Posted Apr 1, 2014 by Martin Armstrong
Just to set the record straight, markets can be rigged insofar as when banks act as brokers and keep track of client positions and trade against them. That is standard operational procedure despite Goldman’s denials. That has been going on for decades. There was the typical running of stops by floor brokers. This systemic market rigging is common in all markets for regulators play the same game and are part of that rigging process. They target small to medium size firms and routinely put them out of business because the big firms do not like the competition.
Does high-frequency trading front run orders? YES! However, this is not “rigging” the TREND. There is all sorts of corruption within the markets as there has been in politics. That is one reason I disagree with the “gold promoters” because they ONLY say buy and never sell. I cannot tell you how many emails I have received from people who lost their shirt listening to this nonsense.
I do not think Michael Lewis means manipulating trend. But that is the way it is being portrayed. Even Goldman Sachs came out ahead of his book and said high-frequency trading should be regulated. Great idea. The regulators do not stop any rigging by any big firm. Let a small company try to compete and they will be shut down.
The big NY money center banks hate my guts because they are under the false impression that they CAN manipulate markets. I merely forecast the opposite direction and they blame me arguing I manipulate the world because they were wrong again. They are delusional for every single time they have come up with some scheme they have collapsed and turn to government for a bailout. If you know government has a blank check and regulators will never criminally prosecute you, then you do not need risk management and that is what it is all about. Because the banks have been warned they will NOT be bailed out next time, they are turning away pension funds because they are losing a fortune and they in turn will only sue the banks.
There is a sizable difference between rigging the markets to front-run that I have watched since the late 1970s and actually manipulating the trend. My bet, the high-frequency trading will blow-up for they will be long and unable to sell fast enough during the crash and you will see new record down-drafts of major proportions. They will be unable to sustain the trend and when they buy a lot assuming there will be a buyer to sell to at a higher price, those assumptions will be their downfall. Then there will be an investigation. The real issue, they are deluding themselves regarding their ability to exit. They will experience the same crisis as the average person trapped in a long position at the top.
YES – we have run studies on the high-frequency trading and they show they will collapse no different from any other trader. NOBODY can rig the TREND. If that were true, there would be no cycles and they would NOT constantly need bailouts.