Apple's losses are likely just in line with the market, but it could be the AT&T extension. The market would like to see iPhones on Verizon sooner rather than later.
I hate AT&T with a raging passion. My iPhone's data plan is in reality 40% of the data plan. The other 60% of the time my phone doesn't think I'm on the internet even though I have full bars and the 3G icon.
I just started a new contract, and I'm on CalTrain the other day, minding my own business, when this guy next to me has two calls drop on him in a row. He has an iPhone. He mutters, "Gawd, AT&T sucks," and everyone around laughs.
It's now conventional wisdom that AT&T has awful cell coverage. It's especially bad in the Bay Area, but it's bad everywhere.
I think we need a new term other than "coverage". In the old days, "bad coverage" means a place where there aren't enough cell towers around, where you're not getting any bars.
Nowadays, even when you're downtown, surrounded by farms of cell towers, getting full bars, your phone will still magically not work.
Most likely it was all algorithms. You'll note it was a slow downtrend then it hit a window that triggered massive selloff cascade. When it hit the bottom from February the other algorithms were set to buy. I am betting few humans got through an individual order during this. It was mostly software.
This is what cause the crash in the eighties, we have some fail-safes in place to slow it but most trading is done by tuned algorithms during stuff like this. In fact, the PPT (Plunge Protection Team) might have kicked in...
I wonder whether a large enough entity could actually deliberately hold and then suddenly sell enough of an instrument they believed to be undervalued, just to ensure their competitors stop losses executed, then immediately buy back the entire market for the instrument.
Not really. Porsche bought lots of VW stock either outright or as a call option. They also lent their VW stock to short-sellers. This way they `recycled' some of their VW stock, because those short-sellers sold to Porsche again.
This allowed Porsche to build up a huge position, with only a few willing market participants as counter-parties. They also managed to short-squeeze the short-sellers. (http://en.wikipedia.org/wiki/Short_squeeze)
Riots because of Eurozone-pushed austerity measures; Greek citizens would (understandably) rather not cut services than comply with a largely foreign monetary policy.
There have been riots in Greece for at least several days though - photos of them have been showing up in my Facebook feed from a friend who is in Athens right now. I'm still not sure that explains today's sudden loss.
(Some of) the technicians were looking at a lot of money on the sidelines, a rally that looked like it was cresting, a lot of profits to be locked in - and anticipating a big correction.
There's a lot of luck to it and maybe even some feedback so its sort of a joke but Ritzholz cashing out (and blabbing about it) by yesterday, and turning to shorting opportunities, just confirms that he's a Sooper Genius.
Misleading title. The drop occurred over about 10 minutes, and has partially reversed. As of 3:06 it's -400 for the day. The VIX is also up into the high-30s.
Not to say this isn't August 6, 2007 or September 12, 2008. It may well be.
As I understand it, all it takes is one share to have been sold at that price. Probably indicates someone having a "sell n shares at any price" order where n > buy orders at that moment..?
Regardless of the details, this is an example of how markets aren't perfectly efficient.
I don't think anyone claims the markets are 'perfectly' efficient. Even the people that believe they are efficient and choose to participate argue that they are exploiting the inefficiencies.
Current status: probably a fairly rational reflection of the badness of the situation (which is not new, and although serious, probably not catastrophic).
This is a genuine panic -- probably the start of pretty dramatic decline. Sovereign debt is going to be the new contagion. If the contagion spreads, the gains to consumption over the past year could be demolished. These gains were bought at the price of government stimulus -- i.e. soverign debt. Businesses are not yet stable enough to weather another downturn soundly; governments are already grossly over-extended.
Yea, it's appearing more and more like a glitch, human, structural, or otherwise.
However, the sellers were real -- and increasing. I think there is a danger that people will see it as only a glitch and not the beginnings of trouble. The glitch might mask the true sentiment.
To some degree, I agree with you. The stimulus was a bluff that was meant to inflate confidence and bring back spending. The market is a strong signal that, if in panic mode, may arrest gains to consumer confidence. I don't want a panic because it may lead to recession/depression round 2. However, I also believe that, if round 2 is inevitable. I'd rather fall from a lower height.
"This is an electronic market where bids can be cancelled at the flick of a button, and everyone cancelled at the same time," said Joe Saluzzi, of Themis Trading in New Jersey.
Does this make sense? With the time horizons that today's programmed trading operates at, is this really a reasonable explanation?
For those interested, "The (Mis)Behavior of Markets" by Benoit Mandelbrot and Richard Hudson examines, among many other things, the 1987 "Black Monday" event. Mandelbrot theorizes that sudden, disproportionate events such as these may be much more common than today's models and distributions predict. It's a great, accessible read even for those not mathematically inclined.
Greece may default. Sovereign default, lagging the initial market crash by a couple years, was a feature of the Great Depression, so there's an emotional component. Greece's economy may not be compatible with the Eurozone; because they can't control their money supply, they can't make their exports competitive. So they may eventually jettison the Euro. There's concerns that Portugal and Spain could follow. So then there's also drama with the currency market.
There are 100 people on HN that know this stuff better than I do, but maybe by babbling I'll irritate one of them enough to explain.
I don't think I'm one of those 100 people, but from what I've been reading, many European banks (particularly the German, French and British banks) have more exposure to Greek, Portuguese and Spanish debt than they ought to. If any of those countries (Spain in particular) were to default, the losses at the big banks would be so great that people may want to pull their money out for now, just in case. And you know what happens next.
The other big issue that is causing concern is that there is a very volatile populace in Greece. There have already been riots/protest over the proposed cuts...
A major problem is that the Euro covers a very wide and very variable region; some economies are on the tipping point already.
(and I am so glad we (UK) didn't jump into bed with the Euro now! :D)
Absolutely. However a) anything even slightly divisive could be a problem and b) it is all about what it reported. If the media scares the market that is the same effect.
Don't feel so glad to be in the UK. We're almost as stuffed as the Greeks, but we're not really going to know about it for a few days while the results of today's general election are digested. Just wait for the emergency budget from whoever wins. :-(
I doubt I'm one of those 100 people either, but FWIW...
Greece is in fairly immediate danger because of a combination of three things:
(a) a large quantity of government bonds are up in a few days (19 May IIRC),
(b) they just don't have the money to honour the promises at present, and
(c) they have lost much of the ability to borrow that money from the usual market sources due to the downgrades in their credit rating a few days ago.
Because the Greek economy is tied to the Euro-zone, if Greece goes down it's a very serious problem for the other Euro nations as well. Thus we see some of the more financially powerful nations like Germany stumping up billions of Euros to avoid Greece defaulting, as long as Greece agrees to some pretty heavy "austerity measures" over the coming months and years so the money isn't just being thrown away because they're going to default eventually anyway.
Those measures in turn have already led to fatal riots in the streets, as to the average non-economist citizen, taxes are about to skyrocket, pension/retirement arrangements are getting significantly worse, etc. and no-one really knows why.
The trouble has actually been brewing for several years, since things like the Olympics broke their budget dramatically, but it's only with the recent worldwide economic conditions that it has become really obvious.
That's my understanding of why Greece in particular is in trouble today, but a somewhat similar story could be told about several other European nations, hence the general malaise in the markets.
I suspect this is a bit of a mountains and molehills situation. The odds of the rest of the Euro-zone actually allowing Greece to go bankrupt must be fairly slim, but of course the price of bailing them out is then being carried by those other countries and it's not loose change, so the markets are going to take a substantial hit all the same.
I remember that when Sweden ultimately voted to not get the Euro, this scenario was one that was discussed. It was claimed something to the effect that never in history has a situation where a sovereign country has control over economic policy but not monetary policy worked for more than a decade or so.
I always wondered, how come other countries didn't just unanimously vote to jump right in? EU just seemed to make a lot of sense. Well now I know why. Good for the Swedes.
Another problem with EU is that it seems to lack a clear external policy. The E in the EU might as well stand for 'Economic' as in 'Economic Union', as politically these countries still have different & sometimes divergent interests (both externally and internally). Especially, as some members are also in NATO while other aren't.
At the end of the day, it is not possible isolate the economy from politics and social issues. They are intertwined too tightly. It is like co-signing loans for the neighbors that you don't completely know that can go and spend as they please then you are stuck with paying for their extravagance.
Because the Greek economy is tied to the Euro-zone, if Greece goes down it's a very serious problem for the other Euro nations as well.
This is where I got lost. Can somebody explain why the domino effect? I understand that other debtor nations hold some Greek debt, but that doesn't look to be significant enough...
I read a few days back that the European Central Bank also owns a lot of Greek bonds. So it might have a big impact on the financial institutions in the EU.
Well...that's not really what this whole crisis is about. The deal with the European Central Bank (ECB) and Greek Bonds is that, basically the ECB is the bank of last resort to European banks. European banks can borrow from the ECB, but they have to post collateral for the loans. Kinda like when you go to buy a house, you have to put down 20% or 30%. Or if you are getting some other loan you have to put some security (like the title of a house or car) to 'secure' the loan. Well, the banks have to do the same thing.
The issue with Greek bonds is that the ECB requires the collateral for the assets that banks are allowed to use, to have a certain rating level or above.
So, basically the ECB knew that Greek bonds were in jeopardy, and in an effort to continue accepting them as collateral from the banks they had to relax their standards. Basically saying you can give us crap in exchange for cash, rather than giving us gold for cash.
Well...the Greece situation is a horrible state. Damned if you do, damned if you don't. What Greece has done to date is an inordinate amount of spending (financed by cheap Euro loans from banks all over the Euro) - think of what caused the credit crisis in America (people spending money they didn't have - by leveraging their house, etc.).
Ok...well now those loans are coming due, and Greece has further compounded their problem by essentially lying about the state of their finances. Eurostat (an EU watch dog) recently released a report confirming that Greece has essentially been lying about the bad state of it's finances and revised their budget deficit and debt-to-GDP ratio upwards - http://epp.eurostat.ec.europa.eu/portal/page/portal/publicat...
Then, to add insult to injury Standard & Poors recently downgraded Greece's gov't bond ratings to junk status. That basically means that if they wanted to borrow money from the international capital markets, they would pay much higher interest than say Germany. That was expected though, because news was slowly being released that Greece is in a much worse state than they are letting on. The downgrade just 'solidified' it.
Now, in terms of the domino effect, every country in the Eurozone is connected by a number of elements. The eurozone is the largest economic area of cooperation on the planet (geographically). All the countries use the same currency, but not all are controlled by one central bank. Each country has their own individual central bank. But they all share a promise that no one will let any fail, because that invalidates the purpose of the single currency. It would be the equivalent of California going bankrupt. The Federal government will never let that happen, because it would undermine the entire union.
Anyway, so the other countries within the Eurozone that have a similar fiscal profile as Greece are Portugal, Italy, Ireland & Spain (also known as the 'PIIGS'). By similar fiscal profile I mean that whatever happens to Greece, something similar will have to happen to the others. So if Greece is allowed to bankrupt, then investors fear the same thing will happen to the others. If Greece is bailed out, then the same will happen to the others. It really is damned if you do, damned if you don't, because if Greece is bailed out - then they are essentially being 'rewarded' for their profligate spending and 'devious' fiscal behavior over the years. But if they don't bail out Greece, the entire Euro will likely collapse. So they have no choice, assuming they want to preserve the Euro. If they bail out Greece though, moral hazard is created because the other countries are essentially given a guarantee that the Euro authorities (and IMF) will not allow them to go bankrupt either.
All in all, every countries banks have extended loans to (and bought bonds from) companies, governments, and individuals in other countries. So if the debtor defaults, many banks throughout the EU will have an increasing amount of bad loans on their balance sheet - which could force their governments to bail them out (provided the defaults are big enough). Not only that, but credit will dry further and companies that rely on short-term financing for purchasing inventory and paying employees will go out of business because they can't get access to this financing (i.e. the financial crisis will restart). That will then spread to America, the UK, etc.
I know this has been pretty verbose and might be a bit confusing, but I hope that kinda sheds some light on the situation.
P.S. Oh yes, did I mention that Greeks don't want the bailout and they don't want to do what needs to be done. They are actually rioting - CWuestefeld↗
But they all share a promise that no one will let any fail
Thanks. This statement is the key that I wasn't aware of.
Excellent comment, one of the most informative so far ITT. I realize that this borders on fortune-telling, but you seem to have a decent grasp on the situation, and you say RE: bailing out Greece that "it really is damned if you do, damned if you don't", so I'd like to ask -- in your personal opinion, what impact do you see this (the impending collapse of the Euro) having internationally over the coming decade?
In other words, is this necessarily the beginning of a chain reaction, or is there, in your opinion, some route by which the effects of Greece's economic death rattle may be confined locally?
Also, can anyone elaborate on "they all share a promise that no one will let any fail"? Does this 'promise' have a strong legal basis, or is that simply an implied economic obligation in the face of mutually-assured destruction (i.e., as per the California comparison, is leaving Greece out in the cold even an option, legally?)
koanarc....very interesting questions. Due to the clearly increasing interest in this topic, I am going to write a series of blog posts on the crisis (according to what I know - not claiming to be a fortune teller or a sage of any kind, but it seems people are interested).
Well, I wouldn't say the Euro is near collapse just yet. The Obama Administration would never let that happen...i.e. assuming that the Eurozone bigwigs (i.e. Germany, France, etc.) want it to collapse - which I don't see why they would - a collapse of that nature right now would threaten the overall economic recovery. So the powers that be, are doing (and will do) everything in their power to prevent that from happening.
In terms of the impact over the long term, i.e. coming decade, I would say that provided that the Euro can get through this it should prove good for the EU. Because the only way they are going to get through it, is if the EU + IMF bailout the problem states. We have already seen the major sacrifices that have been demanded of Greece as a condition for getting the bailout - http://news.bbc.co.uk/1/hi/8656649.stm
Although Greeks might be pissed at the 'financiers' for imposing 'harsh' conditions to the bailout, in the long term it will be healthy for Greece. They have to go through a bitter, deep, cleansing period (kind of like the bankruptcy proceeding that GM had to go through to get out of their onerous contracts they had with labor unions & dealer network) to get to a more healthy fiscal position. Unless I am mistaking the resilience of the politicians to weather the storm, I strongly suspect that they will persevere through the political maelstrom and do what needs to be done. Then in 5 - 10 years, we could see some strong growth coming from Greece again - however it all depends on what policies (aside from the austerity measures) they implement.
By bailing out Greece and demanding significant austerity measures, they are attempting to contain it locally. The issue is that if they don't take their pound of flesh, the other states/countries will expect the same. So to nip the moral hazard element of it, they (the EU & the IMF) have to be harsh. It's for everybody's own good.
In terms of the strong legal basis...I will cover this in my blog post. I believe there is some legal basis for it - but I am drawing a blank right now. I am going to do some research and include it in my post. Stay tuned, will post on HN once I am done. At the very least, even if there isn't an explicit legal basis for the bailouts, there is a strong implied economic obligation - because it is in everybody's best interest to bail out the weakest state. Just like it was in America's best interest to bail out the banks - as annoying as it was to do, with them paying record profits - the alternative would be significantly worse. Emphasis on significantly.
Among Greeks at least, there's a significant feeling that Greece won't come out ahead, and that these measures are being imposed for the benefit of: 1. other EU countries; and 2. bond investors, some of whom are the same as #1 (e.g. a bunch of German banks). May or may not be true, but there's a large sentiment (maybe even a majority) that the average Greek, especially those in, say, the bottom 75% of wealth/income, would be better off if the government just defaulted on the bonds. They point to Argentina, among others, as a successful example of taking that route.
Hah! I am glad you pointed out Argentina as an 'example' of 'a successful example'. I will definitely cover this in my blog post.
This recent crisis has shown that Argentina never did recover from that initial default and has had to default a second time. Talk about going back to the well!
The "going back to the well" I think might actually be part of it: a lot of Greeks consider that a perfectly viable option, because they remember a past of periodic defaults / currency devaluations every 10 to 20 years or so (and remember Italy doing the same), and don't remember it being particularly bad. Probably a significant proportion would rather go back to that, even if it meant pulling out of the Eurozone, than enact neoliberal reform.
Well...the thing is, back in the day it probably was bad - but not as bad as it would be today. Today, everything is so interconnected. Society has progressed so much, and wealth has been generated at such a fast clip, that cutting off your nose would do nothing but spiting your face.
The reality is that when you look at what has been powering Greece's astounding growth from 1996 - 2006, it was mainly tourism + foreign direct investment.
If you do an Argentina-type default, tourism will instantly be hit and FDI will go to nearly zero (or very close) VERY quickly. The unfortunate truth is that pulling out of the Eurozone wouldn't be a cure all. Without the discipline being forced on the politicians by the EU + IMF, what will force them to change and be fiscally prudent? Nothing will. If anything, things would only get worse because they would be able to print their own money again.
You know what happens when a profligate government can print their own money? Ask Zimbabwe.
The 1996-2006 growth is actually part of the disagreement as well: a lot of Greeks feel ambivalent at best about it, because they feel it went disproportionately to a relatively small elite (I don't have the numbers on whether that's true). Total GDP went up significantly from 1996 to 2006, but the feeling is that it went mainly to the top 25%, with a good portion going to the top 10%. I believe (though I'd have to look it up) that real income of the bottom 50% was flat or declining over that period, which would mean that fully half the country doesn't perceive 1996-2006 as a positive economic period at all.
On the inflationary side, Zimbabwe is an obvious example (with Weimar Germany) of the levels you don't want to go to, but the 1970s Italian/Greek levels of circa 30% annual inflation (with a sort of punctuated equilibrium yearly distribution, i.e. 5-10% most years and 1000% once a decade) aren't quite the same as circa 30,000% annual inflation. It has a lot of effects, some negative, some positive, but is a different sort of beast.
Hm. I am certainly no economist, but I'm still not 100% sure that I have any logical reason to agree that "it should prove good for the EU" for the EU+IMF to "bailout the problem states", or even that "it was in America's best interest to bail out the banks"...
You say that "by bailing out Greece and demanding significant austerity measures, they are attempting to contain it locally", but doesn't the process of a group of nations bailing out a member nation (or, likewise, any multinational corporation), by definition, extend the problem beyond local/intra-national economics? Especially when a currency is shared among many disparate nations? What happens if/when a nation such as Greece decides that adhering to the Euro is more trouble than it is worth?
The idea of a "a bitter, deep, cleansing period" I can get on board with -- most nations seem to be due for a fundamental economic/structural revaluation -- but like you said, not bailing out Greece could have dire 'domino' consequences, and doesn't leave much of a choice. But then, when Greece is bailed out, a nasty precedent is set, and what reputation/value will the Euro have when Spain or Portugal inevitably start to experience these very same issues?
So, I guess I return to my original question: is it at all possible for Greece to play the "tank" and absorb most of the serious economic fallout from the present situation, or are the Greeks the canary in the global coal mine? Or am I presenting a false dichotomy?
Also, you suggest in another comment that printing their own money would be a worse scenario for Greece -- why? Many countries do so, and I'd suggest that most of those countries have "profligate governments", but as far as I can tell aren't facing these obstacles to quite the same extent.
Which, a little while after the fact, now underscores the fact that the market does what it does, and nobody can explain its movements with real confidence. All those newspapers headlines trumpeting "Dow falls X points on blah blah" is just a bunch of crap to make it sound like they've got a clue.
I have a question as a complete outsider: how much of what's happening is being driven directly by human-driven transaction and how much is automated computer-driven trading? (Yes, I understand these are hazy terms.)
And, perhaps more fundamentally: how much of market volatility is the consequence of automated decision making? It seems, again naivete is at play here, but it seems like that could be a pretty unstable system.
I guess I think of it like this: the U.S. utilizes Permissive Action Links and other security measures to provide for launch security. Given the centrality of the economy (though not wanting to overstate it), it seems like a large-scale mistake in some models could cause misfiring in ways we wouldn't want but that a human agent could (theoretically) prevent.
The one site I'm getting reliably is WSJ.com (I'm a subscriber). May be the paywall-deterrent-effect. Some of their data got pretty stale (30min+), but that's probably because things are down across the entire market foodchain.
This seems to have been expected given the European markets today. It's all over concern for Greek default. Which makes Spain and Portugal up next, which is the bigger concern since they are a larger part of the Euro-zone economy.
One benefit of this all (to Americans), is that the dollar has gotten stronger against the Euro, so while the markets are losing ground, the dollar can buy more from Europe.
If we had papered over our economic problems, I could see this drop as justified.
but we've paid people to buy houses, cars and appliances. And we've given billions to banks so they can lend it back to the government at a tidy no-risk profit.
So, this correction makes no sense. The stock market should be zooming to the moon.
I could also see this justified if we had completely failed to bring the lenders, lendees, brokers, appraisers and CDS originators who committed massive fraud to justice. So this makes no sense to me either. :D
Someone has to actually sell you shares at that price for that to happen. It was likely a data error. No one is going to sell Accenture shares for a penny.
It was likely a data error. No one is going to sell Accenture shares for a penny.
Or a bit more precisely: Someone might have entered a big sell order at $0.01/share by mistake, but when this happens the stock exchanges usually undo those trades, so even if you think you bought ACN for $0.01/share, you probably didn't.
When I worked at an HFT shop broken trades were the bain of our existence. We had parameters to screen for trades that would probably be broken, but sometimes they would be broken outside of those. The way it works is either party to a trade can request the trade be broken, it goes to a mediator, and both sides make there case. It usually only takes a few minutes, but you can lose a bundle in that time especially if you were selling as the price is dropping, think you're flat only to have your sale broken.
Most likely, it went "no-bid". At any given time, there're a bunch of people who have long-term $0.01 limit orders for a bunch of stocks. Markets work by matching up buyers and sellers; if there are no buyers at "normal" prices, the computer systems will start eating up those $0.01 bids that are placed and left in the computer systems without any expectation of being filled. The folks who place those orders become fabulously wealthy, the folks who tried to sell at any price get screwed.
It seems unbelievably unlikely that a stock traded with the volume of accenture could ever have no bids. Wouldn't you have to blow through all the people who put in limit orders for the company first? I don't see how this could possibly be true.
First off, shares have not yet changed hands. The two parties to the trade each have an agreement with clearing houses that the shares will change hands in the next 3 days, modulo various clauses.
One of the clauses lets the exchange break trades under certain circumstances, typically in the case of obvious errors and "unusual circumstances". So it's fairly likely that trades above and below a certain price on some stocks will be broken.
I am trying to imagine the mechanics of what a "no-bid" situation would look like. Presumably you mean that one of the market makers would have to take the other side of the trade, but the rules for MM entities stipulate that they have to provide liquidity within certain bounds, not at all times and at any cost. Even if there were truly no bids -- which didn't happen -- the market maker would never make the market at $0.01.
"Eighteen of the trades were executed on the CBOE Stock Exchange and were canceled. The first trade that sent Accenture to a penny was executed on the Nasdaq Stock Market. That transaction has yet to be canceled, the data showed."
A total of 19 trades of 100 shares each were executed at 1 cent in seven seconds from 2:47 p.m. to 2:48 p.m. in New York, a minute after the Dow average plunged by the most since the market crash of 1987, the data showed.
Eighteen of the trades were executed on the CBOE Stock Exchange and were canceled. The first trade that sent Accenture to a penny was executed on the Nasdaq Stock Market. That transaction has yet to be canceled, the data showed.
well considering the debt now has junk status you'd just buy it at pennies on the dollar (like the people buying the bad mortgages) and hope the austerity measures pass and they get their shit together.
Isn't that backwards? Wouldn't a Greek default hurt German banks? Is there something I'm not seeing about how that would affect the issuers of German bonds?
You're not exactly getting out in front of that one, eh?
Ok, so you find a way to bet on Greece failing... don't you think the people on the other end of that deal are also watching CNN and have priced the deal accordingly?
JPY better, EURJPY is a gauge for markets also. Markets go down, EURJPY follows and market goes up, EURJPY goes up (like most yen crosses, but eurjpy being most prominent)
Romania isn't exactly a surprise either. A lot of Eastern Europe is in pretty bad shape. With Romania, their GDP dropped by approximately 20%, or $40 billion in in 2008/2009. Its only expected to go up by about $7 billion or so in 2009/2010[1].
I wouldn't consider myself an expert on this, but, my understanding is that a lot of the economic decline is due to a decline in tourism to Romania (well, to Eastern Europe in general, not just Romania) in the past year or two. And hotels/restaurants/etc account for ~20% of Romania's GDP, IIRC.
And the US is in a much better position than most of the world. We had what? Two quarters of negative growth of -2 or -3% at most before we're back in the plus? Compare that to countries that have been in double digit negatives for multiple quarters in a row.
The primary country that I'm really worried about in Eastern Europe is Bosnia-Herzegovina. Three ethnic groups that have distinct political parties and two of the three don't recognize the third. New government every few months and very little is done. Low GDP to start with, and its gone down even more in the past year or two. Its not too far fetched to imagine a situation like Kosovo in the 90's breaking out again..
This makes me think that I should just place limit orders for every S+P 500 company at $.10. Chances are the orders will never be filled but if this happens again I'll get rich.
GTC (good 'til canceled) are available to me (nobody special--just a margin account at Zecco) as nothing more than an option to change on a normal order. The only difference is that they stay open across the end of the day. (Supposedly they'll be canceled by something after 30-90 days if I don't cancel them and they don't execute.)
Actually IVW was down from 50+ to .10 to back up to 55 in a few mins (longer that other stocks) A lot of shares were traded between .01 and 30, I was able to squeeze in a small order of a few shares (<10) at $40 as I didn't have enough cash in hand.
There was very very little volume at those trade levels - those trades happened on thinly traded electronic exchanges when the NYSE halted most of those stocks for 90 secs, removing liquidity and causing computers to fill market orders.
That would be rational behaviour. The market does not exist on rational behaviour. The Austrians just spread that rumor to take advantage of the suckers who believe it.
"Panic" gives this image of people running around and pulling their hair, but it's probably just a combination of computer algorithms hitting their threshold, and people adapting to fresh news to maximize their gain. I don't think people are genuinely panicked.
Welcome to the world of High Frequency/Algorithmic trading.
In this case, essentially every person that had a "stop loss" order was just hunted down by a wave of HFT programs and all those stop loss orders were triggered, which send "market orders" which means, fill my order at the current market price.
When everyone does this at the same time, there are more sellers than buyers so prices drop dramatically. However, this presents an opportunity for HFT programs especially when they have similar strategies, meaning they all are doing the same thing, pushing the market in the same direction. Now, the HFT programs forced people to get stopped out, then they bid the market up and buy, which pushes it right back to the prior level.
Take a look at AAPL, RIMM, GOOG, SPY, etc. and you'll see it is all the same pattern.
I interviewed at a HFT once - and one of the things that stuck out to me was that one of the guys there said "its doesn't matter which direction the market moves, just that it moves."
HFT computers identify "direct arbitrage," and make a profit off of someone else's loss.
Honestly, if you don't know that CNBC is to the financial markets as what the Hee Haw is to the news, then I can't help you.
CNBC does NOT know what the cause of this was. The exchanges will come out with some "computer glitch" story or the "fat finger" excuse, but neither of those are true. FWIW, the fat finger excuse is, in a nutshell, some trader accidentally pressing the wrong button on the trading desk.
The market was at a technical support level with various moving averages, timelines, etc. all coming into play. Many people had/have stop losses because the market was/is looking due for a correction. Algo/HFT pounced on this, collectively, and thus the massive drop.
Trust me, if you are buying into what CNBC tells you, you are really missing the truth...
"A possible culprit for the drop was a trader error in which someone entered a "b" for billion instead of an "m" for million in a trade. Multiple sources confirmed the report to CNBC and CNBC.com"
That sounds hard for me to believe, but thats one rumor. That wouldn't account for the 10% drop but it might have put initiated the drop and then caused other people (and computers) to panic and sell.
Considering that the volume on Proctor & Gamble trading today not only does not include a spike of a billion shares sold but does not look different from relatively recent trading days, I'd chalk this one up to just a rumor and nothing else.
Today's chart does show a spike down to $50 or so, maybe even lower. Go to finance.google.com and look at the intraday chart. It also shows a volume spike, but curiously that's later.
[Edit] Actually the stock was down at $39.37 from $61. On normal days PG barely moves at all.
It depend on the resolution of the chart. If the resolution is minute-based, then it could have hit $0 then come back up to $39 within a minute. You wouldn't know. You'd have to have a special high-resolution stock feed.
Yes, but I would expect that the low and high for the day shown on the finance websites does show everything down to tick level. Not real time of course.
Doesn't that kind of software have annoying dialog boxes saying "Are you sure you want cause financial meltdown?"? Or at least a less intrusive "Did you mean 'm'?"?
I think the first one is actually the better choice.
It's really surprising, assuming this is really the cause, that a single letter typo could have such an effect and this has 1) never happened before and 2) not been caught in testing.
I doubt it's a person that made money. Usually individual investors lose big time when stop loss orders are activated, it's the institutional investors that win.
I have actually worked on such software. When a price comes in - a quote - you have a fixed amount of time to respond before it goes stale, usually a few seconds. It's assumed you know what you're doing and that you want to move quickly. Same as operating any other high-powered machinery.
I remember a feature request from a client of ours, we had keyboard shortcuts of k for thousand, m for million and b for billion. They wanted t as well.
Rumor was that someone at citi fat fingered 16 billion of eminis instead of millions. Even if it were true, it would not cause as much as a dent in it. Market was on a sliding selloff already. My suspicion was that this was a manipulation or HFT gone wild or both. If there weren't that spike down, dow would be at -5% easily, but what happened was -9 and then up to -3.
> That sounds hard for me to believe, but thats one rumor.
Would this rumor create insane profits for some? If that is so, those getting the profits should be investigated. Some employee could have been promissed a large sum in a off-shore account to enter a 'b' instead of an 'm'. It should look like an 'oops' to everyone else while a bunch of HFT algorithms could rake in serious profits as everyone's stop-loss triggers get hit. The employee might get fired, but he the pay-off was large enough, he might not need to work ever again.
The Dow Jones is made up of only 30 stocks. A $20 move in P&G would have a large instantaneous impact on the index which could then trigger the algorithms to go nuts.
Of course HFT is not the root cause, it might have burned the fuel(stops) when acceleration approached terminal speed. However last tuesday and even before that VIX was on record heights and it pushed even higher today. No fat fingers then. Market is trying to tell us something, obviously. Cumulation was there, this was just a first in a series of explosions triggered by one reason or the other (greece/eu/trichet inaction today).
I never said anything about a "blip" and it is far from it. The equities markets are easy to manipulate; all you need is more $$ than the other guy and if all your friends are on board, that's a lot of $$ to move the market in the direction of your favor.
One of the reasons the forex markets are MUCH more difficult to manipulate is that you have $3.5 trillion traded daily. Not sure who can simply move that market. Equities on the other hand, much easier....
I don't see how the order could even be placed. An emini contract has a 50x multiplier for SPY. That's about 50,000 per contract; that's a lot of contracts. I don't think such an order could be entered without error at Citi's desk and it would damn sure never pass checks at the exchange. Even if it was not flagged as odd, they would still be required to have on hand around 1.6 billion in collateral at very high leverage.
Of course, a brokerage like Citi will run most of their trades larger than 1000 lots through their program trading, which splits the order into lots of smaller trades of 100-200. I agree that it sure sounds suspicious, but I seriously doubt the exchanges saw a single bid for 1.6b shares of the e-mini.
any decent trading system. When millsecs mean the difference between millions of dollars, having a trader type in all those zeros, then count them, would be costly time.
Fast traders don't click on icons and enter values, they enter an entire trade on one line.
Buy 1000 shares of Apple computer at 250.05 might be entered as:
fair point, not in finance so didn't consider this.
However I find it extremely foolhardy that mistyping one character has an impact one thousand times greater, and that such an action can be performed without some kind of validation (whether explicitly via a confirmation, or implicitly in how the UX is designed).
Then again it is probably because of the typo risk that bankers get paid so much ...
`rm -rf` vs `rm -ri` could have that sort of impact.
Or `sleep 1; shutdown -r now` vs `sleep 1h; shutdown -r now` to reboot the production server.
I once deleted all my source code instead of backing it up to my floppy by doing "del ." while command.com was in wrong drive. (Should have done "del a:\."; two letters cost me a night of running an undelete program)
I like my Bash tools as much as the next HNer, but always think it's faster, safer, and more accurate to use a windowed gui for moving or deleting important files and folders.
I agree with this. Each platform can be completely different. Banks often have their own internal platforms too. Some are even set to trade in millions by default. So when you enter an order for 15 shares, you're really buy 15 million shares and so on.
So, wouldn't this constitute a major transfer of wealth from individual investors with stop-loss orders to institutional investors like Goldman Sachs et al whose computers detected the dip and bought the stock back up?
A similar incident happened in Tokyo Stock Exchange a few years ago.
(...) on December 8, 2005 in which a Mizuho dealer mistakenly sold 610,000 shares in J-Com, a recruitment business, at 1 yen instead of selling 1 share at 610,000 yen.
The dealer, understood to be a 24-year old woman, immediately realised the mistake but was unable to cancel the trade because of a technical glitch in the exchange's trading system. Mizuho was forced to buy back the shares, leaving it with a 40.7 billion yen loss, prompting the firm to cancel year-end bonuses for all staff in the trading unit.
Note in Japan executed trades cannot be canceled (though in this case the trader was supposed to be able to cancel the orders before they were executed). Many brokers made a big profit. Some institutional investors too. One particular day trader became quite rich and to this day is a sort of legend on internet trading boards.
A little off topic, but say I want to experiment with algorithm trading, what kind of APIs are available for trading? I assume they are pretty expensive for access, correct?
+1 for IB - that's what I've been using for the past year, and they're quite solid from what I've seen. It's not a very elegant API (or trading platform [Java based + clunky] or documentation [brief at best], for that matter!), but they've got Java, C++, and Excel APIs that work, a solid selection of products, reliable performance (data kept flowing to me just fine throughout the whole mess today), and fair commissions (unless you're doing massive trades, it's usually around 2 bucks, so you can profitably offer liquidity against some pretty tight spreads). As far as algorithmic trading that's accessible to the average Joe, IB is as good as I've found. I think you need 10k to open an account, and have to maintain at least 25k to day-trade equities (a legal requirement, not an IB thing - you'll probably need at least this much if you're algo trading).
Just don't expect hand holding. You're supposed to be an experienced trader to even sign up with them (for a few products, like options, you have to pass a ridiculously easy test to trade them), and they won't save you from yourself - they'll happily let you buy 500k Euros with only $20k in your account, so be warned: if you'd made that mistake today, you'd be flat broke right now, though IIRC they do close out positions for you so at least you shouldn't end up too far in the red once your account is dunzo...
...which, to reiterate fnid2's point, it will be, unless you make sure to paper trade your damn code first! I'd also suggest that until you're really sure it's working, you never ever EVER leave it running unless you're watching it like a hawk. And code yourself a big bright red "PANIC" button that closes all your positions and shuts everything down, because you're going to end up in a situation some day where things go wonky and you just want to get out, but you'll have a dozen open positions and you don't want to have to click around to close them all.
Also, it's always a good idea to put in "everything's gone to hell" stops and place orders that time-out, even if your strategy doesn't require them (algo strategies don't typically use actual stop orders for exits): you never know when your connection might die, and you really don't want to end up stuck with nasty positions that you don't even have any way to track or close out b/c your cable went out...the positions that you hold when doing algo stuff can on occasion end up frighteningly large, which is only acceptable if you're holding them for very short period of time.
AAPL, RIMM, GOOG, etc have the same pattern because they're part of the composition of the major indices, so their typical behavior is to track the major indices. If something causes the index to spike or fall, large volumes of whatever the index is composed of will traded.
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[ 162 ms ] story [ 4699 ms ] threadhttp://stockcharts.com/h-sc/ui?s=AAPL
Nobody knows why it's happening. They're talking about a "fat finger mistake" on CNBC.
Some of these people look pretty scared.
It's now conventional wisdom that AT&T has awful cell coverage. It's especially bad in the Bay Area, but it's bad everywhere.
I can't wait to leave.
Nowadays, even when you're downtown, surrounded by farms of cell towers, getting full bars, your phone will still magically not work.
This is what cause the crash in the eighties, we have some fail-safes in place to slow it but most trading is done by tuned algorithms during stuff like this. In fact, the PPT (Plunge Protection Team) might have kicked in...
If you can pull it off, you have earned your profit.
This allowed Porsche to build up a huge position, with only a few willing market participants as counter-parties. They also managed to short-squeeze the short-sellers. (http://en.wikipedia.org/wiki/Short_squeeze)
The grandparent post described a long-squeeze. (http://en.wikipedia.org/wiki/Long_squeeze)
http://www.ritholtz.com/blog/2010/05/market-changes-tone-dur...
and one day ago:
http://www.ritholtz.com/blog/2010/05/cash-100/
(Some of) the technicians were looking at a lot of money on the sidelines, a rally that looked like it was cresting, a lot of profits to be locked in - and anticipating a big correction.
There's a lot of luck to it and maybe even some feedback so its sort of a joke but Ritzholz cashing out (and blabbing about it) by yesterday, and turning to shorting opportunities, just confirms that he's a Sooper Genius.
Not to say this isn't August 6, 2007 or September 12, 2008. It may well be.
I was listening to two different people at the same time, and I'm away from my real-time charting program so I coudln't check.
I just changed the title to reflect.
Holy Shit. Accenture dropped from $40 to $0.01, and now it's back in the high $30s.
Regardless of the details, this is an example of how markets aren't perfectly efficient.
You might as well consult a historian.
No. Just that the last reported transaction may not be `true' price.
There are other arguments against efficiency of markets, but this isn't.
According to the data I'm seeing for ACN now, the whole drop happened over a 1 minute period, and was back up the next minute.
Current status: probably a fairly rational reflection of the badness of the situation (which is not new, and although serious, probably not catastrophic).
Oh, happy days.
http://news.bbc.co.uk/2/hi/business/10101581.stm
Doesn't sound like a panic to me.
However, the sellers were real -- and increasing. I think there is a danger that people will see it as only a glitch and not the beginnings of trouble. The glitch might mask the true sentiment.
Things seem rather stable at -4% now...
"This is an electronic market where bids can be cancelled at the flick of a button, and everyone cancelled at the same time," said Joe Saluzzi, of Themis Trading in New Jersey.
Does this make sense? With the time horizons that today's programmed trading operates at, is this really a reasonable explanation?
http://www.nytimes.com/2010/05/07/business/07markets.html?hp
Seems to be about Greece.
There are 100 people on HN that know this stuff better than I do, but maybe by babbling I'll irritate one of them enough to explain.
A major problem is that the Euro covers a very wide and very variable region; some economies are on the tipping point already.
(and I am so glad we (UK) didn't jump into bed with the Euro now! :D)
Greece is in fairly immediate danger because of a combination of three things:
(a) a large quantity of government bonds are up in a few days (19 May IIRC),
(b) they just don't have the money to honour the promises at present, and
(c) they have lost much of the ability to borrow that money from the usual market sources due to the downgrades in their credit rating a few days ago.
Because the Greek economy is tied to the Euro-zone, if Greece goes down it's a very serious problem for the other Euro nations as well. Thus we see some of the more financially powerful nations like Germany stumping up billions of Euros to avoid Greece defaulting, as long as Greece agrees to some pretty heavy "austerity measures" over the coming months and years so the money isn't just being thrown away because they're going to default eventually anyway.
Those measures in turn have already led to fatal riots in the streets, as to the average non-economist citizen, taxes are about to skyrocket, pension/retirement arrangements are getting significantly worse, etc. and no-one really knows why.
The trouble has actually been brewing for several years, since things like the Olympics broke their budget dramatically, but it's only with the recent worldwide economic conditions that it has become really obvious.
That's my understanding of why Greece in particular is in trouble today, but a somewhat similar story could be told about several other European nations, hence the general malaise in the markets.
I suspect this is a bit of a mountains and molehills situation. The odds of the rest of the Euro-zone actually allowing Greece to go bankrupt must be fairly slim, but of course the price of bailing them out is then being carried by those other countries and it's not loose change, so the markets are going to take a substantial hit all the same.
Another problem with EU is that it seems to lack a clear external policy. The E in the EU might as well stand for 'Economic' as in 'Economic Union', as politically these countries still have different & sometimes divergent interests (both externally and internally). Especially, as some members are also in NATO while other aren't.
At the end of the day, it is not possible isolate the economy from politics and social issues. They are intertwined too tightly. It is like co-signing loans for the neighbors that you don't completely know that can go and spend as they please then you are stuck with paying for their extravagance.
This is where I got lost. Can somebody explain why the domino effect? I understand that other debtor nations hold some Greek debt, but that doesn't look to be significant enough...
Here's a google result from FT: http://www.ft.com/cms/s/0/c60cba60-2246-11df-9a72-00144feab4...
The issue with Greek bonds is that the ECB requires the collateral for the assets that banks are allowed to use, to have a certain rating level or above.
This article has a nice explanation of what happened: http://www.ft.com/cms/s/0/3797c8d8-37f9-11df-9e8e-00144feabd...
So, basically the ECB knew that Greek bonds were in jeopardy, and in an effort to continue accepting them as collateral from the banks they had to relax their standards. Basically saying you can give us crap in exchange for cash, rather than giving us gold for cash.
Hope that makes sense.
Ok...well now those loans are coming due, and Greece has further compounded their problem by essentially lying about the state of their finances. Eurostat (an EU watch dog) recently released a report confirming that Greece has essentially been lying about the bad state of it's finances and revised their budget deficit and debt-to-GDP ratio upwards - http://epp.eurostat.ec.europa.eu/portal/page/portal/publicat...
Then, to add insult to injury Standard & Poors recently downgraded Greece's gov't bond ratings to junk status. That basically means that if they wanted to borrow money from the international capital markets, they would pay much higher interest than say Germany. That was expected though, because news was slowly being released that Greece is in a much worse state than they are letting on. The downgrade just 'solidified' it.
Now, in terms of the domino effect, every country in the Eurozone is connected by a number of elements. The eurozone is the largest economic area of cooperation on the planet (geographically). All the countries use the same currency, but not all are controlled by one central bank. Each country has their own individual central bank. But they all share a promise that no one will let any fail, because that invalidates the purpose of the single currency. It would be the equivalent of California going bankrupt. The Federal government will never let that happen, because it would undermine the entire union.
Anyway, so the other countries within the Eurozone that have a similar fiscal profile as Greece are Portugal, Italy, Ireland & Spain (also known as the 'PIIGS'). By similar fiscal profile I mean that whatever happens to Greece, something similar will have to happen to the others. So if Greece is allowed to bankrupt, then investors fear the same thing will happen to the others. If Greece is bailed out, then the same will happen to the others. It really is damned if you do, damned if you don't, because if Greece is bailed out - then they are essentially being 'rewarded' for their profligate spending and 'devious' fiscal behavior over the years. But if they don't bail out Greece, the entire Euro will likely collapse. So they have no choice, assuming they want to preserve the Euro. If they bail out Greece though, moral hazard is created because the other countries are essentially given a guarantee that the Euro authorities (and IMF) will not allow them to go bankrupt either.
All in all, every countries banks have extended loans to (and bought bonds from) companies, governments, and individuals in other countries. So if the debtor defaults, many banks throughout the EU will have an increasing amount of bad loans on their balance sheet - which could force their governments to bail them out (provided the defaults are big enough). Not only that, but credit will dry further and companies that rely on short-term financing for purchasing inventory and paying employees will go out of business because they can't get access to this financing (i.e. the financial crisis will restart). That will then spread to America, the UK, etc.
I know this has been pretty verbose and might be a bit confusing, but I hope that kinda sheds some light on the situation.
http://www.reuters.com/article/idUSTRE63Q3FF20100427
P.S. Oh yes, did I mention that Greeks don't want the bailout and they don't want to do what needs to be done. They are actually rioting - CWuestefeld ↗ But they all share a promise that no one will let any fail rdtsc ↗ Thank you for writing that. That's why I love HN. That was better explained than most articles I've read so far. koanarc ↗ Excellent comment, one of the most informative so far ITT. I realize that this borders on fortune-telling, but you seem to have a decent grasp on the situation, and you say RE: bailing out Greece that "it really is damned if you do, damned if you don't", so I'd like to ask -- in your personal opinion, what impact do you see this (the impending collapse of the Euro) having internationally over the coming decade? marcamillion ↗ koanarc....very interesting questions. Due to the clearly increasing interest in this topic, I am going to write a series of blog posts on the crisis (according to what I know - not claiming to be a fortune teller or a sage of any kind, but it seems people are interested). _delirium ↗ Among Greeks at least, there's a significant feeling that Greece won't come out ahead, and that these measures are being imposed for the benefit of: 1. other EU countries; and 2. bond investors, some of whom are the same as #1 (e.g. a bunch of German banks). May or may not be true, but there's a large sentiment (maybe even a majority) that the average Greek, especially those in, say, the bottom 75% of wealth/income, would be better off if the government just defaulted on the bonds. They point to Argentina, among others, as a successful example of taking that route. marcamillion ↗ Hah! I am glad you pointed out Argentina as an 'example' of 'a successful example'. I will definitely cover this in my blog post. _delirium ↗ The "going back to the well" I think might actually be part of it: a lot of Greeks consider that a perfectly viable option, because they remember a past of periodic defaults / currency devaluations every 10 to 20 years or so (and remember Italy doing the same), and don't remember it being particularly bad. Probably a significant proportion would rather go back to that, even if it meant pulling out of the Eurozone, than enact neoliberal reform. marcamillion ↗ Well...the thing is, back in the day it probably was bad - but not as bad as it would be today. Today, everything is so interconnected. Society has progressed so much, and wealth has been generated at such a fast clip, that cutting off your nose would do nothing but spiting your face. _delirium ↗ The 1996-2006 growth is actually part of the disagreement as well: a lot of Greeks feel ambivalent at best about it, because they feel it went disproportionately to a relatively small elite (I don't have the numbers on whether that's true). Total GDP went up significantly from 1996 to 2006, but the feeling is that it went mainly to the top 25%, with a good portion going to the top 10%. I believe (though I'd have to look it up) that real income of the bottom 50% was flat or declining over that period, which would mean that fully half the country doesn't perceive 1996-2006 as a positive economic period at all. koanarc ↗ Hm. I am certainly no economist, but I'm still not 100% sure that I have any logical reason to agree that "it should prove good for the EU" for the EU+IMF to "bailout the problem states", or even that "it was in America's best interest to bail out the banks"... marcamillion ↗ Just to post an update, as I had thought...the US gov't & EU gov't would never let Greece or any of the other troubled neighbors crumble: marcamillion ↗ P.S. I have posted my first article in the series I have decided to write - http://news.ycombinator.com/item?id=1327077
Thanks. This statement is the key that I wasn't aware of.
In other words, is this necessarily the beginning of a chain reaction, or is there, in your opinion, some route by which the effects of Greece's economic death rattle may be confined locally?
Also, can anyone elaborate on "they all share a promise that no one will let any fail"? Does this 'promise' have a strong legal basis, or is that simply an implied economic obligation in the face of mutually-assured destruction (i.e., as per the California comparison, is leaving Greece out in the cold even an option, legally?)
Well, I wouldn't say the Euro is near collapse just yet. The Obama Administration would never let that happen...i.e. assuming that the Eurozone bigwigs (i.e. Germany, France, etc.) want it to collapse - which I don't see why they would - a collapse of that nature right now would threaten the overall economic recovery. So the powers that be, are doing (and will do) everything in their power to prevent that from happening.
In terms of the impact over the long term, i.e. coming decade, I would say that provided that the Euro can get through this it should prove good for the EU. Because the only way they are going to get through it, is if the EU + IMF bailout the problem states. We have already seen the major sacrifices that have been demanded of Greece as a condition for getting the bailout - http://news.bbc.co.uk/1/hi/8656649.stm
Although Greeks might be pissed at the 'financiers' for imposing 'harsh' conditions to the bailout, in the long term it will be healthy for Greece. They have to go through a bitter, deep, cleansing period (kind of like the bankruptcy proceeding that GM had to go through to get out of their onerous contracts they had with labor unions & dealer network) to get to a more healthy fiscal position. Unless I am mistaking the resilience of the politicians to weather the storm, I strongly suspect that they will persevere through the political maelstrom and do what needs to be done. Then in 5 - 10 years, we could see some strong growth coming from Greece again - however it all depends on what policies (aside from the austerity measures) they implement.
By bailing out Greece and demanding significant austerity measures, they are attempting to contain it locally. The issue is that if they don't take their pound of flesh, the other states/countries will expect the same. So to nip the moral hazard element of it, they (the EU & the IMF) have to be harsh. It's for everybody's own good.
In terms of the strong legal basis...I will cover this in my blog post. I believe there is some legal basis for it - but I am drawing a blank right now. I am going to do some research and include it in my post. Stay tuned, will post on HN once I am done. At the very least, even if there isn't an explicit legal basis for the bailouts, there is a strong implied economic obligation - because it is in everybody's best interest to bail out the weakest state. Just like it was in America's best interest to bail out the banks - as annoying as it was to do, with them paying record profits - the alternative would be significantly worse. Emphasis on significantly.
This recent crisis has shown that Argentina never did recover from that initial default and has had to default a second time. Talk about going back to the well!
The reality is that when you look at what has been powering Greece's astounding growth from 1996 - 2006, it was mainly tourism + foreign direct investment.
If you do an Argentina-type default, tourism will instantly be hit and FDI will go to nearly zero (or very close) VERY quickly. The unfortunate truth is that pulling out of the Eurozone wouldn't be a cure all. Without the discipline being forced on the politicians by the EU + IMF, what will force them to change and be fiscally prudent? Nothing will. If anything, things would only get worse because they would be able to print their own money again.
You know what happens when a profligate government can print their own money? Ask Zimbabwe.
On the inflationary side, Zimbabwe is an obvious example (with Weimar Germany) of the levels you don't want to go to, but the 1970s Italian/Greek levels of circa 30% annual inflation (with a sort of punctuated equilibrium yearly distribution, i.e. 5-10% most years and 1000% once a decade) aren't quite the same as circa 30,000% annual inflation. It has a lot of effects, some negative, some positive, but is a different sort of beast.
You say that "by bailing out Greece and demanding significant austerity measures, they are attempting to contain it locally", but doesn't the process of a group of nations bailing out a member nation (or, likewise, any multinational corporation), by definition, extend the problem beyond local/intra-national economics? Especially when a currency is shared among many disparate nations? What happens if/when a nation such as Greece decides that adhering to the Euro is more trouble than it is worth?
The idea of a "a bitter, deep, cleansing period" I can get on board with -- most nations seem to be due for a fundamental economic/structural revaluation -- but like you said, not bailing out Greece could have dire 'domino' consequences, and doesn't leave much of a choice. But then, when Greece is bailed out, a nasty precedent is set, and what reputation/value will the Euro have when Spain or Portugal inevitably start to experience these very same issues?
So, I guess I return to my original question: is it at all possible for Greece to play the "tank" and absorb most of the serious economic fallout from the present situation, or are the Greeks the canary in the global coal mine? Or am I presenting a false dichotomy?
Also, you suggest in another comment that printing their own money would be a worse scenario for Greece -- why? Many countries do so, and I'd suggest that most of those countries have "profligate governments", but as far as I can tell aren't facing these obstacles to quite the same extent.
http://www.bloomberg.com/apps/news?pid=20601010&sid=alxK...
They can always come up with a story after the fact.
And, perhaps more fundamentally: how much of market volatility is the consequence of automated decision making? It seems, again naivete is at play here, but it seems like that could be a pretty unstable system.
I guess I think of it like this: the U.S. utilizes Permissive Action Links and other security measures to provide for launch security. Given the centrality of the economy (though not wanting to overstate it), it seems like a large-scale mistake in some models could cause misfiring in ways we wouldn't want but that a human agent could (theoretically) prevent.
Look at market trading volume over the last 15 years.
This seems to have been expected given the European markets today. It's all over concern for Greek default. Which makes Spain and Portugal up next, which is the bigger concern since they are a larger part of the Euro-zone economy.
One benefit of this all (to Americans), is that the dollar has gotten stronger against the Euro, so while the markets are losing ground, the dollar can buy more from Europe.
google for proctor and gamble fat finger.
Some happy people in the futures market who bought the effects at < 10k!
Similar to Magnatar, this is the "lose a little money to make a lot more" strategy.
but we've paid people to buy houses, cars and appliances. And we've given billions to banks so they can lend it back to the government at a tidy no-risk profit.
So, this correction makes no sense. The stock market should be zooming to the moon.
Those who exploited the bubble will always be ready to exploit government foolishness, so a new crop will sprout overnight.
Or a bit more precisely: Someone might have entered a big sell order at $0.01/share by mistake, but when this happens the stock exchanges usually undo those trades, so even if you think you bought ACN for $0.01/share, you probably didn't.
One of the clauses lets the exchange break trades under certain circumstances, typically in the case of obvious errors and "unusual circumstances". So it's fairly likely that trades above and below a certain price on some stocks will be broken.
See Rule 11890 (c) (2) of the NASDAQ.
http://nasdaq.cchwallstreet.com/nasdaqtools/platformviewer.a...
[edit: I previously attributed the NASDAQ rule to NYSE.]
Nasdaq is breaking trades that occurred between 14:40 and 15:00 which executed at more than 60% away from the previous (consolidated) print price.
"Eighteen of the trades were executed on the CBOE Stock Exchange and were canceled. The first trade that sent Accenture to a penny was executed on the Nasdaq Stock Market. That transaction has yet to be canceled, the data showed."
A total of 19 trades of 100 shares each were executed at 1 cent in seven seconds from 2:47 p.m. to 2:48 p.m. in New York, a minute after the Dow average plunged by the most since the market crash of 1987, the data showed.
Eighteen of the trades were executed on the CBOE Stock Exchange and were canceled. The first trade that sent Accenture to a penny was executed on the Nasdaq Stock Market. That transaction has yet to be canceled, the data showed.
Not exactly the bargain of the century at this point in time.
Edit: for context, that's roughly the same price as Venezuela and Argentina.
Ok, so you find a way to bet on Greece failing... don't you think the people on the other end of that deal are also watching CNN and have priced the deal accordingly?
Which means the debt issues are spreading in Europe... Not that US is in a much better position...
I wouldn't consider myself an expert on this, but, my understanding is that a lot of the economic decline is due to a decline in tourism to Romania (well, to Eastern Europe in general, not just Romania) in the past year or two. And hotels/restaurants/etc account for ~20% of Romania's GDP, IIRC.
And the US is in a much better position than most of the world. We had what? Two quarters of negative growth of -2 or -3% at most before we're back in the plus? Compare that to countries that have been in double digit negatives for multiple quarters in a row.
The primary country that I'm really worried about in Eastern Europe is Bosnia-Herzegovina. Three ethnic groups that have distinct political parties and two of the three don't recognize the third. New government every few months and very little is done. Low GDP to start with, and its gone down even more in the past year or two. Its not too far fetched to imagine a situation like Kosovo in the 90's breaking out again..
[1] http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/weor...
Better yet, withdraw your 401K altogether. Take control of your money in this 'interesting' times.
Buying a few thousand $ worth at a penny wouldn't have been a bad trade.
http://finance.yahoo.com/q?s=ACN
EDIT: Such as trade would most likely be cancelled though.
http://www.xe.com/ucc/convert.cgi?Amount=1&From=EUR&...
This is some serious load...
In this case, essentially every person that had a "stop loss" order was just hunted down by a wave of HFT programs and all those stop loss orders were triggered, which send "market orders" which means, fill my order at the current market price.
When everyone does this at the same time, there are more sellers than buyers so prices drop dramatically. However, this presents an opportunity for HFT programs especially when they have similar strategies, meaning they all are doing the same thing, pushing the market in the same direction. Now, the HFT programs forced people to get stopped out, then they bid the market up and buy, which pushes it right back to the prior level.
Take a look at AAPL, RIMM, GOOG, SPY, etc. and you'll see it is all the same pattern.
HFT computers identify "direct arbitrage," and make a profit off of someone else's loss.
http://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2009-47
CNBC: Trading Error at Major Firm Blamed for Market Plunge: Sources (Story Developing)
CNBC does NOT know what the cause of this was. The exchanges will come out with some "computer glitch" story or the "fat finger" excuse, but neither of those are true. FWIW, the fat finger excuse is, in a nutshell, some trader accidentally pressing the wrong button on the trading desk.
The market was at a technical support level with various moving averages, timelines, etc. all coming into play. Many people had/have stop losses because the market was/is looking due for a correction. Algo/HFT pounced on this, collectively, and thus the massive drop.
Trust me, if you are buying into what CNBC tells you, you are really missing the truth...
http://www.cnbc.com/id/36998463
That sounds hard for me to believe, but thats one rumor. That wouldn't account for the 10% drop but it might have put initiated the drop and then caused other people (and computers) to panic and sell.
[Edit] Actually the stock was down at $39.37 from $61. On normal days PG barely moves at all.
Welcome to the world of positive feedback loops, enjoy your stay.
It probably should.
It's really surprising, assuming this is really the cause, that a single letter typo could have such an effect and this has 1) never happened before and 2) not been caught in testing.
I will tell you what though - someone... someone, made a lot of money from this. Inadvertently, but more than likely otherwise.
http://news.bbc.co.uk/2/hi/business/4512962.stm
In the above case the trader got the price and number of share fields confused.
I have actually worked on such software. When a price comes in - a quote - you have a fixed amount of time to respond before it goes stale, usually a few seconds. It's assumed you know what you're doing and that you want to move quickly. Same as operating any other high-powered machinery.
I remember a feature request from a client of ours, we had keyboard shortcuts of k for thousand, m for million and b for billion. They wanted t as well.
Would this rumor create insane profits for some? If that is so, those getting the profits should be investigated. Some employee could have been promissed a large sum in a off-shore account to enter a 'b' instead of an 'm'. It should look like an 'oops' to everyone else while a bunch of HFT algorithms could rake in serious profits as everyone's stop-loss triggers get hit. The employee might get fired, but he the pay-off was large enough, he might not need to work ever again.
One of the reasons the forex markets are MUCH more difficult to manipulate is that you have $3.5 trillion traded daily. Not sure who can simply move that market. Equities on the other hand, much easier....
Breaking News of cnbc.com reads:
Trading Error at Major Firm Blamed for Market Plunge: Sources (Story Developing)
(I don't buy it. CNBC is propaganda.)
I call B$ on this.
Fast traders don't click on icons and enter values, they enter an entire trade on one line.
Buy 1000 shares of Apple computer at 250.05 might be entered as:
buy1000aapl250.05
However I find it extremely foolhardy that mistyping one character has an impact one thousand times greater, and that such an action can be performed without some kind of validation (whether explicitly via a confirmation, or implicitly in how the UX is designed).
Then again it is probably because of the typo risk that bankers get paid so much ...
I once deleted all my source code instead of backing it up to my floppy by doing "del ." while command.com was in wrong drive. (Should have done "del a:\."; two letters cost me a night of running an undelete program)
Maybe you should have had an example not contrary to what you said.
Text based systems: FBSI, SIS
GUI based systems (when not pointing and clicking): Patsystems JTrader<A>, Trading Technologies' XTrader<A>
<A> These are systems I have used for personal use but not at work
(...) on December 8, 2005 in which a Mizuho dealer mistakenly sold 610,000 shares in J-Com, a recruitment business, at 1 yen instead of selling 1 share at 610,000 yen.
The dealer, understood to be a 24-year old woman, immediately realised the mistake but was unable to cancel the trade because of a technical glitch in the exchange's trading system. Mizuho was forced to buy back the shares, leaving it with a 40.7 billion yen loss, prompting the firm to cancel year-end bonuses for all staff in the trading unit.
Note in Japan executed trades cannot be canceled (though in this case the trader was supposed to be able to cancel the orders before they were executed). Many brokers made a big profit. Some institutional investors too. One particular day trader became quite rich and to this day is a sort of legend on internet trading boards.
Interactive brokers has an API for their software. It's fairly easy to use.
http://interactivebrokers.com/en/p.php?f=programInterface...
They say it right on the web page and I'll repeat it here: Try it with paper trading first! Bugs in these kinds of algorithms are costly.
Just don't expect hand holding. You're supposed to be an experienced trader to even sign up with them (for a few products, like options, you have to pass a ridiculously easy test to trade them), and they won't save you from yourself - they'll happily let you buy 500k Euros with only $20k in your account, so be warned: if you'd made that mistake today, you'd be flat broke right now, though IIRC they do close out positions for you so at least you shouldn't end up too far in the red once your account is dunzo...
...which, to reiterate fnid2's point, it will be, unless you make sure to paper trade your damn code first! I'd also suggest that until you're really sure it's working, you never ever EVER leave it running unless you're watching it like a hawk. And code yourself a big bright red "PANIC" button that closes all your positions and shuts everything down, because you're going to end up in a situation some day where things go wonky and you just want to get out, but you'll have a dozen open positions and you don't want to have to click around to close them all.
Also, it's always a good idea to put in "everything's gone to hell" stops and place orders that time-out, even if your strategy doesn't require them (algo strategies don't typically use actual stop orders for exits): you never know when your connection might die, and you really don't want to end up stuck with nasty positions that you don't even have any way to track or close out b/c your cable went out...the positions that you hold when doing algo stuff can on occasion end up frighteningly large, which is only acceptable if you're holding them for very short period of time.
Trading Error at Major Firm Blamed for Market Plunge: Sources (Story Developing)