[KorbenDallas]

HFT Debate with Michael Lewis on CNBC

Quote:

The clearly agitated BATS CEO came out swinging, blasting Katsuyama and Lewis "Shame On You," for apparently telling the truth of what occurs in the stock 'market and letting everyone in on it'. The tension grows when he presses Katsuyama on whether he really believes it is rigged... who then erupts "I believe the markets are rigged.. and that you are a part of the rigging." Then the gloves come off "you wanna do this, let's do this!" and then it got worse (or better)...

Just the first 3 minute round in this epic clip is worth the price of admission (and note the floor traders cheers in the background)... but to watch the status quo crushed under the awesome honesty of reality as this is all exposed, watch on...

CNBC Article about the debate. Includes Highlights

[LeBeau]

I enjoyed the banter when I watched it today, though ZeroHedge over hyped the headline....but what else is new.

[KorbenDallas]

I'm not an "Wall Street Guy" but a Wall Street Person told me ZeroHedge is a good information source, but that it's almost become propaganda itself in how far it goes sensationalizing and always being gloom and doom.

[LeBeau]

^ They do some good work digging into specific issues ahead of/deeper than the mainstream, and they were one of the first to start beating the drum on HFT, but a lot of the day to day stuff you can gloss over.

For example, a lot of posts related to conflicts (i.e. israel, iran, north korea, etc.), they make it sound like war is gonna break out any day now...or next week...or the week after that.

And obviously knowing their political and economic leanings is important to sift through the bias.

Might also have one of the worst and most unreadable comment sections of any financial or news related site.

[Samseau]

(04-01-2014 11:41 PM)KorbenDallas Wrote:  

I'm not an "Wall Street Guy" but a Wall Street Person told me ZeroHedge is a good information source, but that it's almost become propaganda itself in how far it goes sensationalizing and always being gloom and doom.

I'll take the propaganda at Zerohedge over the propaganda at CNBC any day of the week. ZH may be negative or pessimestic, but at least they aren't trying get you to buy buy buy like CNBC.

ZH has also made a lot of great bearish calls. Notable examples include that huge firm that went belly up in 2012, and bitcoin.

ZH has been reporting on the scam that is HFT since 2011, though, so we can add that to their list of great financial journalism.

Often they sound too bearish, but that's just the titles like you said. If you actually read the articles you'll see that they usually don't make any calls and just try to make things sensational even when all they are reporting is something trivial like a weak earnings report.

Unfortunately, titles are more important than the book in the internet age, so ZH knows they must continue with sensationalism or be ignored.

[Vitriol]

This type of news is making its way into our popular culture a lot lately. I saw the Wolf of Wall Street the other night and the movie is basically a comedy about this guy: http://en.wikipedia.org/wiki/Jordan_Belfort

As much as people are aware of the fact that bankers and lobbyists pay off people to manipulate our laws and economy, do you think any of this is going to change anytime soon? They got a pretty big bailout a few years ago instead of going to jail, which should tell you where our government's preferences are.

[demolition]

I don't know how it'd be possible to implement on a practical level, but technically it would not be hard to have an exchange compensate purchases for network travel times. This would eliminate the advantage these particular parties get from their location. The biggest flaw is that you'd need an impartial 3rd party administering the machine that handled these calculations (however, this problem is no worse than the one that currently exists).

In a broader sense I'm not sure that HFT benefits anyone except banker parasites, so perhaps it'd be worthwhile to try and limit trading in an even stronger way.

[poutsara]

I read the NYT article the other day and a few more. I think there were some other news sources covering this here and there over the past year or so, regarding high frequency trading etc.

Basically, although this is not my field, the take home message for me is that in finance (as in everything else) there is a huge knowledge gap between the insiders and the outsiders, and this gap will always be exploited by the insiders, until a new group of insiders arises and flips the game. Then, the process continues, with a new group of insiders (in which, ironically, the new insiders will inevitably involve a majority of the original insiders).

[kbell]

So how do you take advantage of it?

[Akula]

(04-02-2014 12:10 AM)poutsara Wrote:  

I read the NYT article the other day and a few more. I think there were some other news sources covering this here and there over the past year or so, regarding high frequency trading etc.

Basically, although this is not my field, the take home message for me is that in finance (as in everything else) there is a huge knowledge gap between the insiders and the outsiders, and this gap will always be exploited by the insiders, until a new group of insiders arises and flips the game. Then, the process continues, with a new group of insiders (in which, ironically, the new insiders will inevitably involve a majority of the original insiders).

The game is essentially rigged. HFTs do so much of the trading that there are effectively no long term owners. The insiders know so much and usually get out before the average guy on the street figures out what's up. That's why the retail (read: dumb) money continues to pour out.

Also something like 70% of IPOs in the past few years have come from Private Equity sponsor companies. That's the smartest (and most shark-like aggro) money on the street effectively dumping their equity in an investment and cashing out - so the remaining now 'public' company is many times 'damaged goods' by that point (and has been stripped to the bone in cost-cutting and downsizing exercises, which often has completely destroyed morale and company loyalty by the time the firm goes public).

These companies are usually over-leveraged as well (even after the IPO)....hence more difficult for management to run effectively. I'd also argue that the valuations are ridiculous and based on 'pie in the sky' projections but that's a different story. The captive buying audience of funds also plays a part in drumming up interest and continuing the shell game.

The main things keeping the markets afloat are the long history of equity ownership in the US and the Fed's low interest rate policy and apparent decision to support the stock market come hell or high water. And of course the mainstream financial media's 'rah rah' cheering for equities. Buyer beware.

[cardguy]

I have been interested in this area for the past few years. And I am really glad that Michael Lewis is writing about it since he is the best financial writer in the world.

I have his new book on order.

Mark Cuban (successful dot com billionaire and owner of Dallas Mavericks) no longer trades stocks. Since he thinks the market is now gamed by strange algorithms which are far beyond what a human can comprehend or compete with. He wrote a good blog post on this a few years ago:

http://blogmaverick.com/2012/09/21/what-...reet-in-3/

There is a lot of media coverage about HFT due to Michael Lewis's new book. And I saw an interview with Mark Cuban who warned that the algorithms running HFT will blow up in the same way that derivatives (which nobody could understand properly either) did in 2008.

We saw a precursor of that with the Flash Crash of 2010. Jim Cramer happened to be on the air when it kicked off.

Anyway - I can't wait for the new Michael Lewis book.

[berserk]

These topics are always very difficult to understand because finance is full of lingo and abbreviations which the financial players never bother explaining and I believe there is a lot of 'Emperors new clothes' going on, a lot of journos and even industry people who really don't know what is going on but don't dare risk being made to look like a fool.

However, and someone correct me if I am wrong, the problem with these HFT funds is that the basically position them 'physically' between the exchanges and the traders. Apparantly they are able to intercept an incoming order and then execute another order at a more favorable price BEFORE the original order hits the exchange or what is known as 'scalping'? Is that correct?

So the HFT is basically a parasite that sucks up small margins of profit (on individual trades) that would otherwise have gone to the original trader? They are not really making any trades out of market sentiment but purely on having a micro-fraction of a second head start.

[MHaes]

I think this is one of those topics that you really shouldn't comment on from the armchair. If you don't have a working knowledge of finance, don't try to pontificate.

HFT is not the huge issue that people are blowing it up to be.

The fractions of a penny that computer algorithms are skimming off of trades by preemptively executing orders are what we are dealing with now. Would people rather go back 20 years when traders in the pit were scalping a quarter off of trades?

I don't see why people are complaining about banks having an advantage (through HFT)? It is stupid to think that some small little day trader is going to be on equal footing with market makers. If you are still a retail trader in today's day and age, my only advice to you is to wake up, this isn't the 1940s.

Also LOLd at Michael Lewis being the "best financial writer in the world."

[Peregrine]

Quote:

They got a pretty big bailout a few years ago instead of going to jail, which should tell you where our government's preferences are.

This one's a bit tired. The bank bailout was a loan that has already been paid back in full, plus interest. Can't say the same for GM though.

[berserk]

Some of us do in fact have extensive knowledge of economics and finance. When I hear people saying 'you don't know enough to be told' then I immediately think that person either doesn't really know (the emperors new clothes effect) or is simply being arrogant. If you can't explain your concept in simple words then you don't know enough, that is a basic premise for almost anything.

Some much smarter and richer people than posters here seem to think there are a lot of problems with it.

[j r]

I am reserving my opinion on HFT, because I don't know enough about it. On the one hand, they appear to be front running trades and skimming lots of trading profits from other investors. On the other hand, the other investors appear to be the biggest banks and market makers who enjoy certain advantages anyway.

I have yet to figure out who is ultimately paying the price for the increase in high frequency trades and whether it helps or hinders capital markets from operating more efficiently.

[Peregrine]

(04-02-2014 12:27 PM)berserk Wrote:  

Some of us do in fact have extensive knowledge of economics and finance. When I hear people saying 'you don't know enough to be told' then I immediately think that person either doesn't really know (the emperors new clothes effect) or is simply being arrogant. If you can't explain your concept in simple words then you don't know enough, that is a basic premise for almost anything.

I'm assuming this was in response to MHaes, correct me if wrong. He didn't say "you don't know enough to be told". He said "don't tell if you don't know enough". Big difference. He then goes on to give a brief explanation.

I'm sure plenty of people on RVF are knowledgeable in this subject. But judging by some of the above posts, plenty of people are not.

Quote:

Some much smarter and richer people than posters here seem to think there are a lot of problems with it.

Appeal to authority.

[scorpion]

I'm surprised to see that so many people didn't know about HFT. I thought it was pretty much common knowledge these days for anyone who has been remotely keeping up with Wall Street post-2008 crash. ZeroHedge has been writing about it for years.

HFT is not really a "scam" in the sense that it's illegal, it's just another example of the parasitic activity of Wall Street. The fact is that our entire bloated financial sector is essentially parasitic in nature. Very little new in the way of new value is being created by these firms, they simply exist to siphon away existing money. HFT is just the latest example of how they do this.

You could kill off most of these parasites with a very simple change in tax law. If you taxed capital gains at 100% for any position held less than one month, 75% for any held under six months and 50% for any position held under one year, you would eliminate most of this nonsense. Then Wall Street could return to being about investing in companies rather than gambling and scalping money.

[RexImperator]

(04-02-2014 12:27 PM)Peregrine Wrote:  

The bank bailout was a loan that has already been paid back in full, plus interest.

Very well but I don't see how that's too relevant.

The government's own interest is in avoiding (domestic) chaos, maintaining stability, and preserving the status quo.

However, intervening to achieve such goals in the short term may have negative long term effects. i.e. moral hazard, market distortion, etc.

Anyway it's not a bailout pro/con thread so I don't want to sidetrack it. Just pointing out that there are other reasons to oppose bailouts besides cost.

[thechainrule]

I have to say, I too, am excited for Michael Lewis' book to arrive. If you want another news source that really breaks down the tops at hand/scams/financial games check out Karl Denniger's market-ticker.org, he has touched on HFT in depth with both anecdotal research and well written tangible descriptions for years. Good shit.

[iknowexactly]

(04-02-2014 12:31 PM)j r Wrote:  

I have yet to figure out who is ultimately paying the price for the increase in high frequency trades ...

This is like when they say "If you don't know who the sucker is at the poker game, it's you."

It's pretty simple, compelling evidence absent, the same people take it in the shorts all through history-- the little guy owned by the HFT guys who never, ever stop laughing.

[iknowexactly]

(04-02-2014 12:27 PM)Peregrine Wrote:  

Quote:

They got a pretty big bailout a few years ago instead of going to jail, which should tell you where our government's preferences are.

This one's a bit tired. The bank bailout was a loan that has already been paid back in full, plus interest. Can't say the same for GM though.

when fat cats come hat in hand after 70 years of fleecing the public, asking the public for a loan, the terms should have started at something liker losing 50% of their stock permanently to the SS fund.

[chyamor]

Ive been at a HFT for 10 years. Its allot more even now that what it use to be since spread and microwave came in. That game is almost over. investing in millions worth of tech for nano seconds isnt worth it.

[Lou pai]

You could kill off most of these parasites with a very simple change in tax law. If you taxed capital gains at 100% for any position held less than one month, 75% for any held under six months and 50% for any position held under one year, you would eliminate most of this nonsense. Then Wall Street could return to being about investing in companies rather than gambling and scalping money.
[/quote]

You would cripple the markets if you did that because there would never be any liquidity. If you wanted to sell a stock, who would buy it?

HFT has been around for a long time and is not harming anyone. If you want we could go back to the 90s when you were paying a 100 bucks to execute a trader and there was huge markups in the stocks you traded. Scalping has been around since the invention of the stock market, the only difference it is quicker now.

[Stun]

Peregrine Wrote:
"The bank bailout was a loan that has already been paid back in full, plus interest."

A loan at lower than the rate of inflation, which is basically free money. I'd love to be in the position to pay back such a loan.