On Monday, in "High Frequency Trading: Why Now And What Happens Next" we predicted that "the high freaks are about to become the most convenient, and "misunderstood" scapegoat, for when the market finally does crash. Which means that those HFT-associated terms which very few recognize now, especially those on either side of the pro/anti-HFT debate who have very strong opinions but zero factual grasp of the matter, such as the following:
- Layering: multiple, large orders are placed passively with the goal of “pushing” the book away
Of course, another name for "layering" is "spoofing" which is precisely the term that the SEC used today when it announced that it charged the owner of a New Jersey-based trading firm and several other defendants "in a scheme to manipulate the market through an illegal practice known as "spoofing."
High Frequency Trading (HFT) covers such a broad swathe of 'trading' and financial markets that Mark Cuban (yes, that Mark Cuban), who has been among the leading anti-HFT graft voices in the public realm, decided to put finger-to-keyboard to create an "idiots guide to HFT" as a starting point for broad discussion. With screens full of desperate "stocks aren't rigged" HFT defenders seemingly most confused about what HFT is and does, perhaps instead of 'idiots' a better term would be "practitioners."
We doubt it: first wait until the next market crash is blamed on HFT (as we speculate it will)... and then watch as the entire world suddenly goes all tar and feathers on a few million vacuum tubes.
For all the talk about how High Frequency Trading has rigged markets, most seem to be ignoring the two most obvious questions: why now and what happens next?
This is the multi trillion-dollar question.
"All the Trumans – the economists, fund managers, traders, market pundits –know at some level that the environment in which they operate is not what it seems on the surface…. But the zeitgeist is so damn pleasant, the days so resplendent, the mood so euphoric, the returns so irresistible, that no one wants it to end."
Klarman is here referring to the waning days of this third and greatest financial bubble of this century. But David Stockman's take is that the crack-up boom now nearing its dénouement marks not merely the season finale of still another Fed-induced cycle of financial asset inflation, but, in fact, portends the demise of an entire era of bubble finance.
I clearly have a very hard time reconciling a U.S. stock market making new all-time-highs almost daily, especially in the face of what most economists consider to be a weak domestic economy with negligible growth prospects. Moreover, when you layover the thoroughly stalled and certainly weaker overall global economic picture, it’s even harder to rationalize. Finally, throw into the mix the gravity of threatening geopolitical tensions between the U.S. and Russia, the two nations with the largest stockpiles of tactical nuclear weapons on earth, and the market actually welcomes it. Something majorly does not add up, well, to this Idiot anyways.
President Obama released his 2015 budget proposal this week...and as expected, it contained even more language about his MyRA initiative. As we’ve discussed so many times in the past, IRAs are an irresistible kitty for such a bankrupt government. The US government itself estimates that over $5 trillion is tucked away in American retirement accounts. They need that money. Your money. The US government is struggling to come up with new funding sources… and retirement accounts are by far the easiest target. Why? Because the majority of retirement accounts at trapped at big Wall Street banks, which are all de facto agents of the government. All the Treasury Department has to do is make a phone call. Yesterday’s budget announcement constitutes the next phase: automatic enrollment.
Mainstream media discussion of the macro economic picture goes something like this: “When there is a recession, the Fed should stimulate. We know from history the recovery comes about 12-18 months after stimulus. We stimulated, we printed a lot of money, we waited 18 months. So the economy ipso facto has recovered. Or it’s just about to recover, any time now.” But to quote the comedian Richard Pryor, “Who ya gonna believe? Me or your lying eyes?” However, as Hayek said, the more the state centrally plans, the more difficult it becomes for the individual to plan. Economic growth is not something that just happens. It requires saving. It requires investment and capital accumulation. And it requires the real market process. It is not a delicate flower but it requires some degree of legal stability and property rights. And when you get in the way of these things, the capital accumulation stops and the economy stagnates.
Concerns about the possibility of the Chinese property bubble bursting affecting economic growth in China and the world is supporting gold.
Global gold prices may have been manipulated on 50% of occasions between January 2010 and December 2013, according to analysis by Fideres, a consultancy. Pension funds, hedge funds, commodity trading advisers, futures traders and ordinary investors are likely to have suffered losses as a result. Many of these groups were "definitely ready" to file lawsuits.
Celente again warned of the economic parallels with the 1930’s and said that we are again seeing recession and depressions, currency wars, trade wars and that this would lead to actual wars. His free webinar and Q & A tomorrow will look at ways to protect yourself from these risks in 2014 and beyond.
The market correction that begin in January appears to be subsiding, at least for the moment, as Yellen's recent testimony gave markets the promise of the continuation of Bernanke's legacy. With the markets back into rally mode, for the moment, this week's "Things To Ponder" focuses on some of the bigger issues concerning the effectiveness of QE, investing and "77 reasons you suck at managing money."
On Tuesday, new Federal Reserve Chairman Janet Yellen went before Congress and confidently declared that "the economic recovery gained greater traction in the second half of last year" and that "substantial progress has been made in restoring the economy to health". This resulted in glowing headlines throughout the mainstream media such as this one from USA Today: "Yellen: Economy is improving at moderate pace". Sadly, tens of millions of Americans are going to believe what the mainstream media is telling them. But it isn't the truth. As you will see below, there are all sorts of signs that the economy is taking a turn for the worse.
Once again the smell of NAPALM is in the air