On May 6, 2010, the Dow Jones Industrial Average suffered its fastest nosedive ever. What happened? What's clear is that high-frequency trader accelerated the free fall by withdrawing from the market en masse. Four years after they caused the "Flash Crash," those speed demons still rule our financial markets.
We can just make stuff up with aplomb. One day we say the market rises as "investors cheer" good employment numbers; the very next day we attribute the decline to "structural problems" and look forward to a long decline! Were those structural problems not present yesterday when investors were cheering?
It has become more common to measure the success, or health, of the game by things like the revenue generated by the teams. This is not unlike measuring the state of the American economy by looking only at the Dow Jones Index. It may give a good heuristic of the economy, but it misses a lot of important aspects.
Last week, the Dow Jones Industrial Average dropped over 600 points, sparking a Gold Bug swoon. Rob McEwen, the executive chairman and chief owner of McEwen Mining has been in the gold mining business for 25 years. So, I turned to him for wisdom and experience on today's dance between the Dow and gold.
On October 19, 1987, the Dow Jones Industrial Average lost 508 points (22 percent). There are many theories as to why the crash occurred, but the simple truth is that the panic stemmed from a sharp rise in interest rates. Likewise, another stock market crash awaits investors on the other side of tapering.