to investigate who's responsible for the hidden epidemic. >> i was just doin' what the doctors told me to do. i'm ali velshi. "on target" tonight. gut check for the market. plus the need for speed. and how it led to a stock market crash of a different kind. one we can't afford to forget. the stock market's scary ugly gyrations over the last few days are bringing back some very unpleasant memories of 2008. and the huge pain that year unleashed on american investors workers and retirees. and no wonder some people are

having bad flash backs. today the dow jones industrial average plummeted 1,000 points early in the trade session. that is largest drop ever. now the dow recovered some of that lost ground. this chart shows the dow friday and today. it finished monday down 588 points, or 3.6%. fm everyonof course everyone waw if the worst is over, the truth is no one knows. regardless what happens in the next weeks and months. tonight i'm going to tell you why this week's market selloff is different than 2008. the most obvious difference, the source of the difference was home grown. the insane housing market had collapsed and taking the u.s. economy down with it. the poisonous securities that the banking industry had

allowed, introducinged credit swaps into our vocabulary. s&p 38% decline in 2008 wiped out nest eggs. it was a harbinger of domestic economy that produced unemployment of 10% in october of 2009. the united states today is a very, very different situation. unemployment is now down by almost half from that peak, 5.3%. the u.s. housing market and overall economy are in solid shape. in july builders started work on new homes at the highest rate in nearly eight years. the problem is not home grown. it's what's happening overseas, especially, especially in china. that country's booming economy is slowing down. it's relative. experts say, china is struggling to meet its target of 7%. the u.s. would love to have growth anywhere in the

neighborhood of 7%. pushing oil prices below 40 dollars a barrel? we face threats here in the united states no doubt but not the same threats in 2008. mary snow spent the day with traders on the exchange. what they said about today versus seven years ago, mary what did you hear? >> ali, i asked one trader to sum it up for us, and he said in a few words, wild and crazy. more than 1,000 points in 10 minutes certainly had jaws dropping. one veteran trader said he had never seen anything like it in the 36 years he's been here at the new york stock exchange. certainly, traders were expecting traisdz at th trades t because it was so fast really

caught investors off guard. what happened in 1987, although there's no correlation between what happened here today and the crash in 1987, but certainly also, the electronic trading that is done here which makes up so much of the trading here was also seen as ofactor for these quick swings throughout day. the marke market started to recr and the fact that the dow closed down 588 points and that being a sigh of relief really kind of sums up the mood here of the day. and people pointed to a number of factors. china's economy, the low prices of oil, and what will happen with the federal reserve and what will it do. and one trader even said he thought this was a delayed reaction to china's devaluation of the currency saying what happens in china certainly effects the united states and seeing there wasn't such a swift reaction to that two weeks ago and that it was coming. and also so many people here say they were expecting a

correction. they were bracing for losses. did they envision to happen, what happened here today? no. but there certainly was a sigh of relief when the losses decelerated throughout day. but going forward as you said nobody can predict what will happen but certainly there is an expectation that it will be turbulent for the next several weeks. and certainly, volatile as we go forward. ali. >> mary snow, it takes a lot for you and i to be back on our stomping grounds on wall street. let's hope we don't see you there tomorrow but there's always that possibility. mary snow on the floor of the new york stock exchange. is this a big toll on u.s. investors and consumers? >> joining us michelle, thank you for being with us. the question everybody's been talking about this all day and i think it distills down to this.

is this market are investors rite that there's something very serious to worry about in terms of global growth slow down or is this just a market correction that needed to happen? >> well maybe it's a bit of both. i do think concerns in the marketplace are overblown. i thought you nailed it perfectly with respect to the u.s. which of course is a relatively closed economy. 70% of u.s. growth is determined by u.s. consumers. and so, while lis there's a lotf concern about weak global growth and that's mefgh manifesting itf because of weaker earnings, when you actually think about it, lower commodity prices, lower oil price are a good thing for global growth. beyond a certain extent we need

to look beyond this initial knee jerk reaction, in that policyless may be kept easier, this is a long term positive. these concerns as you said are overblown. >> let's look at two things that are happening in the world now that are net positives. number one net positives for consumers. >> right. >> the lower price of oil, lower price of energy, many economists told me when oil was at $50 a barrel the net gain to consumers worldwide offsets the loss from companies that don't get revenue from energy. now we got oil at $40 a barrel. i want to ask you about this. in theory really good for consumers are they really good just because they're really good for consumers? >> no, they are. i mean the lower oil price or gasoline price story has puzzled people because why haven't we seen more of a boost to u.s.

consumer spending given how far oil and gasoline rices have come down? as you said there is an offset but the timing i think is key. a lot of research actually shows it takes longer than you would think for consumers to go out and spend the savings they get from lower gasoline prices. it may take almost nine to 12 months. so we arguably may not yet have seen, in terms of economic activity, the benefit flowing through from lower energy prices. all we've seen so far is the hit to the oil and gas sector. i think you know kind of the second point also is as you said the fact that interest rates are low. mortgage rates are going to continue to edge lower. it's going to continue to be very cheap for people to borrow money, for companies to borrow money. i mean all of these things too, as i said the federal reserve, i think was on pace to raise rates in september. that's actually still my official forecast but i have to admit, it's going to be hard for them to do so.

i'm seriously considering backing up my forecast for the fed to not raise interest rates until first part of 2016. >> if you are janet yellen, we have been in a six year bull market with virtually no correction. we had something in 2011 that seemed like a correction a little bit. but the market has been charging forward since march 9th of 2009 when the postrecession bottom was hit. and part of that has been because the fed has kept interest rates so low, that the stock market is the only game in town and so we have some froth in the stock market. >> we do. and the fed has held these interest rates at an emergency level for so long, long after the emergency is over, we all can admit things are much, much

better than they were at the height of the financial crisis. sitting at these rates for so long has us all thinking, these are normal now. if the fed raises rates just a little bit, it's going to pose a shock to the economy. getting off zero i think makes sense. i think amidst all this volatility, the fed is going to be reluctant to do so. but even if we had the overnight funds rate at 1% by historical standards that is incredibly supportive and positive for future economic activity. >> i'm falling into i'm talking to a great economist trap here but we have illustrated and others have illustrated that there's nothing major going on in the world, even though we had a great drop in the stock market today. here's the question though, if there was something serious going on in the world if the fed

and other central banks have interest rates as low as they are, that's the only items in the tool box. are they not as positioned in 2008 to take drastic action if in fact we have a global slow down coming? >> well, of course that's the concern that so many people have. now, obviously they could go back in the u.s., we could see the federal reserve resume asset purchases and grow its balance sheet even further. and i think there's a lot of hesitancy to do that. that's a tool that would present itself. the possibility of doing what was done in europe of taking interest rates negative. so that's something that i guess is possible. the other thing is we may have to look back towards fiscal policy. the deficit has come down significantly and that actually gives some room if you will to perhaps getting some fiscal stimulus if necessary, hopefully the right kind of stimulus. but that's one of the things

that of course has been lacking here. so much of the activity, so much of the stimulus that came in the u.s. was really towards the monetary policy, because we couldn't get our act together in washington. and so obviously, if there is this idea the fed's hands are a bit tied, they don't have the tools at their disposal maybe it will force congress to take steps to try and invigorate the economy. >> that's acquaint you think that's a possibility. >> probably not. let's go back to zero or negative interest rates. >> yep. >> sometimes situations like this when there is no other option that perhaps gets people to focus more seriously on the need to do the right thing. >> michelle thanks for joining us, michelle gerard, managing director and u.s. chief economist at rbs. now we have an idea why the dow took such a dive then what should you do about your retirement portfolio if you should do anything at all. all.

>> we're back on this day when the dow jones industrial average fell more than 1,000 points before buyers stepped in and stopped some of the bleeding. but the dow still lost 588 points or 3.6% by the end of the day. to understand how you should react to the fears running through stock market i fall to my old friend jim, we spoke to michelle gerard about what happened, mary snow is on the floor of the new york stock exchange, what should you do about this? >> don't get emotional, don't react because others are selling, you shouldn't buy just because other people are buying. the u.s. economy is doing reasonably well if it's not pulled down by overseas events. that it's too early to tell whether that's going to happen but the odds are that we're so big and strong and powerful that

we're going to get through it. i would say pick your stocks that you want to own, whether big conservative stocks with dividends, g.e. opened with a big yield. opportunistically, buy when stocks are under pressure, always have greed when other have fear, fear when others have greed. and do this to rebalance your portfolio to the extent you were intending to. if you were underweight equities the time is now not when the market is soaring. >> we were discussing with michelle the fact that unlike 2008, you and i talked about those terrible days of september and october of 2008 when the market was coming down alongside jobs being lost, home values plummeting, economic growth going into reverse. none of that stuff is at play in the united states. this keen market of the united states is not actually a reflector of what's going on in the u.s. economy right now. is it a good reflection of

what's going on in the global economy? >> yes, we're going down because of what's going on in the global economy. essentially china is decelerating and there are people who feel that the wheels are going to come ooff. if the wheels come off their ability to manage the economy, they mismanaged the manipulation of the stock market, they lost credibility and there are fears that china is going into a tremendous deceleration. which will pull down brazil, pull down russia, pull down africa, ultimately europe and slow down the united states. i'm not sure it will pull us into a recession. as long as that doesn't happen, if we don't get a credit event, what i worry about is there's a big bankruptcy somewhere because of the volume italy in commodities, because of the problems in china, the decline in the stock market and the oil industry, an event that froze up the credit market. >> and that is the very, very, very key distinction that i have

not mentioned once on this show today, there is not a freezing of credit globally or in the united states, if anything we have had a loosening of credit in recent months and the last few years. >> contrary to 2008, our economy is in better shape and our credit market is in better shape. we could decelerate our rate of growth but if there is a credit event it would spread around the world very quickly. there are month borders as far as credit events, and if the had a problem in europe, at least for lower rated countries would dry up and it could have an effect. but those are unme dictable ki e events. they are called swans, you have to be aware of the swan risk, maybe lower the price a little bit because they're not zero risks but you can't invest based on the risks. the best bet is the highest

probability is the united states will see its way through this, that we'll continue to grow, that everybody will come back after labor day, it will be people trading not profits trading and say gee that was a pretty good time to buy good quality stocks. >> you heard this play out in apple which dove like everybody else in the morning and people buying in the afternoon. there were two different markets going on today. people were worried they didn't sell in the morning because this happened before they got up or got logged in selling in the afternoon. there's going to be a little bit of churn now rite? >> yes. >> people buying deals, versus people who say i don't have the stomach for this this reminds me of 2008 and i'm getting out. >> the tape will tell you, it tried today, the good news is we didn't close below the open which is down a thousand. the bad news is we did sell off in the last hour. so this kind of damage takes

some time but it always will ultimately reflect the fundamentals. as we sit here today august 24th, the fundamentals do not speak to a recession, do not speak to a credit freeze in the united states and therefore quality companies are okay to buy. you got to be cognizant of the risk but based on what we know today, quality u.s. stocks, conservative stocks are attractive. i want to emphasize you don't get into the stocks that were on the up, more stocks were going down than up and that was a classic setup for a correction. >> jim, i love seeing you, we made a bad habit of the fact every time i see you walk into the studio there's something wrong happening in the market. how computers are turning america's stock market upside down. down.

>> i lived that character. >> go one on one with america's movers and s

>> the last few days have been a challenging and turbulent time for stocks. we've seen entire markets move up and down, a thousand points. it's a situation that hasn't happened since the flash crash. that's right, the flash crash. it seems almost forgotten now,

but if you remember, back on may 2010, lost almost a trillion dollars of value, to recover almost fully 36 minutes later. a determination later found that some fraud and manipulation was responsible for the crash but at the time high frequency trading was mainly blamed for the extreme volatility. high for exampl frequency tradis how much the stock exchange has undergone a complete transformation. as i reported last year, speed is now holy grail. back on december 5th, 2015, something remarkable happened at the closing bell. a company called utla cosmetics,

released its earnings report. computers instantly sold 14,000 shares of ulta stock at $128 each totaling millions of dollars of stock. not quite one second, ulta stock closed at $118 a share, losing $3 in less than a second. in that rapid selloff of stock, nanex estimates that high frequency traders could have pocketed as much as $28,000. it was a feat they could have pulled off and it's all perfectly legal. high frequency traders, operating near the speed of light have turned what happens on the floor of the new york stock exchange into little more than theater. look behind the curtain and you'll see why humans can't compete. >> the only participants in time frames under a half a second are

these fast machines because humans aren't able to receive information to act on it in that time frame. >> nanex's founder eric hunsader, has watched it globe to hundreds oglobe -- grow acrof companies across the globe. one second broken up into thousands. one single mill second a trader can trade 100 times. price to earnings ratios or even diversifications. if you are not trading at those speeds you're toast, high frequency traders have their own special sauce. that secret sauce is a black box

algorithm. half a million to $10 million each. they search for cues, stock prices moving higher or lower changes in trading volume or a disappointing earnings report. they digest and react to key words in earnings releases twitter needs and news reports all in a blink of an eye. often generating profits of just a fraction of a penny per trade but that all adds up. >> if you have an algorithmic code, it prints money. high frequency trading firms some of them have even bragged in the press that they've never had a losing day. >> high frequency trading helps set prices for almost everything that's traded. stocks, bonds, futures, options, commodities, it affects everything from apple stock to the price of gas.

orange just to the price of mortgages. and some people think there's nothing to worry about. like jim overdahl a former economist of the securities and exchange commission who is now an industry lobbyist. >> are the markets broken? i would say absolutely not. i can think back 150 years when the telegraph was invented, you had the same issues arise, same thing when the computer or the telephone came to the moder era. mom and pop being an investor ultimately you're okay. >> but others are calling for more regulation and say high frequency traders have an unfair advantage over other investors. bart chilton calls traders who use high frequency trading programs cheat us, pun intended. he worries that they and their high powered technology are

running wild in the market. >> technology is great. we all love technological. technology. i don't want technology out of markets. but currently there are no rules or regulations, zero zip, nada, on cheaters. i'm concerned that these high frequency cheaters may be roiling the market. >> contributed to a crash in 2010 where the dow jones industrial average fell a shocking 1,000 points in five minutes, erasing a trillion dollars in market value, only to recover an hour later. high frequency trades, reacted to the report that president obama had been injured in an explosion. erasing $121 billion of value

from the s&p 500 before it rebounded. the fear is next time the market will not recover from a flash crash and hundreds of billions of dollars will be erased in a minute. that's our show for today. i'm ali velshi, thank you for joining us. joining us. >> rough ride - a nearly 600 point drop with fears about the global economy, and as markets open across asia, investors brace for the possibility of another bruising day. fierce storm. >> on a scale of one to 10, this is a 15. >> washington state battling large fires in the history, thousands fighting a ground