The Ins and Outs of Trading Indices and ETF Options

When you first start out in options trading, you may decide to stick to individual stocks. However, there are other optionable assets besides stocks. No matter what type of trader you are, you will be able to find an ETF (exchange-traded fund) or index that works with your trading needs. These trades will enable you to diversify your portfolio without burdening yourself with a large number of options or stocks – creating an inexpensive way to reduce your risk. First, it is important to understand what ETFs and indices are. An ETF is an investment that has a series of securities that represent a specific index or sector. ETFs are made up of mutual funds but they trade exactly like stocks do. Meanwhile, indices are a statistical collection of stocks that are related to a particular number. As an example, the S&P 500 is made up of U.S. equities, but a stock has to maintain a particular liquidity and market capitalization to warrant inclusion.
How to Trade Indices and ETFs

ETFs and indices trade just as any other option does. As an example, say that you believe there will be a short-term boost in the airline sector. You could buy stock in a single airline and hope for something good. But if something goes terribly wrong with that airline you will miss out on the airline boost completely. This is where indices and ETF options come into play as you may be bullish on a certain sector but also want to safeguard yourself against a weak security in that sector. In this case, you can decide to purchase a call option on the Airline Index.

When you trade an index like this, you will increase your exposure to big players in that sector. Then if the sector is boosted like you predict your profits will be maximized by the call option. In ideal situations, the overall performance of the group will offset the outliers. If the sector does not get a boost, then you will only lose the premium that you paid to get into the trade.
Hedging Your Portfolio with Indices and ETFs

Using an Index or ETF, you can hedge your positions, stock holdings and your portfolio. As an example, say that you decide to short trade a certain stock in the natural gas sector and you are worried that the increasing price of natural gas could defeat your strategy. If you want to hedge against this, you can purchase a United States Natural Gas Fund call option. With this, you can enjoy any boosts in the sector and long option gains will counterbalance the potential losses on the stock you short traded. The premium that you pay for the call option can be thought of as insurance – it is there in case you need it.

On the other hand, say that you are anticipating a phase of short-term vulnerability in the larger equities market. If you want to protect yourself against the losses your portfolio will experience, you can purchase S&P Depository Receipts put option. This ETF will follow the performance of the broader market based on the S&P 500 so the S&P Depository Receipts put option will enable you to capitalize on the weak market as a whole. There really is no reason not to trade indices or ETFs. You can use these options on top of speculation, to hedge your portfolio or stocks holdings or use them in a pairs trade. It can be very useful to you when you have learned about the possibilities of indices and ETF options.

Everything You Wanted to Know about Commodities

Trading commodities is a pillar of global trading. As a serious investor, it is important for you to have an understanding of trading commodities. There is a potential to make large profits if you have sufficient information about the issues that frame the global trade of commodities and if you understand the workings of trading those commodities. The trade of commodities has an extensive history but innovations are always being made. Technological advancement has created entirely new commodities that are being traded and the creation of online commodity trading allows you to easily access the global market with a little capital.
Types of Commodities

Commodities are a variety of resources that may be traded in specified amounts at a minimum quality standard. The use of these parameters allows you to trade large numbers and volumes of commodities in the global commodity exchanges with reasonable certainty that the traded commodities are not lacking in any way. Commodities are separated into several different classifications including: agricultural commodities (wheat, corn, cocoa, coffee, beef, etc) metal commodities (copper, iron ore, gold, silver, etc) and energy commodities (gas, oil, etc). In addition, there are other commodities that do not fall under any classification.

The proliferation and advancement of technology has enabled the creation of new commodities because technology has allowed the capability for producing high-tech products to spread throughout the world – like silicon chips. There is also a new commodity exchange that deals in nanomaterials called the Integrated Nano-Science Commodity Exchange that was founded in 2009. Additionally, the recent environmental issues have led to the creation of trade exchanges in environmental commodities. This exchange includes trading renewable energy certificates and carbon emissions including carbon credits and carbon offsets.
Commodity Market and Trading

The commodity market is where the trading of commodities takes place. This market is made up of international commodity exchanges like the Chicago Mercantile Exchange, the London Metal Exchange and the New York Mercantile Exchange. The officials at each exchange work to regulate the transactions and to ensure that the traded commodities meet adequate quantity and quality standards. When you understand how the commodities and how the exchanges behave, you will be much more successful when trading in the commodity market.

Traditionally, commodity trading has been done by floor traders who trade for their own investments on the trading floor or by firms of commodity brokers that place trades for their clients. These broker firms usually have a large number of brokers and cal place trades on most or all of the global market’s major commodity exchanges. One benefit of trading with a commodity broker is that they can provide you with advice and a great amount of information as a component of their service. If you are just learning how to trading in commodities, this may provide with you valuable support and information. On the other hand, the trading costs using a brokerage firm are usually high and may be too costly for you.

This has given rise to discount commodity brokerage firms. Discount brokers have reduced the costs of their service by focusing on trading rather than giving advice. Another way that these brokers have reduced their costs is by operating online brokerage firms. The trading of commodities online has grown within the past few years and many commodity brokers are competing against each other to offer the best price to investors. You can even find online brokers that offer benefits and bonuses, so if you want to get started in commodity trading it may be worth it to search for the best price.

The Importance of Real, Nominal and Effective Interest Rates

When interest rates are calculated, the nominal interest rate is the rate that is calculated without adjustments made for inflation or the entire effect of compounding. The real interest rate compensates for the value of an investment lost with inflation. The effective interest rate, also known as the annual equivalent rate or AER, takes the effects of compounding into account.
Examples of Real, Nominal and Effective Interest Rates

Let’s say you purchase a bond for 1 year with a 6% interest rate for 12 months. If you invested $100, then your investment return would be equal to $106. This interest rate is a nominal interest rate and does not take inflation into account for that year. Now, say you purchase that same bond and taken the inflation rate of 3% for that year into account. If you purchase an item for $100 at the beginning of the year, it will cost $103 at the end of the year. So, if you invest $100 with a 6% nominal interest rate for 12 months, you lose $3 because of inflation so the real interest rate is only 3%. Finally, let’s say you invest $100 into a bond for 1 year with a 6% interest rate. Your return will be equal to $106 at the end of the year. However, if every 6 months your interest is compounded you will get a little more than $106. After 6 months, you will have gained $3 in interest. At the end of the 12 months, the bond will give you 3% interest, totalling $103 or $3.09. The return on your investment would be $106.09 for that year so the effective interest rate would be 6.09% – a bit higher than the 6% nominal interest rate.
The Importance of Interest Rates

Many interest rate calculations ignore the lender cost of borrowing funds for a certain period of time. When the loan has been repaid, the cost of items could have increased so the money is not worth as much. If you can determine what inflation will be, real interest rates can be an important tool for analyzing the worth of potential investments because the decrease in spending power is taken into account for the lifetime of the investment. The effective interest rate is also important because interest may be paid annually, monthly or weekly on different investments. The effective interest rate will allow you to compare costs or returns on various loans with greater accuracy than the nominal interest rate.
Interest Rate Tips

When inflation is increasing, then the nominal interest rate will be higher than the real interest rate. If deflation is present and inflation is decreasing, then the nominal interest rate will be lower than the real interest rate.
It is important to remember that when you calculate effective interest rates, you should not include single charges like set-up fees. Also, financial regulations have much greater control over the APR and less control over the AER.
The Fisher hypothesis says that nominal interest rates and inflation will merge over time so real interest rates have stability in the long term. This hypothesis is also known as the Fisher effect.
Some savings and bond products will connect payments to an inflation index or a real interest rate like a government issued gilt.
It may be beneficial to determine the value of investments without considering inflation. This is achieved by discounting using real interest rates.

Common Bond Market Questions

Bond markets are very dynamic and feature frequently changing interest rates that are influenced by many different factors like Federal Reserve policy, demand and supply of credit, economic conditions, fiscal policy, inflation, exchange rates and market psychology. Presently, the increase in interest rates and the probability of economic recovery is influencing the prices of bonds. When interest rates change, the value every bond in the market also changes. If you want to purchase bonds, or have just purchased some, you should understand how increasing interest rates will affect your bonds.
How Will Higher Interest Rates Affect Bonds?

Interest rates are now on the rise and this means that the yields on your bonds will drop.
Does Every Bond Lose the Same Value When Rates Increase?

No, interest rate changes do not affect all bonds in the same way. Generally, the longer the maturity on the bond, the more is it affected by changes in interest rates. Also, the lower the ‘coupon’ rate of the bond, the more it is affected by interest rate changes.
What Should I Do with My Bonds When Rates Increase?

If you decide to purchase a bond and keep it until it matures then the increase in rates will not affect the income you get from it – you simply get the face value of the bond.
What Happens When Rates Increase and I Need to Trade My Bonds?

If you must trade your bonds during a time where rates are increasing, you should know that you will have to trade them at for loss.
What Happens If I Trade My Bonds When Rates Go Down?

If you rates have gone down since you purchased your bonds then the value of those bonds will have increased, giving you capital gain.
If Rates Increase, What Happens to My Bond Fund?

Because bond funds do not have a particular maturity date, it is likely that the returns will decrease. The return is influenced by interest rate payments as well as price changes. If the rates increase, the bond values that are held by the fund will drop and decrease the return. However, the bonds will continue to provide the fund with interest payments that will be passed to investors so it will maintain its yield.
Are There Other Risks Involved in Bond Markets?

Yes, all investments have some risk of loss involved. If you invest in bonds, besides government guaranteed securities, you should know that the return is tied to market changes and its credit. The higher the potential return, the higher the risk. On the other hand, safer investments offer lower returns. You may choose to purchase a variety of bonds like U.S. Treasury securities which are supported by the credit of the U.S. government and do not carry any credit risk or bonds that are speculative and just below investment grade.
Should I Invest in Bonds?

Most financial advisors recommend that you diversify your investment portfolio with stocks, cash in different percentages and bonds depending on your individual goals and circumstances. However, if you want to purchase bonds and hold them until they mature, you will get a predictable series of payments. You can purchase bonds to increase or save your capital or to create a reliable interest income. Whether you are saving for a new home, retirement, your children’s college or other financial goals, investing in bonds can help you reach your goals.

The Issue of Printing More Money

A common question among the public is why governments choose not to print additional money to combat the problems of national debt. The answer is that printing extra money does not change the economic output at all, it simply causes inflation. Wealth is not created by printing more money; it is simply represented by it. When more money is printed and wealth has not increased, every banknote represents a smaller value. When money is recklessly printed by the government, inflation is created which can lead to hyperinflation.
Example of Inflation

Let’s say an economy produces $10 million worth of consumer goods, or 1 million shirts worth $10 each. If the government decided to double the supply of money, there would still be 1 million shirts but everyone would have more money so the demand for shirts would increase and drive prices up. Now, the 1 million shirts might be sold for $20 each so the economy is worth $20 million instead of $10 million but the number of consumer goods remains the same. Ultimately, this increase in GDP is just an illusion – there is more money but when prices increase, the economy and consumers are no better off.
Example of Hyperinflation

In Zimbabwe, the government was shutting down large areas of the economy, especially agriculture, by chasing farm owners away and substituting them for unskilled farmers. This created worry with consumers and bondholders as they believed that Zimbabwe’s currency value could not be supported by economic stability and future growth. Essentially, the demand for agriculture goods did not fall, but the supply dropped so prices increased dramatically.
The Consequences of Printing Money

There are situations where the printing of more money will cause inflation as shown in the examples above. In these cases, the price of consumer goods increased so wages and benefits also have to increase to account for inflation. There is also an increase in government spending and borrowers would now be subject to higher interest rates to purchase bonds. Thus, the underlying economic problems have not been solved and inflation has now become an issue. This is also what happened in Weimar, Germany in 1922. In order to meet the reparations of the Allies, more money was printed and hyperinflation was created. This hyperinflation caused the collapse of the economy.

However, printing more money does not always cause inflation. During a recession where deflation is present, it is possible for the government to increase the supply of money without creating inflation. This is possible because the supply of money not only depends on the amount of money, but also the circulation velocity. As an example, if there is a dramatic drop in transactions, or circulation velocity, then more money may need to be printed to avoid deflation. An example of deflation is the 2008 U.S. financial crisis when the government decided to print more money to pay for the debt. Hyperinflation was not present and many investors had not yet panicked. So while the money was supported by confidence, consumers chose to hold onto their money rather than purchasing goods. This has made demand and prices fall which has lead to deflation.

Eurozone Jobless Rate Stuck at Record High 11.3% in July

BRUSSELS -- The unemployment rate across the 17 countries that use the euro remained at a record high of 11.3 percent in July, official figures showed Friday, underscoring the huge task leaders face to restore confidence in the continent's economy.

The European Union's statistical agency, Eurostat, said 88,000 more people were without a job in July -- for a total of 18 million -- as governments and companies continued to trim payrolls to deal with problems of high debt and weak consumer spending.

The 11.3 percent unemployment rate, which is up 1.2 points from a year earlier, is the highest level since the euro was formed in 1999.

Joblessness increased in Spain and bailed-out Greece, both countries at the center of the European sovereign debt crisis which has thrown a cloud of doubt over the future of the single euro currency.

In Spain, the jobless figure rose by another 0.2 points to reach 25.1 percent, the highest in the eurozone. For Greece, the latest data available was for May, which saw a 0.5-point increase to 23.1 percent. A year earlier, it was 16.8 percent.

Youth unemployment was even worse. In Spain it stood at 52.9 percent for people under 25 and at 53.8 percent in Greece.

"Partners at all levels need to do all they can to avoid a lost generation which will be an economic and social disaster," said EU Employment Commissioner Laszlo Andor. He cautioned, however, that there was no "quick fix" to the problem.

Europe's economy has been hit by the combination of government savings measures -- cuts to public sector payrolls and benefits and tax hikes -- and the uncertainty that has caused huge volatility in financial markets. That uncertainty is keeping companies from hiring and investing and scaring households away from big purchases.

European leaders are preparing measures to boost confidence in government finances, hoping that greater stability will allow the economy to recover. But that task is proving long and arduous.

"We must not get used to these excruciatingly high levels of unemployment," said Hannes Swoboda, the president of the Socialist group at the European Parliament. "We have been witnessing constant, creeping increases in unemployment -- and especially youth unemployment -- for years now. Enough is enough."

The bottom of the eurozone's economic downturn though has yet to be reached, according to Ben May, European economist for Capital Economics.

With job measures "pointing to further falls in employment, the euro-zone unemployment rate looks set to rise further, suggesting that consumer spending will continue to fall over the coming quarters," May said.

In comparison with Europe's figures, Eurostat said unemployment in the corresponding month stood at 8.3 percent in the United States and 4.3 percent in Japan.

At the other end of the scale in the eurozone, Germany, the continent's biggest economy, had a rate of 5.5 percent. Its neighbor Austria had the lowest of all with 4.5 percent.

7 Ways to Encourage Your Kids to Develop Good Money Habits

A few weeks ago, I wrote about how low interest rates have made it difficult to convince any of my kids -- especially my 9-year-old daughter -- to open a savings account. While many of you agreed there's a problem, some of you believe I'm misrepresenting what savings accounts are for.

"S" Is for Savings ...

"You are right about [saving] being a good habit," wrote reader demosphnes, "however the point of placing money in a bank saving account is to build up a pile of cash to meet your needs. Investing is an entirely different manner and for that nobody should use a saving account at the bank."

Fair enough. I am more concerned about teaching my kids the act of saving than I am about finding the best rates, especially now that safety nets are under threat. Chances are, they're going to have to fund not only their own retirements, but also a large portion of their health care, insurance benefits, and more. They won't be able to do that if they don't know how to save.

... and "I" Is for Incentives

On the other hand, is it fair to tell a 9-year-old to save just because it's good for her? Isn't that just a little like telling her to eat her veggies? Incentives matter, and in saving and investing there's no better incentive than the prospect of a great return. Here are seven ideas for helping your kids earn more from putting their money to work:

1. Open a custodial brokerage account. History shows that investing in stocks beats investing in cash, especially over the long term. Small-scale broker ShareBuilder has an automated program that allows customers to invest weekly or monthly for just $4 per transaction. Custodial accounts are also available.

2. Create an eBay business. Entrepreneurs such as Microsoft's (MSFT) Bill Gates, Berkshire Hathaway's (BRK.A)(BRK.B) Warren Buffett, and Google's (GOOG) Larry Page and Sergey Brin are responsible for some of the world's largest fortunes. Why not have your child invest a small portion of her funds to create a small-scale eBay store or something similar? Whether it's selling off old dolls or toys or finding a market for homemade arts and crafts, she'll collect profits with each sale, and in the process learn business lessons that aren't easily taught in a classroom.

3. Become a bank. Banking basics are just as important as business basics. How about allowing your kids to lend to you at an attractive rate? They'll get a little extra cash and an important lesson on the compounding power of interest.

4. Start a matching program. If your kids aren't yet ready to dive into percentages and interest rates, try a matching program. Open a savings account for them and promise to match their contributions up to a certain level, just as the best 401(k) retirement savings programs do.

5. Sponsor a goal. You can also use goals to boost savings. Say your child wants a new bike. Agree to pay a portion of the cost if she'll earn and save the rest. SmartyPig takes a similar approach in encouraging adults to save, but with a social twist: Publicly commit to a savings goal and earn an above-average rate on your balance as peers watch and cheer you on.

6. Embrace the outlandish. Our 12-year-old son would go to Australia on his own if he could. He's too young for that -- obviously -- but what about solo flying lessons? We'd consider it if he saved most of the money needed. Tease the idea of access to the previously unattainable as a reason to sock away cash.

7. Use the Internet. Finally, consider creative alternatives. Kickstarter allows anyone to sponsor creative projects -- in subjects such as art, fashion, and technology -- some of which come with neat rewards. Agree to be your child's proxy for pledging support, but only if they first save the funds to make good.

Savings is a lifetime habit worth cultivating in our children. As parents, we've all got to do our part. What strategies are you using? What's worked? What hasn't? Please use the comments box below to weigh in.

Mortgages Tumble near Record Lows Again

Mortgage rates tumbled this week as investors awaited moves by the world's major central banks. The drop put rates near record lows again and ended a four-week streak of increases, giving borrowers some extra time to grab a low rate.
30 year fixed rate mortgage – 3 month trend
30 year fixed rate mortgage – 3 month trend
The benchmark 30-year fixed-rate mortgage fell to 3.8% from 3.91%, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.4 discount and origination points. One year ago, the mortgage index stood at 4.37%; four weeks ago, it was 3.77%.
The benchmark 15-year fixed-rate mortgage fell to 3.03% from 3.12%. The benchmark 5/1 adjustable-rate mortgage fell to 2.8% from 2.9%.
Weekly national mortgage survey
Results of Bankrate.com's Aug. 29, 2012, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed 15-year fixed 5-year ARM
This week's rate: 3.8% 3.03% 2.8%
Change from last week: -0.11 -0.09 -0.1
Monthly payment: $768.83 $1,141.84 $677.98
Change from last week: -$10.37 -$7.17 -$8.80
Big event this week may affect rates
Helping rates this week was speculation that Federal Reserve Chairman Ben Bernanke may announce plans for additional monetary stimulus at an annual conference scheduled for Friday in Jackson Hole, Wyo.
The rumors started after the Federal Open Market Committee's latest meeting minutes were released. In the minutes, some Fed members indicated they support additional stimulus, including additional bond purchases. Two years ago, the Fed announced its second bond-buying program, QE2, during this same annual summit.
Even if a supposed QE3 is not announced this week, Bernanke's speech may still affect the direction of mortgage rates in coming days, says Michael Becker, a mortgage banker at WCS Funding in Baltimore.
"We are in a strange market these days where statements from central bank heads move markets more than economic data," Becker says. "So it's hard to tell where rates are going, but if you're ready to lock, I'd say do it."
Rumors aside, it's unlikely Bernanke will announce additional help for the economy Friday, analysts say. That's partly because recent reports show the U.S. economy and the housing market have been improving -- slowly but surely. The improvements make it more challenging to persuade Fed members who are against additional stimulus that more help is needed.
What's good for the economy isn't good for rates
On Wednesday, the Commerce Department said economic growth in the second quarter of this year was better than expected. The country's gross domestic product, or GDP, which measures economic activity, grew at an annual rate of 1.7% in the second quarter. The government had previously estimated growth at 1.5%.
The Fed's Beige Book, released Wednesday, shows the economy expanded "gradually" in July and part of August.
"Retail activity, including auto sales, had increased since the last Beige Book report," the Fed says in the report.
Recent improvements in the housing market also may be seen as a sign that the economy may be ready to walk on its own feet and it doesn't need additional help from the Fed.
U.S. home prices posted a year-over-year increase in June for the first time in two years, according to the Standard & Poor's/Case-Shiller home price index report released this week. The closely watched index of 20 major metro areas shows home prices rose by 0.5% in June, compared to a year ago. This isn't isolated data. Several other recent reports that track home prices and home sales have shown consistent improvements in the housing sector.
"We seem to be witnessing exactly what we needed for a sustained recovery; monthly increases coupled with improving annual rates of change. The market may have finally turned around," says David M. Blitzer, chairman of the index committee at S&P Dow Jones Indices.
Europe is your friend but not forever
But borrowers who want the superlow rates to last a little longer still have Europe's trouble on their side. Analysts say that until the debt crisis in Europe is resolved, rates in the United States will likely stay near the lows. That's because the crisis makes investors seek safer investments, such as U.S. Treasuries and mortgage bonds, and that generally results in lower mortgage rates.
Will the European debt crisis be solved anytime soon? Probably not, but since rumors move markets, rates may react to a European Central Bank meeting Sept. 6. Any announcements that make investors feel more confident about Europe's economy may hurt rates in the United States, Becker says.
"There's so much going on after Labor Day that anything could happen to rates,

Week Ahead: August Jobs and Other Economic Data

Lots of economic data is due next week, none more important than the August jobs report out on Friday. Markets are closed Monday for the Labor Day holiday.
A sharp move one way or the other for the unemployment rate could mean the difference between the Federal Reserve announcing a new round of economic stimulus at its September meeting in two weeks -- or not.
On Friday, Fed Chairman Ben Bernanke made it clear that sagging labor markets are a top priority for the Fed. In a much anticipated speech before other central bankers in Jackson Hole, Wyo., Bernanke said stubbornly high U.S. unemployment was a “grave concern.”
Should the August numbers disappoint by falling below expectations, it would put additional pressure on the Fed to announce another round of quantitative easing, the bond buying programs intended to add liquidity to stagnant financial markets.
A surprise to the upside could take the pressure off the Fed, allowing them to maintain the status quo of low-interest rates through late 2014. The July jobs data was marginally better than the four previous monthly labor reports, all of which disappointed.
Economists expect the August unemployment rate will likely hold steady at 8.3%.
Also on tap next week are August car and truck sales due Tuesday; payroll company ADP’s employment report on Thursday, which usually provides a fairly accurate preview for the government’s report later in the week, and data from the manufacturing sector on Tuesday with the release of the Institute of Supply Management Index, which surveys activity among 300 manufacturers.

DOJ's New Strategy: More Criminal Charges

The Department of Justice is shifting its sights to a new offensive in combating money laundering: bringing criminal charges against banks and other financial institutions for weak compliance systems that fail to catch illicit money flows.
Even while the department's money-laundering unit is wrapping up a series of blockbuster cases involving sanctions-busting transactions routed through some of Europe's biggest banks, it has set its sights on the next front.
While the sanctions cases involving Iran and other countries have largely dealt with historical conduct, part of the shift is to pursue ongoing misconduct.
The focus on compliance systems has traditionally been left to financial firms' direct regulators, including the Office of the Comptroller of the Currency, whose punishments usually amount to a strong slap on the wrist.
The DOJ has brought a handful of its own such cases, including one against Wachovia in 2010 in which authorities said the bank failed to maintain effective anti-money laundering controls and did not stop more than $100 million of Colombian and Mexican drug traffickers' money from being laundered through accounts at the bank.
The DOJ unit is now interested in ramping up the number of criminal cases it brings under the Bank Secrecy Act, or BSA, a law that requires financial institutions and their employees to take steps to combat money laundering.
"I think you are going to see more complex BSA cases against banks, I think you are going to see enforcement across the broader spectrum of financial institutions," said Jennifer Shasky Calvery, who heads the Department of Justice's Asset Forfeiture and Money Laundering Section.
The cases come with potentially hefty punishments, with financial penalties equal to the illicit funds moved and prison sentences between five and ten years for individuals.
Also part of the appeal is that BSA cases, including compliance-related charges, can capture a range of financial institutions, from commercial banks and credit unions, to broker-dealers and insurers, to casinos and pawnbrokers.
In June, the Department of Justice charged check-cashing businesses in Brooklyn and Los Angeles with failing to file certain transaction reports and failing to have an effective anti-money laundering program. The businesses were being used to move more than $50 million in money, some of which was potentially linked to healthcare fraud, the government said.
Besides being one of the first such cases against a financial institution that isn't a bank, it was also the first to indict individuals - the owners of the businesses - with failing to have an effective anti-money laundering program.
It is unclear whether the effort will produce marquee cases or those targeted at smaller entities, and individual charges are unlikely at larger institutions since responsibilities are often shared by multiple employees and departments.
But at least one big upcoming case, against HSBC, is expected to be based in part on the bank's weak compliance systems.
The U.K.-based bank set aside $700 million last month for anticipated U.S. fines that are expected to come from a years-long probe by the Department of Justice and other authorities.
A U.S. Senate report in July highlighted the allegations, finding that HSBC had let clients shift potentially illicit funds from countries such as Mexico, Iran, the Cayman Islands, Saudi Arabia and Syria.
One of the largest casino companies, Las Vegas Sands, run by magnate Sheldon Adelson, is also under investigation by the Department of Justice for potential violations of anti-money laundering laws, according to a source familiar with the matter.
Banks have in the past generally tailored their anti-money laundering efforts to meet the requirements of banking regulators. With the DOJ's shift in focus, banks may need to ensure they are not liable to criminal charges of money laundering that the department would try to establish in any case it pursued.
"Any responsible financial institution is going to have to assess its anti-money laundering program and make sure that it has not just enough resources and personnel to satisfy regulators but also to ward off any criminal investigative activity," Peter Djinis, a former regulatory policy official with the U.S. Treasury Department's Financial Crimes Enforcement Network, also known as FinCEN.
Djinis, who is now in private practice in Florida, said he hopes the department's intensified interest doesn't cause friction with regulators.
Notably, New York state bank regulator Benjamin Lawsky earlier this month aggravated federal authorities by breaking from negotiations to bring his own sensational sanctions case against British bank Standard Chartered, extracting a large settlement in the process.
"What we don't want to do is have a bidding contest between the criminal prosecutorial powers of law enforcement and the oversight and supervisory powers of the regulators," Djinis said.
NEW UNIT
In 2010 the Department of Justice created within the asset forfeiture section a specialized unit, money laundering and bank integrity, which it staffed with about 14 prosecutors who focus exclusively on financial institution cases.
The unit, which is also handling the sanctions and stripping-related cases including the one against Standard Chartered, is focused on fortifying the U.S. financial system against money laundering and illicit finance, Shasky Calvery said.
"The way we do that is by aggressively enforcing the Bank Secrecy Act," she said.
The term "stripping" refers to the practice of banks removing or masking information regarding transactions.
Shasky Calvery is leaving the Justice Department next month to head FinCEN, the U.S. Department of the Treasury's anti-money laundering unit.
Her deputy, Jai Ramaswamy, will serve as acting chief of the unit and said he planned to keep it on the same track.
Part of the shift in focus appears to be a greater interest in cases which show ongoing illegal conduct rather than going after banks and institutions that broke the law in the past but have not continued to do so.
The headline-grabbing cases involving allegations that some of the world's largest banks concealed Iran-linked transactions are related to historical conduct. The Standard Chartered case, for example, deals primarily with conduct that occurred before 2008.
The newer focus cases in contrast involve some more recent activity. The check cashing case, for example, involved conduct that lasted through June 2011, prosecutors said.
Earlier this month the Department of Justice charged what it described as a multi-million dollar money laundering conspiracy to help move drug money in Texas, and said the conduct had occurred through 2011.
Such cases also represent something of shift to charging so-called professional money-launderers, as opposed to adding money-laundering charges to an underlying drug or corruption case.
Another priority of the unit is examining potential misconduct in new types of technology such as mobile payments, Shasky Calvery said.

The Business of Fantasy Football

Fantasy football drafts for the 2012 season are underway in offices, college dorms and schools nationwide, as men and women of all ages gear up for this year’s highly-anticipated NFL season. The intense competition amongst friends, colleagues and strangers has grown into a lucrative business, generating profits in excess of $1 billion through cable deals, advertisements, draft guides, buy-in fees and various endorsements.
Fantasy football has been around since 1962, becoming more popular in the 1980s and 1990s before booming with the growth of the internet over the last 10 years. The soaring number of participants and growing profitability of fantasy football is leading some to say the industry is “recession-proof.”
“Our recent survey says we gained another 2 million players from last year,” said Paul Charchian, Fantasy Sports Trade Association President. “The numbers keep growing and it’s a pace we’ve been keeping up for years.”
A recent report from Fantasy Sports Trade Association estimates 75% of the 34 million fantasy sports participants will be fantasy football owners this year.
Fantasy football participants draft and manage a team of players throughout the NFL season. Each week, managers can shuffle their starting lineup and shake up rosters in attempt to form the strongest team for the week’s matchup. Hurt players will be benched and the week’s underperformers can be used as backups. Specific rules vary by league, but generally speaking each participant selects position players, a defensive team and one kicker.
While the average fantasy football participant is in their mid-30s, teenagers are fueling the industry’s recent growth.
“A lot of fantasy football’s growth is coming from the younger generation,” said Charchian. “Parents are playing with their kids. The growth is happening organically. We’re not targeting a specific demographic; rather it’s what families want to happen in their living rooms on Sundays.”
And fantasy football is changing the way fans watch the sport, prompting cable-TV providers to strike pricey deals. Specific programming such as NFL RedZone is significantly benefiting from the booming industry.
“[NFL RedZone] is crack for fantasy players,” said Charchian. “The NFL RedZone channel is specifically targeting us, the fantasy crowd. It’s a huge program.”
NFL RedZone airs on Sunday afternoons and alternates between the league’s games, showing plays only when teams go inside the 20-yard line.
Earlier this month, Cablevision reached an agreement to carry the NFL Network. SNL Kagan estimates the NFL Network charges a carriage fee of 81 cents per-subscriber, per-month, making it the fourth most expensive national cable channel.
And cable companies aren’t the only businesses looking to cash in on fantasy fans. Small businesses nationwide are profiting from participants quests to financially protect their prized rosters. FantasyDispute.com claims to resolve fantasy sports disagreements for $14.95. The firm pledges to keep the integrity of each fantasy league at the highest degree.
Other firms like Fantasy Sports Insurance (FSI) provide disability coverage on star players, financially protecting fantasy managers when players suffer “season changing” injuries. FSI vows to reimburse participants of all expenditures associated with fielding a fantasy team, and calculates its costs at a 10% rate of the insured value plus fees.
However, not all firms benefit from the hours spent fielding players and analyzing injuries. A report by Challenger, Gray & Christmas estimates the nation’s more than 22 million employed fantasy football participants may be costing employers up to $6.5 billion this year. The outplacement firm reached its figure by estimating each fantasy football manager will spend one hour at work every week on their teams during a 15-week season.
The NFL season will kickoff Wednesday, September 5.

Fund Managers Add To Bets Oil Will Go Higher

SAN FRANCISCO – Fund managers beefed up their exposure to bets oil will go higher, or long positions, on the week to Aug. 28, data from the Commodity Futures Trading Commission showed late Friday. That has made oil the most overbought since May 1, said in a note to clients Tim Evans, an analyst with Citigroup's Citi Futures Perspective. Money also flowed to gasoline long positions, the most since May as well and "unusually overbought for this late stage of the U.S. driving season," Evans said. Oil futures rallied Friday, up 2% to $96.47 a barrel and notching gains of nearly 10% for the month.

Gold and Silver OUTPERFORM After Bernanke’s Speech

On Friday, gold (NYSEARCA:GLD) futures for December delivery jumped $30.50 to settle at $1,687.60 per ounce, while silver (NYSEARCA:SLV) futures surged $1 to close at $31.44. It was gold’s highest close since March, and silver’s best level since April.
Both precious metals finished August on a high note as Ben Bernanke delivered his highly anticipated speech at the Federal Reserve Bank of Kansas City’s meeting in Jackson Hole, Wyoming. Although the Fed Chairman did not specifically name another quantitative easing program, he reiterated that the central bank “will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”
Don’t Miss: Are Central Banks Still Hoarding Gold?
Furthermore, Bernanke heavily defended the Fed’s prior monetary actions, signaling to some that more easing may be on the way. He said, “And despite periodic concerns about deflation risks, on the one hand, and repeated warnings that excessive policy accommodation would ignite inflation, on the other hand, inflation (except for temporary deviations caused primarily by swings in commodity prices) has remained near the Committee’s 2 percent objective and inflation expectations have remained stable.”
As the chart below from FINVIZ shows, it was a very impressive month for precious metals. The price of silver led all other investments with a 12.5 percent gain, while gold logged a 4.4 percent.

In afternoon trading, the SPDR Gold Trust (NYSEARCA:GLD) increased 1.95 percent, while the iShares Silver Trust (NYSEARCA:SLV) surged 3.75 percent. Gold miners (NYSEARCA:GDX) such as Barrick Gold (NYSE:ABX) and Goldcorp (NYSE:GG) both jumped more than 4 percent. Meanwhile, Endeavour Silver (NYSE:EXK) and First Majestic Silver (NYSE:AG) popped 8.40 percent and 5.85 percent, respectively.

Fed Flub on MBS 'Guaranty' Fixed Hours Later

Was it wishful thinking by the Federal Reserve?


Federal Reserve Chairman Ben Bernanke's Jackson Hole speech caught the eye of J.P. Morgan Chase & Co.'s (JPM) mortgage strategists, but not only because of quantitative-easing talk.
Matthew Jozoff zeroed in on a footnote in the text with a curious description of the agency mortgage-backed securities that the Fed has been stocking up on for years. There, the Fed initially described the MBS and debt of the government-sponsored enterprises as "explicitly guaranteed by the U.S. government" since August 2008.
The problem was that MBS of the GSEs, or Fannie Mae (FNMA) and Freddie Mac (FMCC), have never been explicitly guaranteed, even after the two companies were seized by the government in 2008, and backed with capital from the Treasury. It's more than just semantics to the $5 trillion market, where many investors--especially foreign ones--will only buy MBS issued by the Government National Mortgage Association, known as Ginnie Mae, for their "full faith and credit guaranty of the United States government."
"GSE MBS have not been explicitly guaranteed. If that were the case, it would be a big deal, but it's not happening," said Mr. Jozoff, who expected that the Fed would revise the footnote.
Fed officials apparently noticed the flub, and within hours replaced the footnote in the speech posted on the Fed's website with: "Since August 2008, Fannie Mae and Freddie Mac have been in government conservatorship with capital support provided by the U.S. Treasury."
A Fed spokesman wasn't immediately available to comment.
MBS are a significant part of the Fed's fattened balance sheet. It has amassed a portfolio of more than $850 billion of MBS through multiple rounds of quantitative easing, a program that traders expect will be expanded after Mr. Bernanke noted an accommodative stance in Friday's speech. It currently reinvests proceeds of its MBS back into that market, focusing primarily on Fannie Mae and Freddie Mac securities over higher priced Ginnie Mae bonds that securitize loans made through Federal Housing Administration and Veterans Administration programs.
Buying MBS helps keep mortgage rates low because the lion's share of all U.S. residential loans are ultimately funded through investor purchases of the securities.
Prices on Ginnie Mae securities are near record highs relative to other agency MBS, partly due to the government guarantee. Ginnie Mae 3.5% MBS trade at 108-3/32 cents on the dollar, compared with 105-29/32 on the similar Fannie Mae bonds, according to Credit Suisse.

U.S. Crude Posts Biggest Monthly Gain Since October 2011

Oil rose above $114 a barrel in volatile trading on Friday, taking gains in August above 9 percent, after U.S. Federal Reserve Chairman Ben Bernanke stopped short of signalling extra monetary easing was imminent but kept the door open for action.
Crude initially pulled back after Bernanke's address at a central bankers' symposium in Jackson Hole, Wyoming. As traders parsed the details, prices were quick to move higher, supported by stronger-than-expected U.S. economic data.
Figures released on Friday showed U.S. factory orders posted the biggest rise in 12 months in July, jumping 2.8 percent, while the Thomson Reuters/University of Michigan survey of consumer sentiment showed the index rising to 74.3 in August from 73.6 in a preliminary August report.
"There was no announcement about if more stimulus was coming immediately, but he (Bernanke) said the Fed was ready to act if necessary so that was supportive," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
"Along with the factory orders and consumer sentiment data, the (market) longs are in control."
Brent crude settled up $1.92 at $114.57 a barrel, having earlier reached a session peak of $114.78. Brent gained 9.2 percent in August, the biggest monthly percentage rise since prices jumped by 10.5 percent in February, and added to a 7 percent rally in July.
U.S. crude rose $1.85 to settle at $96.47, having earlier risen briefly above the 200-day moving average at $96.68, a key technical resistance level closely watched by traders. U.S. crude gained 9.6 percent in August, the biggest percentage gain since October 2011.
Quantitative easing is viewed by many investors as likely to boost the price of commodities and other hard assets as it tends to depress the value of the dollar.
The euro rose against the dollar on Friday, boosted by signs of progress toward a deal to tackle the euro zone debt crisis.
Trading volume was relatively buoyant ahead of a long weekend in the United States, with Brent turnover 6 percent over the 30-day average. U.S. crude volume lagged its 30-day average by 5 percent at 3 pm in New York.
U.S. markets will be closed on Monday for the U.S. Labor Day holiday.
STRATEGIC RESERVES IN FOCUS
Crude prices were further supported by reports Germany and Italy remain opposed to a release of emergency consumer oil stocks, which created further uncertainty about the timing of any possible release as sanctions on Iranian exports have tightened the market and boosted prices.
Since mid-June Brent prices have risen by more than 25 percent, from below $90 a barrel to near $115 now.
Meanwhile, the Department of Energy loaned 1 million barrels of light sweet crude oil to Marathon Petroleum Corp from the U.S. Strategic Petroleum Reserve (SPR) due to short-term supply problems created by Hurricane Isaac.
"This emergency loan from the Strategic Petroleum Reserve will help ensure Marathon's refining operations have the crude oil they need to continue operating," Energy Secretary Steven Chu said.
The DOE added it continues to "keep all options on the table to address additional or sustained oil supply issues."
Overall, however, the Gulf of Mexico oil and gas industry has so far reported little major storm-related damage to infrastructure although one Louisiana refinery had flooding. Energy production is expected to start ramping up again over the weekend.
Traders said oilfield maintenance in the North Sea was also boosting prices, with a potential strike by Norwegian oil workers looming just weeks after a walkout lasted 16 days and stopped 13 percent of Norway's oil production.
Norwegian oil drilling workers may strike on Sunday at installations operated by KCA Deutag in two North Sea fields, but production will not be affected, a union leader said Friday.

Oil, Gas Firms Restaff U.S. Gulf Platforms, Refineries

The U.S. Gulf Coast's energy producers moved to restart refineries and restart platforms Friday as Tropical Depression Isaac petered out over the Mississippi River Valley.
Nearly all of the oil production in the U.S. Gulf of Mexico's federal waters remained offline, however. Production of 1.3 million barrels a day of oil, or 95% of the region's total, was shut in, a level similar to the one seen Thursday, the U.S. Bureau of Safety and Environmental Enforcement said Friday. Offshore natural-gas outages decreased slightly to 3.1 billion cubic feet a day, or 68% of the region's normal production, down from 3.3 billion cubic feet a day on Thursday.
Producers are expected to bring significant amounts of production back on-line by the end of the long weekend. Royal Dutch Shell PLC's (RDSA, RDSA.LN) U.S. unit, which began fully restaffing all of its central U.S. Gulf of Mexico operations on Friday and will continue in other areas on Saturday, said going back to the production levels seen before the storm would take between three and five days, depending on the readiness of processing and transportation infrastructure.
With early reports indicating the storm caused little major infrastructure damage, the storm "should be a one-week blip in terms of products and crude numbers," said Kyle Cooper, managing director of IAF Energy Advisors in Houston.
BP PLC (BP, BP.LN), the Gulf's largest energy producer, said it is redeploying staff to offshore facilities, and will start producing oil and gas there in the coming days. The company said aerial surveys showed no damage from Isaac, but crews will perform closer inspections when they return.
Chevron Corp. (CVX) began redeploying personnel offshore and restoring production "where it is safe to do so," the company said in a statement.
Anadarko Petroleum Corp. (APC) said it has started the process of restaffing platforms in the eastern and central Gulf of Mexico that were evacuated ahead of Isaac. Employees will conduct on-site inspections at five platforms Friday, after remote-monitoring systems indicated all the company's facilities were intact.
The company said it expects to restart production as pipeline and infrastructure availability allows.
BHP Billiton Ltd. (BHP, BHP.AU) unit BHP Billiton Petroleum said it began restaffing its Gulf of Mexico production platforms Friday. "Production will resume as soon as possible," a spokesman said.
The U.S. Department of Energy said Friday some 878,000 barrels of refining capacity remained shut down, as four refineries in the area remained closed and five were operating at a reduced rate. Two refineries--Motiva Enterprises LLC's 235,000-barrel-a-day Convent, La., refinery and Placid Refining's 57,000-barrel-a-day facility in Port Allen, La., were in the process of restarting, the DOE said.
Also, the DOE said Friday that it provided an emergency loan of one million barrels of sweet crude oil to Marathon Petroleum Corp. (MPC) to address the short-term impact of the hurricane on its refining capacity. The crude oil will come from the Strategic Petroleum Reserve's Bayou Choctaw site in Louisiana, and will be repaid with interest in three months, the DOE said. Energy Secretary Steven Chu said the loan, requested by Marathon Thursday, is part of a "broader federal effort to respond to those impacted by Hurricane Isaac."
Marathon said Friday its Garyville, La., refinery suffered no significant damage and has continued to operate at reduced rates. The facility, however, "did receive a large amount of rainfall," the company said.
Marathon plans to operate the facility at a reduced rate until "the normal crude supply logistics return," a spokesman said in a statement.
Valero Energy Corp. (VLO) said maintenance crews are in the process of assessing the Louisiana refineries it had shut down, but the facilities aren't yet up and running.
Employees will return over the weekend to begin the process of restarting operations at the 125,000-barrel-a-day refinery in Meraux and the 205,000-barrel-a-day refinery in Norco, in St. Charles Parish. Valero spokesman Bill Day said there isn't yet a timetable for restarting work.
"We should have a better idea this weekend," he said. Mr. Day had said Thursday that initial inspections didn't reveal anything more than minor wind damage to the refineries.
Valero's 180,000-barrel-a-day refinery in Memphis, Tenn., which had to reduce its rates due to the closing of the 1.2-million-barrel-a-day Capline Pipeline bringing crude oil from the Gulf Coast, will now ramp up to planned rates because the pipeline reopened.
Phillips 66's (PSX) Alliance refinery in Belle Chasse, La., remained shut down and without power. The 247,000-barrel-a-day facility had some floodwater, though it is receding, a company spokesman said.
Chevron's Pascagoula refinery in Mississippi continues to operate, running at reduced rates "for precautionary reasons only," waiting for the nearby ship channel and maritime transportation to return to normal, Chevron said.
The DOE Friday said about 638,617 electricity customers were without power in Arkansas, Louisiana and Mississippi.

China Still Working on Property Tax Trial Expansion - Report

China's top tax bureau hasn't worked out details about an expansion of a property tax trial to include all cities across the country, state media reported Saturday.
The Chinese government has repeatedly said it would expand property taxes, which were initiated under a trial reform program in Shanghai and Chongqing last year, to include other cities. But the process has been slow due to the complexities of structuring such a tax in the various cities.
"The tax bureau, together with the Ministry of Finance and the Ministry of Housing and Urban-Development, is working on the program that will expand the trial to include all the cities," the China Securities Journal reported, citing the State Administration of Taxation.
"Details about how to implement the property tax trial on a nationwide basis haven't been decided. [But] tax breaks will be offered to meet the basic need for housing," the report said.
The comments are also published by other major Chinese newspapers, such as the Shanghai Securities News and the Securities Times.
Currently, Shanghai imposes the property tax on homes bought on January 28, 2011 and afterwards by local families who already have more than one house. Chongqing's tax targets newly bought high-end houses only.

Gold Jumps 3% as EU Summit Lifts Confidence

Gold prices rallied 3 percent on Friday and were on track to end June with their first monthly rise in five as a deal to shore up banks and cut borrowing costs at a European Union summit sparked a surge in assets seen as higher risk.
Euro zone leaders agreed to take emergency action to bring down Italy's and Spain's spiralling borrowing costs and to create a single supervisory body for euro zone banks by the end of this year, a first step towards a European banking union.
The news sparked a sharp rally in European shares, a 1.9 percent jump in the euro versus the dollar, and a near $4-a-barrel gain in oil prices. Spanish and Italian government bond yields fell, and safe-haven German Bunds slid.
"The news has been positive for the euro and positive for confidence in general, which means that equities and commodities, including gold for the time being, have all received a shot in the arm," Simon Weeks, head of precious metals at the Bank of Nova Scotia, said.
Spot gold was up 3 percent at $1,596.76 an ounce at 1303 GMT, while U.S. gold futures for August delivery were up $47.40 an ounce at $1,597.70.
Still, the metal stayed on track for its biggest quarterly drop since the three months to Sept. 2008, down 4.3 percent since end March. In that period, the dollar rose and hopes faded that the Federal Reserve would unveil further monetary easing.
After a widely celebrated 11-year bull run, which took gold prices to a record $1,920.30 an ounce last September, it is now little better than flat on the year and has averaged just over $1,650 an ounce in the first half.
"After 11 years it is only natural that gold stops and pauses for breath before taking the next step higher," Saxo Bank vice president Ole Hansen said. "The worry is obviously that momentum has been completely lost and leveraged players (such a hedge funds) have left the building."
"They will come back, but the market needs to reassert itself before that happens, as they are more followers than instigators of trends."
"The event that could trigger the spark that puts some life back into gold is however difficult to find at the moment, so before we move higher, there is a risk that we need to clear the table, which could be triggered by a move below $1,500."
INDIAN BUYING PICKS UP
Physical gold buying in major consumer India picked up a little on Friday. Weakness in Indian demand has undermined spot prices this year, with Indian gold prices near record highs due to rupee weakness.
Traders in India are waiting for monsoon rains to pick up, which is vital to farm productivity and profits. Rural areas account for about 60 percent of gold imports.
Quarterly sales of gold American Eagle coins by the U.S. Mint also fell to their lowest in four years at 127,500 ounces, down more than 39 percent from the previous quarter and by more than half year on year.
Silver was up 5.1 percent at $27.67 an ounce.
That helped pull the gold/silver ratio, or the number of silver ounces needed to buy an ounce of gold, back from its highs of the year to 58.5.
Spot platinum was up 2.8 percent at $1,422.25 an ounce, while spot palladium was up 2.6 percent at $575.69 an ounce. Both have fallen to their lowest this year in recent days, at $1,378 and $556 respectively.
"Overall, the market's behaviour was not all that different from what we've seen all week: price action comes in sweeps, mostly on Comex, and stops get triggered along the way, amplifying the move," UBS said in a note. "Today, it's no great surprise that silver and PGMs are leading the move higher, with both easily outpacing the euro move."

Barclays Makes GBP 500 Million Betting On Food - The Independent

Barclays PLC (BARC.LN), has made as much as half a billion pounds in two years from speculating on food staples such as wheat and soya, prompting allegations that banks are profiting from the global food crisis, The Independent in London reported Saturday citing research from the World Development Movement.
Barclays is the U.K. bank with the greatest involvement in food commodity trading and is one of the three biggest global players, along with the U.S banking giants Goldman Sachs (GS) and Morgan Stanley (MS), the research points out.
The revenue that Barclays and other banks make from trading in everything from wheat and corn to coffee and cocoa is expected to increase this year, with prices once again on the rise.
The bank claims not to invest its own money in such commodities, the newspaper said. Barclays declined to comment on the amount of money it makes from trading in agricultural commodities Friday.
The bank defended its actions, pointing out that trading in so-called futures contracts-an agreement to buy or sell a certain quantity of a product, at a given price on an agreed date-helped parties such as farmers and bakers to hedge against the risk of rising or falling prices. "Our clients include investment companies, food producers and consumers who, among other things, seek our help to manage risks."
Barclays also declined to comment on whether it thought large amounts of speculation pushed up prices and volatility.

Today's oil price

$96.56 per barrel

Daily change of 0.09 ( 0.09% )
Oil Quote Updated Sep-01-12 10:00 AM