"A Day to Remember!"

Sydney M. Williams

Thought of the Day (2)

“A Day to Remember!”

May 6, 2010

Evoking grisly memories of the fall of 2008, the Dow Jones Industrial Averages, at 2:47PM, was down 981.6 points. Like an over-stretched rubber band the Index snapped back 593.2 points in eleven minutes. Weak all day, the sharp decline in the averages appears to have been triggered by the sale of 1,900,000 shares of Proctor & Gamble, which took the stock from 61.73 to 39.37 and back to 61.36 in a matter of six minutes. For someone (or some computer) to decide that a company the size of P&G was worth a third less in a matter of minutes – and then to decide that perhaps they were wrong – smells of panic, not rational thinking.

Additionally, the scare in the market around 2:45PM reminded those of us who are a little older of October 1987 when “portfolio insurance”, a newly created product at the time, proved there was no insurance against such declines; in fact they magnified the fall.

Action in the Treasury market was largely coincident with that in the stock market; the yield on the Ten-Year fell from 3.8% to 3.3% and back to 3.8% during a period of fourteen minutes, as investors dove for safety.

While no one knows what tomorrow will bring, panicking this afternoon did not pay. Those who sold stocks at 2:47PM are out 5% on their stock sales and out something less on their Treasury purchases. But no matter how one colors it, the day was not pretty. The DJIA closed down 348.6 points (3.2%), the biggest point decline since February 10, 2009. Rather, today’s market showed the wisdom of maintaining some liquidity.

It is also worth noting that Bloomberg, earlier this afternoon, determined that the riots in Athens were more news worthy than events in this Country – speaking of taking one’s eye off the ball! The situation in Greece is certainly dire, but we should remember that Greece represents about 2% of the European Union’s GDP – not exactly an elephant.

E.B. White, fifty-five years ago, wrote in the New Yorker about the stock market: “It sometimes sows the hurricane, instead of reporting the breeze.” His wisdom is as relevant today, as when he penned the words.

Enjoy the weekend and remember Sunday is Mother’s Day!