The actual productive economy has very little in common with the erratic and substantial movement in equity pricing on the major exchanges. The conditions for conducting commerce have not appreciably changed in the last days to warrant a numerical drop of historic proportions. For the working class and the consumer market, the price of items did not see a major drop or rise in value in this latest turmoil. Lost in the confusion is that the professional speculators won’t be playing a game of chance, they will execute their financial triggers based upon mathematical algorithms implemented at lightning speed by super computers. The days of the “specialists” making a market has been dead for years.
There is no such tangibility as an investment when the underlying security is based upon a third party financial instrument. This is a primary reason why the real economy must be reflected upon the actual transactions of buying and selling.
Exchange-traded funds (ETF) have been the rage for many years. The report, Will ETFs cause the next market crash?, hedges on their answer.
Claim 1: ETFs are blindly pushing up stock prices
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US based fund manager FPA capital called ETFs “Weapons of Mass Destruction” and stated “The flood of money into passive products is making stock prices move in lockstep and creating markets increasingly divorced from underlying fundamentals”.
Claim 2: ETFs will sell on mass and compound market falls
One of the known weaknesses of a managed fund structure is the ability for investors to fairly easily redeem their funds, meaning at times of market falls, when a fund manager may find the best investment opportunities, the investors in the fund are panicking and redeeming their investments, meaning the fund manager becomes a forced seller rather than a buyer.
Claim 3: ETFs with low liquidity will be hard to sell if markets fall
In a free falling market it may be difficult for the market maker to price the underlying investments forcing them to create a huge spread between the buy and sell price to protect their margins. This was seen in the 2015 Dow Jones ‘Flash Crash’, where some ETFs dropped 30% when the market makers were unable to price the underlying securities.
Claim 4: ‘Exotic’ ETFs are higher risk
These ETFs are generally referred to as ‘Synthetic’ or ‘Hedge fund’ in their title. Cunningham raised the risk that the counterparty may default on their obligation, so an additional level of risk exists for the investor.
The risk to securities stability is profound from such funds, especially when Carl Icahn calls BlackRock a ‘dangerous’ company, cites ETF concerns and the computers only accelerate and hasten artificial movements away from the genuine business activities in the bread and butter economy. “They sell liquidity,” Icahn said in reference to BlackRock’s ETF business. “There is no liquidity. That’s my point. And that’s what’s going to blow this up.”
Now even if this precarious system can deal with the volatility on a short term basis, what happens when the overload cannot be tripped by circuit breakers? The machines have proven over the years that many mini crashes are synthetic occurrences, and that the buyer of last resort becomes the Federal Reserve.
In a relatively new departure of its functions the Central Banks’ Massive Incursion Into Buying Stocks is a sign of desperation.
“Their incursion into this bastion of the free markets signals we have entered the era where true price discovery no longer exists. The central banks are often viewed as price-insensitive buyers, so this incestuous influx of money is in some ways the ultimate distortion. This is especially true when the markets are not deep enough to accommodate the size of these purchases. Over the years, global currency reserves have grown and this has increased pressure on central-bank managers to diversify them, moving from being a liquidity manager to focusing on investment management but with this comes risk.”
The last statement regarding the risk is not entirely correct. In pure market terms, sure anyone entering the equity arena has counterpart exposure. However, the Fed cannot be viewed in the same light as any other stock player. View the video, Max Keiser interview Nomi Prins ‘COLLUSION: How Central Bankers Rigged the World’ and understand the nature of and purpose why the central bank has been buying up company shares at rock bottom prices for a very long time.
The plunge protection team rides the volatility of the high frequency trading by switching on their mega computers to squeeze out the individual saver, the independent funds and even the biggest of hedge operators. The Federal Reserve has become the ultimate complex of portfolio-construction absent of any risk. Simply put the Fed creates the fiat money entry, uses the proceeds to buy up the depressed assets that they rammed down the price and places the interest obligation upon the government and the public slaves, who were cheated out of their savings. This scheme is the definitive formula of risk-management; WITHOUT ANY RISK.
The significance of program artificial intelligence algorithms is to facilitate a singularity of real asset theft by the bankster cartel. Little protection for your wealth from ETFs or other regulated paper financial products should be evident. Going short the market just plays into the whipsaw of arranged volatility.
The power elite that control the evil axis among banking, exchange manipulation and government regulation (or lack thereof) run a system of predatory extortion. The merchant class and a real asset economy is the biggest threat to this contrived indentured system. This is the real reason why the producers are the greatest enemy to the establishment.
President Trump will be blamed for any pronounced downturn or recession in the economy because the globalists will use any means to stop a recovering economy and crash our society. The rampant application of data collection and cloud based computing allows for assembling the conditions to panic the public. Draining the meager resources of ordinary citizens starts with a stock market collapse.
James Hall – February 7, 2018
H/T: BATR
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