Wednesday, February 9, 2011

Funny in Finance

Today, I chortled while reading the Financial Times. I want to share the story with you because it is funny. Not shaking-your-head funny but real, ha-ha funny.

An outlet by the name of the World Sugar Committee called high frequency traders in the sugar market 'parasitic'. “Sugar body blames ‘parasitic’ computer traders for volatility” was the heading.

No, the World Sugar Committee is not a spoof from a Woody Allen movie or a remake of The Airplane! And no, it is not a communist organization in North Korea. It is, according to the FT, “an advisory group [whose] members include some of the largest trading houses, hedge funds, brokerages, producers and refiners”.

So the hedge funds, the locusts, are calling the HF traders parasites!

That is amusing. Now comes the funny part. In a strongly worded letter to the ICE Futures US exchange, the WSC president complained that “the presence of new high-frequency speculative funds only serves to enrich themselves at the expense of traditional market users.” He added that the rise in volatility was “causing difficulties for members of the real sugar community.”

The man thinks that hedge funds, brokerage houses and large refiners comprise the “real” “sugar community”. Isn’t that sweet!

In the previous posts on HFT, I pointed out, but did not emphasize – because all adults should know that – how ruthlessly and viciously the positions of power and privilege are defended. So there is this small “sugar community” of hedge funds, large brokerage houses and larger refiners having a nice gig and then come along these HF traders, “ruining” the game for everyone.



Rumi tells the story of the ink which claims to be the “writer” of the lines on the paper. The pen points out that ink is only a tool and that it is the real writer. The hand corrects them both, stating it is the real writer. The brain makes the case that it is the real writer. Rumi comments that beyond the silly exchanges, the real writer -- he means God -- remains hidden.

So hedge funds call the HF traders parasites. Germans call hedge funds locusts. Beyond them all stand speculative capital that mercilessly arbitrages out the prices, market after market, until it reaches a dead end – pursued wildly by all the “players”, from hedge funds to high-frequency traders.

I will have more on this point in the final part of HFT and flash crash.