When I talk about the ‘technical trade,’ I mean that fairly literally.The market, in the absence of a major exogenous event, is running on autopilot, with the algorithmic computers and trend following traders driving it back and forth within pre-programmed levels of support and resistance.
The SP 500 futures are just an example. This same thing takes place in many other markets including important world markets such as metals, energy, and foodstuffs.
In low volume environments with no important exterior factors in the short term, the technical game tends to have a bias higher, because in this type of paper market there is no upward limit, and one wishes to draw in the ‘suckers.’ The word goes out in the pit that the trading desks ‘want to try to take it up.’ This is how the ‘pools’ operated in the 1920′s.
The drops tend to come quickly and pass even faster, since that is the reaping, not the planting and growing of the scam.
And because of their collocation and speed, the computer trading algos can front run almost every transaction and skim a small percentage off it, and absent real volume use wash trades to drive the price where they will. And in the aggregate at least, their market positioning allows them to ‘see what is in your hand, what cards you are holding.’
If there is any change, the well-capitalized professionals with very high priced, high speed collocated computers and departments of brainy quants are driving the smaller scamsters to the sidelines, and sometimes into the ranks of the pundits and hangers-on. The price of computers, politicians, media, and regulators provides an effective barrier to entry against competition.
Yes there is always corruption in markets, despite what the naturally efficient markets theorists from the monied interests’ bastions of intellectual folly and deception might maintain. But at certain times in history the distortions in the markets become so great, so predominant, so extreme, that they crowd out much of the productive and creative investment activity. In the resulting outcome, the inevitable return to normalcy, society in general can suffer greatly for the greed of the few.
And if anyone should ever warn about manipulation in the markets, one responds, ‘oh no, they would never allow that! Who could be so low?’ And then some mouth a few appropriate slogans supplied by the market manipulators using comic book views of the world from Ayn Rand, for example.
People deny what they cannot bear to admit. And one denial leads to another, and another, until the truth becomes not only unspeakable, but almost unthinkable. And so one deflects to another thought, a diversion and distraction, a person or group, and finally another reality. That is the way to madness, that is the credibility trap.
The LIBOR scandal, and the trainwreck of revelations about market corruption which I forecast would happen, are making the true believers a little hesitant, uneasy. But the hard core are resilient, faithful to the myth, to the end.
It’s a lucrative business, and if unforeseen events intrude, you can always have the public cover your losses.
What a wonderful world we have created with the gifts that have been given to us.
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