finance – Page 18217

Yen Carry Tumbles, Dragging Equity Futures Lower As Asian Stimulus Hopes Fade

It took Virtu’s idiot algos some time to process that the lack of BOJ stimulus is not bullish for more BOJ stimulus – something that has been priced in since October and which sent the USDJPY up from 97.000 to 105.000 in a few months, but it finally sank in when BOJ head Kuroda explicitly stated overnight that there is “no need to add stimulus now.” That, and the disappointing news from China that the middle kingdom too has no plans for a major stimulus, as we reported last night, were the final straws that forced the USDJPY to lose the tractor-beamed 103.000 “fundamental level”, tripping the countless sell stops just below it, and slid 50 pips lower as of this moment to overnight lows at the 102.500 level, in turn dragging US but mostly European equity futures with it, and the Dax was last seen tripping stops below 9400.

Overnight markets are fairly mixed with Japanese equities again under pressure (Nikkei -1.36%), as dollar-yen slips below 103. The BoJ kept its policy unchanged today, which was the first of its two meetings this month. The BoJ said that the Japanese economy has continued to recover moderately, albeit with some fluctuations due to the recent consumption tax hike. The BoJ also said exports have recently levelled off “more or less”. Chinese equities (Shanghai Comp +0.7%) have returned from their long weekend shrugging off the price action from the US over last couple of days. On the topic of China, DB’s Chinese banking analysts have published the results of a proprietary study on 2,400 Chinese corporate bond issuers and 13,000 collective trust products. Their analysis shows that 37% of the outstanding corporate bonds were held by the listed Chinese banks as of 2013, which also provided 36% of funds that financed the trust sector, implying listed bank asset at risks of potential default worth Rmb88bn. They believe the risks to the banks are more than covered by the Rmb819bn of excess provisions set aside.

Yesterday was another day where EM felt firmer than DM. Indeed the MSCI EM index (+0.21%) has now posted its 13th gain from the last 16 sessions, headlined by Brazil’s ibovespa which is up 16% during the same period. There were still pockets of volatility yesterday namely in Eastern Europe where relations between Russia and Ukraine appeared to have reached another low, affecting bond prices and FX in neighbouring sovereigns. Russian 5yr CDS widened 16bp to 225bp as tensions with Ukraine escalated. Pro-Russian protestors in the eastern Ukraine city of Donetsk called for a referendum before May 11th on the region’s status. There were similar independence claims made in Kharkhiv. The US said that there is evidence that pro-Russian separatists in eastern Ukraine are not locals. White House spokesperson Jay Carney said that “If Russia moves into eastern Ukraine, either overtly or covertly, this would be a very serious escalation”. (Bloomberg). Overnight, the Ukrainian government said that a regional government building in Kharkhiv had been cleared of separatist forces in an “anti-terror sweep”. Central Kharkhiv has been closed while government operations are being carried out.

Looking at the day ahead, today sees the unofficial start of Q1 earnings season in the US as Alcoa cuts the ribbon. Markets are looking for Q1 EPS of 5.1c on revenues of $5.56bn. As always, management’s outlook statement and colour on industrial demand will be closely followed. The JOLTs jobs report, which is closely followed by the Fed Chair, will be released today. There’s not a lot of data in Europe outside of UK industrial production. The Bundesbank’s Weidmann speaks today at a German Banking Congress. Yesterday he was quoted as suggest his earlier comments on QE were misinterpreted. So today’s words will give him a chance to perhaps set the record straight on his views.

Bulletin Headline Summary from Bloomberg and RanSquawk

Treasuries decline, led by shorter maturities, before week’s $64b auctions begin with $30b 3Y; notes to be sold today yield 0.91% in WI trading; stopout at that level would be highest since 0.913% in September.
The Bank of Japan refrained from adding to stimulus as Kuroda said the blow to the economy from last week’s sales-tax increase will fade during the summer; also said BOJ would adjust policy without hesitation as needed
Russia called on Ukraine to halt all military preparations in the east “immediately” or risk civil war as the U.S. accused Russia of instigating unrest that echoes the run-up to its annexation of Crimea
China’s stocks climbed, sending the benchmark index to a six-week high, on speculation the government will take further steps to bolster economic growth
A U.S. House committee will vote as soon as April 10 to hold a former IRS official Lois Lerner in contempt of Congress; Lerner was in charge of the office that gave extra scrutiny to some small-government groups seeking nonprofit status and has invoked her right against self-incrimination during both of her appearances before the committee
UnitedHealth Group Inc. and Humana Inc. are among the health insurers that will see their base U.S. government payment rate reduced 4% next year for Medicare Advantage programs for elderly Americans
Banks from Deutsche Bank AG to Barclays Plc attacked proposals to overhaul global capital rules for asset-backed debt, saying they risk choking securitization while clashing with efforts to boost lending to businesses
U.K. industrial production rose more than economists forecast in February, rising 0.9% vs median 0.3% est in Bloomberg survey
Sovereign yields higher. Asian stocks mixed, Nikkei falls 1.4%, Shanghai +1.9%. European equity markets, U.S. stock futures fall. WTI crude and gold higher, copper declines

US Event Calendar

7:30am: NFIB Small Business Optimism, March, est. 92.5 (prior 91.4)
10:00am: JOLTs Job Openings, Feb., est. 4.020m (prior
1:30pm: Fed’s Kocherlakota speaks in Rochester, Minn.
2:45pm: Fed’s Plosser speaks in Philadelphia
4:00pm: Fed holds open board meeting in Washington on leverage ratios
4:00pm: Fed’s Evans speaks in Washington Supply
11:00am POMO: Fed to purchase $750m-$1b TIPS in 2018-2044 sector

Asian Headlines

Asian markets (Nikkei 225 -1.4%) traded lower overnight as the cautious sentiment stemming from negative tone set by the Wall Street, which marked the biggest 3 day decline for the S&P 500 since January, dominated the price action. At the same time, while the BoJ kept its monetary policy stance unchanged as expected, the Bank made no reference to an expansion of the QQE, which resulted in broad based JPY strength and further buoyed demand for safehave assets.

EU & UK Headlines

Bunds failed to benefit from the absorption of supply as spec of QE by the ECB continues to undermine investor demand for core EU paper. At the same time, under performance by UK Gilts following the release of much better than expected UK Manufacturing and Industrial Production reports also weighed on prices.

– Supply from the Netherlands, Austria, Germany and the UK was successfully absorbed, though the belly continues to under perform amid concession related flow ahead of the 7y EFSF pricing and more supply on tap tomorrow.

US Headlines

Focus remains firmly on the upcoming earnings season, which Alcoa will officially kick off after the close on Wall Street today. In terms of macroeconomic news flow, US senate passed measure restoring emergency jobless benefits, while the Congressional Budget Office estimates a March budget deficit of USD 36bln vs. a deficit of USD 107bln in March 2013.

Equities

Stocks in Europe are seen lower across the board (Eurostoxx50 -0.48%), with consumer services sector under performing where Sports Direct trading sharply lower following share placement. At the same time, risk averse sentiment supported demand for more defensive sectors, with health-care benefiting as a result. Alcoa will kick off earnings season for Q1 after-market today, and although they have outperformed the S&P 500 this year with gains of approx. 20% YTD, earnings and revenue are expected to be lower than Q1 of 2013, and recent upside in reaction to the LME inventory destocking seen as unwarranted by many analysts. AA Weekly April 11th ATM 12.5 straddle implies a 5% price swing ahead of earnings

The release of better than expected UK Manufacturing and Industrial Production reports, which resulted in EUR/GBP trading sharply lower, failed to weigh on EUR/USD and continues to trade in positive territory amid a weaker USD, following BoJ inspired JPY strength overnight. As expected, GBP has outperformed EUR, with GBP/USD trading at its highest level since 13th March.

Commodities

WTI and Brent crude futures are seen higher, albeit off the best levels of the session, as concerns over more Crimea type referendums following protests in eastern cities of Ukraine raise fears of potential supply disruptions. Furthermore, Gazprom has said that Ukraine has failed to pay for its March gas on time. Looking ahead, later today participants will get to digest the API crude inventories (2135BST/1535CDT).

DB’s Jim Reid summarizes the balance of the overnight events

In less than 13 trading hours the S&P 500 has gone from all time intra-day highs to now being down for the year again, falling -2.75% in the process and down – 1.08% yesterday. It’s been well documented that the slide has been led by the tech sector, but as we wrote yesterday high beta, high PE, growth and momentum stocks have all been hit hard in the sell off over the last two days. Indeed over the last 13 trading hours the NASDAQ (-3.88%) and S&P 500 biotech (-3.7%) indices have both underperformed the broader S&P 500.

Another way to look at recent performance is in terms of growth versus value stocks. The S&P 500 growth stock index, which has an average PE ratio of almost 20x, has underperformed both the broader S&P 500 and the S&P 500 Value index (PE ratio 14.7x) by 50bp and 95bp respectively in price terms over the last 13 trading hours. Looking at a longer time frame, the growth index (+4.6%) has also underperformed Value stocks (+7.4%) by 280bp in price terms since the year-to-date lows in early February. It’s early days but its inconsistent with perceived wisdom suggesting that cyclicals and growth stocks tend to outperform prior to the start of the Fed tightening cycle.

On a more micro level, perhaps slowing earnings growth is causing some of the growth and momentum stocks to de-rate. There is some evidence to suggest that expectations of earnings momentum amongst US firms have come back sharply in recent months. A near-record 93 companies in the S&P 500 have issued negative guidance while only 18 have offered positive guidance, according to the WSJ citing data from FactSet. That’s the second-highest number of profit warnings since 2006. The same data set suggests that earnings for the S&P 500 are forecast to decline 1.2% in the first quarter, which would mark the first year-over-year decline since the third quarter of 2012 (Wall Street Journal).

Alcoa kicks of Q1 earnings season tonight and our US equity strategist David Bianco has previewed it. He remarks that Q1 EPS estimates were cut sharply during the quarter. Over the last 3 years the average cut during the quarter was 3-4%, during 1Q it was 5.3%. 4Q12 (Sandy) and 4Q11 (brunt of the European recession and decline in market after US credit rating downgrade) had a similar cut. His main conclusions from the note are that given the sharp cuts in analyst estimates this quarter, 2/3rds of S&P companies should beat with an avg. EPS beat of 3% to 5%. These beats will prevent 1Q EPS growth from being flat y/y as current bottoms-up S&P EPS implies. However, final 1Q EPS growth will be weak at 4% with sales growth at 3%; thus the 8th qtr of anaemic sales growth. Most of 1Q’s weakness is weather, but also a slower Asia, a still slow European recovery and soft operating conditions at most Financials haven’t helped. David expects S&P sales and EPS growth to accelerate to its best pace since late 2011 by 2H14.

Looking at the day ahead, as we alluded to above, today sees the unofficial start of Q1 earnings season in the US as Alcoa cuts the ribbon. Markets are looking for Q1 EPS of 5.1c on revenues of $5.56bn. As always, management’s outlook statement and colour on industrial demand will be closely followed. The JOLTs jobs report, which is closely followed by the Fed Chair, will be released today. There’s not a lot of data in Europe outside of UK industrial production. The Bundesbank’s Weidmann speaks today at a German Banking Congress. Yesterday he was quoted as suggest his earlier comments on QE were misinterpreted. So today’s words will give him a chance to perhaps set the record straight on his views.

via Zero Hedge http://ift.tt/1mYj2AY Tyler Durden

The ONE Revelation About HFT Programs That Truly Scares Bankers (It’s Not Stock Market Rigging)

Last week, the big story was how bankers use HFT (High Frequency Trading) algorithmic software not only to rig markets but also to commit theft on a daily basis (Frontrunning, like Quantitative Easing, is just fancy Wall Street lingo to disguise its true meaning of theft). Though many among the naive in the public blogosphere expressed shock that stock markets are rigged and that regulators like the Securities Exchange Commission willingly allow this theft to occur, the only thing shocking about this story was how long it took this story to reach the mainstream and that people were crediting Michael Lewis with uncovering this story with his book “Flash Boys” when in reality this story had been discussed in detail on independent financial media sites for more than five years already.

For example, an accounting professor at the Yale School of Management, X. Frank Zhang, calculated that HFT trading was responsible for a minimum of 70% of all daily trading volume in US stock markets and possibly for as much as 78% of the volume in 2009. And HFT algorithmic trading was already dominating daily trading volume on US stock exchanges prior to 2009. Thus one can clearly see that the only thing “new” about HFT algorithms is that this old news has finally moved into mainstream media headlines.

BATS CEO William O’ Brien, when confronted on MSNBC last week with the fact that HFT algos commit millions of acts that are specifically prohibited by the US Securities and Exchange Commission’s Regulation NMS, a regulation that requires brokers to guarantee customers the best possible execution of price on orders, ludicrously argued that HFT programs have no clients (David Cummings, a computer programmer that worked at the Kansas City Board of Trade, founded BATS, a stock exchange located in Lenexa, Kansas. The core code of BATS was derived from tradebot, a computer program that engages in algorithmic trading). There is only one possible way that O’ Brien’s claim that HFT programs “have no clients” can be true. If the HFT programs were artificially intelligent self-aware programs that made all decisions independent of the interests of the people that coded them and the bankers that used them, then perhaps O’Brien’s claim could be partially true. Otherwise, as long as bankers hire programmers to code HFT algorithms and employ them for their benefit and to the disadvantage of their competitors as well as the disadvantage of their clients, then the obvious clients of HFT programs are bankers and the companies that entice bankers to use them. To claim otherwise is simply a flat-out lie.

In any event, the Holy Grail that the bankers are seeking to protect is not that they use HFT programs to rig stock market trading.

The real truth the bankers wish to conceal from the public is that they use HFT programs to suppress gold and silver prices.

If this truth made it into the mainstream news and was being discussed at the same level at which HFT programs being used to rig millions of stock trades is being currently discussed, bankers would have a heart attack. However, do not let the complete media blackout of the banking cartel’s use of HFT algos to control gold and silver prices in the paper derivatives markets lead you to falsely conclude that the use of HFT programs are not critical to gold and silver price suppression.

There have been many instances in the past several years when it has been crystal clear that bankers were using the processing speed of HFT algorithmic programs to create waterfall declines in gold and silver prices that would have been impossible to create without them. In fact nearly six years ago, in 2008, I sent then US CFTC Commissioner Bart Chilton evidence of gold price slams in the New York market that would have been impossible for bankers to create without the use of HFT algorithms. Click on the following link to see the evidence I provided to Bart Chilton back then, in which gold prices literally were slammed at market open in New York in a matter of minutes by $30, $40, $60 and even more, almost always at the same exact time in New York, as well as his reply.

It was Bart’s reply in 2008 in the above link that led me to write him off as possibly being someone that would take action against the bankers’ immoral and unethical use of HFT programs to suppress gold and silver prices in paper derivative markets, and his retirement in December 2013 without any inroads being made to prevent bankers from using HFT algos to artificially slam gold and silver prices confirmed that my assessment six years ago was the correct one. In any event, though back then I couldn’t prove beyond a shadow of a doubt that bankers were using HFT algos to slam the price of gold and silver on the particular days of steep price declines that I presented to Chilton, NANEX has provided data in recent years that have confirmed my previous suspicions. Let’s take a look at a couple of scenarios in which evidence is clear that bankers are using HFT algos to manipulate gold and silver prices, and I will further explain how bankers use HFT algos to create unnatural and artificial, non-free-market rapid waterfall-like declines in gold prices similar to the ones that I presented to Bart Chilton in 2008. Since I am not a coder that designs HFT algorithms, there may be some finer details in the process that I may not explain perfectly correctly below, but from my experience in tracking gold and silver prices for over a decade and the research that I have done, I believe that the bulk of my description is accurate.

On February 29, 2012, at 10:47:21 the GLD dropped by about 1% in less than 1/3 of a second, and on March 20, 2012 at 13:22:33 (1:22:33 p.m. ET) the quote rate in the ETF symbol SLV sustained a rate exceeding 75,000/sec (75,000 quotes per second) for 25 milliseconds (25 thousands of one second) and also dropped by a significant amount in less than a second. (Source: The Gold Cartel: Government Intervention on Gold, the Mega Bubble in Paper, by Dmitri Speck). To put this in perspective, if the US S&P 500 index drops by 1% over the course of an entire day’s trading session, this event makes news on the headlines of every mass media US financial website. Now imagine if the S&P500 lost 1% in less than 1/3 of a second, how widely covered such an event would be? So why did these events in the gold and silver markets receive a total blackout from the US mass financial media? And why would artificial quote stuffing rates of 75,000 quotes per second executed by bankers using HFT algorithms allow the price of silver to be manipulated and suppressed? First, consider if humans, and not supercomputers, provided all trade quotes in the SLV. The quote rate would have been less than one every few seconds, and nowhere close to the HFT program rate of 75,000 per second. So what is the purpose of HFT algo quote stuffing? To explain it as simply as possible, bankers that use HFT algos to produce quote stuffing events provide quotes that they never expect to execute. In other words, bankers produce quote stuffing events to serve as exploratory probes to see if anyone reacts to the false quotes they produce that are never even real orders. Since bankers use supercomputers located right next to the stock exchanges to run their HFT programs, their goal of providing fake bids (or asks) is to see if there is anyone trying to sell (or buy) at that price.

As a hypothetical example, if the price of silver were falling on a particular day, and the bankers wanted to see if anyone wanted to sell any silver futures contracts at the silver equivalent price of $20.10 an ounce, they could produce a fake bid that amounts to a price of $20.10 per ounce per futures contract. This fake bid then may produce a sell order for 10 contracts and another one for 20 contracts. Since each futures contract represents 5000 ounces of silver, the notional amounts represented by 10 and 20 contracts are respectively over $1MM and $2MM. So now that the banker run HFT algo knows that a couple of parties are interested in selling a large amount of silver derivatives at $20.10 an ounce for silver, the HFT algo would immediately withdraw or cancel all of its “exploratory bids” and use this information of selling interest in silver futures contracts to immediately re-price its bid to the silver equivalent price of $20.05 per futures contract. The HFT algo can then “see” if sell orders come back on line reduced to a price that amounts to $20.05 per ounce of silver. However, if the HFT algo spots 1,000 silver futures contracts that exist with orders to sell if silver hits $20 an ounce, the HFT algo will attempt to trigger all the stops if the bankers’ aim is to cause a waterfall price decline in the price of silver and will execute the wash, rinse and repeat cycle time and time again. In other words, once they know the sellers are chasing the price lower, the bankers would program the HFT algo to again immediately withdraw the bid at $20.05 and re-set it at $20 an ounce knowing that 1,000 more contracts will be automatically triggered to sell at this price and consequently send the silver price plummeting much lower than $20. How? Because as the stop losses are triggered, the banker programmed HFT algo can play the same game with those 1,000 orders and make every subsequent sell order chase the price of silver lower. Of course, these HFT algos have been programmed to make these decisions in milliseconds of time, faster than a human eye can see, and do not have a banker literally instructing the algo to pull bid quotes once a sell order that matches that quote comes in. Still, a real person had to program an HFT algo to make split-second decisions based upon information it gathers with a specific goal in mind, either to ratchet down gold and silver prices or to ratchet them up higher depending on their clients’ (the bankers) motives. Furthermore, since HFT algos are quote stuffing at rates in the tens of thousands per second, I realize that the step down increments in reality may be smaller but this is just a hypothetical example to provide an idea of how bankers can use HFT algos to rig gold and silver prices lower.

And the beauty of this entire HFT algo scam? Bankers can create a waterfall decline in the price of silver in the above hypothetical scenario before possibly even having to execute a single trade and trigger massive declines in price just by triggering a couple of trades! Thus, in the above scenario, once the orginal two selling parties take the bait and move their sell orders down to $20 an ounce per contract, the silver rout would be on. Using a poker analogy, trading in gold and silver paper derivatives against bankers that use HFT programs is like showing the bankers all of your cards every hand. You simply cwill not win against such a rigged system as long as you fail to realize that the bankers can see your hand through the use of fake quote stuffing. Or in other terms, the rigging is so egregious in gold and silver derivative markets, that if bankers were rigging a poker game in Las Vegas to the degree that they rig gold and silver futures markets, they would be taken into a back room in Vegas by casino security and well, you know the rest of what would happen next.

I suspect that this method of using HFT algos to quote stuff and pull bids (which is illegal for a human to do, but acceptable for a human employing an HFT algo to do, if that makes any sense) is the primary method by which bankers create vacuums in gold and silver derivative markets to create the types of artificially-induced, non-free-market waterfall price declines evident in the charts I sent to Bart Chilton in 2008, and that have happened every year since, especially with great frequency again in 2013. In fact, prior to last year, 2008 was the last year in which the Western banking cartel interfered with gold and silver markets to an excessive level, as can be seen in the below chart in which daily declines in gold’s paper price over 2% in less than 20 minutes spiked to 12 days (chart courtesy of Dmitri Speck of GATA). Again, this happened a dozen times in 2008 and yet was never covered one time by the mainstream financial media. Imagine if the FTSE 100 or the S&P 500 declined by 2% in less than 20 minutes just one time? This would be the lead story of every financial site around the world (this oddity alone should clue you as to with exactly whom the allegiances of the mainstream financial press lie).

So now we know why bankers use HFT algos to create fake quotes in gold and silver derivative markets to artificially move prices, but why would bankers have to create 75,000 fake quotes per second? Think of massive volumes of quotes as traffic on a two-lane highway. If there are not many cars, you can get from point A to point B fairly quickly. However, if I wanted to prevent you from reaching your destination and could re-route 75,000 cars to occupy the lanes in front of you, it would obviously take you much longer to reach your destination. Bankers that use HFT programs to quote stuff essentially have the same goal, but think of the destination in the stock market as the ability to process information. When bankers use HFT programs to create massive volumes of artificial traffic, not only do they effectively slow down the rate of processing information down for all others, but it also raises the cost to process information as well as masks the fraud committed by the HFT programs as no information can be obtained while they provide tens of thousands of fake quotes per second. Thus, the use of HFT algos to quote stuff makes it much more difficult for competing algos, and certainly human beings, to understand that their buy and sell orders are being skimmed for illicit profits by bankers. In other words bankers can use HFT algos to create waterfall declines in gold and silver prices in a step-down manner when they are buying and likewise, when selling, can use them to get traders to chase prices higher in a step-up manner, all without a single trade even executing before prices have been moved well lower or higher.

I have laid out in the graphs below provided by NANEX, evidence of bankers that have used HFT algos to create a step-down price decline in the price of gold on January 6, 2014 $1245 to below $1215 in less than a minute. In fact, one can clearly see the HFT algos in action in the step-down price action that happened in gold derivative markets this day as the algo was so precise that it caused the exact same number of total trades in each step-down in price. Furthermore, one can clearly see in the below charts that algo quote stuffing can sometimes cause trading platforms to completely breakdown and come to a complete halt in trading.

I want to make it crystal clear to people that the bankers using these algos and the firms employing these algos are the ones that are stealing from people and profiting from the losses they artificially inflict upon their clients. Bankers always try position all blame for all uncovered fraud and immoral activities solely on “out-of-control” technology as if the technology is somehow beyond their control. The meme that all the mass media has used last week when discussing HFT algos is that it is really not that bad because if it were, it would not be “legal”. Forget about the fact that banking and finance industry lobbyists spent nearly a quarter of a billion dollars in 2013 alone to influence law making and that much of this money is spent to make once illegal behavior legal if it benefits the banks.

In the end, it is not the speed of trading that is the problem, but rather how bankers use supercomputers that process and execute information at super speeds to create artificial, fake quotes and steal from people. Thus the problem lies squarely not with out-of-control technology but with out-of-control unethical bankers that are merely crooks in $3,000 Armani suits. Furthermore, it is not the revelation that bankers are using HFT programs to rig stock markets that scares bankers, but the possibility that the current scrutiny on immoral HFT programs may reveal that bankers use HFT programs to rig the prices of gold and silver that truly puts the fear of God in them. For if this revelation goes mainstream and gold and silver prices are freed from banker executed HFT manipulation, every asset bubble that bankers have created since 2008 will come tumbling down as rapidly as their artificially-created waterfall one-minute price declines in gold and silver futures markets. However, as long as scrutiny remains high on the Western banking cartel’s use of HFT trading algorithms, their ability to use these algos to slam gold and silver prices may very well be temporarily impeded.

Hopefully, the class-action anti-trust lawsuit against the five international banks that set the London daily gold price fixings that was filed the last week of March, 2014 in the US District Court of New York by the Philadelphia law firm of Berger & Montague and the New York law firm of Quinn, Emanuel, Urquhart, and Sullivan will shed some light on how big global banks have colluded with Central Banks to additionally use HFT programs to fix gold and silver prices lower.

Recent SmartKnowledgeU videos that may interest you:

How in the World We Came to Value Cotton More than Gold

The Real HFT Story that Frightens Bankers to Death

The Five Elements to Understanding Truth About Everything

Coming later this week…Government Lies and the Boiling Frog Syndrome

About the author: JS Kim is the managing director of SmartKnowledgeU, a fiercely independent consulting and research firm that strategically focuses on the best ways to buy gold and silver as an important hedge in the ongoing currency wars.

Republishing Rights: All original content is owned and fully copyrighted by SmartKnowledge Pte Ltd. You may republish the first paragraph of this article with a link back to the original article here. You may not republish this article in its entirety on another website without the expressed written consent of SmartKnowledge Pte Ltd.

via Zero Hedge http://ift.tt/1lNhiNH smartknowledgeu

The ONE Revelation About HFT Programs That Truly Scares Bankers (It’s Not Stock Market Rigging)

BATS CEO William O’ Brien, when confronted on MSNBC last week with the fact that HFT algos
commit millions of acts that are specifically prohibited by the US Securities and Exchange Commission’s Regulation NMS, a regulation that requires brokers to guarantee customers the best possible execution of price on orders, ludicrously argued that HFT programs have no clients (David Cummings, a computer programmer that worked at the Kansas City Board of Trade, founded BATS, a stock exchange located in Lenexa, Kansas. The core code of BATS was derived from tradebot, a computer program that engages in algorithmic trading). There is only one possible way that O’ Brien’s claim that HFT programs “have no clients” can be true. If the HFT programs were artificially intelligent self-aware programs that made all decisions independent of the interests of the people that coded them and the bankers that used them, then perhaps O’Brien’s claim could be partially true. Otherwise, as long as bankers hire programmers to code HFT algorithms and employ them for their benefit and to the disadvantage of their competitors as well as the disadvantage of their clients, then the obvious clients of HFT programs are bankers and the companies that entice bankers to use them. To claim otherwise is simply a flat-out lie.

In any event, the Holy Grail that the bankers are seeking to protect is not that they use HFT programs to rig stock market trading.

The real truth the bankers wish to conceal from the public is that they use HFT programs to suppress gold and silver prices.

Recent SmartKnowledgeU videos that may interest you:

How in the World We Came to Value Cotton More than Gold

The Real HFT Story that Frightens Bankers to Death

The Five Elements to Understanding Truth About Everything

Coming later this week…Government Lies and the Boiling Frog Syndrome

via Zero Hedge http://ift.tt/OwrhrT smartknowledgeu

The ONE Revelation About HFT Programs That Truly Scares Bankers (It’s Not Stock Market Rigging)

Last week, the big story was how bankers use HFT (High Frequency Trading) algorithmic software not only to rig markets but also to commit theft on a daily basis (Frontrunning, like Quantitative Easing, is just fancy Wall Street lingo to disguise its true meaning of theft). Though many in the public blogosphere expressed shock that stock markets are
rigged and that regulators like the Securities Exchange Commission willingly allow this theft to occur, the only thing shocking about this story was how long it took this story to reach the mainstream and that people were crediting Michael Lewis with uncovering this story with his book “Flash Boys” when in reality this story had been discussed in detail on independent financial media sites for more than five years already.

BATS CEO William O’ Brien, when confronted on MSNBC last week with the fact that HFT algos
commit millions of acts that are specifically prohibited by the US Securities and Exchange Commission’s Regulation NMS, a regulation that requires brokers to guarantee customers the best possible execution of price on orders, ludicrously argued that HFT programs have no clients (David Cummings, a computer programmer that worked at the Kansas City Board of Trade, founded BATS, a stock exchange located in Lenexa, Kansas. The core code of BATS was derived from tradebot, a computer program that engages in algorithmic trading). There is only one possible way that O’ Brien’s claim that HFT programs “have no clients” can be true. If the HFT programs were artificially intelligent self-aware programs that made all decisions independent of the interests of the people that coded them and the bankers that used them, then perhaps O’Brien’s claim could be partially true. Otherwise, as
long as bankers hire programmers to code HFT algorithms and employ them for their benefit and to the disadvantage of their competitors as well as the disadvantage of their clients, then the obvious clients of HFT programs are bankers and the companies that entice bankers to use them. To claim otherwise is simply a flat-out lie.

In any event, the Holy Grail that the bankers are seeking to protect is not that they use HFT programs to rig stock market trading.

The real truth the bankers wish to conceal from the public is that they use HFT programs to suppress gold and silver prices.

Recent SmartKnowledgeU videos that may interest you:

How in the World We Came to Value Cotton More than Gold

The Real HFT Story that Frightens Bankers to Death

The Five Elements to Understanding Truth About Everything

Coming later this week…Government Lies and the Boiling Frog Syndrome

via Zero Hedge http://ift.tt/1lNhkoM smartknowledgeu

The ONE Revelation About HFT Programs That Truly Scares Bankers (It’s Not Stock Market Rigging)

Last week, the big story was how bankers use HFT (High Frequency Trading) algorithmic software not only to rig markets but also to commit theft on a daily basis (Frontrunning, like Quantitative Easing, is just fancy Wall Street lingo to disguise its true meaning of theft). Though many in the public blogosphere expressed shock that stock markets are
rigged and that regulators like the Securities Exchange Commission willingly allow this theft to occur, the only thing shocking about this story was how long it took this story to reach the mainstream and that people were crediting Michael Lewis with uncovering this story with his book “Flash Boys” when in reality this story had been discussed in detail on independent financial media sites for more than five years already.

BATS CEO William O’ Brien, when confronted on MSNBC last week with the fact that HFT algos
commit millions of acts that are specifically prohibited by the US Securities and Exchange Commission’s Regulation NMS, a regulation that requires brokers to guarantee customers the best possible execution of price on orders, ludicrously argued that HFT programs have no clients (David Cummings, a computer programmer that worked at the Kansas City Board of Trade, founded BATS, a stock exchange located in Lenexa, Kansas. The core code of BATS was derived from tradebot, a computer program that engages in algorithmic trading). There is only one possible way that O’ Brien’s claim that HFT programs “have no clients” can be true. If the HFT programs were artificially intelligent self-aware programs that made all decisions independent of the interests of the people that coded them and the bankers that used them, then perhaps O’Brien’s claim could be partially true. Otherwise, as
long as bankers hire programmers to code HFT algorithms and employ them for their benefit and to the disadvantage of their competitors as well as the disadvantage of their clients, then the obvious clients of HFT programs are bankers and the companies that entice bankers to use them. To claim otherwise is simply a flat-out lie.

In any event, the Holy Grail that the bankers are seeking to protect is not that they use HFT programs to rig stock market trading.

The real truth the bankers wish to conceal from the public is that they use HFT programs to suppress gold and silver prices.

As a hypothetical example, if the price of silver were falling on a particular day, and the bankers wanted to see if anyone wanted to sell any silver futures contracts at the silver equivalent price of $20.10 an ounce, they could produce a fake bid that amounts to a price of $20.10 per ounce per futures contract. This fake bid then may produce a sell order for 10 contracts and another one for 20 contracts. Since each futures contract represents 5000 ounces of silver, the nominal amounts represented by 10 and 20 contracts are respectively over $1MM and $2MM. So now that the banker run HFT algo knows that a couple of parties are interested in selling a large amount of silver derivatives at $20.10 an ounce for silver, the HFT algo would immediately withdraw or cancel all of its “exploratory bids” and use this information of selling interest in silver futures contracts to immediately re-price its bid to the silver equivalent price of $20.05 per futures contract. The HFT algo can then “see” if sell orders come back on line reduced to a price that amounts to $20.05 per ounce of silver. However, if the HFT algo spots 1,000 silver futures contracts that exist with orders to sell if silver hits $20 an ounce, the HFT algo will attempt to trigger all the stops if the bankers’ aim is to cause a waterfall price decline in the price of silver and will execute the wash, rinse and repeat cycle time and time again. In other words, once they know the sellers are chasing the price lower, the bankers would program the HFT algo to again immediately withdraw the bid at $20.05 and re-set it at $20 an ounce knowing that 1,000 more contracts will be automatically triggered to sell at this price and consequently send the silver price plummeting much lower than $20. How? Because as the stop losses are triggered, the banker programmed HFT algo can play the same game with those 1,000 orders and make every subsequent sell order chase the price of silver lower. Of course, these HFT algos have been programmed to make these decisions in milliseconds of time, faster than a human eye can see, and do not have a banker literally instructing the algo to pull bid quotes once a sell order that matches that quote comes in. Still, a real person had to program an HFT algo to make split-second decisions based upon information it gathers with a specific goal in mind, either to ratchet down gold and silver prices or to ratchet them up higher depending on their clients’ (the bankers) motives. Furthermore, since HFT algos are quote stuffing at rates in the tens of thousands per second, I realize that the step down increments in reality may be smaller but this is just a hypothetical example to provide an idea of how bankers can use HFT algos to rig gold and silver prices lower.

And the beauty of this entire HFT algo scam? Bankers can create a waterfall decline in the price of silver in the above hypothetical scenario before possibly even having to execute a single trade and trigger massive declines in price just by triggering a couple of trades!
Thus, in the above scenario, once the orginal two selling parties take the bait and move their sell orders down to $20 an ounce per contract, the silver rout would be on. Using a poker analogy, trading in gold and silver paper derivatives against bankers that use HFT programs is like showing the bankers all of your cards every hand. You simply cwill not win against such a rigged system as long as you fail to realize that the bankers can see your hand through the use of fake quote stuffing. Or in other terms, the rigging is so egregious in gold and silver derivative markets, that if bankers were rigging a poker game in Las Vegas to the degree that they rig gold and silver futures markets, they would be taken into a back room in Vegas by casino security and well, you know the rest of what would happen next.

In the end, it is not the speed of trading that is the problem, but rather how bankers use supercomputers that process and execute information at super speeds to create artificial, fake quotes and steal from people. Thus the problem lies squarely not with out-of-control technology but with out-of-control unethical bankers that are merely crooks in $3,000
Armani suits. Furthermore, it is not the revelation that bankers are using HFT programs to rig stock markets that scares bankers, but the possibility that the current scrutiny on immoral HFT programs may reveal that bankers use HFT programs to rig the prices of gold and silver that truly puts the fear of God in them. For if this revelation goes mainstream and gold and silver prices are freed from banker executed HFT manipulation, every asset bubble that bankers have created since 2008 will come tumbling down as rapidly as their artificially-created waterfall one-minute price declines in gold and silver futures markets. However, as long as scrutiny remains high on the Western banking cartel’s use of HFT trading algorithms, their ability to use these algos to slam gold and silver prices may very well be temporarily impeded.

Hopefully, the class-action anti-trust lawsuit against the five international banks that set the London daily gold price fixings that was filed the last week of March, 2014 in the
US District Court of New York by the Philadelphia law firm of Berger & Montague and the New York law firm of Quinn, Emanuel, Urquhart, and Sullivan will shed some light on how big global banks have colluded with Central Banks to additionally use HFT programs to fix gold and silver prices lower.

Recent SmartKnowledgeU videos that may interest you:

How in the World We Came to Value Cotton More than Gold

The Real HFT Story that Frightens Bankers to Death

The Five Elements to Understanding Truth About Everything

Coming later this week…Government Lies and the Boiling Frog Syndrome

via Zero Hedge http://ift.tt/PKD7zK smartknowledgeu

Asian Stocks Tumble After China, Japan Disappoint On Additional Stimulus

The last time global equity markets were falling at this pace (on a growth scare) was the fall of 2011. That time, after a big push lower, November saw a mass co-ordinated easing by central banks to save the world… stock jumped, the global economy spurted into action briefly, and all was well. This time, it's different. The Fed is tapering (and the hurdle to change course is high), the ECB balance sheet is shrinking (and there's nothing but promises), the PBOC tonight said "anyone anticipating additional stimulus would be disappointed," and then the BoJ failed to increase their already-ridiculous QE (ETF purchase) programs. The JPY is strengthening, Asian and US stocks are dropping, CNY is weakening, and gold rising.

The last time stocks were stumbling on the back of a high-growth hopium scare… central banks saved the world…

Commentary from China's Xinhua News Agency (implicitly the point of exit for open mouth operations by the PBOC) suggest hope is fading for a big save…as Bloomberg reports,

China won’t rely on a large stimulus like the one following the 2008 global financial crisis to boost its economy after a “string of lukewarm economic indicators,” according to a commentary from Xinhua News Agency written by Zhang Zhengfu.

Talk about an incoming stimulus is “misleading” and those anticipating a package will likely be “disappointed,” the commentary says. A “mini stimulus” theory started after the State Council announced a set of policies including tax breaks and support for poor areas, the commentary says. China’s economy needs “a little” but not a “fully fledged” stimulus, the commentary says

and then the defaulting names started to fall

*CHAORI SHRS FALL AFTER BONDHOLDER SEEKS BANKRUPTCY RESTRUCTURE

*CHAORI SOLAR SHARES FALL 5.02% TO 2.46 YUAN IN SHENZHEN

But they promise dthey would pay in July

Shanghai Property stocks are lower once again

Then the BoJ disappointed… (even as Kuroda hinted last month inflation was well on its way to target)

Expectatations were for static monetary base expansion, a doubling of ETF purchases, and boosting bond purchases by 10 trillion yen

They did not…

*BOJ RETAINS PLAN FOR 60T-70T YEN ANNUAL RISE IN MONETARY BASE

No change to bond purchases

No change to ETF purchases

And JPY remains stronger and NKY weaker…

Japan is pumping the propoganda…

*BOJ: JAPAN'S ECONOMY HAS CONTINUED TO RECOVER MODERATELY

Except it hasn't…

The last time Japan attempted a consumption tax hike without the aid of monetary stimulus satefy net, this happened…

With broad-based currency volatility at 7-year lows, we suspect the ongoing currency war escalation with China may see this rise… and of course, FX traders' complacency handed Kuroda an opportunity to have maximal impact with any changes – but he didn't – which makes you wonder if/when he will given how high inflation is…

As a reminder Fed minutes are released tomorrow.

Full BoJ statement here.

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

The Global Origins of China’s Domestic Conflicts

Submitted by Zheng Wang and Vance Crowe of The Diplomat,

There is an interesting phenomenon regarding how the world views China. One day we see China as an enormous global factory, recognizing its global interconnectedness, and the next we view China’s domestic problems, such as the recent terrorist attack in Kunming and tensions in Xinjiang and Tibet, as purely domestic conflicts between one group and another—distinctly separate from the rest of the world. Blaming the ruling party for everything is easy. However, the impact of globalization on China is frequently overlooked, even though it is often more powerful than the force of the Party to some extent. It is true that China has been the greatest beneficiary of globalization, which brought unprecedented wealth and power. However, many people also overlook the high price China paid with its society, environment, and morality for its development.

Globalization divided China into two unequal parts: the successful, aligned and satisfied people on the top, versus the poor, frustrated and marginalized on the bottom. The large-scale outbreaks of social tensions in recent years, including the tensions in Xinjiang and Tibet, should not just be seen as isolated cultural or political battles, but rather should be heard as both the battle cry of China’s new class struggle and as a conflict of globalization. Based on the recent public opinion surveys, Chinese citizens have frequently ranked corruption, pollution, and social tension as their top concerns. In fact, all these issues are directly related to the factors of globalization that have helped China rise. The opportunities brought by globalization have hidden costs.

China’s embrace of globalization has aligned once fractious elites behind a banner of shared economic interest. China’s globalization dividends, including its trade surplus and the world’s highest reserves of foreign currency, have provided the government with huge resources to buy the loyalty of the intellectual and economic elites. Scholars, entrepreneurs, and government officials, who just 25 years prior stood divided in Tiananmen Square, have now found themselves as allies. They have become the stakeholders and co-owners of the new China Inc. People on the top are content, sharing the dividends of their prosperity while harmoniously singing the praises of globalization and the stability of one party rule.

There is reason to celebrate; as China embraced globalization millions of jobs have been created. Wealth among all people in China has increased. Compared with where they were just 20 years ago, even the common people on the bottom have seen their standard of living vastly improve. However, a new problem has emerged: while people on the bottom are better off than in the past, the gap between the rich and the poor, those living in the coastal areas and in the inner provinces (where most minorities live), has grown exponentially. During the prolonged period of economic and social development, everyone’s expectations became heightened. These expectations evolved into frustration when some groups began to rise faster than other groups. Social unrest can be caused by this frustration over growing relative deprivation. The situation is getting even more complicated when some minorities feel the new China Inc. is benefiting the majority Chinese Han and depriving them. The frustration with globalization is behind spreading social tension.

By hitching its fate to the opportunities brought by globalization, China has risen at a roaring speed. However, the real danger for the regime is that it has now become reliant on the speed of economic development. Only if China can maintain its unbridled growth rate can it continue to meet the masses’ expectations regarding employment and a standard of living. Beijing used to call an eight percent GDP growth rate as a “red line” of life or death. During the recent National People’s Congress session, Premier Li Keqiang tried to persuade the delegates to agree to lower the rate to around 7.5 percent. To some extent, Chinese society is now like the bus in the Hollywood movie Speed that must keep moving at a speed of 50 miles per hour; to fall below this speed will explode the bomb sitting just beneath the bus. Beijing is indeed playing a dangerous game.

Globalization has also tied Western leaders to the top of the bus, because a failed China would be catastrophic for the world’s economy. However, staying above the red line means that the wealth gap and socioeconomic marginalization will continue. Unfortunately, this may also mean that conflict will continue, especially when the marginalized have learned that the world will pay attention when violence is the messenger. Neither China nor the rest of the world can ignore this dilemma and paradox; with every “made in China” product we buy we are contributing to this rise in wealth, and the rise in frustration, social tension and air pollution. They are unfortunately coupled together.

via Zero Hedge http://ift.tt/PW3baT Tyler Durden

Ron Paul: Fort Hood – An Avoidable Tragedy

Submitted by Ron Paul via The Ron Paul Institute,

Last week we saw yet another tragedy at Ft. Hood, Texas, as a distraught Iraq war veteran killed three of his fellow soldiers before killing himself. It is nearly five years after the last Ft. Hood shooting, where 13 people were killed. These tragedies are heartbreaking and we certainly feel much sympathy for the families of the victims.

While there is much focus on the mental illness that appears to have driven many of these men to murder, what is left unsaid is the cause of the tragedy. Government officials and the media only talk about the symptoms that lead to these tragic events. They will tell us that there are people who get post-traumatic stress disorder (PTSD) and kill themselves and others. They will all call for more government intervention into the lives of those in the military to root out and “treat” mental illness.

But they will never question the two causes of these tragedies: the disastrous decade-long US wars in Iraq and Afghanistan that have destroyed the minds of so many service members, and the government psychiatrists who prescribe extremely dangerous psychotropic drugs to treat these damaged soldiers.

On the drugs, it is true that in almost every story we read about these kinds of mass killings, whether on a military base or in a school, the kids or veterans have been treated with these dangerous drugs. When will the medical profession wake up and realize that these drugs are often worse than the illness they are designed to treat?

We need to understand that the problem of veterans returning home with serious mental illness is increasing at an alarming rate. We are not talking about a few thousand people returning from the wars in Iraq and Afghanistan. We are talking about a hundred thousand people. And according to government statistics, about 20 percent of returning vets will suffer from PTSD, and a further 20 percent will suffer from traumatic brain injuries.

The numbers are significant and they are frightening. While some will ignore these statistics and point out that these wars are producing far less deaths than previous ones, the fact is these brain injuries and disorders are a living death for the victims. And increasingly, those living in such horrific circumstances, full of deadly drugs that are supposed to treat the problem but only make matters worse, are striking out against those in their communities or committing suicide.

But what of the other main cause of these tragedies? What no media or government representative will admit is that US military members are suffering horrible mental illnesses because they have been sent over and over again into senseless wars overseas. That is the real cause of this crisis. The real horror comes when these soldiers return to the US to realize that the wars have not been won and all of the suffering and dying on both sides has been in vain. Just think of how many individuals over the last 15 years would not have suffered death or injury — or post-traumatic stress disorders or brain injuries — if we didn't go to war unnecessarily!

The wars in Iraq and Afghanistan may be winding down, but the war against our veterans continues. Why are the people who are really guilty, those who lied us into war, not being called to task?

Unfortunately, the truth is that these same people who lied us into war in Iraq are still getting us involved unnecessarily overseas, in Syria, Egypt, Libya, Ukraine. The problem, the interventionism that creates these deeply troubled service members, continues to thrive, unpunished. And even worse: these people continue to plan our future disasters even though they will not suffer the fate of those they send to be broken on foreign battlefields.

We must end the aggressive wars that break our military, and end the dangerous drugs that turn deeply-troubled victims into killers. Let’s have no more Ft. Hoods!

via Zero Hedge http://ift.tt/1enjS5g Tyler Durden

Chinese Trust Products Sound Great (Just Don’t Ask Questions)

Remember CDOs? Murky, illiquid investments, backed by bulge-bracket firms that offered lots of yield over similar-rated corporates – just don’t ask questions. As SCMP’s Shirley Yam reports, China’s so-called “trust” products, promise high returns with big-name backing, but a scheme touted at Ping An Bank highlights just how murky the world of mainland investment offerings is. After reading this, we suspect, that last trace of faith that the PBOC has the Chinese shadow banking system under control (and a growth renaissance is due any moment) will be eviscerated.

As The South China Morning Post’s Shirley Yam reports, last year, a sales staffer at Ping An Bank, emailed him an investment proposal titled Ping An Wealth – Handan Hyundai Modern Logistic Port Project.

Hyundai? The South Korean conglomerate? That’s interesting.

George clicked on the e-mail to find a trust scheme that promised a fixed annual return of 9 per cent to 11 per cent over two years. It was looking for a total investment of 1.2 billion yuan (HK$1.5 billion).

The scheme looked real.

The proposal said the project involved an investment by Hyundai RNC Investment, which was fully owned by Hyundai Engineering and Construction (Hyundai E&C) – an arm of Hyundai Group.

Hyundai RNC guaranteed repayment with cash flow from Hyundai (Handan) International Auto Trade City, a US$1 billion project that included apartments, offices and hotels, according to the proposal seen by Money Matters.

It said Ping An Trust, one of the industry’s key players, managed the product with a long list of risk-control measures. The proposal bears the logo of Ping An Trust.

It looks even more real if you search for the project online in Chinese. In July 2012, Xinhua reported the investment “by Fortune 500 corporation Korea Hyundai Group”.

In the official media of Hebei province, where the project is located, there have been lots of reports and pictures of the investment. Among them is the Hebei government making Hyundai RNC’s chairman an “honorary citizen”.

On YouTube, a video shows Hebei officials meeting some Koreans who are said to be key Hyundai personnel. There is also a website for the project, which is described as an investment of Hyundai E&C.

Yet, when George (who is in the financial industry) searched for the project in English, it was a completely different story.

There is no mention of the project or Hyundai RNC on any of Hyundai’s official websites or in any of its publications.

George found the Hyundai RNC website, where family links led to a Japanese adult-entertainment platform and two fashion sites. The website has recently been closed down.

So is it a Hyundai project or not? Money Matters decided to contact all the parties involved.

Hyundai E&C spokesman Son Chang-sung said: “Hyundai RNC is not a subsidiary of Hyundai E&C. The Hebei Auto City is not an investment by us. Nor have any of our officials visited the project.”

A call to the number listed on the project website was passed to the administration department, where a woman said: “We don’t take media questions.” Questions that were faxed were not answered.

Money Matters phoned Shen Shan, who is listed as the contact person for the project’s developer in its business registration. Shen said: “Why are you calling me? … I am not an employee of them … I am not involved in the (Auto City) project.”

In the meantime, the developer is tangled up in a bitter legal battle with a peer which, it said, had jeopardised its cash flow, according to information posted by both sides on mainland chat rooms.

So what did the Ping An people do to verify the dubious project before pitching it to depositors?

The answer is even more surprising. Ping An Trust spokesman Liu Wei said: “We have never issued the product. Nor have we authorised any institution to sell the product.”

Ping An Bank spokesman Xie Shaoping said: “Our bank has never sold the product you mentioned.” Xie did not comment on the distribution of the scheme by one of its sales staff.

That leaves the sales staffer who sent the proposal. Money Matters reached him via his work e-mail, “seeking his comments on some trust products”.

He replied within an hour saying that he was more than happy to help. Specific questions on the “Hyundai” product e-mailed to him have, however, received no response so far. Nor can he be reached by phone.

Welcome to the mainland’s US$1.2 trillion investment trust market, where insufficient internal controls, fierce competition and a muzzled media have made room for all sorts of funny dealings.

If the sales staffer had been working for a bank in Hong Kong, his conversation and e-mail exchange with George would have been recorded. George would have been called up by the risk-control people to check if the sales staffer had explained all the risks.

Where the money collected from this investment proposal will end up is anybody’s guess.

Could George’s case be an isolated one?

Well, the same “Hyundai” product was marketed by Kunlun Trust, which is owned by China National Petroleum Corp, early last year, according to Kunlun’s website.

++++++++++++++

So we have renegade sales people in banks selling deals that are anything but what they appear to be, far out of the purview of any regulator, to people desperate for yield (and convinced by a government that no harm will ever come to them) on behalf of firms that are absolutely desperate for liquidity… and the same collateral is used numerous times… rings some awfully worrisome bells as these trusts appear nothing more than giant ponzis (or at best, securitized derivatives levered on the promise of a firm that the customer is clueless to comprehend).

Still think the PBOC can contain this trust market if there is one default or two, or ten?

via Zero Hedge http://ift.tt/PItgdN Tyler Durden

HFT Trader Busted For Spoofing Nearly Cheated His Way To The Top Of CNBC’s Million-Dollar Challenge

On Friday, we reported that in the latest in a long series regulatory crack downs of low grade high frequency traders – because obviously nobody will touch the big boys – the “SEC busted HFT firms for “tricking people into trading at artificial prices.” What is notable is that the owner of one of the charged firms, Joseph Dondero who was the head of Visionary Trading, and who agreed to a $1.9 million settlement and to be barred from the securities industry for spoofing order flow which is a low-grade form of quote stuffing, has had an extended track record of run ins with the law.

As BusinessWeek reported back in 2007, according to NASD records Dondero was the subject of the regulator’s inquiry letters because of “wash” trades, among other things. Wash trading is when someone buys and sells the same security simultaneously—or in quick succession—to create the appearance of active trading. It can be done to generate commissions for a broker or for tax purposes. This is quite comparable to the “spoofing” which Dondero was busted and barred for at his latest firm, Visionary Trading.

BusinessWeek adds that the New Jersey Bureau of Securities records pertain to Dondero’s time at a day-trading firm in Iselin, N.J. called Evolution Financial Technologies. The records say that, “As a result of his trading activity, Mr. Dondero was on heightened supervision and probation which resulted in his changing from a proprietary trading to a customer. This did not involve customers or a loss.” Dondero, who attended the College of New Jersey until 1999, has worked at a series of small financial firms. One of them, Heartland Securities, was sued by the Securities & Exchange Commission for alleged stock manipulation and falsifying records. Heartland closed in 2003 after two executives, Sheldon Maschler and Jeffrey Citron, paid $29.2 million and $22.5 million, respectively, without admitting or denying wrongdoing. (Citron went on to found the Internet phone company, Vonage Holdings (VG)). Dondero was at the firm after the alleged wrongdoing, but before the settlement.

Needless to say, Dondero had quite a “track record” of illegal trading activity before he was finally busted for one last time engaging in HFT spoofing.

However, it is not his FINRA brokercheck record that is of interest, but the fact that back in 2007, in the first ever CNBC Million-Dollar challenge, it was none other than Dondero who almost won. And yes, he nearly manipulated his way to the $1 million prize money then too. Only, the way he did fudged his winning percentage was not as most other competition participants had, by abusing the widely known system glitch that allowed contestants to see which stocks were rising in after-hours trading and then to buy those stocks at the lower, 4 p.m. EST closing price, but using a far more devious scheme. One which is reminiscent of the crime that last week just ended his trading career in the real world as well.

BusinessWeek explains:

[Dondero’s] trades drew criticism from other finalists, nonetheless, with at least three contestants complaining about his choices early in the final round. Because Dondero was picking thinly traded stocks in the CNBC contest, the other finalists worried that he could be manipulating the prices of those stocks in real-world markets. “He only picked stocks that could be manipulated,” says Jim Kraber, one of the finalists who says he flagged CNBC. Kraber emphasizes that he has no way of knowing whether Dondero was indeed manipulating stocks.

CNBC took somewhat-belated action to prevent such manipulation. BusinessWeek has learned that on May 18, midway through the final two-week round of CNBC’s contest, the cable channel asked each of the 20 finalists to sign a statement that any real-world trades they made were not “for the purpose of, or with an intent to, affect or manipulate the price” of the stocks they were picking in the contest. The penalty for failing to sign was stiff: “If you fail to return the attestation or your attestation is not truthful, you may be disqualified from the contest,” wrote CNBC Vice-President of Marketing Tom Clendenin in an e-mail.

A close examination of Dondero’s trading in the CNBC contest raises questions about his approach, but offers few definitive answers. The primary concern of other finalists was that Dondero was buying stocks in his CNBC portfolio and then driving up the price by buying the same stocks in the real market the next day. That’s easier to do with thinly traded stocks than heavily traded ones. Dondero did pick some thinly traded stocks, but not all of those trades were successful. He also made other kinds of purchases that contributed to his portfolio returns.

In the final round of the CNBC contest, Dondero saw nice gains on picks of BioProgress (BPRG), a British pharmaceutical company, and Hanarotelecom (HANA), a Korean telecom company, which both trade on Nasdaq (NDAQ).

On a typical day, neither stock sees much action in the real world. BioProgress trades an average of 3,100 shares a day on Nasdaq, while Hanarotelecom averages 7,400 trades a day. But both saw huge jumps in volume in the days after Dondero picked them. Hanaro soared from close to 19,000 shares on May 14, to well over 27,000 the next day. Dondero realized a 6.4% gain for his contest portfolio, as the stock rose. The following day, when Dondero chose BioProgress, more than 5,000 shares changed hands, compared with zero shares the previous day. Again, Dondero saw a healthy gain of 4.5%.

In retrospect a brilliant strategy: picking microcap, illiquid, and ultra-thinly traded stocks in a virtual portfolio and then manipulating these stocks in real life using oddblocks to reap giant profits, without much capital at stake (so unwinding the trade wouldn’t cost him much in the end), then rinsing and repeating, all the way until the $1 million prize.

To be sure, Dondero was smart, and inbetween the manipulated blocks, he injected some normal-course winners and losers.

But Dondero didn’t always make money on his thinly traded stocks. On May 21, he again picked BioProgress, and again volume spiked, this time to 23,000 shares from 1,400 the previous day. But Dondero lost 2.64% on the trade.

Other thinly traded stocks Dondero picked included Velcro (VELC), the famous fastener maker, and Macronix International (MXIC), a Taiwan-based manufacturer of computer memory. Neither were big winners for him in the final round.

Indeed, Dondero’s biggest winner during the finals was Fremont General (FMT), the subprime mortgage lender whose stock trades an average of 4 million shares a day. Dondero picked the stock on May 22 and after the market closed that day, the company said that it would sell its commercial real estate business for $1.9 billion. The news drove shares up 26.7%, a huge one-day gain in the contest.

Of course, when one strings a series of 9 “sure” winners in a row, the 10th one is not nearly as relevant, and can be left to chance, especially if it is subsequently used as the alibi to claim Dondero never cheat or manipulated the game. And speaking of manipulation, 2007 appears to have been one of the last years in which CNBC actually cared about something called “integrity”:

Dondero’s picks in CNBC’s contest could be examined as part of the cable channel’s investigation into “unusual trading.” Beyond looking at traders who may have benefited from its own software glitch, CNBC says that it has retained an “independent securities expert” to look into allegations of market manipulation. CNBC declined to comment for this story. But it previously said, “Integrity is paramount to CNBC. We are taking all allegations of improprieties very seriously.”

Whether it did or not is unclear. Dondero finished fourth in the contest with a total 32% return, while some or all of the contestants above Dondero were likewise accused of rigging the competition.

But the final outcome was negative: Dondero did not win, and whatever capital losses he may have suffered while “spoof” the thinly traded stocks he used as picks for his virtual portfolio he had to pay out of his own wallet.

As for the winner of that particular CNBC stock-picking challenge: it was an Ohio waitress who had never bought a stock in real life.

We wonder which HFT shop she works at now.