One of the biggest problems in today’s financial markets is the domination of high-frequency traders and the withdrawal of the regular investor, says Eric Sprott, chief investment officer and senior portfolio manager with Toronto-based Sprott Asset Management LP.

High frequency trading (HFT) uses proprietary trading strategies carried out by computers to move in and out of positions in financial markets in seconds or fractions of a second. Some estimates put the level of HFT as much as 70% of stock orders and more than 90% of futures contracts volume.

“I wish the industry would take it to heart,” Sprott told the Investment Industry Association of Canada’s annual conference in Toronto on Thursday, calling the prevalence of the practice “shocking and disgusting” as well as “predatory.”

Sprott cited one estimate that puts the average holding period for U.S. stocks at 11 seconds.

“That is not a market,” he said. “That is people taking advantage of bona fide investors. Where is the real investor? He’s pulling away; he knows he’s not treated well in these markets.”

Sprott called for the investment industry to support measures to limit HFT: “You must know in your heart that HFT is the death knell of markets. I hate to sound macabre.”

Sprott also said markets are running a course from mania, to manipulation to meltdown.

“We don’t have markets, we have manipulations,” he says.

For example, he says the level of interest rates is being 100% manipulated by the U.S. Federal Reserve Board, and anytime it wants to move rates, it will just buy or sell more bonds. Other markets that are being manipulated include gold, silver, crude oil, foreign exchange, and electricity, he says.

Sprott pointed out that the bellwether 10-year rate on U.S. treasuries moved to more than 3% from 1.5% on the mere talk of the government tapering its quantitative easing program earlier this year, which set off a dramatic plunge in bond prices.

The Fed then issued its “non-taper announcement” and the rate fell back to 2.6%. If interest rates rise too much, they endanger the economy, which depends largely on the leveraged buying of houses and automobiles, Sprott said. Higher rates also make massive government debts more expensive to finance.

“Central banks need to keep interest rates down to fund their economies,” he said. “There is an interrelationship of all the central banks in the world, they are trying to solve each other’s problems.”

Central banks have been avoiding failures or liquidations that should have happened with many undercapitalized major banks and other financial institutions around the globe, by bailing them out with government funding, Sprott noted.

The practice is unsustainable and will be replaced by “bail-ins,” whereby depositors will be forced to supply the institutions with capital, he said. The practice of bank bail-ins has already been used in Cypress,and has been approved as a tool in the box in many other countries, he says. It’s just a matter of time before it’s used to salvage “too big too fail” banks.

“Governments used to bail out banks, but the central banks are now torqued out,” Sprott said, adding that government rescues of the economy and financial institutions are “wonderful for the guys who run the banking world, who can just do whatever they want and never fail.” However, the practice is setting governments on a course to bankruptcy.