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For First Time Ever, The Fed Blames HFTs For Reduced Liquidity
Ten days ago, in "Why There Is No Treasury Liquidity In One Chart" we explained quite simply why there is no more Treasury market liquidity. To wit:
... while the Fed's holdings expressed in 10 Year duration terms have so far peaked at around 35% of total, a level which many expected wouldn't be dire enough to lead to the evaporation of bond market depth also known as liquidity, what happened since then is that coupled with the surge of HFTs in bond market trading which contrary to popular opinion not only doesn't provide, but soaks up liquidity, the 30% 10 Year duration threshold which had previously been greenlighted by the TBAC, ended up being far too high and as a result events such as the October 15 flash smash, and the May 2015 Bund flash crash, have become a normal and regular feature of the fragmented, central bank-manipulated and HFT-dominated markets.
Today, for the first time ever and in a very shocking development, the Fed admitted not only that at least one half of this assessment of bond market liquidity is accurate but that what Zero Hedge has been saying since 2009: that HFTs do not provide liquidity but soak it up, has been absolutely correct. From the FOMC minutes:
... it was suggested that the tendency for bond prices to exhibit volatility may be greater than it had been in the past, in view of the increased role of high-frequency traders, decreased inventories of bonds held by broker-dealers, and elevated assets of bond funds.
As for the accuracy of the other half of our statement, which would entail the Fed admitting that terminally low bond market liquidity is due to both HFTs and the Fed itself, we are willing to wait for that particular admission. After all, that would mean the Fed finally admits the past 6 years have done nothing more than lead to the most rigged capital markets in history.
Such an admission would also implicitly suggest an immediate return to normal markets. Which by definition would lead to the biggest market crash in history.
* * *
As for the Fed blaming HFTs for reduced liquidity, pay attention: when the market does crash, guess who the Fed will promptly blame for wiping out trillions in "unbooked profits"...
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can't make this shit up
Financial transaction tax approaches, no more HFT "spoofing".
Go Bernie Sanders!
When you're spoofing you're NOT trading. It will result in more spoofing before anybody pulls the trigger on a trade. So it will get WORSE, not better.
Beware of 'quick fixes' from ANY politician, especially those you may personally like.
Buutttt I thought HFTs ADD liquidity to the market? I'm so confused.
But, yes. HFTs will be blamed, even though they are a large part of why the market is even where it is. And even though places like zerohedge have been banging this drum for years, it will be another instance of 'no one could have seen this coming' and they will be believed, as always.
What???? I thought the party line was not only liquidity, but depth? What gives? This could get ugly in a hurry if Fed stops playing nice with the masters and their favored nobles.
Bullish
It's not a "blame" if they don't arrest and throw these HFT fuckers in jail.
..probably will surrender with a 6AU6 tucked up the butt.
It's called leveraged decay. Happens in ETF's, ETN's, Bond swaps and printing money from thin air and dumping it into markets. Except today computers help 'enhance' the speed of the ability of the transactions. Literally every transaction skins a fraction off at a time, multiply those transactions at tens of thousands a minute, millions of times a day, billions of times a month. Like sharpening a pencil to a nub and being surprised. Also one of the principal reasons they have no choice but to keep printing and doubling down their market bet each time. The reality is 'leverage decay' is also called the gamblers fallacy. When an entire world economy is based on it, damn straight everyone is fucked.
As long as the transactions are all done in USD in currency pairs against other fiat from the roll, it doesn't fucking matter where you run because there is no where to run. That door was closed, nailed shut and bricked up in 2011. In 2011, all the central banks were glued at the head in a "cunning plan" called the "swap rescue", which is a funky way of saying shell game with 47 central banks. So take those tens of thousands of transactions per minute and spread them all over the world with all the central bank acting in unison shaving their own pencils to nubs in a coordinated fashion.
tl;dr version - everyone on top is arguing who gets to be in the front seat of the financial head on collision.
So true. Leveraged ETFs are not for holding, that's for sure. Good for trading for all those reasons though...IF.... thanks
There's a point though when inflation as a symptom of the banks printing money from thin air means whatever return it is generated is negligible to the investment placed into the etf. The only thing a person can claim to have achieved is to break even as the best case once a real inflation catches up with the gain. That's why Buffet's idea of 'buy and hold' doesn't work in today's market, nor does scalp trading. When buffet started, these companies actually produced stuff, money moved. Today...not by a long shot, entire equity market of the first world should be classified as junk if looking at the debt to equity and the level of return. It's disgusting, there's nothing there to invest into plus it's all priced in a dollar that should be treated like toliet paper.
In terms of ETF's, they are like triple distilled crack in comparison to the speed the HFT's play with regular stocks and their leveraged decay rate is of course much higher. They are very dangerous. What most people don't understand is most of their pensions, public and private are using them. Which would be like saying your local school board is funding itself by selling crack to kids. Or your doctor is getting paid to give you cancer so you can pay to cure it.
One the shadiest companies that practices this is Vanguard. Vanguard is famous for using them in order to shove a position into place for picking up 'drops'. It's standard market manipulation practice. Thing is Vanguard isn't the only one doing it and one of the reasons for them eating their minor competitor, need to make it look like 'something' is happening when the reality is nothing is happening. Now the problem is Vanguard is they are sorry ass amateurs in comparison to other market movers. The fact is Vanguard and most of the mutual fund companies are just being used as a dumping ground for remarked junk...that's leveraged while they buy leveraged equities with a currency that's leveraged backed by the leverage of a central bank playing a leveraged shell game with 47 other central banks world wide.
See where the problem is yet? There's like 8..9...10 bubbles on top of one another. Law of averages dictates it'll only take one bubble to pop and it's going to make bear sterns look like a preschool show. It won't just be the USA that drops like a pile of bricks either, it's been accidentally constructed to implode world wide under the false assumption that there was a safety net constructed to save political capital and economic capital. When what was actually done is they re-enforced a fire hazard with thermite and dynamite. Remember, they are just rich...not smart.
The only thing to do in the situation is to see how far any of them get once it implodes eventually by a random unlucky mistake made somewhere and takes the entire world of credit down the drain along with everyone's savings and pensions, unfortunately...well, it's not like they were ever going to honour the pensions anyways.
I don't like ANY politician, and only a couple lawyers (criminal defense, of course), so I guess I'm OK there.
A transaction tax is not required.
Regulation prohibiting spoof orders already exists; it is dutiful enforcement of regulation that is lackng.
IF the damned regulators would get off thier lazy corrupt/incompetent asses and prosecute the rule breakers this would not be an issue.
Transaction taxes are only a half-assed way to attack a problem that the regulators and exchanges refuse to despite exiting prohibitions on this activity.
Rules are there but many are "advisory"--- SEC has no teeth
Welcome to UKenomics....
https://youtu.be/5EoetIL-MiM
So cynical. Even for the Fed.
We scapegoated some folks
Add it to the ZH 'conspiracy theory to conspiracy fact' pile.
As for the Fed admitting their role in it.... well, don't hold your breath, Tylers. Ain't happening. Ever.
Maybe some will recant on the way to the gallows pole? There's always hope . . .
Riiiiiiighht...........It couldn't possibly have anything to do with the fact that the fed has distorted the pricing mechanism to the point that the markets are worthless.
We were for HFT before we were against it.
Maybe The FED shold get it's own market propping proxy prop desk out of the market and let legitimate traders with real capital ascertain value/prices -and volume.
Heresy.
Fuck you flashbois!
I think it's the absense of anything but HFT's in the bond market that is concerning. When HFT's are left to their own algo's, flash crashes can occur.
The real problem with the bond market is that governments have been so fiscally irresponsible that no one in their right mind would buy them. Why on Earth would I pay YOU to buy your bond.
HFT's alone in the market is not the problem as much as it is the symptom of a much larger problem.
Faith is about to be lost. Be ready for it.