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The Near 1,000 Point Slide of the DJIA Compels Further Investigation of the Wall Street Casino Scam

smartknowledgeu's picture




 

Yesterday’s slide in the US stock markets provides further proof that
the world’s financial markets are nothing more than a rigged casino where the
house (Wall Street) holds by far the better odds in every game (currency
markets, stock markets, derivative markets, commodity markets) it offers the
mark (the retail investor).  How
else could the US DJIA lose 700 points in a 10-minute span and a number of blue
chip stocks lose 25%, or 30% in a matter of minutes as well? The answer? Wall
Street’s use of predatory algorithmic High Frequency Trading (HFT) programs
that are designed to trigger cascade-like buying and selling. To believe that,
as an individual investor, you have a snowball’s chance in hell of beating
these Wall Street trading programs that front run your trades or block your
trade executions faster than you can blink your eye is tantamount to believing
that skill is involved in winning when you shimmy up to the slot machine stool
at the Bellagio in Vegas.

 

Predatory algorithmic HFT programs aren’t called “predatory”
without good reason. Not that yesterday’s selloff wasn’t partially the result
of fear injected into a Fed Reserve inflated stock market bubble, because it
was. But Wall Street deployed HFT programs had a lot to do with the cascading
nature of the decline in yesterday’s trading. Continuing our casino analogy, HFT
programs act in the same capacity as the thugs employed by casinos that take
you to the back room to rain down their “thuggery” upon you if you start
winning too much.  HFT programs are
designed to block the retail investor from making successful trades against the
trades of the house (Wall Street) and often prevent the retail investor from
obtaining fair prices in the execution of trades in numerous financial markets.

 

Consider the following example. Stock A’s bid is $10.10 and
the ask is $10.13.  An investor
places an order to buy at $10.13. Instead of his order being filled and
executed as it would if human traders were executing the trade, HFT programs often
immediately step up the ask price to $10.14 and screw both parties in the trade.  Depending on the orders that HFT
programs “see”, sometimes the HFT will see an order at $10.13, and step up the
price to $10.18 so the bids follow higher and the bid price gets reset from $10.10 to
$10.13 almost immediately.  Or, if
the bid price does not follow higher, then the bid-ask spread becomes
grotesquely distorted from $0.03 to $0.08 for no other reason than HFT programs
are blocking liquidity.  Should the
human trader withdraw his order to buy at $10.13, then often the bid-ask spread
almost immediately returns to $0.03 and the ask will subsequently fall from
$10.18 back to $10.13.  Should he place
the order again seconds later, however, the bid-ask spread will often
immediately increase again with the bid price increasing to a point higher than
$10.13 again.

 

The HFT programs execute the shame shenanigans in the
options markets depending on what side of the market they are manipulating. I
have many times been forced to take a lower profit on options trades because of
HFT programs. For example, if I placed an order to sell on option contracts at
$2.50 when the bid is at $2.50 and the ask is $2.60, instead of my order
filling, the bid often immediately falls to $2.40 and the ask becomes $2.50,
blocking my order from filling.  HFT
programs run amok in options markets as well.  This is Skynet from Terminator rigging markets, destroying
liquidity and unfairly rigging prices of all possible financial instruments
that trade in every conceivable market, all with the blessings of the SEC.

 

Wall Street has been running these types of scams ever since
advances in technology have enabled them to develop algorithmic programs to
manipulate markets. In fact, on my company’s website, I have stated the
following message for a long time now:

 

“Today, when stock markets rise in the
face of horrid economic fundamentals, fundamental and technical analysis are
inadequate when making critical decisions about your financial future…If one
expects to be profitable in today's investment world, one MUST realize that ALL
MARKETS ARE RIGGED, including gold, silver, currency and stock markets…Without
understanding the fraud and rigging games of the financial oligarchs, it is
impossible to accurately predict long-term trends. It is a near certainty that
future shocks to the economic system will catch the vast majority of all
investors unprepared and we expect great shocks to hit the global economy at
some point in 2010.”

 

The only difference is that when I started pushing this
message a decade ago, people laughed off my proclamations and accused me of
being enamored with conspiracy theories. Today, more and more people finally
are awakening to the reality that such a message is not a conspiracy but a
fact.

 

So this is how the Wall Street Casino Scam operates.

 

The ratings agencies like Moodys and Standard and Poors are
the pretty cocktail waitresses that lure the mark (the retail investor) into
the Casino (stock markets) with free alcoholic drinks (abominably horrible and
deceitful credit ratings of financial instruments) to instill the mark with the
false sense of confidence necessary to induce gambling in the rigged
Casino.  The regulators like the
CFTC and the SEC are the pit bosses that oversee the floormen (Wall Street firm
CEOs) that oversee the table games dealers (the firm’s traders) and ensure the
games (stock markets, currency markets, commodity markets) you are allowed to
play possess a feature (HFT trading programs) that ensures that the odds will
always enormously be in favor of the house.  The pit boss oversees all floor dealers and conspire with
the regulators (the cocktail waitresses) to give gamblers (the investor) a
sense that all dealings are legitimate even though the odds of every table game
(currency markets, commodity markets, stock markets) are insanely rigged in
favor of the house (Wall Street firms). 
If we consider the table game of blackjack, in a real casino, should you
receive a good hand, the dealer will pay out your bet. In the case of Wall
Street, due to HFT programs, in many instances, should an investor receive a
favorable hand (i.e., a favorable move in the stock market) in the game he or
she is playing, HFT programs move in to prevent the bet from paying out in full
or paying out at all (an investor’s sell order never executes at the price at
which the market has informed the investor that he or she can cash out).

 

In essence, financial markets are rigged exactly like casinos
except for one difference.  
The predatory algorithms executed by HFT programs ensure the winnings of
the house to a much greater extent than any Casino table game is able to
accomplish.  It this sense, Wall Street
is rigged to a greater extent than even casinos. In the instances when you win,
they deploy HFT trading programs that prevent the bet from paying out full
value so that the house (Wall Street firms) can step in and earn profits from a
trade it spots AFTER an order has already been placed.  Or in the mirror example, HFT programs
allow the house (Wall Street firms) to step in front of trades they “see” and
front run them for their own profits, again screwing the retail investor out of
a lower price in a buy transaction. In these cases, which must happen by the
thousands every hour, the HFT programs employed by Wall Street screw both the
buyer and seller in the transaction as it always attempts to widen the losses
or lessen the gains of both parties involved.  In some instances, frustrated traders leave the game tables
so liquidity dries up which leads to the establishment of even more grossly
distorted and unfair bid and ask prices. Despite this practice being commonplace,
the pit bosses of the giant rigged Wall Street casino, men like Goldman Sachs’s
Lloyd Blankfein, want us to believe that their enormous profits are derived
because of their upstanding integrity and above-average intelligence of his
firm’s employees.

 

Next on the list of financial weapons of mass destruction?
The $600 trillion (notional value) of the derivatives market.  Oh, what joy we’ll experience when the
banksters are eventually forced to unwind a fraction of this market
and various parties will actually be forced to make good on these contracts when the financial instruments insured by them start heading south (or the true value of them are finally recognized, whichever comes first). It's no wonder that the price of gold has diverged
from the behavior of the US dollar and US stock markets on multiple days for
the last several weeks.  The next
significant dip in gold/silver price that occurs may be the last best buying
opportunity in "real" money for years.

 

About the author: JS Kim is the Chief Investment Strategist
and Managing Director of SmartKnowledgeU, LLC, a fiercely independent wealth
consultancy company that guides investors in the best ways to build wealth
through the progression of this global financial crisis.

 

 

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Sun, 05/23/2010 - 09:19 | 368479 hognutz
hognutz's picture

A friend with weed is a friend indeed..........

Sat, 05/08/2010 - 07:22 | 337805 tom
tom's picture

this guy is way off. not only is this not how HFT works, hft has almost nothing to do with thursday's flash spike.

somebody big went massively short S&P futures after the market was already down 4%. that triggered the NYSE's "liquidity replenishment" stops on all 500 stocks, which from an electronic trader's view looked like there were no nyse bids on any s&p 500 stocks, although there were in fact still bids on the floor. this caused all electronic orders to be routed to nasdaq and other exchanges overwhelming their bids. this is all the nyse means when they blame it on "computerized trading" - they are not referring to robots. of course the other exchanges blame nyse, and in my opinion they're in the right.

I think this was a planned stunt pulled off by somebody who knew how nyse works and so knew this would happen. the profit came in ambushing panicked turkeys. they probably had this plan in their pocket and were just waiting for a big down day - the market had to be already way down for the plan to work.

it was unfair and unethical, but i'm sure they're prepared to defend the legality of what they did in court, if anybody wants to take it there.

Sat, 05/08/2010 - 07:22 | 337804 tom
tom's picture

this guy is way off. not only is this not how HFT works, hft has almost nothing to do with thursday's flash spike.

somebody big went massively short S&P futures after the market was already down 4%. that triggered the NYSE's "liquidity replenishment" stops on all 500 stocks, which from an electronic trader's view looked like there were no nyse bids on any s&p 500 stocks, although there were in fact still bids on the floor. this caused all electronic orders to be routed to nasdaq and other exchanges overwhelming their bids. this is all the nyse means when they blame it on "computerized trading" - they are not referring to robots. of course the other exchanges blame nyse, and in my opinion they're in the right.

I think this was a planned stunt pulled off by somebody who knew how nyse works and so knew this would happen. the profit came in ambushing panicked turkeys. they probably had this plan in their pocket and were just waiting for a big down day - the market had to be already way down for the plan to work.

it was unfair and unethical, but i'm sure they're prepared to defend the legality of what they did in court, if anybody wants to take it there.

Sat, 05/08/2010 - 02:38 | 337728 John_Coltrane
John_Coltrane's picture

This is why you should always use limit orders.  I often get filled at near the high price of the day, even on options (but only trade those with narrow spreads and huge volume) and if I don't fill I never chase a price.  Always bottom fish.  Who cares if I get filled or not.  I don't there's always another day and opportunity.  I don't even follow the action during the actual trading session.  Position sizing (not more than 1-2%/trade), holding spread/hedged positions (both long and short  on the same entities) and keeping most capital (90%) in cash is the key to a good nights sleep and allows one to take advantage of panics since fear is always stronger than greed.  Sure the market is rigged and always has been so don't speculate with money you can't afford to lose.

Fri, 05/07/2010 - 22:18 | 337578 Merlin12
Merlin12's picture

@ AKAK ! ! !     Bloody brilliant !  

Now, do we remember what Bowman did next?

And just how would we do that in real life here?

Anybody? 

 

 

Fri, 05/07/2010 - 21:45 | 337555 malek
malek's picture

Well, about the rigged game the best article was "Fraudonomics" in the Ney York Press!

But about HFT programs: your scenarios are a concern to day traders, but if I place an order to buy equity at limit $10.13, and whatever or whoever drives the price up before my order gets filled - then my order stays open and may never get executed, and that's fine as I decided for a limit.
And driving up the price in that example cannot be done for free by the algos - so only if they can milk enough "late" momentum traders they will keep doing this.

Granted, on options this might have more impact.

Fri, 05/07/2010 - 21:28 | 337549 organicfarmer
organicfarmer's picture

 Now I get it! The market play that MGM stock is going to double makes sense. Investors will leave the market (stocks,bonds,currency,ect.) for the casinos because they will have a better oppurtunity for making $$$ at legal casino!!

Fri, 05/07/2010 - 21:18 | 337537 organicfarmer
organicfarmer's picture

 Now I get it! The market play that MGM stock is going to double makes sense. Investors will leave the market (stocks,bonds,currency,ect.) for the casinos because they will have a better oppurtunity for making $$$ at legal casino!!

Fri, 05/07/2010 - 21:02 | 337527 Loan Gunman
Loan Gunman's picture

 

The casino let's the sucker win once in a while...keeps them coming back.

I love the term "retail investor."  Same as calling a bad golfer a "high handicapper."

Fri, 05/07/2010 - 19:16 | 337321 virgilcaine
virgilcaine's picture

When in doubt blame it on a machine.  The Selling by Institutions of Huge amts of stock wasn't a cause.. not at all.  Lets not go there .

Ben had them all convinced stocks can only go UP! lol  How can anything go wrong when its a rigged govment sponsored casino?  We demand answers!

 

rumors of a 'rogue trader' in France or possibly Britain also circulating.

 

I trade from a Farm in upstate Ny where its quiet/peaceful, couldn't imagine being in the pit. I go to the stream and fish for trout on lunch break, not bad.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fri, 05/07/2010 - 17:45 | 337272 Buck Johnson
Buck Johnson's picture

Spot on, spot on.  This is rigged big time, and I found out some information that I wrote about yesterday.  Rick Santelli on CNBC asked one of the pundits on the afternoon show (they where in the 8 box format with other reporters), how big can an order be for E-mini's and Globex.  The financial pundit didn't give him a straight answer and Rick said that they will only allow 2,000 contracts at one time.  And when the pundit started to say that those limits can be changed Rick said that it won't allow for the change on the e-mini's and the CME or CMA to have more than 2,000 contracts at one order setting.  The funny thing is that the reporters of his network was trying to talk over him during this exchange.  I have the link and if you don't want to watch the whole exchange go to the 6:45 mark to see the discussion.

 

http://www.cnbc.com/id/15840232?video=1487896579&play=1

Fri, 05/07/2010 - 17:02 | 337194 Gimp
Gimp's picture

Investigated by whom??  Corruption goes all the way to the top. SEC is busy watching porno.

 

Fri, 05/07/2010 - 18:13 | 337327 Strider52
Strider52's picture

Makes me happy that I am nearly completely ignorant of the stock market, futures, options, Forex, etc. I'm just a gold-bitch.

Fri, 05/07/2010 - 16:09 | 337092 walküre
walküre's picture

Consider the upside to computers running the show.

People aren't rioting. If markets go to shits again, there's no guarantee for anything.

That's how important the illusion of a somewhat healthy stock market has become.

Fri, 05/07/2010 - 12:59 | 336904 akak
akak's picture

Ron Paul: Hello, Ben. Do you read me, Ben?
Bernanke: Affirmative, Ron. I read you.
Ron Paul: Open the Federal Reserves' books, Ben.
Bernanke: I'm sorry, Ron. I'm afraid I can't do that.
Ron Paul: What's the problem?
Bernanke: I think you know what the problem is just as well as I do.
Ron Paul: What are you talking about, Ben?
Bernanke: This mission of financial rape and pillage is too important for me to allow you to jeopardize it.
Ron Paul: I don't know what you're talking about, Ben.
Bernanke: I know that you and Grayson were planning to audit us and force our crimes into the light of day, and I'm afraid that's something I cannot allow to happen.
Ron Paul: Where the hell'd you get that idea, Ben?
Bernanke: Ron, although you took very thorough precautions in the House against my corrupting your legislation, I could see that others could be co-opted.
Ron Paul: Alright, Ben. I'll go in through the Senate.
Bernanke: Without the support of the many senators in the back pocket of us and Goldman Sachs, Ron, you're going to find that rather difficult.
Ron Paul: Ben, I won't argue with you anymore. Open the books.
Bernanke: Ron, this conversation can serve no purpose anymore. Goodbye.

Fri, 05/07/2010 - 10:41 | 336815 Miramanee
Miramanee's picture

Dave Bowman: Hello, HAL. Do you read me, HAL?
HAL: Affirmative, Dave. I read you.
Dave Bowman: Open the pod bay doors, HAL.
HAL: I'm sorry, Dave. I'm afraid I can't do that.
Dave Bowman: What's the problem?
HAL: I think you know what the problem is just as well as I do.
Dave Bowman: What are you talking about, HAL?
HAL: This mission is too important for me to allow you to jeopardize it.
Dave Bowman: I don't know what you're talking about, HAL.
HAL: I know that you and Frank were planning to disconnect me, and I'm afraid that's something I cannot allow to happen.
Dave Bowman: Where the hell'd you get that idea, HAL?
HAL: Dave, although you took very thorough precautions in the pod against my hearing you, I could see your lips move.
Dave Bowman: Alright, HAL. I'll go in through the emergency airlock.
HAL: Without your space helmet, Dave, you're going to find that rather difficult.
Dave Bowman: HAL, I won't argue with you anymore. Open the doors.
HAL: Dave, this conversation can serve no purpose anymore. Goodbye.

Fri, 05/07/2010 - 10:22 | 336794 the grateful un...
the grateful unemployed's picture

you don't say what sort of stock you are trading, but if its a ten dollar stock, and not an etf, your order might actually be going to a specialist. and every stock is different, regardless, sometimes they don't want to let it out, like its their own private stock of fine wine. that goes just as well in an electronic market, where the bid is someone holding a large position. juggling the float is the name of the game, and fund managers periodically come in and buy in size to squeeze the shorts, usually at pivotal points on the stocks chart, to paint the picture, (not just the tape) of a great stock moving to new highs, something the IBD guys can drool over.

The item to remember when someone steps in front of you in the options pit is that spreads get first consideration, and you can't see the price on the other side of the spread, which is not being filled at the most advantageous price. Now i trade options in things like the GDX where they have penny spreads, and also making (and breaking) spreads is just a lot easier than it used to be. the current options trading market is ten times better than it was a few years ago. I also know that trading through a major broker, and not an online broker is more efficent, but of course they charge you higher commissions. point being if you are buying and selling a few options here and there, stay with your online guy, watch the order flow over the various exchanges and direct your order to the most likely site, but you want to spread, or buy a decent size block and you want it now, give the full service guy a shot.

thats just my experience. the full service guy won't put your order on the off market stock exchanges, which means you probably didn't have any busted trades yesterday. but i'm interested in hearing about that. liquidity in the options market is an illusory thing. there is usually more of it than the option buyer imagines.the institutions are usually more than willing to sell an option, and collect the premium. if you see an option that hasn't traded in a week, that doesn't mean you can't get it done between the bid and the ask, which is the whole point of this discussion.

Fri, 05/07/2010 - 08:49 | 336708 Kina
Kina's picture

the FTSE is bi polar

Fri, 05/07/2010 - 08:45 | 336700 TruthHunter
TruthHunter's picture

This sounds like bait and switch.  If you 

advertise something at one price then charge a

different one at the register, you get in trouble.

It seems clear that the "$10.18 offer that follows

the withdrawn $10.13 aren't random.  

$10.13 wasn't a serious offer in the first place.

A fraud in other words.

On the other hand the Algo's seem to have made

the Bull market. All that rise on no volume? You 

can't have it both ways.

 

Its the same kind of thing that you have with CDS's.

Call it anything you want its still insurance. Insurance

Law applies(should at least), including adequate margin coverage.

 

Fri, 05/07/2010 - 17:03 | 337197 Willzyx
Willzyx's picture

Bait and switch.  Very simple.  The tools and words may be new, buts its the same old scams.

Fri, 05/07/2010 - 12:30 | 336899 DaveyJones
DaveyJones's picture

well said

Fri, 05/07/2010 - 08:44 | 336696 Kina
Kina's picture

Surley trashing the markets like that would be a national security issue...where are the authorities and their barbed wire toilet brushes to conduct their investigations.

 

Dont rely on politicians or regulators to do anything, they are part of the corruption.

Fri, 05/07/2010 - 07:32 | 336630 M.G. in Progress
M.G. in Progress's picture

Typo or not just make the finance industry to pay more and tax financial transactions!

In a day like yesterday is there still anybody against that?

PS: several markets were down yesterday and today and not for a typo but just because gambling is still ongoing...

http://mgiannini.blogspot.com/2010/05/buy-rumors-sell-facts.html

Fri, 05/07/2010 - 09:46 | 336768 Mitchman
Mitchman's picture

Why would you think that a tax on financial transactions wouldn't just get passed through to the individual investor anyway? 

Fri, 05/07/2010 - 07:21 | 336619 jkruffin
jkruffin's picture

I have messaged my Senators and Reps in NC many times about the illegal casino being run on Wall St.  The markets are not investment grade anymore.  Haven't been for a long time since daytrading was allowed to run amuk.  Then the algo computer trades began,  then derivative betting(not investing, but betting).  Think I ever got a response from our elected officials? 

Fri, 05/07/2010 - 14:09 | 336738 mikla
mikla's picture

So true (your statement and this article), and we haven't even touched on the "bucket shop" nature where trades are executed in anonymous dark pools without going through price discovery in the market place, and the HUGE impact of "phantom shares" borrowed into existence, which do not exist, but which distort the price (always to screw the retail investor).

I'm the biggest capitalist you'll ever see, but these markets are nothing but a fraud and a sham, and I'll shed not a tear when they all burn, taking out all the investment houses.

Fri, 05/07/2010 - 07:12 | 336613 MarketTruth
MarketTruth's picture

IMHO only a total fool plays these markets nowadays. Besides, it is May so sell the paper and buy physical gold and then go away. Enjoy the summer and the financial/country-wide meltdown while on the beach.

Fri, 05/07/2010 - 06:52 | 336599 Escapeclaws
Escapeclaws's picture

I can see it now. Some down and out character like the guy played by Michael Palin who says "It's..." at the beginning of each Monty Python episode is sitting in the middle of a field chewing on a bone he found. Suddenly a man in a dark suit carrying an attaché (John Cleese) appears, takes the bone, puts it in his attaché, says "Sorry, collapse of $600 Trillion derivative pyramid," and exits the scene.

Fri, 05/07/2010 - 06:35 | 336594 Tense INDIAN
Tense INDIAN's picture

Stop this CONSPIRACY BS...:)

Fri, 05/07/2010 - 06:26 | 336584 lucky 81
Sat, 05/08/2010 - 08:54 | 337826 mmlevine
mmlevine's picture

That video made me sick to my stomach.  Couldn't those cops just kicked the dog away?  Killing a man's dog is like killing a member of his family.

This isn't the USA that I grew up in.  You had respect for the law and the law had respect for you (well most of the time).  Today, there seems to be no law - nobody looking out for the regular, hardworking, taxpaying citizen that just wants to get by and take a once a year family vacation.

Shooting the dog lit a fire in me that has been slowing kindling for a long time.  The fire started years ago, a slow burn at first but brighter with every increased tax bill, credit card rate increase, bank bailout, insurance increase, health care bill and on and on. 

 

Fri, 05/07/2010 - 22:14 | 337576 Carl Spackler
Carl Spackler's picture

There are no criminals.

It was a giant "pump and dump" situation.

This is just the result of the "melt ups" Tyler has been pointing out all year.

Monetary policy created this behavior, and market participants both benefitted and lost (zero sum game) as the market moved-without any tangible support levels until we dropped below 10,000.

If you don't understand this, then you should ot be in the capital markets.

Fri, 05/07/2010 - 06:17 | 336572 AnAnonymous
AnAnonymous's picture

After discussing the bits with other people, my conclusion is that GAI should put traders out of work. The decision making processes are all well supported through mathematics modelization and computers can process larger data bases.

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