Hackers hijacked the Twitter account of the Associated Press and released a crude tweet about explosions at the White House and President Obama being injured. The "news" never made it to Main Street but lived in the universe of the stock market for about four minutes, wreaking swift destruction and revealing the soft underbelly with respect to confidence in the rally. Of course this is sort of like the plot of "Olympus has Fallen," which is based on a far-fetched script of North Korean terrorists taking over the White House. It was so farfetched the Dow dropped 144 points and the S&P 500 lost $136 billion in market cap in two minutes.
We all remember the Flash Crash of May 2010 when the Dow yielded 1,000 points real fast and then snapped back. But for the first flash crash you have to go back to 1962 when a swift crash upset the nation and put people on guard for a worst case scenario.
Excerpt:
The signs, like the rumblings of an Alpine ice pack at the time of thaw, had been heard. The glacial heights of the stock boom suddenly began to melt in a thaw of sell-off. More and more stocks went up for sale, with fewer and fewer takers at the asking price. Then suddenly, around lunchtime on Monday, May 28, the sell-off swelled to an avalanche. In one frenzied day in brokerage houses and stock exchanges across the U.S., stock values - glamour and blue-chip alike - took their sharpest drop since 1929.Memory of the great crash, and the depression that followed, has haunted America's subconscious.
Now, after all these years, was that nightmare to happen again?
Bad Memories Linger
The 1962 flash crash was about the proverbial snowball becoming a boulder in a matter of minutes in the midst of an idyllic period in America where a new, young and energetic president created buzz and excitement. But the stock market was under pressure, and the flash crash extended the decline that began in December 1961 into a total decline of 27%.
As the Life magazine excerpt suggested, there was such a tremendous amount of stressing that maybe this was the start of 1929 all over again, in part because of the good times of the 1950s that saw the longest bull market in history (4,566 days) and second largest gain (355%) hit a brick wall in December 1961.
As it turns out, that scene was a climatic event, marking an inflection that would see the start of a fresh rally that would see the market climb 86% through February 9, 1966. Ironically, things became testy in the country as James H Meredith needed the National Guard to escort him into the University of Mississippi and as the world stood still as the Cuban missile crisis played out. Those were not only difficult events but also what one would expect from a nation working toward a more perfect union. Investors that thought the 1960's would be to the 1950's what the 1930s were to the Roaring Twenties were incorrect.
Still, the idea that such angst could incubate for decades wasn't lost on Life magazine back then and it should not be lost on us today.
Sure, we were reminded of the flash crash of 2010, but we were mostly reminded of all the miscues since the market imploded back in 2000 and 2001. This bull market certainly hasn't enjoyed the domestic backdrop of domestic growth in the 1950's, when America peaked in its economic strength over the rest of the planet. Those were the good old days. Sadly, these days the bad old days don't linger in the recesses of our minds but right there on the foreheads of those frowning at any good news or rays of hope. The skeptics and cynics that despise this rally are secretly rooting for a real crash.
The Domestic Story
Yesterday it about America and the notion that corporations would ride out a bump in the emerging markets by raising prices on domestic consumers. My broader investment thesis has revolved around the global economy, those far flung places that were mostly dirt roads and broken people by the time they took down the Union Jack for the last time. Yet, I think it would make most market watchers feel a whole lot better off if America could indeed be the best of the bunch.
I-Robot (IRBT)
Open position in model portfolio saw better than expected business in defense and released its RP-VITA hospital "bot" but it was in the home space that the USA saved the day.
Yum Brands (YUM)
The company continues to suffer from its steroid scandal which hasn't been helped with the fresh outbreak of bird flu sending overall sales in China down sharply. In the meantime, the US saw same store improvement along with increased operating profit.
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