127 and rising
Have you been watching the World Cup matches? My family and I have and we did check the sound on our TV as we wondered what the “buzz” was. All through the first USA match that we watched, the constant background noise was distracting.
Later that evening, we were entertained by a very happy US fan who serenaded us with his vuvuzela – its the plastic trumpet that has become the signature of the World Cup matches from South Africa. That’s the background noise that accompanies these very emotional matches. Rueters reports that playing one vuvuzela produces 127 decibels of sound, which easily drowns out a chainsaw that produces “only” 100 decibels. Now multiply that by thousands of fans and you too will turn down the volume.
If all the markets could blow their own horns, I think the decibel level would be higher that 127. As the World Cup gathers teams from across nations and continents, so does our economy gather data from and react to global markets. The WSJ article (Mark Gongloff and Nesil Stany June 30, 2010) that accompanies this graph speaks of a “Trifecta of trouble – European debt woes, China’s slowing groth and that stagnating US recovery…”
This trifecta is making a lot of noise right now. The uncertainty surrounding the growth of our economy and specifically taxes going forward are just two concerns we have. But they are loud and clear. I wonder who is listening.
It’s 2:40 p.m.. Do you know where your stock trades are?
Ok, so that is a take-off from the Chicago curfew – “It is 10:30 p.m. … Do you know where your children are?” I remember that message scrolling across the TV screen. I never did find out what would happen if the police caught you outside after curfew.
I only knew what would happen if my parents caught me after their curfew. I made it home on time. Take a look at this chart from May 6th – it’s what a 10-minute market crash and recovery looks like on the S&P 500 Index, now know as the “Flash Crash.” 
For reasons yet unknown, a huge sell order hit the E-Mini S&P 500 futures contact on the Chicago Mercantile Exchange around 2:40 p.m., causing hundreds of automatic sell programs to kick in that caused more sell programs to kick in, that caused more, well, you get the picture. Sell orders hit all the exchanges. It was fast and furious.
Right around 2:45, buying started to come back into the markets. The Dow traded down over 1000 points form the previous day’s close and recovered to close down (only) 348 points at 10,520. The S&P 500 lost 37 points on the day to close at 1128. If you weren’t glued to a monitor, you missed most of it. It was over in a “flash.”
We used to call this type of trading “program trading.” Many blame the October ’87 “Black Monday” crash on programmers. Or, remember the now defunct Long Term Capital firm who theoretically had a “fail-safe can’t lose” computer model? Flash forward to May 6, 2010.
Perhaps algorithmic trading will be blamed this time. “Algo” trading is automatic – programmed trading done at hyper speed, across all markets and perhaps more importantly, without any human intervention. No market makers, no specialist to step in and take the other side of the trade, just the computers trading away. The days or orders being executed only on the New York, American or Nasdaq exchanges are long gone. Trades can and will be done anywhere, all trying to get the best execution.
Watch for more to be discovered and discussed on this crash. Days like May 6th are why I am a long term believer, a long term investor. While we should expect more volatility in the markets, you can be sure that I will not be trading nor writing algorithmic programs any time soon.
Our big fat Greek correction
I’ve got a couple of favorite restaurants in Chicago’s Greek Town. The music is loud, the wait staff entertaining, the food is great and the flaming Saganaki cheese is served with a flourish. It’s a dining experience that can get well, a bit raucous. We’re now in the middle of a market correction – Greek style – and it’s not unlike those restaurants.
Global markets are reflecting the Greek debt problems, that comes complete with their strikes and riots, which seems to be morphing into a “European contagion” perhaps related to, or because of, the debt concerns of “PIIGS” – Portugal, Ireland, Italy, Greece and Spain.
Can they, will they pay their debts off, or will they walk away? Will they cut spending, while they borrow more and more? Will the European Union dissolve?
Throw in posturing by politicians vying for re-election – yes, they act like that everywhere – and we’ve got a market correction on our hands. I don’t believe Greece will be tossed out of the European Union. I don’t think the Germans will revert to their deutschmark. The French won’t like anything and the press will play up the infighting. Global growth also means global corrections.
This is our fiscal “Greek” correction. Every correction is different. I’ve never seen two corrections that have been identical, nor heard a bell to signal their start nor their ending. Our Flash Crash on May 6th was a mere 30 minutes although for some traders those 30 minutes seemed like a lifetime.
This Greek led European correction will settle down. I’m still cautiously bullish and will order a lamb dinner at Rodity’s on Halstead Street. Opa!
