The SEC announced that all U.S. stock markets would be closed Monday, only hours after the New York Stock Exchange said there would be no floor traders.Dennis Gartman is probably pleased by this development.
In his latest Gartman Letter, which he published before the SEC announcement, he warned of an “ugly circumstance developing in stock prices” from the hurricane if there was electronic trading with no human floor traders:
“The first thing we wish to do this morning is to make everyone aware of the fact that with Tropical Storm Sandy bearing down upon NY and already wreaking havoc on the crude and products markets, we may have a very ugly circumstance develop in stock prices for the NYSE floor has been closed already and that means that there shall be no humans… no adults… on the floor should the algorithms run amuck.
We hope that nothing untoward develops, but if something were to go wrong with the “algorithm-driven” trading this would and could be the worst of all days for that to happen. We obviously hope otherwise, but it is best to fear the worst.”
Gartman also addressed how Hurricane Sandy could affect energy prices. He wrote that refineries along the East coast were being shut down, but that they were likely to face loss of electricity for a few days and experience flooding.
This is likely to tighten inventories since refinery capacity on the East coast is weak.
“If Sandy becomes truly untoward in the next 48 hours, we can imagine crude oil prices coming under pressure while gasoline, and particularly heating oil, race higher. We can imagine the heating oil backwardation to become even more extreme than it already is, and we can imagine gasoline going backwardated out into the spring of next year rather easily. Indeed, we’d be surprised it if did not do so.
…Simply put, products are already inordinately and disconcertingly tight; ‘Sandy’ is only going to make matters much, much worse.”
For now, US equity futures are down and gas prices are up.
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