$$$The Problem With Planting Spyware. [gary-weiss.com]
$$$We Know These Wings, Will Make You Happy – Trump In [SuperMogul]
$$$Blackberry Shoot-Out (RIMM) [WallStrip]
Archive for February 2007
Specialists at certain posts on floor of the New York Stock Exchange have been told not to close up shop yet, according to NYSE CEO John Thain, who spoke moments ago to CNBC’s Maria Bartiromo and Bob Pisani. It seems that the floor trader nightmare we described last night as “the death of the God of the Closing Bell” continues.
“Well, Maria, what you saw a little bit today and also yesterday was we had record message traffic volume through our system and several of the servers experienced queues. Which means that they don’t fail but they’re a little bit slow and they build up a traffic jam of messages. And so what we wanted to do today, as we did yesterday, was let that traffic jam, that cue clear,” Thain said.
Thain played down the significance of this afternoon’s delays, emphasizing that orders could not be entered after the 4 P.M. closing bell.
“Many times when there is an order imbalance at the end, it take a few minutes for the stocks to actually come up with a closing price. And that’s really what we were doing today. There were some orders we wanted to make sure it got to the post and then we closed the price,” Thain continued.
He estimated that it would take only a few extra-minutes to complete the process, telling Maria Bartiromo that the posts should be closed by 4:15.
If he was in charge of his own graphics it probably would have read “Business As Usual” instead of what CNBC tagged him with: “Specialists Told To Keep Trading Books Open After 4:00 PM ET.”
When it rains, it pours, as they say. Yesterday we treated you to a little update on everyone’s favorite Wall Street Warrior, Tim Sykes. Today, he was good enough to offer us some insight on The Dow, Punxsutawney Phil, and his friend/housekeeper’s feelings on the scrutiny the media’s placed him—the housekeeper—under, of late.
Let’s talk about yesterday. What are your thoughts?
Who cares! Its a small percentage move in the overall scheme of things and we’ve been long overdue for a correction. Hopefully this puts back some fear into the marketplace because everybody has gotten used to stocks moving gradually higher over the past few years.
The character Dow 道 (or Tao, depending on the Romanization scheme) means “path” or “way”, but in Chinese religion and philosophy it has taken on more abstract meanings. Explain.
In Taoism, one cannot force their destiny, they must be receptive to the path laid before them. The Dow is the Tao of our country as we look to it as a guide to the overall health of our economy. While this is somewhat of a ridiculous notion since there is no way to tell exactly how long the Dow lags the economy or vice versa, it has become an overarching symbol rather than an exact indicator, much like the famous groundhog, Punxsutawney Phil.
Yesterday, everybody became very nervous very quickly because our economic groundhog saw a rather large shadow and scared everybody into believing that we are due for an economic winter. AKA recession. I believe it to be a little less than accurate than Mr. Phil.
How did the events of yesterday affect your live-in help?
My roommate is tired of getting shit on by the press that has inexplicably decided to focus on that part of my story probably because I have not done anything significant lately to warrant all this most recent round of attention. This should all change once the book that I am currently working on is published and blows the water out of people’s perception about the hedge fund industry.
P.S. My roommate has no comment [of his own] regarding yesterday’s market drop.
Do you think you’ve got what it takes to rally the Dow on pure Tim Sykes Juice (TM) alone?
No, all the juice and the Jews in the world are not enough to keep this super tanker from well, tanking. This will either be the beginning of a short drop, an extended drop, or some sideways action which would inevitably then lead to either a short drop, an extended drop, or a short pop or an extended drop. whether it is a short drop, an extended drop, or a short pop or an extended drop, that will surely lead to more sideways action before leading to either a short drop, an extended drop, or a short pop or an extended drop.
I hope you understand my sarcasm in that really anything can happen because it is overwhelmingly impossible to predict with any definitive accuracy if this is just a blip or a major change in direction for the nation’s economic Punxsutawney Phil.
Wanda or Plum?
Crazy Eyes Killa.
Earlier: Tim Sykes Has The Gargantuan Cojones To Ask His Friends To Clean His Dirty Underwear (And That’s Not Necessarily A Bad Thing)
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Posted in:
Business Media
Fool’s Errand: The Folly Of Explaining The Causes Of Market Movements
By John Carney
One of the things we avoid like the plague (and other clichés!) over here at DealBreaker headquarters is trying to explain the markets. Sure, we’ll link to an entertaining or surprising analysis. Say, like this one on Gawker from banker-turned-novelist Dana Vachon. But we don’t put much stock in the business of journalists explaining why the market did this or that on a particular day. Mostly because the explanations are so humiliating. It’s always “profit taking” or “liquidity coming back into the markets” or some such nonsense. Whenever we read this stuff we wonder: Oh yeah? If you’re so smart, why aren’t you rich?
One former journalist described the problem like this: “The problem is that people are paid to write these kind of stories. It’s their job at the paper. And they can’t just write the Dow went up because the stock of Company A did this, the stock of Company B did that, the stock of Company C did this. They have to write a theme. Find a pattern. And because the theme is basically imaginary, it means they have to turn on their internal bullshit generators. And it’s no surprise that a bullshit generator generates bullshit.”
Gary Weiss picked up on a particularly unfortunate bit of market mind-reading from the Wall Street Journal yesterday:
The Wall Street Journal reported a few minutes ago as follows:
Stocks declined sharply Tuesday, with the Dow losing more than 200 points, as weakness in China sent markets around the world into the red, durable-goods data disappointed and uncertainty increased about Iran and Afghanistan.
Now, I’m not picking on the Journal, and I used to write stuff like this myself, but does anyone really know why the market is down just under 2% as of this moment? (Actually the S&P cracked 2% during the time I wrote this item.)
That’s the fundamental problem with writing spot news about the markets. Nobody really knows why markets go up or down. It may actually be more accurate to report that the Dow lost more than 200 points because “traders watched other traders watching other traders watching other traders… sell.”
Felix Salmon is even blunter in his post entitled ” No one knows why the market fell, and it doesn’t matter anyway”:
Dan Gross gets it. Andrew Leonard gets it too. In fact, any halfways-decent financial journalist gets it, and, if honest, would simply write a story saying “the market went down and we don’t know why”. But instead we’re inundated with “explanations”, from an assassination attempt on Dick Cheney (Daily Intelligencer: “Are investors balking because Cheney was attacked? Or because he wasn’t hurt?”) to a drop in one of the most boring economic series in the US. (Go on – quick – tell me what a durable goods order even is.)
The Wall Street Journal’s editorial page notes the dangers of market mind-reading but can’t resist it anyway:
Any equity selloff as large as yesterday’s will produce a multitude of explanations. Among other culprits, we heard about “overbought” Chinese stocks that were due for a correction, a weak durable goods report, the Kabul explosion aimed at Vice President Dick Cheney (see below), and former Federal Reserve Chairman Alan Greenspan for declaring Monday that a “recession” was possible later this year.
Our own “whodunit” contribution would point to the mortgage-related markets, which sold off nearly as much as stocks. This reflects the cracks appearing in the housing credit markets, especially in subprime loans but with some damage up the income chain as well. Along with emerging markets such as China, this is where the excesses have been most notable. And when Adam Smith does a house cleaning like yesterday’s, he sweeps the dirtiest corners first.
Even bolder, David Lat at Abovethelaw thinks maybe he caused the market crash:
As you can see from our Programming Note, we stepped away from the computer at around 3 PM today.
Which is just about the time the Dow Jones decided to take a 200-point plunge. The Dow ended the day down 416.02 points, or 3.29 percent — in terms of points, the worst day since the market reopened after 9/11. (The S&P 500 fell 3.47 percent, and the Nasdaq fell 3.86 percent.)
Coincidence? We think not. Apparently the stability of world financial markets requires us to keep ourselves planted in front of our computer all day.
So does Paul Kedrosky, and for the same reason:
Whoa, sorry about the market decline. If I had known that spending the day in meetings and on airplanes and generally incommunicado would make the markets tumble like this, I would have stayed on blog sentry and posted reassuring thoughts. Too late now, apparently.
But everyone knows it was really Matt Drudge who tanked the market.
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Posted in:
Market Plunge
What Really Caused the Plunge: The Gossip Kids Are Thinking Butterflies
By Bess Levin
With nobody quite sure as to what happened yesterday—was it a ‘Glitch’? Two? Ten? Elves? Ben Bernanke, a couple of Quaaludes and a voodoo doll?—we figured it would be best to turn to a media and celebrity gossip site called Gawker.com for some answers (who do you think got us to understand Enron, huh? The geniuses over at the WSJ?). While we were totally confident in their abilities to explain the whole mess to us, they’d actually already contacted their resident Wall Street expert, former J.P. Morgan analyst-cum-Mergers and Acquisitions author, Dana Vachon, for some enlightenment.
So let’s pretend I don’t know anything about the stock market. Actually, there’s no need to pretend: I don’t know anything about the stock market. What the hell happened yesterday, and why should I care?
What happened is that a rumor got started that the Chinese government was going to clamp down on liquidity; i.e., the Chinese had too much money in the stock market, and were going to take measures to reign in speculation, investment, etc. So, for the first time…ever…the tail wagged to dog. Historically, the U.S. coughs and the rest of the world catches cold; yesterday, China hiccupped, and everyone had a heart palpitation.
And what happened today?
The Chinese government announced that this was just a rumor, positive U.S. growth news came out, and our government and financial establishment got the ducks in a row: announcements of confidence, etc., and everyone believes we are in for another 18 months of growth. But yesterday was a historic day.
Some of the wiser voices on the internets are pointing out that the Great Glitch story-line doesn’t exactly pass the smell test.
Eddy Elfenbein at Crossing Wall Street says:
One more word about yesterday: The sell-off was not caused by a computer glitch.
The sell-off was already happening. The glitch was in the accurate reporting of what was happening. This is Wall Street going through the looking glass. If stocks are going down, and no one reports it, are they really going down?
When the computers finally caught up with the trades (see video), some traders thought it was an obvious misprint. No, everything until that point was incorrect. Only when they learned what they really had been doing did they start to panic. At which point, stocks started to rise.
And over at the Big Picture, Barry Ritholtz agrees:
First off, computer errors didn’t cause the sell off — they only delayed the reporting of the trades.
If anything, these delays made the sell off look more orderly than it really was. Contrary to what you may have read elsewhere, the glitch only made the selloff look more mild (orderly and less severe) until it turned more wild as the delays spooled out and unwound. I have seen several early news reports and comments that got this exactly ass backwards.
Anyone who will uses this as a false excuse for Tuesday is a weasel.
Wall Street Through the Looking Glass
[Crossing Wall Street]
Around the World in 24 Hours
[The Big Picture]
We’ve noted before that the faddish devotion to compliance-oriented corporate governance—encouraged by everything and everyone from Sarbanes-Oxley, it’s attendant regulatory schema, some of the more opinionated-parts of the business press and the reigning corporate governance gurus—has serious costs that are all too often ignored. The whole corporate-spying pretexting scandal at Hewlett-Packard was probably the public example of this.
Now Tom Perkins, a veteran from the HP wars, has made his first public remarks since the scandal and directed them at exactly this problem. According to Perkins, too many corporate board members are so obsessed with compliance that they don’t know much about the company on whose board they are serving. He draws a useful distinction between two-types of directors–the guidance geeks who understand the business and the compliance nerds who understand legal rules and regulations.
The San Jose Mercury News reports:
During his 35-minute talk, Perkins outlined two kinds of board members, placing himself in the category of an old-style venture capital-type who is extremely involved in the business. He called that type a “guidance director.”
In contrast is the new emerging director, whom he called the “compliance director.” He described that person as someone increasingly focused on Sarbanes-Oxley requirements, who jumps from company board to company board, dispensing and heeding advice from consultants and lawyers.
Perkins, 75, derided the latter, which he called a “plug-to-plug compatible director” who believes he or she is equally capable of serving on a bank board as on that of a technology behemoth such as HP.
And Perkins thinks things are only getting worse. The compliance nerds are beating out the guidance geeks.
But today, he said, with too few “geeks” on its board, HP has evolved fully into a compliance board, “possibly untroubled by worries about technology and marketing strategy.”
“I think the guidance board will vanish and it will be replaced by compliance boards who just listen to lawyers and consultants,” he said, referring to the general corporate trend.
Ex-HP director laments corporate board trend [Mercury News]
[Cross-posted from the original on SuperMogul.]
“Where were you the day the market sort of blipped?” isn’t necessarily an inappropriate question, considering the ‘once in every half-decade or so’ nature of yesterday’s “correction.” We’ve amassed some accounts of the bloodbath and its aftermath. It does kind of sounds like some sort of Civil War recount the way some people are putting it – with vivid descriptions of corpses everywhere, like that Goldman trader, although Bernanke’s comments today were hardly Lincoln-esque. In fact, Bernanke’s comments were like if Lincoln got up at Gettysburg and was like, “A better credit score and several hundred points ago…yadda yadda yadda…guns are still working well, our view on state’s rights hasn’t changed…carry on.” Anyway, here are some takeaways from various floors on the Street, which, to tell the truth, are much better if (at least mentally) narrated by David McCullough (the primary Ken Burns’ documentary narrator) with “Ashokan Farewell” playing in the background (just play this while you read).
As for this morning, an individual who works on a volatility desk told us the following:
People are just treading lightly (trying to cling to some semblance of a poker face)…I think most people agree with Bernanke in that there should really be no change in expectations i.e. nothing fundamentally has changed…but on the flip side no one seems to be taking any big bets (as far as I can tell)…
The vix (volatility index) yesterday opened at 12.12 (previous day had a 10 handle), hit a high of 19.01 (which is crazy), and closed at 18.31…today it opened at 17.21 and has just gone straight down (currently in the 14s)…trying to price anything right now is comedic. Also the pick-off artists have come out of the wood-work…it is like Christmas for them.
Whereas vol traders like when there’s blood in the water (at least sometimes), some were having trouble treading. One derivatives trader (who’s made quite a bit in the last few years) yesterday could do nothing but croon Daniel Powter lyrics after market close:
People were taking it quite calmly to be honest, although we all lost a ton of money. Trust me, I was putting on a brave face, but I was losing my shirt. I had my worst pnl day in my career. Fortunately futures are up half percent or so.
His advice – if we’re down another 2% it’s probably time to buy.
Not everyone was running around shirtless yesterday, scribbling orders and prices on the walls in human (and sometimes animal, don’t ask) blood and feces. Some people had a slower day than usual, recounted by an equity derivatives sales trader:
Well, a lot of options traded yesterday but a lot of it was customer to bank as opposed to broker dealer. Things were moving too fast, with people just going straight to floor as opposed to having us “shop,” not a lot of actual vol trading (which is what we normally deal with). A lot of people hitting bids or lifting offers on the electronic exchanges (ISE), thus me sitting with my thumb up my butt, yet my clients busy as shit. That’s also why a lot of guys back in like ’99 and ‘00 who were market makers on the floor made beaucoup dinero, a ton of orders were just market order, like “where can I get done.”
Most I-bankers, however, remained un-phased by the market movement (in no small part because firewalls are starting to prevent access to everything but Excel and PowerPoint). One banker told us:
Yesterday? World events? No clue. But I can tell you what would happen if this one EMS non-client acquires almost every other company in its industry, not that it’s looking to. Our MD just had a pitch-gasm. I was just thankful it wasn’t during normal working hours. (please help me)
Color us skeptical when it comes to all the blather blaming yesterday’s sell-off on a computer glitch. Or glitches. Why? Because it seems the main thing that caused the computer glitch was so many sell-orders pushing through the system at once. If selling caused the glitch, how could the glitch cause the selling? Okay, maybe there’s a sequential, feedback loop thing going on here but isn’t it a little too soon to confidently point the finger at the robots?
The Wall Street Journal has some interesting reporting about what happened when the electronic trading systems broke down. Most the the tale, of course, comes from floor traders who, of course, mostly fear and loathe the robotic masters who are threatening their jobs. So you probably want to discount some of the “manual process which never breaks down” talk for self-interest from the people new NYSE executive Duncan Niederauer once reportedly referred to as “five guys named Vinny.“
After the Dow problem was resolved, other woes bedeviled traders. About a half hour before the closing bell rang at 4 p.m. Eastern time, traders reported having problems sending electronic buy and sell orders to the NYSE, which recently began converting to a largely electronic system.
At one post on the floor, traders resorted to writing buy and sell orders on a dry-erase board. Most of the letters next to the stock symbols said “S,” for “sell.”
“Go manual if you can,” said Art Cashin, a longtime floor broker for UBS, to traders at about 4 p.m. “Take paper if you have to.”
Traders were still negotiating stock closing prices 10 minutes after the 4 p.m. close. “You’re done, 50 grand at 74.20,” Michael Rutigliano, a floor broker at the NYSE, yelled into his headset shortly after the markets were supposed to have been closed.
Mr. Rutigliano reflected the frustration floor traders are feeling these days, as their role becomes diminished by the electronic age. “We were able to revert to a manual process that never breaks down,” he said.
Louis Pastina, an executive overseeing trading systems at the Big Board, said “a rush of orders” in the last hour of trading overwhelmed the exchange’s computers, leading to delays and an unknown number of orders that were never completed. Some trades may have been done on alternative markets or in an after-hours crossing session the NYSE extended by a half hour to 5:30 p.m., he said. He added that floor traders were finishing trades manually until around 4:25 p.m., about 20 minutes later than usual.
A spokesman for the NYSE said the new hybrid trading system — which matches most trades electronically but sends some to traders on the exchange floor — worked fine, but that another system that feeds it couldn’t handle the onslaught of orders.
After a Rough Morning, A Data Backup Jolts The Blue-Chip Average [$$] [Wall Street Journal]
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Posted in:
Electronic Trading
One Glitch? Two Glitches? Three Glitches? Floor Glitches?
By John Carney
We’ve been trying to get to the bottom of exactly how many of these so-called computer “glitches” affected the market reporting and trading systems yesterday. Immediately after close, the Dow Jones Company was reporting one “glitch” in the system that calculates the various Dow Jones indexes while NYSE and NASDAQ were remaining mum.
But our trader friend was telling us about further problems, including a a slow down in getting trades processed. And now we’ve got the official report of a second glitch or a series of glitches caused by the high volume of trades.
From Bloomberg:
The sudden plunge fueled a wave of new orders that overwhelmed systems at stock exchanges in the final hour of trading. Warren Meyers, a managing director at NYSE brokerage Walter J. Dowd Inc., started scribbling trades on paper after the delays made it impossible to determine the fate of an electronic order. He ended up with more shares than he wanted.
So the official story seems to be that the high volume sell-off triggered problems with the Dow Jones systems, which then created an illusionary instant sell-off around 3PM, which triggered more selling and fouled up the electronic trading systems at the stock exchanges.
It’s a nice story if they can get it to stick. Pay no attention to the sell-off behind the curtain. Keep looking at the malfunctioning electronic images. And for godsakes keep that yappy little dog under control, Dorthy!
Bad Data Spur Market Doubts Among U.S. Investors [Bloomberg]
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Posted in:
Ben Bernanke
Bernanke: “Dow Drop? No Biggie. Social Security? RUN FOR YOUR LIVES”
By Bess Levin
If any of you out there coping with major losses as a result of that thing that happened yesterday were looking for a shoulder to cry on in the form of our Chairman of the Federal Reserve, keep looking. The Beard of Reasoning told Congress this morning that the U.S. financial markets are functioning normally and, also, that they seem to be “working well.” He also noted that the 416 point slump did not alter his view on U.S. economic growth and that “there is really no material change in our expectations for the U.S. economy since I last reported to Congress couple weeks ago.” After that rather blasé assessment, he proceeded to “give the crowd its money’s worth” with some material from his usual set, and harshly warned that a failure to do something regarding the upcoming retirement of the Baby Boomers “could lead to serious economic harm” and that “a vicious cycle may develop in which large [budget] deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits.” That’s right– vicious!
[Ed.'s note: We tried really hard to find a picture of BB that said "meh," but apparently there are none. Who knew.]
Bernanke: Markets are ‘working well’ [Fortune]
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