Thank God It’s Friday! July 10, 2015

It’s been a while since we’ve seen a week like this.  Between China and Greece, global anxiety washed ashore on both the Pacific and Atlantic.  Stock exchanges in New York and Shanghai were halted.  One was a technical issue, the other was directed by humans.  Fortunately, the week ended on a positive note, with hopes that a Greek deal will develop overnight and that the Chinese Stock Market has been stabilized.  We’re not so sure.  The problems that each nation faces run very deep, so solutions are not easy, nor will they be quick.  We expect the Summer choppiness to continue.

Something that didn’t help investor sentiment was the halt of the New York Stock Exchange.  Mechanically, this had very little impact on the trading session.  Today, less than 20% of the daily trading volume goes through the NYSE.  Less than 1% actually hits the floor through a human trader. Trading activity is virtually all electronic these days, for better or for worse, but this fact was a critical positive this week.  Trade orders were re-routed to other exchanges, which remained open the whole time.  In fact, had the Financial media not maintained a daily presence on the floor of the NYSE, investors might not have even noticed the halt.

The explanation for the halt was a “technical glitch”.  From our perspective, the NYSE ceasing to trade for nearly 4 hours is more than a glitch.  Adding to the concerns was the fact that United Airlines had its domestic fleet grounded due to a system breakdown.  It’s only natural that people were wondering whether there was a connection and if cyber terror was at play. Our sources do believe the issues were completely independent and no terror activity was involved.  That is clearly important, but is yet a constant reminder of the world we live in.

I visited the New York Stock Exchange a couple of years ago, and was on the floor of the Chicago Options Exchange last week.  It’s a much different set-up today than in decades past.  In the 1980’s there were herds of people with loud voices, phones and notepads.  Today it’s flat screens and iPads.  In the 80’s there were over 5,000 traders working the NYSE floor. Today there’s roughly 500. Trade commissions used to be over $300 per trade.  Today, they’re under $10.   Technology is the reason.  It’s reduced the human element.  It’s also reduced the number of errors.  Markets are intertwined and very connected these days.  Trading is very efficient.  But it still needs human brains with sound judgment.  That still exists on the floor.  It shows up when it’s needed.  The NYSE closed Wednesday and opened Thursday without a glitch.  That’s a really good thing.  The system in the US is far from perfect, but it’s better here than anywhere else.

Have a nice weekend.  We’ll be back, dark and early on Monday.


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