Streetwise Professor

August 24, 2015

I Knew Black Monday. Black Monday Was a Friend of Mine. This Was No Black Monday

Filed under: Economics,Financial crisis — The Professor @ 6:26 pm

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.


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  1. Concur with the overall context for yesterday. I’d submit that, unlike 1987, what we’re witnessing today is but a single day’s move in a massive, global, deflationary environment. This isn’t going to un-wind itself anytime soon. If the fed moves forward with its hike, the debt bomb explodes. The alternative, another round of QE, puts our ‘risk’ up on its tippy-toes while balancing an anvil on its head.

    China unwinds, Europe unwinds, Japan is an assisted living center, Russia collapses (again), South America continues perpetual implosion, the U.S. unwinds. What else is there?

    Comment by SD3 — August 25, 2015 @ 6:29 am

  2. So let Vlad get this straight, SD3… our best hope is for the Fed NOT to raise rates next month?

    Help me, Obe-Wan.

    Comment by Vlad — August 25, 2015 @ 8:28 am

  3. Vlad, I’d say we’re in a hole so deep that ultimately, whatever the fed does won’t make a lick of difference in the end. Yes, interest rates *should* be raised. But I seriously doubt that will happen.

    Comment by SD3 — August 25, 2015 @ 8:57 am

  4. I am so sick of the dipshits constantly blaming “thuh musheens” for every bit of volatility.

    How about the trading halts and short restrictions? Those don’t increase risk for making markets and suck liquidity out just when you need more of it or anything, right? Oh no! Of course not. The idiots are congratulating themselves for implanting “wise rules” to prevent a complete meltdown to zero because that’s a probable outcome.

    All I know is that I traded every day through the entire financial crises and while I saw a lot of wild swings, I never saw a market as broken as the one yesterday – and on a move that wasn’t even all that big a deal. With all these circuit breakers, trading halts and short restrictions the SEC has made liquidity provision impossible. God help us during the next real crisis.

    Comment by Methinks — August 25, 2015 @ 10:52 am

  5. […] Yesterday was no Black Monday. (streetwiseprofessor) […]

    Pingback by 08/25/15 – Tuesday’s Interest-ing Reads | Compound Interest-ing! — August 25, 2015 @ 1:04 pm

  6. One important grain of truth: both political parties are driven now by two demagogues taking advantage of political turmoil. No one else is gaining any traction.

    On the right, Donald Trump motivates the ignorant, the stupid, and the prejudiced (there’s a lot of overlap) against immigrants and everyone else who looks different. Immigrants are America’s ace in the hole against economic turmoil.

    On the Left, Bernie Sanders, the socialist Senator from the USA’s most unrepresentative state, riles up the remnant Occupy Wall Street/ global warming crowd. The Democrat alternatives are two septuagenarians: the clueless spouse of a popular ex-President, who lacks political skills herself, and a nice left-wing VP who often sticks his foot in his mouse.

    If you had saved for a lifetime for a secure retirement, would you leave your egg nest in the stock market, knowing one of these idiots will likely run the US economy January 2016? Good grief!

    Comment by Gus Villageliu — August 25, 2015 @ 4:33 pm

  7. Awwwww, how quaint…only people in “the right” are ignorant & prejudiced. All the dope-smoking socialists are informed and unbiased.

    Comment by SD3 — August 25, 2015 @ 6:08 pm

  8. Nothing wrong with migration that the government can’t solve with entitlements. One thing the Chinese understand extremely well is that hunger is a great motivator. Second place ain’t even close.

    Comment by pahoben — August 26, 2015 @ 10:14 am

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