The Trader has written about the HFT subject for more than a year. As the volumes are imploding, and investors feel the technology benefit is not benefitting them more, we might look for a slight change to more “normal” markets. From NYT.
But as the speed and complexity of the markets have continued to change at a rapid pace — with trade times now measured in millionths of a second — a growing number of studies and market participants suggest that those benefits to investors have stalled or even started to reverse.
Research from the broker Abel/Noser indicates that the total cost for an investor to get into and out of a single share of stock fell by more than half between 2000 and 2010, to 3.5 cents. Since then, though, the cost has leveled off and then ticked up in the most recent quarter to 3.8 cents, confirming a trend that has also been visible in recent data from Credit Suisse Trading Strategy and from Celent, a consulting firm specializing in financial markets.
The crisis in 2008 was one fuelled by excessive total debt. As society became more and more indebted the costs of servicing debt became proportionally higher, which has made it harder for countries to grow. Instead of individuals investing their income, or saving it and using it to start a business, a higher and higher proportion of income becomes taken up by the costs of paying down debt.
Historically in a free market system, these kinds of credit bubbles have ended in liquidation of the entire bubble and all the bad debt. However the Fed’s money printing since 2008 (much like the Bank of Japan’s money printing in the 90s) has done just enough to keep the debt serviceable.
The worrying thing is that Japan — which experienced a very similar series of events in the 1990s — remains in a high-debt, low-growth deleveraging trap. While the USA has managed a small decrease in indebtedness since 2008, it could take a very, very long time — Steve Keen estimates up to 15 or 20 years — for the debt level to fall to a level where strong organic GDP and employment growth is possible again. In my view, it is more likely (especially considering the Japanese example) that (with continued central bank assistance) there may be no long-run deleveraging at all, and that we may have entered a zombie cycle of reinflationary QE followed by market decline and deflation, followed by more reinflationary QE, etc.
Guest post by Peter Tchir.
There is a lot of talk about low volumes and what that means. There’s also a lot of chatter about low vix and what that means. I don’t pay much attention to each. I watch them, largely because others do, but don’t rely on them too much.
VIX is NOT a “Fear Gauge” and has NO Predictive Value
I have looked and find no useful predictive value from VIX. It may have had some value at one point in time, when only a few weird little quants in the corner took the time to figure it out and traded on it. But that was a long time ago, and its value as a leading indicator has dropped along with the ability to smack it down by hitting VIX futures, or lifting it higher by buying TVIX and other VIX related ETF’s.
Consider Luther’s view on charity and the poor. He made the care of the poor an organized, civic obligation by proposing that a common chest be put in every German town; rather than skimp along with the traditional practice of almsgiving to the needy and deserving native poor, Luther proposed that they receive grants, or loans, from the chest. Each recipient would pledge to repay the borrowed amount after a timely recovery and return to self-sufficiency, thereby taking responsibility for both his neighbors and himself. This was love of one’s neighbor through shared civic responsibility, what the Lutherans still call “faith begetting charity.”