Michael Lewis, the financial journalist and best-selling author, recently came out claiming that high frequency traders are rigging the markets to their benefit.
And they are!
Only, that activity mostly hurts large institutional investors as the “millisecond” advantages accrue on larger trades.
The real threat to everyday investors, like you and me — the one we should worry more about than high frequency trading — is the Federal Reserve and central banks around the world.
They have put short-term interest rates at near zero to stimulate the economy.
They have forced longer-term interest rates lower than the market would, through their endless quantitative easing.
As a result, they’ve forced investors into higher yielding assets, like stocks, thus creating the bubble we’re now seeing peek for the third time (the first peak was in 2000, the second in 2007, and now again in early April).
But here’s the rub…
When short-term interest rates are so low, hedge funds and traders can lever up at low costs. This means they can trade at 30 to 50 times leverage with low risks, especially when the Fed pretty much guarantees it won’t let the market or economy go down too much without stepping in with larger stimulus plans.
They called it the “Bernanke Put” — now the “Yellen Put” — and she is even more dovish than Bernanke. She’s all for stimulus, as long as necessary, to keep the great bubble from bursting.
How’s that for a long-term strategy? It’s like a bankrupt man taking on more and more debt to cure his debt crisis!
Unfortunately, the larger traders — beyond those who partake in high frequency trading — do dominate the market, thanks to very intentional Fed policies.
In a normal market, such traders would only make up 10% or so of the volume. That’s healthy. It keeps the markets in check over the short-term.
But the market is nowhere near normal. It’s not even in the same zip code. Now the big boys make up 50% plus of the market volume… with their unprecedented leverage.
As an everyday investor or trader, you don’t stand a chance against these bigger guys. They have better information and are closer to the markets. And they’re almost always one step ahead of you.
I’m not a trader by profession. Instead, I invest more in new ventures, like my own company. But since 2009, every time I see a market movement about to happen, much of it occurs by the time I could put in a trade. I’m sure you’ve been frustrated by the same experience.
Some of that is from high frequency traders that are one tick ahead of us… but most of it is from larger traders and hedge funds that make a living looking at what smaller investors and traders are doing, and then doing the exact opposite.
These major traders are the “sharks” that feed off the “minnows” like you and me!
They don’t care if the market goes up or down, and more often than not, they don’t follow fundamental trends. They just see markets going up and when they sense that the market has gone up too far, they go short… typically when the little guys have gained confidence on the run up.
Then they buy when you panic on each downturn.
This is the threat to you as an individual trader or investor.
So rather than trying to beat the sharks, find yourself a trading and investing system that works for you, and then stick to that. Don’t chase the markets, up or down.
Adam has one for both Boom & Bust subscribers and his Cycle 9 Alert readers, and his track record on both speaks for itself.
And watch out ahead. This latest bubble will burst, likely this year, according to all of my best cycles that point down together from early 2014 into late 2019 or early 2020. Your ass and assets, and your family’s and business’s future are on the line.
We’re very likely to see the greatest stock and financial asset burst, since 1930 to 1932, just ahead!
But that’s the beauty of following the right investment or trading system. It should help you during the ups AND downs.
That’s exactly what Adam will do for subscribers because his system is designed to work in your favor, regardless of the direction of the markets.
So my question to you is this: Have you joined us yet?
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