Via Nanex,

It is very common to find examples of stock quotes changing rapidly – hundreds and sometimes thousands of times per second in a single stock. At the extreme, we've seen in excess of 25,000 quote changes in a single stock in one second of time or less (this page has a chart that documents every extreme example). Often there are no trades during these events. Sometimes a simple pattern evolves from the quote price changes, such as in the case of a certain High Frequency Trading (HFT) algorithm that we've recently seen run every day in Google stock.

This particular algorithm starts with a bid (or offer) several dollars away from the bids (offers) from one of the other 10 exchanges trading Google Class A stock (symbol GOOGL). We've also seen this algo running in other higher priced stocks. The algo in this example only appears to run from the Nasdaq-Boston (BOST) exchange. In the chart below, we show bids and offers color coded by reporting exchange (there are 10 exchanges in GOOGL). Note that these are "top of book" quotes – that is, they are the highest bid price and lowest ask price from that exchange. The best top-of-book bid and ask become the National Best Bid/Offer (NBBO) and  is shown as light gray shading in these charts. Note, this algo only affects the NBBO when it gets near the end of its price stepping loop.

The algo starts with an order to buy 100 shares at $581.87. This is replaced, sometimes only milliseconds later, with an order to buy 100 shares at $581.88 (1 penny higher). Over the course of 1.5 seconds, this process repeats another 253 times, ending with a order to buy at $584.41. Within less than a second, the $584.41 order is canceled and replaced with an order several dollars lower, and the cycle repeats.

In the case below, the number of quote changes from this HFT algo is averaging 175 per second, but during some periods the rate approaches 1000 per second (1 per millisecond).

1. GOOGL bids and asks color coded by reporting exchange over a 5 second period of time.

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Now, some folks (particularly the math/physics challenged) will say:

"So what? HFT needs to be able to cancel quotes fast so they can tighten spreads, add liquidity and lower costs."

The problem is that when HFT cancels a quote after just 1 millisecond (ms), then anyone located more than 93 miles (150 km) away will see a stale quote. Worse, they won't know it's stale unless and until they try to act on it and wait for a response. The animation below shows how this works. Note, this animation assumes zero processing time on the part of the investor or any other real-world delays. In other words, this is the best possible case, and it will be much worse for the investor in the real-world.

• The animation starts at an Elapsed Time of 0 microseconds. 1 microsecond (?s) is 1 millionth of a second. 1000 ?s is 1 millisecond (ms).
• HFT places an order at the top of an exchange's order book, which causes a quote to be transmitted out to investors.
• An investor 93 miles away receives the quote after 500 ?s (0.5 ms).
• Assuming the perfect case, the investor immediately acts on the quote and transmits an order to the exchange (really their broker, but let's assume a perfect world).
• The exchange won't see this investor's order until a total elapsed time of at least 1000 ?s (1 ms).
• HFT changes its mind after 1 ms and cancels the order – just before the investor's order arrives.
• The investor won't know that their order failed for another 500 ?s or a total of 1500 ?s since HFT sent the initial order!

 

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Effectively, when HFT changes its mind 1000 times a second (or after 1 millisecond) anyone located outside the (93 miles/150 km) circle below will receive stale quotes:

An expanded map is shown below. Each red circle shows how far quotes can travel before expiring at different update rates. For example, the ring labeled 150 is how far quotes will get if HFT is canceling and replacing 150 quotes each second. At 150 quotes/second, people in Chicago will be processing quotes they can't act on! People in Los Angeles have it even worse – quotes changing just 38 times a second will render them all obsolete by the time Los Angelians or anyone on the Google Campus in Stanford California first sees them.

Now, look back at the example in Google above – that HFT algo was changing Google quotes an average of 175 per second, which means those quotes were expiring somewhere between the two rings labeled 150 and 250 in the map below.

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Back to our Google example, let's zoom out and see how often this HFT algo is running.

2. Zoomed out to just under 30 seconds of time (the zoom box is detailed in chart 1 at the top).

 

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3. Zoomed out to about 18 minutes of time (the zoom box is detailed in the chart above). Note how often this algo runs!
Each green sliver is made up of one HFT algo's bids or offers changing 1 penny at a time at rates exceeding 100 times and sometimes 1000 times a second.

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4. Zoomed out showing 9am to about 3pm Eastern Time (the zoom box is detailed in the chart above).
Note the distinct periods of time when this algo runs. Too bad other HFT algo's don't make themselves this visible.

 

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5. Another close-up, showing how the algo does the same thing on the offer size.

 

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6. A different pattern in a different stock on another day. This involves multiple exchanges and affects the NBBO.
Note: The chart shows 3,549 quote changes in about 1/4 of a second of time. These are not rare! Not many people outside of the exchange datacenter will see these quotes before they expire. Yet everyone will have to process them (because there is no way to know how long before they are canceled).

 

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Via Scotiabank's Guy Haselmann,

For a long time, Fed printing via balance sheet expansion has been the key to understanding markets and the predominant driver that has trumped all other matters.  Investors have been able to ignore significant global events, tensions, and economic conditions in faraway places, because a lower real and perceived risk premium from implicit Fed promises was the single most important aspect driving asset prices higher.  This game is quickly coming to an end.

As the Fed’s asset purchase program ends next month, global events and global economic fundamentals will have to be taken into account and priced accordingly.  Investors have become too comfortable and entrenched with the idea that Fed policy provided a win-win condition for taking risk; whereby, weak economic data meant more Fed printing, while strong data meant better fundamentals coupled with a Fed that would (still) only respond slowly and gradually. This cozy arrangement is ending and investors have not yet adequately recalibrated.

Furthermore, at 80:1 leverage, the Fed’s balance sheet is probably close to its practical limit.  It stood around 20:1 pre-2008.  As it currently stands, should the Republicans take the Senate during the mid-term election in November, criticisms will mount, potentially leading to a major restructuring of the institution.

The Fed has always been over-promising on what it can actually deliver.   Yet, it has been wildly successful at altering investor behavior.  Over the past several years, Fed ‘promises’ spawned investor fears of underperforming peers and benchmarks, and steered investors away from risk management and fiduciary prudence and concerns about receiving adequate compensation for the risk.  This needs to change.  The rise in asset prices in recent years means that assets today offer lower yield with higher risk.

The Fed zero interest rate policy has also fueled debt-financed share buyback activity by firms, amounting to over 7% of the total amount of the market capitalization of the S&P 500 over the last 18 months.  This indiscriminate buying has masked true fundamental conditions, thus aiding complacency and distorting accurate valuations.

Despite improved US economic progress, economic improvements were unlikely to ever get sustainably strong enough to justify valuations, so an adjustment down to appropriate valuations was inevitable and only a matter of time.  A move into the ‘right-tail’ of the asset price distribution typically precedes ‘busts’ into the ‘left-tail’.  The longer and deeper the current phase lasts, the worse will be the ultimate fallout. 

Fed money printing should have stopped when money velocity continued to fall.  Money, similar to US Treasury securities, is debt tied to the future taxing capacity of the US government, except it’s a liability that just circulates around.  Debt borrows from future output. Therefore, Fed and governmental actions that are taken today to prevent a depression could be sowing the seeds for causing a future one.

The Fed seems to be doing all that it can, but it is not a stretch to argue that maybe the Fed simply does not possess the proper tools in which to influence, let alone achieve, its mandates.  Unfortunately, ‘doing all it can’ while underestimating the unintended consequences may have calamitous implications for financial markets and the economy in the long run. 

The Fed can print, but it cannot increase demand, or determine where the dollars go.  Fed tools cannot deal with soaring social welfare costs, an aging population, and skill mismatches.  There has been a diminishing return of each dollar of newly printed debt, i.e., spending today barely buys any additional GDP.   Keynesian spending measures may (similarly) be counter-productive in the long-run.   Increasing debt levels depresses the money multiplier effects due to higher debt servicing levels (i.e., borrowing from future consumption).

Fed policy is shifting and no longer overwhelms all other factors.  Markets are no longer receiving quasi-coordinated one-way stimulus from central banks and governments.  Over-indebtedness has become a focus.  Some central banks are hiking rates to prevent capital outflows.  Japan and the EU are (arguably) in recession.  China is slowing and has credit and property bubbles to contend with.  Protectionist actions and counter-measures are beginning to have far-reaching economic effects.  Unrelenting violence between Shia and Sunnis rages. Hong Kong has spilled into mass civil disobedience. The list goes on.

The risk / reward skew has dramatically shifted in recent months.   Improving US fundamentals will not power (risk) asset prices higher, because prices have not been about valuation but rather only about Fed policy and investor behavior.  Investors should move toward capital preservation strategies.   In the meantime, long-dated Treasuries remain an excellent place to hide.  I remain a bond bull and still expect a move under 3% for the long bond.

“She was practiced at the art of deception / Well I could tell by her blood-stained hands / you can’t always get what you want, but if you try sometime you just might find you get what you need.” – The Rolling Stones

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Marine Colonel was a threat to blow the whistle on illegal narcotrafficking at El Toro. Forensic evidence supports murder; government called it a suicide before the body was autopsied and the crime scene investigation completed.

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"Two to three years is enough, not only to launch [settlements in rubles], but also to complete these mechanisms," says Andrey Kostin, head of Russia’s second-biggest bank VTB, noting that the possibility of the US and EU widening sanctions to exclude Russia from the SWIFT global money transfer system would become “a point of no return” making any further dialog impossible. However, as Deputy Prime Minister Dmitri Rogozin explains in this interview, how Russia's military and industrial complex is responding to a growing threat from America. Russia is not responding with any talk about the nuclear button (at least not yet); but they are preparing for such an eventuality: "we are creating a nuclear submarine fleet… capable of reaching any country on any continent, if [USA] suddenly becomes the aggressor, and our top-most national interests come under threat," adding that Obama's coup has ushered in "the complete demise of the Ukrainian State."

 

As RT reports, ?two to three years would be enough time for Russia to switch to international settlements to the ruble, Andrey Kostin, head of Russia’s second-biggest bank VTB, said…

The media has reported on the possibility of the US and EU widening sanctions to exclude Russia from the SWIFT global money transfer system.

 

Kostin said the move would become “a point of no return” and that any further dialogue would be impossible if SWIFT was cut off.

 

“If you look at Iran’s experience, shutting down SWIFT only happens when all relations; political, economic, cultural, even diplomatic, break down,” the VTB boss said.

 

“I don’t know how [Western] banks could block SWIFT and then expect cooperation in the fight against terrorism and nuclear disarmament.”

 

However, replacing SWIFT within Russia won’t be difficult, Kostin said.

 

“We have a [similar] system at the Central Bank of Russia and others. The Central Bank has tested this system, and we can switch to it at any moment.”

But away from the specifics, Deputy Prime Minister Dmitri Rogozin explains Russia's Military and Industrial plans in this extensive interview… (via Eric Zuesse)

The Floridian blogger about Russia, "Vineyard of the Saker," posted an English translation on September 29th of an informative interview on Russian television.

[youtube http://www.youtube.com/watch?v=2-cBISOTZzg]

 

Deputy Prime Minister Dmitri Rogozin, who has Russia's military portfolio, was addressing his nation's public, September 22nd, on Rossiya TV, and he explained how his country is responding to the threat of America's intending to place its nuclear missiles on Russia's border, inside Ukraine (much as the USSR had done in Cuba to America during the 1962 Cuban Missile Crisis). Russia is not responding with any talk about the nuclear button; at least not yet. There is still time enough to avoid anything so urgent as that. But they are preparing for such an eventuality. (8:50) "We are creating a nuclear submarine fleet … capable of reaching any country on any continent, if it suddenly becomes the aggressor and our topmost national interests come under threat."

Obama has started clearly in that direction, with his February 2014 Ukrainian coup d'etat installing a U.S.-allied Ukrainian Government to replace the former (and democratically elected) Russian-allied one; and Russia takes Obama's threat seriously; so, Russia is now rapidly updating its nuclear and other arsenals, and is offering technologically advanced military designers from all over the world extremely favorable terms for becoming Russian citizens.

Rogozin also says that (9:23), "by now, we have updated almost the entire fleet of strategic bombers."

All of the military parts and products that were formerly being manufactured in Ukraine, have been switched to Russian factories instead. Now (10:48), "Everything is produced in Russia." He says that many of Ukraine's top military designers have already moved to Russia, and that most of the others are desperate to leave Ukraine.

He comments (12:31), "For Ukraine, it is the end. It is a complete demise of the Ukrainian state as an industrial country. Nobody wants their products in the West because they are outdated, and they [the West] have their own manufacturers. What they [Ukraine] are doing right now is suicide. … I say this with great regret. I'll tell you one thing: we still had hope at the end of last year [before Obama's coup] that we would be able to remedy the situation [that it wouldn't happen]."

He says: (14:21), "On 21st of February, when a coup was staged, I had to fly to Kiev on behalf of The President [Putin]. [But] I stopped the car at the entrance to the airport, because it was clear that Ukraine was finished" as a manufacturing economy.

He sees manufacturing as the basis for a sound economy. (14:48) "Today, the only choice for them [Ukrainians] is to go into retail trade. But I think they also have another choice: to move to Russia." So: Putin is looking to build Russia's economy on a manufacturing basis, perhaps like China has done.

Rogozin repeatedly invites weapons-designers from around the world to move to Russia. Perhaps Putin takes as his inspiration what happened to the U.S. economy after our country, under President FDR in the 1940s, responded to the fascist threat by means of massive support to military R&D and manufacturing. Perhaps Putin hopes that Russia will become the new America, maybe that Putin will become the new FDR.

The interviewer responds (15:52) "What a strange story is unfolding." And Rogozin continues, "From now on, we will be gathering the best experts in the world." So: that (which also happened under FDR, and continued under Truman) is, indeed, their intention.

As if intending to make his point absolutely clear, he continues: "The Americans used to 'suck out' the best brains from around the world, … now we are reversing this process."

Discussing France's having gone along with Obama to stop production of France's Mistral aircraft-carrier ships to the Russian Navy, he says (20:45), "The money [from us] is paid, which means that they have to return it with penalties. And … France is losing not just money, but their reputation as a reliable supplier."

Then, starting at 22:32, he notes that when he first entered the Government (which was at around the time that Putin first became President), he noticed that "our individual businesses preferred to buy micro-electronics in the West," and that they would need "to start the production, in Russia, of all that is necessary." He says "We have already given the necessary instructions" to do precisely that. Obama's action in Ukraine seems to have spurred Russia to do this. Yet again, it is like America during WWII.

He continues immediately to add: "However, what we cannot, or do not have the time to make, we can get in other countries who are in trading partnership with us," mainly the "BRIC" or rapidly industrializing countries, with whom Putin has been building a trading-bloc.

The discussion then goes on to whether building Russia's manufacturing base upon the making of weapons is a sound idea, and Rogozin says (24:34) that among Putin's advisors, "we try not to argue publicly, but on the inside it is all boiling."

He says that Russia's high interest-rates are a great problem for developing manufactures. He makes a stunning admission (24:53): "They [America] are in a much more favorable position, no sanctions, no one prevents them from working; the banking policy [Federal Reserve] supports the industry. We do not have any of this. We are not going to now discuss the reasons why, but those are the facts. This is why the government now is making a decision to compensate for the [high] interest rate for enterprises in the military-industrial complex." Russian sovereign debt will probably soar.

However, Putin has decided "to develop a program to transfer technology from the defense [sector] into civil" manufacturing, so as to reduce the extra economic burden on them. The real hardship, apparently, will go to Russia's consumers. But, then, after the military-manufacturing sector gets humming, "they should be ready to produce similar high-tech products for the civil industry," including, "metallurgy, electronics, composite materials, and much much more."

Secondly, (27:06), "Today, they [Russian manufacturers] have defence contracts, tomorrow they might have less. They need a safety net — supplies for the civil market." It would, yet again, be very much in the mold of FDR, and of Harry S. Truman.

Perhaps Russia is now learning the lesson that America has now forgotten. Maybe Obama's America will become a spur to Russia — like Hitler, Tojo, and Mussolini, became spurs to America, in a time that America, evidently, has indeed forgotten, and in which we have become, eerily, the other side.

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The basin of Kazakhstan’s Aral Sea, once the fourth largest lake in the world, is now completely dry. The history of the sea, which derived its name from a Kyrgyz word meaning “Sea of Islands,” is revealed in a series of 10 videos.
Read Full Article at RT.com

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Ukraine’s Central Election Committee has registered quite a set of characters: Darth Vader, Yoda, Padme Amidala, Chewbacca, and Palpatine are to officially run in the country’s parliamentary elections on October 26.
Read Full Article at RT.com

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On the heels of the Ebola news.. we thought a laugh was in order…

Umm…

 

10,000 pigeons go through anal security check for suspicious objects Tue, ready to be released on National Day on Wed http://ift.tt/1ouR0gc

— People’s Daily,China (@PDChina) September 30, 2014

 

Those Chinese TSA agents must have very small hands…

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Singapore Becoming Global Gold Hub – Launches Kilo Bar Contract And Gold ATMs

Singapore continues its push to be a global gold hub. The new exchange traded Singapore kilobar gold contract will launch in less than two weeks – on October 13. The new contract is a 1 kilogramme physically deliverable gold contract for the Asian and global wholesale gold market.


Launching of SGX Gold Futures Contract: (from left) Harshika Patel, Managing Director, JP Morgan; Sunil Kashyap, Managing Director, Bank of Nova Scotia; Aram Shishmaniam, CEO, World Gold Council; Ng Cheng Thye, President, Singapore Bullion Market Association; Seah Moon Ming, Chairman, International Enterprise (IE) Singapore; Muthukrishnan Ramaswami, President, Singapore Exchange; Philip Hurley, CEO (South East Asia), Standard Merchant Bank; Jeremy East, Managing Director (Global Head of Metal Trading), Standard Chartered Bank.

In a joint statement, International Enterprise (IE) Singapore, Singapore Bullion Market Association (SBMA), Singapore Exchange (SGX) and the World Gold Council, announced the new contract yesterday.

The contract will be traded on SGX, the first wholesale 25 kilobar gold contract to be offered globally, and this is a collaboration among the four parties. The SGX is Singapore’s securities and derivatives exchange and clearing and depository provider.

This caters to the very high demand for physical gold in China and throughout Asia, which has increased significantly over the last decade.

This new gold contract differs from others in that as well as acting as a price discovery benchmark for 1kg gold bars in the Asian region, it has been specifically designed to actually deliver gold to large buyers, wholesalers and institutions, presumably including central banks.

Settlement of the contract is in gold 1kg bars and not in cash. A 1kg gold bar is 32.15 troy ounces.

The Singapore contract will be in lots of 25 kilogrammes and denominated in U.S. dollars. It will trade for three hours in the Singapore morning time. Singapore is 7 hours ahead of London and 12 hours ahead of New York, and 2.5 hours ahead of the Indian market, but is in the same time zone as both Hong Kong and Shanghai.

Six consecutive daily contracts will trade at the same time, so when one contract expires, another will be added.

Physical settlement is two days after trade date and consists of 99.99 purity 1 kilogramme gold bars that meet the approval of the Singapore Bullion Market Association (SBMA) good delivery list . This means that wholesalers will be able to gauge demand and supply of 1 kg bars over the following week.

Some analysts have said that the protests in Hong Kong and the uncertain political outlook in Hong Kong may give Singapore an advantage in terms of becoming Asia and possibly the world’s global gold hub.

Separately, the first gold-dispensing automated teller machine in Asia have been launched in Singapore. The two ATMs are in Marina Bay Sands and Resorts World Sentosa hotels.

Launched by Asia Gold ATM, Singapore is the fourth country to have the facility, next to the UAE, the UK and the US. Items such as 1g to 10g pure gold bars, as well as customised gold coins, can be bought from the machine.

Last Wednesday, the day the machines were unveiled to the public, a one gram pendant sold for $100 while it was $660 for a 10 gramme. The items can be paid through credit card or cash. Gold will be sold at different prices daily, based on the day’s global prices.

The ATMs mean little or nothing with regards to Singapore becoming a global gold hub. However, they show how gold is respected and sought after in Singapore and the people and institutions of Singapore, have a significant cultural affinity with gold.

Unlike in the west, where people who believe in using gold for wealth preservation or for saving are sometimes called names and dismissively called “gold bugs”.

Gold and money, throughout history has flowed to where it is better treated. Today, gold continues to flow from West to East. A sign of shifting economic fortunes.




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Canada ranks in the top five countries on the planet – when it comes to the well-being of older residents.

That’s according to a world-wide index looking at economic security, health and other factors.

The Global Agewatch Index places Norway and Sweden at the top of the list, with Switzerland third and our-home-and-native-land at number four.

The list was compiled by HelpAge International, a London-based non-profit that has affiliates in 65 countries, whose mission is to help older people challenge discrimination, overcome poverty and lead secure, active lives.

The 13 indicators measured include life expectancy, coverage by pension plans, access to public transit, and the poverty rate for people over 60.

The report found 97.7 per cent of Canadians 65 and over receive a pension.

7.2 per cent of those 60 and over – have an income that’s less than half the national median.

The index also found 83.9 per cent of Canadians age 60 or older – had at least a high school education.

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