Monday, September 11, 2006

Cramer: What Traders Learned from 9/11

Jim Cramer's reflections upon 9/11 are an odd play-by-play of those first moments- when we still thought it was just a plane crash.

But Cramer inadvertantly reveals a rare- and much more important- view of what traders are doing in our markets every day. I've cut and pasted Cramer's build up to my larger point (my emphasis added).

At the very moment we first saw the smoke -- not even the flames -- on television, I was online with a bunch of traders and at the risk of sounding callous, I want to tell you what went through our heads. Maybe enough time has passed that you won't judge me harshly for what we were thinking, maybe enough time has passed that you can recall the moments between the "accidental fire" catching our attention and the discovery that we were under attack, that there was no accident and that the world as we knew it was changing.

At first we all asked, "How bad?" I must have gotten six or seven "How bad(s)?" via instant messenger in the first two minutes. Given that we didn't know it was a terrorist act, I shot back the same IM to everyone: "?????" Others came back with everything from "seems weird" to "time to buy." No one said sell, not one of my friends. More importantly, no one said, "This is it, the big one." No one was thinking that way. And no one was thinking that anybody was going to die, least of all people we knew.

One grizzled trader -- I will keep them all nameless -- IM'd me: "Futures down big, bringing in short." Many brokerages make active markets in everything every morning; this morning was no different, and you could trade millions of dollars worth of stuff freely -- as almost everyone I knew did. I came back with: "Wise, don't take short off all at once." That wasn't reflecting any knowledge whatsoever about what was happening at the WTC, it was simply about discipline.

Another trader IM'd, "Stocks indicated down big, buying right here." I asked, "Know anything?" He answered quickly, "Doesn't matter, can't be that bad, gotta bring em in, gotta buy something, too much for sale." Had to bounce, I thought, had to.

You must remember the unimaginable was happening, but it is the trader's job to imagine. All of these IMs were about imagining. You have to trade. You can't not trade. Everyone was trading. They were trading, in retrospect, with no knowledge at all.

There is an enormous percentage of the population- including a lot of folks in the financial media- that assume the big guns are firing off trades with an edge that they hold over the market.

Todd Harrison frequently refers to this curious habit as "a bunch of gunfighters standing in a circle shooting at each other."

Just once I'd like to turn up the volume on CNBC and hear someone say, "the market spiked higher before anyone had time to read the Fed Minutes... then sold off a few minutes later before anyone stopped to think about the fact that the Fed keeps telling us they have crossed into the Twilight Zone, and they don't have the foggiest idea what they're doing anymore! Therefore, with the blind leading the blind today, the market closed up a hundred points.... and when we come back, more blind people will talk about what they'd do if they were qualified to sit on the Fed."

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