In 2003 We started in the
today, we know our need is
accumulating many years
|the apparent need was capital||the real need was expertise.|
After more than 10 years accumulating market expertise we reached the conclusion most guys selling strategies fit this list : self-appointed gurus , pseudo-wizards , spin doctor professors , do-it-yourself rookiees , ego driven bank clerks , lifelong dud gamblers , con artists.
A thing they all have in common: what they really provide are very expensive ILLUSIONS, hard to debunk till is too late. Thus a simple debunking question would suffice:
<< if it works why don't you use your strategy ? >>
They expect you to be too blindfolded from your own greed or lack of expertise to make such question. It took some years but we finally understood that the only real Guru is a crash-test dummy as he is used to learn things from market the hard way and thus carrying the real wisdom: expertise and this is why Autoscalp is an expertise driven think-tank.
Probably the best way to transmit you our philosophy is straight from the source, thus quoting some answers given by our fellow founder Matteo Gandola during a few events demos and meetups. After a demonstration in Shenzhen upon a question concerning core variables of a trading model he returned:
you can hire sales , buy technology ...
but nothing can replace the core of a speculation:
the progressive improvement of your expertise.
[A reply which the audience enjoyed so much that has become the official autoscalp tagline]
"Autoscalp, improving your expertise"
www.autoscalp.com © 2005-2006-2007-2008-2009-2010-2011-2012-2013-2014
Through our market expertise we research speculative models and transform them in proprietary tools. Since our backgrounds are heterogeneous by choice , at autoscalp we avoid falling in dangerous short lived mainstream logic :
Logics We didn't follow , We don't follow, We don't follow :
The IT motto: code to profit- profit to code
The web hoster rule: feed the host to host the feed
The broker's motto: skin the muppets
The Fund manager's leitmotif: keep them happy, keep them uninformed.
Th Banker's motto: more volumes - more commissions
or historically (with the name of the scam "in fashion")
- 1980 ... Butcher & insurance (ponzi)
- 1985 Pink Sheets logic: hype it and squeeze them (bucket shop)
- 1990 Tech analysts rule: draw a time chart and make believe (ponzi)
- 1995 Dot commers motto: buy anything that moves (pump and dump)
- 2000 Retail brokers: pump the hype, squeeze the muppets (soft dollar)
- 2005 FX market makers motto: spread them , margin them (ponzi)
- 2010 Quant farm logic: more brains, more sheep to shear (soft dollar)
- 2015 Crypto rip-off logic: pull them in, drain them out (ponzi)
- 2020 AI tech firms logic: open the code out, close the profits in (bucket shop)
- 2025 Fangs fugazi: cyber panic, real profit (pump and dump)
- 2030 AI driven "the demise of the gang of Central Banks" (ponzi)
We also call these the "jailed in 5", because every scam above lasted five years
before Governments started prosecuting the scammers on a regular basis.
We decided to redesign expectations from sketch and follow the simple "alpha comes first" concept.
None of the guys above did that. They acted on a temp attitude : narrow minded self-referential interest,
They didn't create solutions. They created the problems to provide a solution for.
Our view instead is:
first comes the speculative idea to reach the alpha, then all necessary steps to make it working. We consider coding just an intermediate phase of a more complex and very creative process where profitability of trading models mostly lies in the funneling of experience. Balancing the two factors allows us to expand our creative process rather than cage it .
If you apply our philosophy to today's market situation: you can get why, while Quant Trading is still in fashion, we think it won't last. Quants act on a self referential profit rule and so you see more flash crashes, sudden huge bank losses , systemic failures are on everyday newspapers...
Quoting our founder partner Matteo Gandola invited as guest at a Master Course in Milan:
then came the prophets: "we can forecast markets..."
then came the quants: " we can trade at light speed..."
It was their short minded view that led them to failure, not their trading models. Each of these Phenomena usually lasted less than 5 years and inevitably ended up with people selling books, courses, or doing tv trade talks or setting up huge consulting firms.
Understanding our philosophy:
We created our alphas and our tools to use them , not to sell them.
We wanted to invent a new, non linear qualitative trading algebra:
our renko based algebra.
We wanted to create a new flexible modelization tool...
now is our price engine that works with dark pool logic not with brokers one.
We wanted to invent a new pricing model not OHLC based...
and that is our multiple pricing model which is time-frame independent.
We wanted to be capable of catching instantaneous trend...
and we invented our famous sniffer model .
Without knowing we gave our business a clear path and a peculiar identity...
and our think-tank was born.
we don't create tools following any external paradigm . We create tools which extend our creativity based on our experience as we rejected the idea of creating tools that cage it importing external paradigms. The core reason being that importing external paradigms , often standardized ones, forces inheriting and reiterating the same mistakes of the predecessor who injected the paradigm did. Doing something forced by marketing or profits by the very nature of such concepts, makes the research output doomed by obsolescence since inception.
...there is no such thing as standardized research model in creating an innovative tool.
Example of application of our Philosophy and view,
Q&A session , after think-tank meeting. (Dubai, 2011)
- If quants meet their sunset, what to expect ... next?
in my view, it will be an era of small de-localized market pools. Liquidity will regroup in structures much smaller than today's markets. Such liquidity pools will be either delocalized and decentralized but won't be as fast as markets are today .
- Will HFT finally disappear ?
HFT is a tool, a dangerous one in the wrong hands but is a tool. HFT will be probably exploited by governments as a strategic resource, probably to defend commodities pricing from arbitrage attacks rather than allow HFT to run bank driven wild attacks on markets .
- Can you explain it more clearly?
Banks exploited HFT through flash trading applications and created huge disasters but flash trading is an aberration of the HFT concept .
Banks are losing their one century wide grip on markets, markets are decentralizing and fragmenting themselves at an unprecedented speed. Banks failed maintain the status-quo using HFT. So now they want HFT to be banned. But is the problem HFT? Or HFT is just is one way market is escaping the banks' grip?
- But what if they shut down HFT?
Historically speaking, any attempt to block market innovations failed. Shutting down HFT might even accelerate the switch from Dollar to Yuan as world base currency because liquidity is now faster than ever and money goes where is most efficient, not where banks like it .
Market always finds a way,
about Banks... I'm not quite as sure.
Past Log of some sessions of our Think-tank.
For past algos see the bottom of the algo page instead.
What follows is part of think-tank meetings of the non-algo think-tank .
During a Dubai round table on strategy creation our think-tank was composed by two teams:
staff and creatives...which has then become the Autoscalp Panel.
Quoting the original concept from our founder, Matteo Gandola :
autoscalp is a think tank,
About the Autoscalp Think-tank panel and its worldwide network :
who we are:
- creatives, assorted in many flavors with very heterogeneous backgrounds
- experience bearers, ranging from a retired wall street floor dealer to an HFT coder
Autoscalp Network is managed by a Start-Up incubator in Dubai.
Autoscalp Network is not accessible from this website
About the Think tank panel:
we mostly rely on kudos rather than hypes which allows us to be "where thing happens" and constantly in close ties with the best professionals in the sector, ranging from traders to coders and a whole arsenal of top-notch resources picked here and there around the world for specific tasks. You can also look at the team interview page for some more hints on how the team works and at the philosophy page for a brief on our vision. Most of us give their contribution in remote (Crowdsourcing ) our rare meetings are spectacular fountains of ideas. Best ideas become alphas, best alphas become algos, best algos get coded and tested. Look at the Alpha algo creation page for a few examples.
Autoscalp task force structure is very flexible and elements are heterogeneous by choice, hence completing one another rather than competing. While some guys are specialized in HFT and low latency models , other guys do all ... but that .
Ultimately , the reciprocal complementarity of the Autoscalp team and network synergy still reflects the original one stated in 2003 by our Founder Mr. Matteo Gandola :
<< autoscalp is a think tank, there is no hierarchical structure , just experience flow among peers. Everyone being the team leader until his objective has been reached is such an innovative approach it leaves most "social networks" behind us.
We 'll NEVER allow salespeople enter the core team and tell creatives what to do and how to think
Our think tank does not meet for "forecasting sessions" , it meets for "what if sessions" instead:
the question we are to answer is not if an event is to happen or not but which other events are most likely to be directly or inversely correlated to that one, what would be a reasonable list of and exploitable events connected to the main trigger event and so on>>
We are not wizards so we want to have a "to do list" if an unexpected event happens to avoid improvisation because improvising a panic response can be more dangerous than the panic itself.
The experience bearers:
A retired DGCX Exchange Specialist : as he witnessed two Wall Street meltdowns during his career, most panic triggers translate in déjà vu to him. Way often, even before market open, he has already told us where it will go and how long will stay there. Practically his day ends when NYSE bell rings for market opening. With this guy on our side even payrolls releases look boring.
Best algos: arbitrage methods.
A retired high rank officer : a life spent to improve real-time logistics ... this guy is the person to call when a creative has a speculative idea to be developed and coded. Often telling us curious things such as "you're late, don't even start what you are about to do and do something else" although on and off seems talking nonsense, he never misses a shot , so is better you change your schedule , now!
Best algos: money management structures.
An euro dollar specialist : expert in spot trading, HFT scalping and anything FX . Can't get a word of what he says unless you check it on the " Fx dictionary for dummies ". Famous quote: "I'm open to confrontation". Most likely he's testing your reaction time to use it like a contrarian index.
Best algos: alternative pricing models
An information security manager: this is the kind of guy that you risk being asked security clearance just to get a coffee with. Crawling in hashing, alternate data streams, packet sniffing and the likes . If caught in a bad mood easily wears a different hat color.
Best motto: if you try enter my machines, I let you in so you play my game .
Media Relations - network management - anything web related: I'm Saleh, I write all you see here.
A self definition: proactive and minimalist : when asked for help my typical answer is:
"forget details I build you the team while you think the next move".
A professional P.R. with Diplomat background : practically a full time traveler, his job is to shorten the 4 degrees of separation into "yea I know this guy already, he is a good fella ". The sad part he is not kidding. Avoid competing in P.R. with this guy, is really depressing.
Best Algos: social network sentiment harvesters .
An author and publisher of post-modern and noir novels (our visionary philosopher). He tells us our peculiar roles in another reality... because he lives them both. He's one foot in the "now" one foot in "ten years from now" problem is maybe make him realize which is which but that's another story...
Best Algos: market mimic. Strategy optimization by trial and error.
A strategy game contest champion : whose only real issue is remember to stop doing game strategies and start doing trading strategies... an ordinary day picture follows: wow that model is spectacular, who created this ? <<You>>. No way ! Really ? Who me ? C'm on...! When ?!
Best Algos: algo pools. Survival of the fittest and predator prey models.
A sound engineer : transforms visual inputs into aural audio ones in ways never seen before...
"I hear the pattern guys!". If you look at the screen and say "where?" You lose. Heads up instead!
Expect to hear things such as : "those charts look like a mashup of some sequencer tracks".
Now rewire your brain 'cause is a SHE not a HE ! That wasn't expected right? Exactly.
Best Algos: pattern identification and Counter-profilng models .
A violin maker: he makes violinos from pieces of wood as a job and invents his own trading patterns on the spot as a hobby , so forget rational approach as he seems looking for the "oil price theme" rather than chart patterns. The only possible comment is: Yikes!
Best Algos: pattern identification on multi-frame instruments.
An artificial intelligence expert : ...and award-winning strategic board game designer . Just one step away from the Evil Genius in your kids comics but damn more tactical while writing interlocked rules. I would not be surprised he changed his behavior expecting I would write about it. Wait. Did I say tactical ? I should have said realtime too.
Best Algos: market mimic. Dark pool sniffing...and anything HFT .
Those are the people, now the machines:
The shared knowledge bot: a light interface bringing up shared knowledge when needed, they way you need it.
A Generic AI: that is the thing you start talking to when in need of speed it up via auto-coding or
from idea to sketch, from sketch to model , from model to prototype.
A Specialist AI: this is the finalization step, when your idea is "almost" coded needs expertise to run in a profitable way.
Passes a kind of Turing test: "can you build an environmet that gets a disastrous algo to profit without touching it?" Yes.
Swarm Intelligence: that's the evolution , competitive, dynamic arena every algo must survive in.
to protect our know how and prevent head hunting / picking / recruiting attempts
staff names are not disclosed.
Head hunting prevention:
Please avoid any attempt of luring, baiting, interviewing our members to indirectly recruit them, including social media used as head hunting tools prone to tricks such as "procurement outsourcing" and the likes... as violates our
Non Disclosure - Non Compete Agreement already signed by all members of our staff and by any potential partner
in order to be qualified as such.
The network :
Autoscalp Network runs on a de-localized distributed private p2p cloud.
with thousands of contacts spread around the world running on a proprietary private network, we transform best ideas in alphas and best alpha in algos. If you ask one ot the guys why he likes being part of our network << because I can >> is the most likely answer as there is no way to enter the autoscalp network uless the network needs you.
Autoscalp has now two separate networks
Algo R&D Think-tank
Libertarian Think-Tank (not politically correct)
The best start up process sequence we ever found ? Check this link
Also, in order to assess a more thorough evaluation of your business idea we thought would be a nice idea to debunk reciprocal lies that either venture capital and entrepreneurs tend to say each other before exposing your idea to external judgement.
The more we you'll have meetings with Venture Capitals and the like, the more you notice that most "partnership requests" might be masking a hidden intent to gather restricted info or even steal know-how, so we decided to put all those hook attempts and relative debunks (in black) on the above slide.
Noteworthy, most of these problems are avoided if one switches to a Mudaraba based start up model as that is based on reciprocal TRUST rather than interest on capital and capital returns.
Conclusion : always make venture capitals compete one another .
A V.C. comment:
Most of times you see a guy with a good idea spends ton of money in useless cosmetics for his business,
while using, for example services provided by www.fiverr.com would do 90% of those tasks at a fraction of the price .
Rather than concentrating in R&D , so he comes to us showing he mastererd web skills rather than entrepreneurial ones
and that does not help us to focus on his business idea and personal capabilities.
So the best advice I can give is to forget cosmetics and focus on the real deal:.
Market works on production not on credits.
WHAT IS AN ALPHA ALGO ?
An Alpha is the very core of a speculative idea:
it has a double meaning both incipit and profit and We like it both ways.
Focus on the spark, before it becomes a code, before it becomes a strategy.
Alpha is what was used to be called "animal spirit" in a culture "dragon breath" in another.
As Matteo Gandola, the Autoscalp creator once said in a meeting
<<Alpha is where know how lives>>.
Why Autoscalp alphas are different from competitors' ones ?
<<Because our Alphas are based on market experience , not just on coding experience>>.
One might think that just a few HFT skills are required to develop alphas but is pipe dream.
you will be surprised to know that most C.V. we trash at autoscalp are :
- "quant analyst"
- "experts in trading system coding"
- "low latency expert"
- "c++ , mt4, java , R language trading system coder..."
- "PhD... in math... statistics..."
- ... and anything about "banking experience" helps to reach the trashcan first.
Market experience is the very core of a speculative model, not coding.
<<first you must have a clear speculative idea in mind , then look for a coder>>
How about learning when things go bad then?
A bad algo creation example :
data set :
assume you have 3 seconds lag to inter-bank price
assume you have a spread widened 2 pips
assume you feel confident because your broker gives you "guaranteed stops"
then you feel like developing a fast system to scalp market inefficiencies...
(there are many ways: from triangular arbitrage, trend following, next price forecasting...)
but after you code your "wonderful theoretically profitable trading system"
with a perfect and profitable back testing you end up wasting
a ton of money and even don't get the real reason why you lost all those money.
Ok that algo failed, now: was it bad coding ... or lack of experience?
If the above 3 assumptions were true real problem is that
you were not trading in real time.
Giving such combination of factors above, you are delayed
at least 3-4 minutes without knowing.
If you did such mistake, you miss experience:
even if price appears to you in real time , it is not.
Spread widening and slowed execution is a deadly combination likely
to make all your profits disappear.
The core of this example then is:
if you are away from real market price , is useless you waste time in coding.
Experience also says that one of the most dramatic issues you can face is
that most of time coders and algo developers tend to stick to their code
even if is not profitable at all. Removing an algo is more expensive than creating it.
an alpha is not necessary a trading system or strategy but it can be even
a decision filter, like the one above,
to prevent wasting time in allocating precious resources in useless coding .
A good algo, created with lateral thinking :
spotting an artificial liquidity injection pattern.
We took an eurusd ticks data sample and converted it until played it as wav sound as
we identified a recurrent humming noise in the background we discovered that was
a systematic artificial liquidity injection in the order flow from liquidity provides.
Then we have set a few models to wait for such injection before entering market.
CRACKING AN UNBREAKABLE CODE :
We stumbled upon the unbreakable Dorabella Cipher reading this:
After some think tank work... it comes out that to us it looks like a song,
not a text message:
This is why cryptographers failed to crack it for 200 years.
Dorabella Cipher was written to the daughter of a preacher from her admirer. Who was ,
yes a great math expert but a musician too. Today if you were him, you would probably
send her your CD and he did exactly the same but he lived in 1800.
So guess what he sent her? Yes, obviously, a love song.
Dorabella Cipher is simply a song NOT a text message.
Symbols indicate fingers positions on a keyboard ,
where position of next note is relative to previously played note.
Conclusion: cryptographers failed to decrypt Dorabella cipher for 200 years
because their assumption: -it must contain words- was simply wrong.
We cracked Dorabella cipher because we did not know that it should have contained
words rather than notes.The alpha algo was : always doubt the data set.
Exploitation: now rethink same alpha algo "always doubt the data-set"
but apply it to financial time series. Historic prices covertly inherit the feed
provider's interpretation of such data which , as any interpretation can be correct
or... not. We often discover that biggest flaw comes from
the input data-set not from its analysis.
ITALIAN BANKRUPTCY COUNTDOWN... ENDED.
ITALY BANKRUPTED IN 2012.
POPULATION WAS NOT TOLD FOR MERELY FINANCIAL REASONS.
triggered on 1/3/2012 - 8 Raby` al-THaany
Sorry Italy: time is up !
we took 2 years history of the (forced) ECB buying of Italian bonds and rendered it
as sound file to filter background noise. That "humming sound" was quickly coming
to a fade out within mid april 2012. BUT For every day btp - bund spread stayed
above 5,00 we subtracted one day to the deadline.
Countdown then pointed to the date above.
Among EU countries at least Italy is already in technical default .
Can read more about that issue on money morning website
Since EU already committed all its reserves to save PIGS rather than keeping them for
bailing out the Italian bonds even accepting junk collateral to mask it , won't help.
A Public disclosure of Italian Bankruptcy date will be relative to an
Italian Bonds refinancing / expiry day, when "surprisingly"
EU will openly admit has no money left for that bail out.
THE PIIGS TRAP
PIIGS is the wrong formula. The correct one is PIGS=I
money_to_bailout (Portugal +Ireland +Greece +Spain) = money_to_bailout (Italy)
EU with same amount can either bail out one doomed country or save four troubled ones.
Since EU sees all PIIGS countries as more or less slave fabrics. Their choice was obvious.
To get that part of PIIGS especially Italy are already de-facto bankrupted...
one needs no wikileaks , just checking wikipedia is enough.
1-50 countries to invest into (positive bias)
50-100 attractive countries with (neutral pias)
100-150 countries to disinvest from (negative bias)
150-200 countries not to deal with (very negative bias)
201-220 countries either physically or technically bankrupted
Broadly speaking most investors use the real growth GDP growth rate to decide either to invest or not in a country. As the more generic "country rating" (se extract below) way too often inherits the rating agency interpretation of such country ,which is often subdued by a political bias rather than representing an economic variable. This happens because country rating firms are still in private hands rather than being an U.N. task as it should be.
Average PIIGS place is 195 th as average , while Italy is at the 210 th place.
Italy is positioned below Iran who has been in embargo for decades
and just above Cyprus which has been already declared banrkupted by IMF in 2013.
So the real issue not why we have a negative bias on PIIGS but what PIIGS really represent:
a purely a nominal unsettled bankruptcy value.
Ita-crash 2012 was unsettled because it was convenient either to rating agencies and banks to wait for Grexit before
triggering the big red button for Italy.
Our view: first time such loop started doomed Italy to bankruptcy, no matter when the failure echo will reach media.
Italy after 2012 kept looping in an unsettled "permanent bankruptcy status" until the final meltdown will be either triggered
at rating agencies or banks will and convenience.
[Like Greece which bankrupted on 22 june 2015 without media being allowed to spread the "news" 3 months late].
ARAB SPRING AND EUROPEAN SPRING CONTAGION MAP:
3/06/13 update: Turkey upheaval happened as expected . As a consequence
European Spring is about to accelerate its path toward E.U. implosion.
To focus: assume there is a difference of potential (mostly political and financial) between the north and south sides of the Mediterranean. The resulting spark is spinning the arab spring. Also, if the Arab spring were a circle with its center in the middle Mof editerranean rotating anti-clockwise ,at current speed, it should complete the circle within 4 years span.
Analogy: cyclonic stream current. Center a compass in mid Mediterranean you can clearly see the counter-clockwise rotation path starting from south west.
EU CRISIS FOR DUMMIES :
Money printed from ECB stays in virtual pallets but does not get distributed .
This is one trillion cash lying on its virtual delivery pallet, ready to be shipped...but...
|1 trillion (2 years output of ECB)||100 Million for comparison|
So you now know how much a trillion cash is !
Good, now also assume one billion is a single a4 paper sheet with a stamp on it .
Problem is that those 1 billion euro papers never get out of the banks
which lend them back to the ECB and receive 1% in return.
How many trillions does The European Central Bank print in one year ? 0,5
How many trillions are needed from the people to reboot European economy ? 2
How many trillions are received from the population through banks in one year ? 0,1
So, either you wait 20 years to reboot EU economy or banks are the problem.
What ? Wait ! where are the rest 1.9 trillion European people need to restart the economy ?
Stored in banks derivatives / safes. Those virtual pallets are stored, not distributed.
Until banks borrow for free from ECB and lend to governments at 1%, economy won't restart.
No matter the lies politicians tell the people and whatever is their political color.
Until those money lie on pallets and don't get shipped, EU economy won't restart.
Provided there is still time for a restart. Thing which we at Autoscalp, strongly doubt.
THE DOLLAR SWITCH OFF :
in an unseen shift , world is exiting the dollar based economy.
Summary of a hot topic discussed during online workshop of the Autoscalp network:
While every western eye is concentrated on guessing the Euro-zone crash consequences
all BRICS countries in less than one year declared they don't want to trade oil based
in dollars anymore and even banned dollar from internal trade settlements .
What if the recent the fall of the oil price is NOT a correlation issue to the exchanges
but a shift in balance of powers ?
It happens every 120-150 years:
and is called base currency shift or reserve currency status change.
Autoscalp think-tank analysis results are:
1) more resilient is the base currency to its shift, higher the costs to exit the crisis
2) superimposition between the old base currency and the new one lasts a 50 years in which most of time coincides with a major war (such migration has never been painless).
3) currency circulation has never been so fast in history and is also accelerating
4) HFT market making models could boost the dollar switch-off or even totally derail it.
the switch might happen in a "snap" it could be ongoing now since all it takes today
is some server farms and a few HFT engines.
It could be so fast swift and silent than media could even fail to report it.
Update: half Africa BRICS and now Japan use Yuan as base currency practically the last ones left to use USD base currency are Britain,
Europe and USA. Just in case you missed that news. That's when Japan started using Yuan too.
Update: 01/10/2014 first date EURCNY started being "Made in China" without dollar in the middle .
Extract about: Europe & China Start Direct Trading In Euros & Yuan As De-Dollarization Expands
The Dollar switch off aka base currency shift from dollar to youan is happening right now through the gold market.
A fem months ago in London gold match market model failed and was shutdown. It was 200 years they did
fiat gold price matching banks orders one another. Model imploded because today market situation evolved:
if you are sitting on your gold bullion you make the price for your bullion , you don't care what a 100 tons
gold in a safe is worth in selling its derivatives. You can reject any offer you don't like.
Banks exploited the impossibility of the single person to communicate his bullion price to the whole planet
at zero cost in zero time. Thus in the post flash-crash era with millisecond internet connections
the bank competitive advantage is zero. Then today instead of an
an obsolete "bank-centric synthesized price" (London)
a new "real gold bullion real price" (Shanghai)
Usually the loss of control of the price of a strategic resource (such as gold is for finance) generates chain reactions,
Probably the real question is why China did not yet put in place a peg with gold/yuan
as if it does it the world base currency shift happens in a snap.
Noteworthy it will take months if not years to the bank guys too immersed in their own paper derivatives to get the news.
HFT EXPONENTIAL GROWTH
HFT Market growth and implications in markets decentralization :
In our opinion HFT market cant be stopped by Tobin Tax or anti-hft laws as today the liquidity stream is simply so wide it will simply find more efficient way to be traded , outside centralized markets.
The more government apply pressure on liquidity such as anti-hft laws or volume compressing taxes such as Tobin tax, the faster liquidity will flow out of centralized markets.
Look at the chart below. Today HFT is a flow so huge that trying to put brackets to that pressure will just make liquidity look for faster, more efficient places to flow , such as or the hyper technological Singapore or Mongolia stock Exchange ...what Mongolia ???
Yes. Mongolia stock exchange did not almost exist a couple of years ago , now being one of the highest technologically advanced , being it one of the most recently built. That means Mongolia is one of the fastest around, so maybe that's the point... you didn't notice.
Now look at the chart below and ask yourself if still has no meaning...
Some infos you probably don't know about:
Deal speed duplicates every 6 months.
Market decentralization rate grows by 20% every year.
One or even two new markets are created every 3 months.
Fast players do not re-inject liquidity in slower markets.
Best players concentrate where market are newer and more efficient.
Notably : locally pre-cached algos allow trading faster than the speed of light simply
lagging external orders a few pico-seconds thus, external orders are always disadvantaged.
While years ago the fight was to reach a millisec or picosec lag against competitors,
the "speed race" is no over as now locally pre-cached algos in in decentralized markets
execute faster than the incoming order flow into a centralized one.
New decentralized markets are now faster than huge, bulky centralized ones.
Controlling and supervising orders in realtime is now impossible as
checking each order in the order flow would slow the order queue
What it means to you ?
Two market are equivalent if one one is 10 times bigger and the other 10 times faster.
Which is exactly why today Singapore market is perceived to be equivalent to N.Y.
and the Mongolian stock market which did not exist a few years ago is one of the most efficient
on the planet as is brand new as it leveraged top technology from all others.
This is bad for regulators because they know their market is flawed and the more rules
they apply the less efficient it becomes, the faster liquidity leaves them.
Practically watchdogs unofficial policy has become: don't ask don't tell.
as the cost of real market supervision would be simply unaffordable .
centralized markets are obsolete,
and we see more flash crashes ahead
till governments will quit centralizing markets through banks.
Centralized markets were indirectly run by banks for 100 years through
their grip on governments, while decentralized markets whose birth rate
is exploiting, are not so controllable by such "bank standards",
all based on "interests in time" (time which is practically zero in every deal today).
The faster the decentralized markets grow, the faster banks will lose such grip
on markets. The best symptom ? Flash-crash concentration rate per year,
is clearly increasing. Another symptom ? New dark pools birth rate.
The most compelling indication that centralized market is definitely dead is
that market watch-dogs expect flash-crashes to happen where they expect them.
Since, unfortunately, flash-crashes happen where is profitable and NOT
where watchdogs would like them to... it means watchdogs control method
is flawed and they know so they are preparing to switch policy :
rather than avoiding disasters they are justifying their incompetence
with tons of data collected AFTER the crashes , thus making the watchdog
role totally pointless. Helping market fragmentation and de-localization rather
than forcing a centralization would be far more profitable for the governments.
After all what's the role of a watchdog that barks -after- the burglary?
|HFT growth in billions/hour (one photo taken every 2 years)
each picture is taken in a different year from 2007-2012
THE END OF RATING AGENCIES :
Privately Owned Rating Agencies should be immediately replaced with a permanent commission of the United Nations who should be granted Exclusive Competence on Country Rating.
When rating agencies started their job of giving marks to government, simply put there was no United Nations and banks needed a reference to track their investment in foreign , uncooperative countries. At that time Rating Agencies were the only options. Today they are obsolete and create more and more mistakes which you see on the every day news.
Historians will likely look back in a few years and identify such raw management of Country Rating in private hands as a con-cause of the ongoing European collapse and responsible of a couple of crisis in the US. Since we are too close to such events most of us can't focus it yet.
Those agencies are more or less privately owned companies. Not super-partes and there is a person somewhere who receives a monthly salary in the thousands range but manages the downgrade worth Billions if not Trillions. This alone speaks "flawed".
Also that person is not supported by an international community but just some colleagues.
Who can choose...to agree on such mark or either be fired as in every private company.
Then the person on top has a power beyond comprehension, which I try to summarize below:
A small team of people, receiving
10.000 salary is to decide if a government is worth
15.000.000.000.000 if rating is A
12.000.000.000.000 if rating downgrades to B
The real question until rating is in private hands is :
What is the corruption cost of the whole structure ?
Dimes....compared to the shock wave on a government when a rating downgrade happens.
Our view: you can't privatize transparency,
Country Rating must become an U.N. job.
Example: if you ask this question to the right person you get this answer:
<<When is .... the Canadian rating agency scheduled to downgrade Italy ?
November 2014 ? Ok. thank you>>.
So within the end of September 2014 Italy won't have any "A" in its rating.
and will stop receiving any money at all from E.U.
since ECB is forbidden by law to bail out a country which has no "A" in its rating.
We think fair you know. Why they don' t tell you ? Well this is maybe the real issue .
Until country rating becomes an U.N. task, is still a private business.
So until Italy keeps being downgraded, more lucrative speculations can occur knowing
most of the downgrades are over-downgrades.
Country rating role in the Grexit situation:
or "grab the cash and drop the empty box".
Over-downgrading Greece one year before its real crash allowed the people in the knows (banks) to trigger very profitable safe bets.
Banks knew that Greece was over-downgraded one year in advance and that produced great interests to the informed parts.
Such as a : 100% profit in one year, was a safe bet , often done at leverage 4 , mostly done by German banks
but this information is not very easily found in the media.
Other collateral effects were: Germans were allowed to lend themselves money at zero cost:
if one need 100 , bank lend him 140 , with 40 they bought Greek bonds with 33% profit so the borrower paid no interest at all,
which is perfectly equivalent to banks printing proprietary (at zero cost) currency.
Which made the ECB task to control money flow , inflation etc. practically impossible.
So, if any German bank can print currency against European states bonds, what is Central Bank role ?
Probably make sure you don't know because using PIIGS as safe bets boxes doesn't make a great P.R. to the E.U.
Grexit day was 22 June 2015, the day German banks cashed in and NETTED 1 year speculation that profited +102% at leverage 4.
A bet now too risky to repeat... but too huge to keep it hidden.
This was possible because of the over-downgrading from rating agencies.
Exploiting the early downgrade information flaw we spoke earlier. banks knew it was a safe bet
until July 2015 cashing in all all speculative level interest they took knowing that country was over-downgraded.
Now that banks cashed in the speculation on Greek bonds is time to "drop the empty box"
as calling that #Grexit sounds bad . Now that the game is over,
Since banks already profited, the real bad side of downgrade can hit and destroy Greece...
I expect very few Germans will complain.
THE NEXT FLASH CRASH : the 2023 perfect storm
[ cryptocrash + AI boosted tech failures ]
we think will happen between mid may 2013 and early spreading of the European spring contagion.
At the end of the SKYFALL day N.Y. will have lost between -10% and -15%.
HFT market failure already happened... just scale it up.
"BATS Market IPO crash." From birth to death in 750 milliseconds. Image Source: Nanex.
Here is how the Autoscalp think thank sees the next flash crash will happen:
It will start quietly , an ordinary day: no particular releases or expected liquidity injections,
no breaking-news, but 30 minutes ahead of NY OPEN... hell happens.
The 202X Flash Crash step by step :
A remote decentralized pool abruptly posts that is "out of shorts" and halts trading.
One of the brand new ultra low latency decentralized markets in a faraway country,
and probably trading an index related ETF not even the index itself.
In less than 2 millisec such situation is sniffed by most of other market algos
either the sentry ones (the ones that prevent crashes) and the speculative ones .
Things which should prevent a disaster to propagate but
end up working exactly the opposite:
as every market starts cutting liquidity into their local pools "sell" order pipe list
gets washed out (executed) so many times till it keeps empty and price keeps falling.
A few millisec later each market starts cutting liquidity into their local pools on
the shorts side into every sub pool and all customers, not only retails, get cut out.
Event which creates the the infamous signal : Panic please !
Since all that should have worked to close the gap and fail safes were triggered
in the same moment and all markets are doing same thing...
result is that it accelerates the liquidity crisis on the sell side.
So that "halt all shorts" reaches the internal pool of each market maker too which
is perceived as "short more" .
Unfortunately again each market is populated by independent algos and while
dumb algos start pipe lining a ton of sell orders , smart algos quit trading , in either
case another even stronger signal propagates now in any platform...
"No match on short orders" is read in any market and spike hunting propagates
at lightning speed. At that point any market and any algo practically say same thing:
"no order match on shorts" , the wave is ready to become a tsunami:
N.Y. market goes "skyfall" and other markets follow.
NY falls -5%
Then the NY main fail safe kicks in and blocks trading.
Another mistake, this is not synced for all decentralized markets which continue the
free fall float of the index swallowing 100 billions a second. After fail safe no-trade
period expires, NY reopens and goes straight down...
NY falls -10%
At that time the disaster goes at the frantic speed of 500 billions a second and is
spreading worldwide on all exchanges ,triggering one of the major stock exchanges
crash in history quite similar to the "trillion dollar bet" that destroyed credibility of
the Black-Scholes model.
At that point the ultimate NY market fail safe kicks in again and halts trading for a
much longer period but as price is not bottoming , it can't rebuild floor.
NY market completely halts for hours.
Just after a worldwide "halt trading" is reached NY price finally stabilizes between
-10% and -15%. At that point major banks and brokers post a warning such as:
"for lack of collateral reasons we are not reopening until prices normalize".
Which means they officially won't know what happened for 48 hours (netting time)
If some trillions evaporated in one trading day , where did all liquidity go ?
Our opinion: such liquidity never existed .
august 2015 Update: it seems that the above happened in Shanghai in 2015
nothing respect to what we foresee for 2023 when cryptocrash will meet AI crash
in a perfect storm far worse (10x) than the 2008 disaster.
We were posted the Eurex rules in place from 2014/04/01 which more or less says:
"disclose your algo script to the exchange" ... which sounds a bit like... marshalling the algos
"disclose your algo script also to.... security personnel, controllers..." that is intrusive to say the least.
Even more absurd the requirement to put an algo signature on any deal done sounds a bit like
"fingerprints please" as much as the "don't change too many times the stops on your deal or face fines !"...
and that sounds also as another limitation of freedom.
Conclusion: to us is not quite clear why a market with such limitations
would halt the HFT rather than favor it.
There is no such thing as funneling a forced behavior... to prevent a behavior.
Reality says that the more you force the orders to follow a certain path in the pit
the easier is to expect the pit pressure on that orders ro find an alternative route
So to our eyes that "anti-hft" law really doesn't fit its objective... so maybe the objective is another.
Our think tank went on with thinking by analogy :
Let's think by analogy: what if this is NOT an anti-hft law ... what is it ?
Maybe is just a mere preparation of justification papers waiting a market crash.
A valid anti-HFT law would force the exchange to immediately flush all suspended deals
at the fastest speed possible in order to avoid market disruption and recover dealing as soon as possible
BUT if such an anti-HFT law existed, it would make banks LOSE money... and that is why such law is never passed. As someone said here: << aha banks! So, we got the point !>>.
What this pseudo anti-HFT legislation gives us is an actionable piece of intelligence :
it looks like a way to prepare the ground for a Flash crash and the subsequent
"blame the algo / blame the trader" version with a pre-printed justifications aside .
Conclusion: we perceive such intrusive legislation not as an anti-hft legislation
but as a way to inform us that :
The next flash crash will be in Europe.
It will probably occur with same mechanism as the NY Flash crash above... after all if you copy a bugged rule (and even legislation is a set of rules) you inherit same dangers...
How to prove it ? They could switch off the DAX right now but its synthetic index would continue floating independently, that would mean Germany to be price taker and is known that price takers can't make rules.
Example of a synthetic Dax = +X*sp500 -Y*Gold +Z*VIX +K*EURUSD
Marshalling European pool through tight local regulations, has the consequence to give a precise advantage to the counterpart,which at the time being is mostly PBOC (China) paper guarantees. Also, in case of an European flash crash while in Europe would look for the culprit, in China they would be counting money and in America they would just say "don't look at us".
If you are a price taker, like Europe is nowadays with the Dax , while you can halt the index locally , the distributed synthetic index floats anyway against you. These are not anti-hft laws, just protectionist laws. Reason ?
Just because YOUR trading is suspended, doesn't mean the world waits for you...
january 2016 Update:
When UK will vote independence fromEU we expect a major exchange crash.
Reason being the disparity between slow internet carriers
in south Europe VS fast microwave towers connecting Frankfurt and London.
The EURO DUMP : the Gold/Dax inverse relation :
Is this just an inverse relationship or a scheme to mask the euro crash ?
Our concern is to determine if such pattern is exploitable from one of our proprietary algos, not if such practice is a fair market practice. Although the more we look at it the more it looks a pump and dump scheme rather than an anti-correlation pattern. Also because Germans are the only ones in Europe financially strong enough to exploit such loophole doesn't sound fair, anyway that's what we think:
Some notes to focus on:
monthly gold mining rate is just 11 tons.
while the paper backed gold circulating each month is an absurd 400 tons.
This alone means physical gold price is permanently undervalued .
Where does all physical gold go ? In central bank safes.
The more safes are full the more central banks lend euro
to their fellow banks to be liquidated using such physical gold as guarantee.
Is there any chance gold price can go down ? Apparently not
unless central banks stop indirectly buying any gold bullions around
or a major market correction happens .
Why does Germany do that ? Such scheme serves a triple purpose:
- liquidate its euro reserves
- stockpile gold
- inject liquidity into German market only
Germany can't inject liquidity as the US Fed with taxpayers money ,
practice which is called POMO in US . EU regulation prevents that
a single state central bank can inject taxpayers liquidity in the market instead BUT
German Central bank found a way to do it, being it much more powerful
than European Central Bank which should control its behavior .
Such scheme is called "the Euro loop" which works as follows:
- Each morning German central bank ask its fellow banks...
Do you have more gold today in your safes ?
- If answer is yes, the central bank lends them more euros
to be liquidated as soon as possible in exchange for
that gold used as NON redeemable guarantee.
- Each loop ends each time gold is stored and euro is sold.
Can take days not necessarily hours and this is why
the "euro loop" is hard to spot on charts.
A practical example of the euro loop, as we see it on the market:
sell euros, buy indexes in the morning , sell indexes and buy gold in the evening.
multi day version:
sell euros, buy dollars, wait for a major release day for a price spike ,
after the price correction, sell dollars and buy gold.
No matter if indexes are higher or lower, that is secondary to the German main objective of stockpiling gold and flushing euros, it also has the indirect effect similar of the pomos in US Market, to artificially inflate stock indexes.
The "euro loop" objectives are: liquidate euros , stockpile gold, whatever the index movement be up or down.
2016 r update on the "euro loop" done (at leverage) by many German Banks is: buy 1 btp sell 2 btp.
Update: why is "euro loop" practice difficult to expose and detect ?
Because is arbitrarily switched on and off . Given lack of specific legislation is lega.
The opposite correlation between dax and gold can be totally true one day
and totally missing another day.
Same for btp bund spread , such index is useful just when any of them expires
useless all other days, but people don't know about this.
...One year later ...we read this extract ...
Anoher think-tank session on gold:
what does it mean "gold price" today? Who decides it?
The reason why centralized market pricing doesn't work in the post-flashcrash era is
you can sit on your gold bullion and decide the price you sell it, communicate it to the whole planet
in milliseconds and wait for your choice price to be matched at zero cost.
To you , what is the price of a ton of gold in a remote a bank safe is not relevant.
You don't care what price they sell their gold bars to other banks you just care for the price of your bullion.
Assume plenty of people are sitting on their gold bullions and then it comes out...
banks don't control gold price, and ultimately centralized market does not.
Centralized pricing is today just an unilaterally exploitable, arbitrable projection of
a synthetic instantaneous price but you can still avoid selling the bullion until YOUR price is met.
Now think what would happen if a country decided to use that pricing model
(bullion centered not market centered) and yes there is a country who is doing that, China (SGE).
Why ? Because bank centered gold price already failed (London).
WHAT IS EURO ?
We don't know but...
let's do some think tank starting from the worst case scenario.
What if ... Euro is too big to fail but being it unaware of that.. it FAILS anyway ?
Euro implosion would have a devastating effect on European economy.
Such effect could be summarized with two words:
Let us explain you the the difference between direct and indirect hyperinflation by analogy:
Reichsmark: DIRECT hyperinflation: MONEY rapidly losing purchase power.
Euro: INDIRECT hyperinflation: STATES rapidly losing purchase power.
Then hyperinflation is always possible if the UNDERLYING currency is a derivative.
Reichsmark was a derivative , was based on the assumption was that Germany could not fail.
Euro is a derivative: a currency made of currencies, based on the assumption that member states can not fail hence Euro inherits same risk that it can lose purchase power exactly like reichsmark.
Quoting J.P. Morgan famously said to Congress in 1913, "gold is money and nothing else."
and Euro currency is not yet clear what it represents even after several years floating.
To focus, just mind what is
Maybe just focusing what is EU should suffice:
European Union has no Consitution and no foreign minister,
EU is composed of:
- several kingdoms
- some presidential republics
- some parliamentary republics
- some democratic republics
- some former Warsaw Pact troubled countries (*)
- some former USSR communist countries (*)
- some bankrupted countries (*)
(*) states where popular election results are often ignored for "stability reasons".
To us is not even clear what kind of political shape such Union should have in the future,
provided it doesn't crank up today, go figure if its currency has any sense tomorrow.
Euro is not even a currency in the proper sense as is not even guaranteed by a common constitution, but only by private banks who lend such money to their own government and most of all it has no bonds at guarantee, at all.
This is important because now states don't print money , they must borrow the money they need from private banks who act as "dealer" for the European Union.
This fact alone is strange as historically has never occurred.
Another peculiarity of Euro is that European Union does not distribute money. Money is given as credit to private banks who must lend it to their governments. Hence private banks are empty waiting for their government to pay them back and then they can not lend money to citizens until the government pays its debts. What is strange because is known fact that governments are very slow paying debts. Whatever the reason the outcome is:
European banks are empty until states pay them back.
This is not even a credit crunch because is not citizens who don't pay back the banks , is the governments who, being late on payments force all banks to be empty thus not lending money.
How can euro circulate if banks who should give it to people are empty and waiting governments pay them back ? What is the value of a currency which relies on a private network to distribute and collect?
Again, after some discussions we come to the conclusion we really don't know what Euro is .
It does not behave as a currency but as a derivative. As no explanation seems to convince us:
We tried then define Euro by analogy :
When was Euro invented ? In 1942 to remove sovereignity from conquered countries by Germany and force them the use a currency sustained by the hyper-inflationed Reichsmark.
That is similar to what happened earlier for example in colonizing countries as the colonizer
forbid the colonized countries from printing money , to force them use the mainland one.
Going to recent times (JFK era) we see this analogy:
Red seal dollar , it was state printed as credit of the people from the government.
Green seal dollar, it is the bank printed dollar as debt of the people and lent to the government
Conclusion: if we had to define euro by analogy:
- Euro currency is same for Europe as the green seal dollar for the US.
- Euro is printed at debit of the people, lent to the government from a pool of banks.
- Euro is a bank cast currency not a people' s currency. Not a state owned currency.
- Euro is a mean to gain control on subdued states, a policy tool, not a mean of payment.
- Euro is privately owned and distributed by private banks (never happened in history)
- Euro is a naked (no bonds at guarantee) derivative .
In case of euro failure we expect history repeat itself :
Reichsmark: DIRECT hyperinflation: MONEY rapidly losing purchase power.
Euro: INDIRECT hyperinflation: STATES rapidly losing purchase power.
THE NEXT LIBOR SCANDAL
Remember when Libor manipulation scandal hit Great Britain few years ago ?
For sums so absurd that are just imaginable only if you consider it the worth of a continent.
Well, just in case you missed,
the most fundamental index for market stability was manipulated by a few individuals.
The mere fact that the profits of this scheme were limited to Great Britain only who hosted the Libor pricing, had many indirect effect including migration of smart money outside US toward UK gave the London City a second renaissance (totally artificial though) and is probably a concause of the ongoing western emisphere economic crisis. After all, if someone on top tricks the libor price spread, you pay. Willing or not , anything in a bank is libor based.
Consequence: they put the Libor in the US so it can be "better controlled".
Since mid july 2013 Libor is made, or better, is brewed in Euronext - N.Y. rather than in London , which seems just merely noticeable news but the real untold consequence is that all dark pools , not only US ones, with their multi-billion algos will have the chance to take free rides in the libor market and get advantage over ordinary people.
The most likely outcome will be it will transform the Libor (a fundamental measurement for market stability) in another bank manipulated tool through the distortion of the HFT tools for that purpose.
Probably with the same Dark Pool-> Ecn loop scheme like the one quoted in the picture below:
History repeats itself also in the HFT era, just faster and the ...Libor-Muppets show is up again.
What we expect:
1) Libor to be manipulated again . With a Dark pool - ECN kind of loop (like the one above).
2) Scandal will surface and hit banking system that will dump it to retail sector ...
and will ask Fed for bailout and as usual the average Joe pays the bill
3) once more lowering the credibility of centralized market (NY in this case)
4) will trigger a massive collateral migration outside US and further market fragmentation
5) smart money migrating faster and faster outside centralized market toward unregulated markets and dark pools will gain the liquidity escaping from NY...
<< Wait ! Wasn't Libor moved to US to avoid just that ? >>
Exactly but , simply put regulators can't understand deep market dynamics
which not necessarily end with "US will prevail" sentence at the end of the paragraph.
The real deal is: how many regulators ever pushed a "sell at market" button in their life ? None.
That's the point... They give for granted that putting something like libor under SEC control
and putting it into NY Market for "safety reasons" "transparency reasons" etc.
will help Libor stay transparent and market to grow steadily...and theoretically will also
avoid manipulation, reailty will show exactly the opposite.
Other markets might like what centralized ones don't.
Just for a reminder, today 5 trillions a day change hand in a veirtical virtual environment
where its trading speed doubles every six months.
A market with total disparity of information can't be neither controlled nor transparent
but rather becoming more and more unilaterally efficient for the best organized PLAYER
and that is quite a definition of a tech monopoly not of market. Does libor really fit the frame ?
Manipulators got better budget and bigger computers and more lawyers than their counterpart
and that's why low latency and dark pools rule the market todays.
So just sit and wait and enjoy the brand NEW... Muppets Show.
Where fictious characters improvise improbable solutions
while making up the audience as primary task.
REVENGE OF THE PIIGS:
The only way out for PIIGS is: flooding ECB with proprietary currencies:
As PIIGS are desperate
|Load the pallets with
all their debt in
Delivery the pallets
...then sit down and enjoy because since is sovereign currency ECB cant reject the payment .
Why ? Because otherwise someone might ask:
if you reject sovereign currencies...so what was EURO composed of.
Then, how extreme as it seems:
how about... a single CASH payment in the form of physical delivery
of thousand of pallets of Drachmas, Liras,Pesetas...
to net all PIIGS public debt in one single shot? Why not?
Fear of truth ? Of reality? Of doing what Germany did twice
(when Reichsmark failed and when the two Germanies merged)
When USSR collapsed then when CSI collapsed... nothing new. Currencies can fail.
As Euro is a derivative: will just fail better...
Imagine all PIIGS countries sending to the ECB thousands of pallets of
THEIR SOVEREIGN freshly printed currencies... Drachmas, Liras, Pesetas, to ECB.
We don't know if this is will ever happen but if if does it will happen this way:
Day zero: setup
1) In a secretive meeting only comparable in history to the one held in Jekyll Island by major bankers in 1917, financial ministers of all Portugal Italy Ireland Greece Spain (PIIGS) decide to send thousands of pallets filled of THEIR own sovereign freshly printed currency to the ECB , covering the total amount of their national debt , delivery which is to happen all at once and totally cash , synchronization of currency production and delivery for a precise date took 3 months preparation and had to be kept secret till the delivery date.
Day 1: delivery
2) each PIIGS country delivers its national debt in sovereign currency to the ECB for netting its entire national debt by real CASH DELIVERY, not virtual, not online. Hundreads of lorries enter the ECB gates filled with PIIGS currencies pallets while a co-joined PIIGS delegation forces ECB to acknowledge that the PIIGS debt was delivered and paid in full by cash. Chaos outbreaks on markets, banks and exchanges. Market fail-safes kick in repeatedly halting euro denominated trades for 2 consecutive days.
3) ECB is caught by surprise, did not expect this to happen for real. Surprisingly also, PIIGS are not under an immediate devaluation currency response because such money is physically delivered, not "digitally printed" , it is not in the trading platforms, it is not collateralized yet. Is real money. Is not in bank hands . It's of such an unprecedented amount banks and brokers refuse to create any virtual collateral on it. Simply put : there is not enough collateral in the ECB platforms for any kind of counter-move at all.
Day 3: awareness
4) PIIGS nations realize to have become unexpectedly debt free , speculators enter the circuit to support them and start shorting previously virtuous countries debts (shorting German Bund).
5) After an emergency meeting Major banks representatives explain ECB there is not enough collateral for private banks to take immediate counter-moves against the unexpected PIIGS currency or to support any ECB countermove agains it. ECB is left alone.
Day 7: ECB implosion
6) ECB can't manage the Tzunami of money inflow as is missing trade counterparts, also it has clearly not enough collateral to immediately devaluate PIIGS and is since then then losing more and more credibility every day . With an unexpected and unprecedented declaration ,the FED says is not related to the speculation and has no stakes in it , whatever the outcome might mean for European Union.
7) International market failsafes suspend ECB from the international liquidity provider network as a "preventive measure", which accelerates the failing of any containment measures attempted from ECB as its reserves are much lower now. IMF decides to take "no immediate action".
8) ECB lacks more and more collateral (which is ultimately German Bunds) as the time passes . Risking to become abruptly insolvent. Also printing euros at a flank speed did not help (no buyers).
9) Speculators kick in again and short anything with "Germany" or "ECB" or " € " printed on it thus destroying any attempt to control the sellers wave, few days later, also pressured by their customers, even banks started reversing positions against ECB, Germany and Euro as liquidity went one way only and banks, to avoid an implosion themselves, had to follow rather than fight the sellers tzunami.
3 weeks later: hyperinflation
10) an emergency communication comes from IMF to EU to immediately forbid ECB to print money as its self-rescue attempt is about to break the hyperinflation boundaries and is endangering the world financial system , also the incredibly powerful BIS (the bank of international settlements), that is the bank of national banks, joins the chorus and abruptly cuts ECB credit lines without warning.
11) In the following months the money printed from PIIGS countries becomes digitized and collateralized in the ECB and in a desperate effort to limit its damages ECB starts shorting PIIGS currency at unbelievable speed and great amounts but is late to create a major devaluation
and at every netting ECB ends with a loss as the counter-trend of the imploding ECB and Euro cranking up is much faster and ECB can't reverse the trend, also China India and other "non Euro" based partners hiding beneath Yuan denominated macro accounts join the show and start speculating against every single ECB move. PIIGS currency stabilizes almost at its original nominal value. In that very moment BIS and IMF call themselves out as situation is "out of control".
12) Since PIIGS get an unexpected debt free Epopea, for the first time in 50 years , foreign investors are investing much more in 6 months than in the previous 10 years dooming any ECB direct and indirect effort to trim the shock short selling PIIGS currencies to regain control of the situation.
6 months later: ECB bankruptcy
13) After some failed hostile responses and some very unpopular desperate moves against its own countries and its own population ECB declares bankruptcy when either the FED and Chinese Central Bank make a joined statement in which they clearly refuse to bail ECB out.
14) Almost simultaneously the African Union states it is about to launch its own United Currency
and that is supported by all major institutions including FED IMF and BIS.
15) Sovereignity in PIIGS countries is restored, European population will then cast a separate vote on mantaining euro and remaining in European Union which will then become a political fact not a bank driven financial speculation.
A bit of Steampunk logic:
using 1814 glasses to look at 2014 market .
1814 market :
1) participants were liquid, no derivatives.
2) all participants had same lag and same information
3) constant trading speed
4) rules were simple and clear. A few instruments . Two order types.
5) market supervision was effective and unbiased
6) banks injected liquidity for the market to grow
Now Try use 1814 glasses... and look at the 2014 NY market !
2014 market :
1) participants are illiquid with pyramidal paper guarantees
2) bigger participants receive better prices other seldom receive any
3) trading speed always increasing, thousands of instruments , many order nesting combinations
4) rules are not transparent and always changing
5) supervision is impossible , bank-biased and unreliable
6) banks drain liquidity from the market not to fail
The very definition of a market, where difference of views creates the market has been replaced by
laggers vs lagged which means quants vs muppets .
Each loop is not a market crisis and its recover , just a mere excuse to pick up speed...and gear up more leverage.
These liquidity loops always repeat faster and faster, never restoring the previous state never looking for an equilibrium. Price does not represent a value of something but the value has become the price itself.
This short circuit happened in the 1960s and no one corrected that. It was too profitable.
Now there is no market anymore, what you see on screens is just a one way Ponzi
is not even about recession and boom, is just a loop:
- When ponzi fails is always replaced by bucket shop period
- when bucket shop fails starts soft dollar period
- when soft dollar fails ponzi comes back and loop restarts
This loop has been going on 40+ years and is now accelerating at an unprecedented speed.
The only thing that improves is speed itself and the consequent leveraged exposure to cope with speed.
Leverage started at 1 2 5 10 20 50 100 200 400 . Alright... so what? Game over ?
Nope. Why ? Because there is still hope that some other market will fail... first.
maybe the real hidden question is:
what if ... is the very nature of the centralized market to be obsolete instead ?
If that is the issue, in the near future no one will ever trust centralized markets anymore.
Another question emerges. If that was market what is market-panic then ? Just an instrument.
True panic everyone is scared of is that the panic... won't repeat.
Through de-localization, dilution of centralized markets
in smaller and smaller liquidity pools. So is not just about speed but is about
the addomestication of panic which creates market dilution and fragmentation.
After all , a word we never spoke about was ... trust,
which in 1800's was the very essence of two market participants.
A word that has nothing to do with today's market
Bitcoin ... bitcoin... ok, stop it. Bit or Coin ?
Our Think-tank on bitcoin (internal poll):
- Will it expand worldwide ? Yes
- Is it a real currency ? No
- Will it fail ? Yes
- Is it a pioneer or just a market aberration ? Pioneer
- Is it a cost or a profit for the people? Profit
- Is it a cost or a profit for the banks ? Cost
- Is it a cost or a profit for the governments? Cost
- Is it a cost or profit for markets ? Profit
...Think-tank brainstorming... tried to find the best perceptive definition of bitcoin among 8 initial ones:
"As leverage was injected in Bitcoin it revealed its scam nature.
Since has been invented by humans not by AI is doomed to fail
Major companies and even banks have their own version now.
Another wall street pump and dump, muppets will pay the bill"
How about a Bank openly helping speculators ?
Excerpt of think-tank discussion :
>How about finding a Bank that boosts speculators openly rather than covertly ?
A bank that is clearly affirming is investing in speculative tools research ideas and talents.
Got the concept but unfortunately , there is no such bank.
> Maybe the right question is: why ?!
There are many Merchant banks , Loan banks , Saving banks, investment banks but...
but never heard of a "speculators bank" reason ? Speculation is definitely unpopular
and unethical... speculation is bad, speculation is selfish.
> Unethical? How about what usually happens , instead that is: calling a bank with a social
sounding name for example "saving bank" and then allow its members to speculate against
their customers using externally managed funds typically running on their own customer' savings !
Sipping their own customers savings one drop at a time like vampires is perfectly allowed...
>Another version of same trick is fractional reserve, they sell a loan and before is paid back
they lend ten times the money of that loan, a similar model is called leverage we all know...
so is legal but is all that ethical ?
No but is regulated .
>From whom ?
>Aha. The objective is then hide where money goes, as usual Banks prevent customers
from profiting as banks outsource speculations against their customers to external funds
they indirectly manage.
So speculation is perceived as unethical but it seems that is still at the base of free market...
doesn't it ?
>Would it be a peer to peer speculators bank so bad and so unethical ? Really ?
Imagine a bank institutionally and openly (not covertly!)
offering services to help speculators mostly like a peer to peer service.
A bank that tells you in short:
<< You want to speculate? These are the tools: now show me your skills ! >>
<<if you're good at profiting it let's go on otherwise...get lost>>
That bank would be offering a mix between mudaraba and peer to peer
without the pseudo-ethical justification that other banks have to mask their profits
to be socially acceptable while they are not.
There is more ethics in declaring the purpose to be pure speculation
rather than hide it in a mountain of papers.
End of Think tank meeting.
Would you be in favor or against of a bank who institutionally
and openly (not covertly!) is offering services to help speculators ?
Gentlemen , please cast your vote...
Energy Castlet Scenario:
Autonomous aggregation is an effect, not a cause. Its propagation in various ways, including the arab spring, in the whole middle east is a direct consequence of 20 years of capillar occupation and freezing of arab interests from major world powers . Such autonomous aggregation is then locally viewed as a natural healing process in some of the most troubled countries. More or less same reason why European Union was created.
So the most likely outcome is that most Arab countries will join together to form an union,
The Pan-Arab Country currency will be probably based on a yuan, oil and gold basket .
Our fellow founders proudly remembered to the new Autoscalp members... that in 2005 Autoscalp already warned a perspective partner of the possibility of such event happening , fortunately almost 10 years later, such news has reached CNN headlines too.
The Pan-Arab Country will have Africa as its main market while China as financial engine
thus completely cutting out Europe and America from its growth path.
Also its growth can't be curbed or broken down from western crisis and recovery loops as they are mostly artificially bank driven crashes rather than natural economical cycles.
The RU-China ->Africa-> Pan-Arab Country will be self-sustained and a closed loop.
- The more the loop grows, the more it will reduce external members influence.
- The more the loop accelerates the higher the capital it will attract.
- The more the growth period lasts, the longer and the deeper the crisis in western countries will be.
Notably, the following reasons will also help attract more and more resources to the new macro-countries:
- constant growth path of uncertainty in markets transparency
- verticalization in western centralized markets
- the lack of trust in western economic recovery
- the incredible growth of transaction speed (which duplicates every six months)
- the subsequent machines driven trading dominance (HFT)
- lack of attraction and trust from institutional investors
- liquidity migration from existing centralized markets to decentralized liquidity pools
[Think-tank voted among 8 possibilities the following option]
All these concurrent factors will ...
accelerate the autonomous aggregation effect toward the creation of a pan-arab country and exit from the dollar based economy.
3/06/13 update: as rerouting energy paths is creating wars, rather than creating new local economies,
we expect it will redesign macro-state borders within 50 years.
Superimposing our scenario aka: "energy castlet" where energy routing redesigns borders.
[time frame 50 years from now].
- Arab Oil goes to Africa and China, not Europe
- Russian Gas goes to Africa and China, not Europe
- China currency flow goes to Africa , Russia and Arab states.
European Union will be split in two. North and Mediterranean. Other countries will join later.
After the East Arab countries merge in an Islamic state also the once looming now booming Sub-Sahrian African countries will do the same creating another Pan-Arab state all through south Saharian Africa. While China will exploit the growing lack of energy, security and the constant political uncertainty during the crisis and regain control of surrounding countries ultimately merging with its best customer, Russia , in a super-macro state of 2.5 billion people.
This 2050 scenario is mostly the result of tracking energy paths while redesigning country borders.
An useful brainstorming tool discovered by chance.
How even just painting word helps to get the needle out of the haystack.
While doing a routine think-tank log check we accidentally formatted the think-tank log with notepad++ and the autoit syntax and added a bit of color rendering.
Result was that the whole think-tank gave us much more data than expected.
You can see conflicting parts , suspension, tension moments, congestion moments
and with some training even which conclusions are likely to be wrong or inaccurate given
the "color path" that formed them.
Typical behavioral patterns emerged:
person n4 always talks before think tank fails.
person n3 always wrong when taking decision in "congested moments"
person n2 is most of times right and seldom creates conflicts.
person n1 just starts conflicts
After 12 intermittent conflict nodes ,prefer suspend session as no conclusion is likely (hostile environment).
After 3 consecutive deadlocks is useless to continue session (preconceptions)
After 4 same outputs, is wise to suspend the task is likely to be manipulated (yes men vs naysayers)
If output fits a perfectly random distribution suspend session (equidistant positions).
Moderator can recject a subject, reject a conclusion or reject a person or even change bias to the subject.
Rule 575 is a bank protection law not a market law
Rule 575: if banks can't profit from something it gets banned to all market participants.
Just looking at rule 575 a thing comes up immediately: is not a market law but a bank protection law.
Anything that western banks are not fast enough to profit from is banned to market participants and immediately becomes immoral illegal and is downplayed as an unfair market behavior .
Examples of targets of Rule 575:
01a Spoofing depth
submitting or cancelling multiple bids or offers to create a misleading appearance of market depth,
01b Spoofing trend
submitting or cancelling multiple bids or offers with intent to create artificial price movements upwards or downwards
02a Stuffing lag
including submitting or cancelling bids or offers to overload the quotation system of the Exchange or to delay another person’s execution of trades
02b Stuffing lag on close
Disorderly execution of transactions during the closing period.
03 Partial fills
04 Making a two-sided market with unequal quantities
05 Stop orders entered to protect a position
06 Iceberg orders
07 Entering orders to gain queue position
08 Orders entered subject to a pro-rata matching algorithm
09 A momentum ignition strategy
10 Flipping orders
11 Pre-open activity
12 Orders entered into Globex for testing purposes
Think-tank analyzed them point by point.
Conclusion: the only doubtful point from a free market point of view is 02A
all others are there probably there because banks can't profit from them
the base rule "If banks could profit from them , they would not be banned"... applies.
If after 10 years crisis the market index keeps rising , it clearly speaks the index is broken somehow,
but if you change the rules you risk to even accelerate its run , not necessarily halt its path.
This is why centralized markets don't work any more.
Banks lost grip on markets 10 years ago and still make rules to trim them.
Governments and banks keep concentrating on tightening rules on centralized markets
but the more they tighten the laws on centralized markets the faster liquidity reroutes elsewhere.
Because liquidity today is so fast that goes where is more efficient not where banks want it to.
Currency-less commodities pricing:
While developing the proprietary oil price feed , heavily filtering other oil prices from artificial noise,
we stumbled upon an interesting discussion topic:
While Shanghai Gold Exchange strives to become the gold price maker
and dollar centered trading is getting more and more out of fashion... OK, what's next then?
Our think-tank started considering trading speed always increasing while price decentralization and market fragmentation is taking dominance... we see as very likely to happen is a a commodity market without currencies to create noise in its pricing.
We then expect the most efficient commodity market on planet (Shanghai Gold Exchange) sooner or later
will start trimming the relative values among the most traded commodities.
Reason is simple:
Removing base currencies among commodities saves 4 transactions back and forth
as increases trade efficiency , which is exactly why trading speed accelerates.