Business and economic commentary
Earlier this month on May 6th – the U. S. stock market, as measured
by the Dow Jones Industrial Average, had one of its most turbulent days
in history falling to a loss of almost 1,000 points with the market’s
plunge coming less than 90 minutes before the end of trading. The Dow’s
drop was its largest loss ever during the course of a trading day. It
did recover, though, to close out the day with a loss of only 347
points.
While any number of investigatory teams led by the SEC, NYSE, and
Nasdaq are trying to determine the exact cause of this dramatic
90-minute drop, conventional wisdom pundits are suggesting that this
steep plunge was caused by: investor fears that the financial crisis in
Greece could spread its damage around the globe; computerized trading
programs that can tend to “feed” off each other; and/or more specific
reports that the sudden drop was caused by a trader in a NYSE-member
firm who mistyped an order to sell the wrong quantity of a large block
of a major Dow stock. The drop in that stock’s price was then deemed
to be more than sufficient enough to trigger “sell” orders across the
broader market.
One “expert,” Jack Ablin, who is the chief investment officer at
Harris Private Bank in Chicago, said, “I’ve been watching the markets
since 1982 and, believe me; I froze at the screen in ’87 at the last
financial crisis.” He added, “But today … caused me to fall out of
my chair at one point. It felt like we lost control.”
Since the advent of such computerized trading programs, many “experts”
have been suggesting for some time now that something like a firewall
may clearly be needed to ensure that things such as computerized
“glitches” of the May 6 magnitude wouldn’t happen again. Should the
investigators find a hapless individual who may have typed in a “b.”
rather than an “m,” when he or she transmitted that sell order, in
addition to firing that person, while putting in place certain
safeguards to ensure as much as possible that a human error of that
magnitude might not happen again, I’m not so sure that the will is
there to build such other safeguards into those computerized trading
programs now being used. Time will tell.
Paul Rendine is a financial advisor with over 30 years of experience in
that industry. He can be contacted at his e-mail address at
quoteman3@aol.com with any comments or questions.