Fat Fingered It

Yves Smith doesn't buy the fat-fingered excuse either for yesterday's mini market meltdown.

We’ll know in due course, now that an investigation is underway, why the equity markets in the US went into complete freefall for about twenty minutes, with the Dow dropping 998 points. Per Bloomberg:

Larry Leibowitz, chief operating officer of NYSE Euronext, said trades sent to electronic networks fueled the drop. While the first half of the Dow Jones Industrial Average’s 998.5-point plunge probably reflected normal trading, the decline snowballed as orders went to venues lacking liquidity to match them, he said

Yves here. Um, he seems to be saying there were more sellers than buyers, which we already knew. The idea that a fat-fingered trade out of Citi was the cause has been denied by the bank. The downdraft did have the look of a monster sell order, but the more credible explanation is that it was either a sudden rise in yen or the euro hitting the magic number 1.225 to the dollar that set off algorithmic traders. And enough of them look to similar indicators and technical levels that it isn’t hard to see this as the son of program trading, mindless computer-driven selling when the right triggers are hit.

But another side effect of today’s equity market gyrations is further distrust in the markets, particularly by retail buyers. I am told that various retail trading platforms were simply not operating during the acute downdraft and rebound. I couldn’t access hoi polloi Bloomberg news or data pages then either. The idea that the pros could trade (even if a lot of those trades are cancelled) while the little guy was shut out reinforces the perception that the markets are treacherous and the odds are stacked in favor of the big players (even though we all understand that, it isn’t supposed to be this blatant).

But the bigger issue, despite the stomach-knot-inducing drop in equities, is the wild gyrations across pretty much all markets. The credit markets were is disarray BEFORE equities took their cliff dive. Japan has pumped $21 billion of emergency liquidity into the market overnight, its biggest operation since 2008.

Not only is the emperor not wearing clothes, he's not not wearing skin, either.  Obligatory sports analogy time:  It's late in the second half, your fav college basketball team is running out of time and is forced to foul, and the other guys are working the clock and the refs.  It's the point where the announcers start talking about things other than the game, because the game's basically over.  There's nothing you can do but to watch your team grind their way to a painful loss.

We're at that point again now.  Dow was down 250 this morning, down 100 plus now.  The fundamentals were always this bad, they've been this bad since 2008.  People have deluded themselves.  Yesterday showed a peek behind the curtain into the abyss.

And now everyone's properly scared again.

They should be.  I am.  The entire Obama Boom has in fact been a Dead Cat Bounce of epic proportions.  And we're on the way back down.  Way way back down.