For those of us that follow the equity markets, it has seemed that the "something" fundamental has changed over the last 10 years. I have never been
able to put my finger on what exactly that "something" was, but my gut has told me that the markets were not reacting rationally.
Andrew Haldane is the Executive Director of Financial Stability for the Bank of England. Not exactly a tin-foil wearing extremist but almost the very
definition of the The Powers That Be.
Recently (April 23, 2012) at the Institute for New Economic Thinking's Paradigm Lost Conference in Berlin he gave a talk exposing the mirage of
liquidity that exists in the world's equity markets.
Here is a link
to an excerpt of his speech from Berlin as broadcast on
Harry Shearer's Le Show.
The key points to note from his speech are:
1. 1/2 to 3/4 of all trades in the equity markets are now done as high frequency trading.
2. For every one trade that is executed, 60 trades are cancelled in order to manipulate price and liquidity. Yes, you read that right. For every
one trade that is completed, 60 are cancelled.
3. The "flash crash" of May 6, 2010 destroyed the illusion of liquidity in the equity markets, but since then, the markets have actually experienced
100s of such flash crashes, but they are now no longer reported.
4. The markets are no longer a medium for showing the economic viability of capital institutions but a score board for those able to dominate finite
bandwidth with faster computers and more efficient algorithms.
I am simply stunned by the candor of Mr. Haldane in this speech and the implications it has for western economies.
The excerpt from Le Show contains the most interesting parts of the speech, but for those interested, I have been able to find the entire speech on
Here you go.
edit on 14-5-2012 by LordOfArcadia because: (no reason given)