TIME Economics

Everything You Should Know About Puerto Rico’s Economic Crisis

The island's debt is four times that of Detroit

As Greece’s debt crisis grows increasingly dire, another territory much closer to home — Puerto Rico — has admitted to some major financial woes.

What exactly is happening in Puerto Rico?

Puerto Rico Governor Alejandro García Padilla made a worrisome announcement Sunday that the island cannot pay back its $72 billion in public debt, the New York Times reports. Padilla and his staff, according to the Times, are seeking to defer debt payments for as long as five years, while also possibly seeking concessions from many of its creditors.

“The debt is not payable,” García Padilla said. “There is no other option. I would love to have an easier option. This is not politics, this is math.”

Okay… in English, please?

Puerto Rico is in the midst of a decades-long economic struggle fueled by years of recession and slow economic growth. As a result, its government has taken out massive loans from creditors to cover its costs.

But Puerto Rico has to pay back the money (or figure out a Plan B). In recent years, the commonwealth has raised taxes and slashed pensions in order to pay back its loans, but the island’s “tab,” so to speak, has still spiraled out of control. Many residents have found their businesses collapsing — Puerto Rico’s unemployment rate is double that of mainland America — while others have been leaving the island for better opportunities state-side.

Financial markets across the world have already been rocked by Greece’s debt crisis, and Puerto Rico’s troubles will only add to the current global economic uncertainty.

What does this mean for Americans?

If you’re an investor in municipal bond funds, Puerto Rico’s debt might be your problem, too. Municipal bonds — or loans used by local governments to fund public projects — have traditionally been considered safe investments. But some investors are worried about them — several American cities have filed for bankruptcy in recent years, and the Puerto Rico situation could make things worse. According to the Washington Post, as many as three out of four municipal bond mutual funds held Puerto Rican bonds in 2013.

How bad is the situation exactly?

Padilla called the situation a “death spiral.” And he wasn’t exaggerating: Puerto Rico’s debt is four times that of Detroit’s, and the island has more debt per capita than any American state. Analysts believe the central government will run out of cash as soon as July, according to the Wall Street Journal, which could lead to a government shutdown, emergency measures and an unpredictable crisis.

So what’s next for Puerto Rico?

Good question. While Padilla seeks to negotiate with creditors, his administration is also pushing for the right to file for bankruptcy under Chapter 9, which outlines a plan for creditors to get back some of their money. (That’s what happened with U.S. cities like Detroit, Mich., and Stockton, Calif., last year.) But under current law, that right is afforded only to U.S. cities, not to states or territories including Puerto Rico.

Read next: Everything to Know About Greece’s Economic Crisis

TIME Markets

Investors Are Terrified Greece’s Economy Is Falling Apart

Investors are terrified Greece is falling apart

It’s not quite panic, but it still ain’t pretty.

U.S. stocks are bracing for a bad start to the week after Greece’s debt crisis spiraled out of control at the weekend.

In pre-market trading, futures on the S&P500, the Nasdaq and the Russel 2000 are all down by 1% or more, following the lead of European markets which have taken a much harder beating as the risk of a Eurozone breakup looms afresh.

The main stock indexes in Europe fell by up to 4% across the board on opening Monday, and are down by between 2.3% and 3.9% by lunchtime (Athens’ stock market, like its banks, is shut).

On any normal day, that would be called a bloodbath in Europe, but memories of 2010 and 2012, when the Eurozone crisis peaked, are still fresh, and there seems to be a palpable sense of “well, that could have been worse.” Most markets hit their intra-day lows immediately, the main difference being the degree to which they have recovered since (Germany faring better than Italy and Spain).

True, the yields on government bonds in some of the Eurozone’s weaker countries have spiked on ‘contagion’ fears, as markets price in the risk that a Greek exit from the Eurozone would lead to a broader breakup: Italy’s 10-year yield has risen 21 basis points to 2.37%, Spain’s is up 20 basis points at 2.32%, and Portugal’s is up 31 basis points at 3.03% (a basis point is a hundredth of a percentage point).

Those are big changes, but the absolute levels are still a long way from 2012, when markets seemed on the verge of forcing all of those countries out of the Eurozone until ECB President Mario Draghi promised to do “whatever it takes” to preserve the Eurozone. Spain’s yields peaked at over 7.75%, Italy’s at over 7.5%.

Panic is still a long way away: Spain's 10-year bond yield since 2011.

“This story won’t get too out of hand unless we start to see any evidence that the Greeks are likely to vote No (at their referendum) on Sunday,” said Deutsche Bank strategist Jim Reid. “At this point the sell-off could get messy. If this doesn’t happen, the negativity may well be contained even if the story will be far from over.”

This market reaction won’t be to the liking of the Greeks, who’ll have been hoping for something stronger to underline the risks of a breakup,” said Christian Odendahl, chief economist at the Center for European Reform in London. “But it won’t be much comfort to the Europeans either, because it shows the markets are worried about what ‘Grexit’ would mean for the future of the Eurozone.”

Away from Europe, there is more nasty mood music coming from China, where the Shanghai market continued to unravel despite a cut in interest rates and reserve requirements from the central bank at the weekend. The Shanghai Composite closed down 3.3% after a 7.4% shellacking on Friday, amid reports that the army of retail punters who had driven the market up 150% since July are struggling to meet ‘margin’ calls on leveraged accounts.

Amid the carnage, investors looked for the safe haven of the dollar, as usual, but its rally early Monday has also now largely unwound. The euro is trading at $1.1118, down less than a cent from its close on Friday. Meanwhile, in the commodities markets, crude oil futures hit their lowest in three weeks on fears that financial market volatility could again hit global growth and, consequently, energy demand. By 0900 ET, they were at $58.61 a barrel, down around a dollar from late Friday.

TIME Markets

Why Biotech Stocks Are So Wildly Unpredictable

FRANCE-RESEARCH-AGRONOMY-INRA-FRANCIS-MARTIN
Jean-Christophe Verhaegen—AFP/Getty Images A photo taken on November 27, 2012 shows a sample of a plant before a biochemical analysis at the INRA Nancy (National Institute of Agronomic Research) in Champenoux.

Where there's growth, there's instability

To understand why some investors are growing nervous about the biotech sector, consider the recent IPO of Axovant Sciences. The company was founded last October, isn’t profitable, and has already racked up a $21 million loss. Its CEO has much more experience with hedge funds than he does with biotech startups. Axovant has only one product candidate, an Alzheimer drug it bought from GlaxoSmithKline last December after it was tested on 1,250 patients in 13 trials and then stalled in development.

Two weeks ago, Axovant went public in an offering that raised $315 million. Axovant, which paid $5 million for the Alzheimer’s drug, says it needs the cash because it will have to pay Glaxo as much as $160 million more if the drug makes it to market. Incredibly, the stock doubled on its first day to $31 a share, but has since fallen by nearly a third of that peak value.

And it could well fall further. But that’s not what worries longtime observers of the biotech sector. The real fear is that this kind of speculative behavior among investors is all too familiar from the biotech and dot-com bubbles of 2000.

“The fact that someone can make something of this size out of virtually nothing should be of concern to everyone in the industry,” Fierce Biotech editor John Carroll wrote about the Axovant IPO. “When biotech mania takes over and perfectly legal schemes like this rain money, the pitfalls start to look like the Grand Canyon.”

Of the 129 biotech companies that have gone public since early 2013, few are as speculative as Axovant. Many, though, have recently gone public with huge losses incurred by heavy spending on the development of drugs that may or may not find approval from U.S. and foreign regulators. Even those that do may be so specialized in the diseases they treat that they may not become blockbusters.

If the party in biotech stocks is over, a lot of investors don’t seem to have gotten the message. The S&P 500 Biotech Index has nearly tripled in the past three years. The index had stalled and moved sideway for much of the past spring, leading some to wonder whether the rally was spent. Instead, it’s gained another 11.3% over the past month. The Nasdaq Composite, by contrast, is up only 2.5%.

Several factors have been fueling the biotech rally of the past three years. For one thing, the U.S. Food and Drug Administration has been pushing to speed up approvals. According to Ernst & Young, the FDA approved 41 new drugs in 2014, up from 27 a year earlier.

Meanwhile, the genomics-based insights that emerged in the early 2000s are finally delivering on new drug therapies. That in turn has led biotech firms to increase their research and development spending by 20% a year. After a decade or more of few promising drugs, the new generation is finally bearing financial fruit. Revenue at U.S. and European biotech firms rose 24% last year, while net income rose 231%, Ernst & Young reckons.

While new drugs may continue to come through the drug pipeline, the risk is they won’t benefit any and all biotech firms, but rather a select few. In the meantime, more investor cash is pouring into the sector indiscriminately, even into more questionable startups like Axovant. Some investors suggest it’s safer to stick with the larger companies – the so-called Big Biotech firms – that have a few promising drugs in the works as well as a track record of high growth.

Biotech stocks are vexing for many individual investors because, more than Internet or other tech stocks, they involve arcane science, a long and complex approval process, and a business model that involves largely hit-or-miss products. At the same time, no one wants to sit on the sidelines while a stock – let alone an entire sector – can double in value over the course of a year.

Many individual investors have opted to invest in biotech ETFs and mutual funds. Both of them have outperformed the broader market, but of the two, biotech ETFs have been the stronger performers. The Fidelity Select Biotechnology fund (FBIOX), for example, has risen 27% so far this year, or nearly three times as much as the Nasdaq Composite.

Several ETFs are doing as well or even better. The iShares Nasdaq Biotech ETF (IBB), which tracks biotech stocks on the Nasdaq, is up 26%. The SPDR Biotech ETF (XBI), which tracks the S&P Biotech Index, is up 39%. And the ALPS Medical Breakthrough ETF (SBIO), which began trading in early 2015, is up 47%.

The XBI and SBIO funds have outperformed because they focus more on small and mid-sized biotech companies. Nine out of the ten largest holdings in the XBI have risen more than 50% this year, and seven of them have more than doubled.

The IBB, which has emerged as something of a proxy for the industry for many investors, is weighted much more heavily to bigger, more proven biotech companies. Its top ten holdings make up 59% of the ETF’s value, including giants like Gilead Sciences, Biogen and Amgen.

The volatility of small- and mid-sized biotech stocks mean they will fall sharply once the inevitable correction comes, whether they have promising drugs in the works or not. The wildcard in the sector is the possibility of a wave of M&A, which could drive up some stocks. Synageva Biopharma, for example, has risen 140% this month on news of a buyout by a larger biotech firm, Alexion Pharmaceuticals.

But if picking which company has the next blockbuster drug is tough, anticipating the next M&A target is even trickier. And the longer the biotech rally continues, the more important it becomes to pick the winners from the losers. At some point, for the average investors, staying on the sidelines becomes the smarter play.

TIME stocks

Was 3D Printing Just a Passing Fad?

3d-printer-car
Getty Images

Companies making "the next big thing" are having a tough 2015

It seems like once a decade there comes a technology so transformative it spawns several companies that become giants: Chips in the 70s (Intel, AMD), PCs in the 80s (Apple, Microsoft, Dell), the Internet in the 90s (Amazon, Google, eBay).

There are also innovations that are potentially just as disruptive but that, from the standpoint of investors, never offer an early chance to get in on the ground floor—the way Microsoft or Google did when they first went public.

Take nanotech, an investor fad a decade ago that faded because it wasn’t startups that brought it to market, but diversified giants like Intel and GE. Or solar energy, an important technology that is requiring decades to become a mainstream product but that involves costly manufacturing plants along the way.

And then there’s 3D printing, which is looking like one of those important but hard-to-invest-in technologies. For a while, it was looking like there were a few publicly traded stocks that could offer an early entry point in another promising technology but over the past year or so, it’s been looking more like another speculative frenzy playing itself out.

For decades, the technology that led to 3D printing was used in industrial design, creating quick and relatively cheap prototypes that could be tweaked without having to retool an entire manufacturing process. Then, around 2012, the buzz about the potential of 3D printing began to grow louder: It could could make customized shoes, empower DIY hobbyists, manufacture synthetic organs. Stratasys, an early pioneer in the field, even moved to prevent its printers from making homemade guns.

Along with the buzz, stocks of 3D printers caught fire. In the two years through 2013, Stratasys saw its stock surge 333%. That was nothing compared to 3D Systems, another pioneer in the field that expanded quickly by buying dozens of small companies in the space. 3D Systems enjoyed an 800% surge in its stock in the same two-year period.

Some pundits argued 3D Systems was a better long-term investment than Facebook or Apple. Others in the sector like ExOne and VoxelJet went public in 2013 and saw their stock prices double from their offering prices. But near the end of 2013, as warning signs emerged that the rally couldn’t last despite the technology’s promise, things took a turn.

Since early 2014, most of the stocks in the 3D printing industry have collapsed. Stratasys, 3D Systems, ExOne and VoxelJet have lost between 71% and 80% of their market value in the past 17 months. The reasons why are nothing new to investors who have speculated too early in promising technologies: Profits can be hard to come by, and revenue can fall short of expectations.

Recent earnings from Stratasys and 3D Systems suggest things are getting worse rather than better in 2015. In late April, Stratasys warned that its revenue would be much lighter this year than analysts had been expecting, while net income would also be smaller. Only three months earlier, the company issued a similar warning of disappointing earnings.

Stratasys’ announcement came a few days after 3D Systems issued its own warning that revenue and profit would be well below expectations. Both companies cited vague “macroeconomic” factors like higher oil prices and a strong dollar, which were forcing customers to cut back on capital spending.

Analysts weren’t buying those excuses. “3D Systems’ effort to explain the sharp pullback in unit demand was lacking, and Stratasys really doesn’t try,” Oppenheimer analyst Holden Lewis wrote. The problem wasn’t in 3D printing technology, which proponents say is finally delivering on its potential and still holds enormous potential in the future.

Instead, as is often the case with emerging technologies, the passage into a mainstream market is proving to be a slow and rocky one. Stratasys, for example, bought Makerbot in 2013 to get a foothold in the consumer end of the 3D printing market but consumers have been slow to buy in. Makerbot’s revenue fell 18% last quarter.

The bigger threat for 3D printing companies is that bigger, deeper-pocketed rivals like HP are making a belated but major push into the market, which may be giving customers pause. “Corporate buying managers are delaying purchases while they anticipate HP’s multi-jet fusion product in 2016,” Dougherty & Co. analyst Andrea James wrote recently.

Such broader concerns about 3D printing companies have dragged down the stocks of ExOne and Voxeljet as well, even after a mixed earnings report from the latter last month. Balancing the short-term demands of investors with technologies that take a long time to mature predictably leads to volatility. If things don’t turn around soon, some companies may be bought by a giant like GE.

But just because the hype surrounding 3D printing got out of hand quickly doesn’t mean the technology itself isn’t promising. There’s still plenty of potential in the market longer-term—there is in cleantech and nanotech. It will just take time to deliver on that potential. And meanwhile, speculative investors who are characteristically short on patience move on to the hottest new technology idea.

TIME Economics

El Nino Could Cause Serious Trouble Across Asia

Aerial view of a flooded area in Trinida
Aizar Ralder—AFP/Getty Images Aerial view of a flooded area in Trinidad, Beni, Bolivia on Feb. 24, 2007. Authorities say two months of rain and floods left 35 people dead, 10 unaccounted for, and affected hundreds of thousands of people. The disaster, blamed on the "El Nino" weather phenomenon, also has caused millions of dollars in material losses.

Bad weather on the horizon

You may recall a time in the mid-1990s when American citizens were worried about El Niño, the tropical weather pattern that can cause global changes in temperature and rainfall. Now, according to a new Citigroup report, the next group to pin concerns to El Niño may be bankers.

The report, produced by Citi analysts Johanna Chua and Siddharth Mathur, suggests that the current El Niño (the weather anomaly takes places at unpredictable times, sometimes more than five years apart) could have a deleterious effect on economies in countries in and around Asia.

India, Thailand, The Philippines, and others, where agriculture contributes a major percentage of GDP, might see inflation in food prices, since a severe El Niño can brings dry spells and cause crop damage. In Indonesia, for example, the agriculture sector makes up more than 50% of overall employment.

In economies dependent on farming, long-lasting weather that upends crops will naturally impact farming output, and thus commodity pricing.

With these countries especially vulnerable to economic disruption, it may be more bad news that recent reports indicate we are about to see a particularly violent El Niño.

MONEY investing strategy

How to Invest Better By Paying Less Attention

The secret to investing is not caring what happens.

Jiddu Krishnamurti spent his life giving spiritual talks. As he got older, he became more candid. In one famous moment, he asked the audience point-blank if they wanted to know his secret.

He whispered, “You see, I don’t mind what happens.”

I’ve spent the last five years as an investor trying to do the same. I’ve made a concerted attempt to care less about what happens in the investment world. I still pay attention, of course. It’s my job. But I’m far more selective about what I read. It has helped more than I could have possibly imagined.

Caring gives a false impression that what you’re thinking about is important. If I pay attention to quarterly earnings, shouldn’t I be a better investor? If I check what the market did this morning, am I not more informed?

Common sense tells you yes. But it’s wrong. More often than not, not caring is the way to go.

My journey started with a realization that the more media investors paid attention to, the worse they did. The more they analyzed, the more decisions they had to make. The more decisions they made, the more chances they had at being wrong, letting their emotions take over, and doing something regrettable. Find someone who has mastered personal finance, and you’ll find someone with a pathological ability to not give a damn.

There are so few exceptions to this rule it’s astounding. Where is the evidence that paying attention to every last piece of market news makes you a better investor? I’ve looked. I can’t find it.

So I stopped caring about a few things.

1. Finding the perfect portfolio

Investors crunch numbers to find the perfect number of international stocks they should own at a certain age, the precise amount they should allocate to bonds, and exactly when they should cut back on stocks when historical models show they’re overvalued.

Here’s the truth: None of these models are perfect, so back-of-the-envelope, “good enough” estimations will usually do just fine.

Harry Markowitz won the Nobel Prize for creating modern portfolio theory, a formula that precisely calculates the optimal asset allocation to maximize return at a given level of risk.

With his own money, he found this too complicated.

“I visualized my grief if the stock market went way up and I wasn’t in it — or if it went way down and I was completely in it,” Markowitz once said. “So I split my contributions 50/50 between stocks and bonds.”

Good enough.

2. Quarterly earnings

The median company in the S&P 500 was founded in 1949. So it’s 66 years old. Therefore quarterly earnings tell you what happened in the last 90 days, or 0.3%, of its life. The odds that groundbreaking developments will occur in such a short period of time are slim, and they approach zero as time goes on. It’s the equivalent of judging how your day is going by analyzing the last four minutes.

Amazon.com CEO Jeff Bezos says he runs his life on a “regret minimization” framework. His goal is to look back at age 80 and regret as few things as possible.

What are the odds that I’ll be 80 years old and say, “Man, I wish I paid more attention to Microsoft’s Q2 2011 revenue”? Pretty low. So I choose not to care.

3. Wondering why the market fell

The Dow fell 0.4% on Wednesday. Why?

Lots of reasons were given. One article blamed fluctuating interest rates. Another cited “Greece worries.” Others pointed to the Fed, weak GDP growth, and falling energy prices.

“Random, unidentified marginal sellers were a little bit more motivated than random, unidentified marginal buyers” wasn’t mentioned. But it’s the best explanation for why stocks fell. The same goes for almost every day.

4. Getting other investors to agree with me

Let’s say your weather app says it’ll be 78 and sunny tomorrow, and mine says it will be 74 and overcast.

Would we argue about this? Go on TV and duke it out? Call each other names?

Of course not. We’d say, “Eh, let’s just see what happens. Probably doesn’t matter either way.”

Investors don’t think this way. The fights people get into about whose forecast is right are off the charts.

Unlike weather, money is an emotional subject. And unlike tomorrow’s temperature, our investment decisions are in our control. So many investors get offended when others disagree with them. But once you realize that A) your views are just as biased as everyone else’s and B) there’s a good chance you’re both wrong, you stop seeing any reason to argue. Debate, sure. But life’s too short to argue.

Investing is so much more fun when you come to terms with these things. Set up a portfolio that suits you — one that lets you sleep at night and gives you a reasonable chance of meeting your financial goals. Give it room for error. Have a backup plan. It’s the best you can do.

After that, you see, I don’t mind what happens.

For more:

Contact Morgan Housel at mhousel@fool.com. The Motley Fool has a disclosure policy.
TIME Currency

This Experiment Shows Why You Should Take Bitcoin Seriously

Newest Innovations In Consumer Technology On Display At 2015 International CES
Ethan Miller—Getty Images A general view of the Bitcoin booth at the 2015 International CES at the Las Vegas Convention Center on January 8, 2015 in Las Vegas, Nevada.

NASDAQ is using a key bitcoin technology

The technology that powers the cryptocurrency bitcoin could soon become much more important to the global financial system.

NASDAQ is planning to pilot a new transaction-tracking system on one of its smaller markets that makes use of blockchain technology, a key component in the bitcoin system. A blockchain is a public ledger that keeps track of transactions within a digital currency by logging them across various computers. The computers work in tandem to ensure the authenticity of a transaction. This automated process allows for transactions to be decentralized from a central bank or money issuer, which speeds up the rate at which a buy or sell can occur.

Instead of using bitcoin, NASDAQ will apply this technology to securities bought and sold on a market for private companies. Shares in these companies are often bought and sold using a slow, informal system in which lawyers must manually verify transactions, according to the Wall Street Journal. The blockchain could significantly increase the pace at which trades can be executed.

NASDAQ calls the plan to use blockchain technology an “enterprise-wide initiative.” The financial sector has expressed a keen interest in bitcoin and its tech. The New York Stock Exchange and Goldman Sachs, among others, have already invested in bitcoin-related companies. Even if bitcoin fails as a currency, many observers have said the blockchain technology behind it could have promising use cases in finance and other fields.

MONEY Markets

How One Man Could Tank the Stock Market

business person pulling piece out of jenga tower
Alamy

It's unlikely that a single person caused the 2010 "flash crash" in which the Dow momentarily lost 1,000 points. But here's how the Feds say one guy helped trigger it.

Imagine for a second that you want to make money on Craigslist—and you have no scruples.

How might you go about it?

One creative idea: You make a bunch of fake Craigslist posts pretending to sell something lots of people want—say, a recent model of the iPhone. Other people selling that phone on the site notice your posts, get nervous about the glut of competitors, and start cutting prices aggressively so they don’t get stuck holding a worthless model. When prices plunge low enough, you swoop in and buy a bunch of (cheap) phones—and then delete all your fake posts. Suddenly, it seems like the supply of that iPhone is low, and prices go back to normal. And that’s when you sell the phones…at a big profit.

Sounds pretty nefarious, right? Well, that’s essentially what federal prosecutors claim British trader Navinder Sarao was doing during the 2010 flash crash, when U.S. stocks lost a trillion dollars in value before rebounding moments later. Except instead of iPhones on Craigslist, he was selling E-mini S&P 500 contracts in the futures market (buyers of these futures contracts are betting the market will rise; sellers that it will fall).

According to an FBI criminal complaint, Sarao made nearly $1 million the day of the crash by posting bluff sales orders priced so they would never actually be executed and then buying up contracts once prices dropped as a result of his orders: an activity called “spoofing.” In the hours before the crash, the Feds claim he was responsible for more than 20% of the downward price pressure on the market.

In fact, the government says Sarao has been using spoofing techniques for years, turning to computer automation to post huge orders quickly and en masse—and cancel them anytime they got close to actually going through. His profits since 2010? About $40 million, according to the complaint.

You might wonder, “well how did this guy get away with making so much money with such big fake orders without anyone noticing?” The answer, according to emails obtained by the government, is that Chicago stock exchange authorities did notice. And when they contacted Sarao to tell him to stop, he reportedly told them “kiss my ass.” Between that and the fact that he set up a corporation (on a tax-free Caribbean island) literally called “Nav Sarao Milking Markets,” it’s pretty wild it took authorities five years to arrest him.

As Michael Maiello at The Daily Beast says, “They saw Sarao entering phony trades and responded by sending him letters… this is no surprise. Exchanges don’t make money by kicking people out of the game.”

Now, as distasteful as his alleged actions sound, nobody is really claiming Sarao caused the flash crash singlehandedly. An early report from the SEC acknowledged many other factors were at play, including “unsettling political and economic news from overseas concerning the European debt crisis,” which made the markets much more skittish than usual.

“99.99 percent of the time, a spoofing strategy is not going to cause a flash crash,” says Larry Tabb, founder of the research firm TABB Group.

Indeed, Sarao allegedly kept spoofing enormous orders for years after the crash without another one occurring.

But it’s clear that one individual can at least have an outsized influence on the market, says Spencer Mindlin, a research analyst at Aite. When investors are already nervous and there is the illusion of big sellers trying to unload a bunch of securities all at once, it can spread a contagious fear that the market is headed downward, which then becomes a self-fulfilling prophesy.

One theory is that Sarao’s spoofs triggered futures contracts sales by Kansas-based investment company Waddell and Reed—to the tune of $4.1 billion—and it may have been that huge movement that led to the cascade of sell-offs.

“Nobody wants to catch falling knives,” says Mindlin.

So what does this all mean for you and other ordinary investors minding their retirement portfolios? On the one hand, this news is pretty discouraging. As Matt Levine at Bloomberg says, “It’s not … confidence-inspiring to read that a guy with a spreadsheet can trick everyone into thinking that the market is crashing, and thereby cause the market to crash.”

But there’s good news.

For one, it’s theoretically less likely that a similar flash crash could occur today, thanks to new circuit breakers used by exchanges that pause trading temporarily when the values of stocks and other securities drop too rapidly over a short period of time.

The time when trading has halted “allows supply and demand to recalibrate,” says Tabb.

Additionally, a flash crash generally won’t affect long-term investors who don’t day-trade, since it lasts just a few moments and prices bounce back almost immediately. The only people hurt are those on the other side of lousy trades, which today are typically high-frequency traders using robots. Though there are exceptions, of course, like one retail investor who was ill-fated enough to sell right at the minute of the flash crash in a move that cost him nearly $20,000.

More importantly, just because you don’t lose money in a flash crash, it doesn’t mean you aren’t affected by it. Arguably, the worst thing about a flash crash is how it erodes confidence in the fairness of the market.

Investment firm Glenmede estimates that the nearly $2 billion of outflows from equity mutual funds in 2010 was at least in part because of investor fear following the flash crash.

“That’s money pulled out of the market that then couldn’t be used to work for the economy and help companies grow,” says Mindlin.

In other words, it’s money that could have—but didn’t—end up in your retirement portfolio in the form of higher returns.

TIME Telecom

Why Nokia’s Blockbuster Merger Turned Into Such a Mess

Nokia's chairman Risto Siilasmaa, Nokia's Chief Executive Rajeev Suri, telecommunications company Alcatel-Lucent's Chief Executive Officer Michel Combes and Alcatel-Lucent's chairman of the supervisory board Philippe Camus shake hands prior a press conference on April 15, 2015 in Paris.
Chesnot—Getty Images Nokia's chairman Risto Siilasmaa, Nokia's Chief Executive Rajeev Suri, telecommunications company Alcatel-Lucent's Chief Executive Officer Michel Combes and Alcatel-Lucent's chairman of the supervisory board Philippe Camus shake hands prior a press conference on April 15, 2015 in Paris.

Nokia marrying Alcatel-Lucent will have a huge impact

The big headlines in tech M&A come when they involve growth – Facebook buying Instagram or WhatsApp, for example – but more often they tie together two aging companies in established but still important industries. Ideally, in those cases, the merging partners will complement each other’s weaknesses, making for a stronger corporate marriage.

Take the mature but competitive telecom-equipment industry. If selling and maintaining the arcane gear that quietly keeps the Internet humming is hardly a sexy industry, it’s crucial if you want to watch a video of a dog trying to catch a taco in its mouth. Last week, when one industry giant (Nokia) offered to merge with another (Alcatel-Lucent) in a $16.6 billion deal, it seemed like a textbook tech M&A deal, one that analysts have been expecting for years.

Instead, the announcement of the deal seems to have left everyone unhappy. Analysts lined up to argue why the tie-up would be troubled, while investors wasted little time in selling off shares of both companies. Since the deal was announced Wednesday, Nokia’s shares have lost 4% of their value and Alacatel-Lucent’s have lost 21%.

This is the rare M&A deal that everyone has long-expected to happen and yet seems to please almost nobody. The telecom-equipment sector has been rife with consolidation and restructuring for years, as companies scramble to grab control of technologies that power broadband, wireless networks, networking software and cloud infrastructure.

Both Nokia and Alcatel-Lucent have been undergoing wrenching restructuring to compete with Sweden’s Ericsson, the market leader, and China’s up-and-comers Huawei and ZTE. Nokia sold its handset business to Microsoft for $7.2 billion in 2013, which helped return the company to profitability last year. Now that Nokia is alsoshopping around its mapping software, a merger seems like an important step toward strengthening its remaining operations in the telecom-equipment business.

Alcatel-Lucent has been having a harder time in the past decade. In 2006, the stock of France’s Alcatel was trading near $16 a share when it paid $13 billion for US-based Lucent. But clashing cultures, rigid bureaucracies and a failure to innovate led to years of losses at the combined firm, pulling Alacatel-Lucent’s stock down as low as $1 a share. Years of restructuring brought tens of thousands of job cuts but also, in recent quarters, signs the company may be making a fragile comeback.

So why did everyone expect a Nokia-Alcatel merger to work when the Alcatel-Lucent one failed? For one, there was a complementary fit in terms of the product and geographical markets both companies served. Also, both companies had just emerged from painful restructurings holding smaller shares of a competitive market. By combining, they could command a market share rivaling Ericsson’s and also marshall resources needed for the high R&D costs of next-generation gear.

That was the theory on paper, and for years reports surfaced periodically that the two were talking about joining forces. Talks of Nokia buying Alcatel’s wireless business fell through in 2013, and another report of a merger last December went nowhere. Now that it’s happening, the conversation has shifted from speculation about the deal to the details of how it would work. And some of the details aren’t pretty.

Any large-scale tech merger requires years of integration of sales, engineering and managerial ranks. In the best case, it takes years to complete. In the worst, it leads to entrenched fiefdoms and a bureaucratic hall of mirrors. And in areas where there is overlap, job losses will follow. But Alcatel-Lucent is partly owned by the government of France, which sees the company as a strategic national asset. It will fight massive post-merger layoffs in France, and the Finnish government is likely to do the same.

Analysts expect the trouble that all this work involves will hamper Nokia for some time. Some argued Nokia should have bought only Alcatel’s wireless assets, but since that didn’t didn’t work Nokia offered a discount for the whole company. And what a discount: Nokia’s bid is worth only 0.9 times Alcatel-Lucent’s revenue last year, well below the average figure of 2.5 times revenue for recent telecom deals. Alcatel-Lucent’s shareholders feel the discount is too much, leading to last week’s selloff.

So as inevitable as a combination of Nokia and Alcatel-Lucent seems, there are regulatory, integration and cultural issues that will complicate things for years. In the meantime, few investors are pleased about the deal. Throwing these companies together may be like, well, that taco heading toward the dog’s mouth: the appetite is there, but in the end all you have is a mess.

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