Commentary on today's crazy plunge is starting to come out from investment houses. Jeffrey Rubin at Birinyi Associates notes that today's markets are much more complex and risky than ever before. Here is what he said:
"Allegedly, today's decline was a result, we are told, of a trading error involving billions (instead of millions) of shares or perhaps futures. This is certainly not the first of such errors and unfortunately not the last.
Our greater concern is not the fact that a trade error occurred at all but the magnitude of its impact. The markets of the 21st century are increasingly being subjected to the structural changes of the past ten years. In particular changes such as decimal trading, FD, ECNs etc, as we wrote in our August 2007 study, The Next CRASH, have led to an environment that is "…prone to systemic failure as a result of technological innovations and utilization…."
"We propose that when trading errors have occurred in the past, their impact has not been as significant and impactful because of the existence of human intervention. Electronic trading is unable to determine a traders true intent and is incapable of questioning an erroneous trade or series of trades. We submit that the reforms of the 1990s and the 2000s were intended to take away the institutional advantage.
However, in our opinion, the net effect has made life and investing more difficult and more complex for the individual. And today was a prime example. We continue to be concerned about the coming changes in financial regulation and what those unintended consequences will eventually be. If today is any guide investors should increasingly be concerned regarding those potential consequences."
Scott Adams