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"This Is A Circus Market Rigged By HFT And Other Algo Traders"
Back in 2009 we first warned that the market is now just a "market" where between the direct manipulation of all asset-prices by the firehose Fed and its peers, and the explicit rigging of stock prices by the HFTs, there is no such thing as a market left. Back then, we were called tinfoil something or another. Now that everyone admits the Fed's only purpose is to push asset prices higher, and the topic of HFT's rigging of markets is now a blockbuster book, those accusations have grown silent. In fact, the only thing that remains are the very loud screams as increasingly more often, some unknown or well-known trader and/or investor, with a several year delay, stumbles on our conclusion and realizes that the game (i.e., market) is so rigged, manipulated and broken, that the only winning move was not to play in the first place.
Today's case in point Andrew Cunagin, the founder of Rinehart Capital Partners LLC, a hedge fund backed by hedge-fund veteran Lee Ainslie and specialized in emerging-markets stock-picking, and who as the Wall Street Journal reported earlier, is closing. The closure is not news: what Cunagin blames the closure on, however, is.
From the WSJ:
"This is a circus market rigged by HFT and other algorithmic traders who prey on the rational behavior of warm-blooded investors," Mr. Cunagin wrote, referring to the high-speed traders who have attracted wide attention this year for the alleged advantages they hold over more traditional investors.
Mr. Cunagin, 43, said in an interview from Cape Town, South Africa, where he was scouting potential future investments, that there was "clear evidence of penetration" by high-frequency traders in the stock markets of South Korea and Mexico, among other areas.
"You can see the evidence of dark pool trading…you'll see half the day's trading volume occur in the last seconds of trading," he said. "There's just evidence that this is not a level playing field."
In his late-August letter, Mr. Cunagin criticized the "dash for trash" among other traders, including exchange-traded funds, that "puts to shame even the most speculative excesses of the dot.com era." He said those factors, along with the impact of high-frequency trading, contributed to his fund's recent poor performance.
Rinehart launched in August 2007, just two months before many emerging markets hit their precrisis peaks. The fund lost 12% in 2008, outperforming most funds during a dramatic pullback for emerging markets world-wide, and made money in the subsequent three years. More recently, however, it struggled, posting losses of 7% in 2012, 15% in 2013 and 4% through midyear this year.
So is this just sour grapes as yet another trader "fought the Fed", and lost due to two minor disadvantages: a limited balance sheet, and being forced to stay liquid longer than the central planners can stay irrational?
Perhaps, he does however, make a point: "The frustrating thing is that this is precisely the time when you shouldn't be giving up," Mr. Rinehart said in the interview. "Anyone who shorted the 'dot coms' in the 90s had bad performance, and those ended up being the trades of the decade."
The flipside is that everyone else who went long the dot coms felt richer and richer, if only on paper, and invest more and more cash into the clear bubble until they too lost everything in the end. But such is the poetic justice of the, rigged or otherwise, market: first it wipes out all the shorts, then it drags everyone on the long side, and then it goes bidless and wipes out the longs.
Rinse, repeat.
* * *
Some other excerpts from Cunagin's letter, courtesy of the WSJ's Money Beat blog:
The dislocation of returns from traditional vehicles of wealth creation and protection has created a violent rip tide of fund flows from conservative segments of the risk spectrum to the most speculative, giving rise to another, more dangerous bubble. With yields ZIRPed and alpha dead, beta and the ethereal pursuit of “market-” and theme-driven (social media, bio-tech, Chinese internet) returns have become the only game in town, with central banks as the arbiter. Post-2008 monetary policies have rewarded the beta investor who’s gone “all in” on market risk and themes, while punishing harshly the market-neutral, alpha investor who discounts allocations on the basis of value. New paradigms have emerged as a result, defined by binary outcomes of risk-on/risk-off, taper-on/taper-off, win big/lose big. With new innovations of beta-engineering—instruments such as E-minis, QQQ, dollar-yen carry trade—investors are pursuing en masse too little reward in exchange for too much risk. As one commentator put it recently, “the market has become a roulette table, with dimes on black and dynamite on red.”
Just as in previous boom-bust cycles, the seeds of destruction are sewn in the illusion of trend masquerading as truth, with momentum seeming to validate a widening gap between perception and economic reality. And just as in past cycles, the manager who doesn’t subscribe to the new rules, who goes against the grain of convention is viewed as out of touch or left behind.
If there’s an expression that’s come to capture the zeitgeist of the QE era, it is the notion of what is or is not “working” across the asset allocation spectrum. I’ve read reports from equity strategists advising clients to stick with growth themes since “value isn’t working.” Technical analysts assure us that, despite what you’ve been brought up to believe, a strategy of buying high (especially on dips) while selling low is what “works” in this market. I’ve heard from prominent allocators frustrated that “nothing seems to work in emerging markets.” And, most dishearteningly, I’ve heard from Rinehart investors who have rightly observed that, despite steady performance in the past, our strategy is “just not working now.”
The assumption, of course, is that if it’s not working then it’s wrong and if it is working, it’s right. That’s fair enough. As a service provider, we serve at the pleasure of clients, and no manager is ever owed an explanation for being hired or fired. But it’s worth asking, what is it that investors seek? That is, just what is working?
Since the beginning of our fund’s drawdown in early 2012, a Bloomberg index of the “Worst Balance Sheet” companies of the S&P500 has returned to-date over +30% on an annualized basis. An MSCI index of the “Most-Shorted” companies of the Russell 3000—a proxy for the visibility of bad valuations, bad managements, and bad fundamentals—has also returned over +30% annualized. These perversions are even more pronounced within EMs, exacerbated by record fund outflows in the first half of 2014, exceeding even those of the 2008 crisis. This dash for trash puts to shame even the speculative excesses of the dot.com era. This is a circus market rigged by HFT and other algorithmic traders who prey on the rational behavior of warm-blooded investors. They only serve to further undermine the integrity of public markets, which will ultimately bring about their rationalization. Nonetheless, it’s an internal dynamic to which we are uniquely levered, by design, as an alpha strategy. One thing is certain, managers whose strategies are working may be bright and well-informed with advanced metrics on which they make investment decisions, but a reasonable assessment of value is not among them. Do previous cycles not bear asking, what other measure is there?
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Yeah! What he said.
Get your foil hats ready, maybe as soon as Sept. 6.
Death to the machines.
https://news.yahoo.com/intense-solar-eruption-captured-nasa-spacecraft-video-110800186.html
Warm blooded traders..... don't you know? Transistors have rights!
As long as they keep rigging it in the right direction, few will complain too loudly.
Now if you'll excuse me, I need to spend some of my fiat market gains on Thaimatches.com, which just popped up in the right hand ad column for me.
How the hell did oriental chicks get knockers that big anyway? I thought they were all flat-chested.
yes I keep hearing from other traders how this market is RIGGED....no shit sherlock. Are we supposed to be surpised?? LOL
Batwing pattern on the DJIA too. => http://bit.ly/1fMcakI
Its about teh jobs numbers on friday, but that could be a whole run on teh algos too, set up for next week. that patern 100up 30 down and then 90-100 up could be playing out. That means we could be higher alot higher in the next few months. Xmas rally too maybe ?
The central bank's keep bullshitting, and using sneaky methods of easing credit to hopefully boost inflation and reverse the deflationary scenario but so far, that is not working.
You can see markets remain somewhat cautious here; its no doubt I think the market is tired up here and we are very very overbought type situation, and some sort of a pullback is looming.
Idiot.
That's a two-hatter there... Ya.
How many headlines have we seen for the past 3+ years declaring the market to be total fraud?
At what point does it matter / not matter that HFT machines are involved?
The ROOT is the reason. Why are these HFT's and other corrupt mechanisms allowed? It's because they are THE MARKET.
When you wrap your head around that you can see clearly it is INTENDED to be that way. The problem is the same problem that is occurring in all other areas that are also breaking down.
CORRUPTION.
People would be shocked to learn what else is being run autonomously by computers these days.
Ever seen those Quantum computers?
SKYNET isn't a future nightmare, it's been here since the 80's.
Was the market ever not a fraud?
If your not being rhetorical...
I'd definitely be the wrong person to ask.
I say that fraud = everything past, present and future and that there are precious few exceptions (which indicates that it is a good rule).
But that's just me. YMMV.
Hense my handle.
How about a nice game of global thermonuclear war?
True (permanent) learning only occurs when the pain becomes so great we must look beyond the (self) deception and confront the lie within. Only then does the agony begin to subside.
Unless it drives us insane.
Hey man,
Can you give me a link to those videos you made of / for Trav777 and ??? I cant remember...
I do remember laughing my ass off though... Those skulls!
Thanks.
They are all in my profile.
Those are so bad. I didn't even have Ozone 5, Harmor, or Gross Beat yet.
Thanks.
They were as funny as they were years ago.
It's the context. they fit the profile exactly.
Didn't you use their actual posts in constructing them?
That was some brilliant impromptu work!
Thanks again!
PS.. If you have been here long enough to remember TraV777 or Robot Trader and you havent seen them... Put down your beverage.
Back in the day post history did not evaporate. You could access everything ever posted. So yes, in order to write the "lyrics" I read all the posts by each one of them. Except I made up a couple things for artistic purposes which are noted in the descriptions. My favorite is Max Fischer. The way female Google Translate voice does the latin is too perfect.
Glad you enjoyed them.
FUBAR
We now have a reason to be afraid of artificial intelligence. This is a bad sign for man versus machine. The machine wants to self destruct our society. But do not be afraid there is money to be gained. The machines are actually helping us. They will give us $200,000,000,000,000,000,000
S&P Target 3571 - 2024.
He just didn't get the nod from the "IN" crowd. Now he is a whinging loser. If given half the chance, he would gladly be part of the problem.
Bottom line is bearish real US economy does not = buy VIX or puts. Solid companies with int'l exposure that make quality things that emergent middle classes abroad will buy as they have actual savings, precious metals, agri, land, those are places to be to short hopium. Stocks are not a referendum on the US economy. They are notably diverged. Fundamentally a stock is equity stake in a company, and it should indeed take more US fiat notes to get this equity, so prices should go up, not due to increasing fundamental value but simply due to dollar debasement.
There might be some truth there. But he probably knew that the game was rigged a long time ago, and for him to come out now and say so just tells me that he didn't care as long as he was making money. Once that stopped....
Styx - Fooling Yourself
http://www.youtube.com/watch?v=AtzIWPeun7c (5:35)
Styx - Grand Illusion
http://www.youtube.com/watch?v=nO62scTZ7Qk (4:42)
mmm Goldilocks. fuçk Joan Rivers.
thankk you.
Oh?.. 5he3 markets rigged? Shut the fclk up!
Im startin to think this shld be a zerk hedge porn zite er suttin.
To quote a post in almost every topic: fuckin yawn.
He says not to play and that is what I've done since May of 2012. I've been all cash with 15% precious metals and I've left a lot of money on the table by going this route. I sometimes wonder if this market is ever going to correct. Have the HFT got it so rigged that a true correction has become impossible? I wonder.
HFTs definitely had an advantage when they were first beginning to be utilized in the late 2000s, but now that all these programmers discovered how to create a trading program with ease from little or no actual trading experience, the market has become crowded and most of advantages they once posessed have become watered down. However, I do agree that there is an impact on asset valuation because most all trading algorithms and HFTs do not take into account fundamental value; historically speaking though, isn't that what nearly every floor trader and floor broker have been doing for the past century, just at a much slower pace? I myself do not implement any algo or HFT strategies, but computerized trading is beneficial to markets, particularly when it comes to market making and added sources of liquidity from speculation.
If anyone has time, they should look into some of Didier Sornette's work on reflexivity and financial markets. Definitly beneficial when looking to learn about HFT and algorithmic trading impacts on markets.
Good points, Gmac. While no one condondes predatory strategies, HFT’s sub-penny, sub-second crap has nothing to do with a fund’s shitty performance. Global financial leaders’ printing is part of the problem, as all equity boats are floated in passive, regular buys.
But that’s not the whole story. The impact of algorithmic trading is far greater than headline-grabbing HFT, as it actually pushes prices substantially to and fro, not just penny-skimming, and has largely arbitraged away profits from what are now considered to be naive forms of technical analysis (see Michael Harris’ ‘Price Action Lab’ blog).
Lamenting the days of yore when button-collared bankers read annual reports to pick stocks is useless – it’s not coming back, even after the Fed finally stops meddling. Not all “progress” is good, but is rarely reversed if profitable. A VWAP algo, though annoying, will never be against the law, nor will other algos that ping-pong between various moving averages each day, or buy-the-new-low and sell-the-new-high on 2-min charts.
So, by all means root out illegal stuff, stop excessive quote cancellations --- but computer programs will still control movements of anything under monthly, with “buy good companies and hold for a decade” still working for Graham and Dodd-ists – but not for 18-month performance metrics, sadly.
Lobby and use your vote, but accept and deal with reality -- whining never helped any portfolio. It takes every bit of courage and creativity to deal with the complexities of the modern world, with success only after a multitude of failures.
No shinola Sherlock.
Where have you been the past 5 years?
I do feel sorry for those who didn't "catch on" early to the gaming of the markets.
I guess if you aren't one of the "too big to fail" bankers that caused this chaos than you weren't included on the memo that the central bankers were going to spike this market as high as possible.
This will not end well.
Honestly I like the bots... Any gamer will tell you bots are stupid, and programmer will tell you bots are only as smart as the coder. And anyone in AI will tell you its a brute force.
BOTS BOTS BOTS BOTS!!!
Oh sadly all the average john does of the world get fucked in the ass by the bots cause the inflation $$ goes straight to them.
Poor john does :( Why not send a letter to the fed asking why they keep getting anally raped?
WAIT THE MARKETS ARE RIGGED????
I thought it was totally fair!
!!!!!!
Semi on topic - quite the fireworks tonight http://map.ipviking.com/#
He must not have seen the sign... It still says,
No shorting allowed by the management...EVER!!!!
"
This Is A Circus Market Rigged By HFT And Other Algo Traders"
Hey, NO SHIT???????????????
The only justice is to have the market open gap down 10% to flush those algo bastards out with a huge loss. The only justice to address fed meddling is to disband those finagling financial hoodlums for good. Dont count on either happening
I don't know guys, I'm just an accountant, not a stock broker, but I do know this. You should only buy shares because you believe in the company and its management not because you will make a short term profit on the share price. Also, only buy companies you are willing to hold for at least 5 years. If you do these 2 things that completely takes out any advantage the HFTs and Algos have and means you are not competing with them. They can do whatever the fuck they are programmed to do over the course of a day but you are looking 5 years down the track and they can't be programmed to compete with you on that timeframe. What does everyone think?
I agree with what you say and I hope you are still right. But this whole HFT thing is bringing about changes that I have no idea where investing will go. For now yes?
The banksters still shave off some of your profits, and the Fed shaves off even more through their favorite tax.....inflation.
I've prepared by investing heavily in over-sized floppy shoes and bicycle horns.
The only investments I make are in private SME's not listed on any exchange anywhere in the world.
I get dividends and I get either growth or losses, and I have buy back agreements with the directors and the honest directors who believe in their companies are happy to do that.
Get close to the ation and close to reality.
If you have serious cash to invest then talk to a local SME you know well