupulous individuals who have potent reasons for remaining anonymous.

The National Futures Association said in a regulatory action that it found evidence of deceptive communication on the website of Carrolton, Texas-based commodities advisor FIN FX LLC. Then it learned of a shadow principal in addition to the registered principal. Both were allegedly evasive in dealing with the NFA, the agency claimed, and the pair may have moved back to South Africa – where they had already been in trouble with regulators once before.

An individual who was skeptical about claims on the FIN FX website contacted the NFA, which immediately used Google to visit the site. A variety of trading programs offered annual returns as high as 116%, and an individual in a mini-forex trading contest purportedly had achieved a 354% return.

Mini-forex accounts are like the malt liquor of retail investing – they’re seemingly cheap, initially pleasing, and likely to cause the mother of all financial hangovers.

When the NFA started asking questions, the FIN FX principal said that the trading programs and contest had actually been offered by an unrelated trading firm, so FIN FX was claiming huge returns for programs it had nothing to do with.

Further inquiries indicated that the principal did not live in the Texas address he claimed. And a visit to the company itself led to an aviation support business owned by a second South African person.

Subsequent telephone conversations with the two individuals – who spoke to each other in a language unfamiliar to the investigators – confirmed that in 2005 the High Court of South Africa had accused the pair of soliciting $12.5 million for two entities known as Webforex, the NFA said in the action. The two allegedly squandered the millions and did not provide the NFA with evidence to back up claims that the charges had been dropped.

The NFA obtained emergency authority to shut down FIN FX and prohibit the transfer of funds on its books.

If the NFA’s allegations prove true, the two individuals engaged in quite the globe-trotting lifestyle, leaving South Africa for Texas to avoid regulators on one continent, and then reprising the move to dodge the NFA.

Sadly, the alleged fraudsters appear to have avoided serious consequences on both continents. And racked up some serious frequent-flyer miles in the process.

It has been nearly three weeks since the horrific earthquake rocked Japan, causing enormous strife and infrastructure damage beyond any prior measure. An equally devastating tsunami, followed by a series of strong aftershocks, wreaked havoc on seaside towns and nuclear reactor facilities. Yet, through all of this destruction, the Japanese yen has weathered the blow, bowing to speculative pressure at first, but rebounding as intervention leveled the playing field.

The USD JPY chart tells the story from a currency perspective (note that past performance is not indicative of future return).

As confusing as it might sound, the yen actually strengthened following the disaster for nearly a week. The reasons for this apparently “contrary” price behavior were twofold.  One of the first investment strategies taught in a Forex Trader education course is the “carry trade.” This strategy involves borrowing funds from a low-interest rate country and then investing those funds where returns are higher. Typically, the Japanese yen and the U.S. dollar have been the “base” currencies for this strategy, while the Australian dollar, or even emerging market currencies, have been the associated targets.

The “carry trade” works well unless the “base” currency begins a strengthening move. When this scenario takes hold, “carry trade” investors must unwind their positions and pay back their borrowed funds, in this case, the yen. But what made the yen strengthen in the first place?  Here we have the “buy on the rumor” speculator plying his trade. The first “rumor” out of the box following the crisis was that corporations, individuals, and “carry trade” enthusiasts would have to repatriate their foreign holdings to the homeland for the rebuilding effort that was sure to follow. Increased demand pressure would surely strengthen the yen, a quick speculative opportunity rising from the chaos.

Many speculators, from hedge funds to retail forex traders, bought into this rumor, but central bankers around the world did not appreciate this “profiting from disaster” ploy. A stronger yen would be devastating for the country during its recovery efforts. For the first time in over a decade, officials from the G7 countries – including Canada, France, Germany, Italy, Japan, the United Kingdom and the United States — decided to intervene by selling yen-denominated securities, thereby relieving the demand pressure on the currency.

Demand pressure did drive the yen to its strongest level of 76.25 on March 17, as price action stopped out many retail margin traders and eliminated option barriers in the process. Once G7 intervention efforts began, the level returned to the 81 to 82 range. Continued intervention has kept the yen stable for the trying times ahead.

As noted by Trader Daily in an earlier post, the domestic auto industry has been crippled, as have many other industries. Lower production output will yield lower export trade, but imports will also decline in a similar fashion as needs are diminished. The net effect will be a flat supply/demand curve on cross-border commerce, but repatriation of corporate assets will continue in earnest as originally contemplated for reconstruction. A strong yen will hurt demand for exports. G7 finance ministers have not disclosed pricing targets, but major resistance levels appear to be around 84.5.

Volatility, however, among many major currencies will be the name of the game for some time. The nuclear crisis is still ongoing, but officials appear to be gaining control of the situation. Central bank intervention remains a tool that will be applied, but resulting volatility should provide ample trading opportunities for the adventurous trader.

In the absence of any negative news, investors must focus upon basic fundamentals and economic drivers to guide trading in the yen. Volatility, however, will be present in the short term. Keep in mind that forex trading on margin carries a significant amount of risk and may not be suitable for all investors.

by Paul Springer

After getting some bad – and partially undeserved – publicity after last year’s May Flash Crash, high-frequency trading and the algos that come with it are getting faster and being used more widely in trading platforms around the globe.

At the same time, regulators continue to struggle with the protean nature of HFT systems, and the retail customer still seems stuck on the outside looking in.

The rise of HFT has been concurrent with a steady barrage of complaints of smaller investors being run over by computerized trading monoliths that take advantage of retail order flow.

Analysis from WallStreet Window suggests that misconceptions over computerized trading have made some investors turn their backs on conventional investing. And the alternative, a watered down and sometimes fraudulently marketed “robot” does not make for a pretty picture:

What the average investor wants is constant stock picks no matter what the stock market is doing . . . So most investment advisory services do nothing but feed the public picks and there is a whole cottage industry of people selling bogus trading software robots that promise to give out constant winning trades made by people who don’t trade anything themselves. To most who buy a stock or a bull*&^% black box trading system they have bought something like a lottery ticket. To be told to sell a stock to them – or to even be cautious – means to deny them their lottery ticket.

(Elliott Wave notes that the recent return of “the little” guy investor seems to have coincided with a retreat by the broader equity indexes — another example of the retail investor getting run over.)

Of course there are plenty of legitimate products, but they tend to cater to those with large stockpiles of capital — like Morgan Stanley’s new currency Fix:

Because currency markets, unlike equity markets, trade over-the-counter, dealers do not officially report transaction volume. To provide V-WAP for currencies, Morgan Stanley’s Quantitative Solutions and Innovations (QSI) Group, a unit on the FX sales and trading desk in Morgan Stanley’s Fixed Income Trading Division, devised the Morgan Stanley Fix methodology which estimates foreign exchange volumes using a proprietary liquidity analysis framework* that takes into account intra-day liquidity cycles.

Right — and if you have to ask how much it costs, you can’t afford it.

HFT trading is becoming increasingly competitive for both traders and exchanges seeking to implement high-speed platforms, a development that comes as exchange consolidation threatens smaller trading venues.

The Business Spectator reports on challenges facing Chi-X, which has been initiating operations all over the place:

Despite success on some markets, it has struggled to repeat its launch heroics in Japan. Since its launch in July last year, it has managed to corner a market share of just over one per cent as the Tokyo Stock Exchange had plenty of time to prepare for competition.

Meanwhile, Reuters reports, Canadian venue Omega ATS is keeping its chin up as the London Stock Exchange opens the cash register to bid on TMX Group.

“We think ‘bring it on.’ It’s going to increase the availability of different instruments to trade,” Mike Bignell, president of Omega ATS, told Reuters…

Omega currently offers a low latency trading platform where subscribers can trade Canadian exchange-listed equities and some Canadian corporate and government bonds.

While HFT continues its multi-year run as the flavor of the month, some wonder at the toll regulation, consolidation and competition will take on the immensely popular strategy.

A report from Advanced Trading wonders if the technical homogenization that comes with HFT regulation will result in the trading equivalent of Formula 1 racing, where only a dozen teams will compete this year – using engines from only four manufacturers.

Sixty years of increasing regulation and an accelerating technical arms race have taken their toll, and made it exponentially more difficult (and expensive) to win with consistency. Teams have been forced to slash costs, or face a bankruptcy or sale. Is this the start of the end for the high frequency trader?

by Paul Springer

While speculation continues on the potential for radioactive pollution from Japan’s crippled reactors, harsh reality illustrates the immediate economic fallout from Japan’s double disaster. The auto industry is particularly hard hit.

Given the infrastructure damage from the quake and power source disruption from the reactor failures, car makers in Japan are looking at production shutdowns and uncertainty about when manufacturing will resume.

The industry as it exists within Japan has almost entirely gone into hibernation, according to Edmunds InsideLine:

Automakers said they closed even factories not directly hit by the quake or tsunami, in part to allow their workers to contact family members affected by the disaster and to wait for component suppliers to repair and restart operations.

Aside from problems with component supply lines, raw material production is also taking a hit. IndustryWeek runs down the situation with several major steel producers, and The Republic talked to a fund manager who saw an unsurprising drop in prices for Japan Steel Works — a maker of nuclear reactor components.

Numerous completed vehicles awaiting transport were destroyed by the tsunami.

The Times Colonist examines global ramifications for the slowdown in Japan:

A prolonged shortage of parts from Japan would be felt at the Japanese automakers’ North American factories after one to two weeks, JP Morgan analyst Himanshu Patel said. A six-week hiatus on those imports could disrupt production of 350,000 vehicles, or one-twelfth of North American vehicle production reliant on Japanese-built parts, he estimated.

Toyota stopped scheduling overtime work in North America because shutdowns at its and suppliers’ plants in Japan would crimp the volume of parts coming to the automaker’s North American facilities, a spokesman said.

While this adds up to bad news for auto industry investors and car buyers alike, Japan’s disaster has nonetheless proffered good news for one group: yen investors. The yen drubbed the U.S. dollar this week in a move that seemed odd to some and began even before the G7 announced plans to restrain the yen so that rising currency costs don’t frighten away foreign investors.

ETF Daily News breaks down the yen movement:

So why would the yen strengthen against the dollar during what Japan’s leader has called the biggest crisis in the nation’s post war history? The explanations for this seemingly bizarre phenomenon are three-fold; expectations from the Bank of Japan, speculative attacks, and the repatriation of assets.

Unfortunately, one cannot jump into a currency exchange-traded fund or futures contract and drive it off into the sunset.