"The HFT Act will add the following clarification to the rules specifying the prohibition of market abuse: The placing of purchase or sale orders to a market by means of a computer algorithm which automatically determines the parameters of the order could be considered market abuse provided the placing of orders occurs without a trading intention, but (a) to disrupt or delay the functioning of the trading system, (b) to make it more difficult for a third party to identify genuine purchase or sale orders in the trading system, or (c) to create a false or misleading signal about the supply of or demand for a financial instrument."
There is a connection between modern capital markets and the NFL (and between Central Bankers and Roger Goodell). The connection is solipsism – a pathological egocentrism where reality is defined by an individual’s mental perceptions and constructs. Collective solipsism is what overwhelming Common Knowledge looks like. It’s the annihilation of an individual’s perception of reality in favor of a group perception of reality. The collective solipsism of modern markets is the most crucial game to comprehend.
Here is the quote that perfectly captures our era: "People of privilege will always risk their complete destruction rather than surrender any material part of their advantage." (John Kenneth Galbraith) The trick, of course, is to mask the unspoken second half of of that statement: everybody else gets destroyed along with the Elites when the system implodes.
Today's markets exist in an Oz-like, fantasy world. For 5 years now, stock and bond prices have risen like Dorothy's balloon, with hardly a puff of downdraft to spoil the fun. Everybody likes higher prices, so let's have them always go up! Forever! But what if...
- British PM begs Scots: Don't rip apart our UK 'family of nations' (Reuters)
- Obama has become Bush: Obama’s Task: Rally U.S. Public, Allies in Terror Fight (BBG)
- Alibaba's record IPO covered after first few roadshow meetings (Reuters)
- Ferrari chairman Luca Di Montezemolo to quit after 23 years (BBC)
- Combat Reversals Pressure Assad (WSJ)
- Top LBO Fund Investors Pile on Leverage to Boost Returns (BBG)
- BOJ's Iwata upbeat on economy, unfazed by post-tax hike slump (Reuters)
- Carney Can’t Escape Housing as Debt Colors BOE Policy (BBG)
- Detroit Clears Crucial Hurdle on Bankruptcy (NYT)
“At This Point You Just Have to Laugh”. In every important respect, the Fed and the ECB and their brethren are no longer central banks at all. They are Ministries of Markets, no different from a Ministry of Industry or – even more eerily similar – the Ministry of Culture you would find in most European governments. At this point the Narrative hegemony is complete. There’s no longer even a cursory bow to the idea that fundamentals matter. So I’m calling a top. Not a top in markets, because I honestly have no idea what’s going to happen next. But I’m calling a top in the Narrative of Central Bank Omnipotence because it has, in fact, reached its asymptotic limit of influence and belief.
Think CDS were the scourge of humanity, think again. As Pension360 reports, several Wall Street firms are selling securities backed by longevity risk - the risk that retirees receiving benefits will live longer than expected (and thus incur a higher cost on their retirement plan). As Ted Ballantine notes, 'no one ever said Wall Street wasn't creative'; but one wonders just how the banks are mitigating this risk...
While the markets are currently suggesting that the "dip" is over, there are several immediately prevailing risks that could catch unwitting investors.
Is this stock market decline the "real deal"? (that is, the start of a serious correction of 10% or more) Or is it just another garden-variety dip in the long-running Bull market? Let’s start by looking for extremes that tend to mark the tops in Bull markets.
The Loudest Warning Yet: "This Stage Should Lead To Increased Risk... System Less Able To Deal With Such Episodes"Submitted by Tyler Durden on 08/06/2014 11:29 -0400
"Suppression of yield and vol induces investors to take on more risk (QE III). The market clings to perception of certainty regarding outcomes, despite the Fed shifting commitment modes from time or level-based to data dependent. This stage of policy should eventually lead to increased uncertainty and risk." Translation: the TBAC itself - i.e., America's largest banks - whose summary assessment this is, is now actively derisiking.
The economic "recovery" has been based on a simple premise: debt can be substituted for income with no ill effects. As real household incomes have declined, the legitimate foundation of additional spending--more income--has eroded for the bottom 90%. The Fed's substitution of debt for income has only doomed the nation to a deeper, more painful realignment of real income and expenses.
Before you jump on the Bull market bandwagon of "don't fight the Fed," perhaps you should take a look at the quality of the debt the Fed has enabled and the diminishing returns on all that debt.
Just as the Federal Reserve cannot directly force you to stick the needle of monetary heroin (debt) into your arm, it also can't force employers to pay employees more. The ultimate hubris of the Keynesian Cargo Cult (which includes the global economy's central banks) is the naive notion that they can manipulate an entire system with a few levers such that the desired outcome--and only the desired outcome--is the output. The idea that you can change one input in an interconnected system of systems and only affect the one output you want is not just naive and simplistic: it requires a level of blindness and incompetence that is off the charts.