When it rains, it pours: Last night, I actually spoke with a reporter (novel idea) about a piece he was writing on Société Générale, the market sell off, and the Fed.
It was based on Fed’s Folly: Fooled by Flawed Futures?, the discussion we had with clients about the panicky 75 bp Fed cut.
Its a pretty big quote. Here’s an exerpt:
"Société Générale rushed to unwind those trades during Monday’s
market plunge, and trading in those futures contracts soared to record
levels. The bank’s abrupt reversal contributed to a decline that
snowballed into an avalanche of sell orders around the world, some
traders said. The ensuing turmoil helped prompt the Federal Reserve to
orchestrate the surprise cut in interest rates announced Tuesday.
“I have little doubt that Société Générale’s unwinding of those
positions absolutely pressured indexes worldwide,” said Barry L.
Ritholtz, chief executive of FusionIQ, a New York-based investment
research and money management firm. “And wouldn’t it be embarrassing if
the Fed had to make one of the biggest emergency rate cuts ever because
of some rogue trader?”
Granted, fears of a recession in the United States and continuing
worries about the spread of the subprime mortgage collapse were also
responsible for the market downdraft in the last 10 days. But Mr.
Ritholtz argued the rapid move by Société Générale to close out tens of
billions in futures positions might have been a major factor in pushing
an already nervous market into an outright panic.
Mr. Ritholtz is not alone in his suspicions. “I definitely think there is a link,” said Byron R. Wien,
chief investment strategist at Pequot Capital Management and a 40-year
Wall Street veteran. “This precipitous unwinding created the negative
momentum that spread around the world.”
Mr. Wien also singled out the Federal Reserve chairman, Ben S. Bernanke, for criticism. “Bernanke has been reacting to events, rather than anticipating them,” he said.
On Monday afternoon, with United States markets closed for Martin Luther King’s
Birthday, Mr. Ritholtz said, many Wall Streeters were struggling to
figure out just why Europe and Asian markets were off so steeply.
“Instant messages were lighting up, and people were saying ‘This looks
like a big European hedge fund blew up.’ ” Indeed, there was little
market-moving data before the plunge."
Not too shabby . . .
Société Générale’s Sales May Have Incited Market Plunge
NELSON D. SCHWARTZ and NICOLA CLARK
NYT, January 26, 2008
Fed’s Folly: Fooled by Flawed Futures?
Thursday, January 24, 2008 | 10:15 AM http://bigpicture.typepad.com/comments/2008/01/feds-folly-fool.html
On days like this, where the market opens up over 100 and closes down 170, I always get that "Black Friday" feeling — that no one really wants to carry much equity exposure over the weekend.
But its Friday night — Enough market talk! Its time for some jazz to mellow out to.