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Nicholas Colas Laments The Passage Of The Stock Market, Blames High Frequency Trading And The Federal Reserve

Tyler Durden's picture




 

In the movie Terminator, various faceless machines, and one especially murderous one almost caused the end of the world. In an ironic twist of life imitating art, the very core premise of our capital markets - the effective allocation of capital to worthy assets on the basis of solid fundamental analysis (and yes, "information arbitrage") is on the verge of being eliminated by the same combination of forces: millions of faceless, anonymous algos, and one destructive endoskeletal machine. Remember: Ben Bernanke is out there. It can't be bargained with. It can't be reasoned with. It doesn't feel pity, or remorse, or fear. And it absolutely will not stop, ever, until both the middle class, and the dollar, are dead.

As ever more carbon-based investors withdraw from stocks, the feedback loop of leaving more and more stock churning and, thus noise creation, in the hands of assorted computer algorithms becomes progressively more acute. And as the only market participants will soon be High Frequency Traders, very soon the whole concept of fundamental analysis will be unrooted at its core, in essence making capital markets, in their traditional sense of allocating scarce capital to innovative, efficient, and high ROI ideas, obsolete and redundant. Yet instead of giving up, perhaps it is our duty, in a very peculiar case of art imitating art, or in this case the movie Terminator, to redeem the freedom of capital markets from the machines.

This is precisely the point of Nicholas Colas' latest essay, in which he observes that "HFT exists among all market capitalizations, from micro cap to the largest of names in the S&P 500. The smaller end of the cap spectrum, however, has far more potential growth associated with it. Somewhere among these companies sits the “next big thing” that is currently undervalued. HFT strategies are unlikely to find these opportunities; human analysts have a much better chance if they can separate the proverbial wheat from the chaff." Colas' fundamental argument relies on the premise that "one of the outcomes of a heavily HFT focused capital market seems to be lower-than-normal P/E ratios" - we disagree, and we have demonstrated repeatedly that algorithms have an upward trending momentum bias in which self-sustaining fractal feedback loops create a micro pyramid scheme, in which incremental losses are compensated by millions of daily liquidity rebates, rendering the risk return profile of a top ticking event moot. What is troubling is that Colas himself acknowledges this possibility: "if we don’t see more private equity transactions or small cap outperformance, it may well be because the dynamics of HFT trading domination is actually overstating real values."

This is correct: courtesy of HFTs stocks are now far overvalued, as seen by the scarcity of MBO, LBO, IPOs,  and various other M&A types of events. But worst of all is the realization that this is not just HFT that is to blame for the death of fundamental analysis: another culprit is Ben Bernanke himself: "the Federal Reserve’s monetary stimulus and essentially zero interest rate policy clearly has a role in asset allocation. When bonds pay very little, money flows into stocks and given the popularity of index-based investment products this also has the effect of allocating capital on other than fundamental terms." In other words, computers and the Fed have now destroyed the stock market.

Colas is of the opinion, that Private Equity, long a staple of true information arbitrage will lead the way to a return to true fundamental value. Perhaps - but is that what is truly needed? And is that an example of information arbitrage at its truly best? While it is admirable to believe that PE investors sniff out value, especially in the form of upstream dividending cash flows, they do so at the expense of the business model, the employees, and sucking a firm's assets dry. We are confident that should Nicholas analyze the incidence of default within a 5 year horizon of companies being taken private, he will change his view.

In the meantime, here is his always insightful and stimulating opinion.

From DLJ to HFT, and Beyond

Successful equity investing has always centered on “information arbitrage,” a fancy way of saying that in order to make reliable returns you need to know something that the market doesn’t. For much of the last 50 years that information has been largely fundamental in nature, unearthed by investors speaking directly to company managements, experts in the field, analysts who cover the stock, and other resources that provide actionable information. The last decade has seen a dramatic shift away from stock trading based on such efforts to High Frequency Trading, with HFT now dominating daily trading volumes in U.S. stocks. We don’t think that is necessarily sustainable, if only because this dynamic does not directly address the most basic function of a capital market – to allocate a scarce resource (capital) to its best possible use (companies that merit it). The way back to a fundamentally driven market will have to come from a renaissance of active investing, and we think P/E company takeouts of undervalued companies and small cap growth investing will likely represent the beachheads for this change.

It is tough to nail down the exact start of any important trend, but in my book modern sell-side research started in the mid 1950s when Bill Donaldson, Dan Lufkin and Dick Jenrette met at Harvard Business School and decided to form a company. DLJ was founded on the idea that excellent stock research opened doors across the investment banking landscape, from institutional customer order flow to corporate underwriting to high net worth brokerage. At the time investment analysts at sell-side firms were not especially well-paid or respected, but DLJ brought them front and center. As a strategy, it worked well enough that eventually  most of their larger competition followed along, and a “Star system” of analysts with supporting teams dominates sell side research to this day.

The analog on the buy side is most likely Fidelity’s research department generally and legendary manager Peter Lynch specifically. Back in the 1970s and 1980s Lynch took the Magellan Fund from $18 million in assets to +$10 billion on the back of consistently excellent performance. The analyst team that stood behind Lynch did deep fundamental work on hundreds of companies and spoke to literally every management team on a quarterly basis if they held the stock or had an interest in making an investment. Fidelity’s research department regularly had – and still does, for that matter – its pick of the litter from any business school in the country.

It feels like a long way from DLJ and the Magellan Fund to now, as the majority of daily trading volume today is focused on opportunities that may not last longer than the blink of an eye. While the phrase “High Frequency Trading” is the popular catch-all term for this type of money management, there are several actual styles of HFT. Some seek to arbitrage Exchange Traded Funds and their underlying stock constituents and lock in risk-free profits from fleeting anomalies in price. Others just keep tabs on the myriad places where stock trades are  executed – exchanges, alternative trading venues, broker owned pools of the liquidity and the like – and looks for quick buy/sell  opportunities. And yes, some look for the tell tale signs of large blocks of stocks in order to trade ahead of those executions.

While HFT has its share of detractors and the May 6th flash crash seems to have only added fuel to their criticisms, I think it is also safe to say that the current market structure for trading stocks in the U.S. is not going to materially change in the near future. Everyone from the Securities and Exchange Commission to countless market observers have had their bite at this apple, and unless there is another violent intraday swing we doubt there is much appetite for revisiting the model of listed stock trading in the U.S. for at least the next 2-3 years (the next time there may be a change in the Executive Branch).

The story doesn’t end here, however, since a marketplace where the majority of trading is unrelated to long term fundamentals seems to me to be inherently unsustainable over the long term. I am the first to admit that the old model, with market makers/specialists and buy/sell side analysts had its own set of conflicts and problems. Analysts get things wrong (witness the 1990s tech bubble) and specialists/market makers can certainly get too greedy. But the fact that the majority of trading was motivated by fundamental analysis at least fulfilled the basic purpose of capital markets to attempt to allocate capital to its best possible use. If you agree it is unlikely that the SEC or other regulatory agency is going to curtail HFT, then the only way to reestablish the dominance of fundamentally driven stock prices is to have money flow into investment products that feature human decision making at the core of the investment process. Performance is the one thing guaranteed to get investors excited about active investing, so here are two investment approaches that stand a chance of leveraging the current environment and performing well enough to draw new capital.

  • Looking for private equity takeout candidates. One of the outcomes of a heavily HFT focused capital market seems to be lower-than-normal P/E ratios. A handful of stocks might buck this trend – mostly super-cap technology companies – but there does appear to be a strong correlation between the increasing share of HFT trading volumes and declining P/Es over the last 5-10 years. Whether this is correlation or causation is less relevant than the question, “Does this make for an opportunity?”
  • Private equity takeouts represent a pathway where listed stock markets can travel back to fundamental reality. There is no HFT in private equity land. These firms buy the whole company, operate it, hopefully grow and improve it, and then sell it. So they do their homework very carefully and try to only swing at “fat pitches” of companies with real opportunity and a cheap valuation. Stable and rising cash flow is the hallmark of a good PE story, as well as the possibility of international growth and industry consolidation. HFT strategies don’t have much of a clue about any of these factors, of course, and don’t hold stocks long enough to close valuation gaps to private company valuations. Human investors do.
  • Small cap growth investing. Make no mistake – HFT exists among all market capitalizations, from micro cap to the largest of names in the S&P 500. The smaller end of the cap spectrum, however, has far more potential growth associated with it. Somewhere among these companies sits the “next big thing” that is currently undervalued. HFT strategies are unlikely to find these opportunities; human analysts have a much better chance if they can separate the proverbial wheat from the chaff.

I’ll make two other points to close out this note.

  • The first is that both our P/E and small cap points work in both directions relative to what will pull the market back towards fundamental versus HFT dominated trading. If we don’t see more private equity transactions or small cap outperformance, it may well be because the dynamics of HFT trading domination is actually overstating real values. That’s a disturbing possibility, if only because U.S. stocks have already seen a lost decade of performance.
  • The second point worth a mention is that HFT trading is far from the only factor generating non-fundamental trades for U.S. equities. It is too large a topic fully describe in this note, but the Federal Reserve’s monetary stimulus and essentially zero interest rate policy clearly has a role in asset allocation. When bonds pay very little, money flows into stocks and given the popularity of index-based investment products this also has the effect of allocating capital on other than fundamental terms.

 

 

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Tue, 10/19/2010 - 23:51 | 663444 JLee2027
JLee2027's picture

Ben strikes me as Bozo the Clown more than Arnold.

Wed, 10/20/2010 - 00:30 | 663485 i-dog
i-dog's picture

"It doesn't feel pity, or remorse, or fear. And it absolutely will not stop, ever, until both the middle class, and the dollar, are dead."

This is the crux of the matter. Even a silver bullet won't kill it now!

Yet everyone is currently scrabbling around looking for a silver bullet: "ditch the Fed"; "vote for the Tea Party"; "default on the debt"; "nuke China"; "buy gold"; "print faster"; etc, etc.

The only solution is for Americans to bite the bullet and use the states' constitutional powers to dismantle Washington. Times will be tough for a while, but the entrepreneurial spirit would at least build something that our children could take forward.

Washington is now Too Big To Fix.

Wed, 10/20/2010 - 00:42 | 663526 Bartanist
Bartanist's picture

Similarly I would argue that the central banking empire is too big to fix as well. And unfortunately those in power are always more concerned with maintaining power than doing what is right... or good.

I struggle with two things.

1. is everything going according to plan or did they not take something into consideration (such as when money is put into the economy more jobs are created in China, not the US ... and of course the banks simply bid up commodities... but these things too could have been part of the plan.)

2. What can replace the corrupt and fraudulent central banking empire and legions of people and entities that will fight for its survival? Would it be better? We certainly could not trust those currently in power to run it. They are broken and permanently tainted with corruption.

Wed, 10/20/2010 - 01:53 | 663590 i-dog
i-dog's picture

The central banking empire is at the heart of the problem -- and is pulling the strings in Washington -- but it is an international network and an international problem that can't be fixed by the American people alone. Washington, on the other hand, CAN be fixed by the American people alone ... by getting rid of it.

When your child is sick, you quickly apply the appropriate medicine. You don't first go off trying to track down and kill the source of the disease that pervades the rest of the planet. Save that for step 3. (Step 2 would be to get each state onto a sound money basis, backed by gold or other defined resources).

Divide and conquer.

Splitting the US into 50 states again would present the central bankers with a problem akin to herding cats. Each state could set up its own central bank (like North Dakota) and issue its own 'greenbacks' backed only by "the full faith and credit" of the state's inhabitants (like Lincoln did to pay off the civil war debt). Some of the states have a latent economy (though currently bankrupt) that is the equivalent of many other large nations. Others without a natural resource or manufacturing base could form alliances with them to provide labour and trade internationally.

The central banking empire has already set up shop in China and the emerging economies ... they are simply demolishing America to eliminate future competition and to destroy the 'middle class aspirations' that could also spread, like a disease, through the emerging economies.

With America out of the way, they can brainwash and control the aspirations of the emerging middle classes elsewhere to "avoid the same mistakes" and keep their demands in check. China, for example, has a very tightly controlled economy and populace that is a central banker's dream (in fact, they did dream it up and they are firmly in control of it).

Wed, 10/20/2010 - 01:20 | 663577 kayl
kayl's picture

All we have to do is discharge our debt under Article 3 of the Uniform Commercial Code and claim ourselves as the CREDITORS of our own real property and personal possessions.

File the UCC 1 Financing Statement correctly and as soon as possible.

I think it's time to adopt the same measures as Foreclosuregate. OK, I posted the article on the contributors page:

http://www.zerohedge.com/forum/asymmetrical-warfare-mill-wars-based-ucc-practice

Wed, 10/20/2010 - 01:42 | 663601 i-dog
i-dog's picture

I understand your perspective (and plan to follow it in my personal life at the appropriate time). But this doesn't address the problem of 535 corrupt congressmen -- plus a massive bureaucracy plus a centrally controlled massive military -- and hundreds (or thousands) of unconstitutional laws passed over the last 100 years by that corrupt den of thieves.

All that UCC solution would do is reset the debt, then continue on with congress racking up 1+ trillion dollar a year defits to land back in the same shit again within 2 or 3 years!

Wed, 10/20/2010 - 02:03 | 663623 kayl
kayl's picture

Wrong. It would stop the flow of funds from the DEBTORS. Everyone would know how to avoid jurisdiction in the courts. There wouldn't be any debtors left to squeeze. I see this as an educational opportunity and a way to break the wash, rinse, and repeat cycle.

I think it's time to adopt the same measures as the Foreclosuregate. Read my article over on the contributors page:

http://www.zerohedge.com/forum/asymmetrical-warfare-mill-wars-based-ucc-practice

Wed, 10/20/2010 - 02:15 | 663632 i-dog
i-dog's picture

Excellent essay! And kudos for posting it here 6 months ago for all to see!

However, I still say the problems are two-fold:

  1. What to do with existing debt? ... which you deal with.
  2. What to do to stop the central planning and control organisation (the Federal Government, with all its vampire squid-like tentacles) from continuing to milk its tax slaves?

I'll read the rest of your articles to see how you addressed #2.

Wed, 10/20/2010 - 08:55 | 663826 blindfaith
blindfaith's picture

answer to # 2 is:

 

THE + I.R.S. = THEIRS

Wed, 10/20/2010 - 14:41 | 664826 kayl
kayl's picture

I wrote this article over three days and posted yesterday for the first time. Why did it get so buried? After filing a UCC 1 form correctly, you are a secured party CREDITOR and no longer subject to any statutes.

For people, taking control of their commercial affairs and discharging all debt is essential. It is fair and equal participation with the PTB. Avoiding jurisdiction of the taxing city, state, and federal agencies will also bring comfort. We can develop a new system that makes theirs obsolete. But I'm totally satisfied with Accepting for Value and Returning to Discharge, Settle, and close the acount.

There are many kinds of debt. The trade deficits and sovereign debts owed on the sale of US Treasuries are a thorny issue. The US gov will default or inflate away those debts and probably kick off a war to hide the looting. Scorched earth policies have been around for thousands of years.

Wed, 10/20/2010 - 04:23 | 663683 covered
covered's picture

That's a tempting argument to make and in the end I suppose it possibly could work, but a couple of things. You have extremely wealthy carpetbaggers and robber barons that have not been prosecuted for their crimes in this fiasco (yet?) that would just continue the graft and corruption in trying to impliment any type of state strategy. You are also talking about the dissolution of an organized national government that deals with the rest of the world's economic and military interest. I'm not willing to give that up. I am goddamn willing to prosecute these fuckers whose greed started the spiral and clawback the stolen assets.

Wed, 10/20/2010 - 08:55 | 663829 Jim in MN
Jim in MN's picture

http://en.wikipedia.org/wiki/Warlord_era

Careful what you wish for. 

Wed, 10/20/2010 - 09:10 | 663856 blindfaith
blindfaith's picture

" You have extremely wealthy carpetbaggers and robber barons that have not been prosecuted for their crimes in this fiasco"

And, they never wil be prosecuted!

They own the politians.  They own the media system.  They own the prosecuting system.  They own the judiciary.  They own the lobbists.  And, by default they won the police, and the military in the bargain which 'they' know will keep them safe from injury.

They have nothing to fear, they have the money to do whatever they want.  Life is good.

 

" You have extremely wealthy carpetbaggers and robber barons that have not been prosecuted for their crimes in this fiasco"

Keep all this in mind as you listen to all these tin hat saviors running for office.  Not one has said anything that anyone who reads Zerohedge can believe.  Not one names the criminals in government, enterprise or finance that has brought us to our knees.  Not one has any idea worth a red cent.  They all say the samethings...nothing to hang your hat on, just more empty promises that they can't and won't deliver on.

Afterall, made up facts can't be lies.

Wed, 10/20/2010 - 09:17 | 663877 i-dog
i-dog's picture

"I'm not willing to give that up."

I'm sorry, sir, you'll have to pick another option ... that item is no longer in the catalogue.

Wed, 10/20/2010 - 14:54 | 664871 kayl
kayl's picture

They will never be prosecuted because they are living beings each with a STRAWMAN and each acting under the corporate fiction of their companies. None of them acted in bad faith with these contracts. They did not sign any papers representing themselves for the commercial liability of the companies under penalty of perjury.

The PTB created unilateral contracts and Statements of Accounts that were sent out to people. People agreed to the contracts. People sent in their money. People were not forced to go into contracts. None of the contracts are binding. However, the people are debtors under the UCC and do not have the standing to manage their commercial affairs.

The disconnect is found in a gap of knowledge. The PTB know something about the Uniform Commercial Code that we do not. We do not use UCC tools. So we need to join the club and get in the know.

Don't trip over the money. There is no money, and there is no debt. There's only debt-notes and the discharge of debt.

 

Wed, 10/20/2010 - 07:08 | 663723 Instant Karma
Instant Karma's picture

Well....

There was a big HFT guy on TV a while back discussing the flash crash and HFT in general, admitting that when your computers spit out thousands of quotes per second shit will happen.

Banning HFT is easy, if the wanted to.

When I first started losing money on stocks, I would buy INTC for 20 1/4 and sell for 19 5/8. Yesterday, I sold FXA for 97.2022 after buying for 99.0345. When the hell did stocks start quoting in one ten-thousandth of a cent? And FXA, for example, only trades a couple hundred thousand shares a day.

For all the griping about HFT, I wouldn't write off the stock market entirely. We all could have bought AAPL a couple years ago and made tons of money. It wasn't that hard. Or GOOG. Or GLD. Growth is rewarded in the stock market.

I find it frightening that Washington has just abandoned the idea of a "modest" budget deficit, and threw in the towel, and now our debt is just being monetized. The Treasury issues debt, The Fed creates dollars, buys the debt, and the Treasury spends the money. I find that weird and frightening.

Hence, the bullion.

We need more manufacturing jobs here in America, there's a whole generation of kids graduating HS who are either not working, or working cash registers.

Ultimately, economics is cyclical. These are the bad times. Pretend its the 1970s. What are the opportunities now that will look ridiculous 10 years from now?

Wed, 10/20/2010 - 10:02 | 663973 Clayton Bigsby
Clayton Bigsby's picture

"If it bleeds, we can kill it."

Tue, 10/19/2010 - 23:59 | 663457 godfader
godfader's picture

Today's crying about HFT is exactly the same whining I heard about program trading in the late 80s. "Oh no markets are not fair" "Oh the big boys destroyed fair markets".

Every decade in the markets has it's whining subject d'jour. We all like a good excuse for not making money don't we?

Wed, 10/20/2010 - 00:21 | 663491 frankTHE COIN
frankTHE COIN's picture

I'm trying not to complain but at the same time point out the truth. From the 80s to mid 2000s you could see constant order flow on the bids n offers.There was volume.  Multiple trades would take place every second once we were'nt in the slow summer months. But now you will see a dead frozen mkt with no trade printed for 50 seconds and as long as up to a minute and a half. And like a zombie, the next trade would happen 40 seconds later. I scalp, day trade, swing trade and position trade. It has changed.

Wed, 10/20/2010 - 00:34 | 663516 Bartanist
Bartanist's picture

My assumption is that there have never been free or fair markets. Why, seeing what we see today, would we ever think that prices were not always controlled and manipulated?

This would explain why those complaints are so persistent over time. Only the methodology of fraud and theft have changed.

Are we to believe that the "big boys" are just so consistently, year after year, much smarter than anyone else? In securing their advantage they have resorted to outright fraud and price control. How else could they ensure their bonuses and deliver the growth that the board and shareholders insisted upon?

Wed, 10/20/2010 - 00:03 | 663464 Cammy Le Flage
Cammy Le Flage's picture

What is money anymore?  I really don't know.  Please explain.

Wed, 10/20/2010 - 01:24 | 663584 kayl
kayl's picture

I have just the answer for you, but it focuses on the foreclosuregate as well.

The article is over on the contributors page:

http://www.zerohedge.com/forum/asymmetrical-warfare-mill-wars-based-ucc-practice

Wed, 10/20/2010 - 00:07 | 663468 williambanzai7
williambanzai7's picture

Wed, 10/20/2010 - 00:18 | 663488 Dixie Normous
Dixie Normous's picture

I don't even have to look anymore to see who posts these types of pics.  Billy Banzai is always on the job.

Wed, 10/20/2010 - 00:32 | 663512 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Something smells fishy.  Pre Market data has gone from being hugely down earlier in the night to now being hugely positive.  The dollar topped, and PM is showing strength.  What changed?  Asia is not ignoring foreclosuregate, high frequency war, and US debt just for shits and giggles.  What will tomorrow bring?

Wed, 10/20/2010 - 00:48 | 663544 bob_dabolina
bob_dabolina's picture

pomo

Wed, 10/20/2010 - 01:01 | 663556 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I bet Sacks is thnking it would be best to do a POMO everyday yo!

I think the next leg down in the dollar starts now.  Move to 73 coming by the election!

Wed, 10/20/2010 - 07:21 | 663729 AccreditedEYE
AccreditedEYE's picture

I think the next leg down in the dollar starts now.  Move to 73 coming by the election!

This after Timmah had the audacity to give a strong dollar speech... LMAO! Someone should have thrown tomatoes at him.

Wed, 10/20/2010 - 08:08 | 663753 Turd Ferguson
Turd Ferguson's picture

Today AND Friday

Wed, 10/20/2010 - 00:43 | 663528 ebworthen
ebworthen's picture

In an deep Arnold voice and accent Ben the DEBTONATOR says to the banks:

"I'll be at the back door."

Great stuff William, keep it up.

 

Wed, 10/20/2010 - 00:45 | 663538 WaterWings
WaterWings's picture

Terminator: Anger is more useful than despair.

John Connor: What?!

Terminator: Basic psychology is among my sub-routines.

Wed, 10/20/2010 - 00:48 | 663543 WaterWings
WaterWings's picture

Oh, and hey, that 'b' is silent, right?

Wed, 10/20/2010 - 09:18 | 663882 buzzsaw99
buzzsaw99's picture

The 600 series had rubber skin. We spotted them easy, but these are new. They look human... sweat, bad breath, everything...

Wed, 10/20/2010 - 09:22 | 663890 Vergeltung
Vergeltung's picture

awesome!  :)

Wed, 10/20/2010 - 10:32 | 664054 Kobe Beef
Kobe Beef's picture

oooooH! Scary!

Nice work Williambanzai7!

Wed, 10/20/2010 - 12:38 | 664261 chopper read
chopper read's picture

HFTs = "hungry, hungry algoes!  hungry, hungry algoes!!"

http://www.youtube.com/watch?v=8HPI_HT6yjo

 

 

Wed, 10/20/2010 - 00:17 | 663482 working class dog
working class dog's picture

I thought all the insider trader scum and big whigs that perpetrated the real estate bubble and MBS dung, selling of fraudulent paper to the world,CDS ponzi have left the building with Elvis and their bonuses, (x-goldman scum) blackstone -x goldman scum all have gone private to avoid prosecution, and to keep the party going. I wouldn't turn my back on this PE scum, or leave my sandwhich next to them to go to the bathroom for them to watch over it. The system is broken, moral dilema, if these PE aholes don't have to pay for their deeds, why should anyone else? We need a good cop and some payback.

Wed, 10/20/2010 - 00:17 | 663483 working class dog
working class dog's picture

I thought all the insider trader scum and big whigs that perpetrated the real estate bubble and MBS dung, selling of fraudulent paper to the world,CDS ponzi have left the building with Elvis and their bonuses, (x-goldman scum) blackstone -x goldman scum all have gone private to avoid prosecution, and to keep the party going. I wouldn't turn my back on this PE scum, or leave my sandwhich next to them to go to the bathroom for them to watch over it. The system is broken, moral dilema, if these PE aholes don't have to pay for their deeds, why should anyone else? We need a good cop and some payback.

Wed, 10/20/2010 - 00:26 | 663500 Cammy Le Flage
Cammy Le Flage's picture

Ok.  I will ask again.  The miscreants on this board are usually pretty quick......but,

What is money anymore?  I really don't know.  Please explain.

Wed, 10/20/2010 - 00:46 | 663540 frankTHE COIN
frankTHE COIN's picture

Today money is an IOU backed by our word that you will get payment for the goods or services that you give me today.

In the beginning when the world bartered, EX. a farmer went to mkt with 100 cows, another went with hogs etc. They exchanged the worth of 1 cow for 3 pigs ( or something like that )

We then got the bright idea to have the first money. The Byzant coin made of gold. Now a pocket full of gold could be transported and equaled 100 cows and so on. Our paper currency was thus backed by gold and silver. Now None. In 1873 the Great Long Depression was when USA dropped silver and by defacto left us on the gold standard.

Today it is an IOU. ( That you know we are good for )

Wed, 10/20/2010 - 00:47 | 663542 ebworthen
ebworthen's picture

Very good question.

Currently money is nothing, it is binary data in a database, without electricity and an ethernet connection there are no banks.

Money is illusory, it is a promise, it is faith, it is the belief that if you keep believing, everyone else will.

Money can still be found in precious metals, jewels, labor, food, liquor, tobacco, and sex.

The current medium of exchange lubricating the functioning of our society, however, is barter or binary data.

Wed, 10/20/2010 - 17:25 | 665326 chopper read
chopper read's picture

money is not backed by gold or silver anymore, as you know.  However, it IS back by your slave labor as collateral.  This is MUCH more valuable, because your life is worth more to you than even your gold.  So, unless you stop being an American, then you are on the hook, along with your children, for the "value" of the current debt which is represented by Federal Reserve Notes.  

What is that "value"?  Of course, the exact amount (relative to other "fiat" slaves around the globe) changes all the time.  But, apparently the world believes you are good for it, or there would be a run on the $USD right now.  But this has not quite happened, has it?  

By comparison, the Japanese have been fantastically diligent slaves, and continue to work furiously and obediently in order to finance their interest payments.  They are very patriotic.   

Its a good thing that you've been indoctrinated to be a proud American.  This will likely keep you slaving along for years and years and years for the benefit of Congress, their cronies, foreign lenders, and (most importantly) the private Federal Reserve Bank which issues the very notes that are redeemable for your blood, sweat, and tears.  

 

Wed, 10/20/2010 - 17:31 | 665348 kayl
kayl's picture

This post seems very gloomy. But there is something you can do about it. You can get yourself off the Debtor rolls and handle your own commercial affairs. It takes a bit of education, but it is the shield that protects your security interests.

For example, I didn't mow the grass in the courtyard of a commercial property. The city sent me a Statement of Account for $100 for an administrative penalty. OK. So I accept it for value and return for discharge, settlement, and closure of the account. I make a copy for my record and send them the presentment and a 1040V voucher.

What's the big deal?

Wed, 10/20/2010 - 17:42 | 665372 chopper read
chopper read's picture

kayl, can you walk us through the exact steps as they relate to "gaining control of our commercial affairs"?  What do we do first, second, third, etc.?  

Thu, 10/21/2010 - 01:09 | 665564 kayl
kayl's picture

The first step is education. I read a book by Mary Elizabeth Croft How I Clobbered every cash-confiscatory agency. It describes the debt-based monetary system and the UCC laws pretty accurately. She is a bit dingy, but the info and quotes are great.

Mary and  people like her 20 to 15 years ago tried all sorts of methods. Do not run out and cash checks on closed accounts or any such activity that would put you into dishonor. Read the book many times over many months. However, this is the proprietary information that is causing this class war. Be a part of the solution, begin to understand debt-based money and the Uniform Commercial Code, which is posted on the Cornell Law University website.

When you do that you'll know what to do. Filing the UCC 1 is the first step.

 

 

 

Wed, 10/20/2010 - 01:27 | 663588 kayl
Wed, 10/20/2010 - 03:36 | 663669 tired1
tired1's picture

That was truely an amazing article, thanks for posting.

 

Wed, 10/20/2010 - 16:17 | 665151 kayl
kayl's picture

Thank you, but don't be part of the problem, be part of the solution. File a UCC 1 Financing State correctly and as soon as possible.

Wed, 10/20/2010 - 01:34 | 663595 merehuman
merehuman's picture

gold and silver has been real money for centuries. get some, the dollar is dying the normal fiat currency death. Put food in your house, beware the hungry come december and keep reading this site to educate yourself.  To me money is sunshine and positive thought and being alive this one more moment.

Wed, 10/20/2010 - 08:54 | 663823 Dapper Dan
Dapper Dan's picture

I don't know if you are being sarcastic,  but I think  it is important to learn who you are as a person in relationship to the "world" first.

Search the web for "straw man"        below is a link that may help.   

 

http://www.sedm.org/Forms/MemLaw/StrawMan.pdf

 Cammy,   if you are au courant on this god bless.  

 

Wed, 10/20/2010 - 09:01 | 663838 Jim in MN
Jim in MN's picture

http://www.theonion.com/articles/us-economy-grinds-to-halt-as-nation-realizes-money,2912/

U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion

February 16, 2010 | ISSUE 46•07

Thu, 10/21/2010 - 00:02 | 666037 chopper read
chopper read's picture


money is not backed by gold or silver anymore, as you know.  However, it IS back by your slave labor as collateral.  This is MUCH more valuable, because your life is worth more to you than even your gold.  So, unless you stop being an American, then you are on the hook, along with your children, for the "value" of the current debt which is represented by Federal Reserve Notes.  

What is that "value"?  Of course, the exact amount (relative to other "fiat" slaves around the globe) changes all the time.  But, apparently the world believes you are good for it, or there would be a run on the $USD right now.  But this has not quite happened, has it?  

By comparison, the Japanese have been fantastically diligent slaves, and continue to work furiously and obediently in order to finance their interest payments.  They are very patriotic.   

Its a good thing that you've been indoctrinated to be a proud American.  This will likely keep you slaving along for years and years and years for the benefit of Congress, their cronies, foreign lenders, and (most importantly) the private Federal Reserve Bank which issues the very notes that are redeemable for your blood, sweat, and tears.  

Wed, 10/20/2010 - 00:27 | 663503 Cammy Le Flage
Cammy Le Flage's picture

Mr. William Banzai....I frankly have been looking for the cookie monster from you for months....damn it.   What's a dog got to do to get a drink around here?   Cookie Monster.  Where is it?

Wed, 10/20/2010 - 02:17 | 663630 williambanzai7
williambanzai7's picture

Wed, 10/20/2010 - 08:38 | 663797 Dagny Taggart
Dagny Taggart's picture

+1342! See, warm and fuzzy ridicule works too.

Wed, 10/20/2010 - 16:13 | 665144 Arkadaba
Arkadaba's picture

Love it! WB7 are you archiving these anywhere? I know I've missed a bunch.

Wed, 10/20/2010 - 00:39 | 663524 Quinvarius
Quinvarius's picture

If the SEC and the exchanges would stop cancelling the HFT losing trades when they cause a flash crash, we'd see these things disappear pretty fast.

Wed, 10/20/2010 - 00:55 | 663549 Bartanist
Bartanist's picture

If TPTB are going to turn the running and manipulation over to the computers, then they should at least stand behind their flawed programming and take their lumps.

It was all going to be a panacea. Lower costs, more efficient controls, greater liquidity... one button control of manipulating the market in perfect correlation. The computer control is consistent with moving the casino market gamblers away from individual stocks, which are limited in share count and by fundamentals, to ETF that are unlimited in share count and can be modified and manipulated at will. The ETFs are true, untainted electronic casino chips. They have no story, no life and the potential for infinite volume.

ODD THAT THE PUBLIC DOES NOT TRUST THE MARKET OR ITS CASINO MANAGERS, EH?

Wed, 10/20/2010 - 00:45 | 663536 snowball777
Wed, 10/20/2010 - 00:46 | 663541 Cammy Le Flage
Cammy Le Flage's picture

Cookie Monster.   Cookies.

Wed, 10/20/2010 - 00:59 | 663557 tired1
tired1's picture

can anyone remark on the timing of these latest dislocations? It seems as though financial events are unravelling, by design. I though the great unwind would begin some years from now, triggered by SS collapse. It seems that the banksters forsaw the banking system demise and are using this particular administration to squeeze the last bucks out.

What's the next play?

Wed, 10/20/2010 - 01:10 | 663567 wisefool
wisefool's picture

The same as it has always been from people who know: Scotch 24+ years old.

But my advice for the young people is. Don't fool around too much, you all fool around to much. Marry Young. Marry for Love. Stay Married. Watch a couple of Episodes of South Park, Glee, 30 rock, Family guy,etc but not much more than that, cause it is the same satiric signal generator it was when "the Bard" forgot to turn it off.

NEVER get your news from a mainstream network. Seriously, learn how to grow a garden. Not planting seeds or watching it on PBS. Seriously learn how to grow a tomato so that when it gets ripe you wont have to pay $15/lb for it.

Wed, 10/20/2010 - 01:51 | 663613 frankTHE COIN
frankTHE COIN's picture

I dont know who junked you but a lot of us loved what you thought and wrote. ( now watch me get junked )

Wed, 10/20/2010 - 02:31 | 663641 tired1
tired1's picture

Far too old for that. Been married twice, kids grown up (without me). Been spending my spare time traveling Europe as funds allow and looking for a place where at least the madness is tangible. Some parts of Spain are ok, Ukraine and Russia might be better bets.

As for info, what can I say. I used to read the original Pravda and found it remarably similar to the NYT. I find a little piece of truth here and there, over the years the shape of truth becomes clear - like the blind trying to describe an elephant to each ither by their sense of touch. My conclusions are very sad and I keep them to myself. Why burst people's bubbles. I do miss the obliviousness of youth.

I don't need much to be content: good simple food and good company if available. Been alone for so many years that I've become comfortable with myself. Been trying for years to have my needs coincide with my desires, I'm getting there.

 

Wed, 10/20/2010 - 07:01 | 663718 Ethics Gradient
Ethics Gradient's picture

Rural France gets my vote.

In the best parts, everyone knows how to make bread, brew alcoholic drinks and shoot the wildlife.

On several occaisions whilst lounging in various rented Gallic bucolic idylls I've been tempted to think that maybe CAP was worth it after all....

Wed, 10/20/2010 - 01:18 | 663575 Miles Kendig
Miles Kendig's picture

This is correct: courtesy of HFTs stocks are now far overvalued, as seen by the scarcity of MBO, LBO, IPOs,  and various other M&A types of events

It is this impairment of the M&A cycle that is being felt, and will continue to be by the investment bank/s.  Both of them.  I wonder if this condition will persist through the GM offering as we already know that the function of breaking up large failed companies and making its parts profitable, the very foundation of M&A is going the way of price discovery and other such quaint notions

Wed, 10/20/2010 - 01:21 | 663579 thegr8whorebabylon
thegr8whorebabylon's picture

God bless you Mr Rosewater.

Wed, 10/20/2010 - 02:15 | 663635 Herd Redirectio...
Herd Redirection Committee's picture

"Remember: Ben Bernanke is out there. It can't be bargained with. It can't be reasoned with. It doesn't feel pity, or remorse, or fear. And it absolutely will not stop, ever, until both the middle class, and the dollar, are dead."

I like that, its really classy.  And its right in line with a new project I am involved in called PsychoNews  http://bit.ly/aPAuzS

We are trying to document and identify the psychos in high-profile positions, but Bernanke will just have to wait in line for now.

Wed, 10/20/2010 - 06:19 | 663704 Manipulism
Manipulism's picture
Armageddon: What Democrats Are Hiding & Why They Are Really Scared

If Democrats were running a corporation, their actions would be criminal.

http://www.redstate.com/laborunionreport/2010/10/19/armageddon-what-demo...

This will be the black swan.

Wed, 10/20/2010 - 06:31 | 663707 Manipulism
Manipulism's picture

I can not believe it:

"Kicked, Set on fire, Beaten to Death": Shocking Rise of Violence Against America's Homeless 2009 was the deadliest year for hate crimes committed against homeless people. http://www.alternet.org/story/148486/%22kicked%2C_set_on_fire%2C_beaten_...
Wed, 10/20/2010 - 06:46 | 663713 AnAnonymous
AnAnonymous's picture

Quite surprising. By my own network, homeless people are the targets to elect if you feel like killing someone in the West. Most crimes against them are poorly investigated. Using weapons is strongly unadvised. Beating to death by bare hands is the best when it comes to non investigation.

Bragging like the idiot skateboarder is not recommended too.

Wed, 10/20/2010 - 09:25 | 663895 SpeakerFTD
SpeakerFTD's picture

That is brilliant. 

Wed, 10/20/2010 - 08:40 | 663800 twotraps
twotraps's picture

The HFT thing is part of normal, uncomfortable destructive growth.  At some point, didn't they have to vote to allow phones on the floor of the NYSE?  I'm sure people were against it, imagine how it turned the business upside down!  Computerized off-floor trading offered anonymity and lower cost....I remember when grains first went electronic, totally took off.  Huge volume.  I don't agree with pimping the system here and there for 1/100th of a cent but its part of the larger process.  Anyone want to go back to specialists and fractions....we are spoiled rotten with the speed and access to information and execution. 

Wed, 10/20/2010 - 11:42 | 664312 michigan independant
michigan independant's picture

“then the only way to reestablish the dominance of fundamentally driven stock prices is to have money flow into investment products that feature human decision making at the core of the investment process.”

“and we have demonstrated repeatedly that algorithms have an upward trending momentum bias in which self-sustaining fractal feedback loops create a micro pyramid scheme, in which incremental losses are compensated by millions of daily liquidity rebates, rendering the risk return profile of a top ticking event moot.”

It is tough to nail down the exact start of any important trend.

The mindset is LEAN forward.

What we do know is we will never again be able to get sufficient growth of the current economy to eliminate or even markedly reduced unemployment. NAFTA, GATT, and hope of growing the economy to solve unemployment are doomed to failure so wake up and move on to the next predicated cycle.  The promise of competing in the global economy is a hoax perpetrated upon the working and unemployed people of this country because over time a nation needs to buy and sell overseas in roughly equivalent amounts. Those who think we can continue to have business as usual will use increasingly desperate means. The global principles nowadays are in ways rather baffling because there's no doubt about it that the tendency of the globalist groups now exist who are very powerful, is to limit the population of the earth. It is to make certain continents both dumping grounds and extraction grounds, that is, grounds where waste can be dumped and where the goods of the earth can be extracted. You can foresee the time when the Congress and the Senate in the United States will similarly be engaged in local matters but nothing major, nothing continental and certainly nothing global and that is gradualism’s testimony of reality.  It is the set of institutions which now prevails which creates the new attitudes which are so inimitable to prosper such as Sweden and Switzerland which have escaped the damages of two wars and have become repositories of a large part of the capital of Europe. In Switzerland, there is still some traditional instinct against government interference. Switzerland is a marvelous example where, when the politicians become too progressive, the people hold a referendum and promptly says, "No!" The German prosperity is due, to a very high degree, to the reasonableness of the German trade-union leaders, which in turn, was due to their experience with inflation. My argument really is that we know so much detail about economics; our task is to put our knowledge in order. We hardly need any new information. Our great difficulty is digesting what we already know. We don’t get much wiser by statistic information except in gaining information about the specific situation at the moment. No, only further impoverishment awaits the Anglo-American free-market masses. Favela living, it's not only for Brazilians anymore. Looking at American households alone, in 1978 their total debt came to 79% of total employee compensation (wages, salaries, pension contributions, etc.). Today, this figure has more than doubled to 174%. The government is not the solution to our problem the government is the problem.

May 25, 2006 CONGRESSIONAL RECORD—SENATE

FEDERAL HOUSING ENTERPRISE

REGULATORY REFORM ACT OF

2005

Mr. MCCAIN. Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were ‘‘illusions deliberately and systematically created’’ by the company’s senior management, which resulted in a $10.6 billion accounting scandal The Office of Federal Housing Enterprise Oversight’s report goes on to say

that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation

for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election

Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform. For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac— known as Government-sponsored entities or GSEs—and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to

be reformed without delay. I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform

Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole. I urge my colleagues to support swift action on this GSE reform legislation.

 The fact of the matter we all knew this was going on and it will not stop since it's not that government has lacked information needed to fix the problem. It is institutionally incapable of bringing about the desired result, since the principles of profit and loss, private property and contract, enterprise and entrepreneurship, do not exist in government. Any Government operates with an eye to its own short-term survival, and those of its connected interest groups, and nothing else. Mises

 It will not matter who you vote for! Prove me wrong...


Market exchange is merely a sham. AIl the wages, prices, and interest rates are fixed by the government; they are wages, prices, and interest rates in appearance only; in fact they are merely quantitative terms in the government's orders determining each citizen's job, income, consumption, and standard of living. The government directs all production activities. The shop managers are subject to the government, not to the consumers' demand and the market's price structure. This is socialism under the outward guise of the terminology of capitalism. Some labels of the capitalistic market economy are retained, but they signify something entirely different from what they mean in the market economy. It is necessary to point out this fact in order to prevent a confusion of socialism and interventionism.

 

Wed, 10/20/2010 - 21:52 | 664313 michigan independant
michigan independant's picture

then the only way to reestablish the dominance of fundamentally driven stock prices is to have money flow into investment products that feature human decision making at the core of the investment process.

and we have demonstrated repeatedly that algorithms have an upward trending momentum bias in which self-sustaining fractal feedback loops create a micro pyramid scheme, in which incremental losses are compensated by millions of daily liquidity rebates, rendering the risk return profile of a top ticking event moot.

It is tough to nail down the exact start of any important trend.

The mindset is LEAN forward. Tight supply chain inventorys.

What we do know is we will never again be able to get sufficient growth of the current economy to eliminate or even markedly reduced unemployment. NAFTA, GATT, and hope of growing the economy to solve unemployment are doomed to failure so wake up and move on to the next predicated cycle.  The promise of competing in the global economy is a hoax perpetrated upon the working and unemployed people of this country because over time a nation needs to buy and sell overseas in roughly equivalent amounts. Those who think we can continue to have business as usual will use increasingly desperate means. The global principles nowadays are in ways rather baffling because there's no doubt about it that the tendency of the globalist groups now exist who are very powerful, is to limit the population of the earth. It is to make certain continents both dumping grounds and extraction grounds, that is, grounds where waste can be dumped and where the goods of the earth can be extracted. You can foresee the time when the Congress and the Senate in the United States will similarly be engaged in local matters but nothing major, nothing continental and certainly nothing global and that is gradualism’s testimony of reality.  It is the set of institutions which now prevails which creates the new attitudes which are so inimitable to prosper such as Sweden and Switzerland which have escaped the damages of two wars and have become repositories of a large part of the capital of Europe. In Switzerland, there is still some traditional instinct against government interference. Switzerland is a marvelous example where, when the politicians become too progressive, the people hold a referendum and promptly says, "No!" The German prosperity is due, to a very high degree, to the reasonableness of the German trade-union leaders, which in turn, was due to their experience with inflation. My argument really is that we know so much detail about economics; our task is to put our knowledge in order. We hardly need any new information. Our great difficulty is digesting what we already know. We don’t get much wiser by statistic information except in gaining information about the specific situation at the moment. No, only further impoverishment awaits the Anglo-American free-market masses. Favela living, it's not only for Brazilians anymore. Looking at American households alone, in 1978 their total debt came to 79% of total employee compensation (wages, salaries, pension contributions, etc.). Today, this figure has more than doubled to 174%. The government is not the solution to our problem the government is the problem.

May 25, 2006 CONGRESSIONAL RECORD—SENATE S5217


FEDERAL HOUSING ENTERPRISE REGULATORY REFORM ACT OF 2005

Mr. MCCAIN. Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were ‘‘illusions deliberately and systematically created’’ by the company’s senior management, which resulted in a $10.6 billion accounting scandal The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform. For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac— known as Government-sponsored entities or GSEs—and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay. I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole. I urge my colleagues to support swift action on this GSE reform legislation.

 The fact of the matter we all knew this was going on and it will not stop since it's not that government has lacked information needed to fix the problem. It is institutionally incapable of bringing about the desired result, since the principles of profit and loss, private property and contract, enterprise and entrepreneurship, do not exist in government. Any Government operates with an eye to its own short-term survival, and those of its connected interest groups, and nothing else. Mises

 It will not matter who you vote for! Prove me wrong...

 

 

 

Wed, 10/20/2010 - 12:38 | 664482 chopper read
chopper read's picture

HFTs = "hungry, hungry algoes!  hungry, hungry algoes!!"

http://www.youtube.com/watch?v=8HPI_HT6yjo

Wed, 10/20/2010 - 13:57 | 664688 Stuck on Zero
Stuck on Zero's picture

Why would anyone in their right mind send their money to Wall Street?  HFT is just one more reason to manage your own money.  Buy a rental, raise sheep, buy precious metals, open a business, invest in real estate, go into a REIT, buy foreign currenccies, etc. etc.  Boycott Wall Street.

Sat, 11/13/2010 - 08:30 | 724516 mark456
mark456's picture

Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic.
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