finance

Stock Crash

This is what the stock market looked like at 2pm today.

From the Reuter’s article,

The Dow suffered its biggest ever intraday point drop, which may have been caused by an erroneous trade entered by a person at a big Wall Street bank, multiple market sources said.

and the suspected cause? A UI Glitch!

In one of the most dizzying half-hours in stock market history, the Dow plunged nearly 1,000 points before paring those losses—all apparently due to a trader error.

According to multiple sources, a trader entered a “b” for billion instead of an “m” for million in a trade possibly involving Procter & Gamble [ PG 60.75 -1.41 (-2.27%) ], a component in the Dow. (CNBC’s Jim Cramer noted suspicious price movement in P&G stock on air during the height of the market selloff. Watch.)

Sources tell CNBC the erroneous trade may have been made at Citigroup [ C 4.04 -0.14 (-3.35%) ].

“We, along with the rest of the financial industry, are investigating to find the source of today’s market volatility,” Citigroup said in a statement. “At this point we have no evidence that Citi was involved in any erroneous transaction.”

According to a person familiar with the probe, one focus is on futures contracts tied to the Standard & Poor’s 500 stock index, known as E-mini S&P 500 futures, and in particular a two-minute window in which 16 billion of the futures were sold.

Citigroup’s total E-mini volume for the entire day was only 9 billion, suggesting that the origin of the trades was elsewhere, according to someone close to Citigroup’s own probe of the situation. The E-minis trade on the CME.

On the Dubai financial crisis

.. a poem by Shelley comes to mind.


I met a traveller from an antique land
Who said: “Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shattered visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed.
And on the pedestal these words appear:
`My name is Ozymandias, King of Kings:
Look on my works, ye mighty, and despair!’
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away”.

With prescient élan, the mention of the ‘trunkless legs of stone’ evokes the image of a forlorn tower of stone, much like the increasingly disrupted and abandoned, formerly high profile construction projects in Dubai. A shattered visage of the Bedouin of old, with a sneer on his wrinkled lips and the lone sands that stretch far away – complete the image of recklessness and decay, that now emanates from a city that strived to be a jewel in the crown of the middle east.

Will it ever recover?

From FT: Asia keeps the west’s betrayed faith

http://www.ft.com/cms/s/0/5cfd7324-762b-11de-9e59-00144feabdc0.html

Interesting analysis on how Asia has faith in western economic theories, but none in their management practices.

Moreover, we’re improving trade with all kinds of FTAs being signed between ASEAN and other asian countries – whereas the US Congress has actually let a number of intra-americas FTAs die.

I just hope that the emulation of the west that is fast becoming the norm in Asia stays limited to the better aspects of society rather than the deplorable ones.

Be nice to the countries that lend you money!

A quote from Gao Xiqing, the man who runs the China investment corporation (and manages $200 Billion in funds for their sovereign fund). Here’s something I came across in the Atlantic monthly – his explanation of the financial derivatives debacle..

If you look at every one of these [derivative] products, they make sense. But in aggregate, they are bullshit. They are crap. They serve to cheat people.

I was predicting this many years ago. In 1999 or 2000, I gave a talk to the State Council [China’s main ruling body], with Premier Zhu Rongji. They wanted me to explain about capital markets and how they worked. These were all ministers and mostly not from a financial background. So I wondered, How do I explain derivatives?, and I used the model of mirrors.

First of all, you have this book to sell. [He picks up a leather-bound book.] This is worth something, because of all the labor and so on you put in it. But then someone says, “I don’t have to sell the book itself! I have a mirror, and I can sell the mirror image of the book!” Okay. That’s a stock certificate. And then someone else says, “I have another mirror—I can sell a mirror image of that mirror.” Derivatives. That’s fine too, for a while. Then you have 10,000 mirrors, and the image is almost perfect. People start to believe that these mirrors are almost the real thing. But at some point, the image is interrupted. And all the rest will go.

When I told the State Council about the mirrors, they all started laughing. “How can you sell a mirror image! Won’t there be distortion?” But this is what happened with the American economy, and it will be a long and painful process to come down.

Well explained indeed. I’ve always felt that the measure of how smart someone really is stems from the lucidity of their explanations of a complex topic to an uninformed audience.