Lies, Damn Lies and Rigged Markets

Lies, Damn Lies and Rigged Markets


Cognitive Dissonance



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It has been fascinating to watch Michael Lewis and the Flash Boys spread the shocking truth that the stock markets are rigged……rigged I tell you. One need only watch the video of author Michael Lewis’s, IEX’s Brad Katsuyama’s and BATS Global Markets President William O’Brien’s recent CNBC Wrestlemania 666 to witness the hilarity as certain vested interests, such as the mainstream financial media and the BATS exchange, defend the indefensible all in the pursuit of the almighty buck.

And who could forget the cheers erupting from the NYSE floor as each ‘point’ was scored. I could almost hear Howard Cosell calling the blow by blow on national pay-per-view TV. Down goes Frazier, down goes Frazier, down goes Frazier. One always knows the position one will take when our paycheck and/or livelihood depends upon our position. Though in some cases we can signal otherwise, such as the floor traders cheering the ‘news’ even though they feed off the same money teat.

I like to play a game with my fellow shoppers while walking the aisles of our local grocery store. Mrs. Cog, at times a reluctant, at times an enthusiastic participant, usually plays the straight man in the verbal exchange. We roll up to a spot and either Mrs. Cog or I will grab an item off the shelf, always near someone else who is shopping or possibly an employee who is stocking shelves, and express shock at the high price. In my very loud out-loud voice I will proclaim, “But honey, the government says there is no inflation” making sure the sarcasm is dripping off every word.

Almost always there is some type of reaction, be it verbal such as a snort, a sigh, a chuckle or outright laugh. Or maybe something more subtle, such as a shift in their body language, a tilt of the head, the sideways movement of the body or the shifting of weight from one foot to the other. I usually take any and all of these clues as a sign to engage them in some sort of conversation. Rarely are Mrs. Cog and I surprised by what we hear from our hooked fish. It is nearly universally agreed upon that of course there is inflation, lots of inflation, and naturally the government is lying about it. It seems that nearly all the people we talk to hold a view very different from that of the supreme monetary authorities. When venturing into other subjects we discover similar results.

So why then are we so surprised when we are ‘informed’ of something we already know? Clearly most participants in the stock market suspect something is very wrong, though they might not know exactly what. The average ‘investor’ who has not already removed themselves from the market ‘playing field’ still play the field with the hope they might pick up some profitable crumbs. Many veterans already ‘play’ the waves in the market when the big boys jump in and splash about; picking up leftovers and spillage from the trough when the pigs have had their fill, plucking dimes from in front of the steamroller.

The answer for this behavior is so simple that many will be outraged by the answer in the same manner the BATS Global Markets President William O’Brien was outraged that someone would yell fire in the burning movie theater before he could extract his last pound of IPO flesh. We all participate in the collective lies because we all perceive we have something to gain in not fighting the collective lie. And that something might just be to avoid scrutiny and stay under cover while the wolves circle the flock looking for the injured and newly aware to pick off for a snack or early supper.

Bottom line…the more dependent we are upon something, anything, the more likely we are to enable and support that ‘thing’ regardless of the fact that it might no longer be supporting us in the manner it previously did and might actually be killing us. Once this realization is fully denied, usually by never acknowledging its existence as it applies to us personally, we can then all go about our life laughing or mocking whatever ‘it’ is because ‘it’ is no longer, or never was, perceived as directly harmful to us.


Old School Den of Thieves


Thus the collective lie is seen for what it really is; a lie, while still being promoted and enabled by all of us as truth. When ‘the’ truth is finally spoken about the lie, we are all personally attacked because we enabled, no…we embodied the lie and thus we must all act in mock surprise and horror that we were lied to. The result is monumental hypocrisy by all parties involved, even the so called innocent bystanders and spectators, on par with the outrage expressed that there was actual gambling going on in Casablanca. The games people play.

This is how we all arrive at the theatre of the absurd, the CNBC Wrestlemania episode where everyone has a dog in the hunt and all are expressing their own conflicted point of view defined by their own set of standards and parameters. The apoplectic BATS O’Brien was in a near panic because someone with credibility had declared the market ‘rigged’. He was obsessed with the word ‘rigged’, as if to imply that any other word, such as damaged, faulty, glitchy, prone to errors, den of thieves, clusterf**k, anything would have been more acceptable than ‘rigged’. My God, to expose the market to be anything other than fair and balanced might just spook the sheep before they are fully fleeced.

There was the CNBC crew who, while anxiously trying to show they could remain impartial and ask reasonable and fair questions, were also as desperate as William O’Brien was to pull the wool back over the eyes of the un-sheared sheep. After all, if the markets were actually rigged where the hell has CNBC been all these years? Wasn’t their job supposed to be business reporters as opposed to what they have become, corporate PR repeaters and CON drum beaters? Sadly their credibility rested upon O’Brien’s shoulders and O’Brien was withering fast under the hot spot lights, spittle spouting from his Hollywood white teeth.

Then there was author Michael Lewis, who has single handedly slain many an ugly giant and was once again riding his prancing white horse to the rescue of us poor peons and wage slaves. Just buy the book Damnit, it’s all in there. While he pulls off in a convincing manner that he is genuinely and deeply concerned that the markets are rigged, something he didn’t fully understand until he researched the book, his mission now was to sell the book. Just buy the book Damnit. What I find so laughable is that the vast majority of people, including the people at Wrestlemania, have not read the damn book, yet everyone is arguing about its contents including me. Pure unadulterated absolute insanity.

Then we have IEX’s Brad Katsuyama, clearly scripted to be the ‘good’ guy here. After all he gave up a lucrative J.O.B. that paid him millions each year to win at playing the market. Don’t even think about losing in this rigged market when the algos know only one way…..up, for now at least. He left it all behind in order to strike out on his own and slay those big bad HFT algos.

Or at least to devise a work around, then gather capital and create his own exchange where those who want honest execution of their trades can bring their business to him. And doesn’t everyone want honest execution of their trades? Of course they do. Next problem…..carefully explain to EVERYONE that their trades aren’t being honestly executed where they presently trade. While he may be speaking truth, he was just as conflicted as everyone else in the room…..floor…..building……island.

While Brad also appeared sincere in his pronouncement that the markets were rigged, it was precisely this rigging that would enable his new exchange to be profitable. Without the general belief that the markets were rigged his exchange would be just like every other exchange out there. Actually it would be worse because his gizmo setup prevented him from charging the HFT crews for privileged access to front run the order flow if all else failed. Meaning that while he was calling the kettle black, his pot would not be the white knight if not for the black market. Be careful Brad, the FBI HFT investigation just might ruin your coming out party.


The Store Front Facade


I suppose the cheers and chuckles coming from the NYSE exchange floor peanut gallery during this wrestling match were the most hypocritical of the bunch on a multiple of fronts. Most market ‘insiders’ are now aware that the NYSE exchange ‘floor’ is about as relevant as teats on a bull and remains a fixture of the ‘market’ for the same reason banks still retain brick and mortar store fronts for the public.

The floor brokers are there solely to provide the illusion that humans are still riding shotgun over the HFT herd, thus maintaining some sort of CONfidence that the market is still ‘there’ and not actually residing in some random access memory chip in a server farm in East Whateverford, NJ. I always laugh when I see the NASDAQ ‘market’ site located in Times Square, NY. It reminds me of those flashing lights placed on computers in movies since the 50’s. They help you to think there is humanlike activity going on in there. The comparison to WOPR of WarGames is too close for my comfort. Shall we play a game?

The NYSE understands the value of human capital grazing the ‘trading’ floor where floor brokers hurriedly poke at hand held computer devices as if executing critical trades that might just be my 6 shares of IBM crossing the tape now. All the while the HFT algos have scalped them six ways to Sunday on every frigging execution. Those good ole boys down there know their days are numbered and anything that can stave off the culling of the floor herd until early retirement kicks in is AOK by them.

I guess you could say they are the most honest amongst the bunch. They know where their bread is buttered and it sure isn’t in a ‘market’ server farm providing so called ‘liquidity’ and a natural human pause in the middle of market insanity. In an admittedly imperfect market system of yesteryear, the floor brokers were there to push back on market runs and to be a buyer or seller of last resort when no one else would stand up. You know, true liquidity as opposed to the fantasy HFT liquidity that amounts to a mere drop in the bucket when it’s really needed.

That is so old school in this brave new world. So when they were cheering on the idiocy of BATS O’Brien they were cheering their own book and being honest about it. You’ve got to love old school greed and conflict of interest worn right out in the open and on your sleeve.  The buggy whip makers are pleading for a reprieve, or at least to be dealt back into the game for one more hand. And they might just get something out of this latest public ‘scandal’ unless the US government rushes in and throws a TARP over the entire mess under the cover of national security.

There are lies, there are damn lies and then there are rigged markets. I would suggest that there always were rigged markets….but at least it was Spy vs. Spy, human against human and the Earthlings had a fighting chance to steal with the best of them. Now with Artificial Intelligence (is it really artificial if it’s intelligent?) almost upon us we puny humans are just worried we might be dealt completely out of the hand. It’s the end of the world as we know it and I’m just fine. Cue the Terminating autonomous killer robots in 3……2…..1….



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