Market Asset Pricing is Irreparably Broken

hft algorithms are the number one weapon of mass financial destruction

Market asset pricing is irreparably broken and often behaves in the short term like a kid in a candy store that can’t make up his mind about what candy to buy, because every few seconds, another colorful candy wrapper attracts his attention, leading the child from candy to candy to candy without making a choice.  Market asset prices behave the same way, but to an even much greater degree today, not because human traders are forcing this broken behavior, and it is the lapses in human judgment that cause such great intraday volatility, but to the contrary, the commercial banking and investment industry’s rigging of all asset prices using technology and high frequency trading (HFT) computer algorithms has created this entangled intraday volatile mess. Simply put, banker rigging of markets through technology is the reason why market asset pricing is irreparably broken. Bankers have programmed computer HFT algorithms to constantly scan newswires for specific words in distributed news feeds and newswires, and in fractions of a second, trade this news, and this is why market asset prices constantly act as if they are being teased by the boy who cried wolf. Stated another way, bankers have used technology to multiply the worst traits of human nature, and their market asset price manipulation manifests in asset price volatility that makes zero fundamental sense. If you have ever seen an asset price react in the opposite manner to fundamentals, you can blame bankers for the creation and establishment of asset pricing platforms in which market asset pricing is irreparably broken. Witnessing price movements that make zero sense is now the norm, not the exception to the rule today.

Because market asset pricing is irreparably broken, this is why an immediate surge in gold and silver prices occurred at market open in New York yesterday, with gold prices significantly ramping up to $1,525 and silver prices ramping up even more significantly to $18.54 an ounce, before then quickly retreating and losing nearly all the ramp up gains at market open. To those that don’t understand how the game is played, and even most MBA graduates don’t understand the game until they actually go work for an investment firm to view how the game is played, the seemingly random price movements of assets likely make zero sense to them. However, there is a rhyme and reason to all their movements. The explanation is just never provided in school. However, my patrons, due to the daily video they received yesterday many hours before market open in New York, should have recognized that yesterday’s significant ramp up in gold and silver prices wouldn’t even last the US trading session given my delivered expectations for gold and silver prices at the end of this week.

Regarding the specific news item that caused gold, silver and many stock prices to ramp higher at market open in New York yesterday, this behavior was likely due to HFT algorithms that picked up news feeds on the ongoing trade war between the US and the rest of the world, but in particular, news about the ongoing trade war between the US and China. If the news is positive about possible reconciliation (though I have repeatedly stated these news “leaks” are propaganda designed to ramp up stock prices and likely allow corporate executives to quietly sell their shares into these artificially engineered ramp ups), then stocks receive an intraday boost; however, if the opposition party then fires a salvo denying the positive news or a closer introspection of the news article reveals some dampening of optimism, then stock prices will crater later in the day. When just one or two dovish or hawkish word(s) in the minutes released by the Federal Open Market Committee (FOMC) of the US Central Bank has the capacity to cause collective changes in US stock market valuation of billions of dollars, it is undeniable that the reliance on the establishment of asset prices (commodities and not just stocks) on computer trading algorithms has completely broken the system and destroyed any possibility that asset prices will ever be fairly determined by underlying fundamental market forces. Furthermore, if you often why initial market reaction to the release of US Central Bank minutes is the wrong one and often reverses by market close that day, the reason why is also because market asset pricing is irreparably broken.

Quite often, the US stock market may soar the very nanosecond US Central Bank minutes are released, only to then tank and give up all gains and descend into losses by market close, or vice versa. Because bankers have programmed computer HFT programs to automatically make decisions based upon certain words found in news and press releases, there is no nuance or context to HFT algorithm decisions to buy or sell assets. These trading programs immediately react to language that they may interpret as positive and thus start buying, consequently moving asset prices higher, only to encounter language later that is interpreted as negative, and thus triggers sell orders that wipe out all initial gains.  Though nearly everyone has long since forgotten about the 1.5 quadrillion of weapons of mass financial destruction known as global financial derivatives that still exist today and still pose the same risk as they posed when they were regularly making financial headlines around the world, I honestly believe that high frequency trading algorithms have surpassed even the massively risky financial derivatives product as the number one weapon of mass financial destruction.

When I’ve explained how bankers have created an unlawful, unpredictable wild wild west in capital markets through their reliance on HFT algorithms to make decisions to others, often I am asked why the algorithms aren’t programmed to fully digest all news that give headlines context before selling and buying. The answer to this question is quite easy as profits come down to trades made not a second before one’s competitor, but a few nanoseconds before one’s competitor. In fact, some commercial investment firms locate their trading servers as close as possible to exchange servers using the fastest cable possible just to get an advantage of a few thousandths of a second over the competitor when making the same trade. Consequently, they can’t wait to uncover the true meaning of an article before acting on the news as it really doesn’t even matter if they move and manipulate market prices by the billions in the wrong direction. As long as they can reverse the trade more quickly than everyone else after engineering a fake price rise in an asset, they can make money on the way up of their falsely engineered price rise and also make money on the way down when the asset prices behavior reacts to the pump and dump scheme engineered by bankers using HFT trading algorithms. And this is what happened yesterday with many stock and commodity prices. The boy cries wolf, nobody cares that the boy is crying wolf so market prices ramp up. People realize the boy was crying wolf, so then market prices ramp down. And over and over, a thousand times a day, these games are played in markets. And this is why market asset pricing is irreparably broken and can never be fixed unless HFT algorithmic trading is banned forever.

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2 thoughts on “Market Asset Pricing is Irreparably Broken

  1. Interesting article, as usual. I hadn’t previously considered the effects of HFT on asset prices. However, I wonder if the effects of worldwide QE is not the #1 factor in unreliable asset prices. Even Warren Buffett said recently that he couldn’t find a good deal on an acquisition because the valuations were so high.

    1. QE has not doubt led to distorted, overpriced assets. If you’ve ever read any books about the stock market bubbles created by the US Central Bank during the roaring twenties that eventually created the stock market crash and ushered in the Great Depression, the Central Bankers have basically followed that blueprint between 2008 and today, so unfortunately, we can expect the same result in the near future.

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