HFT FTW: Rise of the Machines

Column by Everett Millman.

Exclusive to STR

We're sorry

But you're no longer needed

Or wanted

Or even cared about here

Machines can do a better job than you

This is what you get for asking questions

We’ve entered into a new frontier, and there’s no going back. High-frequency trading (or HFT for short) is here to stay. Exchanges will never be the same.

This goes beyond Michael Lewis’s Flash Boys and similar exposés that are sure to follow; this is something more akin to the Dead Kennedy’s “Soup Is Good Food,” wherein all human workers are being replaced by more efficient machines, pushed out of the game, as it were.


Computers never go on strike

To save the working man you've got to put him out to pasture

Similarly, free markets are being supplanted by artificial playgrounds for the cartel insiders. They’ve been allowed to realign the global economy to resemble a Monopoly game board, and are fittingly pumping unlimited amounts of funny money into the game through the central banks. Between the ECB, BoJ, and the Fed alone, the number is in the trillions.


The diverse interrelations between shareholders and firms, between producers and consumers, and between developed and emerging economies, have all been broken, corrupted, or adulterated--reduced to brightly colored pieces on an imaginary game board. Except, this game board is made up of real, flesh-and-blood lives.


Looks like we'll have to let you go

Doesn't it feel fulfilling to know

That you--the human being--are now obsolete

And there's nothing in hell we'll let you do about it


We must resist being mere pawns in the central bankers’ macro-game. While speculators, institutional traders, and other big bankers are the ones who carry out the hands-on task of manipulation, the Federal Reserve and its central-planning peers around the world make it all possible. At this point, there’s little else we can do (on the bourse floor, at least) to combat the banksters, the traders, and their pernicious trading algorithms besides exiting the paper markets altogether and opting instead for the solid footing of tangible assets.


Your number's been purged from our central computer

So we can rig the facts

And sweep you under the rug

See our chart? Unemployment's going down!

If that ruins your life, that's your problem


Is there any doubt whatsoever that this is where things are heading? The Dead Kennedys hit the nail on the head in referencing facts being rigged and headline unemployment data being manipulated. While the government publishes the headline “U3” unemployment number (5.7% for January) as the benchmark gauge for joblessness, the more comprehensive “U6” unemployment figure is about twice as high (11.3%). I wonder why they choose the former instead?


This type of distortion is not only happening within the financial markets, but is also having broader ramifications which result from having cooked up markets that don’t correspond to the real economy. Once commodities and hard assets are traded like financial instruments--and, make no mistake, this is increasingly the case--the bedrock of the world economic system will be compromised, replaced with loaded springs and trampolines designed to send short-term profits interminably higher at the expense of structural integrity and stability. Arbitrage is the main goal here, not long-term wealth growth and management.


Sure, in almost too many ways to count, machines and automation have made human existence more pleasant, more efficient, and the rest of those progressive ideals. This is certainly true in the mining industry, where mechanization has been introduced primarily to remedy the risky nature of such labor, as well as to extract previously inaccessible resources from the earth. This principle cannot, however, be applied wholesale across all spectra. Will we employ machines to create our art, or to care for our children? There are certain spheres where you simply cannot remove the human element without terrible consequences.



Soup is good food (We don't need you any more)

You made a good meal (We don't need you any more)

Now how do you feel (We don't need you any more)

To be sh*t out our ass

And thrown in the cold like a piece of trash?


As paradoxical as it may sound, the fast-paced cacophony of the financial markets is unfit for automation. It’s not worth the risk: in order to remain competitive, all trading would have to go the high-frequency route, not unlike a series of computers programmed to play chess against one another. Yet, chess is a game, with trivial consequences, so we can pit programs against one another for sport. The risk is just too high in the financial markets, where we’ve already seen a “Fat Finger” trading glitch last year that nearly tanked the entire Japanese stock market. A look at any daily price chart of the big stocks and commodity ETFs reveal dramatic vertical-line price movements that occur within fractions of a second. Only HFT algorithms can execute such nanosecond trades. So where does the “human element” even fit into this regime?


Robot “death matches”--pitting machine against machine, each outfitted for heavy metal carnage, for our amusement--are a fine way for electronic engineers to entertain audiences (and presumably themselves). But you wouldn’t want the same principle applied to the fate of your hard-earned wealth by financial engineers, would you?


Alas, this is essentially the scenario we have before us: Programming wizards are spending all of their time building grotesque trading robots, with metaphoric buzzsaws and infrared lasers aimed squarely at one another, rendering the financial markets nothing more than an arena for this poorly scripted, mechanized blood-sport to play itself out upon.


I’m by no means a Luddite, opposed to all advances in technology; but I do shudder at the thought of complicated algorithms deciding the fate of untold investments for the enrichment of a few--or, even worse, allowing these algorithms to eventually determine the fate of all investments. This is unfortunately the dismal future that we are inexorably marching toward.


We're sorry

We hate to interrupt

But it's against the law to jump off this bridge

You'll just have to kill yourself somewhere else

A tourist might see you

And we wouldn't want that


This is the sort of insanity that is wresting control of the financial markets. You’ll end up in the looney bin--or far worse--if you attempt to beat the big algos at their own game. Like many in this community have said before me, your best bet against the collapse of the paper markets is to protect yourself with physical precious metals and other real assets. As renowned investor Marc Faber recently said, “[I]f I could short central banks, I would short central banks in 2015 . . . And there is only one way to short central banks, and that is to buy gold.” Hard money like gold and silver are, by their very nature, antithetical to the fiat money, paper market Ponzi scheme of the central bankers.


Nevertheless, high-frequency trading is no longer some quiet oddity used by the few; it’s become the preferred tool of the market manipulators. The HFT firm Virtu recently announced an upcoming IPO, and both the New York Stock Exchange and the London Stock Exchange have announced plans to open midday “dark pool” auctions for large, institutional investors to circumvent the eyes of “Average Joe” traders; the model is here, folks. Welcome to the future. Welcome to The Machine.

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Everett Millman is the lead content writer at Gainesville Coins, a large distributor of silver and gold.


Samarami's picture

"Financial Markets" are fairy tales. Coins are forever.

    "...There are certain spheres where you simply cannot remove the human element without terrible consequences..."

Smartest sentence in the essay.

Once I knew an economics teacher, Bob Lawson (long gone), who argued: "There is no such thing as technological unemployment..." This would have been around 1950. Long before compooters -- even Univac.

I was a railroad telegrapher -- headed in the direction of the stage coach and buggy whip. Lawson was wrong. Teletype and land-line telephones were about to cost me my career.

Turns out I got myself enslaved by the white man about that time to participate in a war ("conflict" ha ha) like those regularly conducted by lunatics. They were using the euphemism "draft" to describe that phenomenon. Had I known what was to come I would have courageously fled to a non-combative political entity, such as that in the place they like to call "Canada".

But the "service" solved my problem. I was re-educated, re-trained, re-vamped, re-programmed, and re-evaluated -- all thanks to psychopaths who lurk under the mindless abstraction called "government".

Somehow I managed to have seven kids and a hungry wife. I became quite successful as an "educator" in government ("public" ha ha) schools.

Mr. Lawson was right. But not for the reason you might suspect.

I am now the richest man in my city. Not due to bank balances or investments calculated in "federal reserve notes". Due to libertarians and anarchists grabbing me by the seat of the pants and scruff of the neck and eventually dragging me here -- causing me to become a free, sovereign state.

In spite of the naysayers (thanks, Jim Davies, wherever you've ended up).

Wherever, whenever a man or woman is willing to roll up her sleeves and put forth her best efforts to accomplish the assigned task(s), s/he will likely meet with success. It's the rule of the marketplace. Sam

Paul's picture

It's sure looking to get exciting pretty soon.