Further Confirmation On The Irrelevance Of Stock Markets

Tyler Durden's picture

Last week we pointed out that Jefferies group, one of the last few remaining non-BHC broker-dealers, has just experienced its single most disastrous drop in trading volumes, as its principal trading revenues plunged by 80% QoQ. This is merely confirmation of what we have been warning ever since we started highlighting the series of 20 consecutive outflows from domestic equity funds: banks will soon be forced to lay off thousands of people as the primary revenue driver for the bulk of Wall Street firms - stock volumes - is now gone.  BofA and RBS have already confirmed they are letting people go. Next up: the electronic trading giants such as ITG, Knight and Schwab. And it will only get worse. As the FT reports, September trading volumes are already 8% below August's, which in turn was the lowest in 3 years! Of course, the Fed is fully confident that if the DJIA ends September at 11,000, investor confidence in stocks will return. We have one word for that - LOL.

From FT:

The continuing decrease in volume reported by the US’s largest electronic trading groups has triggered a fear among analysts that the fall in market activity might be more than a seasonal phenomenon.

Trading-focused groups such as ITG, Knight Capital and Charles Schwab enjoyed upbeat second quarters when the European debt crisis sparked extreme volatility. As fear has given way to unease with the global economy, however, trading volumes have fallen sharply.

You’re starting to see some real pain,” said Christopher Allen, an analyst at Ticonderoga Securities. “September is not a material improvement over August. Aside from possibly the US election, I’m not sure what the catalyst is for trading.” A record-long streak of outflows from equity mutual funds – now 20 successive weeks beginning in May, according to the Investment Company Institute – and reluctance by even normally bold hedge fund managers to take big bets has suggested that there are more than seasonal factors at work.

Mr Allen’s figures, compiled last week, show that trades for the trading industry are down 8 per cent so far in September from August, when trading fell to a three-year low.

And what is funniest is that the decline in volume is blamed on the (lack of) intervention in the HFT's daily attempts to pickpocket slow money institutions.

Diego Perfumo, an analyst at Equity Research Desk, said that efforts by global regulators following the May “flash crash” were reducing volumes by high-speed firms, which was making it more difficult for other investors to trade.

“Higher trading scrutiny combined with tighter regulation is drying up the liquidity provided by high- frequency traders. Lower liquidity is symbiotically affecting volumes from traditional investors,” he said.

Oh really? Has anybody been affected by the "decline" in liquidity in SPY, Amazon or Apple? Last time we checked the only three products that trade had no problem with hitting bids (of course, front run several trillion times by $0.0001 bids just ahead of the submitted one to get the price high enough so that the last HFT bagholder can offload to you). Instead of lying, perhaps Diego and his firm, which incidentally makes money from the status quo and sees to lose millions should HFT scalping be impaired, as it seems the firm provides "Execution services from ITG, Credit Suisse, BNY and Instinet", but oddly enough the FT did not feel relevant to disclose this blatant conflict of interest, should look at the primary cause for volume collapse: that confidence in stock markets is gone, period. Nobody dares to hold stocks overnight, as nobody still has any clue why the market crashes 1,000 point in the span of a few seconds. If anyone hopes to revive faith in the stock market without someone getting punishment for the most ridiculous market crash since October 1987, they have another thing coming.

Wall Street may have gotten off scott free from the greatest absolute household wealth destruction episode in history, but when it comes to capital formation, pretty much everyone save for a few vacuum tubes, have had enough. And luckily, that means that worthless HFT, and other high volume parasite traders, will soon be out of a job. No tears will be shed as equilibrium reestablishes itself, and those providing absolutely no value to the stock market will become extinct. If the market will not self-correct, the market will be forced to self-correct.


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loub215's picture

Ladies and Gentlemen,

To garner returns and boost volumes (someone gets paid for volumes?), the robots will set up another flash crash. Ramp it up, short into the ramp, and blow the whole thing to hell.....



JohnKing's picture

The Flash crash was a FED thing, not HFT.

Audit the Fed (original Bernie Sanders bill) hits Senate floor for debate > Flash crash > compromise bill proffered that protects the Fed > Flash correction.

That simple.


Caviar Emptor's picture

Wall Street may have gotten off scott free from the greatest absolute household wealth destruction episode in history

It's all a part of our great push to "Save the American Yuppie"  with the Fed as headquarters for charitable giving. The stock market has become a barometer for how much we're willing to spend in this endeavor through our now and future taxes. please give generously.

RoRoTrader's picture

The junks must be a mere reflection of your amazing work, wb7.

williambanzai7's picture

Tnx, don't worry the visually challenged don't bother me at all. 

Using Google Analytics and my data base, I see that the posts with the highest views and positive comments also have the most junks. For example, the Banzai7 Periodic Table is the most popular image, but it also has the most junks. 

This post seems to be the most popular one today, which is funny because I thought the banker survivalist post would take the lead.



Mercury's picture

They sold in May and went away...

It's not just HFT it's the precarious state of the economy in general and the belief/reality that that will dictate everything.  Managers have assessed the landscape and placed their bets. And they're sticking with them. How those bets turn out depend on how macro themes play out - which mostly boils down whether or not there is any kind economic recovery coming down the pike despite Obama's best efforts to throw a wet towel over everything.

There doesn't seem to be any money flowing really either.  Not a lot of manager searches, RFPs or big asset class allocation rebalancings (except maybe OUT of equities).  That means no new money being put to work, not accounts being transitioned etc.

And all together that adds up to....no volume.

It's pretty much an all-beta world right now.

DoChenRollingBearing's picture


Three years ago, "everyone" I knew was in the markets, speculating one way or another.  After the 2008 crash, that drove a lot of them out.

I think you are right about May's Flash Crash.  That put a stake in the market.  The number of people who I talk with who are buying stocks is fewer than the fingers on one of my hands...

Mercury's picture

Well that too but what I meant here is that there (seems to be) less institutional (professionally managed) velocity in the equities markets.  Despite all the equity fund outflows there's still a lot of money under management (including money invested in funds by individuals) but managers have already bought what they feel comfortable with and they aren't trading in and out of names very much (as they wait out the economic fate of the country/world)...which means low volume. HFT for the most part is dependant on trading volume generated by others so that should be down too.

merehuman's picture

My neighbor bought apple and netflix. Last week at its high! This after i told him of ZH, silver etc.  And i thought he was a more intelligent neighbor until now. Oh he says netflix is going into canada a friend told him. Even if they do go to canada, so what. We are all broke down. Am i the only one in my friggen community that gets it or am i the one dummy? I already know the answer, but damn , this is living in the twilight zone.

have a grand sunday you all. Rain in Oregon

StychoKiller's picture

Kinda like a scene from "A Bug's Life:"  "No Henry, don't look at the light!"

Henry: "I can't help it!  It's so beautiful! (Zap!)"

Another one bites the dust.

THANKS's picture

Human - ZH?


I'm not a Streeter, excuse me, my Dictonary offers me:

  • Chinese language (ISO 639 alpha-2, zh) based on native name of Chinese language — ?? (Zh?ngwén); zh (letter)
  • The 36th letter of the Albanian alphabet
  • Canton of Zurich; Symbol for the zettahenry
  • An SI unit of electrical inductance equal to 10 henrys
  • Abbreviation of zu Händen (German: for the attention of, care of, c/o)
  • Zero Halogen.

Give me a clue - should I be investing in the Canton of Zurich perhaps?

Minion's picture

You know what they say - "volume leads price".

If anyone's interested in what Prechter is saying right now, we're at the completion of wave B with the conclusion of this brief leg up.  Count it out and you'll see the implications......

frankTHE COIN's picture

* Quick Question. Does he have a time frame for whats next in the coming 5-6 months ?

knukles's picture

Oxymoron; yes, the next 5 or 6 months.

RoRoTrader's picture

knucles, you are a fucking genius, lol.......why didn't I think of that.

on the subject of waves, and it only my opinion and who gives shit about what i think, right, but i think technicals are out the window and have lost relevance at this stage of the intervention by the FEd and other central banks........no metric to measure against. no sense of the impact.....no fucking sense at all as to real price discovery ........

i remember the wild swings as the last crisis took hold and i may be wrong but i get the feeling the irrational price moves seen late last week may be a forerunner of what comes next.......it is a risk i am looking out for day to day for what that is worth.

ps........thx for your kind words.

rocker's picture

Just remember, Prechter's Elliott Wave said the FED does not matter for more than a couple of days. "A day or so," is the print. Wow, they said that back in Feb when the FED pumped 700 points on the dow. This time it's 800 points as they say it's your last chance to get out at a 5 digit dow back in Feb. also. My question to Prechter, when are you relevant for more than a day or so? Why do you always come on at the market low's, sell your shit, and then cause all kinds of pain to your subscribers. Your analysis of technicals are flawed. Just like your forecasting service. Sell silver short at 15. Lot's of yoke on your face on that one too. CRB is making new lows, don't buy, sell short. Then another rally shoots down another failed forecast. Elliott Wave International is NO better than Cramer. At least Cramer is free. Full Disclosure, I stopped listening to both idiots.

Minion's picture

I don't listen to his advice on precious metals.  The undercurrent that he doesn't seem to consider is that oil exporting countries have been accumulating gold for years because they realized early on that they couldn't redeem dollars for anything approaching the value of their exports.  China has taken a hint and has recently started following the same act (legalizing gold ownership of the populace, CB starting its own buy program, etc)

Minion's picture

It depends on if you're placing your retirement funds where you will be able to use them, or are a trader who wants to kick these HFT's in the nuts.  If you're the former, cash and cash equivalents has been his line for a couple years.  If you're a trader, it was stocks in March 2009, then cash in Feb. 2010.  I think he also sounded the alarm to his subscribers in April that the top was in.

The expected time frame for this next move is "soon", as far as I can gather..... the rally is getting very "mature".....  (look at the volume). 

Better to get out early if you've got big $ to settle.  Once it breaks the market will be very thin..

vote_libertarian_party's picture

...and if you excluded HFT the total would be < 1,000 shares per day total.

mikla's picture

Can't skim from retail investors?  Bummer.

Next thing they will be telling us is that bureaucrats can't keep sleeping at their desks, and with their co-workers, while the taxpayer continues to buy them donuts.  Another bummer.

I don't know what the world is coming to when people will actually have to find honest work.

surfsup's picture

as equilibrium reestablishes itself, and those providing absolutely no value to the stock market will become extinct. If the market will not self-correct, the market will be forced to self-correct.




And as is always the case, those cozy and comfy via these machinations are just as subject to getting hammered.   Even economic tyranny takes no prisoners and eventually "spits out" those who though they were benefited by enabling it... 

Belrev's picture

The decline in volumes will also make it much easier for the FED to prop up the stock market at "pshycologically important" range of 10K-11K. If nobody is trading, then there cant be a market crash and status quo will remain.

Assetman's picture

Well, yeah... that makes sense.  But the lobby that was making all that money now isn't making nearly enough to support its lifestyle.

What I find incredulous is the fatally mistaken belief that a higher stock market unequivocally translates into higher conifdence upon the masses.

The returns are already in... consumer confidence is STILL in the crapper, retail investors are pulling money out EVERY WEEK, and probably most important-- the underlying market strucuture is eroding.  The next thing to lose confidence in?  Why NOT the U.S. dollar?

Perhaps, Charlie and Warren will just have to "suck it in" when all this crap starts to unravel.

In the meantime... I'm staying out until I find hard evidence that the underlying market structure is being restored.  That means minimal government/Fed intervention, an severe limits on HFT volumes, and asset revaluations (if necessary) to reflect the fundamentals of the assets I'm purchasing.

What these jokers are doing right now should fool nobody.  And I think that's precisely the conclusion that those in power cannot come to accept.  The further they go down this road, the more confidence will be lost.

And they WILL go further down this road, I guarantee that.

Minion's picture

"What I find incredulous is the fatally mistaken belief that a higher stock market unequivocally translates into higher conifdence upon the masses."


Indeed.  Like any good lie, it is just a slightly perverted version of the truth.  In this case, the truth is that confidence in the masses (social mood) leads to higher prices. 



merehuman's picture

3,000 and more dead to bury lies was not adequate. Too many of us know there are murderers in our government. They cannot allow 911 or this travesty of a market to be exposed, so how many more must die before we lock them up? Will the next war be their cover?

I am not used to being so pessimistic.

Cathartes Aura's picture

hey merehuman, widen your lens, refocus. . .

remember your garden, and all the foods you grew from your own work. . .time to plow under and prepare for compost, enrichment, for spring planting. . . cycles within cycles, no thing ends, just awaits the next bloom.

and I know you know, as I've read your posts for months. . . the pessimism is cyclical too, as is today's rainy weather - yesterday was sunny and warm, no?

know there are people that hold you in their thoughts. truth!  get out those guitars and wait for the temporary clouds to pass. . .

take it easy. . .

ZeroPoint's picture

IMO, a lot of people have a very distorted, 19th century view of how 'the markets' work. They really think people bring their wheat, pigs, oil to a place in New York and a few men stand around and work out a price for those goods - and that's their entire view of 'the market'. As long as 'trades' are being made, then the world is still spinning.

Let's face it too. The more you know about what's going on, the less sleep you are probably getting.

Bluntly Put's picture

The entire financial industry is one gigantic mal-investment.

traderjoe's picture

So true. Look how far it's gone from it's original purpose of capital formation, hedging, etc. It's become self-referential. I saw a politician on one of the Sunday shows a couple weeks ago talk about how good the financial industry was for the economy, jobs, etc. I don't think he really understood what he was talking about (no surprise there). 

It was interesting on NBC news Friday night, the lead story was the dissatisfaction Americans felt about the economy, and there was a subtle dig at how Main Street viewed Wall Street as being completely disconnected (and still very successful, unlike the rest of the country). 

99er's picture

Further Confirmation On The Irrelevance Of The United States

(Reuters) - Treasury Secretary Timothy Geithner faces a lonely campaign to make China's currency a major issue at the next Group of 20 summit as would-be allies shrink from confronting Beijing.


bob_dabolina's picture

If HFT programs execute 1,000's or 10,000's trades a second and HFT accounts for 73% of US equity volume, with trading revenue down, wouldn't that indicate that there is an exodus from HFT?

Is there something I'm missing?

UninterestedObserver's picture

As there are less and less retail trades to font run - the algos volume drops as well. MY guess is that every 100 shares Joe six pack used to buy probably generated 10x that amount in HFT volume

11b40's picture

So, now the consenus opinion seems to be forming that the market melts up in an orgy of liquidity. 

I have been humbled too many times to think I understand the markets, but earnings season is right around the corner and I am very curious about the opinions of others regarding the effects of these coming reports.

Everything I see and feel tells me that business conditions have been deteriorating for the past few months.  Reports from the past 2 quarters showed strong earnings comps.  Can we expect those kind of reports again?  Comps are getting harder to hit.  What about guidance?

I understand liquidity bidding up prices while earnings are improving, or even flat, but what about when earnings are dropping?  Help me out here, please.

Minion's picture

Quite a few of us are on the short side.  I think the consensus is that Bernanke is trying to create a melt up, but the suckers have left the table and no one is there to add momentum to the move.

11b40's picture

I am with you on the short side, but it is getting scary...again.  I would be retired now if it weren't for gubmint meddling.  The Canadians killed my royalty trusts with their Halloween massacre a few years ago.  The shorts worked great and got all my money back in '98 part of '99, but stayed short too long after the FED liquidity pump started.  Past experience w/liquidity and being short has me spooked, but the economy has been ascending since mid '99, and the quarterly comps were easy to beat. 

Now, the economy seems to be hitting a wall, the comps are getting tougher, the retail investor is out for practical purposes, we have had the flash crash, and here we are bumping up against all kinds of resistance points.....and along comes another liquidity promise.  When earnings reports start in a few days, guidance simply has be be murky.  I am a member of the ChangeWave Research Alliance.  The lastes reports tell me consumer spending trends reversed last month, and this quarter's corporate sales-to-plan/red light-green spending plans have turned negative.  New hires took a sharp plunge, as have capital budgets, and the order pipeline.  Guidance cannot be good, but can QE overcome all of this?

Minion's picture

The trend up appears to be somewhat weak and very mature.  If you were a bankster, piling up the profits over generations of trades, how would you do it?  Would you time the markets in a gamble or would you go to cash and buy up securities at pennies on the dollar after the volume comes back?  How did JP Morgan do it?  (Hint: we're not all as good as Jesse Livermore, and even he went broke in the end).

You could always do what Robotrader does:  buy when the trend is positive and price is above 20 day EMA and sell when below, but if you're swinging a few hundred $k it might be more sensible to sell into the strength before it breaks. 

You see the fundamentals, they're crap on the macro side.  Earnings are a lagging indicator.  Dividend yields are less than you could get in a savings account thirty years ago, precious metals are on a tear, the dollar is tanking....... how long do you think Bernanke is going to let his national currency burn before all confidence is lost?  As soon as the suckers are on board, the trend reverses.  We've got a lot of people on board already.....

vega74's picture


 buy and hold is back.  keep under the volume radar.

 the invisible retail investor unseen by their prey.  no target here.

step aside for the hft flash crashes...only to have the day saved

by white knight fed horsepower.


Sudden Debt's picture

GOLDMAN JUNK!! Today would be a good time to start shorting those fuckers I think.

rocker's picture

This is what we need. More conviction, and a lot less prediction.

midtowng's picture

The spike in trading volume this year coincided with a slide in the stock market.

Rustycakes's picture

This commentary seems to indicate that there will be a collapse in stock prices because of a lack of participation.  However your commentary on QE2 states that stock prices will soar. 

Which do you think it will be?

Oracle of Kypseli's picture

If the market will not self-correct, the market will be forced to self-correct.


Let's ask Mr. Ben if he is familiar with Heisenberg's uncertainty principle and Planck's constant


Good luck with that Bennie

Sudden Debt's picture

It's because everybody went to Germany.




ZeroPower's picture


Was there for opening weekend, at the Lowenbrau tent. Dunno if theyre yours, but great pictures. Definitely better than mine which i took after 6L of the wonderful brew:)

Sudden Debt's picture

HE! I was at the hofbrau festhalle and the schottenhamel!


ZeroPower's picture

Haha sweet. I have no idea where those are in relation to the whole site but i can only assume they were sloppy inside as well.

The local broads sure know how to drink though - would make a pussy out of any guy back home!

Sudden Debt's picture

You should also learn our Belgium beers man!

18° alcohol levels for your pleasure!

Most german beers are a bit like water compared to our beers, but if you would compare it to American beers like Bud.... WHOEHAHAHAHAHA!

About a year ago I had some American friend comming over and they wanted to drink all the strong beers... DILIRIUM FOREVER!! :)

If you're not used to those, you'll lose 2000.000 braincells per bottle :)