Nanex CEO: 'HFT Makes A Mockery Of Markets'

'It's all about one class of people who are not following the rules. It's that simple.'
-- Eric Hunsader, CEO of Nanex on High-Frequency Trading
-- Photo by William Banzai7
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Guest post by John Titus, producer of Bailout.
HFT Mocks Law, Allows Elite To Steal Even More 
High-frequency computer trading now accounts for between 70% and 84% of volume on the New York Stock Exchange, yet receives scant attention in the popular media. And with good reason: HFT represents yet another triumph of criminals over the Rule of Law whereby the ultra-wealthy use HFT to steal from the rest of us via illegal practices like quote-stuffing and front-running with the assistance of the government.
Call it Criminal Welfare Chic.
Below, Lauren Lyster of Capital Account interviews Eric Hunsader, whose firm Nanex gathers, analyzes, and packages exchange data that summarize high-frequency trading activity in the markets.
Hunsader has been in the data collection business since the advent of high-frequency trading in 1987—three months before the record-breaking market crash in October of that year (a record of which Hunsader has memorialized on a floppy diskette). This makes Hunsader one of the world’s leading experts—if not the leading expert--on high-frequency trading.
Lyster, who is easily the best interviewer in all of daily financial television, does a superb job of eliciting jargon-free disclosures from Hunsader that cut to the core of high-frequency trading. Like virtually all other "markets" today, HFT is characterized by regulations that are selectively enforced, i.e., the rich and powerful break the law with complete impunity, stealing from everyone else while regulators look the other way and apply regulations punitively to little people (not big enough to have cabinet members and congressmen on speed dial).
Towards the end of the interview, Hunsader exposes the one essential truth that’s altogether ignored in the regulation-deregulation debates that rage in their internecine promotion of the Left-Right divide: “if you’re not going to enforce regulations that you already have, you have no business creating new ones.”
Again we see an instance where the Left, which complains about too much corporate power, and the Right, which complains about too much government, are mysteriously blind to the fact that they are both correct now that corporations and the state have merged into a single entity politely known as Fascism, wherein the interests of a tiny elite are advanced through rampant illegality.
At the end of the interview, Lyster and Hunsader finger the real reason behind the overtly coordinated crackdown on Occupy Wall Street, namely, its organically viable threat to unite under one flag two forces that the Corporate State absolutely needs to be at each other’s throats: those who demand transparent and fair markets free of officious government intermeddling, and those who demand that lawless mega-corporate predators be reigned in:
"High-frequency trading is the poster child that the Occupy Wall Street protesters have been looking for.  You just don’t know it yet."




Lauren Lyster interviews Nanex Chief Eric Hunsader - Oct. 18, 2012
Transcript
LL: When did it [high-frequency trading] really explode?
EH: July of ’87 was the first footprints of when we saw them testing these new algos that were blasting lots of fake orders in the market.
[Ed.—To frame that, Paul Volcker stepped down as Chairman of the Federal Reserve and was replaced by Alan Greenspan in August 1987, and the stock market experienced its biggest one-day crash ever—22% down—on October 18, 1987 (a record that stands to this day).]
LL: After the passage of Reg. NMS, you saw kind of an explosion [of HFT] go on. Why was that a pivotal turning point?
EH: Well, Reg. NMS is regulations that were debated in the industry in 2006 and—well, in 2006. And it was passed in February of 2007, and that really changed the structure of the market. It took them about a couple of months to learn how to exploit it.
LL: But then exploit away they did, right?
EH: Yes.
LL: So then let’s talk about some of the issues, and the concerns surrounding high-frequency trading from market participants—both for individual investors, retail investors, but also the impact on the market as a whole, because it’s hard for me to imagine that it’s good for the ecosystem.
EH: Well, it’s destroyed the diversity of participants. It boils down to: they chased away everybody who can’t compete on speed, people who aren’t willing to invest in millions of dollars in equipment, hire a staff of quants, et cetera, et cetera. Basically you have to do that now to have the same informational—on par that you did before Reg. NMS.
LL: What about for the average trader, though? Should it matter to them that they can’t exploit a millisecond?
EH: No, not at all. The problem is, is that—well, there are a couple problems. One is, without diversity in participants, whenever something unexpected happens—like perhaps, Google this afternoon—it can severely impact the market in way that could cause prices based on stock market closing prices. It could severely affect the economy.
EH: And so that risk is there because people—the diversity of participants who have different viewpoints on the market, and may be willing to buy the market [when it’s] 10% down, aren’t gonna be there to do that because the information that they’re receiving is delayed or is untrusted or the exchanges might selectively cancel some orders and others. They’re going to be reluctant to pull the trigger. And so you don’t really have that buying power available. It’s not there any more.
LL: And is there a problem, too, that without those folks in the market, you have the algos that are all reacting, that are providing the illusion of liquidity, and that they’re all programmed to pull out when they catch any sign that things are awry?
EH: Oh, yes. We saw that today. We saw liquidity just evaporate—from Google! Which was pretty surprising to see it impact the market like it did. We went from a pretty moderate, okay day to absolute—absolute, well, we were on the edge. As long as no other bad news came out for the rest of the day, we’d be fine. But one day we’re not gonna be so lucky. We’re not gonna get away from that.
EH: The other thing that the average investor has to face now, every once in awhile, when they go to buy or sell, they’re going to be facing this pocket of liquidity where all of a sudden, if they make a mistake, like for example use a market order, which by the way, when a regulator tells you that you’re not supposed to use market orders, it’s usually a pretty good sign that you don’t have a market anymore. Let’s say he makes a mistake, or he doesn’t have his supercomputers on and he’s not processing the data fast enough and he makes a mistake and enters in the wrong price, today he’s gonna get that—if the price is not in his favor—he’s gonna get that price.
* * *
LL: Which is the more exploitative or the edge, really, coming from? Is it coming from the algorithmic software or is it coming more from the speed?
EH: You know, it’s not really whether it’s algorithmic or high-frequency or some kind of a phone [ph.]. It’s about exploiting the regulations. It’s about not following the rules. Reg. NMS lays out the rules, and it’s—we’re mainly concerned with—we’re not concerned with how fast trading goes. We’re concerned with those who break the rules.
* * *
LL: One of the things that I often hear from folks that watch this is that it’s just gotten so fast, and regulators are just so behind, and so late to the party. I wanna know your view on that especially since last month we did get a fine from the S.E.C. to the New York Stock Exchange from them getting information more quickly to proprietary—the people who have their proprietary fee versus everyone else. So what do you think is the state of the regulation of this industry?
EH: Well, you know, the high-frequency trading debate, you don’t have to understand microseconds or high technology. It’s really all about one class of people who are not following the rules. It’s that simple. And the fine levied by the S.E.C. was simply enforcing the rules for the first time since Reg. NMS passed.
EH: And probably more important than the fine itself was the worrying in [sic: about] the fine, which spelled out: you can’t do this; these things are not legal. These things have become some commonplace that, you know, my fear was that the S.E.C. was gonna go full tilt and now start enforcing this. Well, we’re not going to have anyone trading the next day on Wall Street, because it’s that common.
LL: Wow. But do you see an impact when you’re looking at your screens after we have that enforcement action, or there was another against a firm for layering and Knight Capital, [S.E.C. Chairman] Mary Schapiro wouldn’t cancel the trades for Knight. So what impact do you see?
EH: Well, that’s interesting. So I don’t know about you, but I don’t I have a private—Mary Schapiro’s private number, and I can’t call her up when my trade goes bad. I mean, the gall that he would even make that phone call is like, wow. It just shows you: there are two classes of people here.
EH: We have seen significant changes—improvements—on the data side. And we suspect—my suspicion is that the reason you’re seeing some of these high-frequency trading firms close up is because these—they see the writing on the wall. They know if they can’t exploit (break) the rule, if they can’t, that would not lead to profitability. They’re gonna pull out.
EH: And it’s interesting. They’re claiming that it’s not profitable now when it wasn’t very long ago that some of them had 90 days straight, in a row, of profitability, which is just unbelievable that they would announce that. You’d think they’d throw a couple of negative days in there just, um [laughs], so people didn’t raise their eyebrows.
LL: Right, right. So you think that these stories about high-frequency trading firms shutting because they can’t be as profitable any more. You think it’s actually more tied to the fact that they’re starting to be regulated, you think?
EH: Yes. I’m sure of it. I’m sure of it.
LL: Wow. And you actually do notice a difference in the manipulative processes on your screen since these enforcement actions?
EH: Absolutely. It’s crystal clear. Night and day.
LL: Wow. So do you think there needs to be more actions, kill switch or transaction tax, or do you think that these just need to be enforced—what’s on the books?
EH: If we would enforce what’s on the books, we wouldn’t need a transaction tax. We wouldn’t need a minimum quote life. We wouldn’t need any of the things that they’re proposing.
EH: And really, if they’re going to try to pass new regulations, when they’re not going to enforce existing regulations, who’s going to take them seriously? I wouldn’t take them seriously. I mean, if you’re not going to enforce regulations that you already have, you have no business creating new ones.
LL: I totally hear you there. Real quickly before we go, then, what ‘s your best advice for the average investor if they want to have a fair market?
EH: Call your congressman and demand that the rules be followed. It’s that simple.
LL: And I just want one more second before we go. Should Occupy Wall Street be on the street protesting this? You mentioned them.
EH: High-frequency trading is the poster child that the Occupy Wall Street protesters have been looking for. You just don’t know it yet.

Germany's gold slaughtered and turned into jewellery?

Germany's gold slaughtered and turned into jewellery?

Why does a Duke worth £320m want to double the rents of his farmers? Tenants told to pay up or face eviction

Duke of Northumberland nearly doubles rent for some farmers on estate

Some farmers fearing they may have to give up properties

NFU Northumberland chairman says estate is 'wanting its pound of flesh'

Wealthy: The Duke of Northumberland has been accused by farmers on his estate-owned land of a 'get rich quick' attitude, after claiming they were hit by rent hikes of up to 98 per cent

He is the aristocratic owner of the castle featured in Harry Potter.
And although his fortune is said to be around £320million, it seems the Duke of Northumberland wants more.
Ralph Percy, 56, has been accused of wrecking the livelihoods of tenant farmers after his land agents demanded massive rent increases.
Some have been asked to pay up to 98 per cent more or face eviction.
The Duke, whose son George was last year rumoured to be dating Pippa Middleton, owns some 132,000 acres of land.
His 1,000-year-old castle at Alnwick, which featured as Hogwarts in the Harry Potter films, is known as the Windsor of the North.
But despite his wealth, it emerged yesterday that the Duke’s Estate is conducting a crippling round of rent reviews on its farmers in Northumberland.
There is no legal limit to the rent  the land agents can ask for, and tenants are unlikely to challenge them because this can end up costing them even more. 
With many farmers suffering from a slump in lamb prices, some fear they might have to give up their properties altogether.
Stoker Frater, who runs two farms on land near Alnwick, has been told to expect a 40 per cent increase, following on from a 30 per cent rise three years ago.
He said: ‘Tenants are expected to pay outlandish rents just to get the land.
‘The Estate has become so business-orientated that it will take the highest offer.’
Another, who also farms near Alnwick but did not want to be named, was told his annual rent was due to go up by 98 per cent this year.

Hit: Farmer Stoker Frater, who farms on two Northumberland Estates-owned farms, has been told to expect a 40 per cent increase in his rent, following on from a 30 per cent rent rise three years ago

Grand: Alnwick Castle, the residency of the Duke of Northumberland, which was also used as a location in the Harry Potter films

After saying he could not afford it, he was told to accept a 64 per cent rise or be off the land by the following month. He said: ‘My rent will go up from £21,000 a year to £34,000, which is completely unachievable.
‘This is affecting my entire family as I won’t be able to afford to run the farm if my rent goes up by this much.’

Northumberland Estates, which has land in the West Country and Yorkshire as well as Northumberland, has about 100 tenanted farms. It said the rent reviews reflected rises in market rates.
But David Robson, of the NFU in Northumberland, said the Estate was taking advantage of its tenants.

He said: ‘It seems the Estate is wanting its pound of flesh. Historically, they were run more on the traditional basis where a farmer was actively encouraged to look after the land. Now if the farmer can’t pay he’s out the door.’

The rises come as the Duke prepares for a multi-million pound bill linked to the demolition of flood-hit flats in Newburn, Newcastle upon Tyne, although the Estate says the issues are not linked.
Tenants have the right to call in an arbitrator if they dispute a rent rise, but can end up paying costs of up to £40,000 if the ruling is in the landlord’s favour.
An Estate spokesman said: ‘We understand tenants do not welcome potential increases in rent but believe that, by encouraging open and honest discussions during negotiations, rent reviews take into account the type of tenancy, the individual farm and rents accurately reflect market conditions.’

‘Some Cuts Don’t Heal!’ Simpson-Bowles Face Protest for Attack on Medicare, Social Security

Common Dreams – by Jon Queally
Community activists in Washington, DC on Tuesday took the opportunity of a morning Q&A breakfast with the nation’s premiere ‘deficit scolds‘—former Republican senator from Wyoming Alan Simpson and establishment Democrat Erskine Bowles—to declare that the pair’s recommended policies unfairly punish the sick, the elderly and working people in the name of a ‘deficit reduction’ plan backed by the nation’s wealthiest beneficiaries and corporate elite.
Five protestors, rising at intervals, disrupted thePolitico-sponsored event held at a Newseum conference room, pressed the two men to defend the inequity and misguided nature of their proposals. Each was removed, in turn, by security officials.
“Some cuts don’t heal,” the National Journal reports one protester repeating as he was escorted from the room. “How could you entertain the fact that you want to cut Medicare, Medicaid and Social Security?” he asked, before being escorted out by security.
ABC News adds:

As the interview began, a man rose in the front row to protest their suggested cuts to entitlement programs.
“Pay your fair share of taxes,” the man shouted as Newseum security escorted him out. “Pay your fair share.”
“We’ll bring you into the discussion,” Allen told him.
After the interview resumed, three more protesters rose to interrupt the event in sequence and were removed. According to a man filming the protesters on an iPad, they are members of the liberal group Our DC, which has organized protests on Capitol Hill in the past.
Simpson and Bowles this morning released a rehashed plan to cut the deficit and reshape America’s fiscal outlook. They appeared at the Politico event to promote their new proposal.

According to the National Journal:

OurDC, a non-profit focused on bringing jobs to the District of Columbia, was behind the protest, a spokesman said. The group strives, according to its website, to ensure “the voices of unemployed and under employed city residents are heard and listened to in local and national dialogs on jobs and job creation.”
The protest was orchestrated to maximize disruption, with each protester standing up and speaking out as another was escorted from the room.

Commenting on the new Bowles-Simpson framework overall, MSNBC‘s Ned Reskikoff says it’s much like the old plan—which did not even muster majority approval from the bi-partisan commission they were appointed to co-chair in 2010—except their new one has, “more cuts!”
“The plan includes cuts to Medicare and Medicaid, ‘reforms’ to Social Security [read chained CPI] and the elimination or reduction of various tax deductions,” says Resnikoff. “Notably, many of the most significant cuts seem to fall on programs which benefit seniors.”
And the Washington Post’s Ezra Klein, along with an explanation of the plan’s essential points, posted this graph to show the new plan—dubbed Simpson-Bowles 2.0—is far heavier on cuts to social programs, with less strident plans for raising revenue from taxes:

But, as many economists continue to declare and the Campaign for America’s Future co-founder Robert Borosage argues in an op-ed on Tuesday, we don’t have an entitlement problem or a spending problem, we have an austerity problem and a healthcare cost problem.
“As economist Dean Baker has shown,” writes Borosage, “if we paid anything near what European nations pay per capita for health care that produces better results, we would be projecting surpluses as far as the eye can see.”
Instead, he argues—taking the side of the protesters who took the time to combat the public relations breakfast on Tuesday—policy-makers subscribing to proposals by Bowles-Simpson are making the elderly and middle-class taxpayers “victims of a classic example of shock doctrine” in which the right uses “an economic calamity to roll back social protections.”
“At a time of Gilded Age inequality, they seek to exact more pain from an already declining middle class – and get the president and Democrats to offer bipartisan cover.”
“It’s a jackal time,” Borosage warned, “and it’s likely to get worse.”
http://www.commondreams.org/headline/2013/02/19-5

Currency wars: It’s starting to look a bit too much like 1931

Source: Globe and Mail

History may not repeat itself, but the parallels between the world economy in the 1930s and the world economy today are becoming hard to ignore. Then, as now, the world was in the grip of a severe economic downturn and painfully high unemployment. Then, as now, governments tried to restore growth and exports by devaluing their currencies and carving out trade blocs, risking a chain reaction around the world. Then, as now, the system was rudderless, unstable, and insecure – which persuaded countries to protect their own national interests, even at the expense of the collective good.

 

The world has not yet plunged into a full-scale currency war, but the trends are not good. This fact was implicitly acknowledged by G7 finance ministers meeting last Tuesday who went out of their way to renounce “targeting exchange rates,” only to sett off a new and even larger wave of currency volatility. China continues to rebuff pressure to end the fixed and undervalued Yuan, exacerbating global imbalances and fuelling accusations of beggar-thy-neighbour trade strategies. The U.S. continues to drive down the dollar and flood the world with capital through successive rounds of quantitative easing. Brazil, Switzerland, and others continue to intervene aggressively intervene in markets to arrest their currencies from appreciation.
The latest salvo is Japan’s decision in December to pursue a radically expansionary monetary policy, which is both pushing the yen to new lows against all major currencies and dramatically ramping up global currency tensions. Korea is threatening “an active response,” Russia is warning of reciprocal devaluations, Venezuela has just announced a massive devaluation, soon to be followed by Argentina, while the euro zone is again split between France, which is demanding immediate action to weaken a fast-rising euro, and Germany, which is so-far resisting political interference in the European Central Bank. Not without reason, Jens Weidmann, Germany’s Bundesbank president, warned last month that the growing politicization of exchange rate policy was unleashing a global “race to the bottom.”
Recent actions on the trade front, though less volatile, are just as worrying. For the first time in history, the United States and Europe are talking seriously about forming a vast transatlantic free-trade bloc, encompassing half the world’s economic output. This follows the United States’ equally ambitious strategy to link ten or more “like-minded” Pacific Rim economies in a Trans-Pacific Partnership Agreement. Both initiatives are clearly aimed as much at restoring the West’s dwindling leverage vis-à-vis China and other recalcitrant emerging giants as at increasing intra-bloc trade. As Joao Vale de Almeida, the EU’s ambassador to Washington, recently put it, “if we get the [transatlantic] agreement right, we can call the shots around the world.”
These trade trends also have historical echoes. The Great Depression entered its most virulent phase not during the financial crisis of 1929, but during the trade crisis that followed, when the U.S.’s infamous Smoot-Hawley Tariff of 1930 set off an escalating global trade war and splintered the world economy into rival regional blocs. World trade collapsed, falling by an astonishing two-thirds between 1929 and 1932.
To repeat, 2013 is not 1931. Global economic integration is deeper today, trade and capital flows are greater, and governments have less scope to manipulate exchange rates or even tariffs in the face of powerful market forces. Policy-makers have also presumably learned from past mistakes. The current international economic system – composed of the International Monetary Fund, the World Bank, and the World Trade Organization (formerly the General Agreement on Tariffs and Trade) – was specifically designed to prevent a replay of the competitive devaluations and trade battles that caused the economic chaos of the 1930s and, ultimately, the outbreak of war. The fact that G7 finance ministers are clearly conscious of the currency war threat shows that the world has made progress.
Is it enough? In his seminal The World in Depression, Charles Kindleberger argued that the root problem in the 1930s lay less in countries’ “mistakes” than in their collective lack of faith in the possibility of an international solution and the absence of an actor powerful enough to provide leadership. In 1929, the old hegemon, Britain, “couldn’t” stabilize the global economy and the new hegemon, the United States “wouldn’t,” Mr. Kindleberger observed. This left countries scrambling to protect their narrow national interests, with the result that “the world public interest went down the drain, and with it the private interests of all.”
Widespread financial instability and volatility, lack of trust in international co-operation, and a diminishing global hegemon with no obvious successor…it all sounds a little too familiar.
John Hancockis senior counsellor at the World Trade Organization. This article is published in partnership with the Canadian International Counciland its international-affairs hubOpenCanada.

Future Bleak for Wal-Mart, Kmart, Radio Shack – Big Box Store Model Momentum Shifts

As our economy slides further into the abyss, the era of the huge mega stores will slide as well. You can put the blame squarely where it belongs, the printing of funny money which in turn killed the dollar. This will spell the end for the huge box store phenomenon that has grown like a cancerous growth, previously taking advantage of the easy credit and trade agreements with other countries that has basically enabled these monstrosities to fester for the last 25 or 30 years.
Because of our collapsing economy the middle class are just not buying like they used to. When you have huge gas price increases such as we have seen over these last months, together with the middle class disappearing, you can start to see why. Trucking will see a huge loss in independent operators because of the insane fuel prices. This in turn will hurt the distribution needs of these huge stores along with the easy credit needed to run them. The current economy cannot support this model any longer.
Trucks are basically a warehouse on wheels, a well timed system to further profits to the supplier and seller, cutting warehouse cost down dramatically. 2 million trucks a day command our roads to accommodate America’s distribution needs.
The good news is that this will eventually enable young upstarts to regroup into mom and pops again giving the American middle class a chance at redemption as the huge box store chains start to fall. Already, this is starting to happen. Wal-Mart, Radio shack and Kmart are closing stores because of the picky buying attitudes of the middle class. Soon we will see huge distribution centers along with supercenters sitting empty which originally cost billions to build.
These huge distribution centers were financed with banks that bundled toxic derivatives to further the credit scenario, something that was basically a “Three Card Monte” scheme that was destined to fail. These huge monoliths cannot survive without credit, suffice to say the “Three Card Monte” has just been shut down.
Again, what comes around goes around. Young families from all over our country will have a chance to start where they left off by building a future for themselves and their children. New stores will start to pop up as these huge monoliths start to fall. It’s only a matter of time. It might be years in the coming, but there is light at the end of the tunnel.
What will become of the huge distribution centers and supercenters that will be sitting empty; once filled with trucks and forklifts running around like a well run ant farm? God only knows…

Cramer: 'Why Every Portfolio Should Own Gold'

Get phyzz.
'Consider it stock insurance.  If you can own physical, all the better.'
Gold discussion begins at the 1:10 mark.  Aired Feb. 15.
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This is an eye-opener:

How Central Banks Lease Their Gold