Five Reasons the Market Could Crash This Fall
1) High Frequency Trading Programs account for 70% of market volume
High Frequency Trading Programs (HFTP) collect a ¼ of a penny rebate for every transaction they make. They’re not interested in making a gains from a trade, just collecting the rebate.
Doom and gloom, but interesting information on HFTP and a supposed "$1 QUADRILLION Derivatives Time Bomb."
Comments
In re #1, this puts the cart
In re #1, this puts the cart before the horse, as the HFTPs wouldn't stop trading unless the market already crashes. How can this consequence be a cause? As we learned in high school, correlation does not equal causation.In re #2, some quantification of this would be appreciated. Argument through assertion is a well-known fallacy, and without numbers with some foundation in reality, this argument veers too close for comfort to this fallacy.
In re #3, there's no way to prove this, besides reading the tape every day. Perhaps many companies are doing well because the commodities markets are also recovering. I'm not paying $1.50 for gas any more. If China's GDP grows by 8% for the next couple of years, that level of demand will help to offset lax demand elsewhere.
In re #4, if there's already these many people on the dole, then they already aren't consuming at levels equivalent to employed people. The economic impact of these people would not be equivalent to 13 mill losing their jobs at once. While I'm not denying that this could have a macro effect, the impact will in all likelihood not be as bad.
In re #5, these numbers are no more than guessed at, without providing the context needed to evaluate how 'reasonable' they are. There's a great deal of difference between 5% and 10% in certain contexts; consider employment as an example.
The fact of the matter is that most derivatives have behaved as expected. Derivatives as a general class are not to blame here. For example, global OTC derivatives seem to still hold an enormous amount of wealth. While they have decreased in value, there's no sign that they will evaporate.
While this is an interesting read, it's also breathless and hysterical. Not things that lend much credence to the speaker.
On the other hand, this could be a cold shower, especially coming from a source that, if anything, is bullish-biased. Just when I was finally ahead in the old IRA, too.
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Thanks,
Joseph KJ4FQJ
"Breathless and hysterical?"
"Breathless and hysterical?" That's why it's so good! Get ready for the $1 QUADRILLION TIME BOMB! More seriously, I think that HFTP are very problematic in that they undermine investors (as opposed to traders). I would opine that the market, and economy as a whole, is better off when market actors are investing (buying for a long period of time, and taking a serious ownership perspective that encourages long term company health) rather that trading (could care less about the company as long as the stock moves), which encourages short-term speculative risk taking, and insulates boards and CEO's from angry shareholders when they screw up.Yes without program trading
Yes without program trading there likely would have been no bid during the crash and the country could now be in Great Depression II. However the liquidity added by HFTP insured there was a bid, thereby propping the market up long enough to for us to try and fix it. And while some people claim to think this is a bad thing, I just smell 'short' when I see articles like this.
The bottom line if the banks are manipulating the market, they are doing so to save themselves, the world economic system, and the rest of us to boot, almost certainly in that order.
Nothing to do but buy the banks and sit tight in window shades.
And if they don't then a war is coming to realign the political and economic world. Its easy to see, deficit spending on the military to pull out of an economic malaise is a time honored tradition right out of Imperial Japan or Nazi Germany and all the way back to the Roman emperors.
In which case, buy defense, sit tight.
Now that's fear mongering
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