Yesterday I heard an interesting story via a radio show about Greece. Apparently, Greek tax collectors canvassed wealthy neighborhoods in and around Athens asking residences if they had a swimming pool in an effort to enforce an existing swimming pool tax. So how many admitted to having a pool? 324 residents. With that said, that same tax agency decided to investigate more and even had helicopters plot the skies to count the number of pools. As it turns out there are 16,974 swimming pools in those neighborhoods! Classic…so is that massive corruption or massive resentment toward a government that takes from wage earners to support a mammoth government that provides 1/3 of the nation’s jobs? Generally speaking, the motivation to cheat and lie is enhanced by anger and frustration. Don’t get me wrong…I am not condoning you to lie and cheat. It’s just an interesting relationship that could produce similar results anywhere.

Today’s rioters will be individual investors looking to recoup losses from yesterday’s fiasco. There is no doubt this mess is going to cost a lot of money to clean up at one point during the session the market was down nearly $1 trillion dollars. That’s real money even these days. The word is that NASDAQ will cancel stock trades up or down 60% or more between 2:40 and 3:00. Here is the list of companies whose trades will be canceled. In the meantime I’ve read conflicting reports on that infamous Proctor & Gamble (PG) trade. The early word, as mentioned in yesterday’s post, was a trader at Citigroup put in a trade but hit the “B” key rather than “M” which sent the shares spiraling. The NYSE and Citigroup denied the trade ever happened. If there was in fact a bad trade, the details remain to be seen.

The other question is what happens with high frequency traders? Already a focus of regulators, its likely even more pressure will be put on this group of electronic cowboys. On April 13th, the SEC voted unanimously to tag high frequency trades with ID numbers that would give the SEC access to information. I agree that more transparency is needed. The plan will cover about 400 of the largest traders. Parameters to be tagged:

• Trading 2m shares a day or $20 million a day
• Trading 20m shares a month or $200 million a month

This all comes at a bad time for the NYSE Euronext, which is close to opening its new 400,000 square foot facility 35 miles away from Wall Street. The $250 million facility in Mahwah, New Jersey, is designed to handle the electronic trades from high frequency traders.

Enjoy your weekend! Have a drink as it’s been a crazy week.

-Samir

Today was definitely a crazy day with the stock market. The Dow was down almost 1,000 points at one point today. It ultimately closed down 347 points or 3.2%. I really think there is some sort of market manipulation going on. Several stocks traded down to $0 or pennies from it! Some of these include Boston Beer (SAM), Exelon Corp (EXC), CenterPoint Energy (CNP), Eagle Materials (EXP), Genpact (G), Brown and Brown (BRO), and Casey’s General Stores (CASY).

This sudden drop that happened today is the #1 reason why I have written at great lengths in the past as to why you should NEVER physically input stop loss or trailing stop loss orders. If you had input this such order for Boston Beer, for example, at a level of 10% below yesterday’s closing price, it could have blown right through this and actually sold your shares at near $0! So, never physically input a stop loss/stop limit order; but, rather, keep it in a spreadsheet or notebook or something else for quick viewing.

So, how did this happen? It’s complete crap in my opinion. Apparently, someone at Citigroup mistakenly typed a “B” for billion instead of an “M” for million on a trade. If this is true, that person better have been fired on the spot and the company fined big time. You can read more about it here.

Also, this is why I despise computer driven trading platforms at many of these hedge funds. It creates an unlevel playing field for retail versus institutional investors. For example, it will take a few to several minutes for you or me to input 5 trading orders. These same 5 orders plus a 10,000 more will take microseconds for these computer trading platforms to execute. It creates unnecessary volatility in the markets and decreases the confidence that folks, such as you and I, have in the markets. There needs to be legislation passed to prevent this or even eliminate these algorithm/computer driven platforms being used at many trading firms.

I would be interested in hearing your thoughts. Definitely, a frustrating day for many of us.

On a positive note, if you did buy EUO and some form of gold and/or silver since I have been recommending them over the past year, you are sitting on some nice profits. For example, EUO is up almost 25% since end of December 2009, which is when I started recommending it. Don’t be shy to take some profits off the table as nobody has ever gone broke taking a profit. With that said, I expect EUO to rise more over the near term and long term as the Euro should continue to break down due to continued troubles in Greece and inevitable problems to surface at other EU (European Union) member nations, such as Spain and Portugal.

As always, if you have any questions, don’t hesitate to post a comment or email me directly at customerservice@yajnikletter.com.

-Samir

It’s times like this in Europe that makes me want to play Tom Petty’s Greatest Hits CD and listen to “Free Fallin’.”

If you decided to short the euro by buying EUO for example, you must be having a nice morning. I had a nice walk along the intracoastal waterway here in Florida at 6:45am today because the bad price action this morning by the euro on so-called good news doesn’t bode well for the euro if you consider all of the negative factors in the market.

Not sure if you are familiar with Milton Friedman. He is a man whose faith in the market, and brilliant summaries of how it really works, has proven so consistently right for so long regardless of his most followed naysayers. Mr. Friedman was quoted as saying this in 1990: “It seems to me that Europe, especially with the addition of more countries, is becoming ever-more susceptible to any asymmetric shock. Sooner or later, when the global economy hits a real bump, Europe’s internal contradictions will tear it apart.” All I got to say is “WOW!”

Over the past few weeks, I have had colleagues and friends express the collective concern that the euro could surge if Greece is saved. It’s true…it could…granted Greece is indeed saved. However, I would view this as a short term movement to allow us to short the euro even more if you choose to do so. However, over the longer term, the dynamics surrounding this currency are still very much negative. With Greece receiving a bailout, this would only prompt the other troubled EU members, such as Portugal and Spain, to ask for similar bailouts. The way I look at it is that the euro is damned whether or not bailouts occur. So, in the short term, I really feel that bailing out Greece is simply a band aid to cover up a long term problem with a short term solution.

Here is a simplistic summary of recent events surrounding the euro:

1. Market realizes that Greece is in trouble and, as a result, yield spreads push higher. Keep in mind it was publicly known that Greece, Portugal, Italy, Ireland, and Spain should never have been able to leverage themselves to the stratosphere.
2. Finance Ministers are confident that Greece can handle this problem alone, but their friends are there to help if needed.
3. Well, maybe Greece debt is more than it can handle; this is a problem the Eurozone can effectively deal with. We won’t let our friend default.
4. Well, maybe there is a little more debt exposure than we fist realized, so we are going to call in taxpayers outside the zone (IMF) to help us save our good friend Greece. There is no danger whatsoever of this issues spreading to other EU members. The euro is rock solid baby!
5. We’re thinking 60 billion euros will be more than enough to help out Greece.
6. Ooops, did we say 60 billion, we meant 110 billion euros! My bad!

Thus, showing us in real time one of the major flaws facing the single currency: none of the EU members really like each other and, as a result, there is very little if any political unity across the zone.

I expect the euro to continue falling over the longer term and could even get to a point that it is 1:1 with the U.S. dollar.

-Samir