China Sell-Off Aggravated by Dow Jones’ Computer Systems

World stock markets were down from Tuesday thanks to a drop on the Shanghai exchange brought on by fears of a government crackdown on illegal trades. Because of globalization and technological advances, this information spread rapidly and took down markets in Asia and Europe. By the time America opened for business, the down trend was well established. Then around 3 pm New York time, the bottom fell out of the US market. The fault was with the Dow Jones computers.

The Shanghai exchange is an oddity to say the least. A weakly regulated exchange in a booming economy is the ideal place for all sorts of casino-like shenanigans – people don’t invest there. They gamble. At the same time, the government still clings to a communist ideology that gives it cover to do all sorts of counterproductive things on the whim of an apparatchik. The fact that this particular market dropped over 9% in a single day puts things in perspective.

Henk Potts, from Barclays Wealth, observed yesterday, “The Chinese economy has become an integral part of the global economy and we have really been feeling the effects in London.” And what affects London, hits Paris, Frankfurt and so on. Masatoshi Sato, a senior strategist at Mizuho Investors Securities, suggested, “Aftershocks in some markets, where prices are overvalued, may be seen from now on. Volatile and sensitive trading is likely to continue at least until mid-March.”

In New York, the day was down from the beginning, dragged lower by events overseas. However, charts show what had been a gradual slide of 300 points over the course of the day turned into a straight-down drop of an additional 200 points about an hour before the final bell. The computers at Dow Jones were having trouble keeping up with the volume of trading. Engineers brought backup computers on line, and in seconds, millions were wiped off the books. Dow Jones spokeswoman Sybille Reitz defended, “The market’s extraordinary trading volume caused a delay in the Dow Jones data systems. We decided to switch over to the backup system, and the result was a rapid catch-up in the published value of the Dow Jones industrial average.”

The dead-cat bounce before the close meant the Dow Jones Industrial Average closed off 416.02 (3.29%) rather than 546, the lowest point of the day. The weirdness of the Shanghai exchange is only to be expected. The inadequate computer capacity at Dow Jones is less understandable. Indeed, it is close to negligent in a criminal sense. The SEC, naturally, will have nothing to say on the matter.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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