The top U.S. securities regulator said no single event had been found to explain Thursday’s mysterious market plunge, but the shocking drop was unacceptable and additional safeguards were coming.
U.S. Securities and Exchange Commission Chairman Mary Schapiro said on Tuesday it would take time to pinpoint the cause but reiterated an agreement with major exchanges to strengthen trading curbs in response to large market moves.
I have two problems with this article. The assertion that future prices follow stock prices does not hold up. If I pull up a 5 minute chart of the Spiders (SPY), the tracking ETF for the S&P 500, and put it next to a 5 minute chart of the S&P 500 e-mini futures, I defy you to tell me which chart is which, if I scale them for normalization. There is no discernible time lag that I can see.
My second problem is more philosophical. If we have “efficient” markets, with “efficient” being defined as all market participants having access to the same information and having no inherent advantage in trading on this information, then why the heck should we say that certain market price changes are “unacceptable?” I think that the regulators should be concentrating on making sure that the small, retail market participants are on a level playing field with the institutions, and then let the chips fall where they may.
I am more interested in how the market climbed back up so fast. Where did that infusion of capital come from? The down tick is troubling and gut wrenching, but the near instant recovery…well, that strains credulity.
In short, I don’t believe that the market is “free”. In fact, I would say that the rapid recovery is a “smoking gun” pointing to market manipulation.
So, who has that kind of ready cash to pour into a “bottom fell out” market in a matter of minutes and pull the entire market back up? Who has such deep pockets?
Beginning 3 days before the fall I saw signs of growing weakness in all the stocks that I follow (except 1). I was considering shorting, and I was not alone. Wished I had.
Don
The government regulators won’t find the cause of this market “glitch”.
They couldn’t find the perpetrators of the debacle on Wall Street and
the banking system, which occurred right under their noses. If they
couldn’t find something that gross, they certainly won’t pinpoint
anything as subtle as a “glitch”.
A very similar thing occured in the financial markets right before the presidential election, in September 2008. That’s basically when McCain threw in the towel and stopped campaigning. This is something about which the government is not going to tell us the whole story.
Listen here at about 2:15 in:
http://www.liveleak.com/view?i=ca2_1234032281
[blockquote] Representative Paul Kanjorski on the financial collapse and the government’s reaction:
“Why did we do that? . . .Look I was there when the Secretary and the Chairman of the Federal Reserve came those days to talk to members of Congress about what was going on. It was about September 15th. Here’s the facts and we don’t even talk about these things.
On Thursday at about 11 o clock in the morning the Federal Reserve noticed a tremendous draw down of money market accounts in the US to the tune of 550 Billion dollars was being drawn out in a matter of an hour or two.
The Treasury tried to help, opened their window and pumped in $150 Billion and quickly realized they could not stem the tide. We were having an electronic run on the banks. They decided to close down the accounts . . . .
Had they not closed down the accounts they estimated that by 2 PM that afternoon. $5.5 Trillion would have been withdrawn and the entire economy of the United States would have collapsed, and within 24 hours the world economy would have collapsed.”[/blockquote]
Sick and Tired, #3,
You asked “So, who has that kind of ready cash to pour into a “bottom fell out†market in a matter of minutes and pull the entire market back up? Who has such deep pockets?”
I hope I am wrong but my guess would be Al-Qaeda.
I don’t doubt that Al-Qaeda has deep (Saudi) pockets, but why would they pour capital into US markets and stop a major correction cold and restore the market?
#6 Jim,
So, it appears there was a coordinated financial attack? China? Russia? $5.5 is a lot of money. I was under the impression that it was the big 401k’s retirement funds pulling out. What is your take on it? Anyone have any idea?
Back to my original point…the market is rigged. “Too big to fail” means there are folks that are picking and choosing what companies get special treatment and what companies don’t, and that means if you are invested in the market, someone else is pulling the strings and your investments are at the mercy of that puppet master. Is it the FED? I don’t know. Someone is definitely manipulating the markets…currency and precious metals, too.
Then there is still the issue of all the unregulated credit default swaps that are STILL going on out there. The debt boat is full up to the gunwales, we are all blindfolded and sans lifepreservers, and someone is rocking the boat!
Sick and Tired,
The rapid recovery was the result of the program trading that started it all by rapid selling being triggered in the opposite direction to start buying back. I sat at my terminal and watched the whole thing. It all happened in a space of 20 minutes or so. I also suspect that there were humans in there who saw that it was a market imbalance on the downside and presented an opportunity to buy. This happens every day in the markets, albeit on a less volatile scale.
As to where did the money come from, when you short on the way down, as soon as you buy to close your position, the profit you made is available to you (although actual, official settlement of securities transaction takes place a few days later) and you can then reposition by buying to go long. Even a human being can do what’s called reverse position with one computer click and move from a short position to a corresponding long position in one second.
The real mess here is caused by the SEC and CFTC (Commodity Futures Trading Commission) to the extent that they void transactions in certain stocks and futures that occurred during the short period of time when the markets dropped so sharply. Voiding or reversing transaction entered could potentially cause positions that were profits or small losses to turn into huge losses.
I’m not a fan of high frequency computer initiated trading, but changing the rules after the fact is not the answer. We need more time to thoroughly analyze this situation and then have a transparent and open discussion on what measures might be taken to make the markets function more efficiently. I actually could make a case that the quick correction to the plunge actually shows that the markets worked fairly efficiently.
#9 is right on. I, too, sat at my terminal and saw it start, and at once started to tear through the accounts I maange looking for spare cash to deploy. Sadly the single biggest lump I had had been deployed a few days earlier on the client’s insistence. The rapid recovery means they didn’t lose anything, really, but they didn’t make the big gains they would have, either.
Sick and Tired,
I know very little about the stock market or money markets but I do know that Al-Qaeda has declared war on us whether we choose to believe it or not.
I hope that our government and the SEC will keep a close eye on Al-Qaeda and be aware of the possibility that Al-Qaeda will attempt to terrorize us financially as well as through physical bloodshed.
Thanks folks for the information and insight. Again, Bettcee, I wasn’t denying that Al-Qaeda have money or that they would try a financial attack. My question had more to do with the amazing ability for the market to suddenly reverse itself and gain back that huge loss all within 20 minutes or so. It just seems amazing to me that a 10% swing (5% down & then 5% back up) can occur so fast. BTW, if someone loses 5% of $100, they will then have $95. If they then gain 5%, they will only have $99.75…so they still had a net loss.
I so do not trust the market right now. I have been sitting on the sidelines (in treasuries) and plan to continue to do so until the credit default swaps come under regulation. I do not trust the balance sheet of any company anymore. The “creative” accounting has completely eliminated any trust I once had and the SEC is worthless as an enforcement agency. I still do not see anyone in jail for the largest swindle in the history of the world.