• Tag Archives HFT
  • Macro Manager Massarce: “Financial Markets No Longer Make Sense”

    Over the past several years we have repeatedly stated that despite protests to the contrary, the single biggest factor explaining the underperformance of the active community in general, and hedge funds in particular, has been the ubiquitous influence of the Fed and other central banks over the capital markets, coupled with the prevasive presence of quantitative strategies, HFTs, algo trading and more recently, a surge in price-indescriminate purchases by passive, ETF managers.
    Specifically, back in October 2015, we wrote that “as central planning has dominated every piece of fundamental news, and as capital flows trump actual underlying data (usually in an inverse way, with negative economic news leading to surging markets), the conventional asset management game has been turned on its head. We have said this every single year for the past 7, and we are confident that as long as the Fed and central banks double as Chief Risk Officers for the market, “hedge” funds will be on an accelerated path to extinction, quite simply because in a world where a central banker’s money printer is the best and only “hedge” (for now), there is no reason to fear capital loss – after all the bigger the drop, the greater the expected central bank response according to classical Pavlovian conditioning.”
    Several years later, Goldman Sachs confirmed that we were correct. In a note released this April, Goldman’s Robert Boroujerdi asked in a slide titled “Does Active Have A QE Hangover” and showed that the current run of active manager underperformance began shortly after the onset of QE.

    This post was published at Zero Hedge on Jul 10, 2017.

  • POSX Continues to S(t)ink

    As the US Dollar Index makes new lows for 2017, some are surprised that the Comex Digital Metals aren’t charging higher. For an explanation, one simply needs to understand the HFT drivers that move price on a daily basis.
    Lets start with the dollar as that’s where the action is today. After making new 2017 lows yesterday, we knew that today would be a pivotal day. When Count Draghi issued some “clarification” earlier to his remarks of Tuesday, it seemed a clear attempt to help the dollar of the mat. Instead, the POSX has fallen further this morning and now rests at almost exactly 96 and very near the KEY LEVEL of 95.88 that was the Trump election night reaction lows. A break of this level on a closing basis would seem to be a VERY significant development.

    This post was published at TF Metals Report on Wednesday, June 28, 2017.

  • Bundesbank’s Weidmann: Digital Currencies Will Make The Next Crisis Worse

    When global financial markets crash, it won’t be just “Trump’s fault” (and perhaps the quants and HFTs who switch from BTFD to STFR ) to keep the heat away from the Fed and central banks for blowing the biggest asset bubble in history: according to the head of the German central bank, Jens Weidmann, another “pre-crash” culprit emerged after he warned that digital currencies such as bitcoin would worsen the next financial crisis.
    As the FT reports, speaking in Frankfurt on Wednesday the Bundesbank’s president acknowledged the creation of an official digital currency by a central bank would assure the public that their money was safe. However, he warned that this could come at the expense of private banks’ ability to survive bank runs and financial panics.
    As Citigroup’s Hans Lorenzen showed yesterday, as a result of the global liquidity glut, which has pushed conventional assets to all time highs, a tangent has been a scramble for “alternatives” and resulted in the creation and dramatic rise of countless digital currencies such as Bitcoin and Ethereum. Citi effectively blamed the central banks for the cryptocoin phenomenon.

    This post was published at Zero Hedge on Jun 14, 2017.

  • Can Quant Funds Trigger a Stock Market Crash?

    Having surged for years, quant hedge funds dominate stock trading.
    Quant-focused hedge funds – they specialize in algorithmic rather than human trading – gained $4.6 billion of net new assets in the first quarter, and now hold $932 billion, or about 30% to the $3.1 trillion in total hedge-fund assets. At the same time, investors yanked $5.5 billion out of non-quant hedge funds. This comes on top of last year when investors had yanked $83 billion out of non-quant hedge funds and had poured $13 billion into quant funds.
    Trading by quant funds has soared to 27.1% of all stock market trading, up from 13.6% in 2013, according to a series of reports by the Wall Street Journal. These trades can last from minutes to months. Quant funds are different from algo-driven high-frequency trading (HFT) where trades last only milliseconds. And they’re different from ETFs which also use algorithms.
    This chart shows the soaring share of trading by quant funds (red line), compared to the largest other types of investors – traditional asset managers, non-quant hedge funds, and bank proprietary trading. Another 25% to 27% of the trading is done by other investor types, including individual investors, not shown in this chart:

    This post was published at Wolf Street on May 22, 2017.

  • A “Mysterious Antenna” Emerges In An Empty Chicago Field; Billions Depend On It

    Readers are familiar with the various microwave and laser arrays located at the real New York Stock Exchange in Mahwah, New Jersey, both of which we have written about in the past.
    This article, however, is not about the familiar antennas off Route 17 in New Jersey. Instead, demonstrating to what lengths the high frequency traders will go for just a few millisecond advantage – which makes in the HFT world makes all the different between billions in profits and losses – Bloomberg reports that a mysterious antenna has emerged in an empty field in Aurora, near Chicago, and a trading fortune depends on it.
    Strange? Of course: as BBG’s Brian Louis admits “it was an odd transaction from the outset: $14 million, double the going rate, for a 31-acre plot of flat, undeveloped land just west of Chicago. In the nine months since, the curious use of the space has only added to the intrigue. A single, nondescript pole with two antennas was erected by a row of shrubs. Some supporting equipment was rolled in. That’s it.”
    As it turns out, those antennas – as readers may imagine – were anything but ordinary. Same goes for the buyer of the property: anything but your typical land investor, although the name will be all too familiar to those who have followed our reporting on HFT over the years: it was Jump Trading LLC, “a legendary and secretive trading firm that’s a major player in some of the most important financial markets.”

    This post was published at Zero Hedge on May 12, 2017.

  • Why The Market’s “One-Sided Stability” Is Becoming Increasingly Dangerous: Deutsche Explains

    A topic that has been beaten to death both on these pages and virtually in every other financial website, has been the remarkable complacency in markets manifested, among other things, by near record low realized and implied equity vol, coupled with a recent plunge (if subsequent rebound) in cross-asset correaltions. Furthermore, as a result of habituation to both central bank and HFT dominance, and the relegation of human-driven, “actively managed” strategies, the “buy the dip” period has collapsed to a record short period of time, as every drop in risk is now simply an opportunity to “BTD.”
    While all of this is well-documented in the land of equities, less has been said about the extension of recent vol effects across other asset classes, such as rates and fixed income, and in general to the broader, cross-asset market topology.
    For one relevant discussion of how volatility is impacting the rates market, where until recently we had witnessed record shorts around the 10Y tenor, we present the latest note from DB’s Dominic Konstam, whose latest report is summarized as follows: “market dynamics during the last month indicate a change in investor perceptions of the relative pace of Fed tightening and the delivery of fiscal stimulus. We believe that despite considerable local stability, the market is vulnerable to a risk off trade. We see an asymmetric risk between rally and sell off. In our view, a bull flattening rally below 2.25% could cause substantial short covering activity, adding a tail wind to a rally below these levels.“

    This post was published at Zero Hedge on Apr 2, 2017.

  • In Ominous Sign For Banks, Equity Trading Revenues Continue To Drop

    It’s not just the HFT industry that has cannibalized itself so much, while spooking regular traders out of the markets, there is hardly any revenue growth left (as the WSJ showed last week). After suffering a substantial drop in bank equity trading revenues over the past several years, there was hope that finally this key P&L items of sales and trading would post a modest pick up. Alas, whether due to lack of volatility, declining interest in equities, or simply because many no longer have faith in the market, this is not happening despite the S&P recently rising to an all time high of 2,400.
    In 2016, the Office of the Comptroller of the Currency reported that equity trading revenues at U. S. banks fell 13% in 2016 from the previous year. The slide contrasts with a 9% rise in overall trading driven by interest-rate and currency products. Globally, the biggest dozen banks suffered a 13% drop in equity trading in 2016, the first meaningful annual decline since 2012, according to research firm Coalition.
    And while there were some modest signs of a pick up in late 2016, this appears to have been a false dawn. According to the WSJ, as the first quarter wraps up this week bankers say the weakness experienced last year is continuing. That is prompting questions about whether banks should be preparing for a longer-lasting decline in the business, rather than a cyclical dip.

    This post was published at Zero Hedge on Mar 30, 2017.

  • Blast From the Past: James Cramer On How To Manipulate Markets – B Day (Brexit) Tomorrow

    Here is a nice synopsis of the various ‘legal’ and not so legal but overlooked-by-the-snoozing-regulators ways in which the financial trading desks and hedge funds manipulate markets intraday.
    In some ways this is from the dark ages, because HFT algos can do the job so much better.
    But all the basic principles remain the same, including manipulating the financial news and painting pictures with key markets, like the SP 500 futures for example.
    And it is always a plus if your rigging of the market is along the directions favored by the big Wall Street Banks and their Federal Reserve System.

    This post was published at Jesses Crossroads Cafe on 28 MARCH 2017.

  • BofA: The Market Is No Longer Efficient

    Almost exactly 8 years ago, in April of 2009 we wrote for the first time that as a result of the confluence of unprecedented central bank intervention meant to prop up risk prices which distort markets in the long run, and the rising dominance of HFT and algo trading strategies, which distort price formation in the ultra-short term, the market is no longer a (somewhat) efficient, discounting mechanism, but has in fact been “broken.”
    Now, in a note released overnight by BofA’s Savita Subramanian, the equity analyst comes to the same conclusion: the market is no longer efficient, primarily as a result of a wholesale scramble for short-term, data-driven trading gains, which have made a mockery of fundamental analysis and a focus on long-term investing profits.
    Here are some of her observations:
    Stocks for the long-term is an all but forgotten concept today. The rise of short-term investment strategies, which tend to rely on access to better, faster and larger stores of data and information, has attracted trillions of dollars of capital, compressing equity holding periods and likely exacerbating spikes in short-term volatility.
    Managed futures funds (also known as CTAs), which tend to trade based on quantitative algorithms, have grown rapidly over the past several decades. According to BarclayHedge, their assets have grown to over 250bn, making up close to 10% of the total hedge fund universe.

    This post was published at Zero Hedge on Mar 17, 2017.

  • Not The Onion: “Fed Is Jeopardizing The Buy-The-Dip Trade”, BofA Warns

    Conceived several years ago, “buy the (fucking) dip” was a joke among traders seeking to explain the market’s nearly-instant upward mean reversion, which as we have alleged since 2009, has been pushed higher by central bank policy and various HFT strats. Since then it has, sadly, become perhaps the only “explanation” for the behavior of the most bizarre market traders have ever encountered.
    Luckily, the buy the dip quote-unquote “market” may be about to end, perhaps as soon as tomorrow, if Bank of America is right.
    In a note titled “Reasons to increasingly fear, not love, the dip“, BofA analyst Nitin Saksena writes that a “faster US rate hiking cycle jeopardizes the buy-the-dip trade.”
    His observations will be familiar to anyone who has tried to top-tick the S&P over the past 8 years, to short stocks, or to otherwise do anything besides “buy” (the dip):
    Saksena writes that a “buy-the-dip mentality is dominating US equities as Fed put has become self-fulfilling. It has now been 104 trading days since the S&P 500 last fell by more than 1% (on a close-to-close basis), a stretch of calm in US equities not seen since 1995.

    This post was published at Zero Hedge on Mar 14, 2017.

  • How to Interpret the Deliberately Ambiguous Language of US Central Bankers

    As I stated yesterday, ‘I believe that this current correction in gold and silver stocks will provide a window for a few more days to weeks to get on board at a good price for the first half of 2017.’ Yesterday, gold and silver stocks corrected further as I believed they would, but they also sold off an inordinate amount considering the slight pullback in the underlying metals themselves, with gold only correcting less than $5 an ounce and silver down less than half a percent. These minimal pullbacks in spot gold and spot silver prices shouldn’t have triggered the much larger percent sell-offs in gold and silver mining stocks that occurred in yesterday’s markets, so are the larger price sell-offs in the PM stocks predicting imminent future sell-offs in spot gold and spot silver prices?
    I believe several factors are at work here. Number one, the big banks were heavily short in gold futures going into the end of this month and were unable to take spot gold prices down, so they lost a considerable amount of money in their short positions. To balance this mistake, they could have shorted the gold and silver mining stocks and initiated the sell-off yesterday to recoup some of their losses in the PM derivative markets this month. Regarding the mechanism by which they could have taken down the stocks, I’ve written plenty of articles describing the very plausible mechanism by which bankers can execute such schemes with the aid of HFT algorithms, so I’m not going to rehash that explanation here.
    In addition, there are a couple of very important geopolitical/economic events happening next month that could cause bullishness in gold and silver asset prices. We know from history, that it is extremely rare for bankers to allow gold and silver price rises to go unopposed. Consequently, the desire of Central Bankers to offset any bullishness in gold and silver asset prices that may materialize next month likely has contributed much to the probability of a mid-March US Central Bank fed funds interest rate hike soaring from a mere insignificant 13% just two weeks ago to 34% one week ago to the present 51% as of today. Besides US Central Bankers talking up a good game and threatening to raise hikes, which they always do, whether or not they really are sincere about the execution part of the equation, the probability of a US fed funds interest rate hike next month has soared from 13% to 51% in just two weeks due to trader psychology as much as any other factor. I believe that US Central Bankers understand the possibility of bullish geopolitical/economic events happening in mid-March.

    This post was published at GoldSeek on Wednesday, 1 March 2017.

  • Will the Banker War on Cash Spread to a War on Bitcoin?

    Over the years, I’ve written a number of articles regarding why I prefer physical gold and physical silver over bitcoin (BTC). I believe in monetary competition, however, and believe that different forms of money should be allowed to compete, because the best form will eventually and quite rapidly always rise to the top. However, we are far from such an environment, as government/banking cartels have banned the use of gold and silver as systemically-wide accepted forms of money worldwide while ensuring that their rapidly devaluing fiat currencies remain the norm. So where does BTC fit into this picture? Again, I think that BTC has its place in the economy, especially since transaction fees using BTC are well below the highway-robbery rates of global banking institutions. However, BTC has yet to prove itself in preserving purchasing power over decades of time as has gold and silver, nor does it meet all 9 qualities that I deem necessary for sound money.
    In any event, as some of you may well know, BTC has exhibited massive volatility in 2017, far beyond even the sometimes volatile price fluctuations in spot gold and spot silver prices. BTC started out this year reaching an interim high of $1,129.87 per BTC, then plunged a maddening 31% in just 5 trading days to $775 after the Chinese government placed more restrictions on BTC trading, but since then, has nicely recovered 24% of that plunge and has risen back to $1,052.54 per BTC. At the time, BTC rose to $1,129, many posed the question of whether BTC was better than gold, which in my opinion, it will never be due to its digital nature. Some ask why would Chinese regulations cause BTC to plunge 31% in five trading days, and the answer is simple. Chinese speculators were almost entirely responsible for the rise of BTC from $800 to $1,129 at the end of 2016 into the start of 2017. As the Chinese government took more measures to clamp down on black money leaving China, wealthy Chinese turned increasingly towards BTC as their preferred mechanism to move black money out of China, thus fueling a speculative, unsustainable rise in BTC price. Furthermore, Chinese traders not even using BTC to move black money out of the country piggybacked off of this rising, easy trade because most Chinese BTC exchanges charged no fees on either end of the buy and sell transactions for BTC. However, when regulators changed these rules and implemented a 0.2% transaction fee on both ends of the trade, the easy speculative profits disappeared, and in response, BTC volumes collapsed 90% almost overnight on every Chinese BTC exchange.
    Though the easy profits of HFT bankers trading the Chinese BTC exchanges disappeared, this was a constructive development for the BTC market, because though HFT traders always claim that they benefit markets by providing ‘liquidity’, such claims are rubbish, and most HFT traders destroy markets by destroying real price discovery. Thus, the less HFT traders that exist in any market, the less volatility in prices there should be. However, since Chinese traders alone fueled the vast majority of the rise in BTC price at the end of 2016 into the start of 2017, it is always critical to track what is happening to the Chinese BTC market to understand what may happen to BTC prices in the future. As an analogous example, ask yourself what would happen to a company’s revenues if the company received 90% of its revenues from one customer and that customer decided not to renew its contract with that company? For now, this is how much influence the Chinese can have over short-term BTC prices.

    This post was published at GoldSeek on 9 February 2017.

  • HFT trading radio towers defeated by local council in U.K.

    Flash traders have had their bid to build a giant telecoms mast on the Kent coast turned down by councillors.
    Dover District Council rejected the bid by two secretive American high-frequency trading firms to build two masts taller than the Eiffel Tower, which is 1,063 feet high to its tip.
    Vigilant Global — which is owned by Chicago trading firm DRW — and New Line Networks — which is part owned by New York firm Jump Trading — wanted to each build a radio mast in Richborough, north of Sandwich, to increase trading speeds between London and Frankfurt.
    But on Thursday night their plans were voted down by Dover council’s planning committee after huge local opposition. The council’s planning department warned the structures – as tall as the Eiffel Tower – would damage local views and harm the character of the area.

    This post was published at Daily Mail

  • Citadel Pays $22 Million Settlement For Frontrunning Its Clients

    Last May we reported that, after years of railing against Citadel’s dominant position at the intersection of HFT trading and retail orderflow – Citadel was recently found to be the largest private US trading venue – Federal authorities were investigating the market-making arms of Citadel LLC and KCG Holdings looking into the possibility that the two giants of electronic trading are giving small investors a poor deal when executing stock transactions on their behalf.
    As a reminder, Citadel is so big and its own private stock-trading platform is so large that, if it were an official exchange recognized by the Securities and Exchange Commission, it would one of the largest registered exchanges in the United States – bigger than Nasdaq. Citadel Execution Services, the firm’s wholesale market-making unit, recently executed 35% of all trades by retail investors in U. S.-listed stocks.

    This post was published at Zero Hedge on Jan 13, 2017.

  • Silver Prices for the Year 2017

    How low and how high will the price of silver range on the PAPER markets during 2017? Knowing the influence central bankers, politicians, HFT algos, bullion banks and JPMorgan exercise over increasingly managed markets … it is impossible to answer the question, and it is probably the wrong question to ask.
    Instead, what do we know with a high degree of certainty? The U. S. national debt will substantially increase as it has almost every year since 1913. We can trust politicians and central bankers to act in their best interests to spend in excess of their revenues and increase total debt. See chart below. Politicians and central bankers are unlikely to change a century of their spend, borrow, tax and inflate behaviors.

    This post was published at Deviant Investor on January 13, 2017.

  • CDG and CDS

    As we begin 2017, it’s more important than ever to be clear about what we discuss here. To that end, today we add two new acronyms to the TFMR glossary…CDG and CDS. No longer will be discuss the paper derivative price of “gold” or “silver”. Instead, we will refer to these issues as CDG (Comex Digital Gold) and CDS (Comex Digital Silver).
    Let’s just cut to the chase. When you regularly observe charts such as this one…

    …isn’t it appropriate to ask yourself just what you are following? How in the world can anyone continue to call what you see trading on the Comex “gold”? It’s not gold. Instead, it is simply an electronic derivative contract that HFTs and hedge funds utilize to give themselves “gold exposure” or a “hedge”. No physical metal ever changes hands. Even the bi-monthly “delivery” process is nothing but a Bullion Bank circle jerk where warehouse receipts and warrants are shuffled to and fro.
    So, why should we continue to refer to what is traded there as “gold”? Well I, for one, will no longer do so. Oh sure, I may slip up from time to time and, by force of habit, still call what is discovered on Comex the “gold price”. However, going forward I will make every effort to instead refer to it as CDG for Comex Digital Gold. As the same situation exists in silver, henceforth the Comex silver price will be referred to as CDS for Comex Digital Silver.

    This post was published at TF Metals Report on January 6, 2017.

  • Dollar Flash Crashes On Last Trading Day Of 2016

    It is oddly appropriate that in a year everyone finally admitted markets are manipulated by central banks and broken by HFT algos, that on the last trading day of 2016, the dollar flash crashed with for no reason whatsoever.
    Shortly after 6:30pm Eastern, the dollar plunged by 150 pips against the Euro, once 1.05 stops were taken out, with algos sending the EURUSD as high as 1.07 in a matter of seconds…

    This post was published at Zero Hedge on Dec 29, 2016.

  • The Bank of Japan Was The Top Buyer Of Japanese Stocks In 2016

    When it comes to propping up the stock market in the US, the Federal Reserve does so with a certain degree of nuance, keeping at least one layer of disintermediation between itself and the market, which usually involves “advising” Citadel to intervene when it comes to acute moments of market stress, granting the HFT-heavy hedge fund a green light to stop and reverse and violent selloffs, or more traditionally, allowing companies to repurchase their own stock thanks to (until recently) record low interest rates.
    This is nothing new: as Goldman has repeatedly pointed out, in 2016 corporations have been the largest source of equity demand, purchasing $450 billion of US equity through buybacks and cash M&A (net of share issuance). Outside of the Great Recession, corporates have been the primary source of US equity demand (see Exhibit 1).

    This post was published at Zero Hedge on Dec 26, 2016.

  • Morgan Stanley Finds OPEC Jawboning Peaks At Times Of High Oil Shorts, Low Liquidity

    Around the time of the February oil crash, we first mused whether OPEC had developed a curious habit of jawboning oil higher with the help of flashing read headlines at times of peak short positions among the hedge fund community, to launch HFT-momentum facilitated short squeezes.
    We followed up most recently in an August post, when we said that “OPEC started releasing tactical headlines at key inflection points about an imminent oil production freeze (which not only never arrived but has since seen Saudi Arabia’s output grow to record levels) which we first suggested were meant to trigger a short squeeze among headline scanning HFT algos, our suggestion was – as is often the case – dismissed as yet another conspiracy theory” although we admitted that “one can debate whether OPEC’s “headline” leaks are timed to coincide with near-record short positions on WTI.”
    Fast forward several months later, when the question whether OPEC tactically times its statements to inspire short squeeze is the core topic of Morgan Stanley oil analyst Adam Longson’s latest weekly report, in which he writes that while oil may continue to decline, he “would be nervous being short from these levels going into the meeting despite what appears to be a poor fundamental backdrop and our downbeat outlook for 2017.” The reason: OPEC “has repeatedly made bullish announcements about OPEC intervention during periods of low liquidity (e.g. US holidays), and whenever short positions become large.”

    This post was published at Zero Hedge on Nov 7, 2016.

  • Bundesbank Confirms HFTs Reduce Liquidity, Contribute To Flash Crashes, Withdraw At Times Of “Market Stress”

    Having warned all the way since 2009 that HFTs not only accelerate but are ultimately responsible for flash crash events like the countless example seen in global capital markets, from US stocks in May 2010, to ETFs in August 2015, to the FX, most recently the sterling’s instaplunge last month, we were content to read that another prominent institution validated our concerns – which have been repeatedly ignored by the SEC which has been unfortunately captured by the HFT lobby – when the Bundesbank today released a report in which it warned that high-frequency trading firms “tend to aggravate financial-market swings and contribute to ‘flash crash’ events.”
    ‘In a calm market environment, HFT market participants contribute a significant amount of liquidity,’ the Bundesbank said. ‘However, during highly volatile market phases, the research shows that HFT market makers in both Bund and DAX futures markets temporarily reduce liquidity. HFT actors are especially active in times of strong market fluctuations and can therefore contribute to trend-enhancing price developments.”
    ‘Taken together, the different behaviors of active and passive high-frequency trading firms indicate a heightened risk of periods of short-term excessive volatility, which could encourage market upheavals as far as flash events,’ the Bundesbank wrote.

    This post was published at Zero Hedge on Oct 24, 2016.