Skynet Will Terminate The Markets

Stepping back, everyone is asking how this blogger (me) can be so certain that global markets will crash. How can a "Black Swan" event of that magnitude be predicted with certainty?

My response is - the HFT bots are already destroying Wall Street, so it's only a matter of time before they take down the entire market...

HFT Bots in conjunction with Fed liquidity are a lethal combination. The Fed provides the capital for leveraged speculation and the Bots deploy it. Anyone who is the least bit involved with the stock market right now knows that it's totally disconnected from earnings, from macro-economic data, from valuations, from commodities, bond yields and global risks. It's a sea of liquidity providing a seemingly endless bid. 

While I have pounded away incessantly about Central Bank liquidity programs, it's the HFT bots that will bring about the inevitable collapse. ZH reported yesterday that Wall Street jobs are at an all time low. Soon we won't need "Occupy Wall Street", because there will be nothing to occupy except a bank of computers. More to the point, if Wall Street itself is being cannibalized by these HFT bots, then it's overwhelmingly clear that Skynet already controls the markets.

If you follow the link above to the second interview, Joe Saluzzi makes several key points:

1) Only 14% of order flow is coming from large investors (i.e. who hold stocks more than :15 milliseconds)

2) Flash crashes occur all the time, so the one that occurred this week was not that unusual except it was triggered by the fake AP Tweet about an explosion at the White House

3) "Liquidity" in the markets right now is deceptively shallow, meaning any "random" event could cause a crash. Trading liquidity has been fragmented into dozens of separate pools, making it easier for crashes to occur and spin out of control

4) The SEC has done nothing except look the other way. The now for-profit stock exchanges make most of their money from HFT

So, what do we have - way too much leverage and liquidity, sponsored by Central Banks. A highly unstable market-making mechanism prone to extreme illiquidity and random mini-crashes. An over-priced market, that has systematically rotated through every sector - pumping and dumping each one as it goes -  now finishing up with the Utilities i.e. the most defensive sector.  And a general public that is oblivious and therefore primed to panic.

How could I not assume a crash will occur?

And what does it take to fool the Idiocracy? If past is any indication, then it's about 20 points past the previous high (.SPX):

Fool Me Once, Fool Me Twice, Fool Me Three Times A Lady...