There has been widespread talk recently about high-frequency trading. How convenient that this issue would attract most of the attention, during a week that has seen the Nasdaq fall over 5%.
First of all, on the issue of HFT, I will say the following:
HFT, in itself, is not evil or immoral. High frequency traders are simply traders taking advantage of highly advanced software to place their trades faster. This is no different than you or eye taking advantage of the internet to communicate faster.
What could be an issue, however, is the idea that high-frequency traders use information on exchanges, to frontrun other peoples bets. In other words, they look at what other people will do and then very quickly place their orders before. Obviously, this practice, if it does exist, would be fraudulent. But fraud can be found anywhere and everywhere, but will be quickly purged by market forces.
Sadly, mainstream media has framed the issue of HFT as the need for more regulation.
On other news, markets are down and gold is up. Finally, though not all financial commentators, have aknowledged that we should expect a “correction” in markets. However, earnings and labor department statistics suggest that this is more than a correction in U..S stocks, and point more towards a long period of recession. Meanwhile in Europe, markets are down too, but the economy as a whole is performing above expectations.
ECB policy debate has centered around QE in order to fight deflation and a “too strong” euro. The media biass in favour of loose monetay policy has been evidenced in the past weeks.The threat of deflation, is now being coupled with the threat of “lowflation” low inflation. It sounds to me like they are just looking for any excuse to shove money into the financial markets.
Likewise, the biass against gold persists. Gold is to date one of the best performing assets of 2014 and we have reason to believe it will go up further. However, general sentiment in gold remains bearish. This is simple denial of our true economic reality.
All in all, we are set uo for an interesting and crucial months in terms of monetary policy. Will the persistent recession in the U.S. push the fed to stop taper? Will the ECB cave to financial interests and push ahead with an asset purchasing programm such as QE?
This and much more, coming up.