I have been writing about the freakish trends in High Frequency Trading (HFT) for a couple of years now. As our markets have become ever more manipulated, Fed juiced, over-valued, under-regulated and pathetically under-policed, the HFT crowd has taken over. Over the past 5 years as risk-concerned individuals and institutions have pulled back from risk markets that are increasingly unattractive and precarious, transaction volume and traditional participants have fallen off precipitously. Like gardens left to run wild, markets have become overgrown with highly levered weeds and high frequency traders, who have come to account for 70-80% of all volume over the past couple of years. See my previous posts on this, including here where I point out the danger inherent in millions of computer generated trades moving 300 times faster than the eye can blink, only to be largely cancelled again before they are settled. Sounds stable doesn’t it?
Just to show that we aren’t imagining the increase in HFT activity, Mish brings us this animated GIF that chronicles the rise of the HFT Algo Machines from January 2007 through January 2012 by clicking on the link. In this environment, traditional investors trying to use capital markets for rational activities are like old folks trying to hobble across a 6 lane autobahn with a cane at night, while the cops are on espresso break.
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I’ve heard/read about that HFT’s account for about 70% or so of market volume from many sources. I’ve also read about how they use their inhuman speeds to manipulate the bids and asks. But I wonder if the HFT activity actually affects market trends, or if their net effect adds up to little more than a skimming operation with no real lasting effect on prices.
On a related note, a few years back I speculated that with trust in capital markets eroding among actual human traders/investors, one day there would be nothing left but the machines from Goldman, Morgan, et al fighting it out amongst themselves. Sounds like we many not be that far off. Maybe HAL no longer needs Dave.
Banks becoming impatient…..clearing dirty paper from balance sheet…….thanks Mom and Pop.
http://www.bloomberg.com/news/2012-02-07/banks-paying-homeowners-a-bonus-to-avoid-foreclosures-mortgages.html
When banks resort to methods like HFT, it implies the end is near!
Not at all, bunny. It just means they are using high technology and their relationships with the exchanges (in order to place their HFT machines as close as possible to the action, or so I understand) to screw the rest of us. IT made discount online brokerages possible. This just takes it to another level (as unfair and possibly illegal as it is).
Francois Hollande and the next Euro crisis
http://www.marketwatch.com/story/francoise-hollande-will-spark-next-euro-crisis-2012-02-08?siteid=rss
Social fractal
http://www.zerohedge.com/news/guest-post-social-fractals-and-corruption-america
Nice charts on Market Cycles, especially the escalator/elevator-shaped chart of Peak Oil Extraction. Ugh. Is this what will derail the world economy? Slowing demand from global fighting over diminishing oil supplies? Maybe Kuntsler was correct after all (except for the natural gas part), in his classic The Long Emergency. I see he wrote a short bit on Hughes book.