Today the S&P500 dropped about 4 percent. A pretty big move, yes, but hardly a catastrophe. But to follow the financial media and Twitter, you’d think it was market Armageddon. It’s Monday, so of course everybody was screeching “Black Monday,” and (of course)^2, #blackmonday trended on Twitter.
Not even close.
I worked at an FCM in Chicago on Black Monday. Well I guess I still worked there. After a falling out with my boss, I submitted my resignation at 7AM on the October 19, 1987: so now you know the real cause of the Crash. But I was in the office, and had a ringside seat to an honest-to-God crash. People, please. Today wasn’t even close.
Today’s move was about a 3 sigma move. Black Monday, 1987, was a 20 sigma move. If the world was normal-which it ain’t, of course-a 20 sigma move should occur every several billion lives of the universe. Three sigma moves occur about once every five years. So in fact, we’re a little bit overdue.
In brief, there is no comparison.
Despite the decline in stock prices, there is still one raging bull market. In stupidity. Today’s market move triggered Pavlovian responses from both idiots and people who should know better.
Leading the idiot parade were Bernie Sanders and Donald Trump. (You’re shocked, I’m sure.) Both took to the express lane of stupidity, Twitter, to share with us their deep thoughts. Sanders reflexively blamed trade:
The results are in. Unfettered free trade has been a disaster for working Americans. It is high time we ended our disastrous trade policies.
Trump blamed China, and (apparently) US policy makers dancing to China’s tune:
Markets are crashing – all caused by poor planning and allowing China and Asia to dictate the agenda. This could get very messy! Vote Trump.
Yes, China has something to do with it, but (a) as noted above, today’s “crash” is small beer indeed, and (b) the sort of autarky that Trump fantasizes about would have made us far less wealthy than we are, resulting in stock prices (and other asset prices) far below than the level to which they “crashed” today.
And then there’s Zero Hedge, which wet itself repeatedly in excitement, all the while declaring that the era of DOOM! is upon us. Too bad for ZH that if there’s anybody who’s effed by recent developments, it’s ZH’s BFF Putin and Russia. (Ruble above 71, and Brent at a 42 handle today. Good times, Vlad!)
As for people who should know better, consider Mark Cuban:
Later, in an interview on CNBC’s “Fast Money,” Cuban said the historic moves in the market on Monday were not caused by normal trading.
“No one else that trades can move the market [by] hundreds of points in hundreds of seconds in either way,” Cuban said.
“What we saw today was like a three stooges market… that doesn’t happen from normal traders, that doesn’t happen from large funds taking positions or selling positions, that happens because algorithms watch everything that’s happening and everything that’s correlated to what’s happening in equities and they take action.
Cuban has an obsession with HFT, and today gave him an opportunity to spout off on it again, revealing his ignorance, and unreasoning hatred, of it. Days like today, and market movements like today (with big gaps) have occurred before anyone even thought of algos, before markets were computerized, and before Mark Cuban was born. Days like today occurred when prices were recorded on blackboards in chalk. Days like today occurred when the closest thing to HFT was the telegraph and the stock ticker. Regardless of the technology, markets do things like they did today.
Everybody should just give it a rest. Days like today happen with some regularity. No reason to panic. Indeed, it should be a source of some comfort that the impetus for the selloff was events in China, rather than (as in 2008) the impending implosion of the US banking sector.
And do yourself a favor. Turn off the TV, and just look at Twitter so that you can mock the likes of Trump and Sanders. The signal-to-noise ratio is asymptotically approaching zero. When you really need to panic, you’ll know.