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Who Will Be Blamed?
It was one week ago, when we read with great curiosity (and commented on) a research report drafted by none other than the NY Fed called "The Liquidity Mirage", which was not only a confirmation of our article from July explaining "How High Frequency Traders Broke, And Manipulated, The Treasury Market On October 15, 2014", but a validation of all our work since we first wrote our inaugural post on the dangers from HFT on that long ago April 10, 2009: "The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans" (for those who have not read it, it may be an interesting read: over 6 years ago, when virtually nobody had head of HFT, it predicted just how the market would break under the weight of the fake liquidity provided by these very "liquidity provider" as it did for the first, and certainly not last, time on August 24).
None of the authors' conclusions were surprising: we have been repeating for years that what HFTs do is create a broken market topology at the micro level, where the noise of an infinite of HFTs algos becomes the signal in itself, and whenever a major countertrend move happens, the market simply shuts down as these "New Normal" liquidity providers are simply finely-tuned momentum creation and frontrunning machines, and most certainly not market makers.
What was curious is that the NY Fed went one step further than the Joint Staff Report released in July of this year, which stopped just short of blaming HFTs for the October 2014 Treasury flash crash. The NY Fed report did not have such qualms and openly accused HFTs of generating the conditions that were necessary and sufficient for the October 15 2014 flash crash (and every other one both before and since following the implementation of Reg NMS). From the report:
This situation, which we term the liquidity mirage, arises because market participants respond not only to news about fundamentals but also market activity itself. This can lead to order placement and execution in one market affecting liquidity provision across related markets almost instantly. The modern market structure therefore implicitly involves a trade-off between increased price efficiency and heightened uncertainty about the overall available liquidity in the market."
Our take:
Goodbye to "fat fingers" being blamed for flash crashes, and welcome to the Heisenberg uncertainty market: you can have your 1 millicent bid/ask spreads... but you can't have any real market depth at the same time.
Which then leads to the logical and final question: why do this? Why admit (not only that we have been right all along), but that HFTs - far from a benign influence on the market - are a latent threat one which may lead at any given moment, to a market crash so profound the only recourse is "circuit breaking" the entire market?
Our conclusion from a week ago is what we have said for the past 6 years: HFTs have become the perfectly willing and eager scapegoat, one which will be blamed for everything that is wrong when the next crash finally comes.
In other words, from market predator HFTs are now one millisecond - and market crash - away from become regulatory prey. Why? Simple: so these culprit which have broken the market at the micro level deflect all attention from those responsible for breaking the market at the macro level: the central banks. This was our conclusion:
In the aftermath of this report, one can be sure that the days of current market structure are numbered, and that the scene is now set to throw the book at the HFTs. The only thing that is missing is the appropriate catalyst. And what is better than an orchestrated, or ad hoc, market crash, one which exonerates the real culprit for the stock market bubble - the Federal Reserve - and unleashes populist anger by millions of investors who lose their net worth in an HFT instant, aimed squarely at the HFTs, and the 20-year-old math PhDs behind them?
A few days ago, in his latest article "Invisible Threads: Matrix Edition", Epsilon Theory's Ben Hunt confirmed just that. To wit:
... you can bet that whenever an earthquake like this happens, especially when it’s triggered by two invisible tectonic plates like put gamma and call gamma and then cascades through arcane geologies like options expiration dates and ETF pricing software, both the media and self-interested parties will begin a mad rush to find someone or something a tad bit more obvious to blame. This has to be presented in soundbite fashion, and there’s no need for a rifle when a shotgun will make more noise and scatters over more potential villains. So you end up getting every investment process that uses a computer – from high frequency trading to risk parity allocations to derivative hedges – all lumped together in one big shotgun blast.…you use computers and math, so you must be part of the problem.
Hunt may disagree with this blunt assessment, and he may revolt at the "prejudice" against the algos, but what he is missing is the far bigger question: why? Why is the "computer trading" crowd is being primed for the biggest fall ever. The answer is simple - someone has to be held accountable.
Whether it is a scapegoat why Leon Cooperman crashed in August and blamed Ray Dalio's "risk parity" trade, or why Ray Dalio indirectly blamed the Fed when "smart beta" suddenly became very dumb, or why the Fed, which will have seen trillions in fake paper wealth evaporate overnight, will need to deflect the anger of a few billion furious investors worldwide out for blood, someone will need to take the fall.
That someone will be those who use "computers and math" to trade, or - as we have shown it repeatedly in the past for "soundbite" reasons - look like this:
And best of all, you can't arrest a vacuum tube, or lynch an algo: the market can wipe itself out... and nobody will go to prison.
Which means that the only question is when will this scapegoating kangaroo court of diversion begin; answering that question will also answer when the next, and most epic yet, market crash will take place.
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Yup. The rules are written for people and algos are not people. Corporations own the algos and they ain't people, neither.
Olly Olly Oxen Free
go ahead, Google it
and don't forget ...NO ONE coulda seen it comin'
knukles, you are older than I thought.
Back in the Stone Age (before Xbox and Wii and child-rapists), kids would play games outdoors in the sun - WITHOUT SUNSCREEN, and when a game of Tag or Hide and Seek ended, to reassemble the gang they would call out:
right, and we used to ride our bikes over steep dirt trails without helmets!
It is ALL of our fault... for even allowing the middle class to exist! We need simpler times.
The solution to HFT is so simple that people have been saying it for the whole 6 years that ZH have called out HFT wreckage of the markets:
Regulation that all exchanges must enforce that buy & sell orders cannot be cancelled until they are over 2 seconds old.
Said again, and will be ignored again while regualtors are in the pcoket of TBTF banks who run their own HFT.
Is this a gimmick to suck us out of our Vacuum tubes now?
Just the beam tetrodes. Must be using high power analog algos.
Who Will Be Blamed?
White people, Christians and heterosexuals, that's who.....I mean they are to blame for everything else bad in the world today.
Huh? Why the ability to cancel at all? Order placed, order made. End of story. Since I am not a big time trader there must be some alt definition of order I do not understand. I know I cannot cancel my orders....not in that club.
"We need simpler times."
Simpler times would mean no Internet. The creation of .this required capital. It must be repaid with interest. You cannot go back now. Keep marching forward.
You English are fun to watch. Speeding by in your motorized vehicles. Lost in your impure fantasy.
Sitting all goddam day is beginning to show up in the health status of everyone. Deep venous thrombosis - blood clots - from sitting nonstop is bringing blood flow to a halt. Our lower extremities (our second heart) bring back the distal blood from feet so heart is not overworked. Our heart, a muscle, is being left to its own and the result is dying at 50 from congestive heart failure, pulmonary embolic diseae or stroke. This is no laughing matter. They want us under the fucking bed, not on the computer.
and I used to drink water from the garden hose...
We played a more violent game of Hide The Belt, it was a rush.
Anyone remember the school ground chaos of 'Smear the Queer'?
End of the month. This last ramp job started at the beginning of the month when the Fed used the repo/reverse repo mechanism to give the banks a half trillion (plus leverage) to save it from a crash. But that all has to be reversed by months end so the bank balance sheets can be window dressed. Between now and the 31st it all vanishes. Will the market keep rising? I bet not. Rwo weeks is a long time in nanoseconds.
Everyone is afraid of saying the obvious. It's the coming US Dollar Demise which will bring about WW3 >> http://bit.ly/1PyMpdw
Who is afraid of ADL? Iran deal will save the dollar, as was the agreement. Robbing The Jewish State of Israel's Bank of the Golden Goose and its Eggheads (Rothschilds et al) in the Near East will keep this engineered collapse from being as brutally ugly as it was planed to be. Injecting the loot back into system after its seizure and the arrest of the perps along with seizure of their newly stolen wealth in a rigged system is underway. But, it is a secret. History is repeating itself. Yes, it was a mistake to create the internet - spying on us allowed us to spy on them and connect the dots.
https://www.youtube.com/watch?v=gP3onWNIFEY
Yes, Virginia, there is a Santa Claus (Vlad Putin) and no, I am not afraid of Virginia Wolfe,,,errr The sneaky bastards.
In googling that all I get is cattle porn.
The US Supreme court ruled that Corporations are "persons"; that is why no one goes to jail; how do you jail the Corporation?
http://www.theatlantic.com/politics/archive/2012/07/the-supreme-court-st... (one quick Google search example) This shows the bribery of the Supreme Court, which allows Corporations to be persons for the purpose of political donations.
Who Will Be Blamed?
Depends on who you ask. If it's the .01% or their hired guns they could end up blaming Elvis while maintaining a straight face.
I actually sat next to Elvis when he was flying the UFO.
Copilot or shotgun?
Blames for god and no algos
the market can wipe itself out... and nobody will go to prison.
6,000,000 cases of mortgage fraud that led to the last financial crisis and no one went to prison
9/11 was an inside job and nobody went to prison
Prison is for little people or peons
At least the ZeroHedge readers know who to blame for the coming Mega-Crash. Lots of people don't even read a newspaper or follow the news broadcast nowadays, and when they actually do....they sit and watch cnbc or any other sponsered network. These people will be slaughtered.
The coming months could be very surprising, all over the world !! (hopefully everyone on ZH is prepared)
Baron
If we had a quick hyper inflation and all paper assets and debt was wiped out in a day....most people would not know it. They do not own stock. They would figure it out when their debt was cancelled (and cheer) until they realized whatever pension they were getting wasn't going to buy anything.
Ditto for gold. It could go to 50,000 and it would not make much noise (or sense) to the vast majority.
You are dealing with savers here at ZH. Most have skin in the game here. That is why they pay attention.
Months? Try weeks. Closer to days. Saying months, you may as well mean years. We always want to say to ourselves, we have time. Time ran out. It is right around the corner. Out of 9 amphib assault groups, 8 are in port. In port for what? The only one in the Persian Gulf. The Essex LHD-2. Only on station for evac and rescue of any remaining U.S. citizens in the region.
I was on the Nassau LHA-4. At that time (early 80s) there was always a 50% rotation. Half deployed. Half in port. (resupply, maint., and training) There is a clear stand down in the DoD. Something is up and right around the corner ..
honest question
Why do the Tylers refer to computerized trading as 'vacuum tube'. I assume it is to make it sound old fashioned and trustworthy. I can't imagine they need the delay like the audiophiles crave. That kind of delay could cost you billions.
I also have been wondering where the ridiculous vacuum tube reference came from. If the HFT computers used vacuum tubes they couldn't physically fit them close enough to the exchange to work in time, and they would require multiple GW power plants just for themselves.
It is a metaphor...vacuum tube is essentially same concept as transistor...
title is 'who will be blamed?' -- closing quote says 'you cant arrest a vacuum tube'
Tube makes for a better metaphorical illustration than a photo of a chip or a magnified printed circuit image...and WTF would a photo of an HFT algo look like?
Neither of you get it.
Tube is shaped like cock. Electronic cock that is going to fuck you.
Vaccum tubers aka valves in Europe are used in this context as a pun. They're no longer used for anything but niche electronics. I guess it's analogous to the "fat finger" but is has been blamed for crashing markets - which was never the case but presented by the media as truth.
Btw tube amps for radios and guitars are quite awesome, warm smooth tones compared to transistor based ones. Some tubes are literally worth more than gold. Like the western electric 300A.
I grew up on valve amps and then learned about the technology studying marine engineering. Up until the last few years they still used huge valves to power comms equipment used at sea because of their current handling capabilities, but I haven't kept up with the technology. Nowadays I use modeling amps to emulate the sounds for my guitar but I still miss my Marshall 20W amp I used to use at home in the 70s. Ah nostalgia.
I remember being able to listen to Santa as he was being tracked by NORAD during a thundersnow storm.
Try that with your 6s.
http://www.vacuumtubes.net/
http://radio.macinmind.com/gallery/main.php?g2_itemId=350
The irony is tube amps took a while to " wrm up".
Then transistors came in and everything came on instantly.
Now all my stuff has a processor and evertything takea longer than ever including my Toshiba TV , Windows etc, blazing processor speeds notwithstanding.
Just put the focus where it belongs...Fed., Bankers and Politicians.
the CRIMINALS
You got it and fortunately the government has provided us FEMA camps which originally they had intended for us and instead we will show them the way and wouldn't that be fun, "fair" and provide some "justice" as the people root out the ill gotten gains and nationailze all their assets. That would be so cool. Could make it retroactive and go back like 15 years on the pols, the bankers and all the other criminals.
Only 15 years? Go back to the Roswell lies, or the Tesla suppression crimes at least.
SEC’s hedge fund reviews show advisors keeping trades for themselves
16 October 2015, by Francine McKenna (MarketWatch)
http://www.marketwatch.com/story/secs-hedge-fund-reviews-show-advisors-k...
Excerpt:
High frequency trading, criticized by some for its potential creation of an uneven playing field for smaller investors, is not as common as some have portrayed.
The SEC’s report says fewer than 100 reporting hedge funds, representing less than $70 billion in combined net assets, manage some portion of their funds using high-frequency trading strategies.
just read the feds. favorite citadel ceo, going through a divorce, and the article stated he makes $64,000,000, after taxes, a month.
Well, he's helping maintain market liquidity, a vital function in today's modern economy.
You should be grateful.
Tyler has spelled out how HTF front runs the "q" for over 2 years.
I specifically archived the files in alphabetic order.
Don't think about financing your $usd denominated real estate in yen,
Kyle Bass has good ideas, but that wasn't one of them.
It is good to have such tight knit peeps like you being chirpy.
Thanks.
I thought that your supreme court ruled that corporations are people.
Why admit (not only that we have been right all along), but that HFTs - far from a benign influence on the market - are a latent threat one which may lead at any given moment, to a market crash so profound the only recourse is "circuit breaking" the entire market?"
Perhaps it IS because they have circuit breaker protection.
The world might soon witness a major shift in the value of one investment over another as investor seek firmer ground. Derivatives, currencies, plunging stock prices, air rushing out of a bond market bubble, how debts are structured, and the timing or direction from which problems arise are all elements that must be considered. Several factors determine just how much influence can be applied to how current economic policies unfold.
Using the metaphor of "let the chips fall where they may," things like the size of the chips, the rate or speed at which they fall, and the number of chips in the air may make them uncontrollable. We could find ourselves up to our neck in chips in a blink of an eye, at that time all bets are off as to how successful efforts to stem a catastrophe might be. The financial overlords may be losing control and this means during the final stage of the global shakedown events will be chaotic and become very wild. More below on how violent the crash might be.
http://brucewilds.blogspot.com/2015/08/the-final-shakedown-will-be-uncontrolled.html
No one will be blamed. They will look for a proxy false flag to blame for the fall of the economy. Either a biological, nuclear, war, earthquake, tsunami event or a combination. After said event or events then will come the economic collapse. They don't want hordes of angry, starving people's energy directed at the elites or their minions. There are too many of us and they know most if not all cannot grasp basic economic principles let alone when starving. It will be hell on earth.
Am I the only one old enough or crazy enough to have had whatever rational head bobbling experience of agreement with the article vanish immediately upon seeing that electro-harmonix logo, only to be replaced by a Hendrixian-hash pipe-acid-encrusted-hippychick-lovin'-erotic reverie?
Probably not.
Gone are the daze.
Please allow me to introduce myself
I'm a man of wealth and taste
I've been around for a long, long year
Stole many a man's soul and faith
And I was 'round when Jesus Christ
Had his moment of doubt and pain
Made damn sure that Pilate
Washed his hands and sealed his fate
Pleased to meet you
Hope you guess my name
But what's puzzling you
Is the nature of my game
I stuck around St. Petersburg
When I saw it was a time for a change
Killed the czar and his ministers
Anastasia screamed in vain
I rode a tank
Held a general's rank
When the blitzkrieg raged
And the bodies stank
Pleased to meet you
Hope you guess my name, oh yeah
Ah, what's puzzling you
Is the nature of my game, oh yeah
I watched with glee
While your kings and queens
Fought for ten decades
For the gods they made
I shouted out,
"Who killed the Kennedys?"
When after all
It was you and me
Let me please introduce myself
I'm a man of wealth and taste
And I laid traps for troubadours
Who get killed before they reached Bombay
Pleased to meet you
Hope you guessed my name, oh yeah
But what's puzzling you
Is the nature of my game, oh yeah, get down, baby
Pleased to meet you
Hope you guessed my name, oh yeah
But what's confusing you
Is just the nature of my game
Just as every cop is a criminal
And all the sinners saints
As heads is tails
Just call me Lucifer
Cause I'm in need of some restraint
So if you meet me
Have some courtesy
Have some sympathy, and some taste
Use all your well-learned politesse
Or I'll lay your soul to waste, um yeah
Pleased to meet you
Hope you guessed my name, um yeah
But what's puzzling you
Is the nature of my game, um mean it, get down
Woo, who
Oh yeah, get on down
Oh yeah
Oh yeah!
Tell me baby, what's my name
Tell me honey, can ya guess my name
Tell me baby, what's my name
I tell you one time, you're to blame
Ooo, who
Ooo, who