Flash Trading’s Dark Volumes
Be sure to read the July Trader Magazine’s article on algorthmic flash trading, a/k/a front running:
Flash orders are also called “step up” or “pre-routing display” orders. The rationale for these order types is simple: Better me than you. They allow a venue to execute marketable orders in-house when that market is not at the national best bid or offer, instead of routing those orders to rival markets. They do this by briefly displaying information about the order to the venue’s participants and soliciting NBBO-priced responses. If there are no responses, the order can be canceled or routed to the market with the best price.
All four markets with flash orders treat these orders in a similar way. If they get a marketable buy order, for instance, that would otherwise be routed to a market quoting at the NBBO, they flash the order to some or all of their participants as a bid at the same price as the national best offer. Exactly who sees the flash, how that information is conveyed and the duration of the flash vary by market. The maximum allowable time for a flash is 500 milliseconds, or half a second, although most of the markets flash routable orders for under 30 milliseconds.
The details are worth a few minutes of your time.
Hat tip Bill King
>
Source:
Flash PointEquities industry clashes over flash and step-up orders
Nina Mehta
Traders Magazine, July 2009
http://www.tradersmagazine.com/issues/20_296/-103978-1.html
July 22nd, 2009 at 8:36 am
Me thinks there is a pretty good chance we will see a rate hike before end of the year. Otherwise Fed would be making a mistake AGAIN by keeping the rates low for a long time.
Fed Risks “Major Bout of Inflation,” Economist Warns
http://finance.yahoo.com/tech-ticker/article/287465/Raise-Rates-Now!-Fed-Risks-%22Major-Bout-of-Inflation%22-Economist-Warns?tickers=^DJI,^GSPC,SPY,GLD,TLT,TBT,TIP&sec=topStories&pos=9&asset=&ccode=
July 22nd, 2009 at 8:46 am
this sounds especially ironic as a complaint coming from the NYSE considering it’s basically a modernized version of how the NYSE specialists would verbally quote a market before executing an order – and only the guys standing in the crowd had the option to intervene.
ie, if GE was 11.25-11.27 50k up, and you walked in to sell 50,000 shares, the specialist would say out loud “25c bid 50,000, 50,000 at 26c, SOLD.” If no one interrupted him, the trade was done. Markets have NEVER been setup such that every participant has the same opportunity to trade on every quote.
July 22nd, 2009 at 8:48 am
So the markets and exchanges are crooked. New Flash. Do you think you should report it? First you’ll have to find an agency that gives a damn. Good luck with that one.
The CFTC had just noticed that wheat, as an asset class, is priced according to demand for the financial instruments that make it an asset class and not due to the value of the commodity to actual buyers and sellers. They have not yet considered the possibility this effect is common to other commodities and oil just might be priced more demand for speculative index oriented financial instruments than by actual contracts that risk delivery (aka the old fashioned way to speculate / hedge commodities).
Re front running: I don’t expect anyone official to recognize the problem for a long time. When solutions are proposed they will ignore newly invented ways to avoid regulation. And this still won’t be for a long time. Just learn to live with it. Think of the new feature as ‘Added Liquidity’ or ‘The Return Of Investment After A Horrible Recession That Is Ending As We Speak’, or “Not Perfect But Better Than Expected’, or ‘Shut Up And Take It Up The Ass While We Think About What’s For Lunch’, or ‘Screw You, We Only Do It Because We Can And You Can’t Stop Us’.
July 22nd, 2009 at 8:53 am
Easy fix… just rule that the bid/ask has to stand for 1 second. Takes away the advantage afforded by network latency.
Why should someone whose servers are colocated in the same room, with the complicity of the exchange, have an inherent advantage over traders in, say, California or Singapore.
July 22nd, 2009 at 8:58 am
To me, the flash trading look a lot like an organized crime or gang oriented street tax. If you want to do business, you have to deal with some intermediary thugs who have positioned themselves in the middle. Law Enforcement is on the take via soft corruption and looks the other way while the thugs collar orders and cherry pick the best for themselves. They might even get paid a commission by an exchange for churning some volume. In principle, flash trading appears to be no different from what street gangs do, but no threats of violence are necessary to get paid. Just put your people in regulatory positions and the protection is in.
July 22nd, 2009 at 8:59 am
@dead hobo – the NYSE has ALWAYS been like that… the difference is that now we pay a much much smaller spread
July 22nd, 2009 at 9:09 am
KidDynamite Says:
July 22nd, 2009 at 8:59 am
@dead hobo – the NYSE has ALWAYS been like that… the difference is that now we pay a much much smaller spread
reply:
———-
Perhaps. But now 70% of the volume on a daily basis is said to be controlled by about 100 computers/traders. In the not too distant past, about 30% of the market involved programmed trading. This means that not too long ago, there were far far far more market participants on a regular basis.
Assuming the worst case and maximum corruption, that many participants would trend towards an honest market because competition would cause thieves to strike a better price and self interest is not much different from what the crooks are doing. Thus, they key to fixing things is to remove the street tax charged by an efficient gatekeeper.
July 22nd, 2009 at 9:09 am
unfortunately, even though i removed my URL from my profile (cause it contained a word the filters didn’t like), my comments are still getting rejected… hopefully the authorities will push through the detailed example i gave
July 22nd, 2009 at 9:11 am
@dh – HFT guys are the ULTIMATE in competition. they’re competing with each other to the point where are spreads are down to pennies. yes – they have an advantage due to their “colocation” at the exchange – guess what – anyone who wants to can get that. don’t believe all the hype you read about this – it’s the most misunderstood thing on the street.
would you rather have all this volume banned from the market? then our volumes would go down by 70%? would that be an improvement?
July 22nd, 2009 at 9:14 am
@KD:
But the volume allocated to “the skim” has never been this high. And the 30 millisecond flash time is enough time to give the whales a glimpse at the other hands around the table.
July 22nd, 2009 at 9:17 am
KidDynamite Says:
July 22nd, 2009 at 9:11 am
@dh – HFT guys are the ULTIMATE in competition.
reply:
———-
No, you are completely wrong. They are efficient gatekeepers. They see orders before anyone else. They can collar them by buying low and selling high before anyone else can see what’s going on. If you personally want to buy or sell, you have to go through them first. If you want to short then be prepared for a coordinated squeeze after they sucker you in. Except for how efficiently they can steal from the rest of us, there’s nothing competitive about them, except possibly to see who can write the best programs and own the fastest computers.
July 22nd, 2009 at 9:29 am
There’s another dimension to this — everyone is focusing on instantaneous (hyper short-term) transactions.
Memory. The “liquidity providers” picking up the flash signal send those orders into memory, allowing secondary pattern-recognition algorithms to track buyer behavior over time. At this time this is information that is not generally accessible to other participants.
July 22nd, 2009 at 9:31 am
Here’s an earlier article about flash orders and it states clearly that the SEC is reconsidering its legality. That was 2 months ago. Time to get some answers from the SEC.
http://www.tradersmagazine.com/news/-103830-1.html
Quote:
Speaking at an industry conference last week, David Shillman, an associate director in the SEC’s Division of Trading and Markets, said flash orders “could have benefits to order senders, but, on the other side, the party being harmed is the party with the displayed limit order at that price. That goes against broad Commission policy of encouraging and rewarding those who are willing to take the risk of displaying limit orders.”
The SEC official added that the agency is studying the issue of flash quotes as part of a broader reassessment of so-called “dark liquidity.” Shillman is the second SEC official to make public the agency’s concerns over trades done offboard in recent days.
July 22nd, 2009 at 9:35 am
@DH – i ask again: “would you rather have all this volume banned from the market? then our volumes would go down by 70%? would that be an improvement?”
July 22nd, 2009 at 9:41 am
KidDynamite Says:
July 22nd, 2009 at 9:35 am
@DH – i ask again: “would you rather have all this volume banned from the market? then our volumes would go down by 70%? would that be an improvement?”
reply:
———-
Are you insane or just stupid? Hmmm, let me think, might crooks be keeping honest participants out of the markets? Might their antics being creating artificial prices that don’t reflect the actual market. Might their stink be limiting actual investment from happening? Throw the crooked fuckers out.
July 22nd, 2009 at 9:46 am
@KD:
Where exactly will that banned volume go? Home to sit in the corner and sulk?
It will go to other channels to grow, forcing money managers to actually work and research investments and stuff.
July 22nd, 2009 at 10:19 am
The risk here is as dead hobo says:
Assets may be priced for the speculative reasons that matter only to traders, but those asset prices then roll to the cost of the actual commodities like oil or wheat (and stocks, of course) and we all pay based on the speculative game, not on market demand for the commodity. The consequences should be clear after oil’s little escapade in 2008.
July 22nd, 2009 at 10:41 am
OMG Transor – you can’t have it both ways! you can’t say that the HFT volume is phony parasitic volume, but then say that if you ban it, the money will be put to work with traditional money managers! FALSE! If you ban “profiting from trading” this prop strategy will just disappear.
come on guys – this blog is the last bastion against ignorance on the internet. THINK about the allegations of HFT guys fixing prices. it’s baloney – anyone who has every traded equities is probably aware that it’s possible to make prices go higher if you have a large buy order or enough capital – that is NOT to say that it’s easy to make money doing it. The same liquidity impact you have driving the price up will drive the price down when you sell. The Themis Trading article alleging that HFT is responsible for the tight daily ranges in C, CIT and BAC is beyond absurd.
everything we’re talking about is very much just an improvement over the way things have been done for the last 100 years in the stock market. We continue to pay less and less for trading costs and spreads. You can start a “no electronic traders” exchange with specialists posting 1/8th bid ask spreads, but i’ll stick to our modern, developed markets
note: i’m as bearish as any of you, but if you think that restricting HFT trading will somehow make the market go down or something, you’re smoking something
July 22nd, 2009 at 10:45 am
Speaking of which:
NEW YORK (MarketWatch) — U.S. total petroleum inventories continued to rise last week, adding to what already is a 19-year high, weekly government petroleum data showed Wednesday. Crude inventories fell by 1.8 million barrels in the week ended July 17, the Energy Information Administration reported. Gasoline inventories, however, rose 800,000 barrels, and distillate stockpiles gained 2 million barrels. Total petroleum inventories increased by 1.9 million barrels and stayed above the upper limit of the average range for this time of year.
The long oil trade is on borrowed time here. We could see a feedback loop where oil falls, the $ strengthens, and then oil falls again as traders unwind $ hedging positions. Crude could fall 25% until the role of speculators in the market is reduced to reasonable levels. It doesn’t look promising for refiners and drillers in Q3 and 4 ‘09.
July 22nd, 2009 at 10:57 am
sorry boys – i keep writing replies that get eaten by the comment filter
July 22nd, 2009 at 11:10 am
DH – you think HFT is manipulating prices to non-fundamental levels? do you think they are too high? or too low? i’m guessing too high… well, that’s great news for you – if you think that HFT’s are accumulating stock at unrealistic levels, you are free to take a short position against them. Even better news for you is that they will eventually have to liquidate these positions, which will drive the market down and result in a gain on your short…
but wait – you don’t really think these guys are getting long massive amounts of stock to prop it up, right? no – you think they’re magically moving the prices higher without accumulating positions… alas, it doesn’t work like that.
Stock prices are going up because there is a massive campaign of misinformation organized by the administration and the media – not because of HFT.
July 22nd, 2009 at 11:11 am
@Transor – you can’t have it both ways – you can’t claim that the HFT volume is pure profit parasitic trading volume, but that if you ban profiting in this way it will be deployed into the markets via traditional money managers.
July 22nd, 2009 at 11:12 am
“The long oil trade is on borrowed time here”
Isn’t the whole market on borrowed time here? I suppose it’s just holding and waiting to break down until earnings season is over.
July 22nd, 2009 at 11:13 am
unfortunately, we’re getting off topic again. the topic was Flash Trading – and i wrote 3 different comments that were each eaten by the filter which attempted to explain that this is just another opportunity to offer price improvement before execution, just like the NYSE has always done, which is why it’s ironic that the NYSE is complaining about it in the article above.
when IBM was 80.25-80.30, 25,0oo up, if you walked into the specialist and said “sell 25,000 IBM, Market”, he’d shout:
“IBM – quarter bid 25,000, 25,000 at 26c, SOLD” and you’d sell your stock at 25c unless anyone stepped in. Flash quoting is a modernized version of that
July 22nd, 2009 at 11:33 am
“Isn’t the whole market on borrowed time here?”
Absolutely. Everywhere you look there are overpriced assets and rallies that seem driven by short covering.
That’s pretty much what Macro Man has been saying every day in 55 different ways for a month.
http://macro-man.blogspot.com/
None of the media noise is worth listening to. Just watch the $. Once it rallies, we will see how much leverage was built into some of the currency hedging that has lifted these markets. A forced unwind of widespread $ hedging (everyone in the world and his grandmother are currently short the $) may prove to be almost as dramatic as last year’s unwind of the yen carry trade.
July 22nd, 2009 at 11:34 am
Can anyone confirm 2 hangman candlesticks on the S&P 500?
July 22nd, 2009 at 11:36 am
If Google can hold real-time auctions for the ad slots that appear on each and every query page, for each and every query result page that is generated, the the stock exchanges can mandate 500 millisecond auction periods for each and every transaction. If that begins to clog the machinery, then it will result in aggregation of transactions by market makers into larger bundles (this happens anyway).
Ban immediate matching of trades, and in the extreme, institute a “trading tax” whose rate varies inversely with the duration of time a position is held, approaching zero if a position is held for as long as a minute, and 10% (of the amount, not the profit) if the position is held less than a second.
None of this hurts the markets, it only eliminates the creation of fictitious prices via the fraudulent and of no economic utility practice of high-frequency trading.
July 22nd, 2009 at 11:39 am
@ Kid Dynamite 11:10 am
“Stock prices are going up because there is a massive campaign of misinformation organized by the administration and the media”
If you don’t think that the HFT-ers are not connected at the wallets with the administration and the media, you have a real awakening ahead of you.
July 22nd, 2009 at 11:41 am
Not confirmed yet CC… not yet. We need a close below yesterdays low on SPX to confirm yesterdays hanging man.
Its feeling more and more like 3 strikes you’re out on SPX 956…
I think we got a date with 930 if this little mini double top plays out.
(956 top, 943 confirm line… 956-943= 13… 943-13= 930)
Also… 930 was support from last week.
July 22nd, 2009 at 11:46 am
The biggest problem with HFT is that it “extracts energy from the vacuum”, so to speak. It pulls profits out of the markets with no economic utility. These kinds of things are a drain on the markets, leaches that sap the profits and losses that would otherwise move the economy in one direction or the other, but are now being diverted into the pockets of the HFT-ers. It isn’t that they move the markets higher or lower, it’s that they prevent the markets from moving as high or low as they otherwise might. This is a cost that we just don’t need or want.
July 22nd, 2009 at 11:49 am
Thanks I-Man. I wasn’t sure if the peak of the candle stick had to be lower, or the closing price had to be lower to be a stronger signal. Jobs report tomorrow might be the catalyst for a move in either direction, although I’m expected good results from Amazon – another company that executes well.
This lethargic action reminds me of the 3 spinning tops at the lows before the upside breakout. Also, looking at the intra-day I’ve noticed a very consistent pattern of trading for the last 5 days. Up and down within a tight range, and then a late-day breakout. Must be computer trading because there is no catalysts to drive the markets in such a choppy manner day-in, day-out.
July 22nd, 2009 at 11:49 am
@KD:
No, I think I’m right here. The currently allocated volume is engaged in pseudo-trading and is tolerated/encouraged for the reason you provided: paring down the bid/ask spread and “providing liquidity.” Its public (i.e., non-parasitic) utility is in serious question, apparently even at SEC.
But you didn’t answer my question: where else would the money go, if not into “traditional” investments?
A simplistic, and I think possibly true, answer is that it will go into investments of comparable risk/ROI. To the extent that none exist, that argues that this form of “investing” contributes little and calls its legitimacy into question. If, as the “liquidity providers” like to argue, there is “considerable risk” to them in engaging in this practice — a risk maybe I just need explained to me better — then surely they can find some other equally risky investment vehicle that pays comparable returns.
July 22nd, 2009 at 11:58 am
Transor – of course there is risk – the HFT guys do very well in stable markets with small movements. Think about it – they are making markets all day long – they just want people to hit their bid and lift their offer – repeatedly. they get slammed when the market moves in one direction – if you lift their offer and they then bid for stock, but can’t get the stock in, they end up short and hurt. Same thing on the downside.
Constantnormal – do you want a return to wide bid ask spreads of the early 90’s and specialists filling the role that HFT is now filling? As i’ve said repeatedly – this “drain” that you mention is the lowest its ever been. Your argument about sapping profits is a straw man – who are you to say that the profits should be in your pocket instead of theirs? Alpha belongs to no one – it belongs to whomever captures it first.
July 22nd, 2009 at 11:58 am
fahhhhk .Barry – PLEASE tell me why my comments keep getting eaten
July 22nd, 2009 at 12:05 pm
@KD — yeah, like TZ said.
July 22nd, 2009 at 12:11 pm
Hang in there Kid… its got to be something re: your old URL
July 22nd, 2009 at 12:13 pm
@CapitalistCanuck
What I-Man said. The hanging man needs confirmation. A lower close is needed. The confirmation becomes stronger if the close is below the low of the hanging man. I’ve been using 3LB to determine the trend and candles to see if the trend can continue. When I see a possible reversal candle I tighten up the trailing stop.
July 22nd, 2009 at 12:14 pm
@Constant – i replied to that, and to you, but the comment is lost in Big Picture FilterLand
July 22nd, 2009 at 12:15 pm
@lb 11:33 am
“Just watch the $. Once it rallies, …”
What’s going to get the $ to rally? D’ya think that Bernanke will actually get people to believe he might raise rates? Even if we actually had some real inflation? Or do you believe that the deflationary forces that are loose on the planet are sufficient to support the $ ?
I can’t see Obama or the Congress doing anything but spending more, and even if they were to actually hold the line on spending, there are already sufficient commitments to necessitate a massive increase in borrowing, and fer sure the money ain’t a-gonna be coming in the form of tax receipts for the foreseeable future.
It sure seems like the deflationary forces might be well-met by the inexorable urge to spend more, which will be countered only by the unwillingness of others to lend us the money to spend — and that hardly seems bullish for the dollar.
Jus’ wondering …
July 22nd, 2009 at 12:16 pm
@KD — no problemo, there’s a lotta that going around, I think it’s some glitch in the magnificence of WordLess.
July 22nd, 2009 at 12:18 pm
@lb — re: “dollar follies”
Maybe it will rally in a general collapse of global markets, in a befuddled “flight to quantity”
July 22nd, 2009 at 12:24 pm
Pretty little triangle setup on the S&P intraday could breakout to the upside. Wonder what the computers wil do.
July 22nd, 2009 at 12:24 pm
@Constant – bottom line: i’m a capitalist. Alpha belongs to no one. Algo’s are doing what has been done for the history of the stock market, they just do it better – and at a SMALLER cost to me, the end user, than in the past. It’s better than it has ever been before! Technology advances – first we replace auto manufacturers with machines, then bank tellers, now wall street cash traders.
July 22nd, 2009 at 12:32 pm
It’s been decided upside breakout with new intraday high. We’ll see if it holds. Nice rise on some very tiny orders, much easier to drive prices up when humans are out to lunch. Damn am I jaded! I wouldn’t complain if I were long this crap…
July 22nd, 2009 at 12:35 pm
XLF, XLE and IYR all negative today. These three groups have been the “leaders” of this new “bull market”.
LB’s interpretation is that there isn’t much squeezing going on today. Probably not many shorts left.
July 22nd, 2009 at 12:36 pm
Capitalist and all – for those of us who aren’t as stock savvy – how big of a deal is it that the S&P just reached it’s high for the year?
July 22nd, 2009 at 12:40 pm
@leftback – confirming my understanding:
Dollar up = asset prices down (all asset prices)
Dollar up = deflation
July 22nd, 2009 at 12:43 pm
@KD — me (capitalist) too, and when the volatility is drawn down below rational levels — look at the VIX vs the state of the global and national economies, there’s sump’tin not quite right there — it’s ultimately harmful to the functioning of the economy as a whole.
It’s not just that the markets are higher than they ought to be in a world of perfect information — it’s that stocks that ought to be showing frothiness and bubbling are not doing very much of that, while stocks that ought to be in the deep freeze are truckin’ along as if they were not on Death’s Doorstep. This is not the way of the Tao.
Maybe some of this can be ascribed to money fleeing all the other markets (real estate, debt markets, commodities) into the stock markets and just sloshin’ around, but when you subtract the volume of program trading (how much of that is HFT is anybody’s guess) from actual people trades (and I’ll admit that some of the PT is on the part of actual human investors, but how much is an open question), it doesn’t look like there is really all that much “real money” in the equities markets these days.
Maybe an argument can be made in favor of HFT in that it keeps the doors open for actual human traders when they muster the courage/foolishness to venture forth. But the counter argument is that volatility drives out established mindsets, and effects the sort of inner changes that convert bears to bulls and vice versa. Maintaining the status quo is not what the markets should be about.
A capitalist favors change. Monopolists favor the status quo.
July 22nd, 2009 at 12:45 pm
in case anyone other than me was eagerly waiting for my comments to appear, Barry has pushed them through.
please look above for my point about how price improvement was previously offered via NYSE specialists, and how Flash quotes are the modern technological extension of that. (8:46am, 11:13am)
also, DH, Transor, Constant – you can see my responses to your comments now, above. bring it on
July 22nd, 2009 at 12:49 pm
@KD — TBP uses a spam filter called Akismet. They are secretive about their algorithms (see? it isn’t only HFT that’s secretive), but one would assume they have word lists, black lists, “commonly used phrases,” etc.
The “problem” is that these lists are constantly being updated (for reasons both good and unknown) so the behavior of Blogs appear to change randomly and arbitrarily.
Since you aren’t totally blocked (and a local Blog administrator can also completely block or unblock somebody), one would assume you aren’t on a blacklist (you can Google “spam blacklists” to get to several services that will check your domain name, IP address, etc. out), so it could be a particular URL of yours or some word or combination that’s new to the list.
Heck, this post could be blocked simply because it uses the word “spam” several times!
The sad part of all of this is that the true spammers are slowly but surely making the web unusable.
I suppose you could make YOUR Blog URL into a tinyurl and use that instead on your profile…
July 22nd, 2009 at 12:49 pm
@Constant – but you can’t be mad at people for refusing to act rationally. Haven’t you SEEN the spin jobs that are put on things like the bank stress tests and the economy – THAT causes innocent/ignorant people to buy – which makes the market go up. I think the market is massively overpriced – but I don’t think it’s because of price manipulation – it’s because of SENTIMENT manipulation.
Just look at the reactions that are stirred up by the garbage that Themis Trading puts out – it’s PURE drivel, yet people read it and run around like chickens with their heads cut off. This same phenomenon explains why stocks are overpriced – people listen when the gov’t says max employment will be 8.5% and they buy stocks…
July 22nd, 2009 at 12:50 pm
@ Thor:
Its all about support and resistance. Place any new high’s (and lows) in the context of those… not in the context of YTD.
July 22nd, 2009 at 12:52 pm
thanks bergsten. i just did that tinyurl tip.
guys – barry pushed through my old comments – please see them above – especially the examples about how specialists used to do the same thing that this post is talking about
July 22nd, 2009 at 12:54 pm
thanks for the tip Bergsten
July 22nd, 2009 at 12:55 pm
please see my original 8:46am comment, which is now up, and again at 11:13am
July 22nd, 2009 at 12:55 pm
and if anyone wants to continue this debate, see the other comments i posted above which have now been pushed through, responding to your earlier shots at me (yeah DH – i’m talking to you
July 22nd, 2009 at 1:00 pm
@ hope asked:
“Dollar up = asset prices down (all asset prices)
Dollar up = deflation” ??
Precisely. Exhibit A: October 2008. Not saying we will see deleveraging on that scale again, but you never know.
LB believes that if double digit inflation were indeed an imminent threat, then the bond market would already be destroyed and gold would be in orbit, due to the ability of market participants to see beyond the end of their nose.
Hours worked, Baltic Dry, wage and salary freezes (everywhere except GS and MS) seem to tell a different tale.
….meanwhile the Spoos are making a new high. UFB.
July 22nd, 2009 at 1:01 pm
@KD
And another thing. The “blocked” posts are put into a “holding pen” — they aren’t just tossed (well, maybe some are…). Somebody authorized has to wander into the WordPress Dashboard and sort through them.
The result is that posts can “vanish” for a time then suddenly “appear” (when approved). Depending on how things are sorted, these can pop up back in the discussion where nobody sees them.
What madness causes a particular post to be held, but let through when resubmitted is anyone’s guess (one theory is that some systems just let things through if they can’t get to the rules databases for one reason or another).
Sigh.
July 22nd, 2009 at 1:06 pm
@bergsten – I actually had Google shut my own blog down a few years ago because they thought i was SPAM… and i send so many emails to my friends that Yahoo thinks i’m SPAM… brutal
July 22nd, 2009 at 1:08 pm
All good Left…
Hey, since we’re the only shorts left, maybe we should just combine forces…
Dreadenfreude… or Schadendread… you can pick.
July 22nd, 2009 at 1:15 pm
“Your argument about sapping profits is a straw man – who are you to say that the profits should be in your pocket instead of theirs? Alpha belongs to no one – it belongs to whomever captures it first.”
True if you regard stock trading as a game. However, the growth and success of the market since the 1980s is built on selling the ordinary small investor on the idea that money invested in stocks will make money (whether true or not is another question). If it is obvious that there is somehow a ‘Goldman tax’ or anything else that puts profits in another pocket while a small investor’s holding sit there and stink, those investors will not invest anymore.
Las Vegas learned long ago that they can fleece the world as long as they maintain the APPEARANCE of a fair shake. Wall Street – the uptown equivalent of Vegas – must learn the same if they want to keep sucking in the rubes. Big banks cannot make money back-and-forth off themselves with smart-ass games.
July 22nd, 2009 at 1:19 pm
@ Wally – well put, but I’ll say it again – the small investor does MUCH better under today’s market structure, with ten dollar trades via online brokers and 1c spreads than he has at any other time in our lives.
July 22nd, 2009 at 1:20 pm
I-Dude:
You got it, man. We can start our own HFT operation and then kick back and open a case of Red Stripe.
LB is liking I-Man’s idea of a drop to 910 from here. Of course that would bring in Johnny R, “for the value”.
“Big banks cannot make money back-and-forth off themselves with smart-ass games.”
MS prop desk on the wrong side of all GS trades?
July 22nd, 2009 at 1:24 pm
KidDynamite Says:
July 22nd, 2009 at 12:55 pm
and if anyone wants to continue this debate, see the other comments i posted above which have now been pushed through, responding to your earlier shots at me (yeah DH – i’m talking to you
reply:
——–
This isn’t a problem that needs to be over-intellectualized. No matter how much you claim it doesn’t, shit still stinks. Replace the visible gatekeepers with the invisible hand and watch the economy improve. Crooks that choose to act benign are still crooks, even if they provide persuasive arguments that prove their antics are good for you.
July 22nd, 2009 at 1:28 pm
Bonds are also holding steady which is not typical of the earlier rally – I take this signal as skepticism. IF people actually believed in a 2nd half recovery 10-30yr yields would be much higher. Volume has generally been low, bears aren’t willing to come to the table and short they’ve been burned too often, and retail investors still sitting on the sidelines. Only half the market is playing this game.
“Big banks cannot make money back-and-forth off themselves with smart-ass games.”
July 22nd, 2009 at 1:28 pm
Would you agree with the assertion that the game remains the same but is now played with different toys? But today, the same as yesterday, those who don’t know what’s involved risk losing their shirts. So don’t play if you can’t live with the game. Now, it’s likely that the regulators are missing something regarding how the new toys are changing the game unfairly to some, so it’s about time they step in and make sure that robbers don’t get into the game. At the end is a question of balance.
July 22nd, 2009 at 1:30 pm
leftback Says:
July 22nd, 2009 at 1:20 pm
MS prop desk on the wrong side of all GS trades?
reply:
—————-
No, they’re probably just playing the gimp today. GS probably poured a little Red Bull on their machines, which then proceeded to crap on MS at will, causing MS to debate the unfairness of it all. They just don’t want to pony up and pay the Goldman Tax.
July 22nd, 2009 at 1:39 pm
@leftback — would it be close to your way of thinking to say that you expect a wave of collapses (OK, maybe just “severe corrections”) in equities, bonds, corporations, municipalities, states and finally Uncle Sam hisself, with each domino causing money to flee along the chain into the good ol’ USD?
And that when Uncle Sam finally has the hot potato, there is no one for him to throw it do, and we finally reach rock bottom and inflation at last ensues, as the USD becomes the last domino to fall? (With deflation reigning supremem all along the way there, of course)
Or do you see a less than apocalyptic process in motion here?
July 22nd, 2009 at 1:42 pm
the best part of the MS earnings report was how they had to take a loss writing UP the value of their own debt – which had resulted in a big gain in prior quarters when they wrote down their own obligations and took a big gain.
July 22nd, 2009 at 1:44 pm
Good debate KD. I have only one small point to make:
As i’ve said repeatedly – this “drain” that you mention is the lowest its ever been. Your argument about sapping profits is a straw man – who are you to say that the profits should be in your pocket instead of theirs?
It may be the lowest spread it has ever been but what is better: 10 cents on 1 million shares or 1 cent on 100 million?
With today’s higher volumes I’ll bet the MMs of the world are making more cash than ever on the smaller skim so the appearance of a better deal is somewhat of a facade. Also, the smaller spread is probably why the volumes are higher these days. One thing may be leading or forcing another
@DH
Re front running: I don’t expect anyone official to recognize the problem for a long time.
The day the common man can benefit from that trade there will be investigations!!
July 22nd, 2009 at 1:45 pm
Blame the weakness in dollar for the market highs. SPY made a double top at 96.1. Let’s see how the market closes today. I still bet on the downside.
July 22nd, 2009 at 1:56 pm
@KD,
Sorry man but you are wasting your time here. You obviously have knowledge on the subject of HFT and you are arguing with people that don’t. Trying to make a point about something like this in the comments section of a blog is most likely a losing battle for you. I thought you would have learned that after your attempt to do the same at Zero Hedge. That was just as fun to read as this thread.
As an aside, it does worry me a little that so many people are starting to catch on to the dollar being the thing to pay attention to as part of the “all one trade” theme, and I’m also worried that too many people are looking for the 5th wave down in the dollar. Most likely as more people discuss it something else will end up playing out, just like we saw recently with the H&S which led to the monster short squeeze.
Still, I’m a dollar bull over the next year or two.
July 22nd, 2009 at 2:02 pm
carmen101
It’s always been a rigged game, this is money we are dealing with. People were willing to accept Wall Street earn a share of profit for the perceived mutual benefit. But whatever happened to the traditional profit centers. You know? Selling mutual funds, M&A or underwriting?
The economic crisis revealed the emperor indeed had no clothes, even GS was on the ropes. WS was losing the trust of Main St. long ago hence the real estate bubble. It’s lost now completely. All those mutual fund managers and with their buy and hold strategy, diversified, hedged risk, actively managed proved they were no better than the market as a whole – so why was Johnny Retail paying all of those fees for?
I believe WS has simply thrown in the towel and stopped pretending. It’s more efficient and profitable just to trade through HFT. F— innovation, employment and investment nahh too much work.
I believe it was Roubini who pointed out that Wallstreet’s losses on subprime alone have surpassed the total of 25 years of investment returns. Even GS had to be bailed out.
What the bears are ultimately hoping for is reform. If a dollar is a vote, I’m voting for change.
July 22nd, 2009 at 2:02 pm
If people are claiming that retail isn’t in the game right now I don’t know what they are talking about. Every single retail rep that I talk with a lot is bullish right now (just as they were last year) and has been advising clients to DCA back into equity. This group I typically speak with is collectively in control of close to 700-800 million in AUM. I highly doubt they are the only retail reps that are bullish, as if that isn’t where the majority is right now. They have a very easy, and very wrong story to tell clients right now, I think the new favorite line is becoming how easy it will be to beat numbers in Q3 and 4 due to how bad things were last year. lol.
Perhaps some home gamer retail investors haven’t gotten in yet but I doubt that too. TD is showing massive day trading in recent reports and I know all those tools are trying to catch C, BAC, etc.
July 22nd, 2009 at 2:08 pm
@constant: “Or do you see a less than apocalyptic process in motion here?”
I don’t see an apocalypse, and for society’s sake let’s hope there isn’t one, although it would certainly be oddly fascinating to watch an uncontrolled melt of equities, corporate bonds and munis.
I see an ongoing “Deleveraging process”, not an outright crash but a gradual bumping down the stairs over several years, alternating deflation and reflation (via QE, Japanese style), until we reach a sort of financial Ice Age, where participation by individuals is almost zero, trading volume is thin, volatility is non-existent, and eventually a new bull market is born.
The $ going straight to hell crowd are correct, in the long run – but in the short term are neglecting the problems of other Western economies and Japan, and underestimating the importance of the $ as reserve currency.
During this period there will be good and bad times to hold the $ and govies. I believe that this is one of them. January clearly was not. We will have to be nimble but I believe that this market is survivable. Remember that a flight to perceived quality will take place whenever there is stress in the market and occurs toward relative safety within an asset class. (AUD/NZD to JPY/USD, junk bonds to Treasuries, MBS to Treasuries etc…)
July 22nd, 2009 at 2:09 pm
ben22
I hear what you are saying:
“Danger, Will Robinson.”
July 22nd, 2009 at 2:11 pm
ben @ 2:02
Great comment on retail. I’ve found over the years that you don’t need a large sample size to get a sense of what the investment community is thinking. Because of the immense herding of the community, all it takes is a know a few who don’t have the ability to recognize that they are herding to get a sense for the whole community.
July 22nd, 2009 at 2:16 pm
@KD:
As a frightened and ignorant unfrozen caveman lawyer, I need you to break this down for me (seriously).
This much I think I get:
1) Buyer places a buy order in the NYSE queue for 100 shares of Stock X @ 10.00 – 10.25 from Seller.
2) NYSE’s computer flashes B’s order for 30 milliseconds to tip off liquidity providers (LPs).
3) The LP computers place a “frontrunning” buy order to acquire 100 shares of Stock X for 10.01. – 10.25.
4) LP buys the shares and then turns around and sells them for the same purchase price to Buyer.
5) NYSE pays LP $.0025 x 100 for the purchase from Seller and LP nets $.0125 x 100 for the sale to buyer, for a total of $.50 in this example. LPs computers do many millions of these transactions each year.
Benevolent Rationale: In the old days there was always a spread of at least $.125 so Buyer could never have gotten 100 shares @ 10.01. Best price would have been 10.125, with Specialists “parasitically” keeping the difference. Thus, Buyer benefits by having penny increments and the “parasitical” aspect is minimized.
—————-
Q: At which points here (assuming I’ve got it right) does the LP encounter the risks you cited? What exactly prevents the LP from using limits/stops in place to eliminate those risks?
if you lift their offer and they then bid for stock, but can’t get the stock in, they end up short and hurt. Same thing on the downside.
Can you break this down for me, please? I’m not understanding it.
Q: How long does each of these transactions take to complete? 1 second? 2 seconds?
July 22nd, 2009 at 2:17 pm
@leftback 2:08 pm
thanks. I think your view is in many ways scarier than the “apocalypse now” view. But you have been so precisely correct so often that I want to be sure of how I interpret the words of the oracle.
July 22nd, 2009 at 2:20 pm
@carmen and Mr. O,
All we have to do is watch a few on CNBC, they represent the retail reps you never see on tv pretty well b/c this is where many of these reps get their bullish talking points. They don’t actually have an opinion on any market most of these retail reps so they get someone elses and the bullish story is easier to tell than the bearish. This is the same reason they tell you to diversify, they don’t have any opinions so best just to spread it out to “smooth out the ride”. It is herding at it’s best. The clients just blindly follow too, it amazes me b/c I know these reps lost people a lot of money last year and people are still listening to them.
This is why I can only laugh when people come to TBP and talk about all of us crazy bearish people, as if that is representative of the majority opinion right now.
There is another new line now being pushed by the Ron Insana’s of the world which is “the crash already happened” in reference to bears still looking for another major leg down. His attempt to make anyone trying to say that look stupid. Retail loves that shit.
July 22nd, 2009 at 2:20 pm
@KD:
Well, contrary to what ben22 might think, I don’t think you’re wasting your time. In fact, I very much appreciate you taking the time to shed some light on this very hot topic.
I just posted a long-ish post to ask you to break things down for me so that I can follow them and to correct misunderstandings I have. I suspect other people might be able to benefit from your explanations.
Unfortunately, the post is in Wordpress limbo for a while.
July 22nd, 2009 at 2:31 pm
The hottest sectors today seem to be consumer discretionary, homebuilders and the transports. Based on the SPDRs.
Yeah – right. It’s the continued delusion of the recovery theme, minus the commodity speculation.
July 22nd, 2009 at 2:32 pm
@Transor,
Sorry if I came across rude there but I didn’t get the impression from above that you were trying to correct misunderstandings you had about HFT in your convo with KD, he made what I believe to be very valid points above and you came back to him with:
No, I think I’m right here.
and I don’t see you post again after 11:49 until I say something about it. If that is in fact what you were doing though then I’m just plain wrong and sorry about that. Always a little hard on-line as I can’t hear the tone of any of these conversations.
July 22nd, 2009 at 2:38 pm
@ben22: Right on, bro.
Now think about this, where were Ron Insana and Dennis Kneale* in March at the Kass Bottom/LB Lows, when many traders here were becoming strongly risk-oriented? Under the table crying for their mama, that’s where. Right now we are seeing all of the classic elements of the late stages of rally transfer dynamic (traders-institutions-retail), including the bear-baiting – an inducement to retail investors to join the “winners”.
@ constant: It’s a view shared by many here, for me it’s based on my assumption that we see a replay of Japan 1990s, with some elements of UK 1930s (China is US, 1930s), and a dash of uniquely American flavor mixed in.
* aka Baghdad Bob.
July 22nd, 2009 at 2:43 pm
ben
I find it amusing too when people go to blogs like this one and say that there are still too many bears out there so the market will continue up.
First of all you really can’t make that judgment based on this demo selection. Where would that have gotten you a year ago? You shouldn’t be fading the contrarians, unless you want to be in the herd.
Second, you’re never going to get everyone either bearish or bullish. So you can’t just look anywhere, see a small sample, and make a judgment that sentiment isn’t extreme enough. Also, sentiment only really works at the extremes. It will tend to then go to the other extreme, traversing neutral ground while following the trend set in motion at the extreme. Look at how fast sentiment swung from bearish to bullish in the crowd not long after this rally first started. Trying to use that swing just got you killed, thinking that things were too bullish.
July 22nd, 2009 at 2:44 pm
@ben:
NP, and I make enough smart-ass bitter remarks in other contexts that I can’t complain when people read that in to something I write even though I don’t mean it.
Still think I’ve got the better argument about allocation of investment dollars though.
I have a lot of respect for KD’s comments. His Don Quixote stint on ZH impressed me also and he talked me back from the edge of drawing pseudo-knowledge conclusions and jumping on the SLP-as-PPT bandwagon.
My main question goes to the utility of having 70% of NYSE volume being allocated for this purpose, whether you want to call it necessary-evil parasitical, gaming the system, or providing liquidity. I am also very skeptical that the true mechanism is being disclosed to/understood by people charged with oversight.
I interpreted KD as saying taking away flash trading would cause a market collapse. I think the money would just go someplace else. It doesn’t just disappear. I don’t understand why that is “having it both ways.”
July 22nd, 2009 at 3:06 pm
Transor,
I get it man, my comment wasn’t really directed at you anyway. I’m sure I’ll get it for this but the whole “the game is full of crooks” “everything is manipulated” stuff from some people is getting a little old for me. It’s always been full of crooks, isn’t every business? I say give it a rest, the idea to pay attention to that sort of thing is just out there more now due to what has happened since late 07, we should all expect this sort of response. You saying that the SEC is just now starting to look at it should be telling enough. Guess what, if you stop HFT there will be a new things the crooks find, it’s the way it is. But hey, not my blog, people can say whatever they want so I just have to deal with it, sort of like the market.
@LB,
yeah, lots of current bulls were probably going to cash in March. Clearly a lot of people were, huge spike in cash allocation right at the bottom in the allocation survey. Still though, when you look at the cash allocation I wouldn’t have described it as extreme back at the March low based on the size and scope of the issues here, I’d expect the desire to hold cash to be much higher than that before this is all over, we are clearly still in a stock ownership society, with all the tools trying to catch the huge gain just like the co-worker they know that bot C at .97. That co-worker just didn’t reveal they also bot at 40, 30, 20, and 10.
@Onlooker,
nice observations at 2:43
July 22nd, 2009 at 3:14 pm
Hark! Is that a turn upwards in Ye Olde Greenback?
July 22nd, 2009 at 3:19 pm
maybe lefty, and look at stocks follow. However, seems like we could see a 77 handle on the index before the bottom is really put in for the buck. I do not think we will see the 7/15 figure re-visited from last summer though.
July 22nd, 2009 at 3:22 pm
LB – interesting observation on China (re: US in the 1930’s). I’ve heard the argument made in a few other places as well. Considering no one really has any idea what’s really going on inside the Chinese economy it’ll be interesting to see if that theory pans out. My personal guess is China is more like South Asia in the 80’s and 90’s. Too many people, too many upcoming demographic and cultural nightmares around the corner for them to navigate successfully – imho
July 22nd, 2009 at 3:23 pm
Good podcast re: Goldman Sachs with Matt Taibbi and an apologist for Goldman and the industry in general, Charles Ellis
http://www.onpointradio.org/2009/07/goldman-sachs
Taibbi did really well here presenting the case. Ellis just made a transparent attempt to deflect & distract, using the regular talking points and just downright B.S. (e.g. TARP wasn’t a bail out of banks, it was a bail out of Main Street). It made me want to reach right in and smack him.
July 22nd, 2009 at 3:26 pm
TARP wasn’t a bail out of banks, it was a bail out of Main Street
How can anyone even say that with a straight face. Look around schmo. Unemployment keeps going up and GS employees are getting paid record bonuses. Of course, our boy Franklin thinks he’s touring wreckage on wall st. right now. lol. Try Flint Michigan pal.
July 22nd, 2009 at 3:34 pm
ben
Absolutely; outrageous. It made me want to scream (Ellis’ self serving line of B.S.). There’s really nothing revelatory in the show but it’s interesting to see how it’s making it’s way into the populace and how it will affect sentiment. There are some callers who reflect that outrage, including one who’s a long time IB’er and former GS guy himself (ostensibly, although he did sound credible).
July 22nd, 2009 at 3:37 pm
Onlooker,
I might have told this story here but I was at a family wedding about a month and half ago and one of my wife’s uncles was telling me how great it was that the banks were all paying TARP back. I didn’t even bother trying to explain to him how wrong he was about what was going on, instead I headed straight for another drink.
July 22nd, 2009 at 3:39 pm
@Thor: My personal guess is that the Chinese stock market and business world is absolutely rife with corruption and that eventually a crash of massive proportions will reveal fraud on an (almost) unprecedented scale.
People who are about to exhaust their eligibility for unemployment benefits sure don’t feel bailed out by the TARP. TARP was a great boost for NYC strippers and coke dealers.
July 22nd, 2009 at 3:50 pm
That was awesome…
I love seeing Mr Market reject the pump… just love it.
July 22nd, 2009 at 3:51 pm
One other thing from the podcast. I can see now why they let Lehman go down the tubes. It allows them to now claim that capitalism really worked. Those who failed paid the price, etc. And therefore by inference that those who didn’t go down and are now prospering are being rewarded for not having done business poorly and didn’t go bankrupt like Lehman. That’s one line of crap that Ellis was peddling.
Pure B.S. and a very thin and easily refuted argument. But it will work on a lot of people, no doubt
July 22nd, 2009 at 3:56 pm
ben
Yeah, it is frustrating trying to explain these things to most people. They just can’t comprehend it. They don’t have the proper foundation to process these things and you can end up just sounding like a paranoid alarmist. And that of course is what the bankers et al are counting on as they lobby to keep the status quo.
Mostly you get that kind of reaction from those who just haven’t been directly affected enough by things to really be taking notice of the crap that’s going on. As the number of people that go into financial distress grows I think that trend will change.
July 22nd, 2009 at 3:57 pm
onlooker said: “I can see now why they let Lehman go down the tubes”
Because GS was able to step into the void left by LEH in the muni market and pick up the underwriting business !!
July 22nd, 2009 at 4:02 pm
LB
Indeed, there are many reasons they let Lehman fall. I should have phrased that differently. I just came to realize yet another one. My problem sometimes is not thinking deviously enough. It is a failing of mine.
July 22nd, 2009 at 4:07 pm
ben22 Says:
July 22nd, 2009 at 3:06 pm
I’m sure I’ll get it for this but the whole “the game is full of crooks” “everything is manipulated” stuff from some people is getting a little old for me. It’s always been full of crooks, isn’t every business? … You saying that the SEC is just now starting to look at it should be telling enough. Guess what, if you stop HFT there will be a new things the crooks find, it’s the way it is.
reply:
—————
Not all business is full of crooks. Just some. If you believe we should just ignore the current crop of crooks because new ones will replace them later, so, why bother, then you are ignorant. Efficient markets require two things … Self interest and a respect for contracts. By this I mean you don’t play screw your buddy whenever you can get away with it. That kind of behavior only creates a race to the bottom for everyone. By ignoring the HFT tax, you are just a willing participant in a race to the bottom.
July 22nd, 2009 at 4:08 pm
@ben22 – the people on this blog are much smarter than the people on the other blog you mentioned. TBP is my one bastion of sense and intelligence on the internet, so i’ll try to defend it with knowledge and logic.
@capitalist canuck – you asked why Johnny Retail is paying all those fees to mutual funds: i realized this JUST last week – get ready – they pay fees to the mutual funds so that the money managers (who should be rendered obsolete by ETF’s) can act as STOCK LOBBYISTS – going on CNBC to spread their optimism to get more people to buy more stock. Ponzi up bay-beeee
@Transor – i definitely didn’t mean to imply that the market would collapse without HFT (you wrote flash trading, but i think it was a typo on your part) – because i don’t think HFT is keeping the market up. I do think there would be a lot less liquidity, and a lot more volatility without HFT, and that we wouldn’t just suddenly see everyone trading stock with perfect rational thought and contentment if they could be fat and lazy in their executions.
July 22nd, 2009 at 4:09 pm
I see a big DOJI on S&P. Dollar refused to go below yesterday’s lows. Oil topped out. Tech is the only thing going for the market. Trend reversal anytime soon.
July 22nd, 2009 at 4:09 pm
by the way, Ben22 – what’s very interesting is that i left the same comment i left here at 8:46am on that OTHER blog you mentioned – and they actually UNDERSTOOD and AGREED with me – for the most part. i was shocked.
July 22nd, 2009 at 4:11 pm
just to get back on topic and wrap this up – i don’t have a strong opinion either way with respect to flash trading (and the option of price improvement) – i was merely pointing out that it’s not “computers frontrunning people and ripping them off” quite as it’s portrayed – it’s a technological progression from the same way trading has always been done at the NYSE.
July 22nd, 2009 at 4:12 pm
Kid – you’re doing a good job debating this issue here, I don’t understand half of what you’re all talking about but I do very much appreciate that you all have had this discussion.
July 22nd, 2009 at 4:13 pm
One question though – are flash trading, HFT trading, and machine trading all the same thing?
July 22nd, 2009 at 4:17 pm
Kass is apparently shorter than he’s been since Feb. Even than early June. Not that I worship Kass or anything, but he does have a good record of late. He called the previous correction about as well as anybody. And of course he hit with the bottom call in March, along with some other folks (ahem).
July 22nd, 2009 at 4:18 pm
Looks like EBAY and QCOM shit the bed…
Lets see what my old bitch MOS has to say… glad I kicked her to the curb at 50…
July 22nd, 2009 at 4:19 pm
KD
Good insight re: mutual fund fees and fund managers. Everybody needs a greater fool after all (otherwise known as multiple expansion, especially in a moribund economy like the one we’ll be seeing for some time).
July 22nd, 2009 at 4:21 pm
thor: machine trading or algo trading is traders using algorithms to automate executions. from that, was spawned high frequency trading (HFT) which was basically OTHER people using smarter computer programs (And faster ones) to outsmart the first computer algos. Flash trading is different – and, as I’ve said multiple times in this thread – is a convoluted way of exchanges allowing their traders to improve the price of an order before execution (as the NYSE has done since its inception).
July 22nd, 2009 at 4:24 pm
Speaking of tech, VMW spiked on the earnings release.. seems to have had 18% of shares short however. could be fun to watch.
etrade is up a bit after hours and its loan loss provision “was lower by $49 million from the prior quarter.”
but the wild one is ISRG up 12% or 20 pts… it also had 18% short position.
July 22nd, 2009 at 4:26 pm
KD
Re: HFT. I understand what you’re saying here, and I agree with ben’s perspective. But I also don’t think we have to leave it right there. It’s not an either/or situation. We can still improve on things. And I do think that there can be some changes to decrease the predatory nature of what they’re able to do without discarding the whole concept and therefore decreasing volume with the consequences of that.
Yes, trading is cheaper than it used to be, with lower spreads. But that doesn’t mean that things can’t be improved even more, taking away this easy skim from the Goldman Sachs’ of this world. I don’t think we should argue this on a relative morality kind of basis (i.e. at least it’s better than it used to be).
With that said, I am far from an expert here so I won’t take an un-budging stand on this – just yet.
July 22nd, 2009 at 4:27 pm
wow… ISRG… Now thats a short squeeze
July 22nd, 2009 at 4:28 pm
And I apologize to you EBAY… you must have done something good. When was the last time they had a good report?
July 22nd, 2009 at 4:30 pm
@OFT – absolutely – i just hate the idea of limiting profits (who decides how much is too much?) and basically declaring capitalism null and void – and yes, i KNOW that the government already did that – we don’t need to make it worse… I hate intervention – as long as people are not being stolen from and laws are not being broken – and i don’t think laws are being broken. the entire nature of the stock market, and ALL capital markets are “predatory in nature” – that’s a very essential thing for everyone to realize
and yes – i know that GS got money from the government and didn’t have enough restrictions imposed on them. i’ve written about it multiple times – be mad at the government – they are the ones who screwed up. don’t hate the playa, hate the game
July 22nd, 2009 at 4:31 pm
@KD: Yes, I meant HFT generally, sorry. I’m pissed b/c I left a “discovery request” comment for you earlier that’s still languishing in the ether. Oh well. I’m sure this isn’t the last time we’ll be talking about this stuff. Bottom line: I need things explained to me in very very basic terms.
July 22nd, 2009 at 4:31 pm
KidDynamite Says:
July 22nd, 2009 at 4:11 pm
i don’t have a strong opinion either way with respect to flash trading (and the option of price improvement) – it’s a technological progression from the same way trading has always been done at the NYSE.
reply:
————-
You’re absolutely right. Guns don’t kill people. People kill people. There are laws against killing people. HFT, at this time, does not share that restriction.
July 22nd, 2009 at 4:32 pm
I-Man.. up 25 pts now.. wonder if it is back on its way to 359.. lol.
July 22nd, 2009 at 4:32 pm
i think the best comment i’ve read about this situation was after TD posted Saluzzi’s initial white paper. i clipped it.. as follows:
“Frontrunning is trading in front of a customer order. It is illegal. Collecting and analyzing publicly available information and trading based on your insights is legal. And guess what, someone will be the fastest and most accurate in doing this. The result of their actions is to translate meaningful information (strained from a stream of mostly noise, it’s incredibly difficult to do) into price changes which make the price more accurate relative to what’s knowable at the time. Unfortunately for people like Saluzzi, a 19th century “tape reader”, a lot of the information that quicker, more talented, machine-using, more insightful players uncover is information about large size that he’s trying to deceptively move without anyone knowing the truth about what he’s doing. There’s nothing wrong with what Saluzzi is trying to do. What’s wrong is crying foul when the one-sided benefit you wanted to obtain is defeated by people who have made a bigger investment in what’s important for trading. The big winners in all this are small traders who are not fleeced by large professional size deceptively getting them to buy or sell at insufficient prices. I can understand Saluzzi’s campaign against technology and modern information processing, it’s his ox that’s getting gored. The thing that’s truly hilarious is that what Saluzzi wants to be legal, his “tape reading”, is just another example of where professionals have an edge over the little guy.” But it would never occur to Saluzzi to outlaw what HE does, only what his competitors are doing better than him.”"
July 22nd, 2009 at 4:35 pm
to be clear – i think this guy Saluzzi is, in the style of the immortal Barry Ritholtz, “a monkey’s ass.” Yesterday he was ranting about how HFT’s were manipulating the price of CIT to stay above $1 so that it would be eligible to earn rebates (As sub $1 stocks are not eligible). pure drivel. and it makes me despondent that the average person reads this and gets fired up.
even guys like Whitney Tilson are now quoting Saluzzi’s rubbish. Sad. That’s why i fight it here – if BR gets on board with the misinformation and foil hats, i’ll have to quit the internet.
(sorry – in case it’s not clear, Saluzzi is the guy from Themis Trading who has been ranting about HFT lately)
July 22nd, 2009 at 4:39 pm
KidDynamite Says:
July 22nd, 2009 at 4:35 pm
Yesterday he was ranting about how HFT’s were manipulating the price of CIT to stay above $1 so that it would be eligible to earn rebates (As sub $1 stocks are not eligible). pure drivel.
question:
—————–
Are you speaking from a position of actual knowledge because you have a personal relationship with the facts of the situation, or or you just an idiot.
July 22nd, 2009 at 4:42 pm
KidDynamite,
My apologies for the derogatory word above.
I should have elaborated and asked if you are confused by an admiration of a power greater than you. One that has the power and influence to make markets and do what it damn well pleases.
July 22nd, 2009 at 4:42 pm
KD
Re: Saluzzi. Indeed we always have to look at people’s vested interests and try to see where they’re coming from and what their motivations may be. Rarely is anybody just as pure as the wind driven snow and just doing what’s best for society and humanity. There are some out there, but you can only trust their motivations after a very long track record is laid down.
Most are just “talking their book”, or angling for some advantage of their own.
I don’t know enough about this myself to judge this one way or another. But it’s my normal skeptical approach.
July 22nd, 2009 at 4:44 pm
Onlooker said: “Kass is apparently shorter than he’s been since Feb”
Wee Dougie has been short most of his life, he is a sharp cat, though. Interesting that he has turned around on the market now.
manhattan guy said: “Dollar refused to go below yesterday’s lows. Oil topped out. Tech is the only thing going for the market. Trend reversal anytime soon.”
Believe me, pal, anytime cannot come soon enough for LB and other observers here.
We have had to talk I-Man off the ledge several times since the start of July. We should be wary of shorting anything in the tech sector while these earnings keep coming in hot. There are three sectors where we know that the fundies stink into Q3/4: XLF, XLE and IYR, and they are all inversely leveraged to the $ to some degree.
July 22nd, 2009 at 4:46 pm
Onlooker from Troy Says:
July 22nd, 2009 at 4:42 pm
KD
Rarely is anybody just as pure as the wind driven snow and just doing what’s best for society and humanity.
reply:
——————–
That would be me, except when I’m talking my book, or lack of one.
July 22nd, 2009 at 4:57 pm
ah DH, how did I know it would only be a matter of time before a response from you.
My guess is that you have absolutely 0 real experience working with HFT and the reality is there isn’t a simple solution like a tax. Sorry but I found your responses to KD only amusing, not insightful. Then when you couldn’t answer KD, or you just didn’t want to anymore you resorted to this:
are you stupid or just ignorant
I don’t think either applies to KD.
then he said:
but wait – you don’t really think these guys are getting long massive amounts of stock to prop it up, right? no – you think they’re magically moving the prices higher without accumulating positions… alas, it doesn’t work like that.
He is exactly correct about this and your response back was that: This isn’t a problem that needs to be over-intellectualized.
lol.
Save the nonsense about what makes an efficient market, as if a tax on HFT helps solve your second requirement. Last I checked our Federal govt wasn’t too interested in respecting contracts.
July 22nd, 2009 at 4:57 pm
dead hobo Says:
July 22nd, 2009 at 4:46 pm
Onlooker from Troy Says:
July 22nd, 2009 at 4:42 pm
KD
Rarely is anybody just as pure as the wind driven snow and just doing what’s best for society and humanity.
reply:
——————–
That would be me, except when I’m talking my book, or lack of one.
actually, DH, you’re confused again. that’s ME. i have no motivation, other than to educate foil hat mobs on the internet who i’m basically wasting my time and sanity with. Sorry, I’m done with you though, after you called me an idiot twice in an otherwise civil thread.
July 22nd, 2009 at 4:59 pm
@ben22- the realization that it’s very very hard to move prices without accumulating positions is one that would silence MOST of the conspiracy theories – but it’s one the common man doesn’t understand for some reason.
July 22nd, 2009 at 5:02 pm
ben22 Says:
July 22nd, 2009 at 4:57 pm
but wait – you don’t really think these guys are getting long massive amounts of stock to prop it up, right? no – you think they’re magically moving the prices higher without accumulating positions… alas, it doesn’t work like that.
reply:
———–
Actually it can with the proper amount of front running and a good collar routine. Also, if you buy low and pump the market a little, you can get a few cents on the upside from the sucker you fooled into thinking the rise was from real demand. Only the slowest computer and the last buyer in loses.
July 22nd, 2009 at 5:03 pm
and to be clear from onlooker:
Re: HFT. I understand what you’re saying here, and I agree with ben’s perspective. But I also don’t think we have to leave it right there. It’s not an either/or situation. We can still improve on things. And I do think that there can be some changes to decrease the predatory nature of what they’re able to do without discarding the whole concept and therefore decreasing volume with the consequences of that.
I’m not saying to just let everything go, not in the least. Everything can always be improved but to think that there is a solution that stops corruption is crazy to me. My comments are in response to the solutions suggested above by people that appear to have 0 experience with any of this. Of course, that’s probably dumb on my part to think that people that don’t know anything about a subject would sti back and observe rather than try to offer solutions, after all, we’ve got a whole crew of folks in Washington that do just that. Why should the blogs be any different.
July 22nd, 2009 at 5:04 pm
@KD: We have all been called idiots by DH, so no worries. Thanks for the education today and do come back.
July 22nd, 2009 at 5:08 pm
KidDynamite, ben22,
You are thinking in terms of accumulation. The market manipulation , HFT, and pump works in terms of flows. Massive flows where a little is scammed on each transaction. It’s not the one big score, It’s the humongous mass of little scores, daily.
July 22nd, 2009 at 5:10 pm
leftback Says:
July 22nd, 2009 at 5:04 pm
@KD: We have all been called idiots by DH, so no worries. Thanks for the education today and do come back.
reply:
——————–
Not you or most others. Maybe Franklin411 but he asks for it aggressively. I’ve disagreed with you. Maybe been a little sarcastic. But I don’t think I’ve crossed that line with most here.
July 22nd, 2009 at 5:12 pm
@Karen,
Re: ISRG
The Fast Money crew were buzzing about this stock last night. They mentioned the large short interest as well.
All I can say is not for me.
July 22nd, 2009 at 5:13 pm
hobo,
I’m just gonna let this one go. As for the idiot thing, I don’t know if you’ve ever called me that but I’m pretty sure once I got the insane label from you, maybe more than once. oh well, I can take it, I’ve certainly been called worse.
July 22nd, 2009 at 5:15 pm
Just as the oil thieves used ‘peak oil’ to justify and provide cover for their theft last year, the new scam is to say HFT is a natural evolution in technology. Just ignore the front running, collaring, manufactured short squeezes, and pumps.
July 22nd, 2009 at 5:17 pm
I must say – this is the most heated I’ve you get Ben – you’re usually so Zen
July 22nd, 2009 at 5:18 pm
DH – if you refuse to be the sucker, the HFT cannot manipulate the market. If you put in a bid for 1k XLE, you may see the market move 10c against you. If you panic and take the new offer (you SHOULD have taken the offer initially, paying the 1c spread – which, as I’ve said repeatedly – is better than you’ve ever been able to do before in history) – then you’re the sucker and the HFT’s have won. I mentioned in another thread the way to beat them: put your order in and go play golf. The market will move up 10c, 20c, who knows, and then come back down. stocks move. Ignore the cat scan oscillations – you can’t beat them.
markets don’t move when HFT’s buy and sell unless, as you so eloquently put it – there is a sucker involved. So don’t be the sucker. There is ALWAYS someone who is the last buyer – in every market, regardless of how it’s traded. If HFT’s outpsyche you (i’d call it OUT TRADING) and get you to pay up for stock, well then, find a new job.
July 22nd, 2009 at 5:22 pm
i LOVE the oil example. Did you short oil last year? why not? you knew it was such a “bullsh!t” price right? free money! except that’s not true – because it didn’t look like that at the time did it? when everyone was talking about “chinese demand”.. .
the public is under the impression that Goldman can run around driving up the price of oil (which, they absolutely can, if they get massively long oil) and then miraculously unload it at the top. guess what – if buying tens of millions of barrels of oil drives the price to $150, then selling those tens of millions of barrels drives the price right back down – and GS makes no money. UNLESS there are some other greedy bastards who bail out goldman and buy at the top.
Oil was driven up by the expansion into commodities of an asset class, and blind “indexed” investing by hedgies, endowments, and pension funds. it’s always easy in hindsight, but it was suicidal to step in front of that freight train at the time.
July 22nd, 2009 at 5:23 pm
KidDynamite Says:
July 22nd, 2009 at 5:18 pm
DH – if you refuse to be the sucker, the HFT cannot manipulate the market
reply:
————
OK, I’m safe. What about some 401k depositor who is saving for a comfortable retirement. Are they screwed because they weren’t hip to the groovy HFT trip?
July 22nd, 2009 at 5:31 pm
Kid – re:oil – I understand your explanation, but are you arguing that this kind of speculation in the thee kinds of markets (oil, food, electricity) should be allowed? I’m all for free capitalism, but when we get to a point where families are having to decide between food and gas to get to work there might be some rules that need to be changed.
July 22nd, 2009 at 5:35 pm
DH – yes – if their money manager is not looking out for them, they pay the price. that’s called capitalism. the 401k investor who logs into his account 4 times a year and rebalances his account by hitting bids and lifting offers (at the tightest spreads ever!) is doing better than he’s ever done before in terms of execution costs. If he decides he’s gonna get fancy and play Joe MarketTimer, gets out traded by a machine or anyone else, and complains about it, well, tough cookies.
July 22nd, 2009 at 5:37 pm
@Thor – i believe the more people you allow to participate in a market with the fewest restrictions, the more accurate your pricing is.
I mean, is cheap gas another right we have in America? I don’t think so… If everyone said the price of oil was completely out of whack, the beauty was that everyone had the option to act on that opinion. (lets not have a discussion about how crappy a product the USO is – that’s only because, like you say ,we do NOT allow free speculation in the oil market – which would be done via cash settled futures)
July 22nd, 2009 at 5:39 pm
KidDynamite Says:
July 22nd, 2009 at 5:35 pm
DH – yes – if their money manager is not looking out for them, they pay the price. that’s called capitalism.
reply:
—————
And so goes another example of why markets need regulation. Animal House rules are standard equipment without them (You Fucked Up, You Trusted Us). Thank’s for proving my point so eloquently.
July 22nd, 2009 at 5:44 pm
Kid – What about supply and demand though? Was there actually a demand or lack of supply for oil to be at $140 a barrel? If so, why did oil fall to below $40? Did we suddenly have almost 2/3rd’s less demand for it? With demand for oil falling now, and oil tankers full of the stuff sitting offshore, why is oil currently at $65? I will freely admit that my understanding of both economics and the markets is lacking (clearly) but as an average guy looking at this from the outside, it does not seem like it is beneficial to either out economy or our society for people who have nothing to do with the production, sale, or use of oil to be trading in it. . . .
July 22nd, 2009 at 5:48 pm
EXPECTATION of supply and demand, Thor… Forward looking markets. Oil now is also effected by views on the USD.
by the way – i’m a compassionate capitalist – not a “let the poor suckers wither and die” capitalist – but someone will ALWAYS be the loser – you cannot prevent that or legislate it away.
July 22nd, 2009 at 5:50 pm
yes DH – that’s the same reason GS doesn’t outright steal from its clients as Matt Taibbi alleged – it’s BAD FOR BUSINESS…. if GS phucks you, you stop doing business with them.
July 22nd, 2009 at 5:53 pm
KidDynamite Says:
July 22nd, 2009 at 5:50 pm
if GS phucks you, you stop doing business with them.
reply:
———–
Given their participation in SLP and status as an HFT trader, that would require a total halt of all trading of equities. Thus, the Goldman Tax.
July 22nd, 2009 at 5:58 pm
Gotta go now. Been fun. If there’s anything interesting I’ll get back in the AM. Had fun kicking your ass, KD.
July 22nd, 2009 at 6:11 pm
@KD
The HFT can’t make you chase a price to enter a position, right? I’ll use a limit order to establish a position (I never use market price to get in). My problem is when I sell I’ll sell at market. I have seen the price drop and wipe out some profit when I do a market sell. Is that the HFT at work? Or does it concentrate on large orders?
July 22nd, 2009 at 6:12 pm
Re: ISRG
As I mentioned in one of my posts yesterday, you don’t want to be short on stocks like Apple or ISRG going into earnings. They will just run over you. ISRG might be a great short candidate at some point, but not until Nasdaq falls off the cliff.
On the other hand, it will be interesting to see how the current administration’s Health reform will impact ISRG’s business model. Not many hospitals can afford to buy those expensive DaVinci systems ($1.43Million a piece), can they? Probably the reason why they are refusing the reaffirm 2009 Sales guidance.
July 22nd, 2009 at 6:19 pm
@kid “EXPECTATION of supply and demand, Thor… Forward looking markets. Oil now is also effected by views on the USD.”
Good explanation – thanks for the edumacation! You’re a trooper, how you stood up to the insanity that is the average poster on ZH is still a mystery to me. Heavy tranquilizers?
July 22nd, 2009 at 6:46 pm
Agree with manhattan guy, don’t EVER play earnings, the Street has information you don’t have access to, it’s easier to fade the reaction to earnings after the fact.
An interesting chart we have all looked at many times:
http://www.calculatedriskblog.com/2009/07/stock-market.html
LB is struck by how the 1998 correction (was that Asian crisis/LTCM?) is an almost perfect mirror image of the present rally around the SPX axis. Back in 1998 the trend was restored around SPX 950…. fascinating, eh?
Evenin’ all….
July 22nd, 2009 at 6:52 pm
@leftback
The SPX entered the monthly 3LB downtrend back on 1/31/08. If the SPX can close out July at 968.75 or better then it will have reversed the trend. To reverse a monthly trend is serious to me. My 2¢
July 22nd, 2009 at 7:08 pm
@Amenra – i don’t ever use market orders electronically. if you’re trading instruments with narrow spreads, i’d suggest not messing around – instead of bidding on the bid side, just bid with an offer side limit – pay the spread. Then again, i don’t know what your model is or what your size is…
and you are correct – HFT cannot force you to chase prices on your limit orders. I’m not sure what’s up with your market order liquidations – i’d doubt it’s HFT’s gaming you, but if you’re trading huge size it’s possible.
July 22nd, 2009 at 8:14 pm
@Thor,
Yeah, I even did the Yoga X workout today and still a little fired up. I need to get back into prayer stance I suppose. Really though, I never actually got upset, just a little louder to make my point. I’m glad most of the time I seem Zen like, blocking out emotions is one key to trading success.
As for the final part of the debate above, hobo, you are really just starting to sound bitter, like you are pissed you missed some good trade opps. You have been sitting in cash have you not? I should have realized this a few weeks ago when you were saying that all of the computers find our trade strategies amusing. Sorry, I’m thinking the regular posters on this site that talk about trades beat 95% of all money managers in the last two years. Who is laughing?
Then this:
Had fun kicking your ass, KD.
lol, hardly.
Last, nobody forces you to buy equity in a 401k. Getting sick of this argument as well, I have never ever once seen a 401k, and I’ve looked at 100’s, that didn’t have a safe bond option or even a cash option. If you know people that do they should be going to their HR department and demanding change. Further, many many companies offer an in-service non-penalty distribution while you are still employed giving you the ability to roll all of the capital or a portion to an IRA where you can take complete control over it and can invest in whatever you like, or stay in cash. If people are too lazy to request the summary plan description to see if they can do that, well… People that lose money are looking for someone to blame for the fact that they were blind to what was coming and HFT will be just one target in a long line to come under attack all in the name of helping the retail investor, who will, in the fullness of time, get duped anyway.
As for your quote on this is why the market needs regulation in relation to a 401k investor getting burned. Here’s a little taste of reality: For an advisor making recs to a client on a qualified plan. We all MUST comply with the “Rule of 3″ meaning for each asset class I MUST provide the client with three investment options if there are three options in that asset class in the 401k, but I AM NOT allowed to tell them which one to pick. Is that the kind of regulation you think will help the retail 401k investor, because that’s what we’ve got, and that rule just went into effect last year.
I wish BR would chime in on this, I know Fusion has HFT programs that they can sell to institutions.
July 22nd, 2009 at 8:49 pm
@KD and everyone else:
I have yet to see anyone on this blog explain exactly what these algorithms are actually doing. I’ve heard some vague mentions of “buying low and selling high” and such. Are you sure that this is what is really happening? The proprietary nature of these programs implies that anyone who actually knows what they are doing wouldn’t even be posting vague comments on a blog – they would be tight lipped.
I think that there is a lot more to these trading programs than buying and selling really quickly. That kind of program trading has been going on in the NASDAQ for my entire lifetime because it just makes sense for market makers to operate this way.
The growth in the program trading at the NYSE implies that this is something different. I’ve heard all sorts of weird stories from traders – from algos incrementally machine gunning one share orders through for price discovery to picking off limit orders from the central book. In fact, before KD started talking about “buying low and selling high before you even know what’s going on,” I assumed the the HFT was a heterogeneous mixture of these little trading games.
I’ve never really understood all of the Zero Hedge conspiracy theories. They just don’t make sense to anyone with a cursory understanding of our exchanges. I’m not saying that this is a fair playing field. I’m just not able to work myself into an outrage, as these exchanges have never offered a level playing field for retailers and the Wall Street firms. The exchanges are for-profit firms that get paid to offer different levels of service.
July 22nd, 2009 at 9:49 pm
Fascinating discussion…
Somehow I “missed” this thread as being the ACTION SPOT for the day…
I was off in another world (and another thread), and otherwise slept half the day…Yet I did make the following posts…
http://www.ritholtz.com/blog/2009/07/foreclosures-are-highly-regional/#comment-196102
http://www.ritholtz.com/blog/2009/07/foreclosures-are-highly-regional/#comment-196117
http://www.ritholtz.com/blog/2009/07/foreclosures-are-highly-regional/#comment-196122
http://www.ritholtz.com/blog/2009/07/foreclosures-are-highly-regional/#comment-196128
http://www.ritholtz.com/blog/2009/07/foreclosures-are-highly-regional/#comment-196133
What actually fascinates me in perusing “the remains of the day” (which apparently was contained in this thread), is the notion of ALGOS vs. HUMANS…
I respond as follows…
Ask yourself what you’d rather be…
1. A computer, trying to predict HUMAN behavior based on how your programming instructs you to behave
2. A HUMAN, observing computer algo patterns and trying to identify how they seem to behave…
Your first sample QUIZ is to try and figure out which one of the two options cvienne likes.
Happy trading!
July 22nd, 2009 at 10:03 pm
Ben – Brilliant post. You work for an investment firm yes? Sounds to me like you’ll be needing to go out on your own at some point!
July 22nd, 2009 at 10:13 pm
The bottom line to my previous post is this…
When you FARM & grow food, you don’t need a lot of crap opinions to tell you how to get better harvests…
- You don’t need SPECIAL seeds…
- As long as you have ways to somewhat neutralize humidity, temperature, and irrigation factors, you have no real constraints…
- Everytime you try to grow something new, grow it a half dozen different ways (soil nutrients, soil temperature, pollination characteristics, etc.)…ALWAYS – & I MEAN ALWAYS, which experiment works out the best the first year out, works forever…
- Harvest the seeds of your most productive bounty…They have the genetic code to survive…There is no sense in buying new seeds once you’ve established a successful harvest…
- Keep Digging…3/4 of the time, the Earth just needs to get rolled over a little…do it…let it breathe…
- Keep the bees coming…Start ANYTHING by planting hardy plants that attract bees (lavendar & rosemary are the best in my book)…After the bees arrive and you subsequently get better harvests, notice what bugs tend to chew on your harvests…Don’t eliminate them by chemicals…INSTEAD, plant more plants that attract the carniverous insects that like to EAT the bugs that are eating your plants…PROBLEM SOLVED…
Nature has a cure for everything…
Except, I think, Obama has a BETTER cure for everything (than even NATURE itself)…So if you’re so inclined, keep yourself tuned to his rhetoric…
July 22nd, 2009 at 10:22 pm
Cvienne, you are on something tonight… not sure what.. : ) ps. i did pilates today, but it’s not on my VISA and I don’t cost anyone anything
July 22nd, 2009 at 10:23 pm
smiley face = colon + a “p” Is there a middle finger symbol?
July 22nd, 2009 at 10:25 pm
cvienne,
what happens when if the bees go away? don’t we have massive decline in bee population or is that made up?
July 22nd, 2009 at 10:33 pm
ben22, not made up! one of my best friends is a beekeeper! he’s been called repeatedly for testimony…
July 22nd, 2009 at 10:36 pm
Ben – good question, that was all the rage a few years ago wasn’t it? Haven’t seen anything at all in the news about it, just tried to google it and didn’t find much that wasn’t at least two years old. Saw a fascinating documentary on the Africanization of the North American bee population this weekend and they didn’t mention population collapse at all.
July 22nd, 2009 at 10:36 pm
Karen – what’s the current status do you know? I can’t find many recent articles on it anywhere.
July 22nd, 2009 at 10:38 pm
TADA! – Looks like they might have found the culprit!
http://www.sciencedaily.com/releases/2009/04/090414084627.htm
July 22nd, 2009 at 10:38 pm
@karen
Don’t imbibe my flares so much…(not that I really think you do – you seem to me to be VERY within yourself and capable of acting accordingly, from my POV)…That’s a GOOD thing…
I’m ON my Qi (Chinese), or Xi (Greek)…It’s a preferable state of being…It often happens during the fortunate times that you get to EAT the fruits of your toil & labor…
July 22nd, 2009 at 10:40 pm
@Amenra – i wish i hadn’t given you any advice on how to execute your trades since i have no idea what you do – please disregard. for ME, trying to buy $20k-$50k blocks of large cap stocks or $100k blocks of ETF’s, i think i need to learn to pay the spread and take offers when i trade instead of trying to get fancy and bid on the bidside/offer on the ask. let me put it that way.
July 22nd, 2009 at 10:41 pm
karen/thor,
well that is pretty interesting he’s been called in more than once for testimony. I have heard very little on this topic actually, but I remember reading a study somewhere about the many problems that would be caused if the bee population continued on what I recall was a fairly consistent decline in bee population.
July 22nd, 2009 at 10:43 pm
@Matt – to summarize, everyone in the markets is trying to buy low and sell high – the HFT guys are just trying to take advantage of your psychology to gain an edge on you. They hope that if they know you have to buy 1000 shares, and you see offers disappear, you will chase and pay up a penny or two when you see them start to lift offers in front of you. Again, this is nothing new – traders in the crowd (or “tape readers” like Saluzzi) used to do the same thing – it’s called TRADING. Now, it’s just done faster and for smaller amounts.
g’night ya’ll . my wife has threatened to get me committed for internet addiction
July 22nd, 2009 at 10:44 pm
thor,
thanks for that link.
July 22nd, 2009 at 10:45 pm
@all
BEES…
It’s a combination of things…
Like ALL species, bees (on their own) will learn how to adapt & migrate…
So if “challenged” by another predatory species, some will survive and seek out other survival…
OR
If their arena isn’t hospitable, they will migrate…
Humans can’t predict what will happen…But what they CAN do is to try and provide potential areas for survival…I’m TELLING you that rosemary and lavendar work extemely well (yet are UNDERUTILIZED in America vs. ITALY where they are ubiquitous)…
You can’t read this stuff in book or on the internet…You have to EXPERIMENT…I have about 12 years under my belt so far (and I’m just a ROOKIE)…
July 22nd, 2009 at 10:47 pm
@ben22 (10:41)
We’d be TOAST without bees…
July 22nd, 2009 at 10:48 pm
cvienne,
yeah, after I read the link Thor posted that was my basic conclusion.
July 22nd, 2009 at 10:51 pm
cvienne, darn, i was so hoping to get something going.. jk, jk,.. so tonight i bot two piece of the most spectacular italian pottery (in my blue..) she, the italian, did it with these two men in mind..
July 22nd, 2009 at 11:04 pm
tempting danger, i sent my friend an email.. believe it or not, he often works till midnight.. last discussion i remember tho, was he held pesticides responsible for many bee woes… he was super big in MT until he got wiped out by the ranchers’ spraying.. which runs into the streams… anyway, his big money always came from pollinating the almonds in CA..
July 22nd, 2009 at 11:17 pm
@ben22
Bottom line on bees: I’m not as worried as the BEE ARMAGEDDONISTS are…To me, it’s a simple matter of habitat…I’ve learned how to provide the best habitat…& I appreciate the contribution (by them – It’s ABSOLUTELY invaluable – I couldn’t grow SQUAT without bees)…As long as my habitat is relatively safe, there will be no problems (and actually, other FARMING areas of the country will eventually migrate to reflect this phenomenon – wherever it may be)…I’ll only become worried when the ENTIRE CONTINENTAL US becomes endangered…I don’t see that happening anytime soon save for some CRAZY event…So until then…KNOW…GROW…and have fun doing SO…
@karen
Sorry to not have drawn BLADES (as the case may have been)…I’ll draw blades most anytime as the case may be…Hell, this past summer I’ve been spending half my time slinging a 25 pound mattock around my head and into the ground so I kinda feel like an Arturian Knight at the moment…
Pottery…
All I can say is this…I’m SURE it’s beautiful (as it’s not hard for me to divine from reading these posts that you have “impeccable” taste)…
But the MONA LISA is the MONA LISA regardless of the frame (or the section of the Louvre it hangs, or the “L’histoire des collections” thereof)
So grow pretty flowers, or tasty EATS, whatever you desire…
From MY experience, it’s best to differentiate…Pretty pots, put in ordinary plants…Exquisite tasting fruits & vegetables, grow in the ULTIMATE pot…= Planet Earth
July 22nd, 2009 at 11:43 pm
Karen – your pottery makes me think of a funny story. I collect pottery when I travel, was in Morocco in November and took a trip down to a little town on the Atlantic coast that is known for their pottery. I loaded up on so much pottery it was insane. The bag I was carrying it all in was so heavy I could hardly lift it – at least 20 pieces. I figured I’d give them away as presents. Managed to truck that bag through the whole country, on trains, buses, cabs, up and down stairs in hotels, you name it. Not one scratch on any of it. Even got it from Marrakech to Casablanca to London as carry-on.
I set the bag down in the tube station at Heathrow, when the train came I picked up the bag and the strap snapped – dropped it hard. When I got to the hotel and opened the bag every single piece of pottery was broken – large, small, heavily wrapped or not – everything. I couldn’t even muster up the energy to be upset. I figured it was the Universes way of telling me not to be such a pig next time I travel.
July 22nd, 2009 at 11:54 pm
@Thor
I’m so sorry to hear your story because mine is EXACTLY the same (after about the first 5 years I lived in Italy)…
I mean…jeez…I lived about 5 miles from DERUTA (which is arguably the ceramic pottery “capital of the world”)…
I kept trying…something kept happening…they kept breaking… I gave up…
mistfully so, because the CERAMICS that I ended up leaving behind when I sold my farmhouse in Italy were exquisite!
July 23rd, 2009 at 12:00 am
Cvienne: I feel your pain my friend – I’ve worked hard to try to take what life gives me in stride – often things happen for a reason. Besides, I collect carpets when I’m in a country known for them – those are IMPOSSIBLE to break
July 23rd, 2009 at 12:10 am
@Thor
somehow…I suppose…we need to get into the FLYING CARPET thing…
Fly the damn thing home dammit and forget about the weight, & thinking of it as baggage…
Funny you should mention that (carpets)…In my house, I’m going to need a whole new set of them (as time goes by), but I just installed some sunken heartpine flooring…I’m thinking it’s going to take about two years for the ambient sunlight to AGE them adequately in a way that they darken uniformly…There4, I don’t want to toss carpets over the top just yet for reasons you might imagine…
July 23rd, 2009 at 12:48 am
Cveinne – I love carpets too, always thought they made a room look warm. Most of my house is wood – old craftsman bungalow, all the original flooring and mouldings. I’ll miss my carpets when I move to PS next year – concrete flooring is all the rage out here and the partner wants them to keep the place cooler.
July 23rd, 2009 at 12:48 am
BTW & FWIW…
Amidst all the banter this afternoon (about Vancouver sunsets and computer algos), I was keeping my EYE ON THE PRIZE…
I couldn’t help notice that the S&P hit its 233 day EMA at around 12:30 (whereby cvienne went SHORT)…
So if Bill Miller (who was quoted today as saying “stocks are a bargain”) wants to trade against me then let the ball licking begin…
My caveat is ONLY as follows…”Show me the earnings”…
So great…if the S&P wants to continue to trade at P/E’s that make the likes of Steve Barry roll over…then FINE…Bill Miller is a genius…
But TODAY…officially…we reached our “event horizon” of lunacy…
July 23rd, 2009 at 12:49 am
@ben22,
Actually, for me the TARP stuff is still sufficiently mystical that I’d like to hear what you would have said to your uncle.
I have been hearing people tell me that the fact the banks are paying back the TARP is a sign that things are on the rebound. I’m not convinced, but I can’t really argue the case convincingly.
And, I must say, as a poster child for the Johnny Retails of the world, the commentary from you, LB, Andy T, cvienne, manhattanguy, I-man, Karen, et al (at least I’m not like Hillary Swank and forgetting my spouse), makes this my favorite finance blog by far.
I’m pretty much in cash now, switched my 401k to cash and an individually-directed element that is in cash. I’ve missed about 15% return in this latest rally as a consequence, but I don’t feel bad about it (yet). As I’ve said before, the friggin EMH has cost me more money than anything.
I did want to share one observation about tech — I work in tech, so I am biased. But there is a bit of a “floor” under some of the tech business, and that is an “echo boom” of the Y2K stuff. People bought a whole lot of equipment pre-Y2K, and that is now getting to the point where it really needs to be replaced. You can’t run mission-critical business processes on obsolete equipment, or at least you shouldn’t, so that is propping up demand to some extent I think.
Now, what that has to do with the stock prices is a whole other story, and I’m sounding like a fundy, so I hope that’s not too gauche
.
I also believe that we will see something within the next 2 years that will be the “next big thing” in tech. I don’t know what the heck that might be, and it very well could still be something “already discovered” like VMW, but I think we’re due.
July 23rd, 2009 at 12:55 am
@Thor
When in doubt…”cooler” trumps anything (so I can understand)…
Man…if I were in PS, I’d SERIOUSLY look into the idea of being able to excavate down (underground), and create a “cooler” atmosphere…
but that’s just me…
July 23rd, 2009 at 1:03 am
@Whammer
Re: “next big thing”
I’m looking for that too my friend…My GUT tells me it’s going to be ENERGY related (perhaps not solar or wind, but WASTE related)…I think any investment there needs to be willing to LOSE 100% though…
“Echo boom”???…I understand the concept, but I’m dubious about the reality…
It’s like CARS…everybody needs a new car every 3 years UNTIL THEY DON”T…when they realize they can make do with their old jalopy in tough times, then they change…Moreover, when their NEIGHBORS see that they don’t have a new Escalade in the driveway, they don’t bother either…We haven’t even BEGUN to see that phenomenon yet…
Yet from an “equity” perspective, that’s where the last HOPE of cash is still teetering…
FWIW – I’m actually using it as an indicator…When the TECH investment finally unravels, I’ll start to be convinced that the downturn is reaching a climax…
July 23rd, 2009 at 1:35 am
@Whammer,
INTC was saying in their call that a lot of equipment is at least four years old so there is a lot of pent up demand. Companies are clearly too afraid to spend right now with such a murky horizon but that will be a benefit sometime in the future
Another point about trading against computers. I’m wondering if this may not be easier to trade against than people. If you think about video games is it easier to play against the computer or another player? It is clearly easier to play against a computer because a computer can’t ’see’ what you are doing the same way a human being can therefore it should theoretically be easier to trade. The trick I suppose is being able to figure out the ‘algos’ cheats, tendencies and weaknesses. I can see how computer against computer may not be a effective and human against computer because humans can see in a much more comprehensive, instinctual way
Adaptability should work in the favor of the human brain over the computer I would think. It should at least put you ‘behind’ other traders in that you would end up using them as shields for the computers to snack on while you get what you want done
Re Bees: Bees are apparently responsible for 1/3 the crops out there. They matter to us but we could survive without them. I think our food choices would be like going from color TV back to B&W though. Thanks Bees!
July 23rd, 2009 at 7:00 am
matt Says:
July 22nd, 2009 at 8:49 pm
@KD and everyone else:
I have yet to see anyone on this blog explain exactly what these algorithms are actually doing.
reply:
——-
Have you thought of using Google to look it up? Themis Trading has a lot of material, some of it is complicated. zerohedge write about it frequently.
July 23rd, 2009 at 8:20 am
Exactly, Kid Dynamite..my guys would be banging their keyboards statusing the order at the Specialist as they watched the situation change on the DOT..they’d let you have 4K then drop the bid a point or two.. while watching the Naz execute on the other screen..now HFT managed to be the Specialist on ‘roids..
Don’t even think about a smart tax/time fix ’till they are get their fill, and leave the bag to the little guys and move on to the next gaming…that’s the real job..rigging the game or the regulators one step ahead of the light.
July 23rd, 2009 at 9:57 am
Nothing that couldn’t be fixed by a fat tax on any trade that is reversed within less than 1 hour.