June 21, 2016

High-frequency trading is a major negative for stock markets

The quants and their algos chase price and exaggerate daily and weekly trends, confirming that "buyers live higher and sellers live lower." 

The lack of market memory and the quants' ever-changing positioning eats up traders who try to navigate the market over the short term, and frustrate even the most sophisticated hedge funds. 

Computers don't sleep, don't get tired, don't care about politics or fundamentals and don't vacation in late August in the Hamptons or on the Jersey Shore -- they just wreak havoc on our marketplace by amplifying moves on the downside and on the upside. The machines and algos have no knowledge of replacement or private market value and haven't even gazed at company income statements and balance sheets.

In theory, the distortions created by volatility-trending and risk-parity strategies should provide intermediate-term opportunities. But in reality, the distortions (and front-running) that the quants produce create artificial price action. So do our central bankers' massive liquidity injections.

The Tyranny of the Ph.Ds is leading to the absence of natural price discovery. This artificiality alienates many would-be market participants, keeping them away from Wall Street (retail outflows are ever continuing). It's also sowing the seeds for an unhappy market ending.

The bottom line
Kill the Quants Before They Kill Our Markets!

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