In a few minutes, Janet Yellen will address a lunch session in her native SF Fed (the same place that last week finally figured out what debt is) during a conference whose topic is The New Normal for Monetary Policy (the typo from "Paranormal" is easy to make). The informal agenda will be Yellen's explanation of how she plans on achieving the yield curve which we predicted back in 2010 is just a matter of time.
In a somewhat surprising turn of events, this morning's futures reaction to last night's shocking start of a completely unexpected Yemen proxy war, which has seen an alliance of Gulf State launch an air, and soon land, war against Yemen's Houthi rebels, is what one would expect: down, and down big. This is surprising, because on previous occasions one would expect the NY Fed, or its pet hedge fund, Citadel, or the BOJ or ECB (via the CME's "Central Bank Incentive Program") to aggressively buy ES to prevent a slide, something has changed, and for the BTFDers, that something may be very fatal with the e-Mini rapidly approaching a 1-handle yet again. The offset to tumbling stocks, as previously observed, is oil, with WTI soaring over 6% in a delayed algo response to the Qatar headlines.
Back on June 3, 2013, following what was merely the latest observation of how broken the market is thanks to central banks manipulation and HFT rigging, we wrote some snarky commentary. And as happens with nearly 100% regularity nowadays, our snarky commentary on what takes place behind the scenes was once again almost 100% accurate. Because earlier today we learned precisely what happened...
BIS Slams The Fed: The Solution To Bubbles Is Not More Bubbles, It Is Avoiding Bubbles In The First PlaceSubmitted by Tyler Durden on 03/22/2015 16:38 -0400
"... there is a case that policy should first and foremost constrain the build-up of financial booms – especially in the form of strong joint credit and property price increases – as these are the main cause of the subsequent bust. And once the financial bust occurs, after the financial system is stabilised, the priority should be to address the nexus of debt and poor asset quality head-on, rather than relying on overly aggressive and prolonged macroeconomic accommodation through traditional policies. This would pave the way for a sustainable recovery."
- Bank of Interenational Settlements
If it was the Fed's intention to slow down the relentless surge in the dollar with yesterday's "impatient" removal which blamed the dollar strength on the "strength" in the US economy, it promptly failed after algos and a few carbon-based traders looked at the Atlanta Fed and realized that a 0.3% Q1 GDP print is anything but "strong." As a result the EURUSD, after soaring by nearly 400 pips yesterday in a market reminiscent of a third-world FX pair's liquidity especially following the previously noted USD flash crash, the dollar has recoupped nearly all losses, and the DXY is once again on the way up and eyeing the resistance area of 100.
The beginning of the end of high frequency trading has arrived, and it has done so in a most unexpected fashion: with an HFT turning on other HFTs and revealing on the record, for the entire world to see, just how truly parasitic, manipulative and "market-rigging" the algorithms truly are.
Over the weekend Barron's engaged in another attempt by the pro-HFT media lobby to make it seem that frontrunning HFT parasites (now available on a laser near you) are good for the "little guy." An attempt which fails when one actually scratches the surface even by the smallest amount.
It seems like everyone and his brother today are wringing their hands about AI and some impending “Singularity”, a moment of future doom where non-human intelligence achieves some human-esque sentience and decides in Matrix-like fashion to turn us into batteries or some such. Please. The Singularity is already here. Its name is Big Data. Big Data is magic, in exactly the sense that Arthur C. Clarke wrote of sufficiently advanced technology. But here’s the magic trick that we're worried about for investors...
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The EU’s financial watchdog, the European Securities and Markets Authority, will look at whether automated trading adds fake, or ghost, liquidity to markets, said Steven Maijoor, the regulator’s chairman. “There has been a suggestion that the liquidity they are providing is not real liquidity because once you would like to go into the trade and accept an order the offer disappears,” Maijoor said in an interview in Hong Kong on Jan. 20. “We are looking now into the specific issue of what is called ghost liquidity.”
A week ago, we were surprised to learn that one of the most prominent critics of HFT, Joseph Stiglitz, had been barred from an SEC Panel that will "advise regulators on issues facing U.S. equity markets." Today, a day after the SEC busted DirectEdge for failing to "accurately describe the order types being used on the exchanges" namely the infamous Hide not Slide, even after said order had repeatedly made the front page of the WSJ, the SEC finally announced the full list of members of the "New Equity Market Structure Advisory Committee" which will focus on the structure and operations of the U.S. equities markets. Alas most of the committee members are, sadly, placeholding figureheads. Because there is only one person on the list whose participation matters, and whose presence is not at all surprising...
With the wind down of the record 2014 trading slump now in its final days (although judging by volumes throughout the year one may have a difficult time noticing just when the holidays began and ended), the already entertaining zero-liquidity market moves are sure to provide further amusement today in the context of the US economic data bonanza on deck, which includes Durable Goods, GDP, Personal Income and Spending, Richmond Fed, UMich, and New Home Sales. Beat or miss, all of the above are guaranteed to send the S&P to higher recorder highs because in the multiple-expansion euphoria blow-off top phase nobody cares about such trivia as fundamentals or the economy, especially when Japan and Germany are about to monetize all of their gross issuance. Just remember to occasionally keep an eye on the preferred rigging correlation pairs: the USDJPY and the VIX, whose every illiquid jerk will be followed by Citadel & NYFed's algos tic for tic.
With 4 seconds to the close of yesterday's epic trading session, someone executed over $200 million and 1,147 trades in SPY - the S&P 500 ETF - in one-second, lifting the price to a S&P level of 2,130. This massive-loss-making "fat-finger" - resulting in millions of losses - would normally be followed by "probes" from the exchange into "erroneous trades" and then rapidly accompanied by the exchanges busting all the losing trades. But not this time! In all other cases of fat-finger'd and busted trades, we have learned who the counterparty was - even Goldman Sachs was exposed after regulators DK'ed its busted trades several years ago. So, the question is - why hasn't the other side of yesterday's berserk "fat-finger" buying spree in SPY spoken out in anger that its massive money losing trade will not be DKed?