I got this via Mish via Economic Factoid Watch . This is a fantastic graphic that shows pump and dump trading in the millisecond realm where no trend analyzer will see. If you don’t understand what you’re seeing, read the original article here.
Back in December I posted on Project Alpha which is a high frequency trading robot/program based in NJ designed to manipulate markets and create “profit” almost like a sine wave except there is no gentle oscillation.
I’ve read reports that indicate more than 70% of all trading is done by these high frequency algorithms. The Great Recession has opened many eyes on this planet to the dangers of something for nothing economics, but I’m still alarmed by casual conversations that indicate almost complete ignorance of reality in terms of what money is.
I’ve heard many proud proclamations of “I don’t believe in the stock market.” Or, “I don’t invest money in stocks.”
Oh really? Do you have a retirement fund (TSP, 401K, IRA)? Are you relying on a pension? Do you have a savings account in a lending institution that restricts your access to your money? Most times, the answer is YES, meaning you do have a stake in this system — but not always.
Money is not evil. It can be a very useful tool when it’s slow, transparent, and understood. I’m not convinced that creating a machine that is designed to mop up the casual investor’s nickels and dimes is a useful tool especially when combined with a Federal Reserve backed parachute of imaginary, pixeled cash that is staked by YOUR future productivity.
I’d like to hear what you think about it.
{ 12 comments… read them below or add one }
Money is us. (in the context of “Soylent Green is PEOPLE!”
Money, in its basic form, represents the value of the future of something or someone. Robot traders and government/FED interest rate manipulators are manipulating the PERCEPTION of that value, not the real usefulness of people. Unfortunately, we believe that money is separate from people, and thus, we allow these manipulations to continue in the belief that we will magically increase our ‘value’ by simply increasing the numbers on a computer screen or the number of pieces of green paper available to us.
This is why I refer to Capitalism as a religion.
It also seems that if you know about the robot pump and dump, you can ride that bus to the big time with your own robot, right?
“It also seems that if you know about the robot pump and dump, you can ride that bus to the big time with your own robot, right?”
I guess so. Is this the future of economics where we send out virtual robot avatars to take down micro-inefficiencies?
I actually think there is something beautiful and encouraging being demonstrated here; and that is our human capacity of inventiveness.
The system may well be totally misguided, skewed, and counterproductive to our common good – BUT, even within this system we find ways to improve and enhance our performance.
That the system is broken, and needs reoriented – upon that we can agree? But it raises more questions:
How do we decide what is in our collective interest when designing our new systems? Can individual liberty be preserved through such a reinvention? And how do we harness the magnificent inventiveness of mankind in pursuit of those goals?
I think Auntie hit on something in a comment to the previous post: Consciousness is key…
What a great topic! (and welcome back, Tommy!) You would probably be interested in John Robb’s post on bots over at http://globalguerrillas.typepad.com/globalguerrillas/2010/05/journal-marketbots-and-shadow-liquidity.html By the way, look around while you’re there, since there looks to be some shared interests amongst our communities.
Then look at PC World’s recent article at http://www.pcworld.com/article/204533/huge_spamming_botnet_injured_but_still_alive.html
It’s like finding out that 8% of your DNA comes from viruses (it does) and about 30% of you body weight is not “you” but actually yeast and gut bacteria and such (it is).
If we want to get our own robot, then we’ll always need to get a bigger, faster, more distributed robot. PC World says the Rustock botnet alone was recently responsible for over 46 BILLION spam mails PER DAY. Can you imagine the clandestine stock trading, the kiddie porn bit torrents, the ID theft activity etc. that is also done on the “personal” computers of unsuspecting users all over the world? John Connor, where are you?
One more thing – traders are jockeying for position for the fastest network connection. One less foot of fiber optic cable for the trade to travel over to reach the server could be worth a fortune. Network latency is money.
I love you guys…I can say all kinds of things that would get nothin’ but crap anywhere else, and you turn it into gold in the follow through.
Thanks.
You may want to pass this along to your robot traders, though:
World money meltdown can start in surprising places, physicists say…
http://www.world-science.net/exclusives/100825_crisis
AF Walking,
Interesting perspective which brought me just shy of blasting the robots. The gut reaction is fear and mistrust, but maybe I’m missing something which prompted my call for perspective.
“How do we decide what is in our collective interest when designing our new systems?” This assumes that “we’ll” be doing the designing instead of simply surviving. Of course, choice is the preferred method, but I’m not sure we’ve got the luxury. I think we are likely headed toward an era of adjustment toward a split between simplification and hyper complexity. Both will exist creating an enhanced dichotomy between classes (middle class will evaporate) making the upper class an even sharper pinpoint. This is how I perceive it today.
Auntie,
We love you too.
I read the article and it makes sense on a naturalistic level given the interconnectedness of systems. I am actively following our shifting of financial reporting systems from US GAAP to IFRS which further enhances this interconnectivity.
The article gives a little warning toward the end about the potential depression lying ahead. I honestly don’t know what a depression in this system even looks like. The structure on which all this capital sits is so inter-related and incestuous that it is intentionally impossible to unravel. As much as I kick the crap out of complexity for complexity’s sake on FG, it may actually be the greatest strength of the system.
Barry,
Thanks for the links. I had not seen either of those.
You’re right about the cable length jockeying. I spoke to a trader about this issue, and he confirmed the amount of obsession over this issue.
“As much as I kick the crap out of complexity for complexity’s sake on FG, it may actually be the greatest strength of the system.”
Be careful about confusing stability with strength. The complexity of the system creates a false sense of strength because the random events cancel each other out: but only as long as there is enough total energy input to the system for bouncing the promises around.
There’s plenty of pink noise going around to hide the white noise of entropy, but over time, the background white noise starts to be more obvious as GDPs start shrinking at an exponential rate when jobs are lost, people stop buying, then more jobs are lost, concurrent with the loss of property pricing which was based on perceived perpetual growth.
As Mish makes plain: the market is really a perception game, and the robots can take advantage of it as long as the foreground white noise(random traders) keeps them hidden. Robots don’t have imaginations; people do, so as people lose their illusions, robots take over and then what used to be complex becomes very simple: the robots eliminate each other because they will be able to detect each other’s moves instantaneously. They are close to that already, hence the cable length fetishes.
The weakness of the system isn’t the complexity itself, but the consumption of its own stability in order to create temporary profits. The derivatives that bundled real estate to present a false sense of stability consumed the perception of perpetually growing housing prices. There are a lot of things bundled right now to create pseudo-stability (read “predictable profits”). As those stabilities are consumed (the Fed cushion, easy oil, demand for Chinese goods, the value of the dollar, the ‘full faith and strength of the United States’, the climate, etc.), then many of the backup beliefs also fail (“SOMEbody will do SOMEthing! They always DO!”).
I like the happy planet guy http://www.ted.com/talks/nic_marks_the_happy_planet_index.html
because he’s right: there are other ways to imagine the future than the doom and gloom pictures we see at the movies. Unfortunately, the only way to show people those other worlds is to get them to believe they would be more profitable than any efforts to maintain the one our robots are creating (self-destruct). In order for people to see personal, local, cooperative living as more profitable than opportunistic competition, they need to see how expensive the latter is, and how money doesn’t define the former.
I’ve found it personally helpful to read your post and respond to it prior to reading any comments, which I’m doing now. I got about half way through the “original article” and lost interest. I’ll leave it the “from the neck up only” crowd to hash out algorithmic manipulation. If I was sitting in Donald Trump’s office and he said, “Give it to me in ten words or less,” I could do it in three: It’s all bullshit. I know what money is. What’s in my pocket has value because I earned it. It may not be much, but it doesn’t require a fucking algorithm or a robot — it requires my virtues, which I employ on a regular basis to keep it flowing in. I am my wealth, nothing else. In answer to all your questions, no. What I think about it is: I don’t think about it. I have poetry to write, languages to learn, countries to visit, and music to compose. Fuck the robots.
Will said: “It’s all bullshit. I know what money is. What’s in my pocket has value because I earned it.”
Exactly.
To sum up the rest of the discussion for Trump: The system is manipulating the value of the words printed on what’s in your pocket. Inflationary policies create less value to what’s in your pocket, and transfer that value to the stock market and banks (as your money is worth less, people are forced to borrow more of it today than they did yesterday. Borrowing money is a commitment to write more poetry or dig more ditches than you otherwise might.)
Well said, Dan. I’m glad you brought that up, because one thing I’d like to see here is more discussion about what the individual freedom guerrilla can do to thwart that insidious process. I’d appreciate a future post on effectively combating inflation, specifically.
No one’s paying me for poetry or compositions, but why would I want to slap myself in the face by accepting fake money anyway? My currency is creativity. I’m already one of the richest guys I know. My invisible cardboard sign reads: “Will Compose For Food.” If I had to produce a new musical idea every day in exchange for a taco (for example), I’d love my “job” and never go hungry. Spicy food in, spicy music out. Win-win.
Will, here are some resources for you. What one can do is reclaim the exchange system, and by opting out of the current one avoid the exploitation.
At first flush, one might say ‘oh yeah, sure!’… but it’s actually not such a big leap and there is certainly fertile ground now around the country and world.
It requires someone, or some people, to dedicate their time and energy to see it through. The main point being that you need to bring your local community on board, in significant number, to make it worthwhile. If enough people are prepared to trade in Sonnets, then Sonnets have value…
The two systems I am familiar with, and that are both being established here in the NW, are Timebanks (an hour for an hour, no matter what you are or do) and the modern trade and barter system (as imagined by IRTA) which essentially establishes a local shadow ‘trade currency’:
1. Timebanks: http://www.timebanks.org/
2. I.R.T.A: http://www.irta.com/
Here is a blog by Thomas Greco, author of “The End of Money and the future of Civilization”, http://beyondmoney.net/ which has some good information.
Oh, and don’t forget LETS (Local exchange trading system): http://en.wikipedia.org/wiki/Local_Exchange_Trading_Systems – there are some good links at the bottom of this wiki page.
But, re-reading your post it sounds like you just want to be free of this bullshit (ah, bullshit again, apologies). I mean, does establishing local currencies and methods of energetic exchange really make a difference? Will the Machiavellian tendencies in the local populace not just bubble to the surface? Is returning to a European Middle Aged style economy any better? Fuck – I just want to run naked in the woods, I want to swim in the ocean, and I don’t want to see anyone else – and no one bother me…
But everyone is more or less after the same thing. The dream of following your passion (composing) in exchange for your needs met (the taco) is that not what the bot traders are doing too -> more money = more comfort/security (and someone to make that taco for you when you want it).
I want to believe it’s possible, and as I have posted here in the past – I think it is and I think those involved with establishing ‘intentional communities’ are at the vanguard.
I’m not sure it is. FG thinks the big separation is coming, and that no doubt means some Orwellian Dystopian nightmare…? I could honestly do without that, I’m tired of this. When can we just be free?
I don’t have a retirement account, a savings account, or money in the stock market. Most people think I’m crazy. I, too, agree that money can be a useful tool. I just don’t like or trust American money. I can’t even imagine a near future scenario where the government makes our money more trustworthy. I want to get paid in something that is actually worth something. Faith is bullshit and I’m not going to bet my future on it. I don’t plan on ever retiring, and when I no longer can work I plan on dying. Besides, I want to simplify my life as I get older until I get to a point where my living expenses are virtually non-existent.