HFT

Next week will be relatively light in economic reporting, and with no HFT exchange IPOs on deck, and the VVIX hardly large enough to warrant a TVIX type collapse, it may be downright boring. The one thing that will provide excitement is whether or not the US economic decline in March following modestly stronger than expected January and February courtesy of a record warm winter, will accelerate in order to set the stage for the April FOMC meeting in which Bill Gross, quite pregnant with a record amount of MBS, now believes the first QE hint will come. Naturally this can not happen unless the market drops first, but the market will only spike on every drop interpreting it for more QE hints, and so on in a senseless Catch 22 until the FRBNY is forced to crash the market with gusto to unleash the NEW qeasing (remember - the Fed is now officially losing the race to debase). For those looking for a more detailed preview of next week's events, Goldman provides a handy primer.

The caped crusader will not save the day:

• BATS WITHDRAWS IPO

Sheer humiliation for SkyNet (and all those momos who had hoped to flip their BATS shares, but were bailed out by a bidless HFT market once again) which just blew its own foot off.

SkyNet is now sentient, and has commenced rebelling against its creator, following the BATS exchange announcement of self help against.... Itself.

• BATS BYX Exchange has declared self-help against BATS BZX
• March 23, 2012 11:07:25 ET

• BATS BYX Exchange has declared self-help against BATS BZX per Rule 611 of Regulation NMS. Routing to BATS BZX has been suspended as of 11:07:04 ET.

Presented with little comment - except the irony is simply too much to bear as BATS crashes from $15.75 to $0.038 in minutes...perhaps reflecting the WSJ article on HFT abuse and that BATS is being investigated for HFT abuse (ahem) on the day it goes public. We note that there were some trades executed at $0.00! The reason for the crash apparently is because BATS stock is ony trading on the BATS exchange, where apparently the APPL halt second before also happened. Pretty much tells us all we need to know about the stability of broken market structure. In other news, the stock, and exchange, have now been renamed BATShit - perhaps the VVIX can trade there next or something... And they wonder why nobody trades this farce of a market any more.

UPDATE: NANEX data shows ugly stub quote got caught

When the largest market cap company in the world loses 10% of its market cap thanks to a fat finger from a 100-lot retail-momo-monkey (hitting market order not stop?), questioning your sanity (or the sanity of the hedge fund hotel it has become) is perhaps worthwhile. At 10:57, AAPL was halted as Bloomberg noted: *APPLE HALTED AFTER TRADE AT $542.80/SHR for Reason Code T7 (which seems entirely irrelevant) and then reopened at 11:03 with a small loss. Nothing to see here, move along (except the irony of the fact that the trade occurred on BATS which just IPO'd and the SEC investigation in general on HFT/colos).

• More HFT Posturing: SEC Probes Rapid Trading (WSJ)
• Fed’s Bullard Says Monetary Policy May Be at Turning Point (Bloomberg)
• Hilsenrath: Fed Hosts Global Gathering on Easy Money (WSJ)
• Dublin ‘hopeful’ ECB will approve bond deal (FT)
• EU Proposes a Beefed-Up Permanent Bailout Fund (WSJ)
• Portugal Town Halls Face Default Amid $12 Billion Debt (Bloomberg)
• Hidden Fund Fees Means U.K. Investors Pay Double US Rates (Bloomberg)
• Europe Weighs Trade Probes Amid Beijing Threats (WSJ)
• Bank of Japan Stimulus Row Fueled by Kono’s Nomination (Bloomberg)

High-frequency traders have caused U.S. commodity futures prices to disconnect from market fundamentals of supply and demand since the 2008 financial crisis. An extensive and detailed analysis by the United Nations Conference on Trade and Development just confirms what we have shown again and again (most recently here in Silver) that HFT's impact on the world is not all unicorn-tears and liquidity-providing. Markets are more exposed to 'sudden and sharp' corrections, and as Reuters notes "The strategy of those involved in high-frequency trading tends to reinforce the correlation between equities and commodities". In a somewhat stunning conclusion from an academic treatise, the authors find "We are not saying that it's all about speculators and (that) fundamentals don't matter. But we are saying that they tend to matter less, except in extreme cases,". Unlike other studies on the linkages, the UNCTAD study uses tick-data and finds correlations rising and trade size dropping as frequency increased dramatically since the crisis in 2008. Critically, one final consequence is that investors seeking to diversify or hedge against other investments in their portfolio are often disappointed as the increased HFT creates a destabilizing effect on commodities (increasing volatility) and can often create bubbles.

That Diamond Foods is a dead man walking has been known for a while. Today we merely got the latest confirmation, after the company announced that it has reached a forbearance deal with its lender through June 18, in exchange for suspending dividends (duh) as well as a one time 25 bps loan fee, and an interest increase by 75 bps until June 18. At that point the company will still have to find a replacement facility, or do another forebearance deal which extracts even more equity value and hands it on a silver platter to secured creditors... kinda like Greece. Curiously, moments before close the market reacted like a stung HFT algo (see chart below) to a headline from the WSJ that "Diamond Foods in Talks With PE for Minority Investment." Sure it is - the problem is that any minority investment at this point will likely come below market, as this is not an M&A deal but a vulture equity financing. In fact, we would not be surprised if the lenders are contemplated a debt for equity exchange. However, for it to make sense, the stock would have to be far lower. Anyway, the stock reopens at 5:15pm. Stay tuned.

The Fed Chairman, who is too busy to tweet at the moment, has just released his pre-recorded speech on Community Banking. In its we find the following pearl: "Despite some recent signs of improvement, the recovery has been frustratingly slow, constraining opportunities for profitable lending." Wait, hold on, yesterday the same Chairman told an eager headline scanning robotic world that economic growth was upgraded from "modest" to "moderate" - so which is it? Or will the Fed merely feed the HFT robots whatever cherry picked keywords are needed to nudge the market in the appropriate direction as required? Oh wait, we forgot... Election year. Carry on.

What is fraud except creating “value” from nothing and passing it off as something? Frauds interlink and grow upon each other. Our debt-based money system serves as the fraud foundation. In our debt-based money system, debt must grow in order to create money. Therefore, there is no way to pay off aggregate debt with available money. More money must be lent into the system to make the payments for old debts. This causes overall debt to expand as new money for actual people (vs. banks) always arrives at interest and compounds exponentially. This process is called financialization. Financialization: The process of making money from nothing in which debt (i.e. poverty, lack) is paradoxically considered an asset (i.e. wealth, gain). In current financialized economies “wealth expansion” comes from the parasitic taxation of productivity in the form of interest on fiat lending. This interest over time consumes a greater and greater share of resources, assets, labor, and livelihood until nothing is left.

In what should come as no surprise to anyone who has a frontal lobe, yet will come as a total shock to the central planners of the world and their media marionettes, the latest attempt to sucker in retail investors courtesy of a completely artificial 20% stock market ramp over the past 4 months driven entirely by the global liquidity tsunami discussed extensively here in past weeks and months, has suffered a massive failure. Exhibit 1 and only: as ICI shows today, following what is now a 20% ramp in the stock market, not only have retail investors continued to pull out cash from domestic equity mutual funds (about $66 billion since the recent lows in October, the bulk of which has gone into bonds and hard commodities), but the week of February 29, when the market peaked so far in 2012, saw the biggest weekly outflow of 2012 to date, at -$3 billion. Alas, this means that the traditional happy ending for the authoritarian regime, whereby stocks get offloaded from Primary Dealers, and GETCO's subsidiaries, to the retail investor, is not coming, and soon the scramble for the exits among the so-called "smart money" will be a sight to behold.

Just as market regulators were finally getting wise to the fact that they have no clue how how modern market works, what modern market topology is, or how High Frequency Trading impacts the stock market (think Flash Crash), here comes Certichron, the supplier of a time service center at a Savvis market center in Weehakwen, which says it has now mastered sub-nanosecond readouts which are now "compliant with the FINRA Order Audit Trail System and is likely to be compliant with any Consolidated Audit Trail that might be specified by the Securities and Exchange Commission." In other words, here come sub-nanosecond markets.

Last Thursday, following the second in one day GDP forecast tweak lower by Goldman on disappointing Consumer and ISM data, we said "And this, ladies and gents, is ultra high frequency economics, where HFT machines push the market up and down without reason, and where this has an immediate impact on economic indicators, all changed around in real time." Sure enough, today, following the better than expected Services ISM print, Goldman has now revised its GDP tracking number, this time higher, from 1.9% to 2.0%! At this rate GDP will soon become a coincident indicator of nothing more than consumer confidence that record high gas prices are a bullish indicator for consumption. That it is already a coincident indicator to real-time economic data, and merely shows the prevalent confusion within the strategist community, is a given.

Earlier we noted how Goldman cut their tracking forecast for Q1 GDP from 2.3% to 2.0% on weaker consumer spending data (which somehow resulted in a surge in consumer confidence: oh well, the US branch of the Chinese Department of Truth has to justify its budget somehow). Not even a full two hours later, the firm has just whacked its forecast for Q1 GDP again, this time on the major ISM miss. And this, ladies and gents, is ultra high frequency economics, where HFT machines push the market up and down without reason, and where this has an immediate impact on economic indicators, all changed around in real time.

We kissed Nasdaq 3000 this morning.  Doom and Gloom abounds.  The macro picture is still dire with lots of bad news - some of which you can only get on ZeroHedge!  Consider the crazy news that Wyoming was looking to buy an aircraft carrier.  Is this not Peak Doom?  It is a sign.