Today in the Wall Street Journal:
“When the Federal Reserve surprised markets with a 0.75 percentage-point cut in the federal-funds target Tuesday morning, the thinking was that concerns about a U.S. recession had so fully enveloped the markets that just about anything could happen. Sure, the thinking went, the Fed was in danger of looking like it had responded to market action rather than an economic report, but if markets were reacting to economic reports, well, it’s all the same in this world these days.
The revelation that Societe Generale is taking a $7 billion write-down due to the activities of one rogue trader — and additional reports that the French bank may have been unwinding those positions on Monday, a thinly traded, volatile day when Asian and European markets were rocked with losses, puts the Fed’s move in a new light. Namely, that they were taken in.”
That’s right – a single French rogue trader is believe to have caused the Fed to make an emergency move to adjust rates in reaction to the market sell off.
This highlights the highly deterministic methods used in computer based selling and analytics in the markets today. It spells out a need for more sophisticated methods to monitor market fluctuations. See our earlier post in this Blog regarding Semantic Webs. Collective intelligence helps when you are making big decisions.