en Five Reported Killed In East Ukraine Following Ultra-nationalist Attack <p>And to think it was just two days ago when all the USDJPY momentum ignition algos roared to life on flashing headline news of yet another diplomatic "de-escalation" of tensions in Ukraine. What was clearly ignored is that since John Kerry was involved, it was nothing but the latest sham. And the proof came moments ago when <a href="">Reuters reported</a>, citing Russian state television on Sunday, that five people were killed when Ukraine gunmen attacked a checkpoint manned by pro-Russian separatists near the eastern Ukrainian city of Slaviansk. </p> <p><a href=""><img src="" width="560" height="316" /></a></p> <p><a href=""><img src="" width="559" height="307" /></a></p> <p><a href=""><img src="" width="560" height="318" /></a></p> <p>Reuters was not immediately able to verify the report. Ukraine's Interior Ministry in Kiev could not immediately be reached for comment and Interior Minister Arsen Avakov had no word of the reported incident on his Facebook page, where he usually posts updates on any clashes - perhaps because this one was allegedly started by Ukraine ultra-right nationlists of the Right Sector. </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Russia's state-run Rossiya 24 news station, citing its correspondent in Slaviansk, said three of the dead were with the pro-Russian separatists who control Slaviansk, and the other two were from the group which attacked their checkpoint.</p> <p>The self-declared mayor of Slaviansk, who supports the pro-Russian separatists in the city, said there had been a clash overnight and there were casualties, a Reuters Television team in Slaviansk said. </p> </blockquote> <p><a href="">RT has more</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The fatalities came after a night attack on a protester checkpoint on the outskirts of the city, a Rossiya 24 news channel correspondent reported. Four cars drove by the checkpoint and opened fire at the local residents holding it, killing three people and seriously injuring another one.</p> <p>&nbsp;</p> <p><strong>A group of protesters, who had firearms unlike those holding the checkpoint, was called from their camp in the city. They opened fire at the attackers, killing two of them, the report said.</strong></p> <p>The protesters in the confrontation <strong>reportedly captured the attackers’ two cars</strong>. Firearms, explosives and aerial photos of Slavyansk were discovered there. RIA Novosti cites a doctor at the city’s main hospital as saying that four people with gunshots were brought in overnight.</p> <p>&nbsp;</p> <p>“Apparently, something serious happened,” the doctor said. </p> <p>&nbsp;</p> <p><strong>The protesters believe that they were attacked by paramilitary from the Right Sector. </strong></p> </blockquote> <p>The full report from LifeNews, in Russian, can be seen below:</p> <p><iframe src="//" width="560" height="315" frameborder="0"></iframe></p> <p>&nbsp;</p> <p>And some additional reporting from British blogger Graham Phillips:</p> <blockquote class="twitter-tweet" lang="en"><p>En route to hospital here in <a href=";src=hash">#Sloviansk</a> to confirm those reports of deaths in the night - <a href=""></a> <a href=";src=hash">#Ukraine</a> <a href=";src=hash">#Russia</a></p> <p>&mdash; GrahamWPhillips (@GrahamWP_UK) <a href="">April 20, 2014</a></p></blockquote> <script async src="//" charset="utf-8"></script><blockquote class="twitter-tweet" lang="en"> <p><a href=""></a></p> <p>&mdash; GrahamWPhillips (@GrahamWP_UK) <a href="">April 20, 2014</a></p></blockquote> <script async src="//" charset="utf-8"></script><blockquote class="twitter-tweet" lang="en"> <p><a href=""></a></p> <p>&mdash; GrahamWPhillips (@GrahamWP_UK) <a href="">April 20, 2014</a></p></blockquote> <script async src="//" charset="utf-8"></script><blockquote class="twitter-tweet" lang="en"> <p>Pretty extreme scenes out here, reports of up to 5 killed outside <a href=";src=hash">#Sloviansk</a>. <a href=""></a></p> <p>&mdash; GrahamWPhillips (@GrahamWP_UK) <a href="">April 20, 2014</a></p></blockquote> <script async src="//" charset="utf-8"></script><blockquote class="twitter-tweet" lang="en"> <p>Bullets littering the ground as anti-Kiev activists say they were victims of a &#39;military style attack&#39;. <a href=";src=hash">#Sloviansk</a> <a href=""></a></p> <p>&mdash; GrahamWPhillips (@GrahamWP_UK) <a href="">April 20, 2014</a></p></blockquote> <script async src="//" charset="utf-8"></script><blockquote class="twitter-tweet" lang="en"> <p>Mood here, some 6km outside <a href=";src=hash">#Sloviansk</a> - shock, sadness. Working to find identities of those killed. <a href=""></a></p> <p>&mdash; GrahamWPhillips (@GrahamWP_UK) <a href="">April 20, 2014</a></p></blockquote> <script async src="//" charset="utf-8"></script><p>So if this is not merely another attempt at provocation and indeed the attackers' cars were captured and can be provided as evidence, and it can be verified that it was indeed Ukraine elements who were in breach of the now clearly null and void Geneva agreement, this may just be the escalation that Putin, who last week admitted for the first time the massing of Russian forces at the Ukraine border, will be free and clear to finally roll the tanks across the border purely with intentions to "protect" a "separatists" population which is clearly now targeted by its own government.</p> Reuters Twitter Twitter Ukraine United Kingdom Sun, 20 Apr 2014 07:18:19 +0000 Tyler Durden 487492 at The Secret World Of Gold <p>In light of the <a href="">Chinese demand we discussed earlier</a>, the ongoing <a href="">manipulation of 'rigged' markets everywhere</a>, and <a href="">rising geopolitical tensions (as the de-escalation continues)</a>, <a href="">we thought it worth dusting off this excellent&nbsp; and wide-ranging look at the <strong>history and present of the barbarous relic</strong></a>, gathering many perspectives (pro and con) on gold.</p> <p>The following documentary moves from historical shipwrecks to Nazi 'death gold' and England's war chest to recent years where widespread economic uncertainty has given the yellow metal a "new luster in the world of high finance." Valued for its permanence, beauty and scarcity, <strong>people will lie, cheat, steal and kill in the name of gold</strong>; and the clip provides color on many of the <em>market manipulations of the last few years</em>. As MacDonald says, whether it’s a few gold coins or gold bars stored in one of the many vaults around the world, many investors are taking a shine to gold. But there’s not a lot of it. It is said that, even melted down, there would not be enough to fill an Olympic swimming pool. Some claim that much of the gold held by the Bank of Canada, the Bank of England, the Federal Reserve and Fort Knox is gone - that for every 100 ounces of gold traded, there exists only one ounce of real, physical gold. <strong>So, where is the gold - and who really owns it?</strong></p> <p><iframe src="//" width="560" height="315" frameborder="0"></iframe></p> Bank of England Federal Reserve Sun, 20 Apr 2014 01:22:23 +0000 Tyler Durden 487491 at The One Thing Most Desired By Chinese Consumers Is... <p>Hint: it's not designer clothes, shoes, bags or watches.</p> <p><a href=""><img src="" width="600" height="315" /></a></p> <p>&nbsp;</p> <p><em>And some additional explanation from the World Gold Council:</em></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The Chinese traditionally regard gold as a form of money. Indeed, the character for gold in Mandarin (jin) is also a synonym for money. This is an important fact when it comes to the motivations behind the purchase of jewellery. Asian buyers of plain, 22 or 24 carat jewellery have no doubt in their mind that they are buying gold as well as an object of beauty that can be worn. The perception of value is very important in markets such as India and China where plain, very high carat or ‘pure gold’ articles bought on low-mark-ups comprise the majority of gold jewellery consumption. As such, the level and direction of local gold prices usually have an important bearing on jewellery consumption. This was very clear in 2013 when in April of that year the sudden slump in prices triggered an extraordinary wave of buying in China. Consumers perceived this as a unique opportunity to exchange renminbi for gold at a very favourable rate. It was also of course a chance to bring forward planned purchases for gifts or weddings, especially as the consensus was that prices were bound, eventually, to move a good deal higher.</p> <p>&nbsp;</p> <p>World Gold Council consumer research indicates that consumers remain very positively disposed towards ‘pure gold’ jewellery.<strong> It might be thought that the disappointing price trend in the second half of 2013 had undermined this optimism as well as the public’s desire to purchase ‘pure gold’ jewellery. <span style="text-decoration: underline;">This does not seem to be the case</span></strong>. An extensive consumer survey conducted towards the end of 2013 on behalf of the World Gold Council illustrates how China’s population continues to view ‘pure gold’ jewellery as a form of money, with little indication that this traditional attitude will change any time soon. Asked whether they agreed with the statement that 24 carat gold jewellery " as much an investment as it is a fashion item” no less than 80% of the sample agreed, while only 4% disagreed (16% held no view either way). Agreement levels were strong across all respondents. Moreover, support for future demand is strong: in a separate survey of over 10,000 Chinese consumers, 76% of those aged between 18 and 27 also affirmed ‘pure gold’ jewellery’s investment status. And the majority of respondents planned to maintain or increase their spending on 24 carat gold jewellery over the next 12 months (44% and 35% respectively.</p> </blockquote> <p><em>h/t @RudyHavenstein</em></p> China India Mandarin Renminbi World Gold Council Sun, 20 Apr 2014 01:20:46 +0000 Tyler Durden 487482 at The 5 Faces Of Income Inequality <p><em>Submitted by Lance Roberts of <a href="">STA Wealth Management</a>,</em></p> <p>Since Easter is a time of family, compassion, forgiveness and resurrection, I thought this would be a good weekend to think about the income inequality/wealth gap which will be part of the mid-term election debate. There are many questions that must be answered from not only <em>“how”</em> to solve the issue, but also <em>“should” </em>it be?</p> <p style="text-align: left;">There is no historical evidence that wealth redistribution leads to stronger economic outcomes as it discourages <em>“hard work.”</em> However, there is also little argument that the current state of crony capitalism and corporate greed has gotten more than just a bit out of hand.</p> <p style="text-align: left;">To start our thought process in this week’s things to ponder here is a study on the wealth inequality gap in America by Politizane:</p> <p style="text-align: left;">&nbsp;</p> <p style="text-align: left;"><strong>1) Thomas Piketty, Whither The Bottom 90% </strong><em><span style="text-decoration: underline;"><a href=""><span style="color: #0000cd;">by Scott Winship via Forbes</span></a></span></em></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p style="text-align: left;"><span style="font-family: georgia,serif;"><span style="font-size: 14px;">"Piketty’s book lays his cards on the table from the start. He titles it to evoke Marx and begins with an epigraph quoting the Declaration of the Rights of Man and the Citizen to the effect that all inequality should be viewed as suspect. He poses the question in which he is interested as whether capitalism is fundamentally self-correcting in a way that prevents inequality from getting out of control or whether it will produce ever-rising inequality. While he allows that his answer is “imperfect and incomplete,” his modesty goes out the door before that paragraph ends. Piketty’s thesis, in his own words:</span></span></p> <p style="text-align: justify;">&nbsp;</p> <p style="text-align: left;"><span style="font-family: georgia,serif;"><span style="font-size: 14px;">'When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.'"</span></span></p> </blockquote> <p style="text-align: left;"><strong>2) The War On Poverty Is Grounded In Paternalism</strong> <em><span style="text-decoration: underline;"><a href=""><span style="color: #0000cd;">by Scott Beaulier via Real Clear Markets</span></a></span></em></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p style="text-align: left;"><span style="font-family: georgia,serif;"><span style="font-size: 14px;">“The plight of the poor is about a lot more than getting a better education or finding a job. It's about repairing the damage that has been done to their lives on a multitude of margins--broken families, stress and depression, fear of crime, drug use, etc. And, the plight varies from person to person and community to community. Like the broader effort to alleviate world poverty that I mentioned earlier, our War on Poverty has layered one bad idea on top of another in the hope something will stick. Yet, the problem persists, and there are few promising signs we are even headed in the right direction.”</span></span></p> </blockquote> <p style="text-align: left;"><strong>3) Baseball And Income Inequality</strong> <span style="text-decoration: underline;"><em><a href=""><span style="color: #0000cd;">by Nick Colas via ZeroHedge</span></a></em></span></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p style="text-align: left;"><span style="font-size: 14px;"><span style="font-family: georgia,serif;">“<strong>The United States already has the highest level of income inequality of any advanced country (according to the CIA’s World Factbook),&nbsp;</strong>but particular cities within the country display a considerably higher level than the national average.&nbsp; And among cities with Major League Baseball teams, the inequality that exists regarding ticket prices directly correlates with the level of inequality in those urban areas.”</span></span></p> </blockquote> <p style="text-align: left;"><strong>4) The Mismeasure Of Inequality</strong><span style="text-decoration: underline;"><em><span style="color: #0000cd;"> </span><a href=""><span style="color: #0000cd;">by Kip Hagopian and Lee Ohanian via The Hoover Institution</span></a></em></span></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p style="text-align: justify;"><span style="font-family: georgia,serif;"><span style="font-size: 14px;">“Perhaps the most&nbsp;important question left out of almost every discussion about income inequality is, “Why should we care about it?”</span></span></p> <p style="text-align: justify;">&nbsp;</p> <p style="text-align: left;"><span style="font-family: georgia,serif;"><span style="font-size: 14px;">Many of those who worry about high income inequality argue that it is an indicator of social injustice that must be remedied through redistribution of income (or wealth). Unfortunately, those who make this claim have not provided any generally accepted criteria for determining when an economic system is unjust. Nor have they provided a convincing argument that such injustice is widespread in the U.S. (In considering this issue, it is worth noting that Greece, Spain, and Italy all have substantially lower income inequality than the U.S. The same is true for Afghanistan, Pakistan, and Bangladesh.)</span></span></p> <p style="text-align: justify;">&nbsp;</p> <p style="text-align: left;"><span style="font-family: georgia,serif;"><span style="font-size: 14px;"><em>Measuring inequality using the Gini coefficient</em>. There are at least five methodologies used to measure income inequality. The most commonly used is the Gini coefficient (also called the Gini index) developed by Italian statistician Corrado Gini. The Gini coefficient is a method of measuring the statistical dispersion of (among other things) income, consumption, and wealth. The figure of merit for the Gini coefficient for income inequality ranges from zero to&nbsp;1.0, where zero represents total equality (all persons have identical incomes) and&nbsp;1.0&nbsp;represents total inequality (one person has all of the income). By this measure, the U.S. has substantially higher income inequality than almost all other industrialized nations. In&nbsp;2010, the Census Bureau reported that the U.S. Gini coefficient was .469, while the average Gini coefficient for the&nbsp;27&nbsp;European Union nations was .31.<sup>”</sup></span></span></p> </blockquote> <p style="text-align: left;"><strong>5) A Guide To Statistics On Historical Trends In Inequality </strong><span style="text-decoration: underline;"><em><a href=";id=3629"><span style="color: #0000cd;">via Center On Budget And Policy Priorities</span></a></em></span></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p style="text-align: left;"><span style="font-size: 14px;"><span style="font-family: georgia,serif;">“Data from a variety of sources contribute to this broad picture of strong growth and shared prosperity for the early postwar period, followed by slower growth and growing inequality since the 1970s.&nbsp; Within these broad trends, however, different data tell slightly different parts of the story (and no single source of data is better for all purposes than the others).&nbsp;</span></span></p> <p style="text-align: left;">&nbsp;</p> <p style="text-align: left;"><span style="font-size: 14px;"><span style="font-family: georgia,serif;">This guide consists of four sections. The first describes the commonly used sources and statistics on income and discusses their relative strengths and limitations in understanding trends in income and inequality. The second provides an overview of the trends revealed in those key data sources. The third and fourth sections supply additional information on wealth, which complements the income data as a measure of how the&nbsp;<em>most</em>&nbsp;well-off Americans are doing, and poverty, which measures how the&nbsp;<em>least&nbsp;</em>well-off Americans are doing.”</span></span></p> </blockquote> <p style="text-align: justify;"><a href="" target="_blank" class="highslide ageent-ru"><img src="" class="i_want_img5" /></a></p> <hr /> <p style="text-align: left;">Whatever your position is on income inequality or the <em>“great wealth divide,” </em>there is little argument that it currently exists. &nbsp;As I stated at the beginning, the question is whether something should be done about it.&nbsp; Raising taxes on <em>“the rich,”</em> forced redistribution, increases in social welfare, etc. all have potentially negative economic consequences which affects everyone.</p> <p style="text-align: left;">There is clearly no easy solution. However, for the upcoming mid-term elections this debate will waged to swing votes in favor of those who want to remain in political office on both sides of the aisle.&nbsp; This is ironic considering that the majority of those individuals are currently in the top wealth brackets in the U.S.&nbsp;<span style="font-style: inherit; font-variant: inherit; font-weight: inherit;">Maybe we should just start there?</span></p> Afghanistan Census Bureau ETC European Union Greece Italy Sun, 20 Apr 2014 00:36:06 +0000 Tyler Durden 487490 at Anti-HFT Trading Platform Comes To "Rigged" FX Markets <p>The <strong><a href="">surge in volume on the anti-HFT equity trading platform IEX</a></strong> - of Flash Boys and TV-fight-night fame - makes it very easy to see how the buy-side (which the US retail investor is one small part of) clearly prefers an un-rigged place to find willing sellers (or buyers). Relatively light regulation and high volumes make the $5.3 trillion-a-day foreign-exchange market a prime target for high-frequency traders. More than 35% of spot currency volume in October was by speed traders, up from 9% five years earlier, but just as in equity markets, there are speculators and there are natural buyers and sellers in FX markets (looking to hedge payments and receipts from real business for example). As <a href="">Bloomberg reports</a>,<strong> a currency-dealing platform known as ParFX, established in 2011, offers a transparent marketplace and subjects orders to random pauses of about 20 to 80 milliseconds, and "is the industry’s effort to heal itself."</strong></p> <p>IEX volumes hit record highs...</p> <p><a href=""><img src="" width="600" height="346" /></a></p> <p>&nbsp;</p> <p>And now the FX markets - also dominated by High-Frequency-Trading - have an anti-HFT platform upon which to transact...</p> <p>The FX market is just as plagued by the HFT "parasite" as equity markets...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>Relatively light regulation and high volumes make the $5.3 trillion-a-day foreign-exchange market a prime target for high-frequency traders. More than 35 percent of spot currency volume in October was by speed traders</strong>, up from 9 percent five years earlier, according to Boston-based consultancy Aite Group LLC.</p> <p>&nbsp;</p> <p>...</p> <p>&nbsp;</p> <p>“<strong>There’s been a lot of dissatisfaction, particularly on the buy-side and asset-management community, about high-frequency trading</strong>,” said Richard Bentley, the vice president for financial services at Software AG, which aggregates trading platforms including ParFX. “There’s the perception that they’re parasites. What ParFX have done is essentially play to that and said, come and trade in our pool, because <strong>we’re not going to allow the HFT people to come and spoil the fun</strong>.”</p> </blockquote> <p>And ParFX was set up specifically to rmeove HFT's ability to front-run orders (just like IEX did in equity markets)...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>A currency-dealing platform known as ParFX, established in 2011 by firms from Deutsche Bank AG to Citigroup Inc...</strong></p> <p>&nbsp;</p> <p>The system started trading in July, and now executes deals for 15 firms including Deutsche Bank, Citigroup, Barclays Plc and UBS AG, the four biggest currency dealers. It expects to have 25 percent more clients by the end of April.</p> <p>&nbsp;</p> <p><strong>ParFX offers a transparent marketplace and subjects orders to random pauses of about 20 to 80 milliseconds, and “is the industry’s effort to heal itself,” according to Marcus.</strong></p> </blockquote> <p>The bottom line is a search for "trust" is on the rise...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>“These banks do need to trade foreign exchange because it’s their business and they’re hedging their currency exposure across the world,” London-based Marcus said in an April 15 interview. <span style="text-decoration: underline;">“They would rather trade in an environment that they can trust.”</span></strong></p> </blockquote> Barclays Citigroup Deutsche Bank Equity Markets HFT Sat, 19 Apr 2014 23:29:30 +0000 Tyler Durden 487489 at It's Time To Retire Gross Domestic Product As A Measure of Prosperity <p><em>Submitted by Charles Hugh-Smith of <a href="">OfTwoMinds blog</a>,</em></p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;"><em>What if we used wellness (Gross Domestic Happiness) as a metric for prosperity rather than GDP? </em> </span></span></span></p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;"><strong>Distilling an economy's success in delivering "prosperity" to a single number has outlived its purpose.</strong> Zachary Karabell describes the birth of GDP in far less complex times in <a href="" target="resource">(Mis)leading Indicators: Why Our Economic Numbers Distort Reality</a> (Foreign Affairs): </span></span></span></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">A GDP that is growing in sync with expectations can enhance a country’s reputation and thus its strength and power. A GDP that is contracting or failing to meet expectations, on the other hand, can lead to disaster. Yet a hundred years ago, the concept of GDP did not exist; history unfolded without it. The United States, for example, managed to win its independence, fight a civil war, and conquer a continent without any measure of national income. </span></span></span> </p><p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">GDP’s origins lie in the 1930s, when economists and policymakers in the United States and the United Kingdom struggled to understand and respond to the Great Depression. </span></span></span></p> <p>&nbsp;</p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">It is not terribly surprising that economists and policymakers came to favor a statistical technique that helped the United States survive a depression and win a war. But not even the economists who invented this metric imagined that GDP would become so central to every state in the world within a few short decades. </span></span></span></p> </blockquote> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;"><strong>The problem is this radical reductionism at the heart of any single measure is irrevocably flawed:</strong> </span></span></span></p> <p>&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">Leading indicators were invented to measure the economies of the industrial nation-states of the mid-twentieth century. In their time, they did so brilliantly. The twenty-first century, however, is proving more challenging to measure. Industrial nation-states have given way to developed economies rich in services and to emerging industrial economies exporting goods made by multinational companies. The statistics of the 20th century were not designed for such a reality, and despite the assiduous efforts of statisticians, they cannot keep up. </span></span></span></p></blockquote> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">These shifts have created a temptation to find new formulas, better indicators, and new statistics. But the belief that a few simple numbers or basic averages can capture today’s multifaceted national and global economic systems is a myth that should be abandoned. Rather than seeking new simple numbers to replace old simple numbers, economists need to tap into the power of the information age to figure out which questions need to be answered and to embrace new ways of answering them. </span></span></span></p> </blockquote> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;"><strong>The limitations of GDP are so severe that the number is at best misleading.</strong> Karabell identifies three intrinsic flaws in any single-number scheme to measure GDP: </span></span></span></p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">1. GDP does not include vast swaths of economic output and value </span></span></span></p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">2. GDP is useless in measuring real-world trade </span></span></span></p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">3. GDP counts digging a hole and filling it but not conservation of energy or resources. </span></span></span></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">If a steel mill produces pollution that then requires a cleanup, both the initial output (the steel) and the cost of addressing its byproduct (the cleanup) add to GDP. So, too, would the cost of health care for any workers or residents injured or sickened by the pollution. Conversely, if a company replaces its conventional light bulbs with long-lasting LED bulbs and, as a result, spends less on lighting and electricity, the efficiency gains would detract from GDP. Yet few would argue that the pollution example represents a positive development or that the lighting example constitutes a negative one. </span></span></span></p></blockquote> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;"><strong>The simplistic assignment of "import" and "export" completely misses the reality of modern manufacture and trade,</strong> where parts come from multiple nations. As Karabell explains: </span></span></span></p> <p>&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;"><strong>If trade numbers more accurately accounted for how products are made, it is possible that the United States would not have any trade deficit at all with China.</strong> The problem, in short, is that trade figures are currently calculated based on the assumption that each product has a single country of origin and that the declared value of that product goes to that country. Thus, every time an iPhone or an iPad rolls off the factory floors of Foxconn (Apple’s main contractor in China) and travels to the port of Long Beach, California, it is counted as an import from China. </span></span></span></p></blockquote> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">A more reasonable standard, of course, would recognize that iPhones and iPads do not have a single country of origin. More than a dozen companies from at least five countries supply parts for them. Infineon Technologies, in Germany, makes the wireless chip; Toshiba, in Japan, manufactures the touchscreen; and Broadcom, in the United States, makes the Bluetooth chips that let the devices connect to wireless headsets or keyboards. </span></span></span></p> <p>&nbsp;</p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">Taking these facts into account would leave China, the supposed country of origin, with a paltry piece of the pie. <strong>Analysts estimate that as little as $10 of the value of every iPhone or iPad actually ends up in the Chinese economy,</strong> in the form of income paid directly to Foxconn or other contractors. </span></span></span></p> </blockquote> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;"><strong>I have addressed this issue for years, for example:</strong> <a href="" target="resource"> Trade War with China: Who Benefits?</a> (April 11, 2007) </span></span></span></p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;"><a href="" target="resource"> Trade and "Trade War" with China: Who Benefits?</a> (October 5, 2010) </span></span></span></p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;"><strong>No single number, regardless of the inputs, can possibly reflect the real economy.</strong> Karabell concludes: </span></span></span></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">How entrepreneurs run effective businesses; how individuals buy homes, pay for college, or retire -- none of those decisions should be based on the leading indicators of the last century. Old attachments to those indicators, and to the myth that there is something called “the economy” that affects all people equally, poses a major obstacle to progress. </span></span></span></p></blockquote> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;"><strong>Karabell also discusses what I call the <em>propaganda value of GDP</em>:</strong> </span></span></span></p> <p>&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">These measurements were not invented to serve as absolute markers of national success or failure or to indicate whether some governments were visionary and others destructive. But the transformation of these numbers from statistics into markers of national success happened so quickly over the course of a few decades that no one quite noticed what was happening. </span></span></span></p></blockquote> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;"><strong>I tend to think political authorities knew exactly what was happening: they realized that their own credibility could be boosted by a rigged GDP number.</strong> Thus we have the central government of China issuing blatantly bogus claims of 7+% annual GDP, as anything less will severely erode their claim of managerial brilliance. </span></span></span></p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">In our own propaganda-dependent state, GDP is almost always positive, much like corporate earnings always beat expectations by a penny. </span></span></span></p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;"><strong>But we should be paying attention to an even deeper critique of GDP:</strong> that prosperity no longer depends of the "growth" of consumption, financialization, etc. but on the Degrowth of narcissistic consumerism and more efficient use of resources and capital. </span></span></span></p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;"><strong>What if we used Bhutan's guiding national policy of <a href="" target="resource">Gross Domestic Happiness</a>, as a metric for prosperity?</strong> </span></span></span></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">A second-generation GNH concept, treating happiness as a socioeconomic development metric, was proposed in 2006 by Med Jones, the President of International Institute of Management. The metric measures socioeconomic development by tracking seven development areas including the nation's mental and emotional health.GNH value is proposed to be an index function of the total average per capita of the following measures: </span></span></span></p></blockquote> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">1. Economic Wellness: Indicated via direct survey and statistical measurement of economic metrics such as consumer debt, average income to consumer price index ratio and income distribution </span></span></span></p> <p>&nbsp;</p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">2. Environmental Wellness: Indicated via direct survey and statistical measurement of environmental metrics such as pollution, noise and traffic </span></span></span></p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">3. Physical Wellness: Indicated via statistical measurement of physical health metrics such as severe illnesses </span></span></span></p> <p>&nbsp;</p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">4. Mental Wellness: Indicated via direct survey and statistical measurement of mental health metrics such as usage of antidepressants and rise or decline of psychotherapy patients </span></span></span></p> <p>&nbsp;</p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">5. Workplace Wellness: Indicated via direct survey and statistical measurement of labor metrics such as jobless claims, job change, workplace complaints and lawsuits </span></span></span></p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">6. Social Wellness: Indicated via direct survey and statistical measurement of social metrics such as discrimination, safety, divorce rates, complaints of domestic conflicts and family lawsuits, public lawsuits, crime rates </span></span></span></p> <p>&nbsp;</p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">7. Political Wellness: Indicated via direct survey and statistical measurement of political metrics such as the quality of local democracy, individual freedom, and foreign conflicts. </span></span></span></p> </blockquote> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;"><strong>Here in the U.S., we give lip-service to all these values, but ask yourself: where do we spend most of our time?</strong> Serving our masters in the State/crony-cartel economy, creating GDP. </span></span></span></p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;"><strong>Yes, we all still need to earn a livelihood, but imagine a society constructed around generating Gross Domestic Happiness instead of GDP.</strong> The power structure would collapse because none of these activities generate enough profits or taxes to keep the Machine operational. </span></span></span></p> <p><span style="color: #404040;"><span style="font-size: x-small;"><span style="font-size: x-small;">It is a sad statement that we often only awaken to real value and meaning when we've run out of time to change the way we "invest" our time. </span></span></span></p> China ETC Germany Great Depression Gross Domestic Product Japan None Port Of Long Beach Reality Trade Deficit Trade War United Kingdom Sat, 19 Apr 2014 22:34:57 +0000 Tyler Durden 487488 at US, And Global, Military Spending Summed Up In One Chart <p>While <a href="">we previously noted the relative stability (but absolute surge) in US military spending over the past few decades</a>, the scale of what the world's peace-keeping, red-line enforcing, hypocrisy-packed nation spends in context to the rest of the world...</p> <p>&nbsp;</p> <p><a href=""><img src="" width="599" height="542" /></a></p> <p><em>Source: AFP</em></p> <p>We previously put the <a href="">US military budget in context over time</a>...</p> <p>&nbsp;</p> <p><a href=""><img src="" width="600" height="319" /></a></p> <p>&nbsp;</p> <div> <p class="NoSpace">And unless we get some serious military conflict to blame a reflation on, and <a href="">if U.S. military spending were to revert to its 2000 level over the next five years, as President Obama had proposed</a>, and the rest of the world were to continue spending the same portion of its GDP on the military, U.S. military spending as a share of the global total would decline sharply, to just under 30 percent.</p> <p class="NoSpace"><img src="" alt="U.S. Military Spending Share of Global Total" width="595" height="467" /></p> </div> Gross Domestic Product President Obama Sat, 19 Apr 2014 21:36:04 +0000 Tyler Durden 487487 at Everything We Are Told About Deflation Is A Lie <p><em>Submitted by Tim Price via <a href="">The Cobden Center blog</a>,</em></p> <div class="post-bodycopy clearfix"> <blockquote> <div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“The European Central Bank has given its strongest signal yet that it is prepared to embrace quantitative easing to prevent the euro zone from sliding into deflation or even a prolonged period of low inflation.”<br />- ‘Draghi strengthens QE signal’, Financial Times, April 4, 2014.</p> </blockquote> <p>Yes, heaven protect Europe’s embattled citizens and savers from a prolonged period of low inflation. How could they possibly survive it ?</p> <p>If history is any guide, probably quite well. As Chris Casey points out in his essay ‘Deflating the deflation myth’, the American economy during the 19th Century twice experienced deflationary periods of roughly 50 percent:</p> <p><a href=""><img src="" /></a></p> <p><em>Source: McCusker, John J. “How Much Is That in Real Money?: A Historical Price Index for Use as a Deflator of Money Values in the Economy of the United States.” Proceedings of the American Antiquarian Society, Volume 101, Part 2, October 1991, pp. 297-373.</em></p> <p>This during a period of “sustained and significant economic growth”. But just think of all those poor consumers, having to make the best of constantly falling everyday low prices.</p> <p>In their research article ‘Deflation and Depression: Is There an Empirical Link?’ of January 2004, <strong>Federal Reserve economists Andrew Atkeson and Patrick Kehoe found that “..the only episode in which we find evidence of a link between deflation and depression is the Great Depression (1929-1934).</strong> We find virtually no evidence of such a link in any other period.. What is striking is that nearly 90% of the episodes with deflation did not have depression. In a broad historical context, beyond the Great Depression, the notion that deflation and depression are linked virtually disappears.”</p> <p>In his 2008 essay ‘Deflation and Liberty’, Jörg Guido Hülsmann writes as follows:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“In the present crisis, the citizens of the United States [he could have added: and of the UK, and Europe] have to make an important choice. They can support a policy designed to perpetuate our current fiat money system and the sorry state of banking and of financial markets that it logically entails. Or they can support a policy designed to reintroduce a free market in money and finance. This latter policy requires the government to keep its hands off. It should not produce money, nor should it appoint a special agency to produce money. It should not force the citizens to use fiat money by imposing legal tender laws. It should not regulate banking and should not regulate the financial markets. It should not try to fix the interest rate, the prices of financial titles, or commodity prices.</p> <p>&nbsp;</p> <p>“Clearly, these measures are radical by present-day standards, and they are not likely to find sufficient support. But they lack support out of ignorance and fear.</p> <p>“We are told by virtually all the experts on money and finance – the central bankers and most university professors – that the crisis hit us despite the best efforts of the Fed [..and the Bank of England, and the ECB..]; that money, banking and financial markets are not meant to be free, because they end up in disarray despite the massive presence of the government as a financial agent, as a regulator, and as money producer; that our monetary system provides us with great benefits that we would be foolish not to preserve. Those same experts therefore urge us to give the government an even greater presence in the financial markets, to increase its regulatory powers, and to encourage even more money production to be used for bailouts.”</p> </blockquote> <p><strong>But as Hülsmann goes on to argue, all of these contentions are wrong, </strong>and have been proven to be wrong since the times of Adam Smith and David Ricardo. A paper money system is not beneficial “from an overall point of view”. (Nor has any unbacked paper money system ever lasted.) A paper money system does not create real resources on which our welfare depends. “It merely distributes the existing resources in a different manner; some people gain, others lose. It is a system that that makes banks and financial markets vulnerable, because it induces them to economize on the essential safety valves of business: cash and equity.”</p> <p><span style="text-decoration: underline;"><strong>The conventional view of deflation is that if it sets in, “the banking industry, the financial markets, and much of the rest of the economy will be wiped out in a bottomless deflationary spiral.” But as Hülsmann goes on to argue, such a spiral would not prove fatal to the lives and welfare of the general population. Rather, it would destroy “essentially those companies and industries that live a parasitical existence at the expense of the rest of the economy, and which owe their existence to our present money system.”</strong></span></p> <p>Let us be more explicit. <span style="text-decoration: underline;"><strong>Severe deflation threatens at an existential level bankrupt banks and the bankrupt governments that perpetuate their existence. Deflation is a mortal enemy to the heavily indebted state and its embedded parasites, but it is a friend to the saver and to anyone with a positive net worth. Because it is so dangerous to the debtor, (unelected) central bankers clearly feel they have no option but to incinerate savers at the altar of perpetuating an unsustainably indebted banking and political elite.</strong></span></p> <p>So it would seem that the euro zone, under Mario Draghi, is on the verge of outright quantitative easing, and that the ECB is also committed to using “unconventional instruments” in an increasingly desperate attempt to revive the corpse through explicit inflationism, not least by actually buying sovereign debt of dubious underlying value, rather than merely pledging to. The financial markets certainly appear to think so: the yields on Spanish 5-year government paper fell below those of their US equivalents last week. Spanish bonds yielded more than 7% above US paper as recently as 2012. And as Bloomberg pointed out, the yields on Spanish and Italian five year paper, and the yield on 10 year Irish government debt, all fell to record lows last Friday.</p> <p>Whether in terms of goosed bond markets or inflated stock markets, inflated higher not necessarily by any improvement in corporate prospects but primarily by expectations of more ex nihilo money courtesy of the world’s major central banks, these are false markets. They cannot entirely be trusted – assuming that markets ever can. Fund manager Seth Klarman has written well on the artificiality of today’s markets:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>“The Fed and the Treasury openly discuss the aims of their policies: to manipulate financial markets higher and to generate reported economic “growth” and a “wealth effect”. Inside the giant Plexiglas dome of modern capital markets, just about everyone is happy, the few doubters are mocked and jeered, bad news is increasingly ignored… The artificiality of today’s markets is pure Truman Show. According to the Wall Street Journal, the Federal Reserve purchased about 90% of all the eligible mortgage bonds issued in November.”</p> </blockquote> <p>John Phelan of the Cobden Centre writes well that “the Federal Reserve has become an enabler of the financial havoc it was designed (a century ago) to prevent.”</p> <p><strong>Messrs Yellen, Draghi <em>et al</em> should be careful what they wish for. Inflation targeting is hardly a precise science. </strong>Achieving an entirely arbitrary 2% inflation level is bad enough for savers on fixed incomes when deposit rates are close enough to zero as to make no difference, but markets have a tendency to overshoot. Most government bond markets are clearly overbought – but in a QE world given fresh impetus by the looming arrival of the ECB, overbought markets can become even more overbought. When we don’t claim to understand the underlying dynamics (political) or the final destination (though we have our own fears), it’s much better simply not to play. From an asset allocation perspective, classic, benchmark-unconstrained Benjamin Graham-style ‘deep value’ equity is, we now believe, pretty much the only game in town – and that is where we now focus our attention, almost exclusively.</p> <p><strong>Meanwhile, we watch in disbelief as market distortions become even more untenable.</strong></p> </div> Bank of England Bond Capital Markets Central Banks European Central Bank Federal Reserve fixed Great Depression Quantitative Easing Seth Klarman Sovereign Debt United Kingdom Wall Street Journal Sat, 19 Apr 2014 20:18:24 +0000 Tyler Durden 487486 at How Americans Die <p>America is growing older.</p> <p>Nowhere is this more obvious than in the conversion of America's age pyramid into a rectangle from 1960 to 2050, as was shown in a recent post highlighting America's <a href="">two 'slow-motion' social dramas</a>. As the Pew Institute summarized "<strong>we'll have almost as many Americans over age 85 as under age 5</strong>. This is the result of longer life spans and lower birthrates. It’s uncharted territory, not just for us, but for all of humanity. And while it’s certainly good news over the long haul for the sustainability of the earth’s resources, it will create political and economic stress in the shorter term, as smaller cohorts of working age adults will be hard-pressed to finance the retirements of larger cohorts of older ones."</p> <p><a href=""><img src="" width="499" height="897" /></a></p> <p>&nbsp;</p> <p>And as society comes to grips with the realization that the average age of America will hit new record highs with every passing day for the indefinite future, a new, and far less pleasant topic is sure to gain prominence. Namely:&nbsp;<strong>how Americans Die</strong>.</p> <p>This should be intuitive: since older people die sooner than the young, even despite the generally declining mortality by age cohort, the sheer record number of aged Americans will soon drown out the incremental improvements in life expectancy.</p> <p>But it is not only age that is a key issue: one surprising finding (in addition to a curious tangent of a brief spike in AIDS-related deaths in the late 80s and early 90s for the 25-44 year old cohort), is that over the past decade, motor vehicle accidents has lost its top spot as the primary cause of violent deaths across the population, handing over the title to both drug-induced deaths and suicides.&nbsp;</p> <p>Incidentally, in 2010, the number of suicide deaths was nearly four times greater than the number of Americas murdered by firearm. Perhaps it is time to ban suicides.</p> <p>All these and many other curious observations surrounding this fascinating topic are revealed in the following interactive visual data compendium by <a href="">Bloomberg's Matthew Klein</a>.</p> <p>So without further ado, here is a detailed look into <em>How Americans Die.</em></p> <p>First, it should be obvious that courtesy of numerous, life-extending advances over the past several decades, the morality rate has tumbled. Yet in recent years, it has been mostly males who have benefited. Overall progress stopped in the mid-1990s.</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>However the lack of improvement can be attributed to a simple factor: the aging of Americans, and specifially those aged 55 and over have risen as a total portion of the population from a little over a fifth of total in the year 2000 to a quarter currently.</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>Another obvious observation: old people die sooner than the young</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>Instead of breaking down the population into genders, looking at age cohorts over time shows a plunge in mortality across all age groups, with the biggest beneficiaries being Americans 25 and under.</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>However, something curious appears in the 25-44 age group sometime in the late 1980s...</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>That something was AIDS...</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>The AIDS epidemic was so bad for about a decade, the disease became the single largest killer of Americans in their prime, surpassing cancer, heart disease, and all other causes of death.</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>Of all races, however, the AIDS epidemic targeted mostly black men between 25 and 44.</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>Another curious observation: there has been no progress in mortality for the 45-54 year olds since the late 1990s.</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>This quandary is further compounded by the reduced mortality of cancer and heart disease - the biggest traditional killers of this age group - over the past several decades.</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>So what is the offset? Simple - a surge in deaths from two new killers - suicide and drug deaths.</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>As noted earlier, while until the mid-1990s, gun deaths outnumbered drug deaths, since then the number of gun murders has actually declined, while drug deaths have exploded. As have suicides. Actually perhaps it is time to ba suicides <em><strong>and </strong></em>drugs. Oh wait, somehow the pharma lobby wouldn't be too happy with that.</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>As for cars, no need to ban those: motor-related deathes have plunged to a record low, even with seemingy everyone texting and driving.</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>Safer roads, however, have been more than offset by an explosion in suicides, with representatives of the 25-44 age group most likely to take their lives.</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>Still, despite all of the noted curious patern shifts, the reality remains that most Americans are living longer and dying of natural causes.</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>If there is any bad news here, it is that as Americans get older they increasingly succumb to such debilitating, age-related diseases as dementia and Alzheimer's. Indeed, while there has been substantial progress in heart disease-related deaths, the total number of deaths in the 75 and older category has remained flat, precisely due to the increasing prevalence of such age-degenrative conditions.</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p>&nbsp;</p> <p>Which means one thing is certain: the amount of spending on Alzheimer's and other age-related diseases is set to soar.</p> <p><a href=""><img src="" width="600" height="342" /></a></p> <p><em>Source: <a href="">Bloomberg</a></em><a href=""></a></p> Reality Sat, 19 Apr 2014 19:35:48 +0000 Tyler Durden 487485 at "Timestamp Fraud": A Rigged Market Explained In One Simple Animation <p>The topic of High-Frequency-Trading quickly dissolves into a smorgasbord of mnemonics and 'inside-baseball' technical terms - just complicated enough to lose everyone that matters or should care about its implications. Despite the fair-and-balanced defense from the mainstream media business channels (sponsored by the belief in the status quo fair markets that 'America the free' is known for), the <strong>fact</strong> is that HFT does front-run (perfectly legal under the umbrella protection of Reg NMS) order flow, but there may be one more wrinkle - one which would cement the Michael Lewis (accurate) allegation that the market is rigged. </p> <p>Because if<a href=""> as Nanex shows below</a>, there is <em><strong>in addition to everything else the element of timestamp fraud </strong></em>involved in the distribution of NMS "compliant" trading data for <em>Direct Feed-to-SIP </em>matching purposes, this means that not only is the market rigged, but its rigging goes from the very top all the way to the lowliest algo. </p> <p>What's worse, the rigged system is so embedded there is nothing anyone can do about it, until it just collapses under its own weight: think May 2010 HFT-created flash crash, only without the mirror-image bounce.&nbsp; </p> <p><em><a href="">Via Nanex</a>,</em></p> <p><strong>Direct vs SIP Data Feed</strong></p> <p>The animation below shows how a trade or quote sent on an exchange makes its way to the SIP (Securities Information Processor) and a Direct Feed used by High Frequency Traders (HFT). Reg NMS requires that an exchange (A) send data to the SIP (C) as fast or faster than it sends that data to direct feed subscribers (B). Here's the relavent text from <a href=""> Regulation NMS</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Rule 603(a)(2) requires that any SRO, broker, or dealer that distributes market information must do so on terms that are not unreasonably discriminatory. These requirements prohibit, for example, a market from making its "core data" (i.e., data that it is required to provide to a Network processor) available to vendors on a more timely basis than it makes available the core data to a Network processor.</p></blockquote> <p>This is the same rule that NYSE broke and was <a href=""> fined $5M by the SEC in September 2012</a>. We have a <a href=""> nice write up</a> summarizing this fine as it applies to the SIP. Unfortunately, this practice continues at other exchanges. In the animation below, note that the information sent to the SIP has to travel significantly farther distances (40 miles vs 1000 feet), on a slower network (1 GBps vs 40 GBps) with a protocol that adds more latency (TCP vs UDP) than the same information sent to the direct feed. Sometimes this latency on the input side of the SIP shows up in SIP data as fantaseconds (a term we coined to describe trades printing before quotes). See this <a href=""> well documented example</a>.</p> <h3>Timestamp Fraud</h3> <p>The animation also shows something that many aren't aware of: the original timestamp gets stripped, and replaced with a fresh timestamp when the SIP transmits it to a subscriber! Watch the timestamp in the box get stripped when it enters, and replaced when it leaves, the circle labeled "SIP Tape A". Keeping original timestamps is crucial for constructing audit trails, or for detecting system delays, which is why it's integral to <a href=""> this solution</a> which allows HFT and non-HFT to coexist.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><img src="" border="0" /></p></blockquote> <h3>Understanding the Animation</h3> <p>Reg NMS requires that exchanges provide core data (trades and quotes) to the SIP as fast or faster than direct feeds. In the animation above, that means a trade or quote originating at an exchange (labeled A) must arrive at the SIP (C) no later than it arrives on a direct feed (B).</p> <p>The animation starts with a trade (or quote) in the symbol "F", timestamped by the exchange at exactly 9:45. One network sends it to direct feed recipients (B) which are all 1000 feet away, and the other network sends it to the SIP (C) which is about 40 miles away. When the trade arrives at the SIP, the timestamp is removed and aggregated with trades from other exchanges (<a href=",%20Direct%20Feeds,%20and%20Ultra%20Direct%20Feeds.png">not shown</a>). Finally, at the point where the SIP transmits the trade to a SIP subscriber (blue circle) it gets a new timestamp based on the SIP clock (which could be ahead or behind the original exchange's clock).</p> <p>This new timestamp, in effect, will hide any delays between the exchange (A) and the blue circle from SIP users. During the flash crash, <a href=""> delays of over 30 seconds</a> occurred in many stocks and were impossible to detect, because of the altered timestamps. Had the original timestamps from the exchange remained, everyone, not just High Frequency Traders, would have been aware they were trading on stale data.</p> <p>Sending data faster to HFT is against regulations. Period. Changing timestamps is just plain wrong, and one could argue that SIP subscribers are being denied the true timestamp that HFT enjoy. Keep in mind that nearly all brokerage reports on trade execution quality use the SIP and therefore, an altered timestamp.</p> <p>Nearly 40% of trades are priced based on the SIP - this include practically all retail trades and most dark pools. Even Goldman Sach's Dark Pool is executes based on SIP prices. When SIP prices lock or cross (due to slow input from one of 13 exchanges or <a href=""> even FINRA</a>), it causes internalizers (retail trades) to stop trading until the condition is resolved: a <a href="">phenomenon made clear during the flash crash</a>.</p> <p><strong>Furthermore, speed differences between the direct feed and the SIP can lead to other undesirable market behaviors, such as momentum ignition, which have become <a href=""> quite common</a> (we detailed one market-wide momentum ignition event <a href=""> here</a>).</strong> Simply put, when prices suddenly move, those who can act earlier (HFT using direct feeds), will profit at the expense of those who cannot, such as internalizers and Dark Pool that are based on the SIP. With nearly 40% of trading based on the SIP, the profitability of this manipulative strategy can be great enough that the cost of inducing price shifts (momentum ignition) is worth the economic and regulatory risk.</p> <h3>Additional Reading</h3> <ul> <li><a href="">Is the National Best Bid or Offer (NBBO) being Ignored?</a> A great primer on the NBBO and direct feeds.</li> <li><a href="">Reg NMS Has Been Rescinded!</a> A rubber-stamped proposal from Nasdaq effectively negates Reg NMS.</li> <li><a href="">HFT Breaks Speed-of-Light Barrier, Sets Trading Speed World Record.</a> Proof of delays on the input side of the SIP.</li> <li><a href="">Coexisting without Colocating</a>. A proposal for improving the market for everyone.</li> <li><a href="">Refuting HFT Claims</a>. Do they really provide liquidity, narrow spreads and lower costs?</li> <li><a href="">Direct Feed Prices</a> - NYSE's filing with the SEC</li> </ul> Dark Pools dark pools FINRA HFT Michael Lewis NASDAQ New York Stock Exchange Reg NMS Stop Trading Sat, 19 Apr 2014 18:18:39 +0000 Tyler Durden 487484 at