Dennis Gartman Comes Out In Defense Of HFT: "They Do Indeed Have Better Quality Computers Than Do We"

Tyler Durden's picture

Presented with no commentary and with lots of laughter as yet one more "expert" who has no clue what HFT actually is (and every clue about being the market's best contrarian indicator - see here and here and here and here) comes out of the woodwork with a "world-renowned" opinion. Again.... and Again.... and Again. Needless to say, Gartman opining in favor of HFT effectively seals the debate if the vacuum tubes should all be done away with this nanosecond (even if, in a 180 degree about face, that is what Goldman suddenly also wants).

From Dennis Gartman

IN DEFENSE OF HIGH FREQUENCY TRADING:

Having lauded Ms. Barra for her honesty, we are here this morning to take Mr. Lewis to task for his ill-advised attacks upon the American capital markets in his  new book, Flash Boys, which was given an enormous send-off Sunday evening as “Sixty Minutes” gave him a national audience that few authors anywhere have ever been given. Allowing Mr. Lewis… who has made several tens of millions of dollars writing about Wall Street and who should be an apologist for rather than an attacker of it… a place of prominence to tell the American people that the stock market is “rigged” is wholly wrong; has sent an utterly incorrect message to those people and has done damage that shall take years to correct.

We are supporters of HFT and we have no qualms in saying so. HFT creates liquidity, and although we would prefer to restore the old system of “specialists” on the floor of the NYSE who back-in-the-day had their own capital at risk and made markets during times of duress, those days are gone. They shall not return.  The days of the bid-off spread being an 1/8th of a point rather than mere pennies are gone and they are gone forever. In their stead, stand HFTs and short term “scalpers” who create liquidity when and where they can, but they are not bound to do so and they are not guaranteed profits when they do. The “specialists” were effectively guaranteed profits when they were the bid when there were only offers coming at them and when they were the only offer when bids were ubiquitous.

The question here is of speed in execution and the HFTS are all about speed. They do indeed have faster communications with the exchanges in question. They do indeed “pick off” fractions of pennies in near front-running of orders; they do indeed have better quality computers than do we. That is their business, but we see their “need-for-speed” to be nothing more than yet another step in the quest for speed that allowed the Baron Rothschild to profit from news carried to him by carrier pigeon from the battle fronts in Europe before the news became public to the average investor. We see this quest for speed to be just another step in the process of an investor profiting from a news service in his/her office profiting from the news that he/she reads and interprets better and faster than those without that same news service. We see this quest for speed just another step removed from the positioning of clerks on the top steps of futures pits signaling bids/offers and sizes via flashing fingers to their counterparts on telephones linked back to trading desks in New York, with the fastest and best clerks being paid the highest sums and offered the most plum locations.

Let’s all just sit back; take a collective deep breath and know that the progress from carrier pigeons, to telephone lines, to quick-fingered clerks to micro-wave communications lines are all in a great line of communications progress. These are all steps in a history and nothing more. The HFTs have had their proverbial day in the sun; now they are having their day in the glare instead. But to blame them for one’s trading mistakes and to call for their removal is, from our perspective, ill-advised and wrong. We shall make many of our clients around the world angry with our position and we acknowledge that fact, but in the end history will bear us out. Rage against insider-trading; rage against unfair advantages, but do not rage against advances in communications and speed for to do so is to take the capital markets back to the days of Baron Rothschild and that would be sad indeed. ‘nuff said.

* * *

It probably is too late for the HFT lobby to have this particular defense stricken from the record.