Rosenberg Joins Anti-HFT Crew: Notes Massive Equity Outflows, Blames Churning, No-Volume Melt Up On HFT

Tyler Durden's picture

One more man awake to the farce that are stocks. Although this being a man as realistic as David, it is not much of a conversion. We can only hope that by 2099 Mary Schapiro's just as blatantly incompetent successor will finally dare to take on the Wall Street lobby and bring some normalcy to capital market topology, instead of nickel and diming micro prop shops which do nothing worse than what the biggest Supplementary Liquidity Providers do on a daily basis. Speaking of, it has been a while since Irene Aldridge was on CNBC defending the practice of small- and medium-investors scalping.

From Breakfast with Rosie (Gluskin Sheff)

Those who have continued to believe that the boomer demand for yield was a fad may have to go back to the drawing board because week after week, and month after month, all the data show that households are embarking on a deliberate move to redress their underweight in bonds and overweight in equities as it pertains to their desired asset allocation. So yet again, the ICI numbers showed that last week, bond funds took in a net $5.73 billion inflow while equity funds posed a net redemption of $1.1 billion (on top of a $9.7bln outflow the week before). Equities have not recorded a positive inflow for one week since early May! So it goes without saying that whoever is driving this market higher is not where the wealth and savings are in this society as much as the high-frequency traders, and rest assured, these guys move in both directions.

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centerline's picture

Thanks TD for constant flow of articles, thoughts, data, etc.  I simply do not know how you do it.  Regardless, it does not go unappreciated.

MichaelG's picture

Well, I think we're probably talking 'TDs', but either way, couldn't agree more.

Thunder Dome's picture

The little guy used to be able to make money as a trader, not anymore.  I have watched an entire industry basically vanish over the last decade. 

ToNYC's picture

Whoa! Get a grip there tiger. Calling it an industry does anything but net zero human pie gain or industrial workproduct or much of a service other than a servicing make.

JR's picture

More and more the financial world is being treated to the Zero Hedge Connection: the source of unvarnished market opinion. And the latest—from ZH to Harry to Brimelow:

Exit Harry Schultz, pursued by a bear?  Veteran gold bug is now calling sudden hyperinflation. | Sept 16, 2010 | by Peter Brimelow

New York (MarketWatch) -- A famous veteran gold bug, who called the Crash of 2008, is now calling for sudden hyperinflation. But he warns he may not be around to comment on it.

My headline paraphrases Shakespeare’s most famous stage direction (from The Winter’s Tale). But I’ve added a query, because Harry Schultz says that, after closing his International Harry Schultz Letter [IHSL] at the end of the year, he will write regular “Big Picture Editorials” to be included with the Aden Forecast, which will take over his subscription obligations, “for as long as my health allows.” He’s 87.

Schultz’s long and colorful career certainly appears to be ending on a high (albeit superbearish) note. Over the year to date through August, IHSL is up 11.7% by Hulbert Financial Digest count vs. just 0.7% for the dividend-reinvested Wilshire 5000 Total Stock Market Index. Over the past 12 months, IHSL is up 39% vs. 14.86% for the total return Wilshire 5000. Remarkably, the letter is up 6.63% annualized over the past ten years, vs. a miserable negative 1.07% annualized for the Wilshire.

Schultz was hard hit by the Crash of 2008. Nevertheless, I named IHSL Letter of the Year in 2008 because it had repeatedly and loudly warned of the crash. It just didn’t benefit for technical reasons. See Dec. 28, 2008 column.

Schultz specializes in big ideas. Currently, he is fascinated by the possibility that hyperinflation might be triggered quickly, by a sort of global financial traffic accident. See June 10 column.

Schultz devotes a lot of his current letter to summarizing an account of how hyperinflation could happen by Gonzalo Liro on See article here.

Schultz describes this scenario as “a genuine risk” and comments:

“Hyperinflation can be triggered in several other ways. Trustfailure (my new word) is the controlling element, which triggers Fearflation (another new word). E.g., a Comex gold delivery default or a major Too-Big-To-Fail bank failure or a self-propelling domino bank-run are all possible triggers. A bond market implosion will result from any of the above, even if it isn’t itself the trigger.”

Schultz believes in active trading and his recommendations are often dauntingly complex and conditional. He seems to be expecting gold to stall, temporarily, writing “Wait to re-buy strength after a dip that clearly holds 1200.00-1182.00.” Although he recommends only an 8%-10% exposure to non-gold stocks, he allows for “a potentially fiery rally leg --which would hint today’s deflationary forces may succumb “directly” to future (high-speed) inflation. i.e., the resulting debasement of the dollar could manifest itself via a rising “nominal” value of the stock market.”

His current top picks of the month (subject to complex etc. conditions): Andersons Inc  (The) /quotes/comstock/15*!ande/quotes/nls/ande (ANDE 38.95, -0.42, -1.05%) ; Market Vectors Gold Miners ETF  /quotes/comstock/13*!gdx/quotes/nls/gdx (GDX 55.15, +0.55, +1.01%)

Schultz also recommends an asset allocation of 30-45% gold stocks & bullion; 20-30% notes/bills/bonds in diversified denominations; 20-25% commodities; 1-5% cash in hand (“stored privately”); 0-5% bear stock market protection in a variety of 200% inverse Exchange Traded Funds like ProShares UltraShort Dow30 /quotes/comstock/13*!dxd/quotes/nls/dxd (DXD 25.67, +0.09, +0.34%)

Schultz may be worried about his health but he has not lost his knack for eccentric, possibly prescient, edginess. He leads his current issue:

“I’m happy to announce the end of World War 3. The Iran war, which triggered World War Three, planned by the Pentagon and Mossad, has ended, actually before they began. It’s a first in history!

“How do I know this? Follow the money, not the propaganda. Four US banks are to open branches in Iran!...Citibank and Goldman Sachs are among the first applicants! Since Goldman Sachs is the alternate, or behind the scenes US government, as we all know, that name/news assured me of the good news.”

centerline's picture

Fearflation.  That is pretty good.  I still like "damnflation" though!

centerline's picture

The only thought I would add here is that regular folks are finding ways to reduce risk despite losses.  Pension funds and other funds on life support, particularly those in the public sector, are likely going the other way out of sheer necessity.  The writing is on the wall either way though.  We know what is left as a sacrifice to get pushed into the volcano.

carbonmutant's picture

 First you have to take the Market away from the Algos...


reading's picture

When does the law of diminishing return kick in when they are simply sub-pennying themselves?  

Cognitive Dissonance's picture

For those who need to be reminded of who Irene Aldridge is, here is Irene and Joe Saluzzi slugging it out on CNBC in July of 2009.

Has it only been a year since HFT stormed on the scene? Ah......the good old days.

bigdumbnugly's picture

Saluzzi mentioned that the hft's seemed to be favoring the buy side.  the cnbc ticker in the background was about dow 9000.  the rest is history.

carbonmutant's picture

 Paid for co- location access isn't front running...??

This sounds like the wire scam in "The Sting"

taraxias's picture

Thanks for posting that, I enjoyed watching Saluzzi spank her cute blonde little ass.

Pretty hard to win a debate when you are clearly wrong about the issues but even at that SHE IS A HORRIBLE debater.


ToNYC's picture

When you are the fire speaking to the fireman, it is not time to debate..the mindphuck stick is Irene's weapon of choice.

Bartanist's picture

Wow, if that reincarnation of Eva Braun is on TV, can her boyfriend be far away?

ToNYC's picture

He wasn't her friend; Eva and all Germany was his be-ach. A little hate goes a long way with a disenfranchised set of receivers.

Bearster's picture

"We can only hope that by 2099 Mary Schapiro's just as blatantly incompetent successor will finally dare to take on the Wall Street lobby..."

What is the word for hope without reason?

When has a politician--elected or appointed--ever "taken on" a lobby?

Be careful what you wish for!  The result of this will be Goldman and JPM negotiating a backroom deal with the SEC.  Then the government will ram it down everyone else's throat by force.


Trifecta Man's picture

I'll believe the HFT problem is being handled when they remove the colocated computers from the exchanges, not when they announce new (...ugh...) regulations.

lizzy36's picture

You know what will help the HFT problem:not cancelling any trade.

Mini to maxi flash crashes, nothing get cancelled. 

The consequences of this behavior must be felt in order for the behavior to change.

Cancelling trades, halting trading, all actions designed to reinforce the current structure.  Not change it. 

reading's picture

Remember Lizzie...we removed all possibility of failure. Banks, car companies, insurance, HFT absolutely no failure is allowed.  Excellent way to control risk management...not

reading's picture

Or, in more simple terms make them sleep where they shit.

ToNYC's picture

That don't work with dogs. Although some kiss them not really not knowing where that noses might have been a minute or two ago.

ToNYC's picture

Oh, give it up with the hands up. Charging cash for the abuses as rapidly as they occur makes it go away tomorrow.


ToNYC's picture

the fix is in and the HFT is the cover for the PPT. If they wanted to remedy the cancellation  issue instantly, tomorrow they could institute a progerssively larger fraction of a cent charge for more than two repetitive cancellations within 2 seconds...the current situation is a black and white fraud and the Enforcement people have only sent out the clowns to the media rather than the Attorney General in conjunction with the SEC.

zaknick's picture

Gonna keep posting this all day because it should help clear up a lot of ambiguity and shows us how badly we've been had.

JR's picture

Thank you. I’m afraid I was sidetracked by another of Stephen Zarlenga’s excellent articles, Germany's 1923 Hyperinflation: A "Private" Affair, with its seductive introduction:

Discussions of the dangers of inflation inevitably end up at the worst-ever case known - the German hyperinflation of 1923. Accompanied by economists' moralizing warnings of the dire results of governments' printing paper money, the German hyperinflation is used as a horror story by those who advocate a plutocratic control over money. However (as in other cases), when the monetary facts are actually examined, the argument falls apart as it becomes clear that the bankers themselves and speculators were the primary cause of the German hyperinflation, which was not stopped until the government took decisive action against them.

Which leads to why I was sidetracked by an article written by a researcher in monetary history and theory, on Germany’s hyperinflation.   You see, yesterday I was asked to address the posited question: “If within six months hyperinflation should occur, and you could reverse back in time to today, what would you do to prepare?”

Certainly I can imagine this question being addressed at Zarlenga’s upcoming 6th Annual AMI (American Monetary Institute) Monetary Reform Conference in Chicago Sept. 30 - Oct. 3, 2010 (with such past speakers as Prof. Michael Hudson, Richard C. Cook, William K. Black, and Dennis Kucinich).

Incidentally, these paragraphs from his above article intrigued me:

“Thus we now realize that it was a privately owned and privately controlled central bank [in Germany], which made loans to private speculators, to enable them to put up the necessary margin to speculate against the nation's currency. Such speculation helped create a one-way street, down, for the German mark. Soon a continuous panic set in, and not just speculators, but everyone else had to do what they could to get out of their marks, further fueling the disaster.

“This factor has been largely unknown, and 'the government' typically gets the blame for this mother of all inflations, in economic propagandizing.

“Why did Schacht give these details after 44 years, when he could have easily ‘forgotten’ about them? Probably because his sense of justice was deeply offended over the destruction of the mark by Germany's plutocracy - especially her bankers.” …

HelluvaEngineer's picture

"rest assured, these guys move in both directions"

So turn them off if the market starts to move lower.  Problem solved!

Waterfallsparkles's picture

I miss the old Market.  You could buy and sell three times a day.  Used to be that everyone went to one side of the boat and then the other side all day long.  It was fun to Trade.  But, I am like everyone else.  It is impossible to Trade with HFT.  The daily flatline is just frustrating.  If you make a bad Trade you cannot get out with the 5 hour flatline.  So, the answer is not to play and to stay out of the Market. I have not Traded for over a year and a half at least and I used to be an active trader.  For a small time investor.

HFT in my opinion is just price fixing because a stock gets to a price predetermined by the Computer and trades at that price for the entire day.

MichaelG's picture

See where you're coming from, and appreciate the loss. We've now left the realm of sense entirely.

But, but, ... trade three times a day? It's not conducive to true development for a nation, is it? Or is it? I'm happy to see contrary arguments. But you shouldn't dismiss the quote that follows just because the originator has become an excuse to stuff TBTFs full of electronic dollars:

"Speculators may do no harm on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done."

--JM Keynes (Bailout Nation, Barry Ritholtz)

Waterfallsparkles's picture

Well, little traders could scalp a few points and make a profit.  But, the trading spread was about .50 to .70.  With the HFT trading pennys and sub pennys, no one can scalp a trade.  Except of course the HFT's.  They do not even have trading costs they get rebates for each trade.

HFT's in my opinion was to take out the small time traders.  With the spread at one cents there is no Retail Trader that can compete.  Yet, by taking out the small traders they no have no one to scalp.  Kind of like a catch 22.  HFT was successfull in the begining when Retail traders were not wise to their one cent spread all day long.  But now they are out of the Market.

I think that HFT will end up biting them in the ass in the end.  It was profitable when no one was aware of their Preditory Trading, but now everyone knows what they do they are out of the Market.


ToNYC's picture

Hey, they're just trying to scratch out a living! When they kill the bad old HFT, they'll get the next act going maybe with ETF-gaming the daily conversions or some genius-fed perversion to avoid the real work of science.

Waterfallsparkles's picture

The thing that the SEC should focus on is also all of the 3AM Trades that are done under the cover of the night.  No one can participate and trade while they Manipulate the Market with Futures at 3 to 4AM.  The Big Guys can Manipulate were the market is going to Trade the next day before the Market even opens.  Stops will not help you if a stock Gaps Down.  I have never seen so may Gap Up's and Gap Down's in my life.

ZeroPower's picture

Well youre not trading anymore, so, no worries.

George Costanza's picture

Lizzy36 is correct.  If we have to live with HFT, make them honor their flash crash type trades (ie, their mistakes).    The bullcrap is them getting bailed out from losing trades which were their own mistake.

Vampyroteuthis infernalis's picture

The simplest way to solve this mess is go back to having carbon based traders in the NYSE. The other back to the future move would be pricing shares in 10 cent or greater increments so the brokers can make money. Unplug the damn machines, problem solved.

SteveNYC's picture

But what if our wonderful "innovators" in the HFT space take their "innovations" overseas, into "other markets"???? Whatever shall we do then??

Vampyroteuthis infernalis's picture

I hear some really large guys at the local prison would love to get a piece of a HFT trader.

Tic tock's picture

But the dogs don't think the market is broken, for them it works just fine - this is how it is supposed to be - where they can make a phone call and have an instrument at a price which suits them - this is what they say 'it's our market'. They're just not bothered with the problems this is causing - they've spent their entire life surrounded by gold and marble - they just don'y know anything else. Population is to them, statistics, numbers, sales.

cocoablini's picture

I see it this way:
Forget about liquidity, the banks have used taxpayer money to buy equity stakes in all companies.
They heisted real estate with our money, and now they are sopping up all the liquidity in the stock market. What does that mean - it means they didn't go broke they way they should have but managed to heist all our money to buy shares. So, they own US debt, European debt, us equities, corporate debt and real estate.
Plus with the record outflows from retailers, they create a supply squeeze on everything. Hence why nothing falls in price they way it should.
So a deflationary event becomes stagflationary as they dictate the asset value of everything. Not only is this illegal, it's creating a collusive monopoly across the entire spectrum of finance.
There's a reason why Warren Buffet shut up after he bailed out Goldman- he's a heister. Buying up parts of america when it's down and looking to screw us all if the economy ever turns up.
When the rich clue into the failure of the pyramid, they gobble up assets for future control of the economy. They buy the gold, equities and debt- enslavement credits. They also own your home and your labor( which they are depreciating rapidly.)

Waterfallsparkles's picture

Warren Buffet and Goldman.  HMMM. I think that Goldman shorts any stock that Warren wants to buy.

I watched CEG go from $87. a share to $15.  Then Buffet came in with an offer to buy 1/2 the Company.  You cannot tell me that Goldman did not short the stock down for him to buy an interest.  He owed them, that is why he bailed them out. Buffet is a preditor.  He looks like a savior because the Stock is shorted into the basement by in my opinion GS before he comes in as a savior.

Yes, Banks are gobbling up all assets as Americans are just trying to survive.  When all is said and done they will own the Stock Market, most of the Real Estate and will raise rates on everyone.  It all started in 2008 when our Government gave them Billions and now will Tax every American to pay for their acquision of assets.

Sad state of affairs, but that is the reality.

espirit's picture

The Sec honors and protects the Hft's, so who's watching the watchers besides ZH?

Those condoning manipulation and rape of middle class assets should be prosecuted, be they the dem's or repub's, banksters, or govt officials. Time is near to take it back.

MGA_1's picture

Well, if you're money comes at .25% interest and there's some sort of implied guarantee if things really go south, I wonder where you should put your cash...

Grand Supercycle's picture

The mixed conflicting market signals return. It reminds me of periods in 2007/2008 during the market uncertainty and dislocation in addition to market intervention or rumours of market intervention (like the QE chatter now).

Herry12's picture

I found lots of interesting information here. I love zerohedge.
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