Stock Market Fragility Fast Approaching “Flash Crash” Levels

Monday, October 22, 2012
By Paul Martin

by Tyler Durden
ZeroHedge.com
10/21/2012

This past Friday, on the 25th anniversary of Black Monday, Bill Gross warned that in the current centrally-planned market “central bank puts” are the modern day equivalent of “portfolio insurance”, and he is right. By sending complacency to record levels, and essentially forcing investors to no longer worry, hedge and generally ignore tail risk, the central planners, in their futile attempts to reflate stocks at all costs, are guaranteeing that the market will experience just the type of fat tail event they promise will never occur. As for the catalyst that will make sure of it is none other than our old friend: high frequency trading. Because while central planning is the mechanism by which investing is dragged away from mean reversion, price clearing and fair value discovery, it is HFT that is Bernanke’s analogue in the millisecond trading world (as all those who had stop limit orders (that did not get DKed) on May 6, 2010 very well remember). Because when the next Black ___day does happen, it will be due to central planning, but it will be enacted courtesy of HFT (which will never go away until the next and probably final market crash: too much exchange revenue depends on the perpetuation of this parasitic liquidity drain).

Which is why it is only appropriate to warn readers that when it comes to system market fragility, at least according to Nanex, whose work ZH first presented nearly two years ago and has since gone mainstream now that HFT is the universal scapegoat of even such legacy media venues as CNBC (it is always better to bash the vacuum tubes than the people who profit, or those who have made a mockery of the stock market – it is not like anything will change anyway), the frequency and magnitude of “wild price spike” events (to put it simply) are now both rising at an exponential rate, and fast approaching Flash Crash levels.

The Rest…HERE

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