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Why The Market Is Slowly Dying

Tyler Durden's picture


Three years ago, when virtually nobody had yet heard of High Frequency Trading, Zero Hedge wrote "The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans" in which we asked "what happens in a world where the very core of the capital markets system is gradually deleveraging to a point where maintaining a liquid and orderly market becomes impossible: large swings on low volume, massive bid-offer spreads, huge trading costs, inability to clear and numerous failed trades?" Subsequent to this, our observation was proved right on both an acute (the May 6, 2010 Flash Crash), and chronic (the nearly 50% collapse in average daily volumes since the 2008 top) secular basis. And while we are not happy to have been proven correct in this particular forecast, as it ultimately means the days of equity capital markets in their current configuration are numbered, we now note that none other than Morgan Stanley's Quantitative and Derivative Strategies released a note which, with a three year delay, effectively predicts the end of capital markets in a world where every declining retail participation (another topic we have been hammering for the past 3 years as it is only the most natural response to a world in which not only equities are openly manipulated by central banks, but in which perpetrators for massive market disturabances are neither identified nor prosecuted) is replaced by artificial high frequency trading churn, which never was and never will be a true liquidity provider on a long-term basis.

To wit from Morgan Stanley: "In our mind, many of the approaches to algorithmic execution were developed in an environment that is substantially, structurally different from today’s environment. In particular, the early part of the last decade saw households as significant natural liquidity providers as they sold their single stock positions over time to exchange them for institutionally managed products... While the time horizon over which liquidity is provided can range from microseconds to months, it is particularly shorter-term liquidity provisioning that has become more common." Translation: as retail investors retrench more and more, which they will due to previously discussed secular themes as well as demographics, and HFT becomes and ever more dominant force, which it has no choice but to, liquidity and investment horizons will get ever shorter and shorter and shorter, until eventually by simple limit expansion, they hit zero, or some investing singularity, for those who are thought experiment inclined. That is when the currently unsustainable course of market de-evolution will, to use a symbolic 100 year anniversary allegory, finally hit the iceberg head one one final time.

How does Morgan Stanley frame their analysis? First, MS notes the ever increasing ownership of the stock market by big institutions, as retail investors took a back seat to investment allocation decisions, a secular theme until 2008, which however has subsequently plateaued:

Asset management has become increasingly institutionalized over the years. Individuals have outsourced their wealth management to institutions, whether pension funds, insurance companies or investment advisors. These, in turn, invest mostly in institutionally managed products such as mutual funds, ETFs, or long/short vehicles. The net result of this is that the vast majority of investable assets are held through institutionally managed vehicles. Exhibit 1 shows the evolution of ownership vehicles of corporate equity in the US. 37% of the USD 22tn of corporate equity is held by ‘Households and Nonprofits’ now, down from 50% at the turn of the century. This segment includes endowments and foundations, as well as on-shore hedge funds. Arguably, these should be counted as institutional investors as well. This means that direct household ownership of corporate equity is substantially below this figure.


For a universe of large-cap stocks4, Exhibit 4 shows the evolution of the percentage of ownership attributable to 13F filers and mutual funds since Dec 2001. This data corroborates Exhibit 1 on the increase in institutional ownership – on average, institutional ownership increased from 54% in March 2000 to 81% at the end of 2011.


Following the rapid growth of institutional asset management, however, the pace of increase in institutional ownership has slowed since 2008. We see this as one of the key drivers of the change in market structure and liquidity sourcing opportunities in recent years.

As more and more "equity capital" was concentrated into the hands of fewer and fewer people, the only logical outcome took place:

Trading decisions have become more concentrated as asset management has institutionalized. There are fewer decision makers (fund managers) now than in a world where management is dispersed across households. The size of their parent orders, on the other hand, has grown. The basic set up of the market – in terms of a continuous auction limit order book supplemented with ‘upstairs’ solutions –  has not changed. The details of the implementation have adjusted, of course – such as competition in execution venues, new order types,  and greater use of technology.


One of the most significant results of the tension between fewer market participants and larger parent order sizes is that the share of ‘real’ trading volume has declined by around 40% in the last five years. In Exhibit 5, we show the average proportion of quarterly trading volume that is attributable to changes in the 13f filings of each institution. We use this as our definition of ‘real’ trading volume. We also calculate the trading volume from our separate dataset of mutual fund holdings. We aggregate ‘buys’ (positive position changes) and ‘sells’  separately for each institution and mutual fund, on a per-stock basis, and calculate the average percentage of volume across stocks in our universe.

As a result, reports of the market's evaporating volume are not greatly exaggerated.

In our mind, these numbers constitute a lower bound on the amount of ‘real’ trading volume in the market (defined as the trading volume from market participants that hold assets for longer periods).


The share of real trading volume shows three distinct phases. From 2001 to 2006, institutional buys accounted for 27% of total trading volume on average, while sells accounted for 20%7. The asymmetry between buys and sells reflects the growth in the institutional share of ownership over the period (see Exhibit 4). From 2008 to 2011, we see a significantly lower share of trading volume – buys represent just 16%, and sells 13%, a drop in market share of almost 40%.


The 2007/2008 period represents a transition period, with a rapidly declining share of ‘real’ trading volume. This period coincided with rapidly increasing overall trading volume (Exhibit 6) – in 2006, the ADV was 4.8bn shares, while in 2008 it was 8.8bn shares. Volume has since declined again – YTD ADV is 6.9bn shares.

While it will not come as news to any of our regular readers, the disappearance of retail investors has meant the incursion of electronic trading in the form of relentless rise in HFT dominance.

Throughout the last decade, the share of institutional trading volume by each institution type has been remarkably constant (Exhibit 7). This means that the reduction in institutional share of overall trading volume between 2007 and 2008 was not due to a reduction in trading activity by any one institution type, but rather due to the introduction of a new type of trading volume.


A potential reason [for the drop in our measure of the share of ‘real’ institutional trading volume] is that institutional execution strategies have made liquidity more challenging to find. Concentration in assets under management has led to larger order sizes. One of the responses to this has been automation in execution strategies. The algorithms used tend to split parent orders into smaller child orders. As a result, we find that block trades, which made up around 30% of trading volume in 2003, accounted for just over 5% of trading volume in 2011 – see Exhibit 8. At the same time, the average trade size has fallen to around 250, from more than 1,000 back in 2003. Both data series are based on NYSE listed stocks.


Next Morgan Stanley explains precisely why the current market is no longer fit to deal with the existing roster of players, fit for a previous iteration of capital market topology such as that which prevailed when Reg-NMS was conceived, but certainly not the current one, especially if retail continues to withdraw from trading equities and invest its cash forcibly into that other terminally epic bubble - bonds.

In our mind, many of the approaches to algorithmic execution were developed in an environment that is substantially, structurally different from today’s environment. In particular, the early part of the last decade saw households as significant natural liquidity providers as they sold their single stock positions over time to exchange them for institutionally managed products. Adjusting the institutional execution strategy to capture this liquidity was a rational thing to do.


This institutionalization of asset management is mostly done by now, as we showed in Exhibit 4. As a result, execution strategies that were calibrated on the earlier market environment may no longer be optimal. The rise in trading volume since 2007 (when the growth in institutional ownership leveled off) reflects the growing challenges of sourcing liquidity. The way this has been resolved is through the introduction of more ‘market making’ activity in the form of liquidity provider trading.

Let's repeat that for the cheap seats: "As a result, execution strategies that were calibrated on the earlier market environment may no longer be optimal" and we could in theory just end it here. 

We all know that the bulk of HFTs close each day flat to avoid overnight holding risk, which they do by increasing churn amongst each other to unprecedented levels, in the process generating massive momentum swings as every player piggybacks on either side of the move. End result: even Moran Stanley admits that churn is not liquidity, and that the inability of HFT to carry inventory and have a longer-term bias is the fatal flaw in the current market topology, precisely as we warned back in April 2009!

The risk-carrying capacity of these providers is limited. If natural liquidity does not materialize, they may trade with another intraday liquidity provider to manage their inventory. This is particularly true if the institutional parent orders are larger and hence typically longer lasting.

From here, everything else follows:

Typical market-making liquidity provisioning strategies can be modeled as mean reversion strategies. If liquidity demand is persistently one-sided (such as in the case of large parent orders), it is rational to flatten the market maker position faster if the risk-carrying capacity is limited. In the absence of natural liquidity on the other side, this will often be through a trade with another intraday liquidity provider.  The net result is that the the amount of trading volume that is attributable to this segment of the market will increase.

Thus: lim investing time horizons approaches 0 as HFT ->  infinity

While the time horizon over which liquidity is provided can range from microseconds to months, it is particularly shorter-term liquidity provisioning that has become more common. This is partially a reflection of the changing nature of the default liquidity provider – ‘High-Frequency Trader’ is a commonly applied term.

Unfortunately, the "High Frequency Trader" is NOT, as explained, a liquidity provider in the conventional sense: it is an ultra-short time horizon churn facilitator and liquidity extractor (when the meager rebate for providing liquidity does not offset the capital holdings risk) and nothing else. Which is why just like the Fed has become the artificial lender of last resort in a regime that is unsustainable and where central banks are forced to grow their assets exponentially (as shown on Zero Hedge) just to preserve the flow so very needed to keep equities from collapsing, so HFT has become the artificial provider of fake liquidity.

The problem is that just like the half lives of central bank intervention, so the incremental benefits of ever greater HFT penetration are becoming less and less.

What happens next? Here Morgan Stanley, while trying to be diplomatically correct, comes to precisely our conclusion - trade while you can.

In our view, many of the changes in the market environment – such as the decline in trading volume – are secular. The trade from household direct share ownership to institutionally managed ownership has happened, removing one of the natural sources of liquidity. At  the same time, the micro-efficiency of the market in identifying and exploiting liquidity demand, exemplified by the growth in intraday liquidity provisioning strategies, is here to stay.


What are the implications for institutional execution strategies? The first implication is a re-evaluation of parent order sizing. Liquidity for institutional trades is now ultimately sourced from other institutions for the most part, rather than from households. The share of trading volume from these institutions has been falling by almost 40% over the last five years. This means that the amount of liquidity we can reasonably expect to source in the market should also fall by a similar amount. For example, we find that the upper limit of the percentage of ADV that can be traded in a VWAP-type strategy without undue price impact is typically around 4-5% now, versus 10-15% in the period before 2007.


The second implication is that execution strategies have to focus on maximizing the likelihood of being a liquidity provider. This has always been the objective of portfolio managers (‘Buy Low, Sell High’). Within the institutional asset management process, that has not always  been as central to the execution strategy. The assumption has been that liquidity will be available in the markets, and that the cost of demanding that liquidity (the market impact cost) was small relative to the alpha potential over time. As the composition of trading volume changes, this assumption has become more problematic. Having urgency constraints (e.g. having to finish a trade at a particular time)  becomes increasingly costly relative to the alpha potential.

Where Morgan Stanley stops short is the logical next question: what will detour this transition to a market driven by quantized incremental binary decision-making, aka RISK ON, RISK OFF, where with every passing day, we get greater and greater volatility shifts? The answer: nothing, unless of course, for some reason retail investors do come back, however with Lehman, the Flash Crash, MF Global, central planning, forced media propaganda telling everyone "it is a once in a lifetime opportunity to buy", even as markets in real terms are still down nearly 40% from 2000, retail has had enough of the rigged stock market casino.

Simply said: they are done.

Hence HFT will have no choice but to become a greater and greater role in equity trading, pardon, churning. Until one day, by logical extrapolation, only HFT is the marginal setter of prices, with no regard for value, logic or analysis, and a price-determining function set purely by historical precedent yet a precedent which will be no longer applicable in the least as the paradigm shift to a conceptually different "market" will have then happened. Or said otherwise: "large swings on low volume, massive bid-offer spreads, huge trading costs, inability to clear and numerous failed trades"... just as we predicted back in April 2009.

Just as simply said: with its advent, HFT sowed the seeds of its own self-cannibalization.

Which also goes back to another key concept, and arguably the biggest flaw in all of modern economics: it is never about the stock. It is all, and always has been, about the flow. Last week Goldman tacitly acknowledged it for the first time. Expect more and more economic hacks to follow suit.

The irony that ties it all together, is that if indeed for some reason retail investors do come back, and do pile their over $8.1 trillion in fungible money currently stored under the electronic cushion as we described in This Is Where "The Money" Really Is - Be Careful What You Wish For, which in turn would also unleash the titanic wall of money hidden behind the Shadow Banking dam wall (at last count about $35 trillion contained among the custodial holders of all securities why are quietly swept into the shadow banking system's re-re-rehypothecated pseudo asset pyramid and regulated by exactly nobody), which no conventional economic theories account for, yet which as Ben Bernanke this week, and Zero Hedge for the past 2 years, has been warning is the real catalyst of the (hyper) inflationary spark, then the Fed will be powerless to stop the biggest avalanche of empty artificially created fiat currency ones and zeros to ever hit the monetary system in the history of the world since Weimar. Only this time it will have the added benefit of HFT to accentuate every move imaginable as cash transitions from an inert form to an active, asset managed one.

But this is far beyond what one learns in Econ 101, which is why we will have to wait at least another 3 years before the Morgan Stanleys and all other bandwagon chasers of the world close the loop on what we are (and have been for a while) warning right now.

In the meantime, we are confident readers will enjoy the supreme irony: in their attempt to perpetuate the insolvent status quo farce, the central planners are now forced to choose between the terminal Scylla and Charybdis: a pyrrhic Schrödinger [alive|dead] market, or an even more pyrrhic Schrödinger [alive|dead] monetary regime.

We hope they choose wisely.


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Sat, 04/14/2012 - 16:43 | 2345664 q99x2
q99x2's picture

'perpetrators for massive market disturabances are neither identified nor prosecuted'

We'll publish their names and addresses at the start of the revolution.

Sat, 04/14/2012 - 16:55 | 2345680 q99x2
q99x2's picture

The FED can feed the HFT taxpayer money through the market as a backdoor transfer of wealth. That should help. No?

Sat, 04/14/2012 - 16:58 | 2345682 Woolyman
Woolyman's picture

"The reports of the markets death have been greatly exaggerated."

Don't underestimate the ability of independant, resourceful and highly motivated retail investors to find ways to exploit and profit from the weaknesses of a market increasingly dominated by financial superpowers.

HFT algo's, let me introduce you to the infinitely adaptable and endlessly persistent sentient individual investor.

Sun, 04/15/2012 - 06:41 | 2346275 BidnessMan
BidnessMan's picture

You seem to really believe that.  Good luck.... 

Sat, 04/14/2012 - 17:32 | 2345708 lolmao500
lolmao500's picture

Big big big news...

Obama Lawyer Admits Forgery but disregards “image” as Indication of Obama’s Ineligibility Damage Control

Taking an audacious and shocking angle against the constitutional eligibility mandate, Obama’s lawyer, Alexandra Hill, admitted that the image of Obama’s birth certificate was a forgery and made the absurd claim that, therefore, it cannot be used as evidence to confirm his lack of natural born citizenship status. Therefore, she argued, it is “irrelevant to his placement on the ballot”.

WTF???? Double speak we can believe in!!

Sat, 04/14/2012 - 18:09 | 2345758 rufusbird
rufusbird's picture

Fortunately, only other Lawyers would buy a line of crap like that.

Sat, 04/14/2012 - 18:23 | 2345773 lakecity55
lakecity55's picture

Scientist: "Here you are, Mr Soros. Our premier product. You can control an entire country with this,"

Soros: How doss ze thing vork?"

Scientist: "You control it with this Blackberry."

Soros: "Ja. Goot! Vat do I call it?"

Scientist: "Barry."

Sat, 04/14/2012 - 19:28 | 2345824 krispkritter
krispkritter's picture

Edit: "You control it with this Black Barry." 

Sat, 04/14/2012 - 17:32 | 2345709 oogs66
oogs66's picture

HFT's were just a way to skim more money from every retail order. That is it. why else sub-pennies and other preferential treatment. retail understood commissions. they didn't understand the cost of bad execution. hft's took advantage of that.

shameful and should be forced to live by same rules as us.

Sat, 04/14/2012 - 17:33 | 2345710 Eric L. Prentis
Eric L. Prentis's picture

High Frequency Trading (HFT) is front running, pure and simple. HFT companies pay big bucks to the exchanges, how? Answer—by ripping off the public, which is killing the exchanges, because on one wants to play a rigged game.

Sat, 04/14/2012 - 17:32 | 2345712 hettygreen
hettygreen's picture

Looking at that Man vs Machine piece again after reading this and thinking about the day when we correct to the 1994 or 1982 highs and return to the present in 275 milliseconds or less. Call it a flash bear market. 

Sat, 04/14/2012 - 17:36 | 2345717 spekulatn
spekulatn's picture

 Mr Wilmott's piece from 2010,


High-frequency Trading: Where are we and how did we get here? Posted At : June 28, 2010 10:30 AM | Posted By : Paul Wilmott
Related Categories: General "The truth is the high-frequency traders create volatility and create liquidity," said John Damgard, president of the Futures Industry Association.

What he apparently meant to say was that they reduce volatility, not create it. And this was just a slip of the tongue. As Sigmund Freud observed, such slips can reveal the reality.

I am concerned about High-frequency Trading (HFT) for two main reasons: Reduction of the relationship between value and price; Potential for positive feedback.

Markets exist to enable businesses to raise money, to expand, to thereby employ people, and so on, for the benefit of society. This only works if the market does a decent job of revealing the true value of a company via its share price. Otherwise the market is no different from a casino, a share price may as well be given by the spin of a roulette wheel. Fundamental analysis is supposed to do a similar job. You analyze a company, study its customers, research the management, etc., and come to a conclusion. But fundamental analysis is hard work.

Much easier is to run a data feed into a black box containing some algorithm, then optimize that algorithm. Your HFT black box doesn't care a hoot about the true value of a company, it only cares about what happens to the price over the next few seconds. You may spend a few months setting up this black box the first time, but thereafter you can apply it to a wide variety of markets with relatively little effort. Just re-optimize for that market. (And we know from how market players are compensated that the question of whether or not the result is long-term profitable is of second-order importance.) Not so with fundamental analysis, each market is different, each requiring the same weeks of hard work.

The above wouldn't matter if the HFT boys didn't dominate the market. Is it now 70% of trades on some exchanges are HFT trades?

Whenever you have a bandwagon, such as HFT now is, then you have the potential for systemic risk and feedback. Remember the last bandwagon…the credit products. How did that one turn out for the world economy?

To get feedback you need a quantity of traders following similar strategies.

"They all have different strategies," you say. Perhaps true for a while, but nor for long. Traders copy each other mercilessly, and since people in finance change jobs every two years it doesn’t take long for ideas to diffuse widely.

But feedback can be positive or negative.

Negative feedback is when an up move in a stock leads to a sell signal, and thus a fall in the price, and a down leads to a buy, and thus a rise in the price. This dampens volatility.

Positive feedback is when an up begets a buy, which causes the stock to rise again, causing another buy, etc. etc. And when a fall begets a sell, causing another fall, and further selling, and…

So which is it? Does HFT result in a reduction of volatility via negative feedback or an increase via positive feedback? This is an easy one. If you are a hedge fund manager which of the following would you prefer? A or B?

A. Low volatility. Shares go up or go down fairly predictably. No skill is required to make money, even by the man on the street. Hedge funds can’t charge large fees.

B. High volatility. Very difficult markets, experts needed and can charge large fees. If a fund does well they make a killing because of the enormous profit they have made for their clients. But they are just as likely to lose all their clients' money, in which case…nothing bad happens to the fund manager.

Yes, we are in that familiar territory of moral hazard. Of course the funds want to increase volatility and they have found themselves in exactly the place they want to be to make this happen.

(BTW If you want the mathematics of feedback see PWOQF2 or read the paper The feedback effect of hedging in illiquid markets, (P.Schoenbucher and P.Wilmott.) SIAM J. Appl. Math. 61 232-272 (2000). It's all about the gamma of a strategy.)

How did we find ourselves in this place? Because the HFT boys cleverly played the "liquidity card" at the right time. The argument goes along these lines: "When Mom and Pop want to sell off some of their portfolio to fund their retirement then they'll get a better price if there's more liquidity. So liquidity is good." True! For the shares they've held onto for 20 years they will indeed get an extra cent. Whoohoo! Break out the champagne! So you mustn't argue with the liquidity card. The more the merrier, right? Well, no. The fact that during those 20 years their shares have lost 50% of their value thanks to the Great HFT Crash doesn't ever get mentioned. One extra cent versus a 50% fall? Hmmm.

Everything in moderation. The more liquidity there is, the more you rely on its providers, and the worse the collapse when that liquidity dries up. And who is in the position to both cause this drying up, and to benefit from it? Why, it's the HFT boys again!


Sat, 04/14/2012 - 19:56 | 2345851 itstippy
itstippy's picture

Several years ago I had an extensive on-line dialog with a guy who finally convinced me he was a successful day trader.  At first I was HIGHLY skeptical, but this guy sent me his trades via email in real time for three days and I researched the results.  He was the Real Deal.  On a modest operating capital of about $100,000 he was clearing $400-$500 per day consistently.  Enough to live comfortably on.

He was to day trading as Michael Jordan was to basketball. Exceptional; don't try doing it yourself.  He had multiple monitors in his "war room" and tracked the real-time feeds all day.  He would enter and exit positions within minutes.  He never held positions overnight (it wouldn't be "day trading" then now, would it?).  Go long..wait..SELL!  Go short..wait..COVER!  And bit by bit he made money over the course of the day.  He was in the money on about 80% of his trades, and he never got greedy and tried to make a killing on a single trade.  At one point he went long and exited the same damned stock 12 times in one trading day.

The guy was watching and recognizing patterns on his custom live feed charts.  He didn't give a dang about company fundamentals, or even what business they were in.  He knew nothing about economic theory.  He never even took Econ101.  All he cared about was that a target stock be volatile.  Nothing else mattered.  He made money going up, he made money going down, and he switched his position constantly. Give him daily volatility in a stock and he'd make money playing the patterns.

I asked him who would make a good day trader - a good protégé for his methods.  His answer was, "either a kid who excels at video games, or a computer programmed to recognize the correct patterns."  Economic knowledge was a drawback.  Day trading had nothing to do with "price discovery" or any other "beneficial to society" market purpose.  Read patterns - make money.  That's it.

I suspect much market activity is now done by big players using algorhythems programmed to act like this super day trader.  Forget about the market as a pricing mechanism that rewards good companies and punishes unprofitable ones.  Profit margins, fundamentals, etc. don't matter.  Volatility and being on the correct end of very short-term trades are the game.

Sat, 04/14/2012 - 20:31 | 2345896 slewie the pi-rat
slewie the pi-rat's picture

hey, mr_T!

your friend was a gambler, a gamer-for-$, and smart, too

so, he could see where the money could be grabbed

as he learned, he decided what info to use, and how to use it;  we all do this, imo, in our "gaming";  i think this is a form of "toolmaking"

your guy knows how to work that chert and obsidian

Sat, 04/14/2012 - 17:48 | 2345728 babylon15
babylon15's picture

Liquidity is only expensive on the upside.  Short as many shares you want, you won't change the price.

Sat, 04/14/2012 - 17:53 | 2345729 JustObserving
JustObserving's picture

"The Market Is Slowly Dying"

No need to mince your words.  The US market has been dead for a while.  It is a corrupt, complicit market which serves the needs of the rich and the connected. And the US Fed.

What has the SEC and the CFTC done in the last decade?

CME Group raised margin requirements on trading silver futures five times in early May 2011.

$1.4 billion dollars disappears from customer accounts at MF Global  and no has been charged with a crime.

Millions of crimes committed in the mortgage bust in the last decade and no one has gone to jail.  Only the law of greed prevails in US markets - the greedy win, you lose.

Only the suicidal will invest in rigged markets. The less suicidal may prefer Hong Kong.

Good bye, New York - your corruption is too expensive.


Sat, 04/14/2012 - 18:52 | 2345789 Timmay
Timmay's picture

Liquidity for the market vs. liquidity for Government spending = more people cast votes than buy stocks = Gov wins.


It's just like Vegas, the only way to profit is to bet, win, and then leave....

Sat, 04/14/2012 - 19:25 | 2345820 Yen Cross
Yen Cross's picture

 I've had my fun for the" WEEKEND". 

  Sunday opens! Thanks  Slewie.

Sat, 04/14/2012 - 19:25 | 2345821 tim73
tim73's picture

2008: Peak Suckers achieved.

2009-2011: Sucker plateau.

2012- : High yield suckers are being depleted very fast and new replacement suckers found are that of lower quality.


Sat, 04/14/2012 - 19:31 | 2345827 tim73
tim73's picture

Germany uses mathematicians for science or in R&D in business side but USA uses them for HFT instead! Guess which one will win in the long term...

Sat, 04/14/2012 - 19:41 | 2345839 toadold
toadold's picture

Charts are useful for giving a visual representation of things but simple x-y charts hit limits. You can for instance use a candle stick chart for multiple factors, time volume, price, and direction, but the real world can put in a whole lot more factors, so much that you can't use a three dimensional chart and triple integration calculus to model what is going on.  

In ye olde days you could use stocks, bonds, puts, calls, warrants, and such to give yourself coveragel over different time lines, now it PM's, water, food, ammo and firearms, whiskey, and toilet paper. 

Sat, 04/14/2012 - 19:50 | 2345847 Omen IV
Omen IV's picture

well said  - the retail participation proves what people believe  - they are gone! - hammered in 1987/1997/2000/01/08/ - means  - make back what you can and move to sidelines and see if it is possible to fuck the squid et al -- no one i know believes "Anything" about anything - courts / laws / rules/ are a scam - in the stock and bond markets and especially RE related - government is a tool - markets corrupt - people are zombies ...... all waiting for death and dismemberment



Sat, 04/14/2012 - 19:51 | 2345849 Yen Cross
Yen Cross's picture

 This market will live!  PERIOD ! I'll  band together with the people that be.

Sat, 04/14/2012 - 20:04 | 2345855 Diet Coke and F...
Diet Coke and Floozies's picture
Just watched this... A lecture by my economics teacher: At about the 20 min mark he says what he thinks the Fed will do...
Sat, 04/14/2012 - 20:33 | 2345900 Poofter Priest
Poofter Priest's picture

Uh....I didn't hear him say what he thinks the Fed will do.

It just seemed he was saying what the Fed 'could' do but if they did it would be 'catastrophic'

Sat, 04/14/2012 - 23:35 | 2346068 Diet Coke and F...
Diet Coke and Floozies's picture

Listen carefully now...

At 19:54 into the video:

"It is not going to be solved by the political system that the Americans have. The residual is going to solve it. The residual is the printing press."

Sat, 04/14/2012 - 20:51 | 2345913 Yen Cross
Yen Cross's picture

 I took the time to watch your post!

Sat, 04/14/2012 - 20:09 | 2345871 Yen Cross
Yen Cross's picture

 The Markets are " subsidized"!

Sat, 04/14/2012 - 20:14 | 2345878 ekm
ekm's picture

What a coincidence! I just finished reading the link. I didn't know that derivative commodities gambling is subsidized by means of tax breaks. My blood is boiling.

Sat, 04/14/2012 - 20:49 | 2345911 Yen Cross
Yen Cross's picture

EKM. I'll just trade the open in Asia.

  Th`e Children know it alls?

Sat, 04/14/2012 - 20:56 | 2345919 Catullus
Catullus's picture

They have to keep the stock market marginally trading even at an illiquid number so that retirement funds, pensions, endowments, and hedge fund babies can continue to mark their portfolios high enough for the illusion of wealth. How else is someone supposed to believe the 7% assumed actuarial rates on the pension funds without it?

You can't own stocks, you cant short them, you can't buy exposure to volatility. Just stay away.

Sat, 04/14/2012 - 21:03 | 2345925 Yen Cross
Yen Cross's picture

Stupid is, as Stupid does! As I jump on a ( g-4) .


Sat, 04/14/2012 - 21:05 | 2345927 Stuck on Zero
Stuck on Zero's picture

Curse Black-Scholes.

Sat, 04/14/2012 - 21:58 | 2345965 kurt
kurt's picture

Man. The only animal who will chew off a limb to escape a trap and then eat it with some fava beans...

Sat, 04/14/2012 - 22:08 | 2345976 Greg
Greg's picture

To be be honest, it's nice watching the average market hold time approach a singularity, and the whole market crash and burn.  Frack the TBTJ.  I'd just as soon see them burn a a pyre on HFT computers smoking embers. 

Sun, 04/15/2012 - 02:31 | 2346005 BlackholeDivestment
BlackholeDivestment's picture


Hear Devo                                             Are we not men?

  Make the case                                 I am a robot?

       Citizens United                         Robbery

           Supreme Voice                 Contempt

               ...churn and flow        Corruption

                             Persons as Robot

                     .....voice and image of death

                                   Black Hole 

                               Gotta H F T Algo

                  the Pentagon halls 

                     dropping the bomb on Major Tom 

                    This is why ...the market is ...dying


                               ...Denny Crane 



Sat, 04/14/2012 - 22:48 | 2346018 Westcoastliberal
Westcoastliberal's picture

Almost makes you think they know something we don't, doesn't it?  Sort of like they will never be held accountable; never have to pay back the debt, etc. When you couple this with all the woo-woo stuff about underground bases "D.U.M.B.'s" stupid NASA explanations about "meteor season", 4 feet of hail in TX, it makes you wonder WTF.

Sat, 04/14/2012 - 23:36 | 2346070 Caviar Emptor
Caviar Emptor's picture

On this anniversary of the moment right before an iceberg was spotted dead ahead of the Titanic, I'll let you in on a secret: HFT algos are not just for stocks anymore. They are slowly creeping in to daily pricing schemes for routine consumer products. When you and another consumer express an interest in buying something, the price is lifted. Soon the price will lift as soon as you click an item. Biflation is the iceberg that will sink the economy

Sun, 04/15/2012 - 10:58 | 2346488 Woolyman
Woolyman's picture

Great Point. I agree.

Sun, 04/15/2012 - 00:31 | 2346107 xela2200
xela2200's picture

It is only impossible when You stop to think about it.

Sun, 04/15/2012 - 01:43 | 2346156 piceridu
piceridu's picture

...just like the Fed has become the artificial lender of last resort in a regime that is unsustainable and where central banks are forced to grow their assets exponentially (as shown on Zero Hedge) just to preserve the flow so very needed to keep equities from collapsing, so HFT has become the artificial provider of fake liquidity.

It just so fucking sickening. Everyone from CNBS, CNN, Bloomberg et al ...every politician, fire fighter, police, City clerk, meter maid, anyone that benefits from this facade of fake prosperity are in on it. It's everyone including me....FUCK!!!!!!

Sun, 04/15/2012 - 01:56 | 2346160 prole
prole's picture

Ever wonder what sheeples look like? Ever wonder what happens to the people who let someone else "store their gold" ... Or just want to see what the 70 million$ Precious Metals ponzi of the moment looks like? Well then this video link is for you-

Sun, 04/15/2012 - 06:33 | 2346270 BidnessMan
BidnessMan's picture

What is amazing to me is there was that much money in Easley, SC available to be fleeced ...... a simple little town - I have been there....

Sun, 04/15/2012 - 09:34 | 2346396 ebworthen
ebworthen's picture

Those folks dun been CORZINED.

Sun, 04/15/2012 - 23:33 | 2347742 Blue Horshoe Lo...
Blue Horshoe Loves Annacott Steel's picture

Secret service agents investigating a ponzi scheme...So they're investigating the Obomber Administration, the Fed, & Republicans?

Sun, 04/15/2012 - 04:40 | 2346219 Keyser Sose
Keyser Sose's picture

"Charts are marvelous tools for predicting the past."
      -- Eliot Janeway

Sun, 04/15/2012 - 04:43 | 2346220 icanhasbailout
icanhasbailout's picture

There is no market. The only unencumbered, 100% voluntary transactions (as should be every transaction in a genuinely free market) are the ones being performed by the financial giants themselves. Every other transaction is grossly distorted by law and fraud.

This isn't a market - it's a hostage situation, with everyone still in suffering from Stockholm Syndrome.

Sun, 04/15/2012 - 05:50 | 2346248 blindman
Mon, 04/16/2012 - 07:27 | 2346344 blindman
blindman's picture

@ "-1"
wake up and get a grip, or not.
the link is a jewel and a gem, your reaction...

Sun, 04/15/2012 - 06:02 | 2346252 LouisDega
LouisDega's picture

"To die, To be really dead. That must be glorious".
Count Vlad Dracula.

Sun, 04/15/2012 - 06:35 | 2346272 Element
Element's picture


... which is why we will have to wait at least another 3 years before the ...


How much is that in pop-corn years?

Sun, 04/15/2012 - 08:01 | 2346311 DavidC
DavidC's picture

Phew. A hell of a piece Tyler.


Sun, 04/15/2012 - 09:03 | 2346367 Grand Supercycle
Grand Supercycle's picture

The Big Picture Wile E. Coyote Market Top.

Prepare for a substantial USD rally.

Sun, 04/15/2012 - 09:36 | 2346371 Element
Element's picture

As many will by now know there's a major Taliban attack in multiple locations (with heavy weapons) in the Afghan Capital, in progress.  The largest such attack so far.  This marks the beginning of the 2012 fighting season.  It was obvious several months ago that there was going to be a major escalation in the scale of combat occurring in Afghanistan this summer.

This is the opening phase of an escalating proxy-war between great powers for the strategic upper hand, or else to acheive an understanding of the relative balance of power and capabilities. 

It's going to get very bloody from here on.
Attacks rock Kabul, Taliban claims 'spring offensive'
Updated April 15, 2012 22:34:43




U.S. and Taliban fight for key Afghan highway
    By Greg Jaffe, Sunday, April 15, 4:00 AM
    SAYAD ABAD, Afghanistan — Highway 1 does not look especially important. It is just a narrow, two-lane ribbon of blacktop.
    But in a country with a weak, corruption-plagued government, the road linking the capital to Kandahar, the country’s second most important city, was seen as essential to holding Afghanistan together. The chaos on a vital route so close to Kabul was contributing to a siege mentality in the capital. More than 3,000 U.S. troops were dispatched in 2009 to clean up the mess.
    Today Horney has about half of his force protecting Highway 1. The other half holds down two outposts on a dirt road 15 miles to the west of the highway. Insurgents could use the rugged trail, known as “Shadow Highway 1,” to smuggle weapons into Kabul.
    On a visit to one of the bullet-pocked outposts on Shadow 1, Col. Mark Landes, Horney’s commander, asked how many insurgents were in operating in the area around the shared Afghan-American base.
    “A lot,” Horney said.
    “I am so tired of words like ‘a lot,’ ” Landes prodded. “I don’t know what they mean.”
    Within a year most of the American troops in Horney’s sector will be gone and the Afghans will be in control. What would happen if the United States left the outpost on the shadow highway? Landes asked.
    “If we pull out, the Afghan army and the Taliban will find a way to live together,” Horney guessed.
    ‘My pride is hurt’
    Three days after the near-miss bomb attack, insurgents crept up to Highway 1 and fired a volley of rocket-propelled grenades into two tankers hauling fuel for NATO.
    The attack occurred directly in front of one of Horney’s outposts. American snipers, perched on the back wall of the base, shot at the attackers as they fled through a nearby village. Capt. Adrian J. Koss, the commander, and a team of U.S. soldiers pursued them.
    By the time the Americans reached the village the locals had disappeared into their walled compounds. The insurgents were gone. Koss and his men returned to their base, passing by the village bazaar stocked with Pop-Tarts, PowerBars and energy drinks stolen from the supply convoys in past attacks.
    The insurgents who launched the attack on the fuel tankers were not interested in looting. They wanted to send a message that the Americans could not even safeguard the stretch of highway directly in front of their outpost.
    “My pride is hurt,” Koss admitted. “It is my task to secure that highway.”
    The trucks burned outside the base for 36 hours — the black oily clouds visible for miles. Horney called Koss at his headquarters and told him to drag the trucks off the highway and out of sight as soon as possible.
    “The enemy here feels very confident,” Horney said later, reflecting on the rocket-propelled grenade attack and the near-miss IED strike on his convoy. “There’s no fear of getting caught or killed. We’ve got to put more fear in the insurgents and get more confidence in the population.”

Sun, 04/15/2012 - 09:44 | 2346404 blindman
blindman's picture

Afghanistan, where empires go to die.

Sun, 04/15/2012 - 09:54 | 2346415 i-dog
i-dog's picture

"War is God's way of teaching Americans geography."
   - Ambrose Bierce

Sun, 04/15/2012 - 23:30 | 2347733 Blue Horshoe Lo...
Blue Horshoe Loves Annacott Steel's picture

Wait.  Are U telling me the Islamic world has a beef with America? </sarc>

Sun, 04/15/2012 - 09:55 | 2346416 Pairadimes
Pairadimes's picture

If every investor holding equities either individually or through an institution could read and understand this post, the market would be tits up before lunch on Monday.

Sun, 04/15/2012 - 10:15 | 2346436 Nukular Freedum
Nukular Freedum's picture

There'll always be a market
And markets shall be free
If Apple means as much to you
As Apple means to me.

Seriously though, earnings = liquidity, notwithstanding crazy HFT.

Sun, 04/15/2012 - 15:27 | 2347003 SILVERGEDDON

What manner of dog fuckery is this ? This is America, land of John Wayne, Marylin Monroe, and Apple pie ! THE GOOD GUYS ALWAYS WIN, THE GIRL'S TITS ARE REAL, AND SO'S THE PIE ! Nope. Not anymore. The good guys are dead or prepping, the girl's tits are plastic, or hacked off due to cancer, and the pie has been eaten by Mittens and his buddies. Just waiting for America's version of Kristalnacht, when the jack booted thugs try to take over everything for real. Then, it is gloves off in defense of the Constitution of the United States of America. Let's see how good this country really is, or isn't then.

Sun, 04/15/2012 - 23:26 | 2347728 Blue Horshoe Lo...
Blue Horshoe Loves Annacott Steel's picture

No buyers except the bots & the central banking ponzi paper counterfeiting morons.

When it goes kaboom, it'll wipe away things like a 5000 foot tsunami.  Those holding precious metals will float to freedom & safety while the morons drown tied to a fiat paper anchor.

Do NOT follow this link or you will be banned from the site!