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

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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


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.