As the financial crisis began to spin out of control late in 2008, we occasionally had the feeling that the speed at which markets can be accessed was contributing factor. In the computerized trading era, people (and firms) can act quickly and, arguably, impulsively in a way that wasn't possible 20 or 30 years go. Long gone are the days where executing a stock or commodity transaction required the involvement of a broker at a desk who would then call a broker on a trading floor. Gone, in other words, are the human circuit breakers. Our sense: at any given time, we could trade ourselves into oblivion.
Those feelings were reawakened today when seeing US equity markets implode in a 20 minute span -- a downward move of more than 500 points. Within an hour, that ground had been regained. The talking heads on CNBC almost immediately began to speculate that some sort of an error was responsible. Nothing else, it seems, would explain some of the movement (more than a few stocks traded to near zero during the swoon). There was talk about a "fat finger" error -- perhaps some poor soul typing in sell billions in stock value rather than millions. Alternatively, various commentators thought it was possible that an algorithmic/black box type trade went awry -- that an uptick in something here created massive selling there. In any case, there is going to be a lot of talk in the coming days about somehow slowing down the trade execution process. (What kind of speed are we talking about? Legendary fund manager Mark Fisher, in a rare appearance on CNBC's Fast Money, said that in the time it takes someone to "tap your desk" electronic trading systems can initiate 10,000 discrete orders...)
Meanwhile, as everyone sifts through the carnage, the Euro endured another day of ritualistic abuse. Today's low was just over 1.25 versus the US Dollar -- a level not seen since last Spring. In a week, the Euro has lost more than 4% of its value....likely creating some upheaval in the valuation of US dairy commodities in the world markets.
