As most of America knows, the stock market collapsed nearly 1000 points today and then, just as fast as it tanked, it rebounded. Initial reports pegged the stock market woes to Greece’s debt crisis. As massive amounts of funds seemed to be shifting into US Treasuries, corporate bonds and stocks took a serious hit.
At around 990 points, which was about 10 points shy of the stock market engaging the equivalent of the emergency gas shut of switch, we saw a turn around in the other direction which was almost as rapid as the drop.
Rumors began circulating that the event was triggered by a trader at a large institution hitting the “billion” button instead of the “million” button by accident, and fingers were pointing at the CitiGroup trading desk. Citi has since denied that any erroneous trading occurred on their watch. The SEC is investigating the incident, which means whatever we learn about this will be redacted and modified to suit Wall Street’s needs.
The last thing that it could possibly have been, of course, is that investors were shaken by the fact the contagion is spreading to Europe, and that this may be a pre-cursor to what’s coming to the USA shortly. While we don’t doubt that a major trading house may have been involved in the move, we are cautious about believing that it was an “accident.” We realize accidents happen, but we are hesitant about believing that an accident was responsible for the largest intra-day drop in the history of US stock markets. We are talking about tens of billions of dollars in capital flows here.
The fact that the decline almost triggered an emergency shutdown suggests that the so-called Plunge Protection Team (aka the President’s Working Group on Financial Markets) went into action to turn the markets around.
The story about an erroneous trade may have been nothing more than an attempt to instill confidence in markets, and perhaps it will work – temporarily.
It was just a mistake. Move along sheeple. Move along.
With 98% of US investors getting their financial advice from mainstream networks like CNBC, it is possible that we will see a rebound in US stock markets for the time being.
Let’s give the powers that be the benefit of the doubt and say that it was a mistake. If nothing else, this proves
1) That stock markets are extremely volatile
2) That a single instution, or group of instiutions using computer trading programs really can manipulate our stock markets
3) Wall Street has the ability to bring the United States’s stockÂ market to its knees in a matter of MINUTES.
Since we really don’t know what happened here, we’d caution those holding long stock positions to set tight stops in case this wasn’t an accident. We’d also caution those on the other side of the trade, betting that the decline will continue, to set tight stops as well. If we’ve learned anything in the last couple of years, it’s that the big investment banks will do anything to get their hands on your money, even if they have to take it a penny at a time across millions of investors – they have programs designed just for this specific purpose.
Paper trading can be fun. But if you want to preserve wealth, think long-term and forget about day to day movements and leverage unless, of course, you’re a Congressman with inside information and no laws to prevent you from trading on this information.