Big Picture: Closer look at Dow plunge

The Big Picture takes, "A Closer Look at the 1,000 Dow Plunge":

"I was at 30,000 feet when the crash hit on Thursday. When I landed in NY and saw what happened, the first thought was trader error. But the evidence for that remains lacking.

I spent a good part of the weekend trying to track down evidence that it was HFT, or a fat thumb, or a NYSE erroneous trade halt.To date, the best analysis I’ve seen came from a young analyst on an institutional desk. His forensic approach to piecing together what occurred is the best explanation I have come upon:"

We'll be taking a close look at this post, which ties the action in the US stock market together with the volume and selling patterns in the index futures and currency markets. As many of the more experienced market watchers suspected, there is much more to last Thursday's story than a random "fat finger" error-driven decline.

Thanks to Bear Mountain Bull for sharing this post from Barry Ritholtz' blog with us.

Are circuit breakers a plunge panacea?

If you were checking in with us on Twitter over the weekend, you probably noticed our search for answers regarding the May 6 market plunge.

Some of our pals were quick to offer up some articles that sought to explain the 1 cent prints and canceled trades that grew out of Thursday's drop. If you'd like to find those, just search for the May 7th tweets on our page.

Today, Breaking News alerts us to this Bloomberg BusinessWeek piece on the stock exchanges seeking coordination of circuit breakers and halt of trading rules. Here's the crux of that piece:

"...Executives from six securities venues agreed on a framework for “strengthening circuit breakers and handling erroneous trades,” according to a statement from the Securities and Exchange Commission. NYSE Euronext, Nasdaq OMX Group Inc., Bats Global Markets Inc., Direct Edge Holdings LLC, International Securities Exchange Holdings Inc. and CBOE Holdings Inc. met with SEC Chairman Mary Schapiro today.

“The differences in order handling employed by U.S. markets needs significant work and must be addressed,” wrote Joe Ratterman, the chief executive officer of five-year-old alternative exchange Bats, in an e-mail before the meeting. “When acting alone, apart from each other, these differences might prove to be a big part of the very problem they are trying to handle.”

Rules to slow trading or shut markets during volatile periods may have prevented the biggest losses on May 6, when the Dow Jones Industrial Average fell 998.5 points intraday, executives from Bats, Direct Edge and White Cap Trading LLC said prior to today’s announcement..."

Even today, I'm hearing experienced market participants express frustration over the lack of any real explanation for what went wrong last Thursday. We went from a day of rumors about fat-finger trades to a gradual understanding and building narrative about trades being routed to electronic markets with a lack of bids, but I think we still have some unanswered questions and a great deal of lost trust in our capital markets right now.

What do you think caused the acceleration of last Thursday's decline? Will we find a solution to the problems of evanescent liquidity, and are more circuit breakers and exchange coordination plans the answer to these problems?

Related articles and posts:

1. Exchanges agree to market-wide circuit breakers - WSJ.com.

2. About last Thursday: more circuit breakers or fewer? - Barron's.

3. BarCap on flash crash: 'a perfect storm' - FT Alphaville.

Jim Rogers + Marc Faber talk plunge on Bloomberg

Famed contrarian investors and thinkers, Jim Rogers and Marc Faber appeared on Bloomberg TV to discuss the May 6 market drop.

Here's a little excerpt from Bloomberg's print coverage:

"Investors should consider paring their holdings after a plunge in U.S. stocks yesterday, according to Jim Rogers and Marc Faber.

Equities had a “normal correction” and were “overdue for a sell-off” after rallying from last year’s low, Rogers, Singapore-based chairman of Rogers Holdings, told Bloomberg Television today. “The market was overbought, ahead of itself and due for a correction,” Faber, publisher of the Gloom, Boom & Doom report, said in a separate interview yesterday...."

You'll find the Bloomberg TV interviews with Faber and Rogers linked within the story (scroll down to the bottom of the article or see the "video" tab at the top). Always interesting to hear from our favorite straight shooters at times like these.

1500 point Dow swing = what a day

As Aiki14 (Jim Gobetz) noted on Twitter today, we saw a 1500 point move in the Dow Jones Industrial Average during one part of the day. If that's not enough to get your attention, I don't know what will.

Here's today's Market Wrap from Bear Mountain Bull with the closing figures and some thoughts on rumors of HFT madness and a "fat-finger" futures trade on Citigroup's trading desk, which supposedly contributed to (or drove) this US market decline.

Also, FT.com has the global markets view, covering everything from the day's VIX spike to Greek riots, while Stocktwits TV will be airing a show later this evening, with Howard Lindzon and friends discussing the day's action. So check that out.

Life after Blankfein? Goldman scenarios

Wall Street Journal examines the current "what-if" scenarios surrounding Goldman Sachs and its chairman/CEO Lloyd Blankfein.

Here's an excerpt:

"Some executives and powerful alumni of Goldman Sachs Group Inc. are talking about whether Chief Executive Lloyd C. Blankfein can survive the legal and public-relations storm swirling around the company, according to people familiar with the situation.

The conversations being held among some partners, managing directors and other current and former executives are informal, and there appear to be no plans for a management shake-up.

The various hypothetical scenarios include whether Mr. Blankfein should resign, whether there should be a broader house-cleaning of top Goldman management or whether to separate the chairman and CEO posts now held by Mr. Blankfein...".

As noted in yesterday's post, Goldman & chief Blankfein are now in damage control mode, hoping to part the dark clouds that have formed as a result of the recent SEC complaint and more recent talk of a pending criminal investigation.

As a result, chatter about Blankfein's possible departure from Goldman has been building this week. While one large shareholder quoted in the Journal piece stated his fervent hope that the firm's problems would go away "in the next month or so", this outcome seems highly unlikely.

If anything, the talk about Blankfein's departure as CEO will probably grow louder over the coming weeks (for a variety of reasons). Here's my quick take from Twitter earlier:

Starting to think the play of the week was/is to go long Blankfein departure futures on InTrade (no pos.) http://bit.ly/9IKjBh $GSWed May 05 17:40:38 via webDavid Shvartsman
FinanceTrends

So, while we consider possible outcomes that seemed like distant long-shots just two weeks ago (nice call, Keith), it's important to remember (as Fitch reminds us in their latest ratings update on Goldman Sachs) that minding your reputational risk is key for companies, and "critically important" for financial firms dependent on capital markets.

Goldman, Blankfein seek damage control

If you were tuned in to Bloomberg TV this past week, you probably caught Lloyd Blankfein on the Charlie Rose Show, as I did on Sunday.

Surprised to say I sat through most of it, considering I heard others who said they couldn't make it through 15 minutes of the guy's speil. I won't rehash for you here; if you're interested, take a look at the video link above.

I will say that while I was largely unimpressed with the broad details of the SEC's case against Goldman Sachs (and the political circus that quickly surrounded it), I also got the feeling that Blankfein was, at times, making some rather spurious arguments in his PR performance at Rose's table (Charlie is a friend of Warren Buffett's and the re-runs of Blankfein's spot coinciding with Buffett's defense of Goldman and Blankfein at the Berkshire Hathaway annual shareholders' meeting are no coincidence).

For some rather frank discussion of the problems facing Goldman Sachs (and other large, money center banks), may I recommend listening to the following recent interviews with James Rickards and Bill Laggner on the Eric King broadcast (Hat tip to Controlled Greed).

As Rickards notes in his discussion with Eric King, Goldman may be facing a very real danger from the recent blows to its reputation. And as Keith McCullough at Hedgeye points out, reputational risk is not something you can fix in a New York minute.

Forbes, El-Erian, Lasry, Griffin on reform, recovery

Steve Forbes, Mohamed El-Erian, Ken Griffin, and Marc Lasry discuss and debate financial industry regulation and the economic recovery in this Milken Institute Global Conference video from Bloomberg.com.

It's not everyday that we get to see such heavy hitters of finance sharing one stage to debate the issues of the day, so this clip is a great source of insight into their thinking on these topics.

Everything from systemic risk to government involvement in our economy and lives is up for discussion here. You'll also hear some great points (and a little debate) from Griffin and Forbes on the problems we face, economically and socially, from the expansion of government's role in the economy.

Enjoy the video, and I hope you find the discussion worthwhile.