High Frequency Scapegoating

As soon as I heard about Google tanking 10 percent, leading to a trading halt, in response to a prematurely released earnings announcement, I asked myself: “I wonder how long before someone blames HFT.”  I didn’t have to wait long.  Almost immediately afterwards, Jim Cramer (gag) and Harvey Pitt were on CNBC putting the blame on computerized trading.

Let me get this straight.  Extremely bearish information about GOOG is released.  GOOG immediately tanks.  Trading in the stock is paused.  On resumption of trade, the stock trades a little off its lows, but 8 percent below the pre-information level.

Uhm, isn’t that the way efficient markets are supposed to work?  Aren’t prices supposed to drop immediately upon the release of bad news, and stay down (absent any offsetting good news)?   Didn’t this happen before HFT?  Like forever?

So what’s your problem, Cramer?  (I’m talking about the market, not you personally-I don’t have enough time to even begin with your issues.)  Are you just ticked that the price doesn’t move down slowly, giving turkeys like you a chance to make money at the expense of even slower turkeys?

I often quote Captain Renault (Claude Rains) from Casablanca to describe how any price move in commodities is pinned on “speculators”: “Round up the usual suspects.”  When it comes to any big move in the stock market, the only thing that has to be changed is to substitute the singular for the plural: “Round up the usual suspect.”  Because its always about HFT/algos.  High frequency scapegoating.

Google was PO’d at the premature release of the earnings numbers by RR Donnelly.  The main reason it was PO’d is that the premature release prevented it from spinning the awful news.  When it did have the opportunity, Larry Page delivered one of the most mendacious statements imaginable:

“We had a strong quarter,” Page’s statement said. “Revenue was up 45 percent year-on-year, and, at just fourteen years old, we cleared our first $14 billion revenue quarter. I am also really excited about the progress we’re making creating a beautifully simple, intuitive Google experience across all devices.”

“I’m really happy with our business…Not bad for a teenager,” Page added on the earnings call.

Who you gonna believe, Larry or the lyin’ market?

Do no evil.  More Orwellian by the day.

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About Craig Pirrong 238 Articles

Affiliation: University of Houston

Dr Pirrong is Professor of Finance, and Energy Markets Director for the Global Energy Management Institute at the Bauer College of Business of the University of Houston. He was previously Watson Family Professor of Commodity and Financial Risk Management at Oklahoma State University, and a faculty member at the University of Michigan, the University of Chicago, and Washington University.

Professor Pirrong's research focuses on the organization of financial exchanges, derivatives clearing, competition between exchanges, commodity markets, derivatives market manipulation, the relation between market fundamentals and commodity price dynamics, and the implications of this relation for the pricing of commodity derivatives. He has published 30 articles in professional publications, is the author of three books, and has consulted widely, primarily on commodity and market manipulation-related issues.

He holds a Ph.D. in business economics from the University of Chicago.

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