Thursday, May 6, 2010

Land of 1010 Dances

I spent most of the morning in the car listening to the radio, and all anyone wanted to talk about was illegal aliens. Shut off the radio at around 11 AM. One hour later, the internets were screaming about a 1000-point drop in the Dow. Even if I wanted to sell into that, it happened so fast there was no time: Dow Takes a Harrowing 1010 Point Journey

A bad day in the financial markets was made worse by an apparent trading glitch, leaving traders and investors nervous and scratching their heads over how a mistake could send the Dow Jones Industrial Average into a 1,000-point tailspin.

At its afternoon low, the Dow had plummeted 998.50 points, its biggest intraday point drop ever. The swing from its intraday high was 1,010.14 points.

The Dow eventually rebounded to close down 347.80 points, or 3.2%, at 10520.32, its worst percentage decline since April 2009. Stocks from Dow components Procter & Gamble and 3Msuffered precipitous declines. At one point shares of P&G tumbled 37%.

Everyone's blaming this on some sort of computer glitch leading to cascading sell orders from the dreaded High Frequency Traders, but lets not kid ourselves. For all the talk of a nascent recovery in the US (and things do feel a little more prosperous, at least in SF), there is still a lot of uncertainty out there, almost all of it directed not at banks, but at nations:

All this fogginess about botched trades came as the market was already on edge about Greece and the European debt crisis.

Just before the panic started, which was around 2:30pm ET, Mohamed El-Erian said on CNBC that the Greek crisis is about to spread.

"We've seen a crisis start in a country—Greece—become regional, impact the whole of the Euro zone and is on the verge of truly going global," said El-Erian, CEO of the world's biggest bond fund.

Rochdale analyst Dick Bove said the riots in Greece, which escalated after theGreek austerity bill was passed, are also a telling sign.

"There is simply a growing recognition that Greece has got to default, said Rochdale banking analyst Dick Bove. "The riots in the streets showed the decision to repay the debt was not going to be made by the people in Germany, France and Switzerland, it's going to be made by people in Greece and they're not going to repay it," he said. "Anyone seeing the riots is going to recognize that this government is going to be thrown out and anything replacing this government is going to be far more leftist leaning and they're going to repudiate."

The developed world is living through a crisis of Big Government, as nation-states as varied as Greece, Britain, Japan, Spain, California, and the US grapple with unsustainable public expenditures made worse by political climates that have been paralyzed into inaction. The violent riots in Greece are a warning that the Left will not hesitate to protect its prerogatives. The (typically) muddled election results in Britain, which might result in Gordon Brown remaining in office as Prime Minister (!), indicate that no one will have a mandate to make serious efforts at scaling back government until there is absolutely no other alternative. And, the continued spending in California (high speed rail!) and the US (Obamacare) show that some politicians simply can't imagine a world where they can't appropriate billions of dollars for ephemeral gains. Appropriately, our normally loquacious President was strikingly quiet this afternoon. There's no emergency if the president isn't involved, right?

The Little Depression lurks, for now...

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