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Savage Competition in Electronic Gadgets

By Rick Ackerman Posted on September 29, 2011, 1:09 am EDT Last Updated September 29, 2011, 12:50 pm EDT

With only a handful of players savvy enough to compete in the major leagues of tablet computing, competition has nonetheless erupted that is likely to hearten consumers, especially those who have tired of paying exorbitant prices for gadgets bearing the Apple logo. Yesterday, it was Amazon that stepped into the ring — with Kindle Fire, a $199 tablet that will sell for less than half of the cheapest Apple model. The 7-inch display is only half the size of Apple’s, but as Hewlett Packard’s close-out sale for a similar device proved, buyers are willing and eager to forsake Apple products if the price is right. To be sure, Amazon has targeted the lower end of the market with a tablet that cannot do all of the tricks that iPad is capable of.  It lacks an embedded camera and microphone, for starters, and there is no 3G cellular connection, only Wi-Fi.  Give Amazon a little time, however – perhaps eight to twelve months — and a fully-featured product will be able to go head-to-head with Apple’s best, but with the kicker of Amazon “content” to make it more than merely competitive.

Amazon’s announcement, presented by CEO Jeff Bezos with Steve Jobs-like flair, comes on the heels of an announcement that Dish, through its recently acquired Blockbuster unit, will offer streaming movies and TV shows to compete with Netflix. Recall that Netflix shot itself in the foot last month with a horrific new pricing scheme that elicited a firestorm of protests from subscribers and enough cancellations to cause NFLX shares to collapse. Since July, they’ve fallen from $305 to a recent low of $125, or nearly 60 percent. Netflix founder Reed Hastings, who even now probably still doesn’t get it, responded with some pro forma blather about how he is sure Netflix is on the right track, and that investors, if not customers, will someday appreciate the big price hikes effected by separating the firm’s mail-delivered movies from its streamed titles.

Streaming Everything

With Dish in the game, and Amazon building its own inventory of streaming everything, including movies, the day may yet arrive when we no longer have to pay $70 for bare-bones cable TV that, as far as we can tell, is mostly infomercials, rock-bottom-reality shows and movies that have been sliced, diced and chopped into 7-minute segments to accommodate advertisers. The savage competition in electronic geegaws and web-content delivery may provide the additional benefit of shutting down the carnival midway of IPOs yet to play out, including Groupon’s and Facebook’s. We mentioned here yesterday that investment capital is likely to become scarce when the Feather Merchants’ game of high-frequency trading and algorithmic point-shaving collapses, as it must. It will be better for us all if that happens before hundreds of billions of dollars are wasted on companies that leech off wealth rather than create it.

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  • Chris T. September 30, 2011, 5:56 pm

    Rich, you write:
    “Sell on Rosh Hashanah and Buy on Yom Kippur”

    I have never heard that one before.
    Why should that be so?

    The number of Americans observing both holidays is very small, maybe 2-3% of the population.

    “Sell in May and go away” at least makes sense because of our summer centric vacation patterns, with so many of us being away for substantial periods in the summer.

    Just wondering.
    Or were you kidding?

  • Mark Uzick September 30, 2011, 8:29 am

    Robert: “If Amazon can prove to a judge that “your” data was stored on a disk in a datacenter that resides on Amazon’s deeded or titled real property, then that data is THEIRS, not yours…”

    The data to which you bought access is not your exclusive property, but you have property rights to the use of that data as defined in your contract with Amazon.

    • Robert September 30, 2011, 7:09 pm

      Wait-

      Mark and Steve: you are both looking at this from the Amazon point of view, and not the “user’s” point of view:

      True- the “use” of Amazon’s cloud products is protected under contract law.

      Now, take a look at the contract from the alternate party’s point of view.

      Go look at those agreements very closely, and see what rights the agreement affords Amazon with regard to the “use” of YOUR data.

      As an example- say you use an Amazon spreadsheet program to open your private personal or business balance sheet. The first thing ANY cloud computing service is going to do is save a copy of YOUR balance sheet data on THEIR network, so that their software can interact with it more quickly and securely. They claim that this is in the best interest of your personal user experience, and is covered by the usage agreement (contract) that you digitally signed- which it very well might be, if speed and computing efficiency is your primary objective.

      However- Amazon makes it clear in the same agreement that once these “local copies”
      of your files are resident on their network, the data within the copies “may” be accessed, scrutinized,and utilized for use by THEM to “gather customer commonality metrics for targetted marketting purposes” and other such “business intelligence” nonsense.

      Back in the olden days (5 years ago) companies even went so far as to declare that the user agreement entitled them to SELL your personal data to other companies for profit; but once that factoid was out in the open, the uproar inspired new laws that now requires them to give you the option to decide whether or not you want to grant them this right.

      As I said- the laws are DECADES behind the capabilities of the technology. I highly encourage EVERYONE to go do the legal research if you don’t believe me.

      Look, after all this blather, I’ll make this easy for all of you… Have you ever noticed that software always has 5 pages of “blah blah blah” that you always scroll past and simply click the “I agree” button…?

      Why is all of that language there? Is it merely there to serve the protection and integrity of your own “personal use contract” as they claim?

      Do you need to sign 5 pages of gobbledy-gook every time you run next door to ask your neighbor if you can use their shovel? Does your neighbor expect you to relinquish that any residual soil left on the shovel after said use is theirs to do with as they please?

      So, why do you need all that mumbo-jumbo in order to borrow one of Amazon’s “tools”…?

      Perhaps Amazon is not so altruistic as you might assume?

      I earn a comfortable living understanding everything you just “agreed” to, and guess what? I don’t use your acceptance of that agreement to act in YOUR best interest. I use it to act in my employer’s best interest. You relinquish my livelihood to me every time you click one of those check boxes. For that I must thank you all… 🙂

      But it’s ok- because for as much as you can gather from my writings in Rick’s forum, and on my personal blog, you should conclude that I am a fair and moral person…. so you can trust me with your personal data, right?

      I don’t want to scare any of you…. I want to help you understand the REAL world.

      Electronic data security and ownership laws are built upon corporate franchise law, which is built upon the Uniform Commercial Code- Therefore you have no individual rights with regard to the ownership of data about your strawman, once that data has been voluntarily relinquished to a corporate interest.

      Don’t be scared- be empowered.

  • Robert September 30, 2011, 12:04 am

    “commodities law itself demands that the exchanges pricing reflects that actual markets price, and not that it makes that price.”

    – Boy, that point is a very real “inconvenient truth” these days, isn’t it Chris?

    Daily Silver volumes on the COMEX have traded at 110% of global annual production levels several times in the past 6 months.

    The second that anyone conflates profiteering with value creation, we are in dangerous waters, because as you point out with the Madoff example, Charles Ponzi had devised a very elegant model of generating profits that was risk-free…. until it wasn’t; and at that point the risk (to his life) went from zero to near infinity.

    Mind you all, I’m not trying to bash profiteering- the point I am trying to make is that successful profiteers need to maintain a firm grip on the required moral self-discipline that prevents them from starting down the slippery slope toward fraud.

    Markets will let traders and arbitrageurs in, and it will let them apply their wares and take their gains- until the point that their influence becomes destructive, at which point the market turns on them like the vicious, hungry animal it is supposed to be.

  • Chris T. September 29, 2011, 11:19 pm

    Mark Uzick writes

    “Panics and crashes are inevitable occurrences in markets…”

    They are inevitable only under certain circumstances, not a naturally exogenous impact.
    While their basis is human psychology, fear and greed, there is more to it than that.

    The history of panics in the less controlled environment prior to 1900 demonstrates this aptly.

    Most of them had to do with banks and if it wasn’t directly in banking, then in finance/financing related aspects of real goods transactions.

    The actual basis for this is the fraudulent system the west has lived with ever since modern banking was established, esp. as of the 17th century.

    Because all fiat money is fraud, the panics you mention are nothing other than the spontaneous recognition of that fraud due to an inability of the involved entities to keep it from becoming plainly visible.
    These panics were actually healthy, and tended NOT to conflagrate everything along the way, because there still was a system in place to keep this from spreading for too long.

    That system is hard money, gold.
    Which is why we have central banking of the modern Reichsbank / Federal Reserve type:
    It was created as a way to extend the fraud much much longer.

    Our problems today are the chickens coming home to roost. It certainly has gone on much longer than many who understand this thought , perhaps because they simply couldn’t accept that those masters could be so craven and crafty.

    Without this fraud at its basis, this is not an inevitability.
    You would have to reduce the inevidability to the human core, meaning, because there will always be greed, someone will always find a way to turn a non-fraudulent system fraudulent, but that is not quite the same thing.

    “Profits=adding value”
    Robert has already addressed this quite well, two comments.
    Maddoff certainly generated profits, how did that “add value”?

    Also, Robert’s corn example is very good, because it demonstrates my above fraud point in a subsector of the money-related sphere:

    It is the tail wagging the dog. You may not believe in the accuracy what Ted Butler has been writing about the silver “market”, but one of his main points is fully correct:

    That is that commodities law itself demands that the exchanges pricing reflects that actual markets price, and not that it makes that price.
    Just as in the corn example, when one looks at the daily / annual turnover in the PM’s (where it is most egregious), there is simply no relation to annual production/annual consumption.
    That is the tail wagging the dog, and only possible due to the greedy fiat system that exists even in the physical “markets”.
    For stocks, the delivery default is the best example.

    The gambling-like nature that our trading systems have become shows exactly where it is at:
    Gambling is a zero sum game, and a zero sum by definition does NOT add value.

    No amount of scientific/mathematical abstractionism can change that, it simply shows the ever increasing sophistication of the major players.
    After all, as the MIT card-counters demonstrated it also works in overt gambling.

  • Rich September 29, 2011, 10:20 pm

    Some brilliant discussion here today of fundamental values that seem to have gotten lost in the shuffle for profits, so will just wish Rick and anyone else Happy Holidays, noting:

    “Sell on Rosh Hashanah and Buy on Yom Kippur”

  • (different) Steve September 29, 2011, 7:20 pm

    with all this streaming, i still fear the cable companies will get their’s when they impose restrictions and tiers on customer bandwidth usage. in a corporatocracy, they will get you one way or another.

  • Carol September 29, 2011, 5:45 pm

    Steve,

    Well if you want to be a stickler, no one owns or can own anything in this world especially if one “purchases” such thing with debt based fiat currency (notice “purchase” is not legally the same thing as “buying” something).

    My point of not owning the software, ebook, etc was slightly misstated in that I agree with you that one never owns another’s intellectual property but usually when someone purchases a physical book (or art, etc) the seller can not burn or destroy that book etc once the purchaser has taken possession of it. With Amazons kindle (and I assume also with their new geegaw), Amazon can remove (destroy) copies of their books/software/art/etc off someones kindle/geegaw even after the purchaser has paid for /ethe rights to that ebook/etc.

    Now the real issue is the privacy issues (or lack thereof) and the ownership of data. Data is not exactly considered intellectual property so it doesn’t fall under the IP laws. So who owns the data stored on “Clouds”? Remember that possession is 9/10s of the law i.e., one who possesses something has almost a perfect claim to that something absent a specific contractual claim to the contrary. Note further that any contract must be valid i.e., full disclosure, meeting of the minds, and consideration. So who owns the data in the Cloud I ask again? I suspect there is some fine print in the purchase agreement that states Amazon owns any data stored on their Clouds.

    • Robert September 29, 2011, 5:54 pm

      “I suspect there is some fine print in the purchase agreement that states Amazon owns any data stored on their Clouds”

      You don’t have to suspect, Carol.

      Any data stored on a disk or memory chip is the real property of the tenent in common of the titled property that said computer/disk resides within.

      If Amazon can prove to a judge that “your” data was stored on a disk in a datacenter that resides on Amazon’s deeded or titled real property, then that data is THEIRS, not yours…

    • Steve September 29, 2011, 7:35 pm

      Roman Civil Law: use=debt=trust, ie; simply making a use of something under roman civil law constructs contract. Meeting of the minds to reach agreement to endorse contract is old hat in the face of Roman Civil Law, Civil Rights, 14th amendment “use”.

  • Carol September 29, 2011, 2:58 pm

    I am no fan of Apple but I would never buy Amazon’s new geegaw either. Did you know when you buy a book for their kindle reader that just like software you do not own that book and they can delete it from your reader anytime they want to. You are just buying rights to use the ebook instead of buying the actual book. This is possible because of their “Cloud” paradigm.

    This new geegaw of theirs is implemented also using their “Cloud” paradigm. If you are not familiar with “Cloud” let me give you a sneak peak. In the “Cloud”paradigm you (the user) own nothing except the actual computer that interfaces to the “Cloud” (PC, kindle reader, kindle Fire, etc). All of your software, and especially your data is stored off site on 3rd party computers (remember possession is 9/10ths of the law). Once on 3rd party computers that data can easily be mined and actually that capability is one of the selling features of using the “Cloud”. Think 1984 where every piece of data held about you, your finances, your schedules, your most intimate details about your life is stored on public computers where big brother and all his sub corporations can and will get access to your data. Welcome to 1984 comrades!

    • Seawolf September 29, 2011, 3:28 pm

      I’m with you Carol. I don’t need to own any geegaw that can track me.

    • Steve September 29, 2011, 4:52 pm

      Carol, Correct me if I”m wrong, but no one ever owns a piece of art. What is purchased is the right to view the art, or individually read the book, along with the right to convey the individual viewing privilege. The same goes for anything copyrightable. One cannot own another’s copyright unless it is specifically sold by contract. One may only buy the privilege of reading the book and of conveying the individual privilege to read that individual book. As I understand it, no one can take a book, movie, art, or other copyright piece and reproduce it in bulk for gain. Only the creator/owner of something copyrightable may gain from the copyright.

      Most artists could care less if someone burns a book that was purchased. Could an artist sue for destruction of copyright material if they wanted to? Public Art where the copyright does not pass to the purchaser cannot be altered, damaged, or even moved without a release from the copyright owner.

      What is interesting about what you wrote is the contract issue. What kind of contract is one signing ? And, why would anyone pay for something that can be taken back without regard for the price paid?

    • Robert September 29, 2011, 5:37 pm

      Cloud computing is simple predation… unambiguous, undeniable predation.

      “Here, let us save you hundreds of dollars on software license costs…. as well as preserving and guaranteeing the safety of your personal data”

      Ooooooh- that’s a win-win. My data is safe, and securely backed up, and available to me from anywhere, and I also don’t have to pay any more software maintenance costs? Wow, where do I sign up?

      Right here- beneath these 600 paragraphs of fine print that say we own your pictures, your documented thoughts, your financial data, and anything else that represents your immmortal soul in digital format.

    • Robert September 29, 2011, 7:25 pm

      Wait…. how many “m” are there in “immortal”

      🙂

    • Steve September 29, 2011, 7:43 pm

      Robert, in the case of me constructing words into something copyrightable, that Constitutional Security cannot be lost without an express contract in writing. Maybe that is why the internet boys went after the copyright laws a while back. My understanding of copyright is a couple of years old, so who knows. Simple use of how many times one visits a site is one thing. I.P. cannot be taken without written contract. The implied contract for use may limit privacy under Article IV of Amendment. I doubt that I.P. can be taken without a very specific written release from the creator.

    • Robert September 30, 2011, 12:21 am

      Steve-

      Intellectual property laws are DECADES behind where they need to be regarding digital media content.

      That’s why no one can effectively stop the free distribution of music and video… I can take the same song, digitize the analog signal using 3 different codecs, and I get 3 very different looking digital files (in terms of how the sequence of ones and zeros arrange themselves) , and yet it SOUNDS like the same song to human ears.

      You have no idea how fortunate you are to sculpt in a “real” media- if you chose instead to create 3D CAD-drawings, your expressions would probably be pirated as well…

      Once IP is digitized, it seemingly belongs to the Universe… I’ll let you decide whether that’s a good or a bad thing.

  • John Jay September 29, 2011, 2:07 pm

    Mark, if part of HFT involves placing massive orders for micro seconds then pulling that order before it can be filled with the intent of manipulating prices, it is very likely illegal as hell under existing securities laws.Even if some orders get filled in order to frontrun a real order, that is probably equally illegal.
    Rick was in the business so he can probably tell us for sure. Then since it involves more than one person, there is a conspiracy charge to boot. Just like allocating the same mortgage to ten different MBS packages, and taking massive positions that those MBS packages will default. None of that adds any value to the economy, like building a 787 or a milling machine does. It is theft and fraud which goes unpunished because Wall St. has taken over the government. Not a good situation at all.

    • Seawolf September 29, 2011, 3:25 pm

      Algorithm trading will not got away. after all it is efficient. However the HF needs to be controlled.

      1. Ban the exchange practice of paying a bounty for volume trades.

      2. Mandate that all orders to buy or sell have a finite life of at least one second

      3. Prohibit the exchanges from giving the algorithm trades that tiny advantage of being first in line for seeing the trade order

      This would go a long to remove the casino aspect of the markets.

    • Mark Uzick September 29, 2011, 5:16 pm

      “Mark, if part of HFT involves placing massive orders for micro seconds then pulling that order before it can be filled with the intent of manipulating prices, it is very likely illegal as hell under existing securities laws.Even if some orders get filled in order to frontrun a real order, that is probably equally illegal.”

      I don’t see how the speed or frequency of this kind of activity makes it any more fraudulent than when it’s done conventionally. No one likes to tip their hand: An argument could be made that selling a large position in small blocks is deceptive; does that make it fraudulent too? Traders will always take steps to try to mask their true intentions to prevent getting squeezed by other traders. Where is the fraud? Is it fraudulent to bid up or down a price in the hope of selling or buying into an equity at better level? This is part of how markets are made; the intentions of the individual players is to make profit; the liquidity afforded by this process is one of its unintentional social benefits. It’s how the “invisible hand” works.

      “Just like allocating the same mortgage to ten different MBS packages, and taking massive positions that those MBS packages will default.”

      This is either not analogous or, if it is, then not an example of fraud; selling what you believe to be junk to your own clients can be seen as a violation of fiduciary responsibility, but if these are not clients, in the sense of their dependency on trusting the judgment of their broker to do what’s in their interest, but, instead, are simply buyers in the marketplace who do their own research, depending, to some extent, on 3rd party ratings agencies for judgments of safety, then how is this any more immoral than unloading or shorting NFLX at 300 or selling your house to some fool at the top of the real estate bubble?

    • Robert September 29, 2011, 5:27 pm

      To the letter of the law, JJ it is ABSOLUTELY illegal.

      You can not declare that overwhelming the exchange systems with spoof bids in the interest of blocking legitimately higher offers so that you can get filled for .0001 cent less is not the same as walking into the local auction and taking away everyone else’s bid card at gunpoint so that the auctioneer only sees your flag waving…. it is identical.

      Not only that, but today’s HFT trading firms are using insider information from the technical teams on the exchanges to learn where the exchanges’ computers are, how much capacity they have (cpu, memory, network bandwidth) and they are setting up “boiler room datacenters” as close to the exchanges’ systems as possible, and these e-boiler rooms ALWAYS have sufficient computing speed, capacity and bandwidth to overwhelm the exchange.

      Boiler rooms were never legal in the 80’s, so why is this modern equivalent acceptable?

    • Robert September 29, 2011, 5:43 pm

      Oh, and Mark- my reply above should answer your question of :

      “I don’t see how the speed or frequency of this kind of activity makes it any more fraudulent than when it’s done conventionally”

      speed is not fraudulent- after all every race can not be won by every competing driver.

      But, the process of winning by DENYING other drivers the opportunity to cross the finish line first by blockading them is not the same thing at all.

    • Mark Uzick September 29, 2011, 6:33 pm

      “You can not declare that overwhelming the exchange systems with spoof bids in the interest of blocking legitimately higher offers so that you can get filled for .0001 cent less is not the same as walking into the local auction and taking away everyone else’s bid card at gunpoint so that the auctioneer only sees your flag waving…. it is identical.”

      If intentional, that could be seen as a hacker-like attack on the exchange’s system; it’s up to the exchange to ban or penalize this type of activity in order to protect its reputation and prevent a loss of business from clients that may feel they are unfairly disadvantaged.

      HFT shouldn’t be banned if some mis-use it anymore than guns should be banned because some may mis-use them.

    • Robert September 29, 2011, 7:13 pm

      Mark-

      I agree completely on the analogy regarding technology and guns, but you are still looking at it from the point of view of “insiders” versus “outsiders”

      Traders, speculators and arbitrageurs are fine- but they are not MANDATORY to healthy efficient markets, therefore, they must relent to the fact they will always be viewed as Charlatans…

      Just look around you- when capital investors BELIEVE that their capital is being stripped from them unfairly (IE: when they feel that the house’s advantage has made it no longer fun to play in the Casino) then they leave.

      Pretty soon, the house has no capital flow- it only has internal liquidity. You can crank up the speed with which that liquidity moves from table to table, but this increased liquidity does not create capital inflow.

      The end result is that the wealth of the Casino slowly evaporates as underlying costs (electricity, etc) simply chip away at it over time.

      Markets are the exact same. The paper price of a corn futures contract will eventually disconnect itself from the real cost of corn.

      Without INVESTORS, traders have no reason for being.

      All Casinos are markets, yet not all markets are casinos. Therefore, gambling does not NEED to exist, nor does the process add value, in all markets.

      “it’s up to the exchange to ban or penalize this type of activity in order to protect its reputation and prevent a loss of business from clients that may feel they are unfairly disadvantaged. ”

      -Yes, EXACTLY. But instead, the Exchanges treat such advantages as a sellable product in and of itself-

      Co-location of your servers alongside ours? Sure- here’s the price sheet.

      Advance previewing of the latest posted Bid/Ask? Sure- here is the graduated price scale- every 10 microseconds of advance notice will cost you $.000125…

      I’d love to walk into a Casino in Vegas and see a posted “premium sheet” with the going rates for getting to see the flop 2 seconds, 3 seconds, or 4 seconds, ahead of the other players at the Texas Hold-um table… That would be AWESOME.

      I don’t think speculation is evil- I have many of my own personal automated “LFT” algorithms that I have used to generate profits in the past.

      But I do think that immoral privilege and favoritism is ugly, and erodes the spirit of capitalism.

      Back to the gun example: Aaron Burr won. Alexander Hamilton lost.

      Imagine what a different picture history would have painted if it had been discovered that Burr had visited Hamilton’s gunsmith the day prior and saw a sign that said “Tamper with Hamilton’s pistol…. $5”

      That’s all I’ve got to say about morality.

    • Steve September 29, 2011, 7:30 pm

      Basically a modern trader takes the labor of thousands of hard working ranchers and skims the tithe from the labor of others. The trader only steals a little bit from each. Insert any word you want for “Ranchers”. Traders control price one way or the other to get ‘their’ tax on labor.

  • Mark Uzick September 29, 2011, 9:55 am

    “investment capital is likely to become scarce when the Feather Merchants’ game of high-frequency trading and algorithmic point-shaving collapses, as it must. It will be better for us all if that happens before hundreds of billions of dollars are wasted on companies that leech off wealth rather than create it.”

    So traders and speculators are leeches; they serve no useful purpose?

    It sounds to me like a combination of the usual statist vilification of traders and speculators and the fear generated in an entrenched industry by an innovative and technologically superior rival that saves public money by taking a much smaller markup – in this case, a smaller spread.

    Panics and crashes are inevitable occurrences in markets; better a “flash crash” that lasts minutes or hours, that can be forensically analyzed for improved algorithms to reduce the probability and severity of future instances, than a crash that unwinds over days and takes weeks, months or even years to recover from.

    HFT probably won’t prevent or reduce real panics and crashes; and if it should trigger one, it’s probable that circumstances leading to a crash would be triggered one event or another anyway.

    Let’s use regulation to crush one more innovative USA based industry; we’re becoming socialist anyway, so who needs finance? Let the capitalist pigs in Asia have that exploitative industry too.

    • Mark Uzick September 29, 2011, 10:12 am

      Sorry if I sounded harsh; I know that your sentiments lean toward free markets, but I believe that, in this case, you are unfairly prejudiced.

      Have faith in the market; if HFT makes profit, then it’s creating value and has valuable niche in the financial ecosystem. If it’s not valuable or the niche becomes over-saturated, then HFT will fail or some HFT firms will fail to compete successfully.

    • Robert September 29, 2011, 5:15 pm

      ” if HFT makes profit, then it’s creating value and has valuable niche in the financial ecosystem. ”

      Sorry Mark, that statement is only half-valid. Generating profit and adding value is not the same thing.

      Henry Ford added tons of value; but he did not do it by maximizing profits.

      Liquidity is not the end all of healthy markets. Case in point: Selling an ear of corn 50 times before it reaches the end consumer does not improve the flavor, but does, in fact, increase the likelihood that the corn might arrive at its final point of consumption in a state where it is barely (or not even) edible.

      How, pray tell, does this “add value”…? In an analogous sense, this is the only thing that HFT does- it churns markets.

      Trading only adds value if it is conducted fairly- IE: the same rules apply to all players (traders) in the market.

      When HFT can place 10,000 bids, 10,001 asks, and then pull 9999 of those bids back off within a 1 microsecond timeframe, that is leveraging an advantage that is not available to other participants in the market- ergo: people that were willing to pay MORE than the overwhelmed bid never get their orders matched to the ask price because the HFT’s have overwhelmed the exchanges with bids for .0001 cent less.

      This is not fair, and is not indicative of a free market at all.

      A free market says every ask price should be available for scrutiny by every perpective bidder and vice-versa…

      HFT only maximizes very short term profits- no arguments there, but it also serves to completely distort the process of legitimate price discovery.

      Without a clear, consistent and level playing field being established soon, the natural progression of global markets will move into a realm of volatility spasms that make today’s “flash crashes” seem tame by comparison.

    • Steve September 29, 2011, 5:23 pm

      Robert, Bravo !

    • Joey September 29, 2011, 5:59 pm

      Mark, “… if HFT makes profit, then it’s creating value …” is a myth. HFT is simply regulatory capture combined with taking advantage of hurdles to entry.

      Regulatory capture – the big guys captured the financial regulators to allow this skimming.

      Hurdle to entry – only the deepest pockets can afford co-located machines with the programmers to run the skimming machines.

    • Mark Uzick September 29, 2011, 6:09 pm

      Robert: “Henry Ford added tons of value; but he did not do it by maximizing profits.”

      He maximized profits by adding value; technologically superior trading techniques also maximize profits by adding value.

      I generally have great admiration for your opinions, but, in this case, I think you are unfairly prejudiced against “evil traders and speculators”.

      “Liquidity is not the end all of healthy markets. Case in point: Selling an ear of corn 50 times before it reaches the end consumer does not improve the flavor, but does, in fact, increase the likelihood that the corn might arrive at its final point of consumption in a state where it is barely (or not even) edible.”

      That ear could be sold 1000’s of times in mere seconds; how does that affect its flavor or edibility?

      If the corn changed hands so slowly that it caused it to lose value, then doing so would diminish, not maximize, profit and so it wouldn’t be done. Profit is the incentive for value creation and preservation.

      “HFT only maximizes very short term profits- no arguments there, but it also serves to completely distort the process of legitimate price discovery.”

      That one may use a technique to mask one’s true intentions is not a distortion of price discovery nor is it illegitimate; it’s a part of how all markets function. Speculators and arbitragers serve an important function but they will not do it without the profit motive.

      I sense a lack of faith in the efficacy and morality of free markets in even their staunchest defenders.

    • Rick Ackerman September 29, 2011, 6:38 pm

      I’ve been a trader most of my life, Mark, and yes, we are leeches who add nothing to the economy. The fact that the markets have come to be absolutely dominated by very short-term traders, as opposed to investors, is why they deserve to collapse. Incidentally, if you re-read the excerpt from my commentary that you’ve quoted, you’ll see that I was talking about the likes of Groupon and Facebook, not traders, as adding no wealth to the economy.

    • Mark Uzick September 29, 2011, 7:18 pm

      Rick: “I’ve been a trader most of my life, Mark, and yes, we are leeches who add nothing to the economy. The fact that the markets have come to be absolutely dominated by very short-term traders, as opposed to inverstors, is why it deserves to collapse. Incidentally, if you re-read the excerpt from my commentary that you’ve quoted, you’ll see that I was talking about the likes of Groupon and Facebook, not traders, as adding no wealth to the economy.”

      Traders, be they short or long term, are not in the business to benefit society, but to make a profit and so, according to the statist dogma, that is drummed into their heads from childhood, that profit is evil, so filling them with self-loathing, they buy into the premise of the collectivists that they, therefore, are evil parasites, not realizing that in order to legitimately profit they must inadvertently contribute to the value creation process.

      Value doesn’t consist solely of manufactured goods. Facebook and Groupon do create value: Whether they are part of a bubble created by excess Fed liquidity combined with stifling taxes and regulation on more traditional forms of value creation is a different issue.

    • Mark Uzick September 29, 2011, 7:42 pm

      Robert: “Without INVESTORS, traders have no reason for being.”

      If investors really are losing money and given insufficient compensating benefits, they will migrate away from exchanges to alternative exchanges. If a market is free, then all real problems are self correcting.

      “All Casinos are markets, yet not all markets are casinos. Therefore, gambling does not NEED to exist, nor does the process add value, in all markets.”

      Casinos are mere pathetic games that simulate the true gambling that is an essential part of real life that people who don’t have much of a real life use in order to pretend that they are living.

      All life is a gamble and for life to exist; for any value to exist; gambling needs to exist.

    • Robert September 29, 2011, 11:39 pm

      “If investors really are losing money and given insufficient compensating benefits, they will migrate away from exchanges to alternative exchanges. If a market is free, then all real problems are self correcting.”

      I fully agree- all problems are self correcting in the fullness of time. As a political species (no point pretending we are not) we have the option of trying to minimize the pain associated with the self-correction process. This is probably why I was not aghast, nor even surprised by the announcements of QE’s I&II, nor by the fact that neither one had the intended outcome.

      “Casinos are mere pathetic games that simulate the true gambling that is an essential part of real life that people who don’t have much of a real life use in order to pretend that they are living. All life is a gamble and for life to exist; for any value to exist; gambling needs to exist.”

      Hmmmm- I think there is a more distinct geneological progression from simple risk management to pure gambling than you suggest with this statement.

      I agree that in life we are often faced with taking chances; sometimes possibly even chances necessary to ensure survival; but gambling is the process of taking chances exclusively in the interest of profiteering. Very few people walk into a Casino (or onto an exchange trading floor) thinking “I better pull this off or I’m going to be dead…”

      Hmmm… but then again- I do remember what happened to Joe Pesci at the end of “Casino” and what happened to Charlie Sheen at the end of “Wall Street”

      Different Strokes, I guess…


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