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Not So Paranoid Ramblings On Isolated Futures Gunning, And How HFT Has Cost The US Economy 22 Million Jobs
SPY gunning was part of the Fed's spring/summer collection. Fall/Winter is all about the ES. With all the SPY IOIAs broadcast for the world to see, and JPM's clients not too happy that pop media like Zero Hedge makes it all too obvious when Jamie Dimon's boys are executing market manipulation orders for their prime quant clients, the latest way to drive the market higher, especially on days like, well, everyday when there is no volume to speak of, is by AUG-Steyring the futures market. Our friend, the Pragmatic Capitalist does a pretty, pretty, pretty convicing job of demonstrating just how that happens.
I don’t know if any characteristic of this massive 6 month rally has
been more apparent than the huge futures run-ups we’ve seen at random
points during the trading day. Without news, the S&P 500 futures
get gunned on huge volume and surge higher. I’ve seen it at least
every other day for 6 months. It tends to occur on low volume days
such as the one we’re currently experiencing. As you can see in the
chart below, the futures are getting gunned on massive volume without
any coinciding volume in SPY. This means an institution is jamming the
futures higher knowing that they can drive the market higher on no
volume. Effectively, they can take out every asking price with a large
enough order and immediately create a 0.25% bump in the market in no
time. If you’ve been wondering why we’ve seen huge surges on low volume days and conviction high volume selling on down days
this explains much of it. I don’t know if there is malfeasance behind
this or if the buyer is simply too stupid to input trades at the bid
(like most rational investors
do as they try to achieve the best low price), but this is certainly an
odd phenomenon that I cannot recall occurring so routinely over the
course of my career. Who is the mystery institutional buyer that just needs to place their huge block orders with such urgency?
And in the "more tin-foil hat" category we present this report by the black helicopter fearing men of Grant Thornton which summarizes many of our, Themis Trading, as well as Senator Kaufman and Schumer's concerns about what is happening to the no-longer free markets, and in fact, the overall economy, courtesy of the casino style strategies that have become the norm with the advent of high frequency trading. It may have cost 22 million jobs, but at least HFT provides liquidity and tightens spreads in AIG, C and FNM. Fair tradeoff.
Some highlights:
- The decline in the number of U.S. listed companies has cost our economy millions of potential jobs.
- Market structure changes began to erode support for small cap stocks and eventually worked their way up to damage the support for larger companies.
- The results of low transaction-cost Casino Capitalism are that short-term, high-frequency traders are squeezing out long-term investors, the listed market for public companies is in decline, and this decline is taking the U.S. economy with it.
- The small and micro cap markets have in many ways become a Hotel California – companies check in but they can’t check out by going private (except through delisting, bankruptcy or acquisition).
- The need for improved stock markets has never been greater. Bridging the widening gap between small cap and large cap issuer needs should be a national imperative
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funny to see the technical analysis on the one hand and the sister intervention pieces. If you believe the later than the first is just a useful tool for the complex to tout.
Cricket sounds from the White House, Treasury, and Fed...
Someone on my site just referred to this as "God's work". Classic.
LOL!
I used to trade US markets a lot, but gave up quite a while ago. I went to trade other things but it seems that they are now increasingly piggybacking the US market, so looks like I will give up that shortly too and go away for a few months till valuations eventualy take hold.
I would not buy into the up move based on fundamentals, so I am not allowed to short so I have to wait till they have finished the squeezing and there are no more buyers left to buy and no sellers either.... like oil at $135..
When the buyers are exhausted completely then it won't take much to turn it because the shorts won't be there to support the fall.
How much further can they get people to keep buying? If the consistent drop on volume on updays is anything to go by, shouldn't take too much longer
The federal reserve will always be there as the buyer of last resort.
Until it isn't.
One has to ask, "when will the federal reserve sell all the assets it has purchased with our money?". I assume if they were to sell all of the assets at the same time they could single handedly crash all asset classes. This provides them with incredible political power, ensuring they will never be audited and whatever else they want from helpless representatives (threat - or we'll kill the markets). The leverage that the banks have been allowed to take only gives them a bigger stick to beat the middle class and ensure they will always win on market direction.
Private bankers got together, took over governments, and have set up a world government structure that they are now actively trying to transfer power from sovereign countries into the new government government that they control (IMF, UN, World Bank, Central Banks). Cap & trade is an important part of their plan, they own the third world countries completely and these countries will not have the restrictions - wealth will be transfered from the US to their 3rd world countries. The people of this country are the last to be conquered.
Beautifully orchestrated, eh? Very sad. Knowledge can be quite depressing. I want to go back to sleep. Jerks. I hope it explodes in their face.
GG - everytime I read one of your comments, I read it in my head in the voice of GG. I wonder if I am the only one who does this?
Honestly, this is the dumbest report I have ever read. To link the cause of diminishing numbers of listed companies in the US to diminishing commissions is absurd.
Also, to claim that before 2000 that investors gained from research and sell side services is laughable and biased to say the least.
I think I will go write a 44 page report on how two events have a cause effect relationship simply based on the correlation of some math....say the decrease of commission in market structure and how that has lead to a more liberal congress. Laughing...actually, my new report will have more merit.
Its this kind of economic thinking (not to mention extremely long winded at 44 pages) that is the root cause of many of our economic pains. Utter retardation....seriously, this is the worst thing I have ever read
Seriously...check out exhibits 8 and 9...geez, you think that the decline in NASDAQ listings had anything to do with the internet boom-bust? You think the decline may have been because none of these companies had any earnings? Nope, these authors think its because market structure was changing. I am crying of laughter. Zerohedge...this sucks...you should remove this post
not to mention the M&A mania of 2003-2007 - target companies were swallowed up.
When I read the author's conclusions: a suggestion of a return to minimum of 10c and 20c spreads and a telephone brokered market, I thought the entire piece was one big joke to see if they could manage to get the internet masses fire up about a piece that is blatantly absurd. Like, the guys at GT were sitting around and said "hey - I have an idea - people will rally behind anything these days - let's suggest that we mandate 20c spreads, and eliminate all technological advancements that the markets have made in the last 20 years - heheheh - I bet they'd STILL go for that!"
Right -- credit has been relatively cheaper than equity for, ohh, how long now? What? Since about 1997 when the domestic credit bubble started to inflate? I wonder if this has anything to do with it . . . .
What I also find remarkable is that there is no mention of other changes in securities law since the mid-1990s. I mean the PSLRA passed in 1995 -- which should have, in theory, made the US IPO and public equity market more attractive. Same with more recent pro-issuer common law developments in causation and pleading standards (Dura Pharma, Twombly, etc.). Maybe all of the protection provided issuers has had the unintended consequence of making investors more skeptical of the market, knowing that only the most egregious examples of corporate fraud will yield any recovery.
You have a "tell". All of your posts are (relatively) grammatically correct as is your punctuation. Your use of complete sentences accentuates your relevant references; with examples even. I'm onto you...
How about the nonsense with ES volume not being relected in SPY volume. Even on good volume days nominal ES volume traded is 6-10 times more than nominal SPY volume. And no matter where the volume is the arbitures keep stock/index prices in line. Why does it matter where the money is being put to work. Retarded post.
Cool. I've been talking about the /ES vs SPY volume discrepancies for months over on TF. There are 3-4 months of hourly reports on it in the contrib section there.
If you really want to see the difference, take /ES volume and compare it to it's 30dma for that particular aggregation period (1hr is quite useful) and spy compared to it's 30dma for the same period and look at the difference between them.
Just so you're aware, this correlation of /ES leading the market up all the time started falling apart on FOMC day (the HOY for SPX) Futures led the collapse BIG TIME and then have led on every violent move down since then. It's still very useful because if /ES is leading and there's a decent trend up or down, that trend will usually last for at least 2-3 hours.
geez, you think that other markets have grown relative to the US as their technology has improved and caught up? Do you think ADRs have moved back to their home markets now that technologies abroad have caught up and the foreign markets are more stable? Really, this is so bad I cant stop reading it to tear it apart
and thinking of gunning futures etc... how convenient a thin market and
Lacker: Economy in 'pretty good shape' Lacker: Consumer spending likely to trend higherHA HA HA
Echoes of sub-prime is well contained crystal ball gazing methinks!
Careful now, that Hopium is strong stuff!!
Makes you see all kind of weird and untrue things like lots of jobs 'created'
success of modifications but there is such a back log of shadows that are held back to create a false impression
Tell the over 20% of the US that have no proper job how unemployment is 'only' 10%
I really feel for those that started trading in the last few years thinking that it was a game for intelligent money and if you studied hard enough the factors involved you might get good at it...;LOL That was me.. Now Ive known since about May that something was wrong with that theory.I mentioned to my stock trading room around May that I would be rich if I just did the opposite of every trade we executed, They laughed, I was right. Thanks to psychological warfare black box trading algorithms that worked on the principal of trading the traders rather than trade the markets. I think the market is more like the carnival game. The HFT is the shill telling you when to get in and when enough traders are trapped behind the lines the play gets jacked up then dumped. Good luck out there figuring out which cup the ball is under, because its gone now!
Perfect analogy - It is almost as if they added behavioral analysis based on your past actions to individually trade against each party. I am not exagerating and this would explain the desire to go in dark pools - they have the computing power to trade against every individual.
Because of massive asset correlations and the potential for programs to go against individual positions based on trading behavior, I think the safest spot for individual investors is to be in or out of the major indexes (DJIA) and (S&P) or their components that are essential for "convincing" the public to buy this holiday season. That would be the only reason to be long short term, particularly on the international corporations with a large portion of sales overseas. Retailers will survive or go bankrupt based on sales this holiday season.
"they have the computing power to trade against every individual" - LOL!
I dare them to trade against me, my entries and exits are completely random....
It's a political rally, there is no upside to trading firms, they make money in either direction as do a lot of traders. There is only upside for the political class, they need to point to something to justify the bailout/bks/shakedowns. Conversely, if they pull the plug, the downside for Obama is more than a lot, it would be the end of his reign.
If the money doesn't make sense, follow the power.
Don't fight the fed. If you can't beat em, join em. If you can't take the heat, get out of the kitchen. Blah blah blah. Same ole, same ole. Nothing new here. Move along. Thank you.
Yes, I agree,
this is like a gambler at a casino who is betting all he owns and all his credit on the outcome.. he can't stop because he is in too deep.
Fail and it is the end of the world for him, win and it was worth the risk he thinks... until the next time... because the Fed can't stop blowing things up
(and no I haven't read the report yet, just having a moan about idiotic things are!)
"This means an institution is jamming the futures higher knowing that they can drive the market higher on no volume."
(pleasant woman announcer voice) "Captain Nemo, Captain Nemo. Please report to the deck with a large spear."
The large spear is a hologram and not real money, just fake Bernanke dollars that lose their worth day after day
But they have trained the sheeople to be guided by Godmans Suckers
Page 22 indicates several illegal activities that would further cause harm our markets. Geez, so, you think the current laws should be enforced - youre smart.
Love page 24 and the so called brain drain when the sell side lost so much of its talent to the buy side. Hysterical...economic analysts leaving, retail brokers getting fired, Henry Bloget fired...and all the other analysts calling for BEAS to 5000 and GOOG to 20,000. Thats the brains we lost...cya later. Now, if there was any talent drain to the buy side, looks like investors can still participate in their brains via investing directly into the buy side funds - therefore eliminating the sell side middleman who is offering little if any value. Sounds like a growth of efficiency to me - not a reason for tons of companies delisting. Again, this is so easy to pick apart
Please quit saying "geez" it's kind of annoying, just succinctly make your point and don't try so hard to be cute, thanks
geez what a crank.....:--O
page 25 - saying how short term trading has increased volatility. Oh really, so the fact everyone and their mother over leveraged themselves and was too stupid to read that their mortgage would reset in a few years isnt the cause. Barney Frank and congress lowering lending requirements and subsidizing home loans and forcing banks to give loans to economically challenged buyers was not the real reason for the collapse. 40-1 leverage at banks and brokers had nothing to do with it - it was all the bastard day traders. hysterical read...I cant stop myself
The thing I love about complaints of increased volatility..we haven't had a limit down day in the S&P since 9/11. Isn't that good? Isn't that at least an indication HFT stabilizes the market?
Those of us in the Ag sector know the banks and hedge funds already killed the abilty of real hedgers to use the markets. These clever boys were up aginst the CFTC position limits for speclators so they all bought some grain silos, a feed lot or two and then some storage space and suddenly they were hedgers in the eyes of the CFTC.
These social investros then proceeded to run the markets way beyond any rational level. The farmers, elevators, feed lot operators and everyone that uses the futures markets to hedge risk were margin called to death. When the cost of interest on the margin calls got to expensive the hedger had to puke their positions.
There is a congressional investagation that has found evidence to spport the claims of market manipulation. The CFTC has yet to publish any findings.
page 28 - - -the loss of jobs overseas is called international wage arbitrage - and really has zero to do with cheaper commissions at Ameritrade. Seriously...
Agree "wage disparity"
page 31 - one solution they offer is the return of the specialist who investors would call via telephone. I am crying I am laughing so hard
other solutions include self regulated minimum spreads set by your trading firms. Great idea...no room for any abuse here. All they want is things to go back to a specialist run system - but no longer accessible by internet - - you must phone in. For this great new service, we will again receive the great sell side advice prevelant in the late 90's that all but wiped out peoples retirement funds in 2000 - 2001. No worries though, because this will allow a commission to be paid to your sales broker.
This will fix everything...thank god
Geez Ricketts, we got the point about 20 posts ago. If you want to talk this much, get your own fucking blog.
Rickets, thanks for the analysis. Many similar thougths were going thru my mind as I was reading the report. I kept thinking "they want us to pay more to them as if 'them" did very much to deserve it?"
Your historical links to the "sell sides" fantastic previous services had me also laughing uncontrollably.
These guys were just different types of snakes than what we have today!
"Who is the mystery institutional buyer that just needs to place their huge block orders with such urgency?"
Umm...the federal reserve?
Maybe the government should charge a super high delisting fee?
That would solve the problem, wouldn't it?
Thanks again ZH.
Page 4 "We urge Congress and the SEC to hold immediate hearings..."
Seriously?
Ha ha.
ES is the market, not SPY. Seriously the arb is there. If there are sellers in SPY then there will be sellers in ES. Period. No one can gun futures and just have SPY magically follow. HFT keep this relationship very tight (hence the charts look exactly the same)
Best way is to not play the game. Would you walk in and play at a casino where you knew you couldn't win? I'm simply closing most of my accounts, quit trading completely, and on to pursue other ventures with my capital. When things change, I may take up trading again. For now, I'll let all the guys who "have to trade" lose their money. Good luck!
The overnight (3am) futures ramps have done a hell of a lot more to keep these rallies alive than any 10 am or 3 pm ramps. Good grief look at the charts! Opening gaps are everywhere!
The parallels between trading/Wall St being a gaming platform is just to real, I can substitute every piece of jargon back and forth between the two.
The thing I can't get over is, the idea that hooking up to the platform and analyzing the information streams is sufficient in this day in age. Hell to be a world class gamer one needs cutting edge hardware/software//C++ knowledge and application, not just sub-ing it out to someone else either.
HFT is just an exploit over everyone else and dark pools are a low tech counter strategy, when quantum comps come on line watch out guys and gals cuz if we can cause this much damage with today technology and algos wait for that processing power/speed that will unlease. Oh and who will be the first kids on the block with that new toy..eh..not me or you, but the kids with rich parents aka GS et al.
Skippy...umm wonder if the military will be trading soon as they always get every thing first?
As always GJ ZH.
ZH
Could you investigate whether the change to trading accounts have caused a lot more stop running?
For example credit accounts were widely available but now you can only get accounts where you have to place stops before you can open the position
I think this has opened a whole new market of gunning the stops as I have found that they tend to got to set levels even more that before.
They run the stops overnight to clean the deck and then can have a nice wide swing lined up for next day's action
This is trading game played by those brought up with computer games now, not company profits, yields or outlooks
Im going to bring up the rear with this thought. Ive become a student of Wall street sayings mainly because I thought they were so much crap untill I realized most of us would have done much better to listen to the "Climbs a wall of worry" that one I just could'nt wrap my mind around till I saw it in action. Now I look to the saying "the market moves in ways to make the most people wrong" and I really believe that one. So Im on the side that says you dont need to fight the FED there will be a market correction of SPY to 95 or lower just some sucker punch from left field the market doesnt see coming like every jobless family shopping Craigslist for Christmas.
Thats how I'll get around that "makes most people wrong " clause? LOL
I think Ricketts must work on JPM's desk. he can't stop talking about the Grant Thorntan paper (seems to be bs) but does not mention PC's point in his post. tell Jamie we said hi.
my thought as well....too much "hysterical" laughter really
The data is rather misleading since it only goes back to 1991, see below an extended time frame. While the issues are still relevant, maybe too many simply went public in the 90's and there is noone else left (at least not in significant numbers).....
http://www.tradersnarrative.com/will-the-ipo-drought-end-in-february-2009-2248.html
Ok ....here it is....
Look....the exchange can be rectified by simple regs....and tax structure change....
1) No taxes on any securities....none....0....
2) Regulate the size of the players....ie no hedge funds
over $100 million....none....
3) No minimum account size....invite the rest of the world...particularly India and China....language and currency of choice....
4) Standardize/wiki format all fact type securities information....
5) Make margin simple....4:1 for both intraday or overnight....
This will do it....
The $100 million max fixes the GS type issues....
You're just jealous cause you can't land a job at an HFT shop. Go HFT!
If anything a bunch more companies should be delisted. The ptb is propping up zombie corps forcing malinvestment by the pension funds buying indexes. As for the declining volume there are a shitload of reasons for that, I shouldn't have to list them: Counterintuitive market manipulation, declining employment, budget shortfalls, lack of home equity withdrawals, flight to safely, on and on. As for the market being manipulated higher by the squid-fed et al, bang on.
Whos this mystery trader? Why he's none other than uncle fed. How dare we lose faith in our publicly traded companies. Those companies are incorporated and have limited liability and we deserve all the abuse they can give us. KEEP THE FAITH.
Maybe futures get the volume spikes instead of SPY because the futures market has better microstructure. One pool of liquidity, first come first served, no dark pools, no liquidity rebates.
I am a little shocked, this report is based on nothing. Causation vs. correlation much? Are we really supposed to believe that because there are more traders paying less commission - there are less IPOs? This strikes me as absurd, more and more traders participating in the market is a good thing, not bad.
Claiming that people like ourselves should pay more in commissions to support companies is silly and anti-free market.
Another idea.
How about the fact that people's investments and savings have fallen in the age of cheap credit. Banks have been too busy funneling their cash into mortgages and securities as that is a bit more profitable than venture capitalists and IPOs - especially after dot com bust. As of recent, banks are not lending and we know it. Number of IPOs has shrunk for the same reason people's wages have dropped and its impossible to get a loan. We are contracting or at least a part of the economy that is not artificially propped up is contracting.
I see no merit to this report, one bit. IPOs are shrinking and it is bad...true. Its a reflection of our lopsided economy, nothing more.
arkady
www.rightcondition.com
In a long series of silly posts about HFT, this one must surely take the prize for being not only the dumbest, but also the funniest by a mile.
This has got to be a joke that someone ran with right?
Fewer listed companies because of HFT?
SNORT!
Bitching about HFT has been overplayed when fewer listed companies is purportedly a consequence of HFT.
What's next, HFT causes cancer? Impotence?
The primary cause of fewer listed companies in the U.S. is Sarbanes-Oxley. Punkt.
More correctly stated, overwhelming government regulation is choking out entrepreneurship.
Want to spur the economy? Want to put 20 million people back to work?
Call a holiday on all regulatory fees necessary to start a business legitimately. Call a tax holiday of three years for any closely held startup -- meaning, fewer than 25 owners.
And watch all those unemployed wanna-be working folk get after it.
Tax holiday idea is nice. If you read closely, the article uses HFT as a catch-all lable for naked short selling, predatory short selling to force delisting, credit default swaps, secrecy of hedge fund positions and leverage as well as HFT. Regulators have the tools to fix naked short selling, predatory short selling, and hedge fund margin (leverage) right now, but they have not enforced their own rules.
Grant Thornton....an auditor....is qualified to opine on these things ?
It's an all in bluff by Goldman et al. as it's the only option they have. They're out of business and perhaps even serving time if they can't keep these markets levitated.
How can it be a bluff when the US government backs up their riskiest bets and loans them money at par against collateral worth less than used condoms?
It's a great big fucking joke.
If all the buying of futures happens overnight in the US, it may be Europeans buying it as it is their work time. But who exactly? And could it be on behalf of someone else? Hard to know the answer.
But what is clear is that the market has been moving higher. Shorting it is a recipe for disaster. If an investor goes with the flow, she can make money from it. Both on the upside and the downside of the market.
time123
admin: http://invetrics.com
In these times of dire need, those that have the wheretoall make the changes necessary for the yachts, will find that heavens rewards await them.
Goldman Sachs is doing the work that needs to be done. So says those that say it needs to be done.
Sanchned baby, eat it.
You all do realize that this is one big report to say:
"SOX didn't cause any problems, its great for investors, so dont take away the requirement for companies under $75 Mil revenue as is currently included within the House Financial Services Committee Bill"
I'm impressed that they mentioned naked short selling and predatory short selling as destructive and toxic to capital markets on page 22.
This article's strength is that it gives some quantitative approaches to assessing how much wealth was stolen through naked short selling. The situation was described at http://www.deepcapture.com and now we have some numbers for the size of what must be recovered from the criminals. I expect to see the trial lawyers get involved next.