Market Talk

When the Dow quickly lost 100 points around 2:30 or so, going from down 300-some odd points to down 400, I started to write a market comment for the Newswires version of Market Talk. “The Dow has quickly lost another 100 points,” I wrote. But by the time I was done writing that, it had lost another 100 points, and was down 500 points. So I revised it, and even tried to get a little clever. “By the time we wrote ‘the Dow has quickly lost another 100 points,’ the Dow lost another 100 points.” But by the time I’d written that sentence, it had lost another 100 points, and was plunging in a total free fall.

At that point, I erased what was on my screen. It was pointless to try and keep up.

StockTwits by late Thursday night was already selling t-shirts that had “I survived the Crash of 2:45 p.m.” written on them (had the link, but can’t find it now.) It speaks to the very fast and extreme and concentrated nature of Thursday afternoon’s event. It was over as soon as it started.

But it may not be over and done with. Thursday afternoon’s meltdown may have been an aberration, or it may have just been an early tremor, the sign of something much larger building up in the system. After all we’ve been through the past three years, and looking at everything going on in Europe right and the potential fears building back up into the system, can you really just blithely dismiss the Crash of 2:45 as an anomaly? Somebody needs to step up and stop this thing in its tracks, before it gets out of control.

Back in the summer of 2007, while the housing market was imploding  but apparently nobody knew it (certainly not the chairman of the Federal Reserve Board, the Treasury Secretary or Jim Cramer,) a number of shadowy hedge funds suddenly started melting down. It happened very quickly. Billions were lost amid the first tremors of what would become the housing implosion and credit crisis, and people started to hear a new phrase to describe these shadowy firms: the Quants.

Scott Patterson, a veteran Wall Street Journal reporter, explains these firms, the power they amassed and the damage they did, in his new book, “The Quants.” It comes out Feb. 2, although Amazon is taking orders now.

In the interest of full disclosure, I should mention I’ve know Scott since I first arrived at Dow Jones in 1997, so he’s an old friend. He’s also one of the sharpest guys in the newsroom, and a first-rate writer as well. The guy’s smart enough to get to the heart of the story and honest enough to tell the plain truth.

Here’s an excerpt, from the Journal:

At Morgan Stanley’s investing powerhouse Process Driven Trading on Monday, Aug. 6, founder Peter Muller was AWOL, visiting a friend near Boston. Mike Reed and Amy Wong manned the helm, PDT veterans from the days when the group was nothing more than a thought experiment, its traders a small band of young math whizzes tinkering with computers like brainy teenagers in a cluttered garage.

On Wall Street, they were all known as “quants,” traders and financial engineers who used brain-twisting math and superpowered computers to pluck billions in fleeting dollars out of the market.

Continue reading…