Thursday, May 6, 2010

Update 5/6

Wow.. now today was a wild ride !
What happened ?? Apparently there was a human error.. someone in Citibank's trading desk sent an order to sell 16 billion shares of Proctor and Gamble (he was supposed to sell 16 million). This one trade forced the market downwards instantaneously.. and from there, the computers took over, immediately issuing sell orders on nearly everything that moved. These are called High Frequency Trades. There are a few other opinions (Bruce Krasting) that think the computers were triggered by a sudden move in the Yen market. Either way, those traders and firms who had stop losses on their trades were crushed; the losses will likely be in the hundred million range just on these alone.

Still, this sort of thing has happened before.. in 1987 specifically when the DOW crashed mightily, and again in 2007. As it turns out, while the specific day was possibly an error, there were some fundamental reasons why traders believed what was happening was legitimate, and in both of these cases, it was the beginning of a serious bear market. I honestly think this will be the case again here; todays dip below 10,000 was a preview of what's to come.

Before this happened, the market was down 3%; the European markets had closed down about 2% and the Asian markets the night before around 3-4%. These are stiff losses. The Euro was (again) crushed, and if this continues for another few days look for today's crash to be played out in the European stock markets.. this time for real. Something very big will have to be done very soon if the European markets continue tanking like this. CDS and Bond rates for Portugal, Spain and Italy continue to climb. I would not be surprised if central banks began intervening in Europe next week.

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