The Crash Without Flash

While regulators and investors are still scratching their heads over what on earth happened May 6th that caused what is now being dubbed the "Flash Crash," the market has gone about its merry way steadily marching lower. We are now sitting within a hair of the "horrifying" lows hit on that day when markets plunged unexpectedly on extremely heavy volume, only to rip higher within minutes. Oh my God! What could've caused stocks to hit such extreme and unbelievably cheap levels? The SEC still has no idea, but they've introduced circuit breakers, so that should fix the problem. Any market crash that's going to happen on the SEC's watch is gonna take some time. Sort of like any good ponzi scheme. After all, it wouldn't have been right to catch the Madoff fraud early, better to let it snowball for a few years into a $65 billion fraud so it can ensnare everybody.

Now that equities are legitimately lower, and not the result of some fat finger or HFT trading malfunction, we have to think of an explanation. Because it's just inconceivable to think that maybe investors are bailing because the volatility scares them and a near 80% rally straight to the moon was good enough for them after 2008's drubbing. The WSJ pins the blame for the recent selloff on a highly leveraged pro-growth trade that is currently being unwound by the various hedge funds that profited it from it all year. The trade was based on the view that global economies would recover strongly and commodities and high yielding currencies and stocks would continue to rise. Hedge funds piled into the trade, which was pedaled by, you're never going to believe this, Goldman Sachs. Seems like the folks at GS really are to blame for everything.

In any event, it is expiration Friday. Everybody get their Dow 10,000 hats out AGAIN. Although it's not nearly as fun watching the computers wear them.