The Crisis is Back. Dow Drops 998, Biggest Intraday Point Fall in History, Rallies Big from There

Posted on by

It most certainly is ugly out there.

Yesterday, CDS spreads gapped out on all sovereign risk trades, with dealers reporting that there was big protection buying any time spreads eased

All risk aversion trades are back. The euro continues to fall versus the dollar, dropping from 130 to 125 in a mere 24 hours. The yen has shot to 88. the new risk aversion darling, gold, rallied $15 dollars. Dealers report the credit markets are in disarray.

US stocks did a cliff dive, with the Dow dropping a just shy of 1000 points, and market participants believe it was a single monster seller. The Dow and S&P have rallied hard from there, but are still in seriously negative territory, with the S&P having breeched the technically significant level of 1145 decisively.

Here is the time frame, courtesy Scott (from MarketWatch):

2:38 PM: Dow down 360

2:48 PM: Dow down 600

2:51 PM: Dow down 900

Dow is now down around 500

Another indicator: I am have been unable to access Bloomberg for the last twenty minutes, which NEVER happened during the crisis. Key headlines:

Corporate Credit Risk in U.S. Rises to 2010 High on European Debt Crisis

Dow Plunges 998 Before Recovering

Print Friendly, PDF & Email


  1. Abhishek

    The rush to safe haven assets today was frightening to say the least.As I write this VIX went up by more than 50% while Yen is up more than 5% .10 year Treauries have recovered from 3.29% yield to 3.41% yield beginning at 3.59% and the US markets have recovered from down 8% to down 3% . Don’t know why the stock markets recovered so quickly after falling equally quickly while the currency pairs show no signs of recovering.Is it a sign of Plunge Protection Team?

    1. Old European

      The PPT seems to have been sleepy at the wheel – they LET it plunge big time before the buying set in.

  2. readerOfTeaLeaves

    I’m certainly no expert, but just in the past few hours it appears that pressure to break up the banks may be (finally) reaching a Tipping Point, although no doubt there are interests scrambling in the background to stitch together a Potemkin version.

    However, as near as I can tell this is an interesting historical moment; if true, then the market time patterns that you list in your post appear to synch roughly with the amount of public pressure to break up TBTF.


    If my hypothesis is true, it would underscore that there really is not very much **economic** value in TBTF as a model, and that it is more a creation of political influence than of market or economic necessity.

  3. readerOfTeaLeaves

    Also of interest, trying to connect to C-Span, I received several error messages about heavy server loads before I was able to connect. That suggests a tremendous interest in watching either today’s FCIC hearings, and/or the Senate floor debate.

  4. tgs

    well vampire squid needs to make some quick cash to pay off that little fine they are going to get.

  5. dearieme

    I almost never trade, but I did today. Am I the metaphorical Brazilian butterfly?

    1. sgt_doom

      No, dood, it is econowar 101:

      The “bear run” on the Euro govts a la CDS spread, their response is to panic the stock market by pumping up the bond market, but at least they didn’t nuke Wall Street, the evil one who controls the global financial virus called credit derivatives (tangentially controlled by the Trinity of Evil: JPMorgan Chase, Goldman Sachs and Morgan Stanley).

      Watch for the next installment…..

  6. Peripheral Visionary

    The market insiders are doing their best to close the gap going into the close, but I suspect the damage has been done. I am hearing that there is serious damage in the credit markets, where spreads have blown out and bids have disappeared. Fear is back, with the VIX having exploded. This is looking much more similar to late 2009 than it is to mid 2008.

    One other critical point: many retail investors were out of the markets today, as most financial websites (Yahoo! Finance, Bloomberg, Google Finance) were out, and I am hearing that a lot of online trading platforms (Schwab, eTrade, etc.) were out or responding too slowly to be of use. That means that we did not have a full range of market participants today; that may not happen until tomorrow. I suspect that the market insiders will be in damage control mode tomorrow and attempting to move the markets up, but they may be facing a strong headwind from retail investors looking for the exits.

  7. Andrew Bissell

    The crisis was never really gone … the notion that it could be conjured away by turning excessive private debt into public debt was just a fiction being pushed by dumb Obama Administration sycophants like Dan Gross.

    1. don

      Agree. But I thought we would go for a much longer time before recognizing the sovereign debt as a severe problem. Perhaps weak sovereigns are doing us a favor by preventing imbalances from becoming too great before forcing adjustments. Trouble is, the needed adjustments are in the future (we need to convince that we will get control over future entitlements), now is not the time to stop government stimulus.

      1. sgt_doom

        I dunno about that, it would appear the danger points are the summer of 2010, especially July-Aug 2010, and the last two seasons of 2012, when all comes due…

        Sovereigns are still susceptible to CDS runs….

      1. Andrew Bissell

        Agreed, but aside from a few numbskulls like David Frum and David Brooks, very few Republicans are still cheering bailouts now that there’s a guy from Team Blue in the White House.

        1. Tao Jonesing

          No, the Republicans are pretending that all the bailouts happened on Obama’s watch while carrying water in blocking any Wall Street reform.

          When you focus on what both parties do instead of what they say, you realize that both are in bed with Wall Street. Still.

  8. BS

    The internet was supposed to remain up in times of crisis. That is my recollection of DARPA’s plan. So why has it been going down when we need it the most? Perhaps it is time to seek alternate means of communication… tweets, smoke signals?

    1. cswake

      Internet is fine here, it is the servers for the news and blog sites that were the failure points.

    1. Doug Kings

      He also announced he had just gone to all cash–talk about timing the market.

  9. Just The Facts, Ma'am

    I hear that some of the drop is attributable to an artifact – an ordering error that said a “billion” when it should have said a “million.” Doesn’t mean the fundamentals aren’t in disarray, but . . . .

    1. Peripheral Visionary

      It’s possible. But there have been glitches before that have not taken the markets down; I think it was Delta that dropped precipitously after a news report was accidentally released which turned out to be a duplicate of a report several years old. That hit the stock hard, but did not roil the markets.

      I think the point would be that the markets are so fragile right now that virtually any trigger is enough for a selloff. That’s a direct result of the market players having relentlessly pushed the markets up in the face of a long string of bad news; a situation which could only end in disaster.

    2. Old European

      Yeah, CNBC, Madhouse-Cramer and the rest of MSM will come up with an explanation like that to pacify the great unwashed.

      Me thinks a lot of stops were triggered today – more on professional or more on retail side ? imho that could lead to nasty questions if they’re more on the retail side because the great unwashed is always taught to use stops.

      What about: NYSE and NASDAQ declare all today’s deals from xx:xx until 16:00 invalid ?

    3. sgt_doom

      Excuse me, but the official cover story is seldom the real story, and since we in America haven’t had an actual media for quite some time, I would very much doubt these corp news planted stories….

    4. Glen

      Gee, seems like the guy that planted a car bomb in Times Square was small potatoes compared to what a Citigroup trader can do with a fat finger.

      Can we have Citigroup arrested as terrorists?

  10. eric anderson

    I am put in mind of a line from My Dinner With Andre. “Things just very rarely go haywire now. If you’re just operating by habit, then you’re not really living.”

    The old rules, the old habits, the old rules-of-thumb, just don’t work anymore. The politicians and government heads and bankers pull the levers and gun the accelerator, but the machine sputters and won’t go forward.

    Things are most assuredly going haywire. (And people wonder why Atlas Shrugged is selling so well?) Get ready for real change, not Obama’s faux change. Unemployment among males 25-54 is now 20%.

    The natives are getting restless.

    1. gordon

      “Atlas Shrugged” selling well in the US? Surprising. He’s making far too much money to walk away.

  11. John Drake

    Jesse’s Café has a good reposte:

    PLUNGE! 1987 Style – Sudden Drop in US Stocks Driven by Program Trading and a Ponzi Market Structure

    US equities were gripped by panic selling as the Dow plunged almost 1,000 points driven by a cascade of 100 share high frequency program trading, estimated to have been about 80% of volume. Gold rocketed higher to $1,210.

    The stock exchange circuit breakers do not apply after 2:30 PM NY time.

    This was highly reminiscent of the 1987 crash driven by a flawed market structure. The entire rally off the February lows resembled a low volume Ponzi scheme, and had formed a huge air pocket under prices.

    As so many have pointed out, this rally was driven by the Banks and the hedge funds. There was and still ia deep shortage of legitimate buying at these price levels. This was machine driven speculation enabled by the lack of reform in a system riddled with corruption, from the bottom to the top.

    This is yet another indication that the US regulatory and market oversight organizations, especially the SEC and CFTC, continue to be disconnected from and remarkably ineffective in their responsibilities in guarding the public against gross market imbalances, price manipulation, and abuses from insiders playing with cheap money supplied by the NY Fed.

    And as you might expect, the anchors on financial television are trying to excuse and blame the selloff on a ‘fat finger’ order that caused Proctor and Gamble to drop 20 points in 45 seconds. Or a typist inputting an order to sell 16 million e-mini SP futures, and typing “B” instead of “M.” Anyone who believes this is a clueless buffoon, which is probably why Matt Miller on Bloomberg repeated it about twenty times this afternoon.

    Even if this was true, it was just the spark that caused the market to plummet because of its highly unstable and insider driven operational structure. There is no longer any price discovery. The US financial system is a casino.

    They’ll never learn. Or is it ‘we?’ They may not really care.

  12. MikeBC

    Timing is just too coincidental with the SAFE Banking Amendment talks in Congress this afternoon–this was a warning shot across the bow of honest citizens and legislators, just like the similar drop on the day Hank Paulson’s bailout failed in congress.

    1. Chris

      My thoughts exactly… This is Goldman and the big boys saying “you want to fuck with us? Here is what we can do to the economy in a matter of minutes”.

      1. Tao Jonesing

        If that’s the case, the appropriate response would be to shut down the stock markets until the “grownups” who just threw a tantrum can be replaced.

      2. Francois T

        The GS guys and compadres should remember that life, liberty and the pursuit of happiness is more important.

        The proof reside in this simple question: How would they feel without it?

      3. Mickey Marzick in Akron, Ohio

        Interesting point. From a “go slow” work to rule to a full-blown strike? CAPITAL on strike… [worked this theme before]

        A test of wills between “producers” and “looters”? Of course, how one defines either is all important to the answer.

  13. Robert Oak

    I’m trying to find out more and updating this Economic Populist post, Dow Goes Nuts.

    I find this all very suspect, esp. all of the financial sites crashing at once. Last I have is “suspect trades” to “human error” but no get to the bottom of it all yet.

  14. bobh

    It felt to me like today was a con, where one or more big fish swam in one direction, got some of the little fish to swim with them, and then turned around and ate them. Soon all of the little fish will be either eaten or hiding and the big, high frequency program trading fish will have to start eating each other. Anyone invested in equities in this market in a mutual fund they check once a day is a fool.

  15. zjin

    Whooh, a fun afternoon, isn’t it?

    A huge swing in almost all assets and there is going to be some sort of short cover and re-position in the next few days, I hope. Otherwise my fresh long position today is going to be in trouble.

    I do not know the reason of this 30 minutes crush and I will not add to the crowds that gave explanations. Just need a glass of whisky and enjoy a day that makes history.

  16. RHS

    P&G had a 30% drop in stock price due to a market glinch. This may have triggered automated trading prgrams to sell all other stocks.

    1. Andy

      Good point. I don’t know the details of the automated trading, but what you said seems plausible.

  17. Anon

    Robert Oak said:

    ” I find this all very suspect … all of the financial sites crashing at once.”

    I think this is as topic that deserves greater consideration. What if it is censorship?

  18. sunny

    Whatever the cause, Extend and Pretend policy won’t fly too long! Two factors were under appreciated till today!

    1. Insolvency cannot be cured in a few days or even a couple years!

    2. We are more interconnected than one thinks. Commerce and Banking system are inter defendant. Equity market has gone up ignoring that the Credit market is still in ICU. Today was a wake up call!

  19. Hugh

    The stock market is a fully formed bubble. It could go at any time. It could be a real event or a mistake that sends it over the edge. It could be Greece, or the audit the Fed proposal, or a glitch. With bubbles it is not if they burst but when. And we are very much in the when phase.

  20. bob

    It was an algospasm caused by the EUR breaching the 1.2550 level, the same level when the SHTF in 2008. Equities being thrown out the window to raise cash.

    This is what a disorderly carry trade unwind looks like and I don’t see it stopping here.

    I don’t know what happened but shit broke. It completely broke, circuit breakers were about to be triggered, then all of a sudden, out of nowhere a bid comes in taking out stops 5% above where things were trading.

    1. Hugh

      What with the investment banks and hedge funds, the stock markets are effectively rigged. I agree with jesse’s comment above. A corrupt system lurched today. For a moment reality intervened, but the MOTU were able to stifle it again before things got really out of hand.

    2. dd

      It felt like a hedge fund liquidation. A big one; probably related to a carry trade unwind.
      Get used to it; the new normal.

  21. Doctor Stock

    Today was a great example of how emotion drives markets. Of course, algorithmic trading seems to be the major driving force; however, even the limits in place are set with a degree of emotion.

    As for me, I managed to sell part of my inverse, leading to a nice profit as the markets dropped.

  22. Jerry

    I’m not knowledgable in this area… it possible for the Fed and Treasury, through some others, to buy into the market to make rise as it did today, after the fall?

  23. Bas

    Ridiculous. This is all bs. No fundamentals can justify this quasi-sell-off volatility crap.

    It’s all hype, hysteria and hyperbole. No ratio for this. Irrationally, I think the markets may be projecting much larger sovereign debt fears on those of a relatively insignificant few. Even then, this irrational volatility’s just obscene.

    1. Andrew Bissell

      Maybe what was unjustified was the no-volume ramp of the past couple of months. It certainly seems to have left an air pocket or two under the market. This is nothing new for the stock market; this sort of wild intraday action occurred many times back in the 1930s during our last major deflationary credit bubble unwind.

      If you think the market’s being irrational then please, by all means, “buy the dip.”

      1. Bas

        Well you’re right about the 30s. Only goes to show you can basically fit any economic chart to any other, if you twist some units and axes.

        Externalities like major technological advances (the internet) as well as self sustained growth occurring in some EMs do not match the situation during the Great Depression. The analogy evaporates. Even if it didn’t, the countries of the world could never revert to autarky the way they could back then for longer than a few months.

        Truth is, it’s grown way beyond anything we know.

        Anyway, of course the market’s being irrational. If your model doesn’t anticipate that, screw you. If it does, please mail me. I collect irrationality-hedged investment schemes.

        1. Andrew Bissell

          Externalities like major technological advances (the internet) as well as self sustained growth occurring in some EMs do not match the situation during the Great Depression. The analogy evaporates.

          Yeah, technology is really helping keep volatility down. Plus we have such genius policymakers compared to those rubes in the 30s. Only an idiot would ever make such OBVIOUS mistakes with all our modern knowledge and insight at his disposal.

          There’s always some reason that this time is different. A 360% total debt to GDP ratio and the constancy of human nature argue otherwise.

          1. ndk

            “There’s always some reason that this time is different. A 360% total debt to GDP ratio and the constancy of human nature argue otherwise.”

            No, that really is different. I mean, even different from 2008. We’re at record highs that are far greater than anything seen prior to this date.

            We haven’t deleveraged at all since the explosions began. We’ve leveraged up further since 2007. I can’t wrap my mind around it.

  24. david smith

    South Florida weather radar went down this afternoon for a few hours. Never happened during the 2008 crisis.

  25. purple

    I’m not knowledgable in this area… it possible for the Fed and Treasury, through some others, to buy into the market to make rise as it did today, after the fall?


  26. karl

    Seems to me this event was a bear raid. Volume started to rise two hours before the close as the Dow fell pushing leveraged players into a involuntary margin call position. Their portfolios were sold suddenly so buyers were over whelmed. After that the volume trended downward and the overall marked calmed down. A chunk of change was lost today.

  27. flow5

    Shit doesn’t just happen. Forecasts are mathematically infallable. So was this.

    1. Kathi Berke

      Forecasts are mathematically infallible? Like weather forecasts? Analysts’ forecasts? You’re kidding, right? Maybe you know something I don’t.

  28. craazyman

    Another day of “efficient markets” at work! Nothing like price signals to steer valuable social resources to their most productive uses (like looting taxpayers, wink, wink, say no more). ROTFLMAO!!!

  29. The Derivative Project

    At around 1:45 today, we were adjusting some positions. We sold a plunging bond fund and happened to catch the low of the day! Fine, that is the risk of the market. Then we went to sell an SDS positon when the DOW was down 850 points and to buy APPL at 200, the little guy is shut out of the markets! Schwab’s online trading was down until the close of the market and the little investor was blocked out of this once in a life time opportunity to buy on an incredible dip. What’s a little guy to do? The system took our sell order at the low, but would not take the sell at the high and the buy at the low.

    Is anyone liable that we were not permitted to trade?

  30. john

    I love how this is all being explained away — “Didn’t happen, folks. Nothing to see here. Move along.”

    Really? Gatrillions of dollars at risk and invested in technology in one of the most profitable industries in the history of humanity and I’m supposed to believe that Homer Simpson can bring it all down by eating doughnuts over his keyboard? Okay, I’ll just stay all-in, then, thanks.

  31. Mike

    It appears that the Fed crashed the market today to provide just a taste of what they would do if the Paul/Grayson language passes as an amendment to the financial reform bill. Bernanke is a financial terrorist on a global scale and must not be rewarded for this threat. We must be brave and stand up to him, regardless of the near-term consequences. Bernanke must be exposed as the criminal and terrorist that he is, before he completely destroys the country and leaves nothing for our children.

  32. Orien's Belt

    Man, in times like these I just can’t tell the tinfoilhat paranoid crowd from the jonstewert ironic hyperbole crowd.

    I sit with baited breath for the 2060 expose’ treatise on what happened today and why CNBC got all Men in Black (I and II) on us with the swamp gas story.

    1. mario

      I can only speculate at this point, but here is what I think. Algos will work in more or less liquid markets. Volatility compensate for low liquidity in terms of generating the same outcome. Pure gambling. It ruined our economy.

  33. Kathi Berke

    CNBC is blithering. During the Bear Stearns meltdown, the happy campers (esp Mad Money Kramer) helped shorten its fall, as reported by a href=”″> Bryan Burroughs of Vanity Fair. Intro:

    Bringing Down Bear Stearns
    On Monday, March 10, the rumor started: Bear Stearns was having liquidity problems. In fact, the maverick investment bank had around $18 billion in cash reserves. But soon the speculation created its own reality, and the race was on to keep Bear’s crisis from ravaging Wall Street. With the blow-by-blow from insiders, Bryan Burrough follows the players—Bear’s stunned executives, trigger-happy reporters at CNBC, a nervous Fed, a shadowy group of short-sellers—in what some believe was the greatest financial scandal in history.

    Who’s got their finger on the button? Ka-pow!!

    1. Jerry

      Hey I can go with that too….I dropped my Bank of America credit card….what next…

  34. rootless_e

    U gotta love the investors who purchase unrated insurance in the form of credit default swaps on the US treasury debt as if the seller of that CDS would be likely to be in a position to pay if the US defaulted.

    I should sell some of those.

  35. snick

    Interesting to me that approx 400,000 contracts of ES traded in the 8 minute period surrounding the glitch. That is very consistent with the story going around the someone sold 300,000 ES instead of 300 ES by mistake. But it’s amazingly coincidental that this mistake happened at more or less the perfect time for maximum market impact (think, good video of Greek rioters, low for the day, huge downside tick all day). The low for ES was in the 14:45EDT minute, following huge drops at 14:43 and 14:44. PG didn’t print low until 14:46. Selling 300k ES contracts is incredibly insidious. It forces, e.g., all market makers in SPY to hedge their long position (acquired from sellers) by selling the index components, thus affecting essentially everything. And NYSE tells us they suspended trading for 90 seconds (when they saw something funny going on, in certain stocks), in such a way that everyone could legally trade through them, leaving only the ECN’s to cope, where all market makers were backing up as fast as they could to get away from the tidal wave of selling. The system is finite, folks. It’s not that hard to run over it, and that’s what happened today. A perfect, random storm, I guess.

    1. Bas

      Indeed, that sums it up.

      Just wonder about the randomness of this new “perfect storm”…

  36. dd

    When the trading system broke down in 1987 Greenspan engineered a bailout of a major IB via a failed major bank that had pulled the line until Greenie intervened; but the bank had bad LA debt and a compromise unspoken was reached. A slow unwind for the bank with a modest penalty and an ultimate takeover. The IB went on to greater things until its demise was the preeminent event to the current meltdown.
    Then again it might all be a dream, my bad memory or just irrelevant hearsay.
    But rest assured a broken trading system breaks banks, hedge funds and related financial sector institutions.

  37. sam hamster

    Nashville flooding, the oil spill and now this. Sounds to me like the fruit of demonic possession and Satan worship. Too many suits are swiveling around in their executive chairs and cutting off the heads of chickens. Too much Santaria in the boardroom.

    I told them that nothing good would come from playing with all those numbers and electronic contraptions. The drop in the Dow, today, was a visit from one of the four horsemen of the apocalypse. There will be more.

  38. Frank Ohsen

    Retail is getting out of the stock market in droves. 401k’s, IRA’s, etc. Doesn’t matter from where either. Even Joe 6 Packs are finally starting to understand a royal A screw job when they get a black and white 8 x 10 glossy of them bent over the davenport.

    So where are they going? Money markets, CD’s, PM’s, and cash. And they don’t care if fiat versions are paying .05% either. Anything is better than betting in a fixed casino run by 2 million Good Fellas out of NYC that payout ‘jackpots’ with baseball bats across knees and slit throats.

    Yessir. When average Joe 6 Pack finally catches wind of the scam baby it’s ovah. Wall Street, ya screwed the pooch real good this time.

  39. Judy Yeo

    Could it have been partly attributable to the erroneous trades reported on the options side? 16 million becoming 16 billion is sure to spark panic!Not that a 347 drop is anything to sneeze at.

    1. KFritz

      This seems to be factual, reported in NYT, Marketplace, and Krugman’s blog. That this mistake caused a huge fall is proof of the equity markets’ instability, the lack of sound fundamentals underlying valuation. It doesn’t speak well of the US that the mistake happened HERE.

      <r,p yp Es;; Dytrry@” {;rsdr vjrvl upit yu[omh@…. er…. Memo to Wall Street!: Please check your typing!

  40. Sundog

    RT@kedrosky: Imagine Wolfman Jack giving trading webinar as market crashed today (via @StockJockey)

    Some commenters on FTAlphaville and WSJ Deal Journal mentioned this looked like a big hedge fund going kaput or moving a few billion from equities to fixed income. Paging Jerome Kerviel? It will be interesting to see how the finance/econ blogs dig into this. If someone were looking to discourage meddling in the South China Sea they might arrange an ecological catastrophe and a bit of market meltdown /paranoia off… /paranoia off… Let’s try that again: /PARANOIA OFF. Did it work?

  41. maniam

    relax,don’t worry.
    PLUNGE PROTECTION TEAM/the working group.
    in 1997-The four principals of the group — Rubin, Greenspan, Levitt and CFTC Chairwoman Brooksley Born are the ‘saviors’.

    and this,EXCHANGE STABILIZATION FUND(ESF)-in 1970, allows the Secretary of the Treasury, with the approval of the President, to use money in the ESF to “deal in gold, foreign exchange, and other instruments of credit and securities.”[5]

    and this-they can create money out of thin air!

    and remember this-
    crisis leads to opportunity.create chaos and take advantage!!!

Comments are closed.