If phrases such as "free markets" and "level playing field" resonate with you, you might want to dig a little into deeper into the hows, whys, and what-fors of the big stock exchanges. It seems that while a whole generation of offspring of "The Greatest Generation" were growing up, a few were intent on turning those exchanges into the equivalent of Las Vegas slots or roulette, a guaranteed losing proposition for most "investors" (chumps).
In the early days of the Wall Street trend to involve Main Street in investing in stocks (playing the market), access to the market was not the simple matter it is today. The easy money was made by brokers (salesmen) of all stripes for facilitating individual stock trade transactions. Over time, brokers morphed into "advisors" (salesmen) whose advice was designed to channel investors (chumps) money into products with the highest sales commissions. While the advent of computerized trading did lower transaction costs, flash trading and front running allowed the firms with the best computers and programmers to skim a steady percentage of all transactions without a visible charge on the customer's bill.
Flashing trading and front running are not the same, but they both have essentially the same effect. They give the big financial players the edge of being able to look at your cards before they place their bets. Even more alarming, according to some who know the capabilities of these high speed trading programs programs, they are capable of doing more than skimming a few pennies from each of millions of transactions. Supposedly, the big players can manipulate individual stocks and whole markets up and down or engineer sharp crashes and reversals.
That last point is worth elaborating upon. Suppose you are the type who is naturally skeptical of claims that Wall Street is capable of using its high speed trading programs to manipulate the broad stock market averages, and you begin to tune out at the mere mention of the "Plunge Prevention Team". Consider this, by various accounts high speed trading makes up 50-75% of ALL trading on the major exchanges. Does that suggest it is at least, possible?
Now, let's examine a number of possible explanations for the recent minutes-long 1,000 point plunge in the DOW. Mainstream media immediately seized upon the notion that a "fat fingered" trade was responsible, meaning that at least in concept if not in exact detail, someone might have erroneously entered a sell order of a billion of something instead of a million. That idea has been discounted lately, no such fat fingered trade being found. A few large stock sell orders, a large E-mini futures trade, and an anomaly in the Japanese currency market have been identified, but apparently all of these were parts of legitimate trading or hedging activities.
So, a fat fingered trade did not trigger the plunge. Other explanations offered are that current high speed computer trading algorithms are so prevalent and so twitchy that a few large legitimate trades can crash the market in minutes, or a few large high speed computer traders are so influential that they can plan and execute a market take-down whenever they want. Right now, the buzz seems to be all about the first explanation, and discussion revolves around ways to implement additional market "safeguards" to prevent this from happening again, as if the plunge was similar to a car accident, and what the stock market exchanges really need are more "seat belts" and "air bags".
Here's where this gets good, or at least I think so. What's the difference between a few well placed trades crashing the market because high speed trading makes the market twitchy and a few large high speed traders being able to crash the market? Isn't the glaringly obvious plain fact really this, that Mr. Market has just demonstrated beyond a shadow of a doubt that high speed computer trading is responsible for an unprecedented high speed plunge and recovery? If high speed trading CAN do this, even if this incident occurred by accident, hasn't the capability to do this by design just been proven? And, if it CAN be done, do you really think no large high speed trader, such as Goldman would dare do it? Haven't the Goldman leadership already proven they have balls the size of planets?
OK, OK, you just cannot bring yourself to believe the broad market averages are being manipulated. The 1,000 point plunge is and always will be simply an "accident" or an "anomaly" in your mind, an "accident" of some kind. What would be the cause of the worst possible stock market accident you can imagine? Suppose the $700 trillion derivatives market "blows-up" suddenly, whatever that means. I think it means a large move in currency or bond markets causes a number of BIG derivative contract defaults, and because there isn't enough money in the world for counter-parties to pay off in such an event, a series of cascading defaults would occur.
Do you really think you can trade more intelligently and nimbly than Goldman Sachs high speed trading programs and get out of the way of such a disaster before Goldman does? That idea triggered a memory in my engineer's mind, that instead of trying to calibrate a model of a dynamic system by direct calculation, it can be far easier and more accurate to simply shock it and record how it reacts. Did Goldman or some other big trader simply ping the system by pulling or delaying thousands of buy orders across the board and initiating that 1,000 point drop in order to calibrate their trading programs? If so, could the timing have possibly been any better, when Congress was meeting concerning the Goldman Sachs investigation and Fed audit bill? Could this have been both a test of the market and a threat to Congress?
Read the claims and judge for yourself whether they are credible or not. If they are, do you really wish to play poker with players who can peek at your cards or determine in advance the cards you will be dealt? If so, you might do well to go to Las Vegas instead. At least there you will score free drinks while throwing away your money.
Wall Street and the World of Flash Stock Trades, by Ned Potter, July 29, 2009
Front Running, Wikipedia
Computerized Front Running: Another Goldman-Dominated Fraud, by Ellen Brown, April 21, 2010
Computers, Not Human Error, Likely Caused Market Meltdown, CNBC, May 07, 2010
Surge of Computer Selling After Apparent Glitch Sends Stocks Plunging, by Nelson Schwartz and Louise Story, May 6, 2010
Stock Market Time Bomb?, by Arnaud deBorchgrave, May 10, 2010
High Frequency Terrorism: How the Big Banks and Federal Reserve Maintained Their Death Grip Over the United States, by David DeGraw & Max Keiser, May 11, 2010
The May 6 Stock Market Crash Revisited, by Pam Martens, May 12, 2010
Saturday, May 15, 2010
Saturday, May 8, 2010
Was I Dreaming, or Did the Dow Drop a Grand When I Blinked on Thursday?
Again, it's been a while since I've posted. This endless bear market rally with near-zero volatility and low volume has been mesmerizing. Yet, I've maintained a skeptical attitude and about five months ago began buying puts on the S&P500 at 1100. It's taken much longer than expected but perhaps the action this past week is saying the accounting-rule-change-driven relief rally top is finally history.
The 998 point intra-day drop in the Dow over a few minutes, Thursday, is already beginning to fade from public memory ("...move on folks, nuthin' to see, nuthin' to see. Don't try connecting the dots. Nuthin' to with Greece, debt, or anything fundamental. Just a wee omputer-trading glitch.").
Instead of focusing on that singular event, I'm posting another big picture piece on the excessively indebted US and world economic systems. It might appear that I post nothing but bad news, but keep in mind that you receive little but good news from the mainstream media, and my intent is to present information that properly rounds out the picture.
The biggest economic problems in the world today are: debt, debt, and debt. Understand that, and you can begin to understand something of “modern” economics. However, to fully understand the terrible state of the economy today, you also need to understand how the source of practically all money is debt, in the form of bank credit, and the simple facts that we are all made prisoners of this monetary system by the legal tender law and the non-existence of alternative money.
It is not my intent to explain the mechanics of that system here. Suffice it to say that as long as you operate within the system, you being robbed directly by inflation and also by taxation on illusory inflation-profits, and the markets you try to “invest” in to protect your savings and generate real profits over and above inflation are being manipulated and gamed by the big financial players. Even your federal, state, and local governments are being manipulated and gamed by these same players.
The end game comes when the public and governments can absorb no more credit. The mathematics of repayment of principle plus interest then dictate that there shall be outright individual, business, and government failures. This is not even a zero sum game. The mathematics dictates that there shall not just be relative winners and losers, but there shall be failures, bankruptcies, and abject poverty.
These results are not an absolutely necessary part of the human condition but they are absolutely a result of the present less-than-zero-sum monetary system. What would you think of parents having four children and telling them there is enough food for all, but they plan to starve one child to death just to make life a bit more competitive? It's an admittedly gross and imperfect analogy but it's something like that.
Let's survey the past two and a half months to see how this 400-year-old mature monetary system is working out. If at the end of your reading, you still think that you can “play the markets” in stocks or bonds, without understanding banking, credit, and debt, well, good luck. You will need an abundance of it.
The Sovereign Debt Disaster, by Egon von Greyerz, February 23, 2010
Buffet's Partner Says America is Finished, February 23, 2010
Sultans of Swap: Explaining $605 Trillion in Derivatives, by Gordon T. Long, February 24, 2010
Nearly 25% of All Mortgages Are Underwater, by Les Christie, February 24, 2010
Sovereign Debt Follies, “It Has Taught Us Nothing”, by Bob Hoye, February 25, 2010
Bernanke Delivers Blunt Warning on US Debt, by Patrice Hill, February 25, 2010
Massive Bank Failures Due, by Charlotte Cuthbertson, February 25, 2010
California is a Greater Risk than Greece, Warns JP Morgan Chief, by James Quinn, February 26, 2010
A Quick Tour of Hyper Inflation and Its Consequences for America, by John Silveira, March 1, 2010
The Real Cause of Hyperinflation, by Jordan Roy-Byrne, CMT, March 2, 2010
Indonesian Mob Wants Blood After Treasury Secretary Spends a Fortune Bailing Out Banks, by Gus Lubin, March 3, 2010
Signs of the Tmes, by Bob Hoye, March 4, 2010
Unemployment, by Howard S. Katz, March 8, 2010
Why California is Doomed, by Charles Hugh Smith, March 9, 2010
Tedbits 2010 Outlook. When Hope Turns to Fear, Part IV, by Ty Andros, March 12, 2010
Eurozone Could Risk 'Sovereign Debt Explosion', by Ambrose Evans-Pritchard, March 12, 2010
The Complete Guide to Toxic Mortgages and the Housing Situation of California, March 13, 2010
Unemployment (continued), by Howard S. Katz, March 15, 2010
The Spectre of Financial Armageddon – Health Care and Federal Debt in the United States, by Michael E. Chernew, Phd, Katherine Braiker, Phd, and John Hsu, MD, MBA, MSCE, March 17, 2010
The Ruins of Detroit, The Off-Shored Economy, by Paul Craig Roberts, March 17, 2010
Watch the Bond Market, Not Bank Lending or Velocity, Jordan Roy-Byrne, March 19, 2010
In the Shadow of the Castle, by David Galland, March 19, 2010
Healthcare Bill to Cause U.S. Hyperinflation by 2015, March 20, 2010
The Most Important Chart of the Century, by Nathan Martin, March 20, 2010
Debtor Nation, by James Turk, March 22, 2010
U.S. States May be the Next Dominoes to Topple, by Boyd Ermin, March 23, 2010
Tedbits 2010 Outlook, When Hope Turns to Fear, Part V, by Ty Andros, March 26, 2010
It is a pressure cooker waiting to explode! Similar “Recovery” rally as in 1929/1930, March 28, 2010
The Municipal Market, by Rick Bookstaber, April 4, 2010
Sovereign Debt Crisis at “Boiling Point”, Warns Bank for International Settlements, by Ambrose Evans-Pritchard, April 8, 2010
Extend and Pretend: Manufacturing a Minsky Melt-Up!, by Gordon T. Long, April 12, 2010
Extend and Pretend, by John P. Hussman, Phd, April 12, 2010
Yes, 47% of Households Owe No Taxes. Look Closer. By David Leonhardt, April 13, 2010
12 Reasons Why Millions Of Americans Are Incredibly Angry About The State Of The U.S. Economy, by Michael Snyder, April 13, 2010
Extend and Pretend: An Accounting Driven Recovery, by Gordon T Long, April 14, 2010
The Global Economic Crisis: Riots, Rebellion, and Revolution. When Empire Hits Home. By Andrew Gavin Marshall, April 14, 2010
Princely Finance and Taxation (Our Annual Tax Number), by Bob Hoye, Institutional Advisors, Apr 15, 2010
Invisible Leverage, by Howard Hill, April 20, 2010
Second Wave of Financial Crisis, by Jim Bianco, April 21, 2010
Collapse of the Standard of Living in the USA. Studies Reveal Declining Living Standards and Increasing Anger, by Hiram Lee, April 24, 2010
The Feds Hollowing Out of U.S. Banks, Daniel Amerman, CFA, April 29, 2010
John Williams: A Hyper-Inflationary Great Depression Is Coming, April 30, 2010
Greenspan Wanted Housing Bubble Dissent Kept Secret, May 3, 2010
The Mother of All Bubbles. Huge National Debts Could Push Euro Zone into Bankruptcy. May 3, 2010
Violating the No Ponzi Condition, by John P. Hussman, Phd, May 3, 2010
Scary Chart, May 4, 2010
The Canary is Dead, by Greg Hunter, May 7, 2010
The 998 point intra-day drop in the Dow over a few minutes, Thursday, is already beginning to fade from public memory ("...move on folks, nuthin' to see, nuthin' to see. Don't try connecting the dots. Nuthin' to with Greece, debt, or anything fundamental. Just a wee omputer-trading glitch.").
Instead of focusing on that singular event, I'm posting another big picture piece on the excessively indebted US and world economic systems. It might appear that I post nothing but bad news, but keep in mind that you receive little but good news from the mainstream media, and my intent is to present information that properly rounds out the picture.
The biggest economic problems in the world today are: debt, debt, and debt. Understand that, and you can begin to understand something of “modern” economics. However, to fully understand the terrible state of the economy today, you also need to understand how the source of practically all money is debt, in the form of bank credit, and the simple facts that we are all made prisoners of this monetary system by the legal tender law and the non-existence of alternative money.
It is not my intent to explain the mechanics of that system here. Suffice it to say that as long as you operate within the system, you being robbed directly by inflation and also by taxation on illusory inflation-profits, and the markets you try to “invest” in to protect your savings and generate real profits over and above inflation are being manipulated and gamed by the big financial players. Even your federal, state, and local governments are being manipulated and gamed by these same players.
The end game comes when the public and governments can absorb no more credit. The mathematics of repayment of principle plus interest then dictate that there shall be outright individual, business, and government failures. This is not even a zero sum game. The mathematics dictates that there shall not just be relative winners and losers, but there shall be failures, bankruptcies, and abject poverty.
These results are not an absolutely necessary part of the human condition but they are absolutely a result of the present less-than-zero-sum monetary system. What would you think of parents having four children and telling them there is enough food for all, but they plan to starve one child to death just to make life a bit more competitive? It's an admittedly gross and imperfect analogy but it's something like that.
Let's survey the past two and a half months to see how this 400-year-old mature monetary system is working out. If at the end of your reading, you still think that you can “play the markets” in stocks or bonds, without understanding banking, credit, and debt, well, good luck. You will need an abundance of it.
The Sovereign Debt Disaster, by Egon von Greyerz, February 23, 2010
Buffet's Partner Says America is Finished, February 23, 2010
Sultans of Swap: Explaining $605 Trillion in Derivatives, by Gordon T. Long, February 24, 2010
Nearly 25% of All Mortgages Are Underwater, by Les Christie, February 24, 2010
Sovereign Debt Follies, “It Has Taught Us Nothing”, by Bob Hoye, February 25, 2010
Bernanke Delivers Blunt Warning on US Debt, by Patrice Hill, February 25, 2010
Massive Bank Failures Due, by Charlotte Cuthbertson, February 25, 2010
California is a Greater Risk than Greece, Warns JP Morgan Chief, by James Quinn, February 26, 2010
A Quick Tour of Hyper Inflation and Its Consequences for America, by John Silveira, March 1, 2010
The Real Cause of Hyperinflation, by Jordan Roy-Byrne, CMT, March 2, 2010
Indonesian Mob Wants Blood After Treasury Secretary Spends a Fortune Bailing Out Banks, by Gus Lubin, March 3, 2010
Signs of the Tmes, by Bob Hoye, March 4, 2010
Unemployment, by Howard S. Katz, March 8, 2010
Why California is Doomed, by Charles Hugh Smith, March 9, 2010
Tedbits 2010 Outlook. When Hope Turns to Fear, Part IV, by Ty Andros, March 12, 2010
Eurozone Could Risk 'Sovereign Debt Explosion', by Ambrose Evans-Pritchard, March 12, 2010
The Complete Guide to Toxic Mortgages and the Housing Situation of California, March 13, 2010
Unemployment (continued), by Howard S. Katz, March 15, 2010
The Spectre of Financial Armageddon – Health Care and Federal Debt in the United States, by Michael E. Chernew, Phd, Katherine Braiker, Phd, and John Hsu, MD, MBA, MSCE, March 17, 2010
The Ruins of Detroit, The Off-Shored Economy, by Paul Craig Roberts, March 17, 2010
Watch the Bond Market, Not Bank Lending or Velocity, Jordan Roy-Byrne, March 19, 2010
In the Shadow of the Castle, by David Galland, March 19, 2010
Healthcare Bill to Cause U.S. Hyperinflation by 2015, March 20, 2010
The Most Important Chart of the Century, by Nathan Martin, March 20, 2010
Debtor Nation, by James Turk, March 22, 2010
U.S. States May be the Next Dominoes to Topple, by Boyd Ermin, March 23, 2010
Tedbits 2010 Outlook, When Hope Turns to Fear, Part V, by Ty Andros, March 26, 2010
It is a pressure cooker waiting to explode! Similar “Recovery” rally as in 1929/1930, March 28, 2010
The Municipal Market, by Rick Bookstaber, April 4, 2010
Sovereign Debt Crisis at “Boiling Point”, Warns Bank for International Settlements, by Ambrose Evans-Pritchard, April 8, 2010
Extend and Pretend: Manufacturing a Minsky Melt-Up!, by Gordon T. Long, April 12, 2010
Extend and Pretend, by John P. Hussman, Phd, April 12, 2010
Yes, 47% of Households Owe No Taxes. Look Closer. By David Leonhardt, April 13, 2010
12 Reasons Why Millions Of Americans Are Incredibly Angry About The State Of The U.S. Economy, by Michael Snyder, April 13, 2010
Extend and Pretend: An Accounting Driven Recovery, by Gordon T Long, April 14, 2010
The Global Economic Crisis: Riots, Rebellion, and Revolution. When Empire Hits Home. By Andrew Gavin Marshall, April 14, 2010
Princely Finance and Taxation (Our Annual Tax Number), by Bob Hoye, Institutional Advisors, Apr 15, 2010
Invisible Leverage, by Howard Hill, April 20, 2010
Second Wave of Financial Crisis, by Jim Bianco, April 21, 2010
Collapse of the Standard of Living in the USA. Studies Reveal Declining Living Standards and Increasing Anger, by Hiram Lee, April 24, 2010
The Feds Hollowing Out of U.S. Banks, Daniel Amerman, CFA, April 29, 2010
John Williams: A Hyper-Inflationary Great Depression Is Coming, April 30, 2010
Greenspan Wanted Housing Bubble Dissent Kept Secret, May 3, 2010
The Mother of All Bubbles. Huge National Debts Could Push Euro Zone into Bankruptcy. May 3, 2010
Violating the No Ponzi Condition, by John P. Hussman, Phd, May 3, 2010
Scary Chart, May 4, 2010
The Canary is Dead, by Greg Hunter, May 7, 2010
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