When a ref bungles a call of the magnitude we saw last weekend against the New Orleans Saints, the world goes up in arms. It's such a glaring imperfection that people question the very moorings of the game and there's an immediate outcry for better officiating, for instant replay, for new rules, for anything, anything to make it so a team is no longer denied a chance to go to the Super Bowl.
If only we had a similar outcry, a similar revulsion, a similar uproar about the rules of our stock market -- because, unlike the NFL, which cares about its popularity and its status, the exchanges and the people who run them clearly don't or they would do something about the erratic way stocks can trade, and how there are blown calls all over the place and no one does a thing about them.
The government has abdicated responsibility entirely and the companies seem oblivious to what happens to their own shares and all that they have to buy just to try to stabilize their own stocks because of the fundamental flaws of the stock trading system. Oh and you better believe that's the reason many of these companies do buy stock, not just to shrink the denominator when it comes to earnings per share.
And unlike the NFL, the seats in this stadium grow emptier and emptier each time we have a blown call, a Snafu, or something that makes people feel the game is a rigged against them as so many in New Orleans feel it is now.
That's how I am beginning to feel about the Christmas Eve massacre -- an event that, looking back now, some 13% higher, can join the annals of the May 2010, August 2015, February 2016 and February 2018 flash crashes in the ruination of the playing field and destruction of trust in the asset class that is stocks.
Mind you, right up front, I am saying that while I have complained of mindless buying when stocks march up, the swift nature of the declines on these four occasions has far more to do with a LACK of officiating than it does with anything fundamental at all about the companies, or the economy that stocks are supposed to track.
The decline that rare, thin Christmas Eve day should have exchange officials, Treasury, the SEC and individual companies investigating what the heck happened. How could stocks just crash so hard on an illiquid day when there are so few players?
The answer is pretty simple: The refs have let not just one play, but the whole game get out of hand, and it is the fans -- those who pay to be part of the American stock dream -- who get blasted to kingdom come and don't come back again.
Think about it. There was no economic reason whatsoever for the flash crash of May 2010. I was on TV, I watched it happen and knew there were no refs on the field to stop the play. I was on TV for August of 2015 and could see that the machines couldn't adapt to an 8% decline in the Chinese stock market, of all things -- not the U.S., but China -- and a faint whisper from one Fed official on some Sirius satellite station few have ever heard of that there might be a reason to tighten rate policy. The February 2016 trashing had something to do with oil going to the twenties, which turned out to be a great spur to economic activity.
The February crash? Sure, the President was starting to fight back on trade, but the real reason for the crash? Some stupid VIX (Volatility Index) traders who were caught leaning the wrong way and who didn't have enough capital to do anything but sell S&P futures.
And the half-day before Christmas? What was that crash about? I think if we analyze it -- not that anyone will -- it will be related to some liquidations that had to be done that day, or else some fund or funds would close and there weren't enough buyers on the other side of the trade.
Now, why do I care about this again? Because after each crash there are fewer and fewer players who trust the asset class. Yet no one seems to care. These other crashes all occurred when CD rates weren't competitive. Now, that's no longer the case.
I think there should be an investigation about what happened to the American stock dream. How did we let the mechanics drive individual investors away? Why is it that nobody even seems to care? Could there be more ennui about this bungling of an amazing institution, especially versus a blown call in the NFC Championship game?
Nope, no one cares. Maybe they will one day, when the seats in the stock stadium are almost empty. Mark my words, that's what will happen with a few more of these events -- events that we know are a given in a world where the refs have disappeared and the players run wild without a care about what happens to those individuals who used to be the most important part of the institution, which no one seems capable preserving.
