Monday, November 22, 2010

The System is Broken

I don't know how else to describe it.  I wanted to highlight two excellent tech tickers tonight.

The first one talks about the "professionalization" of how the markets trade.  I have been beating on this drum for awhile now, and the ticker guys below do a great job discussing it

Folks, you basically have no chance trading against Wall St at this point. The  Elliot Waves, Fibonacci's, and other programs that retail investors use to trade are now antiquated tools that have been replaced with high speed sophisticated trading programs.  These "old school" trading approaches will do nothing but lead you directly to slaughter.

Let's state the obvious at this point:  The game is rigged and it's getting worse by the second as a result of Wall St's ability to cheat in terms of getting information illegally before you do without getting caught. 

The market is also become more and more professionally based as frustrated retail traders pick up their toys and decide to leave the trading sand box after getting crushed by the big boys.  

90% of the trading volume now consists of HFT's, hedge funds, and institutional investors.  As a result of this new world, retail investors have no business trading this market unless they have direct access to the same information that they do.  Remember:  90% of "E-traders" lose money.

Don't get me wrong here:  If you want to invest that's one thing.  However, swimming with the sharks via day trading is a recipe for disaster because you are nothing but chum in the shark tank.   Their access to information and sophisticated trading algo's are simply too much to overcome. 

Politics and Economics:

The boys are on a roll today.  This is one of the main reasons why I think this country is doomed.  We have seen zero signs that our two political parties are willing to come together and fix this broken nation. 

The nation is so polarized politically that both parties will destroy this country in order to take down each other.  It's like watching a train wreck in slow motion at this point.  There is no partnering or meeting of the minds going on.

The Republicans are obsessed with taking down Obama.  The special interests continue to own both parties and the system shows no signs of changing.  The corruption on both sides continues to reach all times highs. 

The Bottom Line

All of the issues above have basically created a system that the people no longer have any faith in.  Bonds and gold are once again moving higher.  This happened today despite a stronger dollar.  To me, this signals fear and lack of confidence.

Our whole way of life is falling apart, and our government appears to lack the leadership that's needed to fix it.

Stocks rallied back after selling off early in the session.  Why?  Who knows at this point?  The market is so beyond screwed up you are wasting your time trying to figure out why it does what it does.

Nothing makes sense anymore and trying to interpret the daily insanity we see in the markets looks more and more like a fools game. 

The pros have taken over Wall St.  Trying to interpret their predatory trading behaviours is close to impossible.  Most trades are aimed at specific vulnerable stocks from what I can see at this point.

Their super computers look to buy stocks with high short interest in order to create a short covering rally.  They could care less about the fundamentals.  They only own the positions for 11 seconds so who cares?

The problem with this game is the pros will run out of suckers over time because the retail investor will get tired of getting repeatedly raped by these vultures.

They will be left sniping at each other as they try and grab a few pennies on each trade.  No one will want to be involved at this point.  The pros are laughing now but it won't be funny when they are left destroying each other.

A market that lacks regulation and fundamentals is a market that no one will want to be involved with.

It's time to accept the radical changes we are witnessing in terms of the way the market works.  Stocks no longer react to what's going on in the economy.  They react to trading algos.  The market is now filled with snipers that are looking to blow your head off as soon as you take a position.

You are basically being looted everytime you take a position trading a stock.  The only way left that Wall St can make money other than accepting our tax dollars is via trading.

As a result, there is no way to analyze anything that we are witnessing because the system is fixed. 

The insanity of our markets that has been created by these snipers is easy to see.  Ask yourself the following questions and you can see how badly distorted the market has become:

How does printing more currency via QE in order to finance our debt make any sense?

How does the market rally over 70% when unemployment, tent cites, and food stamp usage are soaring to near all time highs?

How do bonds hit the lowest yields in history when the risk of default in this country has never been higher?

How does the market soar when America has basically all but bailed on the stock market?

There are no justifiable answers to these questions.  The guys running the computer trading algos see the same things you do.  They know we are screwed.  These people may be a lot of things but they are not stupid.

However, knowing what the herd will do gives them "the edge" that they need.  They use this herd like thinking to their advantage by taking positions against what the herd does.  They could totally agree with you philosophically but they can make much more money betting in the other direction because they know it will create short covering rallies.

This type of predatory action has now destroyed the markets.  It may take a generation before anyone ever comes back.

I don't know what to tell you folks.  Somewhere along the line we lost our way and the system is now broken because of it.

I will continue to try and find answers, but I must admit it's all starting to look more and more hopeless.


getyourselfconnected said...

Nice post. I am taking a break from trying to figure all this out for the holiday season. I do love how the new deal is to roll over bad loans to places like Ireland (or the US) forvever and that makes it all ok. I am relieved.

Foudb an cool graphic from the late 1800's on US debt that I linked to that you may get a kick out of.

Jeff said...


Thanks bud.

I'll come check it out.

It's like watching a three ring circus right now when I watch the financial networks.

There seemed to be extra pumping today on CNBC. I always get suspiscious when the bulls are in serious pump mode.

Jeff said...

Nothing like a little North Korean artillery attack on the South to rattle the futures.

ES down hard following the news.

FXpropTrader said...

I see the point they're making in the first video. It's always been that way: the guy who knows the company insider or customer will have an edge at many times. But then you have events like Korea, Sovereign debt which level the field. Also remember that HFT, technical mammoth funds are playing against the SACs, Galleons of the world. Retail investors CAN have information from good sources aswell. It's work though. If you do nothing to get quality info but want to beat the pros trading, it's a tough thing most would fail at and always have failed at.

Jeff said...


Great points.

Some traders can do it but it's less than 10%.

You need to treat it like a job and watch the tape all day.

You also need to find sources of info that allow you to "keep up.

There are sites with good trading algo's that you can pay for.

Ibankcoin's PPT algo I heard is pretty good.

Like any job though it's a grind and you must be dedicated.