The headlines regarding Fred and Co are hiding the major problem and that is the 2nd tier banks that won’t get bailed out. Shareholders have every right to be worried and these institutions had a bad session yesterday and I suggest more notice should be taken on Thursday’s releases of the 2nd tier banks rather than JP Morgan and ML. I have often warned that this is the real danger and next we shall see the pick up in corporate delinquencies. This credit issue cannot fail to hit main-street and anyone who tells you otherwise is blind. If not handled well, and I cannot see how they manage this, the US economy will find itself deep in recession and any notion of it being V shaped are over optimistic.

The other casualty in this accident has the UK sitting in the passenger set and cannot escape this carnage as the UK economy rests on financials, property and a strong consumer. Even with massive discounts the UK consumer is pulling in the spending and this is set to continue and I still see a retail sales shock very soon. GBP will continue to under perform and selling against CHF and JPY should prove profitable. Gold is breaking out and should take out the highs very soon and oil just refuses to give up this march towards $150 and above. The timing of this, coupled with the credit issue is a nightmare for central banks and some will make a mistake. Possibly Trichet already has as he seems blinded by one needle in his compass and the cracks are getting bigger as even manufacturing falters in Germany. This is a real problem in the long run and I will monitor it closely but for now I remain bullish on the EUR but the turn is less distant than some may assume as in my book the Euro zone needed a rate hike like a hole in the head.

In the US today we get retail sales data and the market looks for +.4 but there is a real danger it maybe less than that and we should not ignore the PPI data either as the Fed certainly will not. BB speaks again and so liquidity could be light in this session.

The rally in the Dollar overnight in Asia looks like a profit take but I do not see the rally lasting long from here and the all time high is still in danger on the EUR. Problems remain in other areas of the financial sector and with Citi and ML reporting later this week and with nervousness surrounding Lehman’s, there are still many possibilities for further shocks. A regional bank in the US saw a run on deposits and INDY Mac has been taken over by the FDIC and shareholders have lost everything. Regular readers will remember I have been suggesting that regional banking failures will hit in the summer and we are seeing the start of this now. Confidence in the sector has further to fall along with equities generally and whilst the Fed is doing as much as possible, it cannot and will not bail everyone out and a larger institution could easily be let go. Maybe not Lehman’s as the connectivity with other banks could cause counter-party risk or failure and this is the systemic risk that worries the Fed the most. You know when things are bad when the SEC issues a warning on rumours! Try policing that!

An article in the Times today suggested this is jut a financial crisis and not an economic one but this is total nonsense as many companies are based on leverage and debt, which have grown with the availability of cheap and accessible funding but those days are over so we can expect more corporate delinquencies to come across a broad section of businesses. UK banking shares are off the base as Alliance and Leicester are reported to be taken over, possibly by Santander and talks are said to be at an advanced stage. An interesting buy at this stage and they have so far been diverse enough not to be hit by the housing issues here or in Spain.

I note with interest, comments from MPC member Barker as she suggests the decision not to cut rates in the UK is a tough one and feels the Board should avoid interest rate overkill in fight against inflation and send the economy into a tailspin. SStg was unimpressed but I suggest that the decision to hold was close and any chance of a hike is totally for those away with the fairies. GBP is still in danger and again I suggest that EURGBP will be a lot higher soon. The Dollar will prove an opportunity on this rally as I see a quick test to the recent highs set over 1.60. I still don’t understand the strength in EURCHF and am a constant seller on these rallies.

So what is going on and why is there so little concern over the Dollar as other assets tumble? It appears there are some very large sellers of volatility out there and some suggest Asian central banks are on both sides of the recent tight EUR range and on the bid of USDJPY. It is quite disturbing that FX players are so reluctant to take on these levels as some major issues are at stake for the US as the economy gets buffeted and financial institutions continue to show how fragile their business models really are.

Without doubt the Dollar should be lower as some of the issues, such as Freddie and Fannie are US centric and the continuing slide in the housing market is set to create a lot more problems for BB and the boys at the Fed to deal with. Yes, there is an argument on the terms of trade negativity in the case of Japan that could keep the JPY weak for a while but if the Dow close we saw last night happened two months ago, we would have walked into a USDJPY level nearer 103 than 107.00, it just has not moved! There is an issue here and it is one that needs careful consideration, as the last thing the US and many others, especially in the Gulf and other areas that have their currencies pegged, is a Dollar collapse. There looks to be evidence that when BOK intervene, they might be buying the Dollars back through EUR and JPY which is the frustration for those short GBPJPY.

In these modern times I do not expect to see clear and definable coordinated intervention from central banks, I expect it to be covert and timely with any agreements kept behind closed doors and I remind you again that Paulson and Bush have both been to the Middle
East recently and I firmly believe a deal was struck. I am not sure yet but this crushing of volatility in FX could be the start of something so I shall continue to dig but for sure something is not right here.

Elsewhere the AUD got a lift from some better than expected labor data and a comment or two from the IMF stating that with commodities expected to stay high for longer, the AUD inflation surge would remain and suggested the RBA continue to raise rates. This is becoming a tough decision for the RBA and one that could force the consumer over the edge as in the UK. This rally is quite strong and has some momentum but the headline numbers hid some worrying back revisions lower and it is the domestic erosion in the basic economy which worries me going forward and I believe a lot of this inflation is lagging. Therefore, as in the UK, it would be a huge mistake to hike again.

As I have said, timing the fall in the AUD is tough so look to use the low vols to put on some downside through options. The MPC has the same issue and analysts still suggest in some cases that they should hike! This is crazy and in fact in my opinion they should cut today but are unlikely to do so but I would have a small risk reward trade on it just in case they wake up and look at what is happening. The consumer shock is on its way with unemployment is rising and this will keep wage demand steady. I still feel EURGBP is a buy on any dip and GBP will continue to under perform and I note whilst writing the dismal Halifax housing data for June. Ouch! This economy is in big trouble Merv so cut today guys.

I still feel we should be getting short EURCHF as this turmoil is set to intensify and earnings in the US look set to be gloomy and keep an eye on dividend withdrawals or reductions. These equity markets are nowhere near a buy on the dip so stay away.

The FX arena is actually rather boring in the majors as tight ranges persist and is dominated by short-term trading and central banks either side of the ranges. Elsewhere though the action is a little hotter as the KRW bounces aggressively after intervention. I actually like being short AUDKRW for a while. Swedish industrial production is stalling and was the 6th consecutive month of decline and has sent EURSEK higher and a trend could be developing here even though two further hikes are priced in.

Elsewhere Bernanke rides to the rescue again and leaves the Feds ATM open all hours for Investment banks to dip into. This has seen the pressure off equities but this will not last as the cancer has spread from the financials to a broader market. Oil and commodities hold the key still and the G8 guys must reali\e that the ETF indexes are a major part of the problem as in some cases the index is bigger than the underlying. The fact that pension funds can diversify about 5% of their portfolio in to commodity indexes is a major problem because it is a ‘not for profit’ trade. It is a diversification of portfolio and so I don’t see these guys rushing to the exit in a hurry. The amounts involved are huge and I am not even sure they have all allotted their quota yet! If the guys at G8 want to turn commodities around then some serious restriction on ETF’s is the only way and I am not sure there is the political will to force a change here.

AUD data continues to worry me and I feel a lot of the terms of trade positives are fully priced and the domestic erosion of the economy will force itself to the front of thinking for investors and a decent fall should be seen over time and follow the Kiwi, GBP and Dollar down. Aussie Home loans approvals for May contracted by the most in nearly 8 yrs at -7.9% (mkt:-2.0%). April’s read was revised down to -4.2% from -3.0%. Investment lending printed on the weaker side, falling 6.8% after having risen by 0.7% in April. April’s reading was revised down to 0.7% from 1.4%. The value of home loans also fell by 5.7% in May. Australia’s Westpac consumer confidence index comes in at -6.7% for July versus -5.6% in June. This month’s reading marks a 2nd consecutive month of negative readings shortly after the index briefly dived into positive territory in May. The index dropped to its lowest since 1992 at 79pts.

As I have mentioned before the economic situation in Australia in becoming increasingly similar to that in New Zealand. In the latest RBA statement the contraction of household spending and credit to businesses has taken the spotlight off the risks to inflation as a major worry, and this should sound as an alarm bell to the holders of AUD on a structural basis. The fact that the use of credit in Australia is very high (one of the highest credit to GDP ratio among G-10 economies) can cause heavy damage as liquidity dries up on a global basis. Moreover the AUD is the only currency with a large C/A deficit that has not dropped yet in the G-10 space. For now we can say that the AUD has held well because of market expectations that the RBA could hike rates to contain inflation expectations, but the market is already scaling back this possibility, with the rates curve currently flat with an upward bias and I feel they are on hold from here.

This could be the start of the next leg down in financials and the S&P officially became a bear market yesterday as it has dropped 20% from its highs. The contamination in the banking industry is far from cured as no transparency exists and so they will not lend to each other. We need to get to a state where they are forced to value this toxic waste and move on. The trouble is many will be sent to the wall and even the regulators fear this. For this reason the problem will continue and credit will remain very tight. This will impact businesses across a broad spectrum and especially all of those running on leverage or debt.

Equities do not stand a chance in this environment and have further to drop. The fact that markets are pricing in rate hikes the US and UK seems to me to be total madness or at least a great opportunity. There is a real danger that this equity drop sends a major institution close to failure in the banking world but the chance of a second tier or Landesbank going under is very large.

UK data continues to threaten and I fully expect a consumer revolt and a shock in the data soon as the man in the street is now aware that he cannot afford his energy and grocery bills any more. The MPC should cut rates this week but probably will wait. This potential hike that is priced should disappear very very soon. GBP will remain a target and EURGBP is still a bargain down here on a multi-week basis.

US pending home sales will be closely monitored again today after a jump in April as the housing market continues to weigh on the hearts and minds of the US investor and consumer communities. The Dollar should slide again in this scenario and the rally of yesterday held well at the important support on the EUR at 1.5605. We now have a defined range of 1.5605-1.5935. I expect these to hold for now as we get to hear both BB and Paulson talking this afternoon on regulation and lending criteria.

AUD and Kiwi are beginning to suffer a little and I remain bearish on both. The June business conditions survey, which printed at a 7-year low also placed some downside pressure on the AUD. AUD/JPY was pulled lower, but the AUD fared well on the cross rates. However there are substantial cracks appearing in the domestic data and although AUD is widely expected to do well because of its terms of trade advantage, there is a real danger of a shift in rate expectations soon.

With vols where they are, it is a safer trade in options although I seem to be in a minority of one at present with this view. June jobs data could be the straw that breaks the camels back. New Zealand business confidence held at a 33-year low of -64% in Q2 as firms’ own outlook deteriorated, adding to evidence the economy was in recession in H1 of 2008. The NZIER said a net 64% of firms saw general business conditions to worsen in the next 6 months, unchanged from Q1, which was the worst reading since Dec 1974. We have not seen the big move lower in Kiwi yet but it should be played against a basket and not just the Dollar.

G8 leaders meet this week and it is evident that they are very aware of the correlation between oil and the Dollar at present and this was reconfirmed by the OPEC president suggesting that a 1% move in the Dollar equals $4 in oil. Thus, it appears that the Dollar may be discussed. Generally the heads of state meeting is not expected to produce anything concrete but there is a feeling that the stakes are now just too high and action is needed. Quite what they can do is unclear but a clear set of proposals is now expected.

All assets are linked here and as soon as the Dollar rallied we saw gold fall and equities rally. Oil did join in but the sell-off so far has been negligible and this is the key. Talk will not last long and something concrete needs to be done but international agreement is never easy. I fear that the agreement to continue discussions might be the best we get, which could be a big disappointment for the market. For the next few days however, I see a chance of further Dollar strength and short-term traders should consider buying dips.

However, the global macro picture is not so clear as we still face a tough earnings week ahead, consumer confidence is collapsing and employment remains weak in many centres. The banking industry remains clogged up with major problems that will produce further write-downs and analysts calling for a major rally in the S&P into year-end look delusional. Housing both here in the UK and the US continues its relentless fall and many parts or Europe are feeling the pinch. With credit in the state it is and lending restricted, it is hard to see what has changed and the resolve of these central bankers and heads of state may still be tested to extreme at some point.

This is no time for complacency and looking at charts to pick a base, it is a time for action on an international scale and I am not sure they can find that unity just yet so fear may just continue to dictate the direction of equities.

While this is a very basic topic, it’s crucial to understanding how to make money trading stocks. Since 90% of traders are known losers, it’s obvious that elementary lessons like this are essential nonetheless.

When you enter an order to trade a stock, your broker gives you the option of either buying, selling, selling short or buying to cover using a market order, meaning an order that will be executed at the current market price, or a limit order, which is an order that will be executed only at a price at or better than the price you specify.

In a decade of incredibly active trading, I’ve never used a market order - not even once - preferring instead to use limit orders. Because I’ve never wanted to buy or short sell a stock badly enough to be willing to throw my money into the ring without carefully considering the price I’d pay for that stock.

Don’t get me wrong, I’ve made plenty of bone-headed trades on stocks I had no business trading in the first place. But even then, I never questioned using limit orders.

It comes down to trade management

Forget about wild price swings of several dollars per share, often times the difference between success and failure on a trade comes down to execution - meaning how close your actual entry and exit points are to your expected price points.

Since it costs the same to use a market or limit order (forget about adding or removing liquidity from a market, that’s a topic for another time), why even risk your execution getting away from those price points when you use a market order? After all, that is what you’re risking when you choose a market order over a limit order and the only people I know who follow that dangerous route are those whose trading is influenced by their emotions.

If a trade is based on hype or greed, you want to get in or out of a stock immediately- no ifs, ands, or buts. No matter how perfect a chart setup, a company’s fundamentals, or breaking news is that you must be wary of getting bad fills at all cost. Traders must learn to ignore these emotions and focus on getting the best prices possible in order to give yourself the best chances at profiting.

Now I know what many of you are thinking - you never worry about this because you’re trading the world’s most actively traded companies, stocks like Intel (INTC | Quote | Chart | News | PowerRating) and Citigroup (C | Quote | Chart | News | PowerRating), where the spread (the difference in price between the bid and ask) seems permanently fixed at only a penny or two per share. Well, as improbable as it may seem, sometimes important company, industry or market news is released the very second you place your order, greatly influencing a stock price in either direction, and if you use a market order you may find yourself with a very poor execution.

And while the chances of that happening are slim, it’s even more common for brokers and market makers to take advantage of your desperation for a trade execution and fill your order at a slightly worse price; costing you anywhere from hundreds to thousands or even tens of thousands of dollars depending on the size of your order.

For me, when I buy or sell short a stock, it isn’t about what I think the company is truly worth - my opinion is meaningless. What matters is what others think and what price they’re willing to pay based on that thinking.

By using limit orders, I ensure a satisfactory execution. And, if none or only some of my order executes - as often times stocks run too hard and too fast, blowing past my limit price - then it’s probably for the best because experience has taught me not to chase stocks. Obviously buying to cover into a short squeeze is an altogether different animal - on those you need to get out as soon as possible - so I just place my limit far above the current price, still cautious not to wildly overpay or open myself up to getting taken advantage of by many of Wall Street’s nefarious players.

And, of course many people don’t trade the most active stocks. Instead they look for an “edge” or better odds in less popular names. Maybe they focus on stocks like True Religion Apparel (TRLG | Quote | Chart | News | PowerRating) or Third Wave Technologies Inc. (TWTI | Quote | Chart | News | PowerRating), since both are currently breaking out to new 52-week highs, and in these cases it’s even more important to use limit orders because the price spread can range anywhere from $0.03 to $0.40 per share.

No matter how small or large your order is, the difference between a good and poor execution is no longer just an afterthought: now we’re talking 1, 2 and 3% price swings.

Perhaps most importantly are the two key advantages to using limit orders, good-till-canceled (GTC) orders, and using the greed/impatience of others to receive better fill prices.

GTC orders

Since you’ve designated a certain price for your order, you have this option to keep your order open for 30-90 days, depending on the brokerage firm. In essence, you’re letting the price come to you so you’re not forced to limit your timeframe to just one trading day, as those who place market orders do.

And even better, since many specialists, market makers and other traders have the mindset of raking in steady profits and commissions, if you display some added patience and place your limit order aggressively, meaning your order price is not close to the current market price, the chances of it executing are slim. But you might just catch one or more of these market players asleep or in a bind.

Stop losses can get taken out and push the price to your limit, or other traders may wind up needing to use their capital elsewhere, or they may just want the commission from the trade execution. Either way, you get executed at your aggressively priced limit. And that execution price is truly ideal because you weren’t rushed as so many others in this industry are. Achieving ideal entry and exit points dramatically increases your odds of trading successfully.

So, demand more from yourself whenever you place a trade. Be disciplined, be cautious, and be wary. Thinking this way will surely cost you a few missed opportunities, but the money saved over time from minimizing poor executions and emotionally charged trades will make it well worth your while.

The market, which was created four years ago, has been mainly used by olive growers to protect themselves against price swings. Olive oil prices are exceptionally volatile, so both growers and producers have an incentive to use futures in order to hedge against price fluctuations. However, MFAO wants to go further, and it is now planning to attract speculative investment by major financial institutions.

MFAO already counts with two important members trading from their screens: Banco Popular and savings bank La Caixa. Besides, they are in talks with “giants” such as Banco Santander, BBVA and JPMorgan, as well as the London desks of commodities traders.

But whether the big financial players are ready to start trading olive oil futures is still uncertain. Financial institutions demand liquidity, so volume needs to increase dramatically if the market wants to avoid the way of the Spanish citrus fruits futures market, which was abandoned not long after being set up back in 1995.

Spain is the world’s biggest olive oil producer, accounting for 40% of the 2.5 million tonnes produced worldwide every year. Yet, there is little MFAO will be able to do if strong competitors, such as Chicago’s Board of Trade, decide to emulate their initiative before it manages to establish their market.

Link: http://www.mfao.es (the site has an English version).

Former Chairman Luis Portillo transferred 149.7 million shares, which account for 9.2 percent of the company, to Banco Popular, according to a regulatory filing released today. He also gave up 88.8 million shares (5.4 percent of the total) to La Caixa, 54.8 million shares to Caja de Ahorros de Galicia, 45.3 million to Bancaja and 7.5 million shares to Bankinter.

Colonial was suspended from trading in Madrid today, something which has already occurred eight times in 2008. The company has lost 75% of its market value in just six months as sales swindled and banks called in loans to Portillo, who left the company in December. Colonial owes 8 billion euros ($12 billion) to banks including Goldman Sachs, Royal Bank of Scotland and Credit Agricole.

The stock last traded at 88 cents, giving Barcelona-based Colonial a market value of 1.4 billion euros. The drop in the company’s value attracted takeover interest from Investment Corp. of Dubai and General Electric Co., but in the end there was no agreement between them on the value of the company.

At present time, Spanish house prices are falling in real terms, something that have not been experienced for more than a decade. The average price of houses and apartments rose 4 percent in the first quarter from a year earlier, less than March’s 4.6 percent rate for consumer price inflation, according to a Housing Ministry’s statement released on April 18.

Repsol rose as much as 3.25 euros, or 14 percent, to 26.75euros, the biggest increase since the company sold shares to the public in January 1990. It closed the day at 25.68 euros, a 9.277% increase that erases all Repsol’s stock losses for 2008.

Petrobras, the Brazilian oil giant who owns 45% of the project, said yesterday that more investments are required to drill new wells, and conclusive data on the discovery’s potential will only be known after the other phases involved in the assessment process have been completed. Petrobras shares soared more than 8% in yesterday’s New York trading.

The remaining 30 percent of the project, is hold by BG Group Plc, the U.K.’s third-largest natural-gas producer, BG shares gained as much as 103 pence, or 8.4 percent, to record 1,325 pence in London trading. It closed 5.810 up to 1293 pence.