Bear raids, naked shorts, and high frequency trading

High frequency trading (HFT) isn't toxic by itself.  Ironically, it is the non-trades which distort markets. These algorithms destroy market pricing discovery mechanisms when they are utilized as empty millisecond bids/offers to manipulate prices in the intended direction.

For example, imagine if you were a trader, and all you saw were huge sell orders lined up on your computer screen.  Even if no one hits the offers, enough panicked sellers would hit all the bids, driving down prices.  Never mind that the sell orders were never intended to be executed--they were merely submitted to scare traders (i.e. buyers) out of their positions.

It's analogous to the mafia coming in and putting up For Sale signs on every front law in your neighborhood.  Pretty soon, all buyers would be scared off, and panicked sellers wanting out would sell first before their neighbors do, causing prices to fall further.  Shoot first--ask questions later.

And this is all done despite the mafia not owning a single home in the neighborhood--hence, the phrase "naked sale."  In this hypothetical example, the mafia never owned the homes, but the pervasive presence of the For Sale signs can induce a massive sell-off of homes in the neighborhood--at lower and lower prices.  Ergo, all the homeowners just experienced a bear raid, without knowing what hit them.

In the real world, since real estate is illiquid, transactions normally take weeks and months to consummate.  However, in an era of electronic equities trading, these bear raids can literally occur in a few seconds.  Hedge funds and institutions game the system by placing their servers closer to the electronic exchanges, giving them millisecond competitive advantages.

Line up enough sell orders at varying price points, and a collusion of several miscreants can induce a bear raid of massive proportions.  A naked short can crash the asset in question, and after prices plummet, can scoop up said asset at much lower prices before their competitors can.  In other words, by being more nimble, they make money on the way down--and on the way up with their manipulations.

It's an unfair advantage which the big players have opportunistically exploited, albeit at the expense of smaller investors who rightfully have abandoned the markets.  No one wants to gamble in a casino which is rigged.  With many investors exiting the rigged markets, it has now become a war between battling algorithms, where the sharks no longer have guppies to feed off, but are now devouring each other.

With recent investigations of Barclays rigging the LIBOR and other interest rate markets, their confessional includes pointing the finger at their accomplices in capital markets, including other banks, central banks, and governments.  The house of cards is crumbling, and with it being a glass house, all the perps are being exposed in their nakedness.

Battered gold bugs still defying bear raid

http://www.marketwatch.com/story/battered-gold-bugs-still-defying-bear-raid-2011-10-03

The anatomy of a bear raid

"Expect Massive BEAR RAID this afternoon @ 12 30 pm central last trade 24 suggest you sell short into strength MASSIVE BEAR RAID coming.. TODAY"

- monthaphumchareon, April 28, 2009 around 11 a.m., the same day Dendreon CEO Mitch Gold was presenting Phase III clinical trial results at the American Urological Association for Provenge, an advanced prostate cancer immunotherapy approved by the FDA a year later, April 29, 2010.

"He was roundly mocked until the prediction turned out to be amazingly accurate. The stock plunged from 25 to 8 in 75 seconds. And later that very day, the company presented positive trial results."

- username "andybaron_ym" on an ARNA message board.

Avoid entering stop loss (market) orders to your broker on highly volatile, heavily manipulated stocks. It only telegraphs your intent to predator market makers who will steal your shares at much lower prices in a bear raid. Investors looking to protect their profits in DNDN got stopped out at much lower prices than their intended exit points. Entering a market order was a huge mistake.

This is a very long, but worthwhile read, full of intrigue, danger, greed, power, corruption, organized crime, and malice on Wall Street. Buyer beware.

http://www.deepcapture.com/michael-milken-60000-deaths-and-the-story-of-dendreon/

Deep Capture and bear raids

It's a longish read, and has raised the ire of many financial institutions, but this article exposes the underbelly of Wall Street and its accomplices, including mainstream financial media icons like CNBC and Jim Cramer. deepcapture.com is a highly recommended read, one which reads better than a spy novel--only it's not fiction.

http://www.smartbrief.com/news/aaaa/industryPR-detail.jsp?id=90097940-195B-4EBE-B497-9CADD523BA91

Gold reaches all-time high in euros

http://jsmineset.com/2010/02/16/gold-hits-new-all-time-high-in-euro-terms/

The Euro is cratering due to concerns about Greece's debt crisis, and looming problems on the sovereign debt of Portugal, Italy, Ireland, Greece, and Spain, part of the (mostly) Club Med countries affectionately dubbed the PIIGS nations. Hence, nervous investors are fleeing the Euro and piling into gold, driving up gold prices to all-time highs when indexed against the Euro. Gold is still below it's all-time high when priced in USDollars, due to recent dollar strength, but that will prove to be a head fake as insolvency among states like California, Illinois, et. al will become more apparent. In fact, the US federal government's fiscal problems will soon become transparent once the media provides more illumination. In other words, the recent flight to safety in the USDollar and US Treasury bonds will prove to be a wrong-way bet. The Euro may be trash, but so is the USDollar.

The bond vigilantes (multi-national hedge funds) attacked the debt and securities of companies and banks in 2008, and now they will put on bear raids against sovereign countries with solvency concerns, betting on their decline. First it was Iceland, then Dubai, now Greece, and eventually the PIIG countries.

Like a pack of predators, they target the weakest countries first, moving up the food ladder as they take out each debtor nation. In my opinion, countries in their crosshairs down the road will include Japan, the UK, and the US.