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Agree 100% and they will be the makers of their own demise too in my opinion.
We will either see intervention OR it will come down to spiralling costs and diminishing returns of trying to play the short game. My guess is the latter...
Every investment bank and dealer has dramatically reduced their head count for traditional flow traders in this past year and invested billions into developing their own hft desks. The smart money is not putting these kinds of dollars into their own demise. Smaller players will certainly not be able to compete in the flow business and there will be a demise. And the markets will become more an illusion for a public in the dark. An oligopoly of monopolistic controllers will do what they do, control and manipulate, command and control, the markets, they are not free, capitalism is dead in this state.
Investment banks used to invest. That's why they were called investment banks. Today small companies cannot get IPO's because it is not as profitable as high frequency trading in the big established companies. The algos with their first look option and control of the order que at the exchanges have scared real liquidity from the market. An order is no longer an economic signal, rather just a target for the machines. Traditional technical strategies, they are targets. Logical stop placements for thoughtful investors/traders, targets.
These hft traders can even trade against themselves. I worked in the CFO's office at the former Merrill Lynch. I couldn't believe the 55 thousand corporate entities under one roof. These companies can place derivatives trades against themselves under different accounts in different jusrisdictions, etc, etc, it's called of balance sheet accounting. Regulators can do nothing about it as the so called finacially innovative products are designed to subvert the law and they are not equipped to deal with it... But that's another story. An HFT, in picosecond manipulation of the order book can and do place trades against themselves, pushing the price into stops in the subsecond timeframes that the liquidity in the book goes to zero and they can rip it. This is manipulation and it is against the spirit of US market regulations, illegal, but sanctioned.
Anyways, back to the so called competitive end game for HFT firms, I would say quite on the contrary, they will not be their own demise, they will become more powerful and every day. Your illusion will become more and more just that, an illusion where the reality is far more Orwellian than your world view and belief system will allow you to admit.
The scenario you are describing - putting more and more money into the latest thing (in this case HFT) - is very similar to every other bubble we've seen over the past 100 years.
It's the latest thing, put your money in quick, it's sure fire, all the smart people are doing it...
Yep I agree. Once our politicians have said the "corporation" is a person we knew right then this was alive and well. When you see the corps like Apple, WalMart, Exxon,Federal Reserve(yes its a Corp), BOA and a few others have laws passed or even removed(ex:Glass-Stegal) you know that the system is setup for a few to profit. The distribution of wealth from the middle class to the elite is very clear in our time. Very unfortunate but we see it everyday. We have foreclosures everywhere,jobs vanishing for cheap labor in 3rd world countries and several other things we can keep listing. What i am waiting to see is when the student debt bubble pops. Its an issue none of the major media outlets or politicians even mention yet it will be a major catalyst in an economic collapse.
In summary we can keep passing laws to protect the corporation and keep printing funny money to keep it afloat for only so long. As long as we the people keep allowing it I am confident the system will stay alive until we say enough is enough.
I always liked this video to help explain the system. I know some have seen it who read ZH but it explains things to people who dont know. 5 minute video and explains it in a very fun way to learn how our world economics currently works.
With Goldman on the throne with the so hft code the FBI had to rescue from falling into the wrong hands (Citadel) because bad people might use it to manipulate markets, I don't really see high freqency trading as some kind of fad that people are pouring into. Bubbles require that. This is a private club, free marketeers need not apply.
ZH has been ahead of the game for a while so I do keep in mind what they say. They are very credible imo. In their articles they reflect back to past articles to say "We told you so." I just don't think you can trade with fundamental analysis unless you have a source on the inside dropping news to you when the big boys receive it. All we can do is trade what we see and not what we think.
Most of the people I know won't buy any stocks anymore....they are basically putting thier money under the mattress....and these are people that aren't suffering, they've seen what happens and want no part of it.
The market doesn't need retail liquidity. Why the so called schedule 1 banks, mostly investment banks that don't provide the public with actual banking services, get money from the government at 0%, or some discount to government bonds which they are holding onto cos someone has to do it. With that big ass risk free balance sheet churning out more free money they can create stock derivatives and suck the life out of pension funds and everybody that has an interest in the actual stock of assets. And because they provide such great economic benefit and multipliers to the economy and society everything is as it should be, for if they do well, we all do well, that's how zero sum games work, especially with monopolistic competition...
