Illiquid Plunge

I just got back home from a trip and today was one for the ages. It reminded me of the Long Term Capital crash in 1998.

Basically what happened today is Liquidity vanished as the computers took over.

What we know –

The Euro was down below 126
US Treasuries have gone parabolic in a flight to safety
Japan intervened to weaken the Yen
The EU will not undertake Quantitative Easing – they will not buy the bonds og Greece, Spain…
Bid/Ask spreads on some large stocks blew up – I saw one with a Bid of 1 cent and an Ask of $60 at the same time
Many Brokerage Firms were so overwhelmed with orders today that their online systems crashed – It was a Panic today!

What can be speculated –

Some guy at Citi actually put in an order to sell $15 billion of PG, not the $15 million he intended – Citi denies this trade
The Fed stepped in to buy Futures and stop the Crash – the President’s Working Group on Capital Markets was set up after the 1987 Crash to buy Futures if the Market is Crashing and prevent a full-scale panic
Washington will vote to stop the banks from speculating with Taxpayer money

Conclusions
We know that the markets are terrified that Greece will default and that will wipe out the Capital of several major European banks. These banks have seen their stocks crash in recent days. The entire Greek Rescue is designed to prevent these same banks from going insolvent.

The markets were down today and then the Dow fell about 700 points in about 10 minutes. There was no liquidity during this move, so when somebody wanted to sell, the sale price simply imploded. A large part of the trading today was computers trading with each other. That has been the game the whole way up, where stocks have risen on low volume, as computers have bought and there have been no shares to sell, so prices simply melt up. The fantasy melt up in prices came back to haunt the markets today.

The Eu leadership had better figure out a way to stabilize the PIIGS or the $6 trillion spent by Obama and The Fed to prop up asset prices will be worth jack ****.