Dear Readers: Our beloved Professor Athena, the Shrine’s finance expert, went on vacation to the Caribbean last week — which, ultimately, may be the reason the stock market went for wild ride. Though the international markets seem saner this week, the Shrine’s other expert — Caesar Charles — says that everyone should be paying attention this week, as the response the European bailout program will be telling.
Professor Athena had this explanation for the rapid stock sell-off last week:
My assessment of the phenom that happened on Friday last was that a very large order was placed on a very thinly-traded electronic exchange (likely P & G). The order was something called a “sweep” order, which meant that whichever exchange was showing the highest price was where the order “landed”. With no HUMAN buyers/sellers able to “fix” the discrepancy of the smaller electronic exchange being unable to show matching buyers, the order flipped to other exchanges in replicate so to speak. In other words, it looked to be on a highly volatile and nervous day that sometimes humans can fix what machines cannot. This is the price we pay for wanting to take people who are professionals (like brokers, floor traders, specialists, et al) OUT of the equation of buying and selling stocks. Was the sell-off “real”? Well, yes it was. So was the recovery in prices, once traders were able to establish where the real bid side vs. offer side of the market was. Again, this is the risk inherent in investment in equities. Anyone who believed that the situation in the EU would NOT cause significant problems in stock prices wasn’t around during the Long-Term Capital and Russian financial crises. We’re in for more to come with this. Hopefully Congress will stay out of it, but then again we are talking about Congress!
Professor Athena is very concerned, which should worry everyone reading this post. She had involvement in dealing with the Russian Debt Crisis in the ’90s; this current sovereign debt situation in Europe threatens to be more pervasive. From Bloomberg:
Bonds of Portugal, Spain and other deficit-plagued nations on Europe’s periphery soared yesterday and bunds — the safe haven for holders of European government bonds — weakened as the threat of a Greek default receded. The cost of insuring against sovereign losses using credit-default swaps tumbled yesterday, with contracts on Greece sliding 370 basis points, their biggest one-day decline, to 577, according to CMA DataVision.
Professor Athena notes that American’s should take little comfort in statements that the American bank exposure to European monetary struggles is “not much”. “We were told that the footprint of the Subprime Mortgage Market was ‘not much’, only 10%; however, take a look at the effects of that 10% on the economy today.”
Professor Athena continued with this analysis: “The key to long-term economic viability is growing the private sector. Private enterprise is critical to wealth creation. Sadly, the Obama administration seems keen on modeling itself an a broken system proven to be a failure — that of the European business model.”
In a great bit of serendipity, I had the opportunity to actually speak with a group of “Young European Leaders” at a conference session yesterday. They wished to learn about the American Tea Party movement. The experience was eye-opening. I will have details in my formal San Diego News Network post later this week.
Furthermore, I view the Kagan nomination as a big, intended distraction from the two news items that should be the focus of all informed citizen: Europe and Obama’s Oil Spill (he, after all, gave British Petroleum a pass on emergency planning after BP made significant contributions to his campaign). Kagan’s nomination process will be Kabuki Theater, as the Republicans do not have the will nor intention of derailing her nomination. The only words of comfort I have to offer come from HillBuzz: BUT, looking at Kagan, we just have a gut feeling she’s going to be a lot better than some of you think.
My news pics for today, that highlight the points in today’s punditry:
- Beers with Demo highlights the wisdom of a Russian immigrant: Bringing something to the party
- W.C. Varones on the European Bail-Out: Let the Global Ponzi continue!
- Left Coast Rebel: A little taste of Greece in NY! (Related – 16 Reasons Why California Is The Next Greece)
- Finally, the Liberator Today has something more ambitious in mind: Planet Bailout (Hey, Liberator, please DO NOT give Obama any more advice; he might decide to act on it!) 🙂