I've talked about the dangers posed by the scary move the U.S. Treasury bond market made back on Oct. 15.
And my cautionary tale was totally justified.
Indeed, in the December 3 Wall Street Journal, the lead article in the Global Finance portion of the Money & Investing section was "Watchdog Warns of Risk in Markets."
Apparently, the Office of Financial Research (OFR), the watchdog team created out of Dodd-Frank legislation under the "watchful" eye of the U.S. Treasury Department, observed the same move that I did – and found it just as rattling.
According to The Journal, the OFR warned that "the system is vulnerable to repeats of what occurred in October when tumult in the trading of U.S. Treasury securities spread broadly to futures, swaps and options markets."
The watchdog group's just-released third annual report soberly noted that "although the dislocation that peaked in mid-October was fleeting, we believe there is a risk of a repeat occurrence," and further warned that resulting volatility "raises a host of financial stability questions."
That's not what you want to hear. Let me tell you why…
A Disturbing Lack of Backbone
What's worrying the Office of Financial Research is its finding that "swings could be exacerbated by computerized trading and algorithms, as high volumes of transactions are executed automatically, deepening instability."
Figured that out all by yourselves, did you?
I'm not just annoyed by this…
And with good reason: It angers me to no end that everything that's been allowed to infiltrate our capital markets that's problematic – but egregiously enriches greedy banks and their trading lackeys – undermines the transparency, and safety, of those markets.
It's really touching that the new watchdog research group is worried that their research (which amounts to observing after-the-fact market swings) leads them to be worried.
Please, somebody pass me an airsick bag.
Where's the real research?
Where's the research, analysis, and truth about the May 2010 "Flash Crash?"
Where's the research on why we're still seeing mini-flash crashes all the time (like the mini-Flash Crash in Apple Inc. (Nasdaq: AAPL) we had on Monday)?
Where's the research on why stock options move up and down before earnings announcements are made or before mergers-and-acquisitions announcement are made public?
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.