Have We Reached Peak Wall Street?

Submitted by Charles Hugh-Smith via Peak Prosperity,

Though the mainstream financial media and the blogosphere differ radically on their forecasts – the MFM sees near-zero systemic risk while the alternative media sees a critical confluence of it – they agree on one thing: the Federal Reserve and the “too big to fail” (TBTF) Wall Street banks have their hands on the political and financial tiller of the nation, and nothing will dislodge their dominance.

Given how easily the bankers bamboozled the Washington establishment into bailing them out in 2008 to the tune of tens of trillions of dollars in backstops, guarantees, subsidies and zero-interest loans, this is a reasonable assumption. Especially when coupled with the free hand the Fed has to reward the banks with zero-interest loans and limitless liquidity.

Add in the unsurpassed political power of the banks’ lobbying and campaign contributions and the hog-tying of regulatory agencies, and it’s no wonder few see any threat to the Fed/financial sector’s dominance.

There’s also a compelling narrative that supports the Fed’s policies of keeping interest rates near-zero by printing money to buy mortgages and Treasury bonds: were the Fed to allow interest rates to normalize back up to the historically average range, credit-based consumption and housing sales would dry up, pushing the nation into a recession or even a depression.

What’s left unsaid is that such a contraction in credit would severely undermine the banks’ profits and solvency, and that it's that which is driving the Fed policy more than a concern for Main Street. Take a look at what happened to phenomenally robust financial profits in 2008: a contraction in credit caused financial profits (and solvency) to absolutely crater.

Interestingly, the collapse of financial profits back to 1.5% of GDP (gross domestic product) merely returned the financial sector to the level of profit it had earned in the 1960s and 70s. No one reckoned the high-growth 1960s were a depression, yet the collapse of financial profits back to the level of the go-go 1960s triggered the systemic insolvency of America’s financial sector.

This chart reveals the key driver of Fed policy: the enormous profits of Wall Street and the TBTF banks are based on an extraordinary expansion of leveraged credit that is visible in the red line—the ratio of total credit to GDP.  This line traces out the birth of financialization in the early 1980s and the implosion of leveraged debt in 2008.

Simply put, the only way the financial sector (Wall Street and the banks) could continue to grab almost 5% of the nation’s entire output as profit is if the Fed keeps interest rates near-zero and floods the system with the limitless liquidity of expanding credit and money-printing. Here is a snapshot of the Fed’s balance sheet, which reflects its unprecedented expansion of money:

This chart shows that the Fed manipulates interest rates by buying equally unprecedented amounts of mortgages and Treasury bonds:

Thus there are three reasons why analysts extrapolate the Fed’s current policies in a straight line into the future:

  1. Any contraction in credit would once again imperil the financial sector’s profits and solvency.
  2. Since Wall Street is politically dominant, the Fed will not allow credit to contract.
  3. Mainstream economists and politicians fear a recession triggered by credit contraction more than they fear a collapse of the U.S. dollar.

Analysts extrapolating Fed money-printing into the future conclude this expansion of the U.S. money supply will eventually devalue the U.S. dollar.  The mechanism for this devaluation is easy to understand: potential buyers of Treasury bonds will begin wondering if the piddling inflation-adjusted returns on Treasury bonds are worth the risk that their bonds will be redeemed with currency that is worth a fraction of the value they bought them with.

The Fed could respond to this bond buyers’ strike by printing even more trillions to buy even more Treasury bonds than it already buys every year, but the fact that the Fed might be forced to become the buyer of last resort is hardly a vote of confidence in the policies that support financial profits at the expense of market discovery of price and value.

Stripped of obfuscating complexity, a bond is a claim on future national income, and a bet that the currency used to redeem the bond in the future will have the same value as the currency initially traded for the bond.  If doubt arises about this, buying the bond or owning the currency is a bad bet.

As a consequence, many observers have concluded that the Fed can’t stop printing money and keeping interest rates near-zero (because those policies enable the financial sector to skim its hundreds of billions of dollars in profits) and so the U.S. dollar is doomed to devaluation and eventual loss of its status as the world’s primary reserve currency.

The Reserve Currency

What is a reserve currency?  Although the subject deserves a book-length explanation, let’s pare it down to the essentials.

First, we need to understand that currency (money issued by nations) is a commodity like any other. The global currency exchange (called the FX market) discovers the price of currencies by supply and demand, just like the markets for wheat, oil, lumber or other commodities.  Various nations can arbitrarily peg their own currency to another currency, but ultimately the value of every currency is set by supply and demand.

Second, we need to differentiate between a trading currency and a reserve currency. Many people confuse the two. Let’s say a Chinese company buys sugar from Brazil and a Brazilian company buys electronics from China. The firms exchange Renminbi (yuan) and Brazilian Reals.  These are trading currencies, as they facilitate trade between two nations.

A reserve currency is a currency that nations hold as reserves to protect their own currencies from market shocks and as collateral for credit issued by the nation holding the reserve currency.

Gold is one form of reserve/collateral. In a gold-backed currency, the currency is directly pegged to physical gold. When the U.S. dollar was gold-backed, other nations could trade $35 for an ounce of gold.

Nowadays, there are no explicitly gold-backed currencies, though many nations hold gold as a form of collateral.

A reserve currency acts in a similar fashion, as a predictable store of value that can be easily bought and sold on the global marketplace.

When markets lose faith in a currency’s value, traders sell the currency before it loses any more value.  This selling lowers the value, creating a self-reinforcing feedback loop of selling triggering more selling.  This creates a currency crisis as the currency rapidly loses value. To stop the crisis, the issuing nation must sell collateral (gold, reserves of other currencies) to sop up all the selling. If the nation fails to stem the crisis, its currency collapses once its reserves are gone.

What does all this mean? What it boils down to is the global currency markets impose a discipline on money-printing. If a country prints its own currency with abandon and does not build up equivalent reserves/collateral to back that expansion of currency, eventually the nation’s money-printing devalues the currency.  Once the currency loses most of its value, the country no longer has the means to buy oil or other goods from other nations.

There is one general exception to this discipline: the nation that issues the reserve currency can print more currency and as long as there is sufficient demand for that currency as reserves, the issuing country has the “exorbitant privilege” of issuing intrinsically worthless paper and exchanging it for very valuable commodities such as oil, electronics, autos, etc. (For more on this topic, please see Understanding the "Exorbitant Privilege" of the U.S. Dollar)

Currently, the primary reserve currencies are the U.S. dollar and the euro.

Though some analysts argue that the reserve currency is a burden whose benefits are outweighed by its liabilities, the privilege of being able to issue your currency and exchange it for real goods and services without regard for one’s own collateral reserves should not be underestimated.

Simply put, the U.S. dollar’s status as a reserve currency is a key component of U.S. global dominance. Were the dollar to be devalued by Fed/Wall Street policies to the point that it lost its reserve status, the damage to American influence and wealth would be irreversible.

What if Wall Street is Recognized as a Strategic Threat to the Nation?

As a result, I discern another possibility to the consensus view that the Fed/Wall Street will continue to issue credit and currency with abandon until the inevitable consequence occurs, i.e. the dollar is devalued and loses its reserve status.

I propose an alternative narrative for consideration, in which the other power centers of the U.S. government (known as the Deep State) awaken from their ignorance of finance and awaken to the fact that Fed/Wall Street policies constitute a strategic threat to the dominance and prosperity of the U.S. nation-state.

In this view, Wall Street’s power has peaked and is about to be challenged by forces that it has never faced before. Put another way, the power of Wall Street has reached a systemic extreme where a decline or reversal is inevitable. 

Part 2: The Implications of a 'War of Elites' focuses on how, as a result of its over-reach, Wall Street is at risk of encountering blowback from forces that the financial sector assumed were benign or under its control. Now that Wall Street poses a strategic threat to the viability of the American Project, its dominance may well be about to be challenged in ways few imagine possible.

What would such a power struggle look like? How would it unfold? What would the costs be to society? How will the rest of us be affected?

Click here to access Part 2 of this report (free executive summary, enrollment required for full access).



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Europe Mapped According To The Germans (And The Russians)

As Acting-Man’s Pater Tenebrarum notes, a recent Der Spiegel article highlights the fact that in spite of the fact that Russia and especially Putin are demonized with great verve in the Western media (including Germany’s), it seems German citizens from all walks of life and all political camps are highly devoted fans of Russia and its president. As the following two maps show, “Europe” means a lot of different things to the Germans and the Russians.

How The Germans see Europe…


And how The Russians see it…


Source: Acting-Man


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W(h)ither Petrodollar: Russia, Iran Announce $20 Billion Oil-For-Goods Deal

Spot what is missing in the just blasted headline from Bloomberg:


If you said the complete absence of US Dollars anywhere in the funds flow you are correct. Which is precisely what we have been warning would happen the more the West and/or JPMorgan pushed Russia into a USD-free corner.

Once again, from our yesterday comment on the JPM Russian blockade: “what JPM may have just done is launch a preemptive strike which would have the equivalent culmination of a SWIFT blockade of Russia, the same way Iran was neutralized from the Petrodollar and was promptly forced to begin transacting in Rubles, Yuan and, of course, gold in exchange for goods and services either imported or exported. One wonders: is JPM truly that intent in preserving its “pristine” reputation of not transacting with “evil Russians”, that it will gladly light the fuse that takes away Russia’s choice whether or not to depart the petrodollar voluntarily, and makes it a compulsory outcome, which incidentally will merely accelerate the formalization of the Eurasian axis of China, Russia and India?”

In other words, Russia seems perfectly happy to telegraph that it is just as willing to use barter (and “heaven forbid” gold) and shortly other “regional” currencies, as it is to use the US Dollar, hardly the intended outcome of the western blocakde, which appears to have just backfired and further impacted the untouchable status of the Petrodollar.

More from Reuters:

Iran and Russia have made progress towards an oil-for-goods deal sources said would be worth up to $20 billion, which would enable Tehran to boost vital energy exports in defiance of Western sanctions, people familiar with the negotiations told Reuters.


In January Reuters reported Moscow and Tehran were discussing a barter deal that would see Moscow buy up to 500,000 barrels a day of Iranian oil in exchange for Russian equipment and goods.


The White House has said such a deal would raise “serious concerns” and would be inconsistent with the nuclear talks between world powers and Iran.


A Russian source said Moscow had “prepared all documents from its side”, adding that completion of a deal was awaiting agreement on what oil price to lock in.


The source said the two sides were looking at a barter arrangement that would see Iranian oil being exchanged for industrial goods including metals and food, but said there was no military equipment involved. The source added that the deal was expected to reach $15 to $20 billion in total and would be done in stages with an initial $6 billion to $8 billion tranche.


The Iranian and Russian governments declined to comment.


Two separate Iranian officials also said the deal was valued at $20 billion. One of the Iranian officials said it would involve exports of around 500,000 barrels a day for two to three years.


“Iran can swap around 300,000 barrels per day via the Caspian Sea and the rest from the (Middle East) Gulf, possibly Bandar Abbas port,” one of the Iranian officials said, referring to one of Iran’s top oil terminals.


“The price (under negotiation) is lower than the international oil price, but not much, and there are few options. But in general, a few dollars lower than the market price.”

Surely an “expert assessment” is in order:

“The deal would ease further pressure on Iran’s battered energy sector and at least partially restore Iran’s access to oil customers with Russian help,” said Mark Dubowitz of Foundation for Defense of Democracies, a U.S. think-tank.


“If Washington can’t stop this deal, it could serve as a signal to other countries that the United States won’t risk major diplomatic disputes at the expense of the sanctions regime,” he added.

You don’t say: another epic geopolitical debacle resulting from what was originally intended to be a demonstration of strength and instead is rapidly turning out into a terminal confirmation of weakness.

Also, when did the “Foundation for Defense of Petrodollar” have the last word replaced with “Democracies”?

Finally, those curious what may happen next, only not to Iran but to Russia, are encouraged to read “From Petrodollar To Petrogold: The US Is Now Trying To Cut Off Iran’s Access To Gold.”


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Peak HFT?

We doubt it: first wait until the next market crash is blamed on HFT (as we speculate it will)… and then watch as the entire world suddenly goes all tar and feathers on a few million vacuum tubes.



h/t @Stalingrad_Poor and @ECantoni


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De-escalation Off: US Navy Sends Warship To Black Sea “In Direct Response To Ukraine Circumstances”

On the heels of NATO’s declaration that is was suspending all practical cooperation with Russia (and ordered military planners to draft new measures to strengthen its defenses), Bloomberg reports that the US will be sending a Navy warship back to the Black Sea. Pentagon spokesman Army Colonel Steve Warren told reporters that the ship (as yet unnamed) wil be there to conduct exercises with allies and is a “direct response to the circumstances in Ukraine.” and is the first in the Black Sea for 2 weeks.


NATO started the day off aggressively…

Nato said earlier on Tuesday it was suspending all practical cooperation with Russia in protest at its annexation of Crimea, and ordered military planners to draft measures to strengthen its defenses and reassure nervous Eastern European countries.

Which came on the heels of…

Move follows U.S. deployment of F-16 fighters to Poland and F-15 fighters to the Baltic to assist allies with regional air patrols

And now the US steps up the actions (as well as words)

U.S. in next several days will send a Navy warship into the Black Sea to conduct exercises with allies, Pentagon spokesman Army Colonel Steve Warren tells reporters


Warren wouldn’t name the vessel, the first in that body of water since a U.S. vessel departed March 21


Deployment is “direct response to the circumstances in the Ukraine

We can only wonder how long until Russia “test fires” another ICBM?


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Goodbye Blythe Masters

A week ago we wrote: ‘While it has been public for a long time that i) JPM is eager to sell its physical commodities business and ii) the most likely buyer was little known Swiss-based Mercuria, there was nothing definitive released by JPM. Until moments ago, when Jamie Dimon formally announced that JPM is officially parting ways with the physical commodities business. But while contrary to previous expectations, following the sale JPM will still provide commercial gold vaulting operations around the world, it almost certainly means farewell to Blythe Masters.” Sure enough:


Farewell Blythe: we hope your replacement will be just as skilled in keeping the price of physical gold affordable for those of us who keep BTFD every single day.

* * *

And since it is nostalgia day, here is, from April 2012, “Blythe Masters On The Blogosphere, Silver Manipulation, Gold-Axed Clients And Doing The “Wrong” Thing”

In an article that is about three years overdue, “JPMorgan’s practices bring scrutiny” the FT finally takes aim at that other “vampire squid”, JP Morgan, which technically is incorrect: because if Goldman is a nimble and aggressive creature, with infinite tentacles in every governmental office, and unencumbered by massive liabilities, JPMorgan is just as connected, but unlike Goldman, it is a behemoth in every other possible capacity, and with its trillion in deposits, matched by tens of billions in bad loans, is a true Bank Holding Company. As such ‘Jabba the Hutt‘ would be a far more appropriate allegory to describe the the firm, whose reach, scope and scale lead the FT to classify it as Three times a pallbearer, never a corpse.

As some may recall, back in October 2009, Zero Hedge did an exhaustive expose on the relationship between JPMorgan and the then version of MF Global, Lehman Brothers, whose perfectly functioning division, its North American Brokerage, ended up being scooped up by Barclays for pennies on the dollar. In the meantime, however, JPMorgan, with the backing of the Fed, proceeded to demand as much extra collateral for Lehman repo positions on hold with JP Morgan and the Tri-Party repo system, of which JPM is one of only two custodians, simply because it could, and because this is the easiest way for the bank that is even closer to the Fed than Goldman Sachs, to procure liquidity during times of broad distress. Such as when the money market is about to freeze to death. Since then, the topic of just how much JPMorgan may have ripped off the Lehman estate has escalated, and is set to be an epic showdown in the form of a lawsuit which “accuses JPMorgan of using its “life and death power as the brokerage firm’s primary clearing bank” to put a “financial gun” to its head and demand excess collateral.” And here is the kicker: “It claims JPMorgan abused its access to US government officials and then “accelerated Lehman’s free fall into bankruptcy”, hoovering up collateral to protect itself to the detriment of the firm and other eventual creditors.”

And therein lies the rub: because of all TBTF banks, JPMorgan is literally at the nexus of the entire $16 trillion shadow banking system, the very system that the Fed, much more than traditional liabilities, knows and uses constantly to hypothecate and rehypothecate assets, in essence creating money out of nothing, and which in conjunction with the other Tri-Party repo dealer, Bank of New York, as well as State Street, provides the US financial system with over $30 trillion in shadow credit money in the form of custodial assets – liquidity the bulk of which is not accounted for in any conventional monetary textbook or in any modern theory of money as it is such a novel development, yet which is still 100% fungible, and is by far the biggest secret of the American monetary system. It can be seen as summarized in the following graphic, first created by Citi’s Matt King back in the week before Lehman failed (full report can be read here, and should be by anyone who wishes to understand just what is truly going on behind the scenes in modern finance).

Keep in mind, these are the same custody assets which, as explained previously in the case of MF Global, can be rehypothecated in serial fashion, creating a virtually infinite amount of “money” as long as everyone who is in on the fraud agrees to maintain the ponzi. Of course, if and when someone demands delivery of an underlying assets, the whole thing falls apart, which is what happened with AIG, with Lehman, and to a smaller degree, MF Global.

So what does all of this have to do with Blythe Masters?


At the end of the day, and as the Lehman lawsuit alleges, JPMorgan has intimate access to US government officials, and particularly the Federal Reserve, who will in turn take advantage of all JPM facilities, including its trading desk, to preserve the sanctity and foundations of the $30+ trillion in custodial assets and rehypothecation system, which further means that any potential implication that fiat money is impaired has to be wiped out. As it so happens, soaring prices of gold and silver are the primary if not only means left to express rising doubts in the future viability of the dollar, but in the viability of the fiat system in the first place. Which means that the Fed is, without a doubt, one of the biggest “clients” of the Fed in a symbiotic crosshold, where what the Fed wants, JPM has to execute and vice versa.

This brings us to the transcript of Blythe’s interview on CNBC, in which a primary topic, ironically, was whether or not Jamie Dimon’s firm manipulates the prices of precious metals, and particularly silver. What followed was the usual avalanche of platitudes that only a muppet can love:

  • “JPM’s commodities business is not about betting on commodity prices but about assisting clients”… “it’s about assisting clients in executing, managing, their risks and ensuring access to capital so they can make the kind of large long-term investments that are needed in the long run to expand the supply of commodities”…
  • There’s been a tremendous amount of speculation particularly in the blogosphere on this topic. I think the challenge is it represents a misunderstanding as the nature of our business. As i mentioned earlier, our business is a client-driven business where we execute on behalf of clients to achieve their financial and risk management objectives. The challenge is that commentators don’t see that. So to give you a specific example, we store significant amount of commodities, for example, silver, on behalf of customers we operate vaults in New York City, Singapore and in London. And often when customers have that metal stored in our facilities, they hedge it on a forward basis through JPMorgan who in turn hedges itself in the commodity markets. If you see only the hedges and our activity in the futures market, but you aren’t aware of the underlying client position that we’re hedging, that would suggest inaccurately that we’re running a large directional position. In fact that’s not the case at all.
  • “We have offsetting positions. We have no stake in whether prices rise or decline. Rather we’re running a flat or relatively flat matched book.
  • “What is commonly out there is that JPMorgan is manipulating the metals market. It’s not part of our business model. it would be wrong and we don’t do it.”

Ah yes, because JPMorgan never engages in “wrong” activites…

And while we admire JPM’s naive statement that it can triple its commodities revenues to $2.8 billion in 2011, while everyone else was losing money in the space, without taking prop bets, we just don’t buy it. Just as we didn’t buy Goldman’s explanation that its prop desk only accounted for 12% of that firm’s revenue, as Goldman told us directly (coupled with our challenge of prop trading in 2009, a pursuit taken on by Paul Volcker a few weeks later, resulting in the Volcker Rule). Needless to say, once the firm did break out its prop trading, it became quite clear just how huge of a factor prop trading truly was for Goldman. Because taken at face value, it would mean that all else equal, JPMorgan transacted at least 3 times more in flow in 2011 than in 2010. Yet, everyone knows that trading volumes in 2011 slumped relative to 2010. So no, Blythe, we appreciate your explanation, but we would appreciate the truth even more.

And yet there is one simple explanation that would make Blythe’s story 100% correct: would JPMorgan consider the Fed, whose interests in keeping the price of precious metals as low as possible, and are aligned with those of JPM for the reasons listed above, its client?

Because if so, then absolutely everything falls into place, as JPMorgan is merely the overt conduit by which the Fed, and specifically the New York Fed, conducts monetary policy in the commodities space, just as Brian Sack would conduct open market operations in the bond arena, and as the FRBNY uses, on occasion, Citadel, and its HFT expertise, to execute its discretionary stock trades (yes, we know about those too).

We would welcome Blythe’s comments on any and all of the topics listed above.

In the meantime, for those who missed it, here’s Blythe.


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Presenting The Next Market Rigged By High Frequency Trading

Almost a month ago, we wrote “This Is The One Financial Product Now Targeted By The HFT Swarm“, in which after briefly perusing the Virtu S-1 filing, we concluded that “one product stood out. It is highlighted on the chart below: FX.”

We added:

Sadly, with increasingly more homo sapiens-type banker FX traders being laid off left and right for pervasive and ubiquitous manipulation of currencies (who can forget the infamous “Cartel” chat room, JPM’s head of spot trading presiding), what this means is that more and more algos will rush into this product to fill the voids left by carbon-based traders.


And for those trading FX, our condolences: because the typical bizarro, idiot moves that previously were reserved for stocks are now sure to take over the final bastion of capital markets. In other words, the next time you feel like the USDJPY is trading as if it is in need of a software update, you will be right.


Then again, in a world in which FX is the one battleground where central bankers now joust every minute, we can’t wait for the reaction when some fat finger algo decides to take USDJPY higher by 1000 pips, or crashes the EURUSD by 2000, “just because.” Surely the look of sheer panic on the faces of “central planners” everywhere in that particular “Jerome Kerviel Kodak moment” would be even more priceless than the stock of VRTU upon IPO. Speaking of, we wonder: will VRTU algos ramp VRTU stock to infinity, or is there some conflict of interest here?

We are happy to report that this time the mainstream media is following our reports much more closely then five years ago, because overnight none other than Bloomberg came out with “High-Frequency Traders Chase Currencies as Stock Volume Recedes” in which we read, guess what, “Forget the equity market. For high-frequency traders, the place to be is foreign exchange. Firms using the ultra-fast strategies getting scrutiny thanks to Michael Lewis’s book “Flash Boys” account for more than 35 percent of spot currency volume in October 2013, up from 9 percent in October 2008, according to consultant Aite Group LLC. It’s the opposite of equities, where their proportion shrank to 50 percent in 2012 from 66 percent four years ago, according to Rosenblatt Securities Inc.”

But our readers already knew this. Let’s see what else our readers knew:

“The use of HFT will make trading and regulation in the FX market more complex, and there would also be some questions over the fairness,” Anshuman Jaswal, senior analyst at research firm Celent in Boston, said by e-mail. “Use of HFT also increases liquidity and depth in markets. Both sides of the argument carry some weight, and there is no one right answer.”


The debate surrounding high-frequency trading, a term describing strategies that use lightning-fast computers to eke out profits in securities markets, blew up this week after Lewis published “Flash Boys” and said U.S. equities are rigged. The book makes few references to currency, saying instability HFT creates is bound to spread from equities sooner or later.


High-frequency strategies flourished in American equities as rising computer power and two decades of regulation broke the grip of the New York Stock Exchange and Nasdaq Stock Market and trading spread to more than 50 public and private venues. Now, speed traders are proliferating in foreign exchange.


“Any of the big names that are involved in the equity side are generally starting up FX businesses as well,” Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut, said of high-frequency trading in a phone interview.



While speedier strategies are becoming “really prevalent” in foreign exchange and some are predatory, many are “rather benign and provide liquidity to the market,” said Aaron Smith, managing director and co-founder at Pecora Capital LLC.


“We see plenty of strategies that depend on low latency and co-location in London or New York,” Smith said in a phone interview from Zurich. Some of the company’s portfolio, which includes currencies, is traded with systematic methods, with holding periods of a few hours to a few days, he said. Still, there are other issues to consider.

Yup, we knew all that too. We also know that not everyone is delighted about the incursion of HFT in FX:

“We don’t want to be in the high-frequency space because
then you’re in a technological foot race against the next guy,” Smith
said. “When they have a bigger, faster, stronger computer, you’re out of
business. We’re not interested.”

Too bad, because what else do we know about the FX space? Well, courtesy of ongoing daily revelations, and a financial space in which all carbon-based FX traders and strategists at major banks are dropping like flies either being fired, under civil and/or criminal investigation, or relocated to other easier to manipulate markets like commodities, FX is and was arguably more rigged than even Libor.

So what is the take home? It turns out that as manipulating humans leave FX in droves, they are replaced by, drumroll, manipulating algos. However, just like in equities where the HFT parasites merely facilitated the Fed in its relentless pursuit to send asset prices to new unseen bubble levels, for the most part HFTs also help central banks in ramping FX pairs in whatever the required FX manipulation by the G-7 central planners du jour may be. In other words, the regulators will turn a blind eye to all the FX rigging now conducted almost exclusively by algos as longas it goes in their favor.

However, once the market crashes and/or FX begins trading abnormally broken, watch as the full wrath of the same economists and corrupt regulators turns on HFT, which will be scapegoated as the biggest market villain in history. None other than Goldman has already set the stage for the public lynching of the vacuum tubes.

But for now, as long as the dancing continues, we must all “trade” in a world in which the now standard US and Japan market open results in a spike in the USDJPY, in which any good or bad news results in a spike in the USDJPY, and when every downturn in stocks is promptly offset with, you guessed it, another HFT momentum-ignition surge in the USDJPY, promptly offsetting the asset weakness.

And when Michael Lewis releases “FX Boys” in 3 years, followed by “Liberty 33 Boys” in another 3, everyone will be shocked by just how rigged everything was, and how nobody had any idea there was (taxpayer backed) gambling going on here…


via Zero Hedge http://ift.tt/1pLUvB2 Tyler Durden

Faber – “How Could You NOT Own Gold?”

Today’s AM fix was USD 1,284.00, EUR 930.91 and GBP 771.26 per ounce.                      

Yesterday’s AM fix was USD 1,286.50, EUR 932.45 and GBP 772.67 per ounce.

Gold fell $2.80 or 0.22% yesterday to $1,280.50/oz. Silver rose $0.02 or 0.1% yesterday to $19.81/oz.

Webinar: Dr Marc Faber On Gold, Silver and Asset Allocation In An Uncertain World

This Friday, April 4th at 0900 BST, Dr Marc Faber will give insights into his strategies for protecting and growing wealth in 2014 and beyond. Register today and don’t miss this opportunity to hear one of the world’s most respected investment experts.

Dr Marc Faber and Jim Rickards at the World War D Conference in Melbourne

Gold climbed in London, its first rise in 3 days. It is believed that the seven week low will lead to renewed physical buying in China. Gold bullion of 99.99% purity for delivery in Shanghai traded at a premium to the London price earlier today, Bloomberg data showed. China was last year’s largest gold buyer and is already on course to surpass last years record demand.

Gold fell 3.2% in March due in large part to speculation that the Fed may reduce their massive monetary stimulus and return to more orthodox monetary policies. However, gold was  6.8% higher in the first quarter as many investors viewed the 28% sell off in 2013 as a buying opportunity.

Gold in U.S. Dollars – January 2011 To April 2014 (Thomson Reuters)

Geopolitical risk and the Ukraine crisis led to safe haven demand and may be leading to renewed central bank diversification into gold including from Russia itself.

Fed Chair Janet Yellen said in March that the central bank may end its bond-buying program this fall and increase borrowing costs six months after that. Yellen then changed her tune this week saying that the “considerable slack” in labor markets showed that accommodative policies will be needed for “some time.”

Faber: Gold “Is A Present From God And I Wish It Would Go Lower So I Could Buy More”
After a long first day of presentations at the
World War D conference in Melbourne, the international keynote speakers, Marc Faber, Jim Rickards, Richard Duncan and John Robb got up on the stage to answer questions on topics ranging from Bitcoin, to China’s economy to gold.

Faber said his concern about Bitcoin was how reliant it is on the internet and electricity networks functioning properly, something that can’t be taken for granted in the age of digital warfare.

Technology risk is something we have warned of for sometime. It shows the importance of not having all your savings and wealth in digital currencies in banks, in digital currencies like bitcoin and emerging crypto currencies or indeed in digital gold formats whereby you are very dependent on and exposed to websites, servers and technology in general.

World War D: Money, War and Survival in the Digital Age heard from Faber that gold, unlike digital assets, is a physical asset and that it had performed superbly until September 2011.

Faber said that gold has been in a correction since then, which isn’t unusual in a money printing environment. On gold at today’s prices, Faber said that “the fact is that gold down is a present from God and I wish it would go lower so I could buy more,” he said.

The big proviso Faber added was that he had to physically own coins and bars. He also warned that people would be ‘mad’ to own any asset, including gold, in the U.S. Previously, Faber has said that he favors owning gold in
fully allocated gold accounts in Singapore and Switzerland.

Jim Rickards said that gold should remain an essential part of diversified portfolios and Mark Faber pointed out that the question should be “how could you NOT own gold?”

The question echoes observations Faber made in January 2013, when he told a well known CNBC presenter that she was “in great danger because you don’t own any gold.” Before wittily reassuring her that she had “a golden personality.”

Webinar: Dr Marc Faber On Gold, Silver and Asset Allocation In An Uncertain World

This Friday only, April 4th, Dr Marc Faber will give insights into his strategies for protecting and growing wealth in 2014 and beyond. Register today and don’t miss this opportunity to hear one of the world’s most respected investment experts.

In this webinar, some of the topics covered with Dr Faber include:

Asian Century?
Western stagnation or collapse?
Implications of events in Ukraine
Allocations to precious metals?
How to own precious metals?
Dollar cost average or lump sum?
Take profits/ rebalance or buy and hold for long term?
When to sell?
Favoured asset allocation?
Other investment and business opportunities?

Dr Faber’s webinar takes place this Friday, April 4th, 2014, at 0900 BST (0900 British Standard Time or London and UK time). Register to attend the event or to receive a recording of the webinar.



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The Fed Goes Hunting For “Asset Price Bubbles”

As the world’s investors wait anxiously for the next piece of bad news from Japan, China, Europe, or US as a signal to buy, buy, buy on the back of a renewed “stimulus” of freshly printed money that has comforted them for 5 years, it seems the Fed is turning its attention elsewhere:


The embarrasment continues:


Because the Fed was accurate in spotting the “pre-crisis housing” bubble, right?

And the punchline:


For now though, of course, the Fed’s Bubble-o-Flagger (which can also be yours for four easy payments of $29.95) has no batteries. Pointing out the irony that the Fed creates the bubbles… and then when it becomes a “big concern” it promises to do something about it if it every sees one.  Finally, we are delighted that the schizhophrenia of the central planners continues to be exhibited for all to see: first Yellen tells everyone to buy stocks on Tuesday with an uber-dovish retracement of her “6 month” flub, and now Bullard is saying to watch out for bubbles. What can one say but… economists.

As a gentle reminder of just how these bubbles are formed

Bubble Formation: start at the bottom left…

Bubble Bursting: …and end with a ‘debt crisis’ and a ‘rush for the exits’

Rinse and Repeat – Simple. QED


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Double Whammy Shocker From Goldman Which Is Also Waving Goodbye To The NYSE

Long-time readers may recall that in the early days of this website, in addition to HFT, one of our market structure pet peeves was the fact that Goldman Sachs was a Designated Market Maker on the NYSE, reaping various benefits primarily as a result of the firm’s role as of one of the only Supplementary Liquidity Providers at the stock exchange – a form of slower HFT “liquidity provider” if you will. Over time, as HFT became all encompassing and as increasingly more trade took place in the HFT domain, Goldman’s DMM role became less prominent especially with the arrival of such program traders as Latour Trading.

Why do we bring this up?

Because in what is a true double whammy of market structure stunners from Goldman over the past week, not only has the firm done an about face on HFT (we eagerly await Goldman’s pardon of “HFT market manipulator” and former Goldman employee Sergey Aleynikov) and is now actively bashing the high freaks (much to the chagrin of Virtu and its pulled IPO, whose lead underwriter Goldman just happened to be), overnight it was reported that Goldman is also in the process of selling its “designated market-maker” unit to Dutch firm IMC Financial Markets to sell the trading business.

Keep in mind that Goldman bought its presence on the NYSE as part of its 2000 acquisition of Spear Leeds & Kellogg, which it bought for $6.5 billion at the time. Incidentally, we had a few things to say about Goldman’s improprieties in this regard too. Recall from our July 2009 article, “Is Goldman Legally Frontrunning Its Clients?”:

Everyone who is anyone on Wall Street has at some point used the Goldman 360 portal whether for research, news, keeping a track of prime brokerage portfolio or, disturbingly, for trading, via the REDI Plus 9.0 platform (now loaded with enhanced algo trading features to make life for you, dear soon to be frontran Goldman client, so much easier). A second widely accepted Wall Street concept is that a disclaimer is the last thing that anyone reads, if ever. Yet after taking a close look at the Goldman disclaimer for the 360 portal, which is an umbrella waiver or all downstream websites, including REDI, one discovers the following gem:


Monitoring by GS: Your use of the products and services on this Web site may be monitored by GS, and that the resultant information may be used by GS for its internal business purposes or in accordance with the rules of any applicable
regulatory or self-regulatory organization.


One second: by using Goldman 360 a client voluntarily allows Goldman to provide keystroke by keystroke data of everything the client does, even if that includes launching trades via REDI, to Goldman for the internal business purposes. The third thing everyone on Wall Street agrees on is that “internal business purposes” usually (and in Goldman’s case, almost exclusively) means proprietary trading.


Are Goldman 360 clients (in)voluntarily signing off a release to be front ran by Goldman on any portal-based trade? Could Goldman please clarify just what “internal business purposes” means in the context of this overarching disclaimer, and also whether Goldman has ever actually used 360 submitted information in the decision making process of its prop trading desk? Lucas Van Pragg: the floor is yours.

And here are some additional Goldman Sachs and Spear, Leeds and Kellogg form documents that contain an even more crypitc warning in section 4(f) in Use Of Services:


You acknowledge that we may monitor your use of the Services for our own purposes (and not for your benefit). We may use the resulting information for internal business purposes or in accordance with the rules of any applicable regulatory or self-regulatory body and in compliance with applicable law and regulation.


NOT FOR YOUR BENEFIT? I mean, come on, how more clearer does it need to get.

Anyway, back to the topic at hand and Goldman’s disposition of NYSE assets: according to the NYT, Goldman is seeking a paltry $30 million for the DMM post. In other words, a total loss on $6.5 billion in old school assets courtesy of HFT.

Not unexpected.

However, what is unexpected, is the complete transformation Goldman has undergone in in the past several weeks: first Goldman, the bank that everyone else on Wall Street always imitates, waving goodbye to HFT, and now departing the NYSE? 

When the world’s most intelligent FDIC-backed hedge fund, pardon, bank says the current market structure is no longer necessary to Goldman, people notice, and promptly imitate.

To be sure – if this is not indicative of a major storm coming for traditional “lit” market structure (as opposed to dark pools of which IEX, until recently, was one and where Goldman has nearly complete dominance with Sigma X), we don’t know what is.

Once again: if we were HFT vacuum tubes, we would be sweating nanobullets right about now.


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