Societe Generale: Did It Alone Create Monday Panic?

Societe Generale reported a $7.1 billion trading loss due to a rogue trader making bets on stock index futures. While they were making an announcement, they also took writedowns of about $3 billion for losses in the U.S. real estate market and bond insurers.

There were rumors yesterday, that SocGen might have writedowns, but the trading loss from the rogue trader has got people wondering if a good part of the losses in Europe on Monday may have been due to SocGen dumping losing positions. In other words, a panic on Monday may have its genesis because a major bank was forced to dump positions on one of the thinnest trading days of the year--the severity of which left traders groping for all sorts of explanations.

Short covering: I have said that the last two days were dominated predominantly by short covering in financials and retailers, which are the most heavily shorted sectors. What we needed was more REAL buying, i.e. people who are buying not just because they are covering their short positions. Fortunately, we did get evidence of that in the last hour yesterday.

For those who are uncertain about the power of short covering, look at this stat from Birinyi: the fifty stocks that have been shorted the most were, on average, up 8.80 percent yesterday, while the fifty with the smallest short interest were up 1.3 percent.

The Baltic Dry Bulk Index, an index of the cost of shipping dry goods overseas, is down another 4.8 percent today. It has been in a free fall this month.


1) Unlike Motorola yesterday, Nokiareported earnings above expectations. Handset sales were strong. Their market share grew to 40 percent, from 39 percent. Nokia's board proposed an increase in the dividend and more share buybacks. Up 6 percent pre-open.

2) Hershey lowered guidance, on increased competition and increased costs.

3) Lockheed Martin reported earnings above expectations,and guided higher than its own previous guidance for 2008, though slightly below analyst expectations.

Questions? Comments?