Is Greece triggering the double-dip? Yesterday’s several-hundred point dive in the stock markets globally was said to be the result of a “fat finger” typo – someone, a really big trader (eg., Citibank), typed in 15 “billion” of futures contracts instead of 15 “million” somewhere.
And is this the new kamikaze capitalism – where you don’t care how good an investment is if you can just bet on it defaulting or collapsing? Is there no longer any incentive to do the research on credit quality, etc.? No doubt, many traders made huge profits yesterday with short positions they had on the market.
Analysing the May 6, 2010 Market Drop
A near 1,000 point drop within minutes – was probably not caused by Greece directly. Two key theories have been put forward:
(1) The Fat Finger theory – as mentioned above.
(2) Bandwidth blockages (or is it “whiteouts”?) – the also plausible suggestion that a significant amount of bandwidth was used up somewhere and a bunch of electronic traders pulled their orders, causing gaps in bid-ask relationships, which removed liquidity and caused everything to drop.
So much for efficient markets, right? This might be what we can expect going forward from algorithmic computer trading that shuffles millions of dollars between hands and back again within microseconds – all according to pre-programmed trades.
What seems clear is that this was an unusual one-day blip and probably an excuse for a bunch of profit-taking since the markets have had a 6-week run-up to this point anyway. Will it reverse the trend, however? Is the uptrend coming to an end?
Contagion Fears and UK Elections
There are a few “fear factors” that might be technical triggers or sell signals in near-term markets, which, if coordinated, would obviously trigger further significant drops.
Contagion fears about Greece’s debt situation somehow spreading to Spain, for example, even though Spain’s ability to pay its debts is decidedly much more solid – and potentially weak UK election results (a hung parliament, for example) are causing some analysts to worry.
Continued riots in Greece – setting banks on fire, for example – will not help thwart economic contraction in the face of a new austerity plan. Social unrest looks set to continue, ironically making the US look like a house built out of concrete again.
Today was probably a good buying opportunity; tomorrow will be, too. I’d buy Euros, European dividend stocks, and keep some cash out for further buying opportunities at home. With the dividends you receive, I’d pay off debt and diversify the risk you took. I don’t think the Eurozone situation is as bad as it appears through market eyes – I think the markets are looking for a nice distraction and diversion from the stimulus petering out in the U.S.
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