Flash Crash Victims
Research for Online Investors

by John Dalt

5/14/10

Last week’s big drop in the market on Thursday has now been named the “Flash Crash” since it happened so quickly and corrected.  It sounds kind of like we all rebooted our computers at the same time.  Did we all hit the Ctrl+Alt+Del keys?

Congress wants answers, some investors are screaming because they lost money. Wow, grow up. A person in New York came home from work to find he had been stopped out of his Apple (AAPL) shares at $210 and it closed back at $246, he felt cheated. Duh, DO NOT enter stop loss orders in your computer.

Stupidity doesn’t just exist in the retail ranks of investors. The Wall Street Journal reports today that Ted Feight, a financial adviser in Lansing, Michigan was a victim. He manages $4.2 million for investors. He had stop losses entered in his computer. He was cashed out for $4,200 And this guy calls himself a money manager? He said he had to call his wife in to confirm he was reading the computer screen correctly. It is funny. But in our no-fault world, his sales were reversed, so he got his investors money back.

Here is the problem. To be a financial advisor is to be versed in all of the legal ways to protect yourself and company from being accused of taking advantage of the unwashed customer. But poor ol’ Ted didn’t have any idea how to manage money. If he had, he would not have had to be ‘rescued’ by a cancelled trade. Remember on the other side of the trade was a capitalist that made a life changing decision. He bought when no one else wanted to. Now his profits have been taken away from him.

There was problem last week; market orders went searching for bids.  Buyers had stepped back from the market.  If there is no bid, and there is a market order to sell…well it can get ugly.  When we bought last Thursday we used limit orders.  Even though the market was moving lower, a market order can be filled AT ANY PRICE.

In times like these you may want to re-read our advice on trailing-stops, or your Rat Brain.  We all need to use market discipline and keep our emotions in check.

One piece of advice from Warren Buffett comes to mind. “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.” That quote is number 17 on our list under Investor Resources.

This week we are watching the Euro self destruct because of its basic weakness.  The disparity between member country economies is too great to overcome without political union.  How can Germany, the world’s second largest export economy, share the same currency with Greece?  They cannot, unless both economies operate under the same government or at least with the same budget constraints.  As the Greece economy contracts with lower wages and government spending, Germany’s economy will continue to grow with larger exports.  Germany is awash in money for business expansion, and now has a currency advantage to increase its competitive advantage.

For the last year we have looked for companies with strong foreign income streams. Our reasoning was based on the weakening U.S. dollar, as foreign earnings would super-charge their bottom line. Now that may be changing. The euro is dropping like snowflakes (wet & heavy). There have been few winds to blow the euro higher in the last week. The European Central Banks (ECB) move to buy Greek debt has thrown out the monetary discipline required to hold it all together. The euro has been exposed as a convenience for use with no teeth.

One of the companies we thought about looking at was Daimler (DAI).  Daimler makes Mercedes Benz and should benefit from the euro’s falling price.  This is like a 20% price increase for their products sold outside of the eurozone!  Surprise, DAI announced today they were pulling their listing from the NYSE, sighting low trade volume and a goal to “reduce the complexity of its financial reporting.”

U.S. Congress, can you hear the sound of companies moving out of the U.S. and off our financial exchanges because of high taxes, and stifling rules and regulations?  The sands have already shifted for manufacturing, with regulations and union contracts.

I'm from the government and here to help you!

For the last forty years, increasing wage rules, work safety regulations, licensing, and restrictive taxes made it more difficult to build a company and employ people. Companies now require specialized “human resource” departments to comply with all of the regulations. You killed it, and then complain endlessly about companies shifting manufacturing overseas where it is cheaper. Is your goal to kill the financial sector also?  There are other places in the world that operate without stifling taxes and regulation.

Be careful what you wish for.  Capital will go where it is welcome!

To the Mailbag:
I just heard a new politically correct work for “socialism.”  It is now being referred to as “Government Capitalism.”  No matter what they call it, it means that the government, which can’t even run itself, believes that it can make business determinations and decide what is and is not correct.  Time to look for a new place to live!---paid up subscriber R.A.

John’s reply: Twisting word meanings is one of the hallmarks of socialists.  A "liberal" used to be respected as one who believed in individual freedom.

Why everyone should Carry a Gun.  This article is in our Diversions Section at galtstock.com

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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