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Guest Post: Manipulation?
Authored by Joe Saluzzi of Themis Trading
We have talked extensively on our blog and in our white papers about the power of high frequency trading and program trading. We have noted that these trading strategies can move the market quickly during the trading day. We have always suspected that there have been certain major players that can dominate this space. Now comes the case of the stolen proprietary trading code from Goldman Sachs.
http://www.bloomberg.com/apps/news?pid=20601087&sid=axYw_ykTBokE
Most interesting in this Bloomberg article is the following statement by Assisitant U.S, Attorney Joseph Facciponti:
“The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” Facciponti said.
Is this an admission by Goldman Sachs that there is the possibility of manipulation in the market? Does anyone think that this is the only program in the world that can “manipulate” markets? With all the programmers in the world, we can only imagine how many more manipulative programs are out there. Now here is the best part according to the assistant U.S. Attorney:
The proprietary code lets the firm do “sophisticated, high- speed and high-volume trades on various stock and commodities markets,” prosecutors said in court papers. The trades generate “many millions of dollars” each year.
Markets are a zero sum game - somebody wins and somebody loses. Where do you think these “many millions of dollars” are coming from? They are coming from you - the average retail investor and the large institutional investor. These programs are taking advantage of real order flow and are siphoning off small profits throughout the day that belong in the pockets of the retail investor and the traditional money manager. [TD: highlight mine]
So, who is out there to protect you from these “machines” and their army of programmers? One would think the SEC has your back. But what did they have to say about high frequency trading. According to an article in the WSJ (http://online.wsj.com/article/BT-CO-20090618-707189.html )
The Securities and Exchange Commission believes institutional money managers are “sophisticated” enough to trade against the machines without further regulation.
“We don’t want to curtail liquidity,” said Gene Gohlke, associate director for the SEC. Gohlke said it’s up to the managers themselves to make sure other traders aren’t manipulating their models.
This story is just at the beginning stages and we here at Themis Trading intend to keep a careful watch on it.
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The manipulation is very easy to see. Just watch FAS and FAZ (Financial 3X ETF's). The manipulation occurs at about 3:30 - 3:45 every down day in the market. Somebody is "mysteriously" pumping the Financials with huge injections. This has been going on for months.
Equity markets are NOT a zero sum game. There is no expiration on common equity, and therefore, by definition, its not a zero sum game. In order for you to calculate the math that would support the zero sum argument, you would need at least and ending value - which does not exist in the equity world.
Options and futures contracts are zero sum games, as they have ending values, but not equity markets. Just because one person makes money does not mean someone else loses.
money is finite, thus if someone gains someone else loses money.
what's so hard to understand about that?
"money is finite"
um, what planet are you on? Ever heard of monetary expansion? Last I checked as economies and populations grow they tend to produce more and more goods and services. Governments then print more money. If money is finite, how is the US Government printing 100's of billions?
consider this case: buyer 1 buys XYZ at 1. Then he sells it to buyer 2 at 2.50. Buyer 2 sells to buyer 3 at 3.50...and on and on and on. No one loses in this scenario....not a zero sum game. The reason is that there is an underlying asset (a company that produces profits perhaps). Consider MSFT for 20 years from 1980 - 2000. Did all those who bought MSFT over that time frame, as a whole, break even? no. - as a whole they made a ton. Not zero sum.
wrong. the and so on is just wrong. there is a guarantee that there will be a last buyer who cannot find someone else to sell this XYZ to and he loses everything.
Every price increase that is paid for, needs to come from somewhere and at some point there is nothing left somewhere.
You are making the same flawed reasoning that brought us the real estate bubble. You are assuming that prices can only go up.
You are patently wrong. There is real asset growth in a stock market unlike commodity and forex markets where cash just exchanges hands. You can literally create a company from nothing and sell it for billions years later if there is the cash flow to support it.
The stock market is zero sum in the LONG-TERM assuming everything ends, but that's not the way it works in reality. This is why the global equity markets literally expand and contract. There is actual growth and contraction in the size of the market.
Just look at a basic stock transaction. I buy 100 shares of GE from person A. GE goes up 10%. You're assuming that someone lost 10%, but no one lost money in the transaction. All that was lost was an opportunity cost. If person B later sells the stock to someone else at a 50% loss it was not someone elses gain. Person B's money literally disappears into the night.
It is absolutely positively NOT zero sum.
No. It is zero-sum at any given moment, because it is a closed system. Unless some one, usually the central bank, injects new money (cash) into the system, the amount of cash stays constant and does not grow very fast if it grows.
Shares or bonds are not money. If they were money, than everyone could print money by just issuing shares or bonds and would be a billionaire - and that's obviously not true.
You buy shares with real money which needs to come from somewhere or someone in the system. I.e. someone needs to give you the money first.
In addition to being zero-sum at any given moment, it is also not sustainable. Your 10% gain will not be sustainable for later buyers and at some point a loss occurs because no new buyers will enter the game - this is typical for pyramid schemes.
dude, whoever posted comment 5096 is stuck in theoretical never never land. Get with the real world, where money is in fact printed and some businesses actually grow - and not all go to zero eventually. To say its a zero sum game is to say its also pointless to start any private business too. Private and public equity (shares) represent some business operation. If its a zero sum game then there would be no incentive to start on a macro level, and your theoretical fantasy land ceases to exist. Consider this....if population grows, doesnt it hold that more is produced? If there was no money, and no technology, just hunter gatherers.....and population grows, then more is being produced (more hunting and gathering is done, by definition). Since we have modern money, to compensate for that increase, there is more money printed every day. Also, innovation leads to expansion, and that requires more printed money to account for that change. You need to relax and be more open to changing your mind when proven wrong. Also, in this thread you went from some longer term look to "at any given moment" which again totally deviates form reality.
You are confusing two things. Zero sum does not mean that there are no winners at all. There are, but for everyone who grows richer, there is at least one who grows poorer. This is obvious because money accumulates. Over time money will be accumulated with less and less individuals or entities. While they keep getting richer, all other lose out.
Still, over all it is zero sum, so the winner does not create, he just re-distributes.
http://zeropointfield.wordpress.com/2009/05/03/where-inflation-comes-from/
If you create a business, you are delivering a product or service other people are prepared to pay for. You are delivering something of value in exchange for money.
That is not the case in the stock exchange - there is nothing created there. It is just about liquidity and access to it by converting longer term to shorter term debt. There is nothing of value created there. The money with this is purely in commission, fees and interest payments.
http://zeropointfield.wordpress.com/2009/06/24/where-some-banks-make-the...
It's all about interest and interest rates.
You realize a stock is ownership of a company that produces a product or service other people are prepared to pay for right?
That business decided it wanted to grow faster and to do so decided to raise money via offering stock.
You cant say that stock ownership is different than business ownership? Well, if you wanted to or could - you could buy an entire company's stock and actually move from the stock exchange category where you state nothing is created to magically being in the business ownership category you say is different. If one is transferable to the other, how is it different?
From EverydayInvestor on Fool.com, in response to someone using the sequential trading example (Investor A buys @ $1, sells @ $2, Investor B buys @ $2, sells @ $3):
"...you are forgetting the investor who sold the original trader his stock at $1. He misses out on all the profits. As I said, the gains in the stock market as a whole will accrue to the investor class as a whole who have to (by definition) hold a market-cap weighted basket of all stocks. So all long-term gains in stocks are part of investing, earning a market rate of return. Once you look at trying to beat the market, any outperformance must come at the expense of someone who underperforms the market. So while you may say that the original owner of the stock does not lose, he loses out on getting the market rate of return because he sold his stock. That is an economic loss.
By framing this example as you did you obscure the zero-sum game (trying to beat the market) within a positive-sum game (investing)."
Ok, this is finally a reasonable argument - but more due to definitions. The article above is discussing that the markets as a whole are a zero-sum game. But, commetn 5125 is separating positive sum game from a zero sum game. If this article from Tyler is referring to a positive-sum game then that really changes things. I dont think he was though (not sure).
But, even with these new definitions, the big curve ball is the fact that money has so many different asset classes. Are you are saying that the overall wealth of the world is a positive sum game and anyone beating the net returns of the world is doing so at someone elses loss?
Yes. If everyone beats the market, then where the hell do you get the average market return from?
The value creation would happen in the company itself, which might in turn be reflected in a higher share price.
However, market capitalization and actual worth of a company need not necessarily be the same. So just increasind the share price of some company doesn't mean its actually worth more or is more profitable.
That might just be your expectation of future profitability when buying the shares which may or may not materialize.
the stock = the company
The market cap vs worth is immaterial to this thread.
Whats your point?
@5104 - Totally agree with you. 5096's problem is he
conflates "money" with "wealth". The amount of money
in the world is a tiny fraction of its wealth.
I mean, let's say I own a container ship. It makes
money for me, but I'm getting old and I want to
retire. I sell it to someone else. Is this zero sum?
No, he continues to operate it and make money off
it. At some point, presumably, he has made enough
money off it that he has a net profit.
So, that's an example with an entire entity (the
ship) being sold/traded. Why should this break down
because someone buys 1/100th of the ship instead of
the whole thing? So long as the ship continues to
operate and generate profits, each of the 100 owners
should make a long run profit.
After five years, I get tired of the shipping biz,
and want to buy my hot new 19-yr old wife a diamond,
so I sell my share. Now, the profit string runs to
the new shareowner instead of me, but how is that
zero sum?
I'll admit this analogy breaks down when the stock
doesn't pay a regular dividend (which is one reason
I won't buy non-dividend paying stocks), and I
agree that futures/options are definitely zero sum,
since they are, in essence, wagers. But a dividend
paying common stock? Never.
"Unless some one, usually the central bank, injects new money (cash) into the system, the amount of cash stays constant and does not grow very fast if it grows."
Um, thats the world we live in, so you just killed your own argument. If you would like to post your comments in that one country that exists with no central bank or fiat currency you may have better luck.
Central banks have recently, as far as I know, only introduced new liquidity into markets. This liquidity will have to be withdrawn at some point so this expansion is not permanent expansion of the money supply.
If you check the currency and M1 money supply figures for the US you will notice that they have remained constant in terms of percentage of the total.
http://en.wikipedia.org/wiki/File:Components_of_the_United_States_money_...
or for the actual numbers:
http://www.federalreserve.gov/releases/h6/hist/h6hist2.pdf
you seriously need to get out of your theoretical academic mode. My guess is that this prevents you from making as much money as you could if your thinking was more geared toward real world thinking.
But, to argue against your theoretical world arguments just for the fun and insanity of it: Liquidity from the central banks does not have to be withdrawn - there is no rule or law that states that...am I wrong? Also, you noted that money supply (minus the last year or so) has been constant in terms of a percentage of the total....but the total has been increasing right?
what if tomorrow msft gets bought out for $40 per share. then your argument fails.
no. you obviously do not grasp the most fundamental concepts of mathematics (are you a trader?). Let me explain: The fact that something is growing doesn't make it infinite or make it even capable of reaching infinity.
The money-supply (cash) is normally not growing or growing very slowly.
Even if the money supply were growing fast, it will never grow to infinity, thus is will always be countable and finite.
So the government can print all the money it wants and use all the paper in the world for this, it will still be a finite supply.
I guess you are confusing the bits and bytes for real things, if so then you should go outside more.
"the money-supply (cash) is normally not growing"
well, you sound so smart now dont you? Which century are you referring to? hysterical, and written like a true math student who has never been able to take advanced theoretical theory and translate it into any profit.
"even if the money supply were growing fast, it will never grow to infinity"
Well, thats theoretically true but a worthless argument - as again, it can grow endlessly. Take a look at Zimbabwe in recent years. While the highest bills there still have not reached infinity, they are in billion dollar denominations.
Re your question "are you a trader."
My response is that there is good reason traders on the street make more than anyone if good: They make money and produce income rather than discuss theories that can never be implemented to produce anything worthwhile.
if it's too big to fail, then why weren't properly regulated in the first place? They're terrified about other countries having nuclear weapons, but financial institutions are allowed to run amok and mushroom cloud the whole economy! F.cking dumb-asses!
finally we get another good selloff. more to come. hat tip to: http://investmintideas.blogspot.com
That is an easy one too, the winner is GS (the ones doing the pumping) the losers are the taxpayers (giving the money to GS to do the pumping). In the words of Mastercard, PRICELESS
please someone advise me:
zero sum game in futures market is obvious a no brainer.
but zero sum in equities? i hope this is not too ridiculous. ;-)
fond v has 5000 stock a at50$ allows short sales.
person a buys 100x stock a. price moves from 100 to 110$
person b buys 100x stock a. price moves from 110 to 120$
now short seller x:
sells 50x stock a price moves from 120 to 110
he further sells 20x stock a and price moves from 110 to 100
he covers 70x at 100. a and b sell at 100.
person x: 70x20$ 1400$
person a: 0$
person b: loss: 100x10$ 1000$
fond v still has 5000 stock at 0$ loss
where do i think wrong? where did the 400$ come from?
I simply cannot believe that GS bluntly proves all conspiracy theories about GS's ability to do market manipulation. As a financial programmer I also do not believe that algorithms can manipulate markets on a larger scale. Of course one can create trends and trick trend following algorithms. But it is much easier to manipulate markets by informations and to frontrun markets by gathering early informations.
So where ist the benefit for GS in this story? Here my fancy little speculation:
There are two keywords in the story, which remember me of typical Hollywood-Movie-Plots: "russian worker" and "german site". In the Hollywood-Brain-Washed-Mind these words evoke the association of communist or nazi guys, which are now empowered by a software to manipulate the markets. The financial chaos in the next years is then not caused by greedy wall street folks. It is the result of some criminal conspiracy using GS code.
Maybe my speculation will be proved or disproved by the journalistic usage of this story, while they are explaining market turbulences
at least the movie will be easy to write and promote.. Oliver Stone does have his Wall Street II coming out.. looks like GS is front running him as well
Algos certain can manipulate markets on a larger scale. It's extremely hard to do it profitably, though, unless you can game somebody else. Generally you need to pay for the impact. Selective quote showing can work - drop a huge number on the bid or offer & quickly cancel. If somebody's box reacts and tries to front-run you, just flip to the other side & provide them liquidity. Not that I've ever done it or seen it done... just street-lore ;-)
China is doing a lot of bullish dollar talk while diversifying away...the dollar rally will last a few more days. Dow and Goldman will drop as precious metals assets move higher. US is a lot worse than other countries at the moment. Derivative risk has not disappeared. Goldman's holding of dubious assets are huge. Time to short GS. Lets end this pillage of America. Bailouts, Stimulus, PPT-all a Goldman scam. good articles: http://tinyurl.com/phy7j7
I don't understand why the SEC, FBI etc are all over Goldman Sachs on this. I'm not concerned about this Serge fellow. I'm more concerned about the GS's of the world. doing exactly what Joe Saluzzi is talking about. I think these programs should be illegal. Gentlemen the playing field needs to be leveled. or as the Movie Tyler Durden proposed,we need a big Effen reset in the Financial markets and hand cuffs (financial trading restrictions) need to be placed on the likes of G.S. and other market manipulators.
Last night I actually sent an email to Assistant Attorney General Joseph faccipointi (joseph.faccipointi@usdoj.gov) head of the Serge prosecution case. I asked if he knew of an an investigation into GS on this issue, and if not, who at the FBI or AG's office do we need to contact to get the ball rolling? I'm ready to start calling my congressmen on this issue but unfortunately my congressmen are Repubs, and we know the Dems. are not even letting them backseat drive.
Please keep us posted.
#5037 - AGREED. and thanks for the idea and the email address. I just sent J. Faccipointi an email also:
Mr Faccipointi,
In a court appearance on 7/4/09 you stated that "[Goldman Sachs] has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways".(1) If this program is so dangerous, and can manipulate markets in unfair ways, then why did Goldman Sachs develop it and use it? Oh, perhaps because Goldman Sachs created the program for exactly that purpose.
When is Goldman Sachs going to be investigated for manipulating equity and derivatives markets? When will the Department of Justice, along with other federal agencies, take this issue seriously? The FBI/DOJ were certainly quick to assist Goldman Sachs in this case. When will you and other federal agencies assist the common investor in mitigating the unfair advantage that large entitites Like Goldman Sachs have due to their manipulation of markets? Markets have become nothing more than casinos, with firms like GS as the house.
Sincerely,
[therabble]
(1) Glovin, David, Harper, Christine, and Kishan, Saijel. "Goldman May Lose Millions From Ex-Worker’s Code Theft." Bloomberg News 07 March, 2009: http://www.bloomberg.com/apps/news?pid=20601127&sid=axYw_ykTBokE (Accessed July 7, 2009.)
love your email! if you receive a reply, could you post it, please? thank you.
I'm Anon #5037 and here is the non informative B.S. response I expected from the DOJ.
dear MR. #########,
I am responding to your message on Mr. Facciponti’s behalf, per our Office’s practice. It is our Office policy neither to confirm nor deny the existence of investigations, so we will not be able to respond to questions in that line.
If you believe that you have specific information of wrongdoing to report, I urge you to call our criminal complaint line: 212-637-0850. If you would like to engage the Attorney General’s office or the FBI, you will need to contact those offices directly.
Best,
##############
United States Attorney's Office | Southern District of New York
Public Information Office: 212.637.2600
its indeed sad not that this is going on, we all know about it, its sad that its just starting to be exposed after 30 years of us knowing about the illegal rigging and such going on.
Someone already suggested an easy fix for this... Deliberately introduce lag in the transactions.
These programs only work with ultra-fast, ultra-low latency connections.
Introduce a 1/4 to 1/2 second of lag and *poof*... There goes the trading program.
I don't understand why something can't be done to prohibit co-location of computer equipment. It is an obvious advantage and the exchange makes money selling special access.
Or a 1 basis point fee... will get passed to customers by legitimate market makers but is too expensive for HF prop trading
Deliberately introduce lag in the transactions.
That would actually inspire more program trading. How? My black box wouldn't need to perform nano-second logic. It wouldn't need to be physically close to the trading system at all. Go to a logical extreme and limit trades to every 15 minutes and I wouldn't be the only one running a black box out of my house!
The other alternative of 'taxing' the trade just changes the logic such that the trade must have a bigger upside. I don't see how this helps the retail/institutional trader.
How about a cap on the number of trades? Primitive and drives business away from the exchange to an exchange that would allow unlimited trades. Naturally, this would never happen.
@#5073,
Adding a 500ms delay would not increase the High-Frequency trading. The reason it is executed at high-speed is that the market (order book, etc) is in a "known" state for the response-time window of the program. If there is a delay (eg, 500ms), then there will be multiple orders entering the system-- adding to the unpredictable chaotic noise. This is good. The noise would smooth out the prices (similar to a gaussian-blur).
@#5067,
The problem is that these folks are Supplemental Liquidity Partners-- that is, these folks can use algorithmic trading AND receive a $0.0025/share rebate for doing it. These market participants are not (and will not) be charged.
Equity markets ARE a zero-sum game when opportunity costs are included.
The fact there is no expiration on common equity is irrelevant; one party's MTM gain/loss + income received equals either:
a) counterparty's actual MTM gain/loss + income paid, OR
b) counterparty's opportunity cost
did all the buyers of msft from 1980 - 2000, as a whole, make money? the answer is yes. Your argument further fails because you make the assumption that sellers are going short, which is not the case most of the time. Also, introducing opportunity cost introduces tons of theoretical arguments which make this....well, silly
wrong. the answer to your question is NO. they did not make money when they bought it, they may have made money when the sold msft shares at a higher price - but that money came from someone else who bought it at that higher price and who did not make money at all with it after 2000.
this proves that for every winner there is at least one loser.
thus over all it IS a zero sum game.
wrong. MSFT is still over where it was 30 years ago. Unless you are suggesting that all equity goes to zero? Either way, your argument fails.
Saying that common equity investors have p&l that sums to zero is to say that starting your own business is a zero sum game. You own a firm when you owns stock. Is it pointless to try to start a private firm? If so, why is anyone in business.
I think you are missing the point, having gone down a semantic rat hole about the meaining of the expression "zero sum". Businesses (and stock prices) increase if there is an increase in value/wealth.
The critical question is "what increase in value does program trading provide?" If it does not create value (and I would argue it does not create "many millions of dollars" of value), then it is parasitic, and Mr. Saluzzi's point is valid.
fair enough, then you must argue against all middle men in all of business. Used car dealerships dont add value - only liquidity. How about real estate professionals? They dont create value, only add in matching buyers with sellers and help determine fair value (for a fee of course). Liquidity is highly valuable.
Conceding that "all buyers of MSFT from 1980-2000 made money", the issue is that the net "profit" of those comprising the set of buyers was precisely offset by the opportunity cost of those comprising the set of sellers.
In particular, I have NOT assumed that all sellers are going short. This is what distinguishes opportunity cost from monetary cost. Note that in original post, (a) would be the calculation of short seller(s), while (b) would be calculation for someone who chose to "sell too early"; i.e. the opportinity cost of choosing to sell for $125 rather than $140 is the $15 LOSS.
understood....but let me be clear, no one has ever withdrawn any opportunity cost from their checking account. I get your theoretical argument....but we are in the real world and these economic theories and ideas make no actual money or change anyones actual lives whatsoever.
People withdraw opportunity cost every time they are bidding for finite assets against others who did not forgo that opportunity. NYC real estate pricing?
One second before a limit order is canceled.
Using simple formula, rebates proportional to the inverse of the time the limit order was on the book.
Manipulation or no manipulation, looks like a nice H&S top forming on the S&P. We'll see, a close above 960 would cancel the H&S.
Progams held the 200DMA, and now comes the momo guns. Rocket has lifted off; deja vu from yesterday.
My take is simply that this is not likely just a 'lone gunman' but more likely a patsy. Why are we trying to stimulate the economy with money that never moves out of the till anyway? Seems to me the FED is all lost in the translation of this.
"It’s a mystery wrapped in a riddle inside an enigma. Even the players don’t know who’s in charge of what."
I wrote of this all, with thanks to zerohedge, always making me sound like I know what I am saying. www.therightwoman.blogtownhall.com
You now have the right hand fighting the left hand for a very good reason.
The right hand was setup to convince the regular J6P that the system is sustainable IF it's regulatred in the right manner. This help in making the system the largest the world has ever seen and helped fuel the world you live in.
The left hand knows the system is only sustainable IF the system can exponential expand but now there is no way for the system to expand exponential and any type of regulation that prohibits additional leverage stands in the way of exponential growth.
The system is FUBR for one and one reason only, humans never checked the math of exponential growth, and they don't want everyone else to figure out the math does not compute, if the general public figured out the math doesn't compute the system would crash instantly. Either way it will collaspe but that is not the purpose of the system... the system was created to exponential grow to it's max.
Exponential growth is not sustainable yet that is what is required for the system to survive. In the mean time the right hand will continue to fight with the left hand.
http://www.mathwarehouse.com/exponential-growth/images/formula_exponenti...
The graph above should look familar
http://research.stlouisfed.org/fred2/data/CMDEBT_Max_630_378.png
(household credit)
http://2.bp.blogspot.com/_4z2kyDLXtPY/SPEQSLyG9OI/AAAAAAAAAAY/LmrkefY6k_...
Total credit market debt which is now up to $52.9T at the end of Q1 2009.
Markets would be alot harder for coordinated algorithms to manipulate if traders/money managers didn't count on the same technical analysis patterns to scalp their buck. Any entity with appropriate capital and coordinated information can beat fragmented/disorganized traders who are each playing the same game with the same signals and who have no conviction in their valuation decisions. Can't value equities with conviction? Then are you really investing or just gambling?
Umm.... Gee, I thought the stock market was to invest, not make $$$ by manipulating order flow and fractional moves of equitites. I feel better now! If half of the NYSE volume is program trading for this purpose, the regulators need to get a off their A#@. I don't think free maket is meant to include this garbage (fastest computer and better floor access wins while providing no real economic benefit to the economy). LOL
the algorithms are not the only thing predatory here. it's all about bonuses, which are based on comission and fees which in turn are based on volume.
WOW! This must be the financial innovation that Wall Street is always touting......
"Profit is useful if it serves as a means toward an end," "Once profit becomes the exclusive goal, if it is produced by improper means and without the common good as its ultimate end, it risks destroying wealth and creating poverty."
Pope Bendict - "Charity in Truth"
Presumably, Mr Facciponti, Government Sachs only used the program to manipulate the market in fair ways? I assume its only those who have stolen the code that would consider manipulating the market in unfair ways?
See the place where all your 401k's and CALPERS funds and retirement funds went was out of the system through skim like these programs allow, and just basic dishonesty, and the Yen carry trade, and all the other little or not so little spigots whereby people that do nothing productive garner fat plump lives on hilltops in cathedrals while the common folk pine in the street.
Man, all this conspiracy theory crap has ruined what was once a great blog. Your credibility is totally shot. I'll bet your traffic and apparel sales are way up though. Too bad man. I guess anyone will sell out for some extra dough....you've become what you pretend to hate....
If the market was intended to be rigged at will by people with better access and those people control all the systems/codes, then there should be a big disclaimer on the market and every brokerage site reading "market may be rigged by those running it, at will.. Invest at your own risk". I think lots of people would not risk their 401k or their pension or even the poor retail guy who shorts something thats bubbled, only to see goldman and cronies abuse the lack of orders and shoot the bubble (like oil) up another 20 bucks because they are the only orders out there for a while.
I am 100% sure that the investment banking vultures will drain the 401Ks of everybody if they cannot find another bubble to inflate and break. Hey, the government is always there to bailout stuff right. All cash. Not scared, but being prudent. I do not want to work till death to make all these vulture scums richer.
I've been saying for a decade that the market is a giant skimming operation for the big boys.
Where ya been?
Monday: The global recession/depression is over.
Tuesday: We need a new round of stimulus.
Sorry folks, all the big boys can give you is a return of what everyone is putting into the system. Once all the little J6Ps are unable to put in the system that which is required there is nothing else the big boys can give you.
If the credit system were in OK shape it would be creating credit at a $7-9T a year clip right now, but it's not. The reason is it hit it's max, now it is down to $1.484T of which $1.85T is federal government creation.
In sports this is called GAME OVER.
For the credit system to survive it should be well north of $5T, more like $7-9T and should be staring down $10T. Oh, the power of compounding interest they say... well, if you don't mind being liquidated when the system can't generate the returns DEMANDED.
http://2.bp.blogspot.com/_dtY0VOFMWMM/SI59KPw5MmI/AAAAAAAAA84/w-8heJGFZ7...
It's pretty clear this is a front running scheme, how else would you simultaneously guarantee order flow, commissions, profits and bonuses? Any other explanation makes no sense. Combine this with the disclaimer on GS's website and its obvious whats going on. It's not legal and it's not ethical, but it sure guarantees lots of small trading profits every single day. In the commodities markets and options this could really be home run.
Denninger has it too.
http://market-ticker.denninger.net/archives/1183-US-Attorney-Kicks-Own-G...
Monitoring by GS: Your use of the products and services on this Web site may be monitored by GS, and that the resultant information may be used by GS for its internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory organization.
GS: 'We will make sure, your money belongs to us'
"Man, all this conspiracy theory crap has ruined what was once a great blog. Your credibility is totally shot. I'll bet your traffic and apparel sales are way up though. Too bad man. I guess anyone will sell out for some extra dough....you've become what you pretend to hate...." - Anonymous 5059
I would respond...
History is a series of successful conspiracies, and the notion of tinfoil crazy talk is a fostered dogmatic response by the powers that be to disparage free thought and questioning that could threaten their system of control. That of course doesn't mean every loony who thinks aliens killed Lincoln is firing on all cylinders, but if you don't see the manipulation, lies, and propaganda being spewed at you from in the news and in the markets then you are truly blind. Do you think it has no purpose?
Do you not believe that there was a conspiracy to escalate the Vietnam War? The Gulf of Tonkin incident DIDN'T HAPPEN! Do you not believe that there was a conspiracy to push the US into war in Iraq? Hmmm? I still have many unanswered questions about 9/11 itself, and no I do not believe our government is above reproach in this matter given its history. I say these things because it is plainly obvious to the student of history that the US government has time and time again lied and manipulated information to cajole the citizens they are supposed to represent into actions and thoughts they wouldn't have otherwise had. It is a fair assumption that if a government official, bureaucrat, or military commander is speaking then it's a lie or partial truth.
That said? Do you believe that the lies and propaganda that are plainly obvious in many facets of our lives as Americans are not coordinated in closed door meetings? Do those closed door meetings not constitute conspiracy by definition?
Our government has been ensnared, captured, and enslaved. It is now a whore to the banksters, the corporations, the oligarchs, and the highest bidder. The citizenry is no longer represented. The Republic is dying or dead, and it's as simple as that.
You'd be right more often than not to assume the Fed, the big corporations like GS, and the government are lying at all times.
In summation. Open your eyes, do some research, and maybe then you'll see how far down the rabbit hole really goes.
"History is a series of lies agreed upon." - Napoleon Bonaparte
-Goebbels
"Man, all this conspiracy theory crap has ruined what was once a great blog."
Common,... not another CNBC intern. The blog is as great as ever. Some see conspiracy, others the obvious use of government connections by major banks to limit competition and corner the market.
I saw Matt say in an interview (Jon Stewart I think) that his next article would be about Healthcare, of all things.
He makes a great quote in the Wall St. Cheat piece:
" It's pathetic that the real reporting has been left to a music magazine and some independent bloggers"
Reckless government spending is not a Liberal value. http://www.alexandria.lib.va.us/link/redir.pxe?www.iamned.com
This is such a BS... Where's people's power? With single "NO", they can just reject us... gee... What kind of government do we have...? WTF... this is pathetic... a truely sad event for American...
http://zentrader.ca/blog/?p=2017
It's not a conspiracy it's more like a fact.
The system requires exponential growth to sustain it's existence when the system is unable to generate the amount of growth to pay itself well you have one of two choice... try and whip the dog into a frenzy for one last push or you collapse.
The system is not generating nearly enough new credit to sustain itself. Q1 2009 $371B (annualized that is $1.484T) not even close enough to service the outstanding of $52.9T.
The system doesn't care how you trick people into believing the system is sustainable, it only cares that you feed it. All these companies and governments are doing is scratching, punching, or kicking their way out of this. However, at some point it's end game than you start to see all the craziness because nobody wants to accept the end game.
Supporting S.604 and HR 1207 is a first step, it now has a real chance - please go to http://www.campaignforliberty.com and see how you can help take the first steps to regain control. We have a right to a government that is within the confines of the US Constitution.
"Markets are a zero sum game - somebody wins and somebody loses."
I disagree. Market could be a zero sum only at any given instant. Over longer periods, it could be something I call positive zero sum. Positive zero sum is when the most players gain. Negative zero sum is possible as well, it's when most of the players lose, over some period of time.
Thinking of a market as a shrinking pie, could be a good analogy for negative zero sum. Whoever runs first gets the largest share. For market to be a zero sum, the total face value of it rather than supply has to be fixed. If bond values were always trading at par and the payments would vary depending on inflation and other factors, such a market would be the zero sum game.
I dont know if I agree that the money is coming from the average retail investor. Actually it is but it has always been that way. HF trading does not change things; go read a Yahoo board on any stock that you trade and know about as a professional and tell me that some of these idiots should not be hosed. Anyways, HF takes money away from institutions, fake ass PPT rallies take money away from retail investors as they jump in the market after a few days of large moves. HF only takes money away from day traders. I want someone to explain to me how an HF momentum program that adds $1 to the price of a $100 stock hurts an intelligent investor (not a trader) when he has a limit order in and knows why he is investing.
This guy is always complaining because he runs a day trading operation. Before the HF guys a few years ago, the firm at the NY merc I worked at used to control and bombard the OSX and other gas related stocks every Wednesday. Was it fair, no, did we make a lot of money, yes, and then CNBC started reporting the heavy volatility on Wednesdays, people started to pay more attention and someone smart designed a computer program to take our profits. I dont see how this is unfair.
I'll say it once and I'll say it a million times, the only unfair thing is electronic front running when you get special privileges from the NYSE. That is why NASDAQ complained, not because day traders are getting their lunch eaten. It's more about brokers and their ability to execute fairly.
Ok, I'll bite. but Honestly I'll admit I'm a Joe Blow investor/ ex.-pat. fee only adviser that use to deal with your typical mom and pop investors. So I never got into the corporate G.S. Stuff or day trading for that matter.
but here we go.
So if G.S. knows that $X=dollars come in every week at approximately Y=time from various Mutual funds that are in 401k's, Joe Blows SEP, Jane Does Pension plan and for this example lets use a passive managed fund that tracks the Dow as our known Y. what is to keep GS from using this program from taking advantage of said fund/fund manager by driving the price up just before their purchase. If your telling me this is unrealistic I'd like to hear how and why. because if I'm paying 1 red cent more for my funds because G.S. knows my fund manager buys so much volume at such and such time and they jump in just before driving up the price just to sell to him/me at an inflated price. thats theft, and would be difficult if not impossible to track the hidden cost so you couldn't explain to your client, "yes sir the mutual fund charges .025% mgmt. fee however because G.S. is a bunch of A$$holes and my manager buys every 3rd day of the week. G.S. artificially drives the price up just before purchase which means approximately there is an unseen hand fee that comes in anywhere from .0002% to .0005% which equals about $800 million for G.S. in profit every Qtr."
Then to add insult to injury, G.S. realize the price of said market is getting to high some mutual fund(s) have changed strategy so G.S. calculates how far down they need to bring the market and still keep a profit so they can Leach off of said money manager(s) and thus they make money all the way down to the target shorting etc. Wash, Rinse, repeat.
That is not Free Markets that is basic price Gouging on a micro and Macro scale at the same time pure and simple.
Again I don't swim in the deep/dark pool with the big sharks. and it may not work this way but can you really tell me this isn't how the G.S. or other Quaint. programing works?
reverse robin hood transfer from the dumb to the smart
"Let Wall Street Pay for Wall Street's Bailout Act of 2009" (HR 1068) will fix all this by imposing a 0.25% tax on the transaction amount of all trades. Woo hoo.
Fact they will bring this in at s&p 890 today. Why because they can and will.
k, I'll bite. but Honestly I'll admit I'm a Joe Blow investor/ ex.-pat. fee only adviser that use to deal with your typical mom and pop investors. So I never got into the corporate G.S. Stuff or day trading for that matter. but here we go. So if G.S. knows that $X=dollars come in every week at approximately Y=time from various Mutual funds that are in 401k's, Joe Blows SEP, Jane Does Pension plan and for this example lets use a passive managed fund that tracks the Dow as our known
hopefulyl we go lower good articles: http://tinyurl.com/phy7j7
interesting in that the spx 200 was just breached.
the last 20 minutes should be entertaining.
The market has always been manipulated. In fact, the very constructs of the market are by there very nature manipulative. If Wall Street has monopoly access to capital, they can front run markets, clients, credit, inflation and everything else. It gives them a very unfair advantage. Not just in markets but in the economy. So, we have a monopoly power that relies not on superior merit but, in fact, monopoly access to money and information.
I don't see how this is really any different. Banning any particular form of trading is a ruse. Banning the system and starting over is the answer. Derivatives contracts are a zero sum game. Trading is a zero sum game. Buying an investment is not a zero sum game.
The whole system needs to be transformed into one where capital is allocated democratically and on merit. The stench we call Wal Street is based on neither.
Welcome to the Communist Party comrade.
Seriously, this co located server garbage they've been getting away with is worse than what the SOES bandits were doing in the 80's and 90's.
The exchanges should insist that everyone SEE the board at the same time. Getting a free peek at the next tick while others can't is what GS depends on for free money.
Finally someone astutely put what GS is doing. You have no idea how little time I have now that I found the Netherlands based free porn password generating site.
Nostrovia! See you in the economic gulag. Cause that's where we are headed.
I go further - how do Dark Pools relate to market transparency? Nuke 'em.
Money is finite? well yes and no. If you total the profits and losses of all stock markets from the lasy, say, 100 years, you have massive losses. basically if you invested 100$ in all the stock-markets in existence 100 years ago, you would be way beyond bust.
I appreciate Tyler's et al. efforts and I hope these attempts bring forth a cleaner more transparent market but at this point I honestly feel these efforts will lead nowhere.
You see over the past 40 years this country indulged itself in the dangerous game of exporting debt and importing crap ranging from Chinese toys to Middle Eastern oil. This game should have been nipped in the bud but Americans were stupid and permitted its existence. Today we are in the midst of probably a very deep recession. Mr Rosenberg believes it will be of the very long variety ( a double dip recession which is connected by 18 months of 1% growth is a very deep recession)
But as I look around what do we see. Take a civil servant job as a fireman for example. Here in California we have firemen earning upwards of $140k a year with overtime. What was their SAT scores? How much does a fireman make in Germany or Italy? I know in Italy they make 20K euro per annum. So this state issues debt in order to pay a b or c high school average without a college education at least $80k to jerkoff and play online poker in a firehouse.
So you see why would someone like a fireman complain about the state's debt issues--he was living on easy street. Great salary, a boat for Lake Mead, online dating during work..he has it all. Now I am not out to get firemen but the point is that while all this debt was being issued NO ONE SAID ANYTHING because they were seeing the good life. Now it is obvious that Goldman Sachs, among others brokered this lifestyle for Americans so they couldn't give a hoot what people say about them as no one complained when things were seemingly fine. Most likely this is Goldman's position, they are arrogant and simply don't give a shit what we think .
Also during this era people fell into another trap. They didn't educate themselves. There was no need to..just become a real estate agent, or a mortgage broker, or open a hair salon or a restaurant or nightclub. Being educated did not change one's character either in this era as we were churning out morons anyway. Meanwhile doctors that studied their asses off really didn't see any rise in income. You had to be a quack like Dr Oz and peddle some bullshit snakeoil to make the big bucks. Why not if people are stupid just take advantage of them.
Where is this all heading? I really don't know but I suspect all those B or C averages will end up going into the service instead of becoming firemen. So that may be a clue as to where this is all heading.
As for Goldman--nothing will happen to them. The gold bugs spotted their manipulation way before this blog did and nothing happened. If you inhibit their manipulation from the commodities markets Gold and Oil will both skyrocket and then the dumbass citenzry will be begging for their manipulation once again.
High speed trading.... Lets say you have servers located around the globe. You could use software to determine pricing sensitivity in each market. Then you pick the weak spot. Launch coincident bets in two or more markets where the weak or strong market is exploited. This would be market manipulation. A high speed trading platform of sorts....
In other words force an arbitrage situation with high volume and exploit it by using high speed or synchronization of trading servers.
Saluzzi wants large volume to get better pricing than it deserves. He wants to be the one that has the information monopoly. High speed trading detects the large order flow and moves the price against the large volume. This is GOOD for the small retail investor, because he gets a better price, more accurate with respect to the large volume that is trying to sneak into the market without moving it. High speed computers and algorithms aren't magic. They detect information where information exists. And they act to move prices which are out of alignment with that information back into alignment. This is the definition of fairness. This has always happened, and it has always been right for this to happen. Computers, which are information processors, just make it happen much faster. Don't you want all of the available information to be reflected in the price you pay when you buy, or the price you receive when you sell? The only reason high speed programs can make money is that there is large volume attempting to buy without moving the price. That's why moving the price succeeds, because there is excess demand that is willing to pay the higher price. And small sellers who are selling at the time, receive the higher price that the Goldman's of the world force upon the big size. If there wasn't big size, no one would buy the "manipulated" price, and Goldman would lose. In fact, they lose all the time when they are wrong in measuring the information. It's incredibly difficult to do. They are successful enough to make a profit, or they wouldn't be doing it, but they by definition share that profit with every single small seller who gets a better price than they would have gotten from Saluzzi's big players, who want all that money for themselves. It really is as simple as that.
High speed computers that deliberately cause a price disruption in one location in order to arbitrage the resulting momentary wrong price information in another do not improve price for anyone. It is market manipulation and it is illegal.
This is what is wrong with our country today. Between Wall Street, banks and government, over half the economy is consumed producing nothing.
it is also unprofitable and not practiced by anyone, other than dabblers who lose all their money. it's not "producing nothing" to invest in information technology, labor, etc., to extract more real information from the market and thus improve the accuracy of prices. 15 years ago the bid-ask spread was 12.5 cents. now it's a penny and was less than a penny until they outlawed subpenny pricing, which was injuring large order flow and helping the small guy. it would be easy to make money if gravity pulled up for you and down for everyone else, that's just not what happens in the real world. Apparently fun to fantasize about, though, judging from the volume and content of comments here.
Ghostfaced, Robot, Gordon and Mako,
Thanks for all your postings. Always enjoy and rarely disagree. I've learned a lot the last few months in reading your thoughts.
Mako, give the crusade a rest, we get it! So did Einstein, "The most powerful force in the universe is compound interest".
We have always suspected that there have been certain major players that can dominate this space. Now comes the case of the stolen proprietary trading code from Goldman Sachs.
erreauk