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It was a wild day on Wall Street. The Dow Jones Industrial Average plummeted 348, or 3.21%. The NASDAQ was down 3.44% and the Standard & Poor's 500 down 3.24%. At one point, the Dow was down almost 1,000. The word is now that there was a "fat finger" trading error at some big bank, rumored to be Citigroup. Somebody may have pressed "billion" when he/she meant to press "million," for example. The Dow lost 700 in 15 minutes and gained 600 in the next 20 minutes. Obviously, this is not normal, even in a panic. If there is any integrity on Wall Street (and don't count on it), there will be a re-examination of the split-second trading in which stocks trade hands in nanoseconds. This is one reason small investors are not in this market; they simply don't trust it. However, there is talk that the big institutions will jump back in, possibly as soon as tomorrow when unemployment numbers are announced.

This is how crazy it was: stock of Procter & Gamble, the maker of consumer staples, and about as stable a company as there is in the U.S., plunged from $60 to below $40 in less than a minute, and then sprang back. The Dow's drop of 998.50 at the bottom was the biggest in history. One of the worst-kept secrets in the markets since 1987 is that Washington has a crisis control team that buys stock futures when markets tank. It might have been buying yesterday. Companies might have bought back their own stocks, too.

Today's loss wiped out most of the year's gains. Stocks are now up about 1% this year, and around 70% since the lows of March 2009. However, this has been based on liquidity. Stocks, bonds, and commodities have all gone up as the Federal Reserve has loaned money to the big banks at 0% to 0.25%. This gain has not been based much on an improving economy. If the euro zone countries continue to suffer and the euro plunges against the dollar, the pressure on markets could continue. But if markets will be manipulated in the high-frequency trading, there could be a major recovery.

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Comments

chillblaine May 6, 2010 @ 2:37 p.m.

It's my fault. I was at the grocery store telling the cashier that I wasn't buying Tide detergent anymore. Apparently there was a flag on my club card, or someone overheard me, because the next thing I know, P&G was tanking. Sorry 'bout that.

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Don Bauder May 6, 2010 @ 2:47 p.m.

Response to post #1: You cost me some money, because I own 300 shares of P&G, but I recovered most of it. Please, please, please do NOT abandon Tide detergent. It's bad enough in our household. I buy Crest toothpaste because of my loyalty to P&G. But my wife complains about the green goop that collects in the sink and insists I buy white Colgate toothpaste. We own no Colgate stock. It's a point of bitter contention here. Best, Don Bauder

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SurfPuppy619 May 6, 2010 @ 9:41 p.m.

The Dow's drop of 998.50 at the bottom was the biggest in history.

More than Black Monday in 87?? . . . Stocks are now up about 1% this year, ==========

1% in 4 months...yet Calpers has a stated ROI of 7.75%...Hhhmmmm...makes you wonder.

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paul May 6, 2010 @ 11:06 p.m.

SP, the market is still up 70% year over year from last march (2009). I am surprised that CAPLERS has not locked that in as their expected annual return over the next ten years!

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David Dodd May 6, 2010 @ 11:18 p.m.

Hey, it's like blackjack. Sometimes YOU get hot, and sometimes the dealer gets hot. In the end, unless you're counting cards or own the casino, you stand a good chance of losing.

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SurfPuppy619 May 6, 2010 @ 11:19 p.m.

The market is UP!!!!!!! 70%?...Close, but not quite that good.

March 2 2009= 6763

May 6, 2010= 10520 (+55%)

Even though it is not 70%, I was still shocked to see how much it has gained back.

Calpers ROI the last 10 years is still only 2.41%.

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Don Bauder May 7, 2010 @ 7:36 a.m.

Response to post #3: 1. Re 1987: on a point basis, not on a percentage basis. Not even close. 2. SDCERS is 7.75% and SDCERA is 8.25%. The stock market has barely moved at all in more than a decade. The Dow first hit 10,000 in 1999. This morning it's 10.316. Best, Don Bauder

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Don Bauder May 7, 2010 @ 7:38 a.m.

Response to post #4: Remember all those geniuses who said the Dow would be 25,000 by 2009? One of them was Angelides, who is one of the co-heads of the group investigating the economic crash. Best, Don Bauder

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Don Bauder May 7, 2010 @ 7:41 a.m.

Response to post #5: You have just described the problem ailing us. The stock market is a casino. The fact that 90% of the trading is done by institutions, and most of that is computer-generated (mere computerized trend-following) makes it even more of a crapshoot. Best, Don Bauder

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Don Bauder May 7, 2010 @ 7:45 a.m.

Response to post #6: There are a number of ways to track "the market" -- the Dow, the S&P 500, the NASDAQ, the various Russell indices. Also, remember that stocks are about 55-60% of the various pension funds' portfolios. (That's far too high, in my opinion, but that's a different story.) Best, Don Bauder

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paul May 7, 2010 @ 7:52 a.m.

SP said: "The market is UP!!!!!!! 70%?...Close, but not quite that good."

Sorry, I didn't actually check the math, I just quoted the post. It looks like his number was for before the crash, way back on Monday!

March 5, 2009 looks like the low, at 6594 which pushes it up to 60%. Comparing that to a Monday close of 11176 gives 69.5%.

Poor Calpers. How are they going to balance their books if they have to use the current (as of 7:45am, its 10,315.74) value and only assume a 56% gain year over year?

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Don Bauder May 7, 2010 @ 8 a.m.

Response to post #11: In addition, Calpers has gone into crapshooting areas such as private equity and venture capital that pension funds have no business going into. Best, Don Bauder

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paul May 7, 2010 @ 8:04 a.m.

refriedgringo said: "Hey, it's like blackjack."

It's a lot like Vegas. If you do your homework and learn to count and play perfectly with no mistakes, you move the odds in your favor by an amount barely worth the effort. By rule it is impossible for the casino to ever make a mistake, so they always play "perfectly"

If the casino sees that you have gained an advantage, however, they change the rules (such as eliminating doubling with aces or using a shoe with multiple decks) to water your theoretical edge down so small that it is impossible to win any real money. They can also throttle your access (slow down your game) until there is little point to playing.

The fallback position is that they can still cheat you blind if they really want to (or feel the need), because they completely control the game. There are even pretty easy ways to cheat you when using a shoe. I don't think they do it nearly as often as they used to, however, because the game is already so heavily rigged in their favor that they make so much money "legitimately" that the risk to reward is pretty high for blatant cheating.

That sounds so much like Wall Street. They need your money to play, but all the control is with the house, and if you start doing too well they will either change the rules on you or just straight out cheat you blind.

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SurfPuppy619 May 7, 2010 @ 9 a.m.

Comparing that to a Monday close of 11176 gives 69.5%.

Well then, you were right.

Still cannot believe it was up that much...would have never guessed it was that high....

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SurfPuppy619 May 7, 2010 @ 9:02 a.m.

There are even pretty easy ways to cheat you when using a shoe.

Switch the shoe out with a "cooler", which is one tough scam to pull off!

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Don Bauder May 7, 2010 @ 9:10 a.m.

Response to post #13: I have only walked through a casino three times -- once to get to a restaurant and twice to get to a potty. I have never gambled in one. Thus, I don't know a thing about the techniques you speak of. However, it sounds to me like your analogy with the stock market is quite good. Best, Don Bauder

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Don Bauder May 7, 2010 @ 9:13 a.m.

Response to post #14: When the Federal Reserve is giving away money free to the big banks (the fed funds rate is 0 to 0.25%), the stock market (and bonds and commodities, too) can go very far to the upside, no matter what the economy does. Best, Don Bauder

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Don Bauder May 7, 2010 @ 9:15 a.m.

Response to post #15: You're using jargon that I don't understand. Best, Don Bauder

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David Dodd May 7, 2010 @ 11:25 a.m.

"That sounds so much like Wall Street. They need your money to play, but all the control is with the house, and if you start doing too well they will either change the rules on you or just straight out cheat you blind."

This is a great quote. I have a friend who is a big commodities trader. When he found out that at one time I was a successful horse player, he chuckled and told me that one of the texts that he and his buddies swear by is "Secrets Of Professional Turf Betting", by Robert Bacon (1952). Some of the information in the book is pure rubbish, but the betting principles (looking for value, identifying trends, etc.), and the concepts of money management apparently work well when taking futures positions. He continues to encourage me to become a trader and I will continue to decline (one successful vice is enough for one lifetime), but it is interesting to see his success. His latest win was selling the Euro short against the Dollar prior to Greece's recent bail-out. I have no idea how much he made on that position, but he described is as a massacre.

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Don Bauder May 7, 2010 @ 12:28 p.m.

Response to post #19: I've always thought that newspapers should put the stock listings and the race results on the same page. After all, they attract the same readers. Incidentally, there is a new novel out, "The Significant Seven," by John McEvoy (an old friend of mine) that reveals some of the tricks of the horse racing trade, particularly the fixing of races. And there is also an intriguing mystery, replete with lots of murders, creatively pulled off. It's from Poisoned Pen Press. Best, Don Bauder

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David Dodd May 7, 2010 @ 12:54 p.m.

You know McEvoy! I read Women In Racing, found it fascinating. I'll keep my eye out for some of his mysteries, I hear they're good.

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Don Bauder May 7, 2010 @ 1:22 p.m.

Response to post #21: McEvoy replaced me as sports editor of the Daily Cardinal at the University of Wisconsin in 1957 (maybe 1958). I went on to managing editor and then editor. He graduated and went on to a great career writing about the racing industry -- and writing his mystery novels. He's a very talented author, as "Significant Seven" shows. We were not in touch with each other for more than 50 years when we reconnected. That's how I learned about his novels. Best, Don Bauder

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SurfPuppy619 May 8, 2010 @ 6:15 p.m.

You're using jargon that I don't understand. Best, Don Bauder

Casinos use what is known as a "shoe" to deal their blackjack cards out of. A "shoe" is a box that holds 5-6 decks of cards-which lowers the odds for "card counters", gamblers that make bets based on the cards that have been played so far-each card played is given a numerical value, and with a deck of 52 cards you can determine what cards are left by counting the ones played so far. Counting cards turns the advantage to the gambler.

So the casinos use the shoe to beat card counters, by using 300+ cards in a shoe, instead of using just 52.

A "cooler" is a shoe the gambler brings INTO the casino (secretly), with the decks prearranged in the shoe, and when the dealer is not looking (due to an intentional distraction) the gambler switches out the dealers shoe with the gamblers OWN shoe-the "cooler". The gambler then knows what cards are coming-because he put them there-and bets accordingly.

It is a very dangerous and extremely risky cheating scheme-which has been pulled off though by sophisticated scammers.

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David Dodd May 8, 2010 @ 7:39 p.m.

Actually, there is a counting method that can be employed that works to the advantage of the gambler when more cards are in the shoe. I used to go to Laughlin every other weekend when I was single and 90% of those trips were successful employing that technique. The casinos still consider counting to be illegal, and if they suspect that you're counting they'll toss you out. The only way they won't catch on is if you play at relatively low minimum tables, and keep your bets down so as to not attract attention. Unfortunately, this means it literally takes all day to show a profit of a few hundred dollars.

The problem with making a living doing this is that you have to play at a casino where all cards are dealt up (except the dealers down card, which will be revealed eventually), it's mind-numbingly boring to sit at a table for ten hours or more keeping numbers in your head, and you have to be careful not to play at the same casino too often. After a few months, it was more trouble than it was worth.

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Don Bauder May 9, 2010 @ 3:28 p.m.

Response to post #23: Thanks for the enlightenment. Wouldn't a casino get wise and have a paid observer watch when the dealer is distracted? And then report the crook to the cops? Best, Don Bauder

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Don Bauder May 9, 2010 @ 3:31 p.m.

Response to post #24: Well, congratulations for fleecing the casinos while it lasted. Given who owns the casinos (mobsters, despite the propaganda you hear), I always get a chuckle when they get cheated. Best, Don Bauder

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David Dodd May 10, 2010 @ 6:40 a.m.

You ready for the elevator ride back up, Don? There isn't anything that seems to lose value that isn't revalued at some point. This morning is great testamony that the stock market is a gambler's paradise. Big money is going down on the PASS line.

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Don Bauder May 10, 2010 @ 7:25 a.m.

Response to post #27: Of course, we investigate meltdowns, not meltups. It's interesting that markets all over the world have responded so positively to the bailout of the big European and U.S. banks (as well as a bailout of these ailing countries whose welfare states have run amok). It's another example of the problem being kicked down the road for later generations to deal with. If this euphoria stays around, the promised attempt to pinpoint what went wrong last week will fade, perhaps completely. Best, Don Bauder

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David Dodd May 10, 2010 @ 7:50 a.m.

Yeah, shades of Roosevelt's New Deal. Liquidity breeding such optimism. Frankly, it scares the hell out of me. I fear for my grandchildren. I think about the inflation in the seventies inot the eighties, and I can't imagine that what we're up against isn't going to be twice as bad.

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Don Bauder May 10, 2010 @ 2:03 p.m.

Response to post #29: It's the old moral hazard question. The more the taxpayers of the world bail out the big banks and bail out the countries that should get their houses in order, the more the problem gets shoved into the future. And it will be worse the next time around. Best, Don Bauder

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SurfPuppy619 May 11, 2010 @ 11:57 p.m.

The casinos still consider counting to be illegal,

Card counting is not illegal (as long as you're not using a mechanical device-just your brain), but the casinos do NOT have to let you play... and as you noted they will just kick you out-and then notify all the other casinos who you are and they won't let you in either.......all business!

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David Dodd May 12, 2010 @ 12:23 a.m.

Exactly, SP, my choice of the word "illegal" wasn't the best one, "forbidden" would have been a better word. Casinos remind me of politicians. They sell you on how you have the opportunity to make your life better with them, to win at something. The reality is, it's the last thing they want you to do and they ensure that, in the long run, they will take your money no matter what you do.

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Don Bauder May 12, 2010 @ 6:05 a.m.

Response to post #31: The practice of kicking out those smart enough to count cards is another reason why it's silly to gamble in a casino. The games are rigged for the house, just as the horse races and the stock market are rigged. I don't understand the big surge in gambling in the last three decades, but then I am an old fuddy-duddy. Best, Don Bauder

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Don Bauder May 12, 2010 @ 6:10 a.m.

Response to post #32: I would say the same about playing the lottery. Your odds are even worse than in a casino. The state holds lotteries as a means of raising money -- an admission that they are losers by definition. Best, Don Bauder

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MURPHYJUNK May 12, 2010 @ 12:39 p.m.

investing on hopes and promises is always risky.

only the crooks than manipulate the market make out no matter what happens

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Don Bauder May 12, 2010 @ 2:13 p.m.

Response to post #35: By any measure, small investors are not in this market. The reason is exactly the one you cited. They realize the big players and their split-second, rapid-fire computerized buying and selling totally control things. Best, Don Bauder

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valueinvestingisdead May 19, 2010 @ 10:26 a.m.

Someone found out Graham and Dodd doesn't work anymore and hit the PANIC button.

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valueinvestingisdead May 19, 2010 @ 10:29 a.m.

Reply to #34 - Because States don't know how else to raise money when our basic economies have all left for China and India. Thus, we are left with casinos. I would say coming to America now is one big gamble.

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nan shartel May 19, 2010 @ 12:47 p.m.

i'm not finding any PoohSpeak here gamblers

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nan shartel May 19, 2010 @ 12:54 p.m.

32

or they fix the game and bet against u Refried...ala Goldman Sachs

Wall Street stocks and bonds scare the H E double Hockey sticks out of me...that old homily "u can't get something for nothing" has changed to "u can't get something for something more"

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Don Bauder May 23, 2010 @ 6:19 a.m.

Response to post #37: Graham and Dodd theory hasn't worked for several years now. Graham and Dodd is a kind of FUNDAMENTAL stock analysis. But the computers that dominate Wall Street only follow trends. Best, Don Bauder

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Don Bauder May 23, 2010 @ 6:22 a.m.

Response to post #38: And the money generated inside casinos gets skimmed and sent to offshore tax havens. Even if it didn't, casinos would't create money or economic activity. They would just redistribute it -- from the citizenry to the crooks that own casinos. Best, Don Bauder

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Don Bauder May 23, 2010 @ 6:25 a.m.

Response to posts #39-40: Good analysis. Wall Street is out to fleece you, not help you. It's been true for a long time but the public is finally realizing it. Best, Don Bauder

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Don Bauder May 23, 2010 @ 6:26 a.m.

Response to post #41: The small investor is the one that buys and sells at retail. Best, Don Bauder

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Don Bauder May 23, 2010 @ 4:49 p.m.

Response to post #46: That was just my definition of small investor. There must be many other definitions. For example, there are those with a modest amount in mutual funds or 401Ks. And, as you point out, some retail investors are really large. Best, Don Bauder

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