Post Sell Off Comments
This will be my last post until next week. But, I wanted to make a few comments post yesterday's sell off. What do I find most ironic with yesterday's sell off? Two things. One, many are stating this is a one day event based on a system failure and two, the gold bugs, who kept telling everyone to buy gold as a safe haven saw the yellow metal crater.
Alot of people who have their head in the sand finally woke up to reality. I'm not going to sit here and gloat because I hate to see people lose money and I worry about society's well being if economies weaken. I gain no satisfaction from the misery be it mine or anyone else's. But, I must say there are too many people on Wall Street that are living in a false reality. Their anecdotal models are more concerned with what other people think, ie sentiment, than what matters. It's an extension of our society. We have sentiment pollsters forming public policy for our politicians. We have politicians deciding how to talk and walk based on polling data. We have marketing organizations turning newsrooms into paparazzi. We are bombarded daily by marketing messages created by pollsters. And, finally, we have sentiment pollsters giving Wall Street a sense of security based on what people think as opposed to what is important. In addition, too many self appointed wizards think they understand markets because they've learned how to read the stock market "new highs" list on Yahoo's web page or the 14 day stochastics. Therefore, they have a false sense of security based on very shallow knowledge levels. Markets demand tremendous respect and humility. This is not Wheel of Fortune or The Bellagio.
What amazes me is the response yesterday and today from the talking heads the pollsters have placed in front of the average investor to enlighten them. I have to generally disagree with many general conclusions. I will grudgingly have to say that Jim Cramer has generally helped educate the average investor. I have mixed perspectives in that he has a very wry sense of humor that I absolutely love. But, he's all over the map with buying and selling ideas and it is my opinion people should not be trading in and out of investments based on sound bites. Again, a reflection of our culture's desire for instant gratification. I figured I'd listen to Mad Money last night for some ideas on a post.
I only listened to the first five minutes of his show, but he said one thing I agreed with. In fact, one thing that only I seem to write about in the financial blogging or even financial media community. (Which truly amazes me because it isn't rocket science.) The controls instituted post 1929 to protect individual investors have been dismantled and professional money is now trading against their clients. Jim, if you are reading my blog, thanks. (I'm sure he isn't but I thought it's worth a shameless self promotion since everyone else does it. ) I have to say I totally disagree with his comments about the market. He blames this sell off on a system failure. That is totally erroneous. This volatility has been building for over two months. This had nothing to do with a system failure.
He said the controls in place haven't been tested since 1987 thus implying there was some dust on the logic and these systems needed to be re-evaluated. That is absolutely incorrect. Today, the Nasdaq declined 4%. If my quick calculations are correct, we saw about sixty or seventy 4% single day Nasdaq corrections from the prior day's close through the tech bubble bursting. It hasn't been since 1987 that we've had this type of day. We've had alot of these types of days. And not too many years ago either. We've even had some where the market resumed and went on to make new highs. Not too many but it has happened. Low volatility is an anomaly. It's like a spring being would tighter and tighter. New financial instruments and sophisticated trading tactics may reduce volatility for some time but it can never be a new permanent state of being.
If this was simply a result of a glitch, did the systems in China, Australia, Europe, Japan and elsewhere fail? This had nothing to do with a system failure. There was an order imbalance or some other technical issue that caused temporary problems late in the day but by then the damage was done. Did we see a minor late day swing based on a glitch? I'll leave that explanation to the IT team at the NYSE. But, who cares? The market had already had its worst losing day in years by the time it occured. I'll tell you what really concerns me. We have now seen order execution problems in the Nikkei last year and the NYSE this year. Likely the two of the three most sophisticated equity markets along with London. If there is not a guaranteed order flow, we are going to see the possibility for short term panics in developed markets should we see a serious melt down at some point. They may be remote possibilities but they exist. That, my friends, is something I do not want to be dealing with.
It is very, very naive to believe this is possibly a one time event as is being implied by some in the ill-informed financial press. With cyclical stocks the most extended in decades, we could see dozens of these types of days before the market starts another major bull market. Yet, one must keep in perspective that a continuous month of days like today would put the markets near zero. Two hundred years of the NYSE wiped out in a month? Don't let that last statement lull you into a sense of security. 1987 wiped out tremendous wealth in a few days. The investment distribution curve in not a normal one.
I've already said it but I'll say it again. Expect more risk and volatility this year.
Alot of people who have their head in the sand finally woke up to reality. I'm not going to sit here and gloat because I hate to see people lose money and I worry about society's well being if economies weaken. I gain no satisfaction from the misery be it mine or anyone else's. But, I must say there are too many people on Wall Street that are living in a false reality. Their anecdotal models are more concerned with what other people think, ie sentiment, than what matters. It's an extension of our society. We have sentiment pollsters forming public policy for our politicians. We have politicians deciding how to talk and walk based on polling data. We have marketing organizations turning newsrooms into paparazzi. We are bombarded daily by marketing messages created by pollsters. And, finally, we have sentiment pollsters giving Wall Street a sense of security based on what people think as opposed to what is important. In addition, too many self appointed wizards think they understand markets because they've learned how to read the stock market "new highs" list on Yahoo's web page or the 14 day stochastics. Therefore, they have a false sense of security based on very shallow knowledge levels. Markets demand tremendous respect and humility. This is not Wheel of Fortune or The Bellagio.
What amazes me is the response yesterday and today from the talking heads the pollsters have placed in front of the average investor to enlighten them. I have to generally disagree with many general conclusions. I will grudgingly have to say that Jim Cramer has generally helped educate the average investor. I have mixed perspectives in that he has a very wry sense of humor that I absolutely love. But, he's all over the map with buying and selling ideas and it is my opinion people should not be trading in and out of investments based on sound bites. Again, a reflection of our culture's desire for instant gratification. I figured I'd listen to Mad Money last night for some ideas on a post.
I only listened to the first five minutes of his show, but he said one thing I agreed with. In fact, one thing that only I seem to write about in the financial blogging or even financial media community. (Which truly amazes me because it isn't rocket science.) The controls instituted post 1929 to protect individual investors have been dismantled and professional money is now trading against their clients. Jim, if you are reading my blog, thanks. (I'm sure he isn't but I thought it's worth a shameless self promotion since everyone else does it. ) I have to say I totally disagree with his comments about the market. He blames this sell off on a system failure. That is totally erroneous. This volatility has been building for over two months. This had nothing to do with a system failure.
He said the controls in place haven't been tested since 1987 thus implying there was some dust on the logic and these systems needed to be re-evaluated. That is absolutely incorrect. Today, the Nasdaq declined 4%. If my quick calculations are correct, we saw about sixty or seventy 4% single day Nasdaq corrections from the prior day's close through the tech bubble bursting. It hasn't been since 1987 that we've had this type of day. We've had alot of these types of days. And not too many years ago either. We've even had some where the market resumed and went on to make new highs. Not too many but it has happened. Low volatility is an anomaly. It's like a spring being would tighter and tighter. New financial instruments and sophisticated trading tactics may reduce volatility for some time but it can never be a new permanent state of being.
If this was simply a result of a glitch, did the systems in China, Australia, Europe, Japan and elsewhere fail? This had nothing to do with a system failure. There was an order imbalance or some other technical issue that caused temporary problems late in the day but by then the damage was done. Did we see a minor late day swing based on a glitch? I'll leave that explanation to the IT team at the NYSE. But, who cares? The market had already had its worst losing day in years by the time it occured. I'll tell you what really concerns me. We have now seen order execution problems in the Nikkei last year and the NYSE this year. Likely the two of the three most sophisticated equity markets along with London. If there is not a guaranteed order flow, we are going to see the possibility for short term panics in developed markets should we see a serious melt down at some point. They may be remote possibilities but they exist. That, my friends, is something I do not want to be dealing with.
It is very, very naive to believe this is possibly a one time event as is being implied by some in the ill-informed financial press. With cyclical stocks the most extended in decades, we could see dozens of these types of days before the market starts another major bull market. Yet, one must keep in perspective that a continuous month of days like today would put the markets near zero. Two hundred years of the NYSE wiped out in a month? Don't let that last statement lull you into a sense of security. 1987 wiped out tremendous wealth in a few days. The investment distribution curve in not a normal one.
I've already said it but I'll say it again. Expect more risk and volatility this year.
<< Home