Thursday, May 06, 2010

Fear? Error? Manipulation? Economic Terrorism?

I’m simply shocked at today’s trading fiasco.

To gain some perspective let’s remember that although stocks were down all day, the “glitch” drove the S&P down over 8%, nearly the greatest percentage loss seen since the crash of 1987.

In fact, there were only three other down days since 1987 with losses greater than today’s intraday debacle all of which were logged during the worst portion of the 2008 housing/credit unwind.

So, it took the subpime slide, the housing crash, the fall of Bear Sterns and the near simultaneous collapse of Fannie, Freddie, and Lehman (not to mention Citi, Wachovia, Indymac etc.) and the flurry of unprecedented government bailouts (and the associated loss of confidence) just to see an equivalent violent downward slide as we saw today.

I’ll say it again… something is amiss.

Although there are some very serious macro issues (weak retail, long term unemployment, continued housing weakness) and global issues (Greece tumult, Euro slide, China slowing) I can’t help thinking that there is much more to this story.

The VIX had been climbing for the last week or so, clearly there was some heightened concerns regarding China, Greece and Europe but did this anxiety come anywhere near the level seen at the height of the 2008 unwind?

While it’s obviously plausible that this is some sort of cascading trading error (one of the citied causes of the 1987 crash), why wouldn’t we have seen similar incidents during the massively volatile days of 2008, or the tech wreck for that matter? There was not a single 8% down day for the S&P 500 during the entirety of the early 2000s tech wreck.

Stocks have traded up very technically since March 2009, we have more program trading today that at any time in the past, could this be a live by the sword die by the sword?

Finally, not to get too deeply conspiratorial, but could this be some form of manipulation? Even a form of terrorism?