Around the World in 24 Hours

Three interesting follow ups to Tuesday’s messy trading: 

First off, computer errors didn’t cause the sell off — they only delayed the reporting of the trades.

If anything, these delays made the sell off look more orderly than it really was. Contrary to what you may have read elsewhere, the glitch only made the selloff look more mild (orderly and less severe) until it turned more wild as the delays spooled out and unwound. I have seen several early news reports and comments that got this exactly ass backwards.

Anyone who will uses this as a false excuse for Tuesday is a weasel.

The graphic below does a very good job explaining the situation:


Chart courtesy of WSJ


Secondly — and this is more along the lines of our earlier "Don’t Blame China" discussion, go check out the interactive map at the WSJ (its free).

Scroll over any country, and you get their Bourse performance for Feb 27th.

click for interactive global bourse map

Map courtesy of WSJ

If China was the root cause, why was most of the Pacific Rim down so

Malaysia and Singapore got tagged pretty good, but the rest of Asia was off between 0.5% and 1.5%. Korea and Japan, arguably the most important countries economical in the region with China, were down mildly.

If China was to blame, why then
such a mild response in her own backyard? Here are the closing numbers for 2/27, with China down 8.8%:

Australia -0.74%
Hong Kong -1.76%
India -1.25%
Indonesia -1.12%
Japan -0.52%
Malaysia -3.09%
Pakistan -0.14%
Philippines -1.44%
Singapore -2.29%
S.Korea -1.05%
Sri Lanka -0.53%
Taiwan 0.02%
Thailand  -0.69%

Note that the European countries were down much worse than Asia — particularly after the US economic data was released.  Most European Bourses opend down 1% to 2%, and then saw their selling accelerate after 8:30 US time.

Lastly, note that Japan opened down 700 points on 2.28.07. Did it take them 24 hours to figure out what happened in China, or might it have been intervening events?

click for live Nikkei chart

Map courtesy of Yahoo!

Lastly, check out the Asian markets as of 2/28/07. As of late last night, they were pretty ugly

click for updated prices:
Table courtesy of WSJ


After a Rough Morning, A Data Backup Jolts The Blue-Chip Average
WSJ, February 28, 2007

Markets’ Slide Spotlights Risks
Chinese Shares Tumble, And Investors Reassess
U.S. Economic Outlook Fleeing to Safe Treasurys
E.S. BROWNING and CRAIG KARMIN in New York, and JAMES T. AREDDY in Shanghai
WSJ, February 28, 2007

Stocks Slide World-Wide
Global Map
WSJ, February 27, 2007

Yahoo! Finance, Feb 27, 2007 10:58pm EST^n225;range=1d;

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What's been said:

Discussions found on the web:
  1. jagmohan swain commented on Feb 28

    Barry tuesday’s trading only underscores what
    this blog has been highlighting for some time now: heightened complacency among the hedgies.
    Tle level of unpreparedness among hedge fund community reflected in viciousness of sell off.When the obvious bad news from mainstreet been ignored for so long something ( and it had to be external ) triggers the romantic sleepwalk to go kaboom.Some 30% of s&p is finacial and it’s financials which have the most horrendous action.4% is certainly no bloodbath, another 4% today followed by 2% on Thursday and then we would be talking.

  2. SINGER commented on Feb 28

    the MSM is exhibiting high levels of weasal-like behavior

  3. greg0658 commented on Feb 28

    like to see the 3 pileup charts with selling volume added

    and if possible volume of sell requests that didn’t happen

  4. Craig commented on Feb 28

    I would want to know what happened with the brokers liquidating unmargined accts to accomodate margin orders one hour before close. More likely than some tech pile-up.

    Remember, the street doesn’t necessarily work for US. On a 400-500 down day I don’t trust their motivation.

  5. elsombrero commented on Feb 28

    Unlike the S&P 500 index, in which each of 500 stock prices must be multiplied by a weighting factor before summation and division, the Dow Jones Industrial Average is calculated by simply adding up 30 stock prices and dividing by a fixed divisor. It was developed during the paper-and-pencil days of 1896, and it remains true today that anyone who’s handy with a calculator can determine the DJIA from raw prices in a few seconds. It’s a trivial task, even for an elderly PC with a five-generations-ago chip.

    Dow Jones’s ‘explanation’ would have us imagine giant banks of mainframes, whirring in air-conditioned rooms to churn out the DJIA. But that’s nonsense. Probably somebody was downloading BitTorrent porn movies on the PC that handles the Dow calc, and the multitasking made Windows stutter.

    It’s disgraceful that the brute-simplest average on the planet couldn’t be calculated in real time, when the 500-component S&P and the multi-thousand-component Nasdaq kept up just fine. Perhaps the discovery process associated with a lawsuit for damages would winkle out what happened, and ensure that the malefactors don’t do it again.

  6. Charles Butler commented on Feb 28

    Same thing happened with the CAC-40 on local fav terminal, Visual Chart, at some point yesterday. Blame was placed on some intermediary.

  7. wyler commented on Feb 28

    From Bill Cara’s blog this morning regarding the pileup:

    “Having been in the business at a high level, I believe a rational explanation is that margin calls were sent to under-margined accounts during the day. With one hour to go, the broker-dealers would take action by selling out accounts of under-margined clients that had not responded to demands.”

  8. Jeremy commented on Feb 28

    There’s a good reason markets like
    Japan and S. Korea didn’t tank on 2/27.
    They were already closed before
    China’s stock collapsed in the last hour or so of trading. Same does for Taiwan.
    The markets closing after China i.e.
    HK, Singapore, Malaysia, India did react.
    Still, I agree the reaction was reasonably mild, they region was a lot more worried about the subsequent, probably largely unrelated, sell-off in US

  9. jules commented on Feb 28

    have to disagree on this one. I was watching the screens when it happened. As you note, the Dow simply dropped 200 points in an instant, the eurodollars and euribor (which i trade) gapped up 30-50 ticks in the red months (2008). With so many prop shops auto-spreading stocks, bonds, stirs, metals,oil,etc, uncorrelated markets became “correlated” in a hurry. It was PRECISELY that quick plummet in the DOW that set screens blazing in every market for which a trading algoritm has been written….and that’s quite a few. There was no way a trader (or computer) could have assessed that the Dow drop was not some huge real time downdraft, to be followed by a further 1000 point drop, rather than a computational error.

  10. mhm commented on Feb 28

    And here’s the Fed lending money to help the markets. Seems above average:

    Fed Accepts $10 Bln In Overnight RPs
    Last update: 2/28/2007 9:41:44 AM

    Fed Accepts $7.25 Bln In 2-Day RPs
    Last update: 2/28/2007 9:51:07 AM

  11. Fred commented on Feb 28

    Here’s an interesting post from

    Here is an image of today’s front page in the New York Times. The headline reads “Slide on Wall St. Adds to Worries About Economy.”

    I couldn’t find an image of the Chicago Tribune’s front page, but the headline read “China Market Plunges, Dow Follows. Now What?” The front page of the Tribune’s business section was devoted to yesterday’s mini-crash. Three subheads in this spread were: “Global Markets Plummet”, “Some Traders Fear the Worst”, and “Analysts Argue Sell-off Could Be Reality Check, Sign of More to Come”.

    But the most interesting development occured last night on NBC’s Tonight Show with Jay Leno. Leno opened his comedy monologue by observing that if you had money in the stock market, you didn’t anymore because “the market dropped 500 points today”.

    Now I have found the New York Times and the Chicago Tribune to be reliable fades, especially when they highlight bearish news. But the most reliable fade of all is Jay Leno. During the summer of 2002, the greatest buying opportunity of the past 10 years, Leno made jokes about the stock market almost every night, all along the lines of how much money investors were losing.

    Remember that the mainstream media are in the business of telling people what they want to hear. They are at the same time opinion leaders and opinion formers. With this in mind I think it is safe to conclude that the drop from last week’s high is NOT the start of even a 15-20% decline. Instead I think that most of the drop has already been seen and that the US stock market will make new bull market highs in the weeks ahead.

  12. david foster commented on Feb 28

    My question is the same as that of el sombrero. Where is this tremendous computational requirement for the calculation of the DJIA? I don’t understand why Dow would have to process individual trade transactions: all they needed to do is to add up the quotes for 30 stocks.

  13. jkw commented on Feb 28

    The big traders look at futures and options prices. They are more reliable and more real time than any computed index levels. Even as a small trader I could tell that something was wrong with the djx quotes I was getting because they were 200 points above the /YM quotes. The buy programs kicked in as soon as the djx quotes were corrected, so either everyone had programs written to buy if the dow ever dropped 200 points in 5 minutes or the programs were ignoring the quotes. Either way, it is clear that the glitch did not cause the selloff to be any worse.

  14. DavidB commented on Feb 28

    here is the deal that is bothering me most. Especially about the financial media that is supposed to know better. What we had yesterday was effectively a herd of index funds bolting at the same time. It didn’t matter if individual stocks were low priced or high priced. Everything got hit.

    Now you have the media forming two camps. One is saying buy the other is saying sell. Well, if you own index funds then you might want to listen to them. The problem is that many people don’t own index funds so a general buy or sell call is terrible advice. If you make your living buying or selling individual stocks then it is your job to go back to those stocks and reassess each position on a case by case basis. Your bad stocks just got a little more realistic in the pounding. Your good stocks actually became more of a bargain. Depending on what you own of what the prudent investor could either be buying OR selling today and still be true to his portfolio and financial objectives. I added to some stocks yesterday because they were already value plays that got cheaper and for the others that I would not buy I had a put a personal hold rating on them. Almost all of those stocks were up today.

    THIS is the type of advice the media should be giving the sheep. NOT whether or not you should buy or sell. They can’t possibly know your personal situation and thus can’t advise you. Only you can know what you personal situation is like and panics like yesterday should send you back to your businesses to see how they are holding up in a crisis

    One final point. The only reason I either bought or held yesterday was because certain stocks met already predetermined price points. The fact that it happened yesterday along with 2000 other stocks was only a coincident factor it had nothing to do with my ultimate decision.

    Ignore the herd and their misleading shepherds folks and you’ll do much better. Learn to survive on a case by case basis and days like yesterday will become opportunities, not crises

  15. Bob A commented on Feb 28

    “Fed Chairman Bernanke says his optimism hasn’t been shaken by recent data or Tuesday sell-off”

    You might as well as a salesman at Macy’s whether that sweater you’re trying on looks good on you…

  16. JoshK commented on Feb 28

    First off all, no one gives a shit about the DJI besides the people who work at CNBC.

    Second of all, all major banks calculate their indexes in real time and don’t rely on the exchange to publish every 15 seconds.

    This is just nonsense.

  17. commented on Feb 28

    The Great Glitch Story Not Getting A Great Reception

    Some of the wiser voices on the internets are pointing out that the Great Glitch story-line doesn’t exactly pass the smell test. Eddy Elfenbein at Crossing Wall Street says: One more word about yesterday: The sell-off was not caused by…

  18. GRL commented on Feb 28

    If China was the root cause, why was most of the Pacific Rim down so mildly?

    Conjecturing, maybe it’s because the capital flight from China didn’t go to other pacific rim markets in the first place, so it didn’t need to come from these markets in order to flow back into China. Or, maybe the economic links between China and other pacific rim economies are less important for purposes of determining market behavior than the links between China and, say, Chile (i.e., commodities).

    The fact the pacific rim didn’t go down as much as China doesn’t prove or disprove anything.

    Stratfor says China deliberately engineered the drop to curb market speculation, which is absolutely out of control, as apparently is everything else having to do with capital allocation in China. What the government didn’t count on was it spreading around the world.

    Someone needs to do a study on capital flight from China and the exact linkages between Chinese and other markets in order to answer the question posed above.

  19. alex commented on Feb 28

    Here’s the most telling fact about yesterday: There were 4.24 billion shares traded on the NYSE; 4.19 billion was down volume, just 45 million was up volume. That wasn’t a typo, 45 million. Declining volume led advancing volume by more than 93-to-1. Declining issues led advancers by more than six-to-one.

  20. vhehn commented on Feb 28

    not to worry cramer says bottom is in on mad money

  21. lpaa commented on Feb 28

    It should be noted that compared with other software industries, financial services is especially light on quality control procedures for newly released code, at least in New York. It’s usually up to the programmer to validate the changes they make — kind of like having the inmates running the prison. Everywhere else, in much less critical environments, people employ testers that work in an independent group to validate new releases.

  22. mrsizer commented on Mar 2

    DJI is weighted so you have to multiply the quotes by a constant (different per stock) before dividing.

    Still, the average PC can do it in realtime with no trouble at all.

    Good arbitrage opportunity if you had the cash: Buy the underlyings, sell the index. (or just short the index, you know where it’s going) Normally that only works for fractions of seconds (e.g. exchange traded spreads vs the underlyings). Here was an opportunity that lasted for almost an hour. I assume someone made buckets of cash. If not, trading software is not being used very well.

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