5/6/10
Perhaps this is incredibly obvious, but here goes:
I have no idea how the market is going to open tomorrow (Friday) morning. Further, I am beyond reasonably sure that there is plenty going on in addition to today’s much ballyhooed trading snafus (e.g., the growing realization, as the Pontificator has been saying since this “recovery” began in March of 2009, that what we are experiencing is a Potemkin, hair of the dog recovery, brought about by generous applications of the things that got us into trouble in the first place (gargantuan public and private debt, irresponsible inducements to spend ourselves further into financial oblivion, public policies that reward profligacy and punish financial rectitude, financial recklessness, aided by easy money from the Fed, by the wunderkinds who did so much to lead us down the primrose path, Greece, Portugal, Spain, other domestic and international political risks, etc.) that caused today’s market travails. But the real, lasting danger that today’s market action holds for the market has its roots in that (those) trading error(s). The average person is likely to say something akin to the following:
“Wait a minute. I’m supposed to trust my life savings, my kids’ college money, my retirement money to a system in which some bozo can enter a trade that is off by a factor of 1,000 and cause a 500 point drop in the Dow in five minutes? I’m supposed to have faith in a system so lacking in checks, balances, and oversights that such an absurdity can take place? Do I look stupid? And how did I allow myself to get lulled into such a false sense of security, how did I get to the point at which I had convinced myself that I should ‘ride the wave’ after the drubbing I took in 2007-2009? Forget it. It’s CDs for me from now on!”
Now, we all know how fickle the typical American is, and the last year or so has shown us how short his memory truly is. But this type of thing has the potential to be the straw that finally breaks the camel’s back. If we lose the average investor as a consequence, we are in BIG trouble.
Meanwhile, yours truly remains happy with his big (proportionally; I don’t have enough money to have big holdings, in the absolute sense, in anything) holdings in gold and TIPS, forsaking the waves for the lazy river to financial security.
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4 comments:
The initial explanation (quickly re-worded) was absolutely hysterical in that it was that a trader wrote a 'b' instead of an 'm' when inputting a trade. Because here in 2010 all of us - including traders able to sell 1 billion shares of something - write out our trading amounts in words, or course!
Quants got stuck on sell there and the SLPs disappeared as well. Aren't they supposed to provide liquidity when there isn't any? Watching the crash happen seemed surreal. And it came back so fast that I feel like no one even realized what happened today; the market lost 7 or 8% in less than 15 minutes. I can hope it was a one-time event, but I fear that it will not be the case.
Gold and TIPS in this corner, too, as a bulwark against financial ruin for all the reasons you describe. But sometimes I forget to play defense, and days like yesterday slap me around as a reminder. (I happened to be watching yesterday evening--in England--when it happened. Bizarre. Had to go outside for fresh air.)
But since we're touching on tech issues, I thought you'd enjoy a report on the voting apparatus I observed here in England which, I understand, is typical of the entire UK: Officials distribute paper ballots (black ink printed on plain yellow or white paper) torn from pads resembling vouchers or raffle tickets. The ballots are numbered sequentially, but I discerned no other security device incorporated into the ballot. Voting booths provide a pencil (!) on a string. Voters "tick" (check) the box next to the selected candidate's name, then fold the ballot (in no particular way, but a volunteer suggested folding it in quarters so the ballot would fit into the slot) and insert it into a plastic bin secured with plastic ties (you know, the kind you can buy at Target). Apparently, bank tellers and postal workers tally the votes because of their skill in counting stacks of paper quickly. Local schoolchildren (!) help with collecting the bins. Not a computer in sight.
It was all cheery and unabashed, like something pleasant out of the 1950s. I can't say whether the low-tech system contributed to voters being turned away late in the evening (polls open until 10 p.m.), but I couldn't stop thinking about how easy it would be to game the system. (Hey, I'm a Chicagoan now, can you blame me?) Apparently, the UK hasn't experienced much voter fraud, but this year they're questioning the postal voting (another topic for another day).
Have a great day, Mark. Should be an interesting Friday on Wall Street.
5/7/10
You have indeed been blessed by still being relatively new in your career when something like this happened; it must have been interesting, if indeed hair-raising. Let’s hope that this turns out to be something about which you will tell your grandchildren; i.e., that it will be sufficiently rare that it will provide grist for such stories. However, like you, I fear it won’t. Let’s just hope it won’t turn out to be another day at the office for the new age markets.
Thanks, Brian, for reading and commenting.
5/7/10
Oh, man, would they love such a system back in the 11th and 19th wards!
Thanks for reading and commenting, Julie. It is indeed turning out to be an interesting and, for the home team at least, a pretty good day.
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