If you live up in the Northeast, you are all too familiar with sounds of August.  The crickets and cicadas have been serenading us with their nightly tunes for a few weeks now.  A distant cousin of the cicada is the locust.  A locust is much more destructive than a cicada though.  Locusts are solitary most of the time, but when conditions are right they will join together into highly destructive swarms.  Each locust can eat its body weight every day and a large swarm can eat as much as 423 million pounds of plants a day. The locusts eat everything in their path. When they have destroyed the vegetation in one area they move on to the next.

 We have faced a very similar foe in our equity markets over the past few years – the high frequency trader.  Just like the locusts, HFT has swarmed the US market.  They have been gorging on huge profits as they pick through the wreckage of the US market.  But these profits are starting to fade as more and more of these locusts (oops sorry meant HFT) start to experience shrinking  margins.  Volumes in the US have been slowing as equity outflows continue at a rapid pace.  Short interest has also declined which is hinting of some sort of deleveraging.  High equity volume is similar to the crops that the locusts feed on.  Once the crop is gone, the locust moves on.  Well, the dwindling US equity volume is forcing the HFT to move on to other markets now. 

 The Economist has an article titled “Spread Betting”  (http://www.economist.com/node/16792950?story_id=16792950&fsrc=rss ) where they examine how HFT has been moving into other countries.  They state that “high-speed traders are getting a warm welcome in emerging markets.  The Bovespa Exchange in Brazil has quickly sold out of its co-location slots.  The Singapore exchange plans to build one of the fastest platforms in the world, capable of executing trades in just 90 microseconds.  Other hot spots that are being targeted by HFT include India and China.  Exchanges all around the world are obviously aware of this and are courting the HFT business.  The locusts are still hungry and they will stop at nothing to satisfy their quest for profit.  And they could care less about the path of destruction that they are leaving.

Today is Friday the 13^th.  The number 13 has been unlucky for centuries.  But, the number’s association with Friday, however, didn’t take hold until the 20th century. In 1907, eccentric Boston stockbroker Thomas Lawson published a book called Friday the Thirteenth, which told of an evil businessman’s attempt to crash the stock market on the unluckiest day of the month.  Good luck trading today.