What’s the Big Deal?

An excerpt from the article “Computers, Not Human Error, Likely Caused Market Meltdown”:

Computerized sell programs triggered by global events-rather than trader error or “fat finger”-appear to have caused Thursday’s unprecedented market swing, according market pros who are reconstructing the nearly 1,000-point stock selloff. “It wasn’t a fat finger,” said Dave Lutz, managing director of trading at Stifel Nicolaus in Baltimore. “The markets became unglued…Most of it was centered on the fact that currency markets affected the equity markets.”

Exactly. What’s wrong with everyone going for the door at the same time? Nothing. It’s normal. Frankly, the real issue is the self-serving media and government players coming on to blame an “error”. That was crap. People are scared and technical programs got sell signals. That’s it.

14 thoughts on “What’s the Big Deal?

  1. IMO yesterday event was a mafia style attack, a warning. By whom? That stays to be seen, but it was a more probably than not a message to US financial oligarchy.

  2. Michael, didn’t you know normal market spikes are something of the past? From now on they will be regulated, controlled and even reversed after the fact. No more market spikes or any irregular moves! Hooray!

  3. If these guys created a strategy, tanked the market and made money, how is this an error? As far as I know, a real fat finger types the wrong number, crashes (or rise it to the moon) a stock, then spend the next few days trying to fix it and reverse the position, lost a bunch of money and sometimes gets fired.

  4. @Etienne

    Markets are already severely rigged. Why are “market makers” there for? To provide liquidity?? Think again… they MAKE the MARKET.. i.e. they rig it to their will. All the big market maker players are strongly backed by governmental coffers.. starting from Goldman Sachs, Citi, Deutche Bank etc. etc. Only a fool could think that markets are “free” and “liberal”. There is an agenda behind all this.


    But alas.. market is just a big stream of prices. It’s up to you weather you’ll sink or swim.

  5. From Prechter’s “Conquer the Crash” written in 2002:

    Do you think investors and brokers will behave differently now that so much stock trading is done on-line? I don’t. Do you think the experience will be “smoother” because modern computers are involved? I don’t. In fact, today’s system — much improved, to be sure — is nevertheless a recipe for an even bigger mess during a panic. Investors will be so nervous that they will screw up their orders. Huge volume will clog website servers, disrupting orders entered on-line. Orders may go in, but confirmations may not come out. A trader might not know if his sale or purchase went through. Is he in or out? Quote systems will falter at just the wrong time. Phone lines from you to the broker and from the broker to the floor will be jammed, and some will go down. Computer technicians will be working overtime while being distracted worrying about their own investments. Brokers will be operating on little sleep and at peak agitation, since most brokers are themselves bullish speculators. They will be entering orders wrong. Firms will begin to enact and enforce tighter restrictions on trading and margin. Price gaps will trigger stops at prices beyond the ability of some account holders to pay. You, the wise short seller, could survive all these problems only to discover that your broker has gone bankrupt or has been shut down by the SEC or that its associated bank has had a computer breakdown or that its assets are depleted or frozen.

    Unless you are prepared for such an environment, don’t get suckered into this maelstrom thinking that the bear market will be business as usual, just in the other direction. If you want to try making a killing being short in the collapse, make sure that you are not overexposed. Make sure that if the system locks up for days or weeks, you will not be in a panic yourself. Make sure that in a worst-case scenario, the funds you place at risk are funds you could lose.

    The reaction to Thursdays’ plunge from politicians was not surprising. Here is what Rep. Paul Kanjorski, Pennsylvania Democrat, said in a letter to the SEC: ““We cannot allow technological problems, regulatory loopholes, or human blunders to spook the markets and cause panic.” His letter also inquired about the agency’s views on the incident and asking what power it has to prevent future crashes.
    While the SEC is in the early stages of reviewing market data, the agency hasn’t found evidence indicating that an erroneous trade or a computer glitch triggered the market rout.

    Make sure that you understand that neither the President, Congress nor the agencies they create and supervise have any power to prevent the market from doing what the market is going to do. Any attempt to slow or stop markets from seeking the correct asset prices for current conditions by such actions as banning short sales or implementing “circuit breakers” are ultimately doomed to failure. If politicians could control markets, why did we have a housing crash? Why did the euro lose 4.5% last week? Why did the stock market lose 50% of its value from October 2007 to March 2009? Neither politicians nor anyone else can dictate or control social mood. It will complete its natural swings from optimism at tops to extreme pessimism at bottoms. Social mood reached its apex at the termination of a Grand Supercycle wave in January, 2000. It is continuing its natural decent toward extreme pessimism that will not be over until the market bottoms, most likely in 2016. Of course, markets do not move in a straight line and there will be short-term interruptions along the way for bear market rallies such as the one now in the volatility throes of completing.

  6. wow… it is march 2009 all over again… but in reverse! everything i touch turns to profit.

  7. Of course, markets are free. Otherwise it’s not a market any more. If somebody want’s to sell something, but doesn’t find anybody, who buys, that’s an experience of freedom, nothing else! If you want to enjoy the good side of freedom, you need to pay the bill from time to time. Freedom is always the freedom of the other to say or do (or buy or sell) whatever he/she likes (resembles Rosa Luxemburg somehow, don’t misunderstand me).
    US financial XY attack governed from DC? Sorry, smiling, this is IMHO a rationalizing joke. The unsatisfied dream of the great single mover of the world, ehmm markets…

  8. It’s part of our “nanny state” belief that all people — even the ignorant and stupid — have to be sheltered from harm. Unfortunately, that’s not life. Anyone with 3 minutes of technical training could see the thinness developing in the rising market and should have been on the sidelines 2 weeks ago.

    It’s nobody’s “fault.” The computers all kicked in to initiate sell stops to save the investments of average Americans and their pensions. Would the government rather have the alternative??

    I can hardly wait for the upcoming populist knee-jerk response by the goverment that will undoubtedly once again lessen the freedoms of the market and ensure that the next recession will be truly catastrophic for North America. Imagine Greece on a much larger scale — and in our back yard.

  9. Willing buyers and willing sellers and the mechanism of price discovery…Nothing to see here…Keep it moving people!…

  10. http://www.huffingtonpost.com/janet-tavakoli/banging-the-us-stock-mark_b_570239.html

    Chicago residents grew up to the sound of local early morning radio rundowns of pork belly futures and other exchange traded commodities. Every trick in the book from manipulation of soybeans to silver has played out in Chicago’s trading pits. Every market professional I’ve talked to in Chicago since Thursday is of the same opinion. It makes no difference whether human beings or computers are front running and manipulating trades. The gyrations in the market last week have the look and feel of classic market manipulation.

    If you want to manipulate a market, deregulate it as much as possible. Then make it as “dark,” and fast as possible. Make it hard for outsiders to view your trades as they get done, and make it even harder for anyone to figure out why you are trading. Get as much monopoly power as possible over the market. Get funding at the cheapest possible rate. The best possible rate is the near zero cost funding available from the Federal Reserve.

    Next, get your “men” stationed in the most influential positions at the exchanges. Make sure your cronies have shock and awe market dominance through, say, High Frequency Trading algorithms that now make up the majority of stock trades.

    Then, make sure you have advance information of major market-moving events. A bailout announcement by the European Union would do nicely. A few days before the announcement, “bang” the market. Pound down the value so you can monetize put options and other bearish instruments. Trigger customers’ stop-loss orders, and pick up bargains at their expense. Then cash-in again when the market pops up on bailout news.

    To paraphrase Paul Erdman’s 1975 tongue-in-cheek observation: “The lack of discretion in financial and political circles these days is appalling.”

    Meanwhile, take the heat off of yourself by leaking “fat finger” rumors to CNBC, since they can be relied up on to repeat as gospel any self-serving news you throw at them. Did someone type billions? It should have been millions. If we want to rescue the market from the Jaws of future disasters, we have to recognize that “this was no boating (or typing) accident.” The system itself is flawed.

    (See also: “How to Corner the Gold Market,” TSF, March 30, 2010)

    The NYSE was supposed to provide market liquidity. Trading safeguards are no good unless they are system-wide. The current and former heads of the NYSE, billed as the “best and the brightest,” i.e., the most connected, should be asked a few questions about High Frequency Trading and “liquidity” providers. Our mega-bank trading desks that control most of the volume on the exchanges should be called in for an accounting and justification of their trading activities. Trading patterns during last week’s debacle and over the last year should be examined.

    Unfortunately, as others have observed before, the SEC is both largely incompetent and captured. They are learning to crawl in the space age. Moreover, the next stop for SEC officials seems to always be a highly paid influential job at a law firm, fund, or other entity that heavily relies on Wall Street for revenues. Financial reform requires radical overhaul of our “regulators.”

    As for Wall Street mega-bank reform, Congress seems disinclined to break up our Too-Big-To-Fail banks, define proprietary trading, or sever Goldman Sachs, Morgan Stanley, and proprietary trading at large banks from the Federal Reserve’s, i.e., taxpayers’ heavy subsidies. (See also: “Goldman Sachs: Spinning Gold,” Huffington Post, April 7, 2010.)

    If everyone wants to stick to the story of “woe is us, we had no idea things could go this wrong,” then fine. No one is in control; no one is in charge; and no one can competently regulate our current system. This is a compelling argument for immediate radical financial reform.

    Janet Tavakoli’s book on the causes of the global financial meltdown and how to fix it is Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street.

  11. Free markets ? Not for everyone. The increased “volatility” ENHANCES the value of a long term trend following strategy. Day to day “noise” makes it harder to profit but stretching out the chart will allow you to see signals.

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