Good morning. As always, thanks are due to the Federal Reserve Bank of Kansas City for organizing this conference. This year’s topic, long-term economic growth, is indeed pertinent–as has so often been the case at this symposium in past years. In particular, the financial crisis and the subsequent slow recovery have caused some to question whether the United States, notwithstanding its long-term record of vigorous economic growth, might not now be facing a prolonged period of stagnation, regardless of its public policy choices. Might not the very slow pace of economic expansion of the past few years, not only in the United States but also in a number of other advanced economies, morph into something far more long-lasting?
I can certainly appreciate these concerns and am fully aware of the challenges that we face in restoring economic and financial conditions conducive to healthy growth, some of which I will comment on today. With respect to longer-run prospects, however, my own view is more optimistic. As I will discuss, although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years. It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals. In the interim, however, the challenges for U.S. economic policymakers are twofold: first, to help our economy further recover from the crisis and the ensuing recession, and second, to do so in a way that will allow the economy to realize its longer-term growth potential. Economic policies should be evaluated in light of both of those objectives.
As the World awaits Bernanke in Jackson Hole, we see markets come off and precious metals move a little higher. What to expect, or not. From FX Street;
Actually much of the speech was taken up by an analysis of QEI. What Bernanke did say, however was……
1) We will continue to monitor economic developments closely and to evaluate whether additional monetary easing would be beneficial. In particular, the Committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly. The issue at this stage is not whether we have the tools to help support economic activity and guard against disinflation. We do.
2) One risk of further balance sheet expansion arises from the fact that, lacking much experience with this option, we do not have very precise knowledge of the quantitative effect of changes in our holdings on financial conditions. In particular, the impact of securities purchases may depend to some extent on the state of financial markets and the economy; for example, such purchases seem likely to have their largest effects during periods of economic and financial stress, when markets are less liquid and term premiums are unusually high. The possibility that securities purchases would be most effective at times when they are most needed can be viewed as a positive feature of this tool.
Gold ticking higher….
…and yen stronger….
On those HFT Algos providing liquidity, or not. By Kiplinger;
Unless regulators put the brakes on Wall Street’s robot traders, more stock-market tumbles like the May 6, 2010, “flash crash” are “absolutely certain” to occur, according to a knowledgeable trading expert.
Fewer and fewer Wall Street traders are human beings. Instead, they’re computers that execute trades in milliseconds (a millisecond is one thousandth of a second). A forerunner of today’s robotic trading, computerized program trading, was largely responsible for the stock market crash of October 19, 1987, when the Dow Jones industrial average plunged 22.6%.
No one knows for sure, but the best estimates are that these high-speed computers — I prefer to call them robots — account for 60% to 70% of the volume on the major U.S. stock exchanges. Their activities are shrouded in mystery. Some are run by well-known firms, such as Goldman Sachs. Others, such as Jump Trading, Citadel, Getco and Tradebot, are known mainly by traders. Revenues from robotic trading totaled an estimated $7.2 billion in 2009, according to Tabb Group, a New York City market-research company.
Full article, click here.
If you are a HFT Trader, skip this. For those interested in credit markets, and implications on the Equities market. As we clearly can see in the below charts, the Economy is slowing down, and credit markets are pricing in that fact, while the Equities market, still live in a World of denial. Courtesy Macro Story;
When the economy weakens interest rates fall resulting in less demand to switch to a fixed rate, thus falling swap rates.
Rates already at multi year lows have really rolled over recently as the economic data has deteriorated at an accelerated pace.
With rates so low it speaks volumes to the structural problems within the US economy as monetary policy has done nothing to fuel growth.
It seems those “Finns” are abandoning the Greek Collateral Deal. Let’s see if Bernanke can save the World later today, while we let the HFT Algos trade the no volume market. Meanwhile from the EUobserver;
Helsinki has abandoned a loan collateral deal with Athens after fellow eurozone countries said it threatened to undo the EU’s second Greek bailout.
A contact in Finnish finance minister Jutta Urpilainen’s office, speaking on condition of anonymity, told EUobserver on Friday (26 August): “The solution with Greece that we had last week is not valid anymore but negotiations are ongoing for another solution.”
The decision comes after German Chancellor Angela Merkel on Wednesday said eurozone countries “should not take unilateral steps in the Greek crisis”. Austria and the Netherlands also said they would block the Finnish-Greek deal unless they got similar treatment.
Under the terms of a 21 July pact on the new Greek bailout, all 17 euro-using countries must give consent to top-up bilateral arrangements.
Full article, click here.
For all those trying to trade the market, here is yesterday’s action in Dell. As you clearly can see, HFT quote stuffing all over the place, but no trading taking place. Who will be the first to start the HFT Ban?
On August 25, 2011 at 15:45:48, in a one second period of time, there were more than 10,000 quotes and exactly zero trades in DELL. Close inspection of these quotes reveals something very disturbing. This cannot be dismissed as a computer problem or glitch. This can’t be explained as stupidity or some oversight. It is not pinging for hidden liquidity. And it’s certainly not price discovery. As far as we can tell, it’s not adding liquidity or narrowing the bid/ask spread.
What caused this blast of 10,000 quotes in DELL appears deliberate. Of the 10,000 quotes, the bid and ask prices remain the same. The bid size also remains constant except for one change after the first 7,000 or so quotes. The only real variation is the ask size. Not a simple 2 step variation, but one that repeats in a mathematical pattern with a long cycle. This makes it difficult to detect, but it also confirms that it must be emanating from a single source.
There are approximately 4,000 stocks that quote during active trading. Which means 40 million quotes/second if just one of the 9 exchanges allow this nonsense to spread to all 4,000 symbols. You would need 40 gigabits per second of bandwidth to receive data at that rate. Unfortunately, we think it’s just a matter of time, because events like this one in Dell are no longer isolated or rare. And it doesn’t look like there are any grown-ups in charge.