Friday, May 07, 2010

Wall Street: WTF?

Yesterday's 15-minute cliff-dive of the stock markets sent a visible shiver through the financial houses. The rest of us won't be long in catching cold.

It's not clear to me whether the massive sell order which triggered the plunge was a human mistake or an intentional "mistake" from a panicky hedge fund, but the automated sell programs weren't waiting around to find out before pulling their own triggers. Fortunately, there were also a few programs around to snoop out buying opportunities at the moment--otherwise the fall could have continued, unarrested, and we'd be talking about "Black Thursday" forever more.

Clearly, there are more financial "weapons of mass destruction" than just derivatives and collateralized debt obligations. This episode reminded me of a couple of movies, in particular "Fail-Safe" and my all-time favorite, "Dr. Strangelove."

One can be sure that if the fall had not been corrected, it would be the retail investors, and not the big computerized trading firms, which would have had the naked positions, the stop-loss orders coming in about 15 minutes and $20/share late. This massive snafu will justifiably chill out those small-time, squeamish operators who can't afford to lose a million or two, like you and me.

Not that I'm pulling out my money now, since the real correction--driven by real corrective forces of weakness and fear--is in full erasure mode. If you're not in cash already, you're late.

As for gold, it's overpriced and, at the same time, much in demand. Justifiably so.


Jim said...

Yes, Gold is over priced, yet what alternative is there? Trust the government not to create more dollars to reduce an overwhelming debt? Trust the stock market, which just showed how safe and reliable it isn't? Gold and other commodities seem to be the only assets that have historical proof of their value holding power over the long term and it times of near financial uncertainty.

Chin Shih Tang said...

Sure, gold makes sense with all the anxiety right now, but it could snap back downward if the current crises calm down (then its high price will become evident).

Perhaps "other commodities", as you say--oil can only go up, I think, though it is tangled with the relative value of the dollar--and natural gas would seem to have multiple attractive characteristics, if one can figure out a good way to play it.