The function of the High Frequency Trading HFT programs is to provide liquidity and artificial demand. This leads to severe market conditions of either artificial inflation or artificial deflation. The ramifications of the failure of the financial markets with all these socialized agendas, collective bargaining, and a herd mentality have literally been felt all over the globe. It can be seen in the World Economic Forums, the G20 Meetings, Davos, and now we have socialist workers causing uprisings in Muslim countries all over North Africa.
The fact of the matter is that Islam is closer to capitalism in its pursuit of free markets and its championing of individualism, than any of the western political ideologies. Socialism in particular is seen as a foreign and forbidden ideology in the Islamic world due to the fact that Islam is a religion that is rooted in free trade. There are rules that are intrinsic to the fundamentals of the religion that discuss monopolies (Ihtikar) and market manipulation.
Here is a dictionary definition of Socialism:
“So·cial·ism [soh-shuh-liz-uhm] -noun : A theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole.”
Let’s try to examine how socialism has invaded the financial markets. I am not going to focus on obvious examples like Brazil, Russia, India & China (BRIC) Mutual Funds, and discuss the fact that 3 out of the 4 countries were or are communists. I simply would like to discuss how the markets have grown more corrupt without actual human investors. It seems that its is so much easier to have an investment banker plug in metrics into a computer, and then have the asset management departments computers finance the equity or debt offerings. No credit analysis or real banking were used in the process, just automation of the banking process and the financial markets. All the risks get mitigated by credit default swaps, and promises of diversification. As a result the markets are totally vulnerable to corruption and a socialistic type of control of capital. The liquidity is not going to the investments with the greatest merit or the greatest potential. Instead the flow of capital is either politicized, socialized, or skewed by the HFT.
The prices of currencies, commodities, and equities must be set by fundamental analysis as opposed to market manipulation into convenient correlation (Refer to the three charts). Criteria such as supply, demand, quality of the underlying asset must be the issues at the core of the price discovery process. The allures of “Computerized Trading” such as liquidity and volume are destroying the fabric of capitalism by creating a centrally controlled market place. Let’s look at the market manipulation through the analysis of the patterns of the three different indices in the charts. The Dow Jones is composed of 30 stocks, the S&P 500 is composed of five hundred stocks, and the Nasdaq is composed of literally thousands of stocks. Each of these different indices is composed of different equities, yet the prices are moving in the same pattern. Where is the Fair Market Value FMV of the underlying equities? Are consumers supposed to pay for their commodities, currencies, and equities based on these whimsical prices?
Computerized trading supplanted investors and they have been designed and categorized into trading platforms that function as liquidity rebate traders, predatory algorithmic traders, automated market makers, and program traders. They are exploiting the new market dynamics and negatively affecting real investors with their rampant speculation. We at The KIN Consortium have published a series of research reports detailing the manipulation of the prices due to these programmed computer trading platforms. In essence the machines are focused on short-term profits, while focusing in on high volume underlying assets that have a small difference between the bid and ask prices. This practice is not consistent with the principles of economics and the pursuit of fair market value. The world has grown wary of the financial markets and various countries are developing solutions to mitigate this volatility risk.
This can only be described as market manipulation by computers and programmers. The artificial inflation has ramifications around the globe. We have recently seen riots and revolutions based on inflated prices of commodities. People are screaming for fair market value of basic food. We need to dismantle the leveraged computerized trading platforms and return to a cash based supply and demand driven market place. We must literally take a stand against socialism in all its forms, be it in the financial markets, commodity prices, labor costs, land, manufacturing, etc. We must allow for the natural price discovery process of the capitalistic system to determine the true market prices.
— Khalid I. Natto, [email protected], is chairman & CEO of The KIN Consortium.