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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Best of Martin Hutchinson
October 30, 2012
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Only a tiny percentage of the volume in U.S. markets is now carried out by human traders. Even the order flow from human retail investors or almost-human institutions is routed through computers, normally to become chum for the piranha-robots in the trading pools (the computerized algorithms are taught to seize retail orders with especial glee, since they are thought very unlikely to reflect any special knowledge that might lead the piranha-robots to unexpected losses). Institutional orders are especially disadvantaged, because an order to buy 50,000 shares, a typical institutional size, will be front run, side run, back run and jumped all over by the algos, resulting in a sharp price move that makes the institution’s average execution price far more unfavorable than under the old human specialist system.

With no human traders and machines that withdraw from the market when turbulence arises, there is effectively no liquidity in a crisis. Hence there is nothing to stop prices falling to zero, picking up all the algo traders’ 1-cent bids on the way. The market imposes trading halts in crises, but these are only likely to shut the market altogether, rather than providing a solution to the illiquidity problem. Hence, at some point it’s likely that we will see a forced closure of the market following a decline of an arbitrary large percentage in the major indices.

Getting the market open again after that closure would be a difficult task. With almost no human traders and the machines either sidelined or programmed to panic because of the large market movement, it would probably take several days before a mechanism could be organized to reopen the market in an orderly manner. What’s more, the prices available at such reopening might well be a multiple of 1987’s 22.6% below those prevailing before the crisis.