Trading Error My Ass: The Mother Of All Dead Cat Bounces

A little after 2 PM this afternoon in New York, the stock market completely crashed and the Dow was down nearly one thousand points for a couple of agonizing seconds.  At 4 PM, the market closed down around 4% for the day, the Dow being off 348 points.  CNBC says it was...a trading error.

In one of the most dizzying half-hours in stock market history, the Dow plunged nearly 1,000 points on worries about the spreading European debt crisis before paring those losses in an equally rapid rebound.

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

Oh suuuuure it was.  Gold hitting $1,200, the Euro falling at about a buck and quarter per and of course Greek Fire had nothing to do with it.  It was all a mistake, ladies and gentlemen.  Dow drops about 1,000 points, then jackknifes UP 700.

The fundamentals of our economy are strong!

The apparent trigger for the massive selloff, which began shortly after 2 pm ET, was the approval of austerity measures by the Greek Parliament, which sparked renewed rioting in Athens. 

"There is simply a growing recognition that Greece has got to default," banking analyst Dick Bove told CNBC.com. "The riots in the streets showed the decision to repay the debt was not going to be made by the people in Germany, France and Switzerland—it's going to be made by people in Greece and they're not going to repay it."

You think?   Hell, Zero Hedge is down hard right now.  ironically Roubini.com reposted ZH's warning from John Taylor that the Euro was toast.

Europe is dead. The European nations are the victors, and the way ahead will be one hell of a mess. Without taxing and borrowing power, there is no way to square the inter-euro trade balances between the countries except ‘internal devaluation,’ which means years of deflation and poverty for the voters – and protestors – of the deficit countries. Our pencil pushers and Excel experts have made lots of projections on the Greek situation and can find almost no possibility of success. The EU/IMF team projects Greek debt at 149% of GDP when this rescue ends, but their nominal GDP estimates are incredibly optimistic when salaries and jobs are cut dramatically. We see a 20% decline over the three years as a good outcome, the debt would stay the same, and the ratio goes to 186% of GDP. Almost like Japan, but foreigners own the Greek debt – no way! This rescue reminds us of Bob Rubin’s rescue of Russia in July 1998, which lasted about one month before the whole house of cards collapsed. We knew that one couldn’t work, and this one can’t either. It might take longer, but the euro is finished. 

Goodbye euro, hello drachma, peseta, lira, and the others. The world had hoped for more, none more than the Europeans themselves, but now we are all left to pick up the pieces.

Scary, scary ass day, folks.  I'm betting that the plunge Protection Team stepped in as soon as this meltdown became apparent and made some BUY phone calls to some big, big people.  They came through, erasing two-thirds of today's burnoff.  it won't last real long.  For a brief couple of moments the whole world saw everyone else's poker hand and the game just about ended.

It's October 2008 all over again.  If you believe this trading error nonsense, you deserve what's coming.

Tomorrow is going to be real, real interesting.  The real story of what happened today from 2 PM to 4 PM on Wall Street is going to make a hell of a story for somebody in the business.  Been a while since I've gotten to drag out the Dead Cat Bounce tag, and there we are.

[UPDATE] CalcRisk's take:

There are two rumors: The first is that there was a trading error (fat finger of a E-mini SP future order), the second is that Euro banks are having a liquidity problem of some sort. Neither is confirmed.

I'm leaning towards two myself. Felix Salmon is leaning towards one.

It’s been a very impressive day to learn how the stock-market sausage is made: I think we just saw the largest intraday fall, in point terms, that has ever happened. But the bigger lesson is that in the short term, any market can fail temporarily. The question is whether the jitters from this afternoon are going to mean increased volatility and risk aversion going forwards. My feeling is that, yes, they both will and should.

We'll see what happens going forward.