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Thursday, May 6, 2010

Whoops! My mistake.

Back in January 2010, I wrote an article (What the News Doesn’t Know) about the fact that the stock market is interpreted via “reverse attribution.” That is, market action occurs first, and then the news agencies try to determine why. Frequently, they are wrong. A near-flawless illustration of this phenomenon occurred today.

U.S. markets, which for most of the day had been experiencing a calm, orderly decline, suddenly began plummeting at 2:40 pm. Media outlets scrambled to determine what was going on.

First it was believed that the sell-off was inspired by TV interviewees saying that Greek debt defaults would spread. Headlines like, “Greek debt contagion spreads” and “Stocks plunge on Greek worries” inundated the headlines.

Then, realizing that such a dramatic plunge would probably not occur due to an issue that had already been discussed for days, the news agencies added a second reason: “Huge selloff caused by worries about new financial regulation.” It was thought that the combination of Greek debt and the uncertainty caused by financial regulatory debates in Congress was the culprit.

Finally, the most probable cause of the carnage came to light: a trader at a large financial institution had pressed the wrong key on his keyboard.

Yes, the nationwide market meltdown was apparently caused by a trader who wanted to sell Proctor & Gamble stock, but accidentally pressed “b” for billion shares instead of “m” for million. At future cocktail parties, this trader can now boast that a single keystroke error caused every financial newscaster in the U.S. to go ballistic, and caused the value of one of America’s largest and most beloved corporations to drop by 19 billion dollars in five minutes.



Interestingly, seeing the sudden drop in P&G stock and unable to explain it, traders scrambled to find excuses for that, too. One rumor was that P&Gs new Dry Max baby diapers cause rashes and skin irritations. But alas, realizing the error, the trader quickly backtracked on the sell order, causing P&G stock to rally just as quickly as it had dropped.

Just another fun day at the office - and a great example of why you can't rely on the news.

UPDATE - Friday, May 7th 2010 (the day after the carnage): News agencies are now reporting that the drop may not have been caused by a trader error. Or maybe it was. No one is really sure.

UPDATE - Saturday, May 8th 2010 (two days after the carnage): News agencies are now reporting that the drop was indirectly caused by the New York Stock exchange and computerized trading. The NYSE halted trading for 10 minutes, forcing trading computers to look for bids at alternative exchanges where no bids existed. Finding no bids, trading computers began buying and selling at random prices.

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"Advertisements contain the only truth to be relied on in a newspaper."
Thomas Jefferson

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