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Affluent Investor | June 24, 2017

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Another “GLITCH?” ETF Failure Hit the Markets and Hints at Financial Terrorism

New York Stock Exchange (Photo by Silveira Neto) (CC2.0)

New York Stock Exchange
(Photo by Silveira Neto) (CC2.0) (Resized/Cropped)

Last month, the New York Stock Exchange froze. The same day, United Airlines was grounded. And The Wall Street Journal website went offline. Two days later, TD Ameritrade had a serious outage. We were told it was “just a glitch” in all cases. Nothing serious. These things just happen. Of course, most people felt there was more than coincidence at work. We commented on the strange happenings in this Blog. Of course, it was a little ominous that the night before the NYSE went down (July 7th) the “hackitvist” group Anonymous tweeted “I wonder if tomorrow is going to be bad for Wall Street…. we can only hope.” And, at least one computer expert pegged the odds of three glitches happening by chance at the same time as “trillions to one.”

Last Monday, the Dow Jones Industrial Average crashed by more than 1,000 points at the open with some truly funky trading activity. Keep in mind that this happened after China accused us of crashing their market. After Russia hacked the NASDAQ. After China published a book calling a “single, man-made stock market crash” a “new-era weapon.” After Russia hinted at crashing our stock market in retaliation for sanctions. And, after we arrested alleged Russian spies who were supposedly trying to learn how to destabilize our stock market using Exchange Traded Funds. And very recently, the Russian News Agency Sputnik published an article claiming that our military was destabilizing markets as a means of financial warfare against China and Russia. Seems like the Russians and Chinese have done a whole lot of thinking about stock market crashes as weapons.

In our last post, we commented on how strange the stock market opening was Last Monday, especially in how the ETFs acted and reacted. They made a bad open look and feel a whole lot worse. Now today, we learn that the cause of the ETF dislocation was another “glitch.” Really?

We already know that the Financial Stability and Oversight Counsel has expressed concerns about how ETFs could cause or increase market instability as noted in a CNBC report in May:

Do ETFs pose a risk to the marketplace in times of high volatility? Possibly, according to a government watchdog report, but there are no specific accusations…..

The report I’m referring to comes from the Financial Stability and Oversight Council (FSOC), which is the governmental organization created by the Dodd-Frank Act in 2010.

What’s the worry? Buried on page 118 of the 150-page report is this sentence: “The council is exploring how these funds…may raise distinct liquidity and redemption risks, particularly during periods of market stress.” They are also looking into “how incentives to redeem funds may increase the risk of fire sales.”

Wednesday, there was a report that explained how and why ETFs acted so strange last Monday. Believe it or not, IT WAS A GLITCH! Bob Pisani of CNBC explained today how “several mutual funds” had problems pricing the underlying shares. He explained that the problem was a “hardware failure” at Bank of New York.

Here is Pisani’s video report on CNBC:

Also, as ZeroHedge noted today, there are a few things that simply don’t pass the “sniff test” in regard to the selloff (as noted in their post “What if the ‘Crash’ is as Rigged as Everything Else?) The VIX responded very strangely to what otherwise would have been viewed as a normal decline. The VIX is a tradable measure of volatility and is also known as the CBOE (Chicago Board Options Exchange) Volatility Index. It is also called the “fear index.” Hedge Funds and other investors buy this as a hedge against increased volatility in the market. The price tends to go up when the market drops sharply in a short period of time. The VIX jumped almost immediately to crash/crisis levels last Monday–much higher than some would expect. And, as pointed out in by ZeroHedge, the VIX might be subject to manipulation by those who wished to create panic. It would be tantamount to shouting fire in a crowded theater. [Oh, and by the way, the man who invented the VIX just launched a VIX ETF in May of this year.]

Now, add in the role of High-Speed Traders and the very real possibility of manipulating the trading algorithms that rule the market and you will understand how a concerted cyber attack could cause a very serious crash. Has the recent market activity been another weapons test? Or perhaps more ominously, a weapons demonstration.

Mark Cuban also recently commented on the role of High Frequency Trading and ETFs on Fox Business. He explains how we are in uncharted territory and how vulnerable that makes us. Listen to hear how perplexed a billionaire investor is with how everything went down. He explains how complex and difficult things become with ETFs and High Frequency Trading. He has previously shared how he believes that high frequency trading could be hacked and cause all sorts of problems.

Bottom line, add up these truths:

  1. Potential enemies of the United States have claimed that they have the ability to crash our markets and our former head of NSA acknowledged that they do have that capability.
  2. We know that hacking and Exchange Traded Funds can be used to manipulate markets.
  3. We know that these prospective enemies have been focusing on hacking and ETFs.
  4. We know that Russia and China have both claimed we have been attacking them with economic weapons, launching an economic war.
  5. We know that High Frequency Trading and ETFs were greatly involved in the recent flash crash.

So, who is going to examine the recent crash for fingerprints of financial terrorism? We have plenty of reason to suspect either Russia or China or any number of others with economic warfare doctrines.

As a refresher, you should get a copy of Secret Weapon: How Economic Terrorism Brought Down the U.S. Stock Market and Why It Could Happen Again.

 

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