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Will Central Banks resort to ‘Day Trading’ to Stabilize Markets?

June 24, 2013

Today’s, computer markets have forced most active traders into some type of Day Trading Strategy for their continuing survival. This strategy evolved (mostly since 2008) as our money units became mere digits within the virtual computer screen. Traders now follow the money flows within their computer screen and then act to execute their trades (often for mere seconds or minutes) to maximize their gains. At the end of their trading session (usually a portion of one day) these traders close all their trades and allow their accounts to remain in CASH until the next trading session. All this makes lots of sense considering the nature of today’s markets and the speed of light transactions which traders access via their trading platforms. Traders have evolved and changed their strategies based on the new technologies which have emerged in recent years!

Traders now follow the money flows and execute their trades for short-periods of time to maximize their gains! After a trading session is complete they close all trades and get into CASH!

Why shouldn’t our Central Banks implement a similar strategy for their manipulation of the markets? Our Central Banks now have their own Trading Desks and they interfere in the markets daily via their QE operations and similar programs. So why not develop some type of Day Trading Strategy (to compliment their QE operations) so they can continue to influence the markets… so that key financial components respond to their policies and philosophy? Wouldn’t that make sense (given today’s markets)? Ben Bernanke created the concept of QE (quantitative easing or official counterfeiting) after the 2008 financial crisis. Why not create a new type of Day Trading Strategy…designed only for Central Banks…going forward? Watch Ben and Company to discern if this will emerge in the coming days/weeks/months.

The Trading Desk at the New York Federal Reserve Bank can influence and manipulate our markets via their Master Computer and their policies! William (Bill) Dudley is Manager, CEO, and continuing member (vice chairman) of FOMC. Watch the actions emanating from this Central Bank.

Personally, I would not be surprised if Bernanke/Dudley and others within the FOMC suggest some type of Day Trading options for their Central Bank going forward. It seems obvious that our markets are now psychological, emotional, and volatile. The stock market can swing some 200 or more points within a trading day. And the trend is for even greater swings as the markets become more subjective and emotional. To deal with this volatility and subjectivity it would make sense  (from a Central Banker’s point of view) to attempt to influence the markets (interest rates, prices, and trends) so that a collapse is avoided. In the longer run, however, these types of gimmicks are unlikely to work. However, as John Maynard Keynes said, “in the long run we are all dead”. So in the short run (our markets are now real-time markets) it would make sense for the Central Bank administrators to continue their manipulations as they try to stay ahead of what traders are doing. What do you think?

The FOMC committee is mostly influenced by two members (Bernanke and Dudley). Will the FOMC develop a new Day Trading (or similar) strategy to continue their manipulation of the markets? It seems likely to me! If their QE operations fail to change trends, what are their alternative options to avoid collapse?

The philosophy of our Central Banks (under the Keynesian Economic Model) is to influence prices, values, and trends so that the historic business cycles are diminished or cancelled. Keynesians want continuing growth with no major correction which would upset this long-term trend. The historic business cycle needed to be eliminated by their Demand Management philosophy. Centralization of money creation and its administration (they thought) could eliminate the historic business cycle and create a World of continuing prosperity and growth…forever.  Is this possible or realistic? Can business cycles be eliminated by our elite experts who desire to manage and influence all economic activity?  Can the Long Wave Cycle, now so evident, be eliminated via our central planners at the Fed? I don’t think so!

This Long Wave Cycle (70-80 years) is unlikely to be eliminated via the Keynesian Economic Model or Philosophy! Yet our elite banking administrators will likely try to change this cycle from becoming a reality!

Business cycles are caused by human nature, emotion, psychology, and our ever-expanding technology. Today, we have an interconnected global computer financial system. We now execute our trades and investments on a global basis. We now have computer platforms which allow for speed of light executions and trades. We now have math-based algorithms and HFT computers which execute most of our trades. Our Central Banks have now abandoned their ‘hands-off’ policy towards the markets and have created programs and policies to continually manipulate and influence the key factors that create our prices, values, and trends. All this started after the 2008 crisis. Our markets are now real-time, dynamic, and within Cyberspace. Virtual reality has replace Observational reality. This means that we all need to change our thinking and strategies so that we can survive in these new markets. Traders are changing their thinking and strategies…will Central Bankers do likewise?

Some type of Day Trading Strategy could emerge from the Bernanke Fed in the coming weeks! Watch for some change in current strategy to complement the QE operations!

I would not be surprised if our Central Bank (under the administration of mostly Ben Bernanke and Bill Dudley) resort to some type of Day Trading in the not too distant future. Initially, this may help to stabilize the markets and reduce volatility. After traders discern the subtle effects of this new form of manipulation, however, I do think that this strategy will break down and totally fail. Increasing the subjectivity and the emotion within the markets is unlikely to create price stability and/or sound polices for economic growth and prosperity. What we now need is a total replacement of the Keynesian Economic Model. Our Debt and deficits will continue under this model and eventually the entire Global Financial System will collapse from structural deficiencies. Watch the markets for coming changes within our Central Banks. Some type of Day Trading or Similar could emerge soon! I am:

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