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     Apr 7, '14

Rigged markets and 'The Man'
Commentary and weekly watch by Doug Noland

This from Silla Brush at Bloomberg on April 3: "The US Commodity Futures Trading Commission is reviewing futures markets to ensure high-speed trading isn't violating the law, acting CFTC Chairman Mark P Wetjen told reporters... 'I don't have the impression at the moment that futures markets are rigged,' Wetjen said... He was responding to comments by Michael Lewis, author of the book Flash Boys, that investors are being robbed by traders using advanced computers to jump ahead of their trades."

Charles Schwab stated that "High-frequency trading is a growing

cancer that needs to be addressed... High-frequency traders are gaming the system, reaping billions in the process and undermining investor confidence in the fairness of the markets."

I'm definitely no fan of high-frequency trading (HFT). Still, it's difficult for me to get all that worked up on this particular issue. I guess I've seen too much during my going on 25 years in the financial markets. This week, Michael Lewis created a firestorm with his assertion that markets are "rigged". Are they rigged? There is clearly a prevailing "rigging" element, yet the high-frequency traders are bit players. HFT is symptomatic. They're not the "cancer".

Credit is inherently unstable. Always has been. History has also clearly demonstrated that stock markets are prone to destabilizing bouts of exuberance, intense speculation and spectacular boom and bust cycles. Nurture a credit system dominated by marketable instruments and you've created a highly unstable credit mechanism. Allow marketable securities to inflate to 400% of GDP and you've created highly unstable financial and economic systems. Push everyone into a securities market bubble and then you're really trapped.

Policymaker rationalizations and justifications even foster the delusion that rigging markets is good and reasonable policy. More...

Doug Noland is a market strategist for the Prudent Bear Funds.

(Republished with permission from PrudentBear.com. Copyright 2005-2014 David W Tice & Associates. All rights reserved.)




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