NASDAQ’s short ‘downtime’ last week (thanks to a technical glitch) sparked a storm of lamentations and consternation in the cable financial media. They called it a crisis. You would have thought it was the end of the world or, at least, another nail in the coffin of investor confidence. I bet poor Warren Buffett was really sweating it out when he couldn’t buy or sell any of his O-T-C holdings (NOT!).
It was topic ‘A’ Thursday afternoon and Friday morning. It even drowned out talk of the “Dreaded Taper.” So, I could not resist including Randall Forsyth’s recent “Up and Down Wall Street” column (Barron’s 8/24/13–you need a Wall Street Journal subscription to view) in this post.
In his column, Forsyth poked great fun at the financial media. But then he brings us back down to Earth, pointing out the potential negative ramifications of Fed tapering (again). Not only could it do grievous harm to the U.S. economy and housing market, but it could gum up the entire world economy (starting with the emerging markets).
The theme of greater negative consequences is now surfacing. Again, I don’t buy it (see session 53). As it pertains to the financial press and pundits, they might be wise to consider the words of Mark Twain, “I am an old man and I have known many great troubles, but most of them have never happened.” If tapering is met with a sharp market decline, then they should ponder this Twain quote, “I was seldom able to see an opportunity until it had ceased to be one.”
What do you think?
| SATURDAY, AUGUST 24, 2013
You Call This a Crisis?
By RANDALL W. FORSYTH | MORE ARTICLES BY AUTHOR
The impact of not being able to trade stocks on Nasdaq pales against lots of other things.
Oh, the moaning and gnashing of teeth!
One would assume it was over an event on the scale of the deaths of more than 100,000 in Syria, some from attacks with chemical weapons, or the bloody clashes in Egypt. “What is happening now in the Middle East is the most important event so far of the 21st century, even compared to the financial crisis we have been through and its impact on world affairs,” William Hague, the U.K. foreign secretary, said last week (although one might rank 9/11 even higher).
No, the great human tragedy being played out on the financial cable channels was the outage at the Nasdaq Thursday afternoon.
Imagine not being able to trade shares of the likes of Apple (ticker: AAPL), Amazon.com (AMZN) or Google (GOOG) for more than three whole hours! It created an existential crisis. Do these companies actually exist if investors cannot trade claims on their future values? And if you own one of those claims, are they worth anything if you cannot obtain an instantaneous quote? This was a huge failing for the country, threatening our very national security.
I confess to having been blissfully unaware of the Nasdaq outage at the time, as I was stuck in a doctor’s office that afternoon, dangerously cut off from the markets and the rest of the world while my smartphone was wrested from my hands as I underwent some tests. My impression was that the rest of the office also was ignorant of what was happening in electronic equity markets as the staff and doctors went about their business of treating patients. Only later would I learn of the tragedy that had befallen us.
Can this great nation long endure a lack of stock trading? Perhaps on a somnolent late-summer day, and then for a few hours. But for weeks or months? Well, it has happened, and during a period of great crisis. And the nation not only survived, but arguably benefited.
With the outbreak of World War I at the end of July 1914, Treasury Secretary William G. McAdoo ordered the New York Stock Exchange closed in order to prevent massive liquidation of U.S. stocks by British investors seeking to raise cash. (At the time, the Treasury Secretary was the de facto central banker; although legislation to create the Federal Reserve had been passed the previous year, it was not yet up and running.)
The U.S. then was operating under the gold standard, so the proceeds of sales of American assets could be readily converted to gold, which could flee the country. (This account comes from When Washington Shut Down Wall Street, a 2006 book by William L. Silber, an economics professor at New York University and—full disclosure—a professor of mine in grad school.)
A crisis was averted and, later that year, the NYSE was allowed to reopen. By avoiding a suspension of the gold standard, Silber writes, the U.S. became the international financial center, eventually supplanting Great Britain in that role.
Investors in Microsoft (MSFT) who might have otherwise sold Thursday should thank the Nasdaq for thwarting that possibility. In the great tradition of Charlie Bluhdorn, Microsoft shares jumped nearly 8% Friday after Chief Executive Steve Ballmer announced his intention to retire within 12 months.
Bluhdorn was the consummate conglomateur of the 1970s, combining prosaic companies with the glamorous likes of Paramount Pictures into Gulf+Western Industries, memorably satirized in Mel Brooks’s Silent Movie as “Engulf and Devour.” In one of the great tales of business history, when news of Bluhdorn’s succumbing to a heart attack aboard his private jet in 1983 got out, Gulf+Western shares soared.
So, there are worse things than not being able to trade stocks. Still, it is widely agreed that incidents such as the shuttering of the Nasdaq require a vigorous government response. No doubt SEC Chairwoman Mary Jo White will summon the heads of the exchanges to knock those same heads together to prevent future such glitches.
Here is a case where government might do a better job than the private sector. Who is better at monitoring information networks—which is what exchanges essentially are—than the government? My modest proposal is to put the Nasdaq, the NYSE, et al., under the watchful eye of the NSA. After all, everything else already is.
What’s your take?
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