It Was A Fat Finger Alright! ~ The Risk Averse Alert

Thursday, May 06, 2010

It Was A Fat Finger Alright!

Fat FingerThe "equity is dead money" thesis took a giant leap forward today when, according to reports, Proctor & Gamble and 3M — mega-heavyweights — were thrown into dizzying tailspins shortly after 2:00 p.m.

No doubt, a dire message was delivered via these two pillars of corporate America. The measure of wealth destruction on the horizon apparently borders on the unimaginable.

In response to Jim Cramer rhetorically asking, "Is there anything more solid than Proctor & Gamble?," the best answer might be, "Yes, the weight of bankruptcy presently sinking the global financial system like a pair of cement shoes."

One of the more insightful observations on today's extraordinary activity was provided by NYSE Euronext CEO, Duncan Niederauer...

There's just one glaring problem with Niederauer's point of view. Volume went through the roof today. How could some small trade in Proctor & Gamble whose fill was being automatically delayed on the NYSE have precipitated a market-wide crash?

It appears some blame for today's meltdown is being assigned to "high frequency trading." This apparently is a cousin to 1987's "program trading" which was faulted for causing the crash of October 19, 1987. However, like then, blaming "high frequency trading" probably is a case of citing a symptom rather the cause.

SPX 1-min

Will you look at that. Talk about a dislocation! The bid today completely evaporated.

This kind of thing easily could have happened anytime over the past year. Its likelihood had been well-telegraphed by persistently shrinking volume over the course of the market's counter-trend rally off March '09 bottom. It was only a matter of time before the bear reappeared with a voracious appetite for capital to fill the void of real wealth being generated by the global economy.

Today's action reminded me of NASDAQ trading on April 4, 2000. That day NASDAQ had been down as much as 13% before recovering into the close to finish down around 3%. Seeing this sort of thing hitting the NYSE truly is ominous. Hindsight reveals such an exchange-wide, volatility whipsaw is the stuff of a major top with much, much more selling yet to come.

Chances are days like today will happen again and again over weeks and months ahead. Indeed, judging by today's dislocation this upcoming Memorial Day might be the first commemorating those killed on the battlefield of global equity markets.

It was in tongue-in-cheek fashion earlier this week that I suggested levels last seen in March '09 might be reached by week's end. Now, however, I am inclined to ponder the risk of a global financial meltdown leading to an indefinite shutdown of the world's stock exchanges. This prospect might make cash in the mattress fashionable once again, as it was in the 1930s...

Fast Money
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