I was all alone in an exercise room yesterday afternoon and blissfully unaware of the rest of the world until I moved to the bicycle machine and flipped on the TV to relieve the tedium of that little chore. That's how I happened to witness a little bit of history as I watched the stock market melt down before my eyes.
500 down. 600 down. 700 down. Megan Kelly and company started trying to figure out when the automatic shutdown would kick in.
800 down. I could feel the panic emanating from the TV and I didn't even have a mile in on the bike machine.
900 down.
As it approached 1000 down I stopped and just stared in wonder at the train wreck. Suddenly, the number started reversing and in just minutes the Dow had recovered more than 500 points. What the hell?
This morning I'm reading all sorts of theories about what happened, but this strikes me as the most plausible:
This was not humans - it was pure computer algorithm trading. If you had stops set, you got blown out way below any reasonable trading range with no recourse. Margin requirements were raised instantly on futures which sure didn't help.
This was essentially the 1987 program-trading crash powered by the fastest CPUs money can buy, and points out that these systems do not have social utility and at times like this they are unbelievably destructive.
The banks and others who have argued for innovation have just proved once again that their brand of "innovation" means that the average investor gets bent over the table. You cannot, as an investor, be in the market until these outrageous practices are permanently barred from the exchanges.
I was on the right side of the destruction today, but I could have very easily been on the wrong side and gotten badly hurt. As it stands I'm quite certain there were tens of thousands of individual traders who went so far into negative equity in the futures market and got immediately liquidated that we will be hearing of blown up accounts and bankrupted traders for weeks if not months.
So how many people did get wiped out yesterday? How many 401Ks were devastated? Who made out like a bandit?
I am not a sophisticated stock market guy and am not directly in the market, so I can't offer anything definitive one way or the other. My gut tells me that a lot of people, a huge number of people, got a massive screwing yesterday, deliberately or not, and we're only going to start hearing about it in the coming weeks. And we didn't even get a kiss.
How many people were wiped out yesterday? I'm talking about those who in an instant had their positions called and were closed out or automatically traded at a loss. The recovery didn't help them, nor will any future recovery. They were simply stomped on and crushed. How many business plans died yesterday? How many planned or existing jobs just disappeared?
And so who won? Who made out like a bandit yesterday? Because, you know, I'm just guessing that those guys are the bandits.
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