Lehman 2.0

There is something big going on this weekend in Brussels; apparently the EUrocrats have seen the abyss and have promised us the world come monday morning to save the European currency and banks, both of which are now in serious trouble. This is the central bank intervention I spoke about all week long. By doing this, the European Central Bank is crossing the Rubicon; it is finally admitting that there is serious problems in Europe. There is talk of the Fed re-opening the "swap lines" with the ECB, essentially allowing the ECB to print USD as opposed to Euros. Rumors of the size of the bailout is in the €600 billion range, and it had better be; if all they come up with is hot air and a very small bandaid, the markets will immediately crash monday. All of this leads me to believe that Thursday's crash was more than just a typing error at a trade desk. In short, Lehman 2.0 has arrived in Europe.

For more details, I'll defer to Bruce:
http://brucekrasting.blogspot.com/2010/05/sarkozy-will-get-stuffed.html

For a terrific explination of what's happened in the last two days & why this is happening:

http://notayesmanseconomics.wordpress.com/2010/05/09/the-euro-stabilisation-fund/

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.

Update 5/5

My short Euro trade is going smashingly well thanks to the ongoing crisis in Europe. It has, in fact, gone so well that there is an increasing danger of the European Central Bank (possibly in combination with other central banks) intervening to support the Euro. Therefore I'm pulling out today at the close and an "selling" a copper, which has finally fallen thru the floor like I thought it would.

As for the European crisis, it just seems to keep on creeping back despite any and all attempts to stop the fungus from spreading. Portugese and Spanish debt continues to get hit hard, making it more and more expensive for these nations (and their banks) to borrow at reasonable rates. Bruce Krasting (who's blog is a must read) said this: "A few more days at the current pace would likely get us to the point where some central bank action may be required. It is equally possible that the global central banks will do nothing and the Euro makes a beeline to 1.10. That approach will end badly as well" http://brucekrasting.blogspot.com

Despite repeated denials, this will not end until something very forceful is done to restore confidence. I honestly thought that Greece's aid package would be enough to calm the markets.. I was, so far, overly optimistic.

Update 7pm:

I "sold" the Euro at $1.3316; today's close was $1.2824, for a profit of $4,920.00.
I have now "sold" a copper contract at $3.1380; I'm putting a five cent stop loss on this.