FedUpUSA

Archive for the ‘market manipulation’ Category

The “permanent Bull market” engineered by the constant intervention of banking and political authorities has a problem: the duration of each cycle is getting shorter.

As we all know, the central banks of the world have decided that in lieu of actual prosperity, they will provide the illusion of prosperity via a “permanent Bull market” in stocks.

I have discredited this “wealth effect” many times, as have others. Since the vast majority of equity and financial assets are held by the top 10% of households in the U.S., then the “wealth effect” only benefits this narrow band of households. Very little trickles down as the newly enriched account for about 40% of all consumer spending–but luxury shopping creates mostly low-paying jobs: clerks in jewelry stores, busboys in fancy restaurants, etc.

So far, so good, as far as the Federal Reserve and the politicos in Washington are concerned; since Wall Street is skimming billions again and big campaign contributors all come from that top 10% slice of the economy, then their pals and supporters are benefitting immensely from the facsimile “prosperity” of a propped-up “permanent Bull market.”

But something is going wrong with the interventionists’ delight: each new run of the “permenent Bull market” is shorter than the last one. Consider this chart of the S&P 500:

Although it is not shown, you will recall that the first leg of the “permanent Bull market” (PBM) lasted from about March 2003 (final sputtering end of the dot-com bubble) until about July 2008, when the market finally fell below the critical support offered by the 200-week moving average. That run lasted about five years.

The next “permanent Bull market” began in March 2009 after the central banks and politicos intervened on an unprecedented scale in the second half of 2008. That run ended in May 2010 when the Eurozone’s debt problems broke through the EU’s thick crust of denial and obfuscation. So that leg lasted a mere five quarters.

More intervention and a new layer of denial and obfuscation “solved” that crisis (which seems to reappear with alarming regularity) and the next leg of the “permanent Bull market” was launched by the Fed’s QE2 $600 billion quantitative easing program–yet another unprecedented intervention in an economy which was supposedly one year into “recovery.”

This most recent return of the “permanent Bull market” lasted less than seven months–from September 2010 to mid-March 2011.

The dynamic is clear, isn’t it? Each new leg of the “permanent Bull market” requires a heavier dose of unprecedented intervention, denial, “stimulus” and obfuscation than the last one, yet the resulting Bull market is significantly shorter in duration than the previous run.

If this pattern holds–and exactly what evidence supports the claim that the next “permanent Bull market” will last longer than the previous one?–then we can anticipate that the next Bull market will last considerably less than seven months, and the one after than even less, until the forces of intervention and manipulation encounter a solid wall of granite.

At that point, massive intervention won’t spark yet another “permanent Bull market”: it will spark a collapse of equities as participants realize that the last iteration of the “permanent Bull market” lasted less than a month, and the next one might not last a week.

Of Two Minds

As part of the most recent observations on the boil up (melt up is so QE1) in the S&P, we find something quite interesting. A quick glance at the chart below shows the general market 45% climb since Bernanke’s leak of QE2 in August, as well as the market’s 10 day (purple line) and 50 day (green line) moving averages.

As a point of reference the S&P has been above the 10 day average for 30 days straight, and above the 50 day average for 92 days straight. What is remarkable are some statistical findings as pertain to the average’s movement with respect to the SMAs. Sentiment Trader points out that while as part of the recent surge in the S&P, the market has gone for “92 days without closing below its 50-day average, which has been matched only 17 other times since 1928.”

Where it gets scary, is that as pointed out, during this time the market has not closed below the 10 DMA once during the past 30 days. And as Sentiment Trader notes, “this has never happened before, in 82 years of history.” Congratulations to the Centrally Planned Socialist States of America: its Chairman has just made the Guinness Book of Manipulation Records.

ZeroHedge

The stock market is being manipulated folks and here’s proof.

The Market-Ticker

So where are the cops?  Where is the SEC?  Oh yeah, the new ‘financial reform’ bill exempts them from any public disclosures.  That’s nice and convenient, isn’t it?  They can work in secret and claim they’re protecting us….but who are they really protecting?

Put your money in this market at your own risk.  You can be sure that the people running this show WILL find a way to take it from you.

In pictures and words.

The original price action is here (top right corner of your screen); I have pulled the original Ticker and have decided the future Youtube’s will be linked only through here, and that comments on Youtube itself will be disabled.

There are a number of reasons for this, not the least of which are the “it’s all the Joos fault!” garbage I have to clean up on Youtube’s comment area.  It’s sad that people can’t see the forest for the trees and have to look for a boogeyman behind every corner.

A few people also seemed to be unable to recognize the context.  Yes, the original clip appears to show blatantly improper (even unlawful) activity, and as I explain in the video above, Section 9 of the Securities Act of 1934 covers this sort of thing.

But the larger point was missed in the short five minutes (that’s what I get for doing short takes, eh?) which is that it is confidence in the marketplace – that it is not just a bunch of computers fighting with one another, but rather is a valid price-discovery mechanism – that is critical to having a healthy securities market in the first place.

This confidence has been severely damaged to the point that even mainstream commentators like Cramer mention it, along with other well-respected tweeters such as this note sent to me this morning:

@tickerguy #marketticker Give it up Karl – those guys would get away with murder. Laws are not enforced, which is why it’s a free-for-all.

That’s a great sentiment to have about our capital markets, right?  That comment, incidentally, was in reference to this morning’s article about all the “accidental” Repo-105-like transactions that are suddenly being admitted to (as the SEC looks at them), rather than having the SEC call people out.  Funny how it is that those “accidents” never are to the detriment of a firm’s balance sheet posture, right?

The point is the same, however:

Confidence is all the markets have to sell to ordinary businesses – and people.

Without it the markets are departed by the “ordinary Joe”:

“We just didn’t want to put up with it any more,” says Karen Potyk. She and her husband sold the last of their stock holdings on May 20, moving the money to bonds, certificates of deposit and bond-like annuities.

Small investors’ faith in stocks, which surged in the 1990s, has collapsed since the technology-stock debacle and the Enron and WorldCom scandals of 2000-2002. The 2007-2009 financial crisis only made things worse. Now, the pullback among ordinary investors means they are a declining force in a market that is increasingly dominated by professionals.

Professionals?  Well, yeah, I suppose so.  We call a guy with a set of lock-picks a professional too, but when he’s tooling around your house at 3:00 AM his title isn’t usually “locksmith.”

These professionals wield high-speed computers and have figured out how to, in many cases, circumvent the precise letter of the law and regulations – but not the spirit.  They operate in the shadow of what’s permitted (and, I believe, well beyond it much of the time) even though the clear intent of regulations such as “Reg-FD” is to guarantee everyone an equal and fair bite at the apple.

Investors talk of a growing disillusionment with big institutions, including corporations, government, banks and political parties—as well as fears about the nation’s heavy debt. Some people’s confidence in stocks was seriously shaken by the volatility that returned in May. They worry that the May 6 flash crash, when the Dow Jones Industrial Average fell 700 points in eight minutes before rebounding, is a sign that ordinary people are increasingly at the mercy of anonymous companies that trade with powerful computers.

That’s because they are.

If Wall Street wants to stop this, then it needs to actually stop it and quit yapping and making excuses.

Orders, for example, could be forced to be valid for two full seconds.  That is, if you expose an order in the market you have to take a genuine risk of being filled not only by those with other high-speed computers, but also by real people trading with their brain directing their keyboard and/or mouse in real time.  With a common round-trip time of ~100 milliseconds for messages nowdays on The Internet, a two-second exposure would allow human reaction time (~1.5 seconds) plus transport of the instruction to have a fighting chance against the machines.  The “fat-finger” mistake would still be able to be canceled – if it is, indeed, a fat-finger mistake.

We could, for instance, require that if you have an imbalanced pattern of orders then you need to be able to demonstrate that you were truly intending to be willing to take execution of either side.  This might be refuted rather easily if, for example, you have 100 contracts offered on the /ES at 1090, 2,000 bid at 1088, the tiny offer gets hit (and you pull the bid) and then a very short while later you show up with an opposite-side identical play.

And we could impose geometrically more-expensive fees as your percentage of cancel-to-execute rises.  First cancel, cheap.  Second, cheap.  Third with no execute, not so cheap.  Fourth, more expensive.  Tenth?  Damn expensive.  This too stops the game – now cancels aren’t effectively “free” beyond one or two per order that actually matches and executes.

Of course doing these things (among others) would destroy the “near-sure thing” of picking ordinary investor’s pockets via various HFT-linked schemes.  It would mean that you couldn’t safely put 10,000 or 100,000 shares of orders into the system as “line standers” then cancel them as price approached.  You couldn’t stick a 2,000 contract /ES order out there and cancel it a tiny fraction of a second later – if someone wanted to hit you they could do exactly that, dramatically raising the risk involved in playing this sort of game.  If the risk of losing at these games rises to a high enough level, people will stop doing it – simply because it’s too dangerous.

There is nothing wrong with speculation – I do it daily. 

But there is something very wrong with a market that is rigged against the smaller investor by computers that can place 20 orders up and down the bid and offer ladder to “hold their place in line” and then cancel those they no longer want as price moves while you, sitting behind a screen, can’t possibly replicate this sort of strategy - you get to stand at the end of the line of all the other shares at the same price. 

It is a documented fact that the cancel-to-execute ratio has shot the moon over the last few years.  These are not small investors issuing change orders, they are high-speed computer-driven algorithms that are “standing in line” and then quickly withdrawing their orders when they don’t like the conditions, thereby reserving a trade in front of you, an (apparently legal) way to front-run order flow.  It is impossible for you, the small investor or trader, to compete in such a system as you do not have the colocated machine sitting 5′ from a gigabit-level (or better) switch at the exchange itself – your terminal is connected to a brokerage, which must obtain the quotes from the exchange, disseminate them to you, then transmit back to the exchange your price order.  You, as an individual investor, are easily 100 times slower than the “arms race” folks – you can’t win in such a game which is no small part of why some of these firms are able to put up “no lose” trading records.  Their “gains”, if you’re wondering, come from you – a fraction of a penny at a time, millions of times a day.

It’s time to stop it folks.

The Market-TIcker

By Karl Denninger

Rarely does it get this blatant….. this sort of crap goes on every day, but once in a while it’s just “in your face.” 

Tonight was one of those examples. Monday July 5, 2010

The Market-Ticker

By Karl Denninger

You want to know where the spikes in the Euro came from today?

Try here:

That’s “official intervention” by the Swiss National Bank and if they don’t cut this crap out they’re going to cause an equity and credit market collapse.

These jackasses now have double the Euros they held just a short while ago from these “operations”, and as you can see, they’re pissing into a hurricane on even a daily basis, say much less on anything more consequential:

Congress does not have the right to get involved in the affairs of a foreign sovereign. 

But Congress has every right to demand that Bernanke close his goddamn swap lines right now until this shit stops, lest The Fed be the one who is on the hook when the entire ECB structure comes apart and WE THE TAXPAYERS are on the hook.

This sort of tampering, performed by a private party, is illegal.  Of course it’s routine and “expected” in the FX space for sovereigns to interfere, but much of the instability that we have seen of late has been caused by this sort of “intervention.”  Specifically, today it was responsible for a sixteen point, or 1.5%, jackrabbit move in both directions in the stock market in the space of less than two hours.

There is absolutely no excuse for The United States to support this sort of garbage with our taxpayer backstops.  These instabilities in the foreign exchange markets make it impossible for real companies to hedge costs and profits in foreign nations and do severe and irrevocable damage to these firm’s operations.

It is also reflecting into the US Commercial Paper markets and driving spreads wider there as well.  This is the very same market that locked up in 2008 and triggered the equity market collapse.

The SNB’s “interest” in doing this is clear: Half of European banks are stuffed full of debt written in Swiss Francs – in nations where the currency is the Euro!  These idiots (both the borrowers and the banks that offered these “products”) have now seen the principal balance of these loans represented in Euros rise by 11% in the last year.

This sort of idiocy, incidentally, is one of the reasons two years ago that I said there was no chance we could possibly “inflate our way out” or play the “Keynesian game” any more and get away with it.  These instabilities can and will come to the fore and force defaults and there is literally nothing that can be done about it.  The more the ECB intervenes in the bond market the weaker the Euro gets and the more damage is done to debtors holding Swissy-denoted notes!

We made a critical error in 2007 and compounded it in 2008 and 2009 by building in structural deficits as a supposed “sop” to the banksters who got us into this mess – both here and abroad.  We have continued to refuse to force them to eat their own cooking and close those firms that were responsible for doing this and both were and are insolvent, both here and abroad.

Now we have CENTRAL BANKS flailing around trying to stop that which is inevitable, expending tens of billions that have effective time periods measured in minutes, and yet we STILL refuse to wake up and smell the coffee.

There is no durable economic stability or recovery possible until these imbalances are forced out of the system in their entirety.  This means forcing those who are insolvent to admit it and swallow their medicine. 

The extreme volatility will continue so long as their jackassery by entities like Bernanke and the SNB continue, and as more and more investors and traders give up on any sort of longer-term holding due to the volatility and head to the sidelines liquidity in both equities and credit will contract until there is an all-on no-bid circumstance one day – a full, all-on crash – and this one will NOT retrace.

If you thought the “Flash Crash” was bad I hope you’re prepared for what’s coming, unless we find a leader somewhere in the world who will pull these jackasses into the dock and demand that they stop it – right now.

I’ve been warning people now for three years about snipping the fuse before it goes inside the box. 

It appears it may have now done so, in which case it’s too late.

The Market-Ticker