Friday, May 7, 2010

High Frequency Trading… Give Me a Break!

I just listened to an interview with a person (Manoj Narang) who is an expert on HFT. Please forward to the 3:20 mark to hear Mr. Narang defend HFT:

They are defending their practices, of course, claiming that they are the ones who provide the liquidity to the market and that the crash yesterday happened not because of them, but because they actually stopped trading and thus there was no longer any liquidity! LOL, that’s why he says that we mustn’t restrict their trading.

Do you see how they turn the entire premise upside down?

In fact, when the computers shut down yesterday there were NO BIDS! That means that there was NOBODY, no real person, willing to place a buy bid! In other words, the HFT was the entire market!

That’s the problem! They serve no real purpose, they do NOT belong and they have driven out all the REAL people. The market is WAY overvalued, the volumes of trading that have build up over the past decade and a half are almost entirely due to them! Who are the “investors” behind HFT? That’s the real question, they are the large banks and the large hedge funds who are in bed with the large banks. They are the market. And yet there is no legitimate function for them to be in the market whatsoever! Yes, the market would be much smaller without them, but it would also be much less risk filled.

I say that HFT and Dark Pools have no business in the marketplace. Do not be fooled by their talk of liquidity – they are a large part of the problem.

The other aspect of the debate over yesterday that really irks me is how everyone feels they must “fix” the way the market behaved by losing a thousand points. Funny, but I don’t remember hearing the same complaints back in March ’09 when the market was going up 900 points at a whack!

Notice how all efforts are to create a one way street that only goes up? THAT is also a part of the problem and contributory to the huge overvaluations. Imagine how the market would have been valued had the government decided not to interfere last year? Yesterday’s crash would not have happened. In fact we may have been entering a true bull market instead of a trumped up false statistic, false accounting, mark-to-fantasy lie. HFT necessary? Give me a break!