- BattleBots - The Sequel

I think they're a little too conspiracy prone, but in a general sense I'm a fan of the website Zerohedge. Much of what they publish is geared for guys like me (and is therefore totally incomprehensible to your average retail investor) and it's nice to read public data that's a little more content heavy than the cheerleaders at CNBC, or the laughably vacuous short skirts at Bloomberg.

This article in particular tells an important story:

HFT Bot-Versus-Bot

For ages the guys at Zerohedge have complained about the role of HF trading in the US equity markets. But the problem isn't that High Frequency traders have grown as a percentage of the market. The problem is that everyone else has run away and they're the only people left. And because of that, what we have now is a market which is totally unconcerned with valuation. Today's 'active trader' has an average holding period measured in seconds not days or weeks. And the only thing that investor (if I could mis-apply that word) is concerned with is the microsecond by microsecond relationship between the prices of various assets.

Since everyone with a holding period longer than 5 seconds has either gotten out of the market or GREATLY scaled back their risk, the bots are now driving everything. You can buy one stock or 100, it doesn't matter. You can have good news, or bad, good earnings or bad... it's all irrelevant for any period longer than a minute or two. The price of your assets tomorrow will be based only on their relationships to the S&P future.

This is unsustainable in the extreme.

At this point the only thing I can think of that will bring longer term money back into the market is inflation. The effect of inflation is something they can trust, something they can understand and rely on. Once we see inflation the differences between well run companies and poorly run companies will begin to matter again. Until then though, there is just one investor class trading the US Treasury future, and the rest of us are just lending money to electronic arbitrageurs.

So long as the bots are driving market behavior, the long term future remains in serious doubt, and the conditions for a viable financial industry will be absent.