High-Frequency Trade-Off

An HFT trader named Cunningham

Remarked on the skeptics confron'ing 'im:

"The spreads I've compressed

Make it cheap to invest,

So it's okay that I am front-running 'em."

The issue of high-frequency trading won't go away, and positions are hardening like the western front in the 1st World War. On the one side are journalists and many investment managers who say that these ultra-fast trades simply skim income off the top of the market; on the other, HFT firms and other market participants who say that such lightning-fast activity is benign and makes markets cheaper and more liquid. Sure, says the first group; HFTs supply all the liquidity you want until you actually need it. 

In the latest salvo, The New York Times and the Guardian's Heidi Moore editorialized yesterday that HFTs have rigged the market, as the exchanges and policy makers have allowed them to do over the last several years. This provoked a furious counterattack, adding a number of industry participants to Ms. Moore's already-formidable list of blocked Twitterers. 

Meanwhile, the US Senate has held inconclusive hearings on the issue, evidently deciding to leave it to the SEC.  The Commission, for its part, is looking into the issue but playing its cards close to the vest. One can only hope that the commissioners keep investor protection uppermost in their minds, even if the harm to investors from HFT is not blindingly obvious. 

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Here is the link to Heidi Moore's column: http://www.theguardian.com/commentisfree/2014/jun/22/wall-street-washington-stock-market-rigged-investors

Here is the link to the Times editorial: http://mobile.nytimes.com/2014/06/23/opinion/best-execution-and-rebates-for-brokers.html

Here is a typical response: http://www.forbes.com/sites/timworstall/2014/06/23/heidi-moore-doesnt-seem-to-understand-high-frequency-trading/

A Cupful of Troubles

As the World Cup begins there are millions
Of poor and disgruntled Brazilians,
Whose new soccer venues

Have certainly been used

In misallocation of billions. 

It's not that there is any shame

In hosting The Beautiful Game,

But if chances were lost

To gain from the cost,

The political class is to blame. 

For fans there is some consolation,

Amidst economic frustration,

That statistics predict -

When the last ball is kicked - 

A victory for the host nation. 

What's more, you should not find it strange

How the World Cup makes sentiment change,

That a home-country win

Makes an up-trend begin

On the Bolsa, the Bourse or Exchange. 

But investors more seasoned than callow

In London, New York or São Paulo 

Never try to fill up

All their hopes in a Cup;

For that, it's a little too shallow. 

Every four years, I join with most of the world in a bout of football fever. Even the hard-working economists at Goldman Sachs get the bug, and publish their statistical analysis predicting the outcome of the World Cup.  As you probably know, Goldman predicts a home-country win this year. They also show how World Cup victory is also correlated with positive investor sentiment and a bullish stock market in the winning country, at least for a few weeks. After that, it's back to the grind. 

Unfortunately, the hosting experience this year is marred by the disappointment felt by many Brazilians that the billions of reais spent on new stadiums and related World Cup infrastructure are over budget, overly late and under-delivering on promised general economic benefits. 

Oh, well. Good luck to the Seleção today in their home opener against Croatia!

[Here is the link to the Goldman Sachs economic report on the 2014 World Cup: http://www.goldmansachs.com/our-thinking/outlook/world-cup-and-economics-2014-folder/world-cup-economics-report.pdf ]