Algorithm trading makes assumptions and calculations based largely on “normal” trading conditions. When “normal” transitions/cycles to panic, usually right under the noses of most experts, speculative blow ups are the end result. When government intertwines with banking*, the consequences of these speculative blows tends to increase in scope and size.
Some of the better-known, more recent speculative blow ups are known by the following names: The Mississippi Land Bubble under John Law, The Florida Land Bubble and the Stock Market Crash of the Great Depression, Orange County, Long-Term Capital Management, the Dot.com bubble of 2000, and the 2007 Mortgage crisis.
* When governments and banking intertwine, as they have slowly done since the adoption of the US constitution, the consequences of greed-driven mistakes are often postponed through bailouts of various types. This action encourages even more hubris and sense of invincibility until the two are forcibly separated by the brute strength of market forces. Thomas Jefferson, a student of Adam Smith and practical economist, understood the dangers entangling banking and government. The words chosen in the U.S. Constitution and his correspondence suggest it
Hey Guys;
Welcome to the new face of trading in the 21rst century… the smaller investing public will be the ones who end up eventually getting a one way ticket to the door as they cannot hope to compete in this sort of arena unless they really and truly deeply understand the particular markets that they are trading.
One thing about these funds – they are generally clueless about the character and nature of the individual markets they trade and their mindless selling and buying creates opportunities for those who know their markets well enough to spot when this computer based selling or buying has pushed prices well beyond fair value and out of sync with the supply/demand picture for that particular commodity.
One has only to respect the hedge fund community for the enormous sums of money at the disposal of their trading machines and the severe price swings that can result from such sums being shoved into or yanked out of markets en masse. As far as respecting them for any intimate knowledge of the things that they trade – that is a joke. Most of them would not be able to tell you the difference between a wheat plant or a corn plant but they are in those markets jerking them all over the place on any given day.
For these people, it is all about chasing movement – nothing else matters.
Dan
DJ MARKET TALK: A War On Milliseconds Being Waged At CME
--------------------------------------------------------------------------------
Wed Nov 17 12:48:35 2010 EST
1748 GMT [Dow Jones] CME Group (CME) continues to whittle down
trade-execution times on its electronic futures and options markets, aiming for
transactions to go through in two milliseconds as opposed to the current five
in key markets. Energy and metals will be cut over to the faster trade-matching
engines by the end of 2010, CME CEO Craig Donohue says in investor presentation
Wednesday, with interest rates migrating in the first half of next year. There
are one thousand milliseconds in one second, and 86,400,000 milliseconds pass
by each day. (jacob.bunge@dowjones.com)
Contact us in New York. Darlene Ross, 212 416-2166;
darlene.ross@dowjones.com
(END) Dow Jones Newswires
11-17-10 1248ET
Copyright (c) 2010 Dow Jones & Company, Inc.
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