Thursday, May 6, 2010

Wall St in Disarray as DOW Tumbles 1000 Points

Wow...What a day. Let's take a look at the tape:


My Take:

Whoa! As you all know by now the DOW dropped about 1000 points in a matter of minutes before rallying back at the close.

The finger pointing started almost immediately after the drop. CNBC reported that it was a rogue trader that hit the wrong button on a sell order.

Hehe...Yeak ok...If you believe that one you then I have a beautiful shrimping boat in Alabama to sell you.

Folks, I am sure we will hear a million reasons why the market dropped off like it did today. They will blame it on everything from the the quants to the rogue traders to the supposed financial reform bill that plans on potentially breaking up the TBTF banks.

The bottom line is we now have another crisis of confidence in the markets. I believe that the drop we saw today was a result of a variety of things but the article below(if true) would explain a lot. Hat tip to Naked Capitalism for this find.

From Washington's blog:

"The tide is now turning towards real financial reform:

In a major development, Senator Harry Reid is now supporting breaking up the giant banks and auditing the Fed

Number two Senate majority leader, Sen. Dick Durbin (D-Ill.), came out Tuesday in favor of a far-reaching amendment that would break up big banks and cap their size (the Brown-Kaufman amendment)

Senator Feingold has announced that he will filibuster and financial regulation which does not include serious banking reform

I asked a friend on the hill – a top aide for a very important Congress member – whether people would be wasting their time by calling their Senator. I explained that many people called and demanded that the U.S. not invade Iraq, but that Congress just ignored us. I said that many people feel that traditional political activism, like phone calls, can’t work, as the level of political corruption is too high.

He responded that given the bipartisan support of many congress people and the American people for financial reform, this is very different from Iraq.

He urged everyone to call their Senators and demand the giant banks be broken up and the Fed be audited.

Senator Sanders’ bill to audit the Fed will probably be voted on today. Please call your Senator now.

UPDATE:

A deal was struck in the Senate today regarding an audit of the Federal Reserve.

Senator Dodd worked out a compromise with Senator Sanders, and Dodd will now become a co-sponsor of the bill.

The bill would:

Require the non-partisan General Accountability Office to conduct an independent audit of the Board of Governors of the Federal Reserve System that does not interfere with monetary policy, to let the American people know the names of the recipients of over $2,000,000,000,000 in taxpayer assistance from the Federal Reserve System, and for other purposes.

And the bill provides:

Notwithstanding any other provision of law, the Board of Governors shall publish on its website, not later than December 1, 2010, with respect to all loans and other financial assistance it has provided during the period beginning on December 1, 2007 and ending on the date of enactment of this Act under the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Term Asset-Backed Securities Loan Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility, the Term Securities Lending Facility, the Term Auction Facility, Maiden Lane, Maiden Lane II, Maiden Lane III, the agency Mortgage-Backed Securities program, foreign currency liquidity swap lines, and any other program created as a result of the third undesignated paragraph of section 13 of the Federal Reserve Act."

The Bottom Line

If the above information is accurate then the market had every reason to respond like it did. A burst of selling based on bad news can also trigger the HFT quants to sell because their algorithms are designed to dump stocks on high volumes of weakness.

I have said all along this rally was a sham and the fact that the DOW dropped 1000 points in a matter of minutes proves to you that the street is rigged and run by HFT's that game the markets on a regular basis.

There was a lot of damage done today. The market HATES uncertainty and we got a lot more of it at a time where things are already fragile as a result of Greece and the European debt crisis.

We also lost a lot of confidence in the stock market. The extreme volatility we are witnessing on Wall St recently is very unhealthy.

Remember: Confidence is everything when it comes to market making. The system is at risk when you are not confident that what you are buying is actually worth anything.

The only way we fix this is through radical financial reform. I hope the above article is correct.

The banksters have had their time in the sun. It's time to throw out the garbage on Wall St and create a financial system that people can believe in.

The aftershocks of today's price action will be felt for a long time. I am sure many trading accounts were completely liquidated based on today's debacle. A couple of hedge funds might have gone down as well.

Hopefully Washington took notice and will take the necessary measures to wring out the blatant fraud that is now so prevelant on Wall St.

Disclosure: No new positions at the time of publication.

13 comments:

flipdippy said...

Hmm...I see scat everywhere. Is the bear back?

I still remain unconvinced - this looks manufactured. This could be the ultimate bear trap, one last time.

getyourselfconnected said...

Jeff,
Nothing to add to this one, you nailed it 100%!

Jeff said...

Flip

Who knows. It wouldn't surprise me to see many investors go to cash aftet this latest scare.

I think people are tired of all of the games.

If the situation in Greece worsens I think we drop again tomorrow.

People will be much faster to sell after this latest scare when nad news hits the wires. Confidence was definately rattled.

We are at -3 on the ES. The jobs number will be huge tomorrow.

If its good and Greece is quet we could bounce after todays selloff.

Next week will be interested to watch as we try and sell boatloads of debt.

Buying some TBT here heading into next week looks interesting to me. Not sure if I will pull the trigger though. Too much whackiness out there.


Thanks Get!

James B said...

Disclosure: I'm long calls on THTB

getyourselfconnected said...

Jeff,
Stoneleigh from "The Automatic Earth" will be in north Hampton Mass May 21. Are you interested in a seminar? Email me, maybe my treat.

Anonymous said...

good job jeff; futures up; means tomorrow selloff.

Anonymous said...

im sure they'll addsome jobs just because they need the boost after today..

an extra 5% sound about right?

as long as they can pull numbers out of their asses, it doesnt matter WHAT the jobs numbers are.

getyourselfconnected said...

Market watchers,
even day Friday +/- .5% as things cool down. Maybe not intraday, but by days end.

Jeff said...

Anon

Yup..Futes up 6

France approved the greek bailout tonight. Germany appears to have the votes as well.

8:30 tomorrow is when the fireworks begin with the jobs #.

Looking forward to watching everything tomorrow.

Jeff said...

Anon yeah I expect a green number on the jobs report.

I don't think it will be anywhere near Biden's call of +200,000 though.

I will be curious if its good te see how the markets react. We have seen some selling on opsitive news lately.

Jeff said...

LOL James.

thanks bud.


Get

I will shoot you an e-mail.

CT-Hilltopper said...

It was hilarious watching CNBS trying to pump monkey everything yesterday.

Fat finger my ass.

This was the shot across the bow of our own personal Titanic.

Jeff said...

LOL CT

Yup

Now we have follow through today.

Another fat finger perhaps?

We must have a bunch of obese diabetic traders in the pits these days!