Dear Mr. Berko: 

I am 86 years old and have been investing in the stock market since finishing graduate school in 1952 and taking my first job at Zenith, which manufactured radios and TV sets. Back in those days, the New York Stock Exchange only traded 2 million or 3 million shares a day. I have been reading about high-frequency trading and would like you to explain how it works. I have been reading you for almost 30 years and would like to know what you think about this. I wrote you once in 1989 and asked about Apple Inc., which you said “might be a good buy.” 

J.B., Moline, Ill.



Dear J.B.: 

And I remember your Apple letter for two reasons: 1) Your question was the first time I was ever asked to give an opinion on Apple, and 2) you told me that you owned a working 66-year-old Zenith radio and a working black-and-white TV that you’d had for 51 years. They might have some collectors’ value.

I wrote about high-frequency trading four or so years ago. The mobsters and banksters on Wall Street – Citigroup, Wells Fargo, Merrill Lynch, J.P. Morgan, UBS, the numerous hedge funds and the fraternity of hugely capitalized traders – are all members of this evil cabal and control about 93 percent (this is my educated guess) of the volume on the New York “Schlock” Exchange. These pirates are as slick as ticks and trade hundreds and hundreds of millions of shares a day on a finger’s snap. When you wrote me 25 years ago, the average number of executions on the NYSE was 105,000 trades, representing 160 million shares, with an average market value of about $4.8 trillion a day. Today the average number of daily trades exceeds 1 million, and the average daily volume is about 1.5 billion shares, with a daily market value of $32 trillion. That’s a sevenfold increase, and those high-frequency traders are having glorious Champagne picnics raking in the slush of cash.

The Big Board makes it peachy easy for these daytime vampires to create seismic volatility that (for noneconomic reasons) changes market values and drains blood from our pension and retirement plan portfolios. High-frequency trading was responsible for the “flash crash” in May 2010, when the wild market plunged 1,000 points and breathlessly recovered a few minutes later. When vampire John Thain left his coffin at Goldman Sachs in late 2007 to mismanage the NYSE, he rushed to build a trading platform that would provide over 1 million quotes a second. He simultaneously built a data center encouraging high-frequency traders to link their computers to the NYSE system, providing microsecond access to execute thousands of trades a second for a gain of a few pennies a share. Thus, Goldman’s computers could purchase 1 million shares of Kraft Foods Group at $56.10 and in a fraction of a second sell them at $56.18 and pocket $80,000 or buy 2 million shares of Southern Co. at $44.84 and sell them at $44.90, scarfing a profit of $120,000 in nanoseconds. And while Goldman is mining this gold, so are Merrill Lynch, J.P. Morgan, Oppenheimer, Paulson & Co. and most other hedges.

There are no human decisions or interactions in these trades. It’s a mindless, mechanical operation using convoluted computer programs with sophisticated algorithms that identify anomalies and patterns as they process buy-and-sell transactions in microseconds. There is no human equation. There are no thought processes involved. There’s just a machine that’s as emotionless as a wall and impervious to all external stimuli. It’s a man-made cancer that renders the best research useless, ignores net profit margins, laughs at price-earnings ratios and scorns balance sheets and income statements. High-frequency trading has cast a long shadow of distrust and disgust; it’s segued into a craps game for high rollers, turning the NYSE into a semi-farce and three-ring circus. I think high-frequency trading is going to create some market earthquakes and cost investors hundreds of billions of dollars. Sadly, Mary Jo White, the Securities and Exchange Commission’s inutile and confused boss, is out of her depth in a parking lot puddle.