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.
One reader thinks Greece is the End of Fiat Currency
Analysing the May 6, 2010 Market Drop
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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?
Problems that Could Still Cause a Second Market Crash in 2010-2011
Contagion Fears and UK Elections
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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.
Gold is shiny again: is it time to take another look?
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{ 4 comments }
It really is crazy that a country as small as Greece could have suck a significant impact on world markets. I didn’t see this coming at all. I figured we were set for a pullback, but figured it on bad US news…not a small EU country.
Oh well, live and learn.
I’m interested to see what the market does over the next two weeks. That will tell the real story.
Call me crazy, but I haven’t really believed anyone whose said that the economy is doing better lately. The stock market being higher (or lower) doesn’t necessarily tell us about the health of one nation’s economy or of the global economy, after all.
And I don’t see Greece as a small and unimportant country really. Not too long ago, the Germans seemed to not want to bail it out. What would that have said for the Euro zone? Highly destabilizing if you ask me.
Good points you two… I agree, I don’t think small is unimportant (although it is significant that they are this concerned about 2.9% of the Eurozone economy). They care about Greece because of the symbolic value it has. THey’re stuck between a rock and a hard place, because:
(1) If they bail Greece out and the other “PIGS” get worse, markets will expect bailouts there, too.
(2) If they don’t “spare the rod,” and the other “PIGS” get worse, markets will worry that they won’t bail the others out. Thus even if they think they should save their money for Portugal, markets will already start pricing in fear that they won’t – and – big and – the economies of Spain and Italy are MUCH MUCH bigger than Greece, so whatever happens there will require more funds, have more consequences.
@MoneyEnergy
Well, Today’s market action and announcements proved that you were spot on! Talk about a bailout, you know!!!
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