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Todd Harrison
May 7, 2010, 11:25 a.m. EDT · Recommend (6) · Post:
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Will Europe order a code red?
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Washington Post earnings show pockets of strength
By Todd Harrison
NEW YORK (MarketWatch) -- The market swooned almost 1,000 points intraday yesterday and the world is wondering why.
The explanation initially offered in the mainstream media was that it was a "fat finger," which is trader's lingo for someone pushing the wrong button. "Somebody pressed a "B" instead of an "M", they said at the time. That's silly, really; orders don't trade that way.
Panic, guessing, post-rationalization, conjecture... does the noise wear on anyone else?
From my perch, I'll offer a few scenarios that may have played a hand in the 1,000-point Scary Mary and why, at the end of the day, none of them matter. Take it for what it's worth, which is one guy's humble opinion.
As discussed yesterday morning in Minyanville -- and posited the day before in real-time on the Buzz & Banter -- there was the overseas faux pas. The underlying bid Wednesday was pinned to hopes that the European Central Bank would be proactive -- if we can still call it that -- in getting in front of the percolating European contagion.
When ECB President Jean-Claude Trichet shrugged his shoulders as if to say "What, me worry?" the floodgates opened. Read Minyanville's "ECB Tries to Avoid a Sovereign Debt Contagion."
We've seen this movie before and it doesn't end well.
Adding to the stress in the system is the potential unwind of the carry trade. We flagged this dynamic a while back and dove a bit deeper into it earlier this week. Read Minyanville's "Will Europe Order a Code Red?"
Hearken back to autumn, when we talked about The Other Side of the Dollar. When I scribed that vibe on Nov. 18, the dollar index /quotes/comstock/11j!i:dxy0 (DXY 84.47, -0.43, -0.50%) was trading at 75. Today, it's trading at 85. That's a 13% move, which is huge for currencies in such a short span, particularly given the leverage in the system and the derivatives intertwined throughout the world. Read Minyanville's "The Other Side of the Dollar."
Stocks plunge again as Investors continue to focus on European credit problems, mostly over-look encouraging labor data, reports Barrons.com's Bob O'Brien.
Regardless of your directional bias -- which is for you and you alone to decide -- please understand the sheer magnitude of the forces in play and the extreme nature of the cumulative excess. Perhaps technology is partially to blame -- the boom and bust cycles have seemingly sped up this past decade -- but don't for a moment discount the pressure that's built under the seemingly calm financial surface, including the last 13 months.
Once upon a time, during that fateful day when Martial Law was declared for the markets, we wrote that it's never wise to mess with Mother Nature. And I quote:
"Price discovery works both ways and just as the market wrestled with risk gone awry, it must now digest the unintended consequences of this latest government action.
"This is a new world, folks. Day one. The dawn of a new era and something none of us have ever seen. The system was broken and rather than let it fix itself through time and price, history has forever been artificially altered. It is, in many ways, uniquely sad.
The Washington Post Co.'s announcement this week, that it was exploring a sale of Newsweek, should send tremors through the corporation's flagship property.
10:51 a.m. Today10:51 a.m. May 7, 2010 | Comments: 3
- TheElder | 10:28 a.m. Today10:28 a.m. May 7, 2010
"Too small to risk, Commentary: We need better defense against environmental disaster http://bit.ly/cV9Oxy" 11:18 a.m. EDT, May 7, 2010 from MarketWatch
"European stocks close out worst week in 18 months http://on.mktw.net/aV1iAd" 10:40 a.m. EDT, May 7, 2010 from MarketWatch
"Friday-morning losses put major U.S. stock indexes in the red for 2010 http://on.mktw.net/b3SuEh" 9:46 a.m. EDT, May 7, 2010 from MarketWatch
"U.S. stocks' decline accelerates; Dow industrials down more than 200 points http://on.mktw.net/ai7PPw" 9:36 a.m. EDT, May 7, 2010 from MarketWatch
"House panel to convene hearing on Thursday's stock-market plunge http://on.mktw.net/cdTTzV" 9:14 a.m. EDT, May 7, 2010 from MarketWatch
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