Yesterday I wrote on what I considered a very strange development that took place on CNBC™ in regards to one of the morning shows where Jim Cramer produced, then read on-air, an email he received (and stated only he had) from Tim Cook of Apple™ about China’s health as far as he saw it. As I wrote yesterday this hit me in that “Wait, what?” type moment. So much so I instinctively hit the record button as to watch it later to make sure I truly did hear correctly. For the implications would be far from subtle. Why?
Never mind whether it may have legal ramifications or not for the moment. What was said, how it was obtained, and exactly who knew what, when, and where struck me as an obvious “something just doesn’t seem right here.” No SEC or law degree needed. Just common sense.
Add to this was also the timing. Right before the open where liquidity has shown to be at its most vulnerable (meaning lack there of) where it’s basically the window where HFT, headline reading algos feast upon stop runs and more clearing out what many consider the “order book” of the market every morning. This phenom has been detailed in near scholarly work by Eric Scott Hunsader at a company called Nanex™.
So with this understanding; anyone with a modicum of insight as to what these “markets” have now become listened to this email exchange and could draw conclusions near immediately what would follow such a revelation. And sure enough it seemed to do exactly what one inferred as the market steamrolled back 1000 Dow points in what seemed mere minutes, with HFT’s gorging on any and all orders available. (It’s been reported yesterday was one of HFT’s most profitable days just for some context.)
The issue? A lot (and I’ll wager to say – a whole lot) of the remaining Mom and Pop retail customers with their 401K’s that are still left in this market, if they weren’t steamrolled themselves, may have been scarred with orders they thought protected their stops, only to find the rules allowed those “stops” to turn into market orders (i.e., what ever someone wants to pay) and were filled at levels they never dreamed of selling or buying at.
Some of these types of order fills have been reported to have transpired at cents on the dollar. (i.e., you wanted to sell at $1 to preserve your money and during the chaos – your order was filled and sold at .05 cents or vice versa) It’s said some of the egregious ones have been broken (e.g., cancelled) however, we can all imagine there are a far greater number that will not. i.e., you wanted to sell at $1 and it was filled at .35 cents as an example. I guess you would be asked to take solace in that – at least you did better than a nickel. Feel better?
As I said yesterday I hadn’t watched a morning show on CNBC in years and have stated my reasons ad nauseam over those years. Yet, I would guess, just like you, with such turmoil currently taking place you may have also decided to flip over and see what two cents they might be adding to the discussion. So, like yesterday, I once again did just that: only to have all my past revelations reassured as to thwart any doubt that watching this channel is an absolute waste of time. And, in my opinion: does more harm than give insight into the markets for any of today’s very few retail investors. (One caveat: I do watch their Asia Squawk™ programming)
When I tuned in I happened on what I thought was perfect timing because the guest was Joseph Saluzzi, partner/co-founder of Themis Trading™. There probably isn’t a person more abreast in everything HFT than Mr. Saluzzi. The other trait he has that’s desperately needed in today’s environment is: he can make the complexities of HFT and its effect on the markets understandable to the lay person. So with that in mind I thought what an opportunity to expand further insight into what I’m sure are many frightened retail investors as to understand what these “markets” have morphed into. For the topic was HFT, the sell-off, and liquidity.
And what took place? Nothing more than irrelevant causational assumptions asked by one of the hosts. And, as Mr. Saluzzi tried to explain the why’s of the inherent dangers – he was either talked over (as in questioned) as if what he was saying wasn’t addressing the issue. Or worse – seemed to be dismissed in a tone or tenor of “Thanks, for that info – we’ll let you know next time we need another 5 minutes of dead air to fill.” What a freakin’ shame is all that came to my mind.
What an absolute missed opportunity to ask some real pointed questions in regards to what truly is making these markets, in my opinion; unstable.
Here you had a person that could answer any question one needed enlightening on when it comes to HFT and liquidity issues, that can explain it in understandable sound bites that are informed as well as actionable – and they seemed not only to care less – but rather – cared more about how quickly the segment could be over. I guess HFT and liquidity isn’t news that needs to be reported with any depth or insight to its viewers. After all, maybe that is the case – no viewers.
Or, maybe there’s another viewer. One especially suited, and Pavlovian in nature that feeds on the information that now is disseminated there: The HFT, algorithmic, headline reading machines themselves.
After all, if Mom and Pop (what’s left of them) aren’t watching any longer as proved via their last Neilson™ ratings (last as in they no longer report them.) Then I guess you turn to the one viewer that desperately needs “headlines” to work with: The HFT cabal themselves. After all, who needs viewers when there’s a market moving mass of machines just waiting for the right headline to cross the network?
The problem with this is two-fold. Whether it’s intentional or accidental. The more Mom and Pop tunes out – the less to feed on for the HFT’s till eventually there’s no one left to feed on except for themselves – and I believe you are witnessing in real-time this exact phenom which will be brought on not only quicker, but with more ferocity moving forward. For Mom and Pop are not coming back to either the “markets” or CNBC. They’re done.
And just as an addendum to my article yesterday. It seems I wasn’t the only one who said “Wait, what?” ZeroHedge™ asked the same question and posted it at about the same time I did in far greater detail. Then later in the evening I was sent a note sending me to the New York Times™. It seems the issues I raised are indeed worth questioning. From the article:
Bill Singer, a regulatory lawyer, said he expected the S.E.C. to investigate the context of the email and provide guidelines as to whether companies can disclose financial information this way to selected news reporters.
“I can see here that Cook is literally dancing on the edge of a razor,” he said. “At the end of the day it’s one of the largest companies in the world telling one reporter via a private email that our ongoing quarter is actually going to surprise people, and I consider that material.”
As I stated then as I do now, it raises a lot of questions to exactly “who” is the target audience. Mom and Pop retail that were basically the bread and butter reasons for the channel and programming? Or, someone (or something) other?
A reasonable question I’ll contend when one audience is still rushing to the exits as shown in any credible inflow/outflow analysis. While for all intents and purposes is also no longer considered “market moving” participants. While the other: moves the markets at whim for the select few still participating.
I contend HFT already has a “captured” audience, and doesn’t need to pay advertising fees on-top of their subsequent co-location and other incidentals. They don’t need the lights, sets, and hosts on a near 24 hour basis to give them pragmatic “financial insights.” Yet, the very life blood that made these markets (the retail 401K holder) is exactly the one that does. And from what I witnessed, they’re not only not getting it, when they try one last time they understand – there’s none to be had and hit the off button realizing how much time they just wasted. Or worse: their money.
Someone needs to remember “Last one out – please turn off the lights.” For inasmuch of what I witnessed today, using myself as an example. If this is what remains going forward? No one’s coming back.
© 2015 Mark St.Cyr