Markets across asset classes and national borders have been wildly erratic today, and the longer that condition persists, the weaker the “fat finger” or computer glitch explanation for yesterday’s meltdown gets.
Whatever the trigger was, a bad trade, an outlier kind of spike somewhere, there were God knows how many sell orders programmed into the market’s computers. Yesterday afternoon may have been a one-off, but it was also one of those flashes of illumination, where for a bright instant you see all those vicious creatures hiding in the dark, waiting to devour you.
What markets need right now, more than good data, more than liquidity, more than an end to Greek riots, is leadership. Somebody, somewhere, in a position of responsiblity, needs to stand up and stop this thing before it goes any further. Heading into this week, it was all about the risk trade. Heading out of it, it’s all about the fear trade.
There isn’t much the U.S. can do, directly. Our problems aren’t driving this. It started in Greece, but since at the heart of this whole thing we’re still talking about a credit problem, it’s quickly washed over Greek borders. Let’s be clear here. The global recovery, and especially the recovery in the developed world, is still a fragile thing. Nobody can afford to flirt with another seizure in the credit markets. But there’s a lot of chatter about that happening among European banks. And if European banks seize, well, in an automated, interconnected world, you saw yesterday just how fast things move.
Toward the end of his book “The Quants,” Scott Patterson quotes one exec at a company that supplies services to high-frequency trading firms: “My concern is that the next LTCM problem will happen in less than five minutes.”