Just in case anyone wanted to know what not to say to defend the absolute horrific mess of self-aware vacuum tubes and errant algos, formerly known as "the market", here is a great primer from Credit Suisse's trading strategist Phil Mackintosh.
Bullets summarized by Bloomberg:
- U.S. Stock Market ‘More Reliable’ Despite Crashes
This one really needs no comment
- Computers “make it easier” to find outliers in terms of price, volume helping to make the markets “more reliable” now compared to the period before computerized trading
So forget about actual value, just look for millisecond momentum mean reversion patterns out of whack and trade on that. Wait, what about the market being a discounting mechanism? Um, nevermind. Also, what can possibly go wrong with simply trading momentum. Speaking of, has anyone head of JAT Capital lately?
- 10 worst days in Dow all happened before computerized trading
So there were no computers involved in the "dynamic" hedging involved in Portfolio Insurance and the debacle which became Black Monday? But yes, it was mostly human traders dealing with the epic disaster in the aftermath of computerized Garbage In, Garbage Out models (kinda like those used by every polling Wunderkind nowadays). One can only imagine what would happen if momentum accelerating algos had been involved in 1987...
- More stocks gapped 1% in 1 minute in the early 2000’s than now, improved as computer use grew
A fine example of spurious correlation, because one can refute that infinitely more stocks gapped from their NBBO to $0 or infinity after 2000, and especially after the adoption of Reg NMS and ATS, both of which completely broke the market.
- Concluded reaction to trades “much faster than a typical asset manager would most likely be able to move” suggesting“ short term traders do provide value” by adding significant liquidity, transferring risks.
Go ahead and tell that to BATS and its catastrophic IPO... And no, fast trade reaction simply means that mean reversion algos kick in without regard for the actual underlying news. Also the only transfer of risk that takes place is that from collocated boxes to the slower retail platforms which are always left holding the stick. Because so much happens in the 10 nanoseconds after a headline sends a stock to $0 and back. Also, the only value short-term traders provide is churn and chaos in the immediate aftermath of big news. Because otherwise what is the rationale to halt a stock when it is up or down 10%.
Finally:
- Notes daily value of U.S. stocks traded of $220b more than double rest of world combined, shows “vote of confidence”
Look up Stockholm Syndrome Phil. Then look up how much money exchanges make from High Frequency Churning, pardon Trading. Finally look up any of the thousand examples caught on Zero Hedge showing quote stuffing, subpennying, flash crashing, internalizing, dark pooling, and last but not least, how HFT has never, repeat never, added to market liquidity (as predicted by us one year ahead of the Flash Crash), when said liquidity can be literally pulled with the pull of power switch out of a socket: the proverbial HFT STOP.
So no, Phil, "despite crashes" the stock market is not "more reliable." Quite the opposite. But please issue more sad, yet entertaining, defense pieces such as this one. All it shows is the desperation with which you and your peers are approaching the wholesale disgust that most people who manage money are now exhibiting toward the complete fraud that the stock market has become. That's ok, though. The upside is one day you, too, will learn a socially beneficial skill, as opposed to finding sub-nanosecond arbitrage opportunities in a market which is only where it is thanks to $14 trillion in monetary injections (and rising at an exponential rate) from the central planners.
