Updating The Market Timing Debate

greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread

A few months ago, many regulars (some, alas, no longer posting) debated market timing. My own view was that the market would make 12,000 by early July as a top, drift downward from there (through August), tank some in September (early thanks to Y2K instead of October), stabilize in October (liquidity injections, the penultimate college try), drift downward in November (500 points), drift downward the first two weeks of December and then ... (the crystal ball is cloudy but I will send you my forecast for $99.95).

OK, so I was wrong (hey, like Drew Parkhill, I felt Y2K was already holding down a market that would otherwise have kept climbing into the stratosphere and still do).

I feel certain we did see the market top for this bull market.

I feel reasonably certain my general scenario is plausible. To be more specific (trading ranges):

August: 10,300 -- 11,100
September: 9,400 -- 10,400
October: 9,300 -- 9,900
November: 8,900 -- 9,500
December 1 to December 15: 8,600 --- 9,000
Market on December 15: 8,600

While some might consider this optimistic, this would be a very heavy slide given the last years. Very heavy. It also reflects a floor that is partly sustained by flight-to-quality through the end of the year. IOW, I personally consider this a quite sufficiently aggressive (and bearish) prediction, but realistic.

Others? You have to provide ranges to play the game.

-- BigDog (BigDog@duffer.com), August 02, 1999


No time frame but when the BIG BEAR has bottomed somewhere between Dow 1000 and 2500 seems reasonable.

I would keep an eye on commodity prices over the next few months.


-- Ray (ray@totacc.com), August 02, 1999.

Big Dog,

Did I say I thought Y2K was holding down the market already? I don't recall mumbling that... I actually don't believe that- I don't think Y2K is priced into the market (except possibly for small stocks).

-- Drew Parkhill/CBN News (y2k@cbn.org), August 02, 1999.


august 10,300--11,000 sept 9,800--10,300 november 9,700--10,100 december 9,000-9,500 december 15th... hmm 9,300

totally my opinion, and most likely not very good guesses, but i have an "n" theory about the market.

it will continue to stay stable or rise a little, then tank relatively rapidly, then rise sharply...looking like a slanted "n" if you look at the whole think from april 2000 back to now

yours truly S-Lurker

-- Super Lkr (slfsl@yahoo.com), August 02, 1999.

August: 10,300 -- 11,100
September: 10,300-- 10,600
October: 10,300 -- 7,600
November: 7,200 -- 8,000
December 1 to December 15: 7,500 --- 6,600
Market on December 15: 6,600

I differ in that I predict a sudden panic selloff, probably in the October timeframe. Once the yuppies and gen-xers think the party is over, they'll sell. It might not even be Y2K induced fear. Just bubble-burst time.

Then the fight to become liquid as rollover actually seems imminent sets in.

I hope I'm hopelessly pessimistic.

-- Dog Gone (layinglow@rollover.now), August 02, 1999.

I was very interested today to hear Abby Joseph Cohen come out of the woodwork and predict a very much stabilized trading range henceforth-- slow growth, but not a bear market. At the start of this year, I think she said the market would end at 9,300 (around that). She is considered a pretty bullish, and accurate, analyst. But I do not understand why none of them factors in Y2K. Obviously she has not done that.

I agree BigDog that there will be some flight to quality, but will it be in equities, or in Treasuries?

Because I had read something else by Yardeni recently, I, too, was expecting the market to go higher. I still think it might--after the Fed meeting on the 24th, whichever way the Fed goes, simply as a reaction. I am 90 percent out, but still have a few holdings I am watching like a hawk. I'd prefer to get the money out rather than lose it, but with all investment situations so iffy, I figure I can allow myself the luxury of the gamble.

How far down will it go? That depends on how much structure remains. If the structure holds, it could go down as far as 5000 in February. If the ball game is totally over, it's all worthless paper, anyway.

Oddly, I'm feeling optimistic today. You know how these things can overcome you. Thinking, anyway, even if all the prepping was for naught, materially, it was still a great personal exercise. Just go where the road leads you. What more can one do? Best to all.

-- Mara Wayne (MaraWayne@aol.com), August 02, 1999.

7400 dow minimum around late Sep or early Aug a bounce to 8200 or so to a stable bottom of 6500 give or take a few hundred either way. You can tell I am an amatuer by giving my opinion but the annonimity of the net is too tempting. One more thing, I disagree with most of you in that any dropps will be fast and furious, down days of 600-7-- points will be felt side-cars be damned. The rebound will be sharp too but down will be the trend. This easy drift down theory is wishfull thinking.

-- PJ (iop@hotmail.com), August 02, 1999.

Mara, here are Abby's thoughts today:

NEW YORK, Aug 2 (Reuters) - Goldman Sachs market strategist Abby Joseph Cohen said on Monday the stock market may see more modest gains in the near future after a strong wave of buying has lifted stock prices to fair levels, based on their bottom lines.

"The Standard & Poor's 500 Index has reached fair value territory, suggesting that future price gains will likely occur in a more moderate fashion," Cohen said in a research note.

"We expect the staircase pattern to reassert itself, in which sharp price gains are followed by a trading range." Cohen, one of Wall Street's most respected stock forecasters, made the comments to Goldman clients last week, the bank said, as part of its World Investment Strategy Highlights (WISH) summarized and published on Monday.

She said sharp price gains in stocks have been based on strong profits, "muted" inflation and growing confidence in what she termed the "durability of economic expansion".

The S&P 500 Index, which Cohen monitors closely, is up eight percent in 1999. For the same period, the Dow Jones industrial average has gained more than 1,000 points, adding nearly 16 percent despite the past two weeks' solid losses.

Cohen said non-U.S. stocks could benefit if the trend toward higher-risk stocks like small-caps and cyclicals remains intact. The recent surge in cyclicals is cited as one reason behind the Dow's outperformance of the broad S&P500 index.

She said the market's recent rally looks much like a period of strength in 1997, which led to gains in non-U.S. issues before the currency and banking crises in Asia brought the rally to an abrupt halt. She based her comparison on productivity, gross domestic product, inflation and profit trends.

In 1999, she said, conditions that would predict a bear market do not seem to be in place. "Previous bear markets were generally preceded by noteworthy overvaluation and catalyzed by deterioration in economic performance, such as a significant rise in inflation or weakness in corporate results. We don't believe that either condition is in place," she said in the note.

She downplayed the threat of higher interest rates, which have been weighing on stock prices recently, saying the long end of the bond market may have already discounted a tightening when the Fed's policy arm meets later this month.

Any rate hike, she said, should be seen "as a reversal of actions taken in 1998 during a time of global distress, rather than a major salvo against (still quiescent) domestic inflation."

"It may well be that the U.S. bond yields have already experienced much of their excitement for the year," she said.


Lest we forget that Abby is a well paid employee of the company Robert Rubin headed up for a number of years. This MAY account for some of her accurateness.


-- Ray (ray@totacc.com), August 02, 1999.

Future market trends will be tied to day trader rampages.

-- Down (the@tubes.bud), August 02, 1999.

I took my profits in April and May.

There are two ways we'll reach appropriate valuations. A skittering sideways slide over the next few years or a few gut wrenching corrections. Eventually, the market can grow into these valuations, but not for a good length of time. If I had to predict, I say a sideways slide into October-November than nervous sell-off. It wouldn't surprise me to see a Dow in the 9000s before Christmas, but I have a hard time seeing a drop below 9000. If I am right, we'll have some Y2K problems and a "relief rally" in late January- February. Then the real economic impacts will become apparent. If there's a correction, it will be at the end of the first quarter of 2000 when the earnings damage (and international ramifications) hit home. Then, folks, it's a question how bad for how long.


-- Mr. Decker (kcdecker@worldnet.att.net), August 02, 1999.

Don't think I've ever been much in agreement with mr. Decker but I think his guess is better than the rest. My guess, Dec. 15, it'll be above 10,000. A month later,....... Well, lately I've been losing all my money in (live)stock.

Anyone need baby horses next year?

-- Roger (pecosrog@earthlink.net), August 02, 1999.

Big Dog--

Thanks for the offer, but I'll save my $99.95 to buy a hundred shares of my favorite stock (now at over $50 each). It will do well. Overall market, I predict, will see the Dow in the 6,000-7,000 range after the first of the year... I'll consider staged investments then...

-- Mad Monk (madmonk@hawaiian.net), August 02, 1999.

Drew -- I think this is the second time I have invoked your illustrious opinions ... in error! I did think you had communicated that but .... oops. I dare not cite you ever again! :-)

I do agree entirely with the notion of a relief rally beginning mid-January (though my base is lower than Decker's), PROVIDING that embedded systems don't horrify the world. This will be a "phew, it WASN'T the end of the world." March-April is bound to provide a dip, depth depending on whether the Y2K noise level indicates quick recovery or not.

Regrettably, governments, media and corporations are no more likely to be forthcoming and accurate at that point than they are now. In fact, the confusion about recovery is likely to be far more intense than pre-rollover nerves (hence one reason I am considering a Y2K recovery forum). What that will do to the markets is unknown but one would expect it to have, at a minimum, a suppressive impact if not a depressive impact.

-- BigDog (BigDog@duffer.com), August 02, 1999.

Optimists, optimists... almost all. Many of you seem more optimistic than Yardeni in terms of the rate of devaluation. I expect 500 or so point drops in a week, some modestly bullish (but alas, temporary) recovery, and more 500 or so point drops with some more modestly bullish (again, temporary) recovery. This is not about Y2K. Y2K may be the flash point, however, that sends the market down from corrected positions. I'll think more about ranges in coming weeks.

Sincerely, Stan Faryna

-- Stan Faryna (info@giglobal.com), August 02, 1999.

It's a global marketplace. Asia catches a cold and we get the flu. I did not read every post on this thread, but it looks like the global interconnectedness of financial markets may not be being factored in by some. My predictions would be much lower than most, and take into consideration a closing or suspension of markets/trading as a possibility. What do you think that will do to confidence? Remember too that panic is inherently uncontrollable and unpredictable.

In other words, this is a parlor game. Have fun.

-- Rob Michaels (sonofdust@net.com), August 02, 1999.

How many LTCM scenarios are waiting to unravel as the markets rock and roll, and for how many of them will Greenspan be able to arrange bailouts in time?

How will retail investors react? Many waited out last year's 20% decline. Will as many wait out a similar decline as Y2K nears?

The 30 year T bond is closely watched, but other debt instruments are making news also. There have been numerous comments to the effect that substantial corporate debt sales will be moved up from 4Q to 3Q in order to avoid higher interest rates expected to be demanded in 4Q due to Y2K "uncertainties". This would lead to higher interest rates in 3Q which would not go unnoticed.

Of the (notional) $32 trillion in derivatives reported in the quarterly Bank Derivatives report of the Office of Comptroller of the Currency, about $26 trillion are interest rate derivatives. (Most of the rest are foreign exchange derivatives.) How will these fare if/as interest rates climb, and how, if at all, will they affect stock markets? (I do not know, but I do wonder about it.)

On the other hand, some person(s)/entity(ies) is/are sufficiently confident that the DJIA will be above 9,000 in late December and March, that on Friday, July 30, 2,000 additional DJX PUT contracts at strike prices of 90 were written for each of December and March. Since the writer of an option contract takes the hit if the market goes the other way, some deep pocketed player(s) accepted the risk, at this date, that if the DJIA is substatially below 9,000 on the third Friday of either of those months, they will be shelling out lots of cash. So, whats a few millions between friends?

Ranges? I don't got no stinking ranges! :-) (But I have bought some January DJX PUTs at 90, and may buy some of those March 90s later). So, not having ranges, I guess I'm not eligible to play the game.


-- Jerry B (skeptic76@erols.com), August 03, 1999.

Big Dog,

Now you've made another mistake- calling my opinions "illustrious" :)

-- Drew Parkhill (y2k@cbn.org), August 03, 1999.

I see 7,500 like last year, but this time by the end of this August.

Recovery will be much more problematic than last year.

Uncertainty costs money. Few things are as uncertain today as what will happen at rollover.

Are the banks really ready?

-- nothere nothere (notherethere@hotmail.com), August 03, 1999.

Something to consider, Long Bond interest rates have risen approximately 31% since last fall !!


-- Ray (ray@totacc.com), August 03, 1999.

Many of you seem to be in a bit of a disconnect to the extent that societal meltdowns and DOW >5000 don't really add up. It is arguable that fair market value right now is 6,500 on the DOW. Factor in that meltdowns will make fair market value much lower and that panick may put fair market valuations optimistic, then I would have expected many of you to put the DOW at <5,000.

WARNING: If you look at the history of the crash of '29 and subsequent depression, it took years for the full consequences to set in. Be careful about getting back in too fast. Carefully assess the economic impact of y2k as it unfolds. A protracted problem could lead to a decade of bad stock investments even in the absence of obvious meltdowns. (The DOW didn't budge from 1965 to 1980, inflation aside.)

-- Dave (aaa@aaa.com), August 03, 1999.

Dave --- I basically agree, but lean towards market meltdown post-rollover, hence my numbers.

-- BigDog (BigDog@duffer.com), August 03, 1999.

BigDog: FWIW, I heard Yardeni on the radio today and he was speaking about the JIT global manufacturing risks and supply chain disruptions presenting the possibility of a 30% or more market decline  he also guessed that by year-end the DOW could be at the 7000  7500 level.

-- Rob Michaels (sonofdust@net.com), August 03, 1999.

Rob -- do you have source on radio program for Yardeni comment? That is very significant, IMO, since we are so close and his reputation is closely tied up with what happens. Indicates he has NOT become less bearish on Y2K, especially if you consider that the market is hardly likely to go UP post-rollover, at least for a while. A 7000-7500 before year end could easily become a 5000 by March, 2000.

-- BigDog (BigDog@duffer.com), August 03, 1999.

BigDog: OK, will do. Give me a few minutes and I'll send you an 'e'.

-- Rob Michaels (sonofdust@net.com), August 03, 1999.

Glad I bought my red hat and didn't listen to you sheeple.

-- Happy Red Hat (rolling@in.it), August 11, 1999.

The disruptions and the inability to move quickly within the markets is going to cause all but the stupidest to withdraw and go into protective mode. Within the first quarter of 2000 the DJIA will settle down to a level closer to its actual worth, perhaps in the neighborhood of 2000 - 3000. I'd say 2500 is a good bet, and it will be a looooonnnnggg time before we have another bear market as ridiculous as this last one.

-- @ (@@@.@), August 11, 1999.

oops, yet more WRONG predictions.

Do you jokers ever tire of this? Or do you get paid to do this crap? How else can you sit here day in and day out typing your bull rhetoric?

-- YOU'RE Doomed (not@me.pals), October 04, 1999.

Hey, thanks for finding this! I was looking for it in the archives and couldn't. I feel pretty good about this so far, considering that the market was around 11,200 when I posted this at the very beginning of August. In fact, predicting we would be at 10,200 on Sept. 30 would have been considered idiotic by most pollies like yourself.

Generally, if your end of month prediction is WITHIN the range, it's considered a HIT, not a miss.

I still think 9,700 or so is a good bet for end of October.


-- BigDog (BigDog@duffer.com), October 04, 1999.


October= 0-11,000

November= 0-11,000

December= 0-11,000

January= 0-12,000

I keep forgeting you jokers use Northian-style predictive scales.

Maybe you should just say the DOW will be somewhere between 0 and 30,000 points! then you can call kenny kingston and get signed on! Hell, you could probably use the boost in salary (six bucks an hour is better than nothing for posting to this crazy palace, ain't it?)

-- oh (puleeze@give.meabrake), October 04, 1999.

Why so arrogant, Russ? YOUR "scale" might have fit, but several others predicted much lower by now. I'm thinking of PJ and "nother"'s predictions. WAY off base. But I really should expect that from TBer's...you have yet to be correct about ANY of the "trigger" dates or public reactions.

-- YOUR doomed (not@me.pal), October 05, 1999.

Central banks preparing for Y2K's worst

GUY DIXON Investment Reporter

Wednesday, October 6, 1999

Interest rates and Y2K. It's like a call to arms for central bankers.

One widely held belief is that the U.S. Federal Reserve Board and the Bank of Canada won't raise interest rates from now until the new year for fear of worsening the effect of any year-2000-related computer glitches on the money market.

It's not hard to imagine a scenario to support this view.

Say a batch of cheques doesn't clear in Chattanooga because some forgotten computer can't correctly read the year 2000. This would then put pressure on area businesses and banks to borrow funds in order to make up for the delayed cheques.

This isn't unheard of. The Fed's balance of reserves, known as the "float," is often affected by adverse weather, believe it or not, as cheques bound for one of the Federal Reserve banks are stuck in planes fogged in at airports.

So a degree of sluggishness in money markets caused by a few wayward computers could be a very real threat.

Multiply this by 50 or 100 or hundreds of batches of uncleared or otherwise delayed cheques scattered throughout North America and you could have a serious problem in money markets.

On top of that, if interest rates were rising at the time, the higher borrowing costs could then worsen the shortfall in funds available to those businesses, banks and professional investors. But central banks have already thought this through and are preparing for the worst.

The Bank of Canada and the Fed have contingency plans in place to make up for shortfalls in the money market, primarily by making funds easily available if and when needed.

From printing billions in extra currency to setting up special accounts for banks and investment dealers to draw from, the central banks have a kitty available to ease year-2000-related liquidity problems -- separate from larger monetary policy and interest rate targets.

"The hope is that all of these measures will keep things calm over Y2K without inhibiting monetary policy in the long run," said Marc Wanshel, financial economist at J.P. Morgan in New York.

The Bank of Canada won't say how much extra cash it is keeping on hand, but some speculate it could be four or five times more than the $6-billion to $7-billion in excess currency that the bank normally holds in its vaults, said Rob Palombi, a senior fixed-income analyst at Standard & Poor's MMS in Toronto.

The Bank of Canada says simply that "there will be adequate inventory [of currency] to meet demand."

The U.S. Treasury Department is expected to hold $80-billion (U.S.) in excess cash before and after New Year's.

"It's just unprecedented. It's about $50-billion more than is typically the case for Dec. 31," said Kevin Flanagan, a money market economist at Morgan Stanley Dean Witter in New York.

Both central banks are also implementing special accounts that banks and dealers can draw from at 125 basis points above the overnight bank rate, in the case of the Bank of Canada, and at a premium of 150 basis points from the Fed. (A basis point is one-hundredth of a percentage point.)

Financial companies drawing from the Canadian account, dubbed the Special Liquidity Facility, will have to prove their need was a result of year-2000-related problems. The Bank of Canada generally encourages institutions to use the money market first to manage any liquidity needs.

Yet the bank noted that the extra 125-basis-point premium wasn't designed to be prohibitive, but "represents a reasonable charge for loans . . . in the unlikely event that they become necessary."

The Fed has in place similar contingent loan "facilities" for banks and dealers that are bending the rules to allow transactions not just in U.S. Treasury bills, notes and bonds and short-term debt, but also the use of more complex instruments such as mortgage-backed securities and options on overnight repurchase agreements. The strategy is to be more accommodating to any banks and dealers in need.

"They are making it as easy as possible for firms, investors, who ever needs it, to make borrowing arrangements," Mr. Flanagan said.

The third major tool available to the central banks will be their daily open-market operations, in which the banks sometimes buy or sell short-term debt.

Normally, they use these daily operations to nudge the floating overnight interest rate closer to the target rate. But at year-end, the central banks may inject more funds into the open market through daily operations if liquidity in the market is tight.

But there's a limit.

"The daily operations will certainly be supportive around year-end," Mr. Wanshel said. "But if you try to overwhelm the system with reserves, you run the risk of pushing the funds rate to zero and I don't think they would want that."


-- Be (aw@r.e), October 10, 1999.

"I still think 9,700 or so is a good bet for end of October. --Russ Lipton"

Maybe next month. Don't feel bad, you were only off by 1,000!

This makes me think of a new question. How many people have lost potential income because they "got out of the market" when the pessimists said they should?

For instance, Ed Yourdon was saying in 97 you should consider getting out. Where was the market in 97? where is it now?

I took profits this last spring (not trying to time the market at all) but I hit near peak prices on 75% of my holdings!

Would anyone be willing to share with the group your potential losses?

BTW, with the new DOW components, I think we will see 11,000 again by Nov's end. That is barring an interest rate hike by the fed of more than 1/4% (which the market has built in already).

-- Market Watch (tick@tock.DOW), October 31, 1999.

Russ was right. The market did stablize in October. Liquidity injections are temporarily working. There are reasons why hedge funds and the market have so far been able to avoid significant impacts related to flight to quality.


Friday October 22, 5:44 pm Eastern Time

U.S. asset-backed debt cheered by Fed window news

NEW YORK, Oct 22 (Reuters) - News that the Federal Reserve will expand the types of collateral it would accept for banks to borrow from its discount window tugged in asset-backed spreads to U.S. Treasuries and brought in dollar swap spreads on Friday.

``The announcement drove in spreads,'' said Tim Neumann, head of core fixed-income products at Chase Asset Management.

Another portfolio manager -- with an East Coast account -- said the announcement may benefit leveraged investors such as hedge funds but really may not be a major event.

``It is a backstop. It just adds confidence there will be additional liquidity at year-end,'' said the portfolio manager.

click for more


Tuesday October 26, 4:42 am Eastern Time

BOJ to set rates above ODR on emergency Y2K loans

TOKYO, Oct 26 (Reuters) - The Bank of Japan will set interest rates higher than the 0.5 percent official discount rate on any emergency, uncollateralised loans to private banks necessitated by problems with the Y2K bug, a BOJ official said on Tuesday. Such uncollateralised loans would be made in accordance with article 37 of the BOJ Law, said the official at the BOJ's financial and payment system office.

``With regard to article 37 loans, the terms including interest rate will be decided by the Policy Board on a case-by-case basis, in accordance with relevant laws,'' the official said.

Under article 37, the central bank can provide uncollateralised loans to private financial institutions which suffer temporary liquidity shortages due to unforeseen mechanical malfunctions.

But it says such loans will be made only in cases where a liquidity shortage would severely hinder the operation of the financial institution and cause systemic risk.

click for more


(from Sept.)

"While the evidence of precautionary inventory hedging to date is mixed, in the financial sphere, borrowers and lenders are clearly taking steps to build liquid assets and reduce their reliance on credit markets around the end of the year. This is reflected in a noticeable rise in deposit and commercial paper rates for funding that would be outstanding over year's end. Many corporate treasurers have moved forward their debt offerings to avoid any chance of a dearth of credit availability in the fourth quarter or difficulties funding short-term liabilities. The Century Date Change Special Liquidity Facility of the discount window that was approved by the Federal Reserve Board in July and the contingency actions of the Federal Open Market Committee announced by the Federal Reserve Bank of New York on September 8 should help to ensure an ample supply of liquidity and relieve funding pressures."

click for more

-- John Q. Doe (johnqd@aol.not), October 31, 1999.

Russ was.....right? huh? He said the market would end around 9700. NEWSFLASH: russ was wrong.

It doesn't take a nuclear physisist to know that the market always stabilizes end of Oct. duh. Just Lipton's way of trying to bolster his predictive percentages, nothing new. ALL good snakeoil salesmen do it.....no big deal.

-- Gambled (and@lost.oh.well), November 02, 1999.


Wednesday November 17, 7:10 pm Eastern Time

Fed's Y2K liquidity measures keep markets calm

By Ross Finley

NEW YORK, Nov 17 (Reuters) - While the Federal Reserve has financial markets guessing whether Tuesday's interest-rate increase may be the last for several months, the central bank has taken great pains to quell fears about year-end liquidity.

The Fed has put in place a series of measures to make sure markets work smoothly when the clocks on the world's computers change over to 2000 and investors decide whether to hold their positions or convert to cash because of fears of technology-related disruptions on the financial markets.

New York Federal Reserve Bank President William McDonough affirmed on Wednesday that the Fed had ``gone a long way'' toward addressing year-end liquidity fears that peaked in August and September of this year.

Analysts, economists, market players and primary dealers -- the firms that conduct securities transactions with the New York Fed -- agreed.

``It's certainly been useful -- it's a valuable backstop to have there. The mere fact that the Fed has been so aggressive has been helpful,'' said Lou Crandall, chief economist at R.H. Wrightson & Associates.

Economists also say market interest in the Fed's new liquidity insurance scheme means investors are approaching the issue calmly rather than with panic.

Until the Fed came to the rescue, many investors said they were content to park money in safe, liquid short-term U.S. Treasuries and keep their money away from riskier assets such as stocks or debt from corporations and government-sponsored agencies. If that occurred, it might have led to a liquidity squeeze similar to what was seen last year at this time.

Instead, stocks have rallied and so-called spread products have also performed rather well.

But many analysts added that the bond market's resilience running into the last quarter before the date changes to 2000 is only partly a result of the Fed's preemptive measures.

Crandall cited the concern several months ago in the corporate bond and mortgage-backed markets about widening of spreads -- which indicated a preference by investors for Treasuries, securities which are much easier to turn over in the event of a crisis.

``We've seen liquidity in lots of other markets hold up,'' Crandall said. ``The corporate bond market had this expectation spreads would widen dramatically and they haven't.''

One of the Fed's main tools in fighting Y2K fears is STRIPs options -- securities that allow dealers to cash in the value of the option on one of three maturity dates offered.

This ability to exchange STRIPs for cash readily if needed is the kind of safety net prudent dealers crave as insurance against a year- end liquidity crunch. The December 30 maturity date, two days before computer clocks change over, has met the highest demand. The other two maturities are December 23 and January 6.

The Fed has auctioned five separate offerings of STRIPs since October 20, all of which have generated widespread interest, according to the New York Fed.

``There has been a tremendous amount of interest in the options auctions that have taken place,'' the New York Fed's McDonough said on Wednesday.

Analysts say that with five of seven STRIPs options auctions already behind them -- totaling just over $370 billion -- many market players who were concerned about cash on hand at year-end have already taken out their respective millennium insurance policies and are now sitting comfortably.

Citing strong demand, the Fed on November 4 added two additional STRIPs auctions to the original total of five and said it could add more if there were a further strengthening in demand.

The Fed has twice increased the amount of securities offered in individual auctions, also citing increased demand. But the amounts offered in the November 17 auctions decreased slightly, indicating the market may be more confident about year-end cash flows.

``In terms of why they were recently cut back, I would say it could reflect a number of things -- perhaps some greater confidence in the market about Y2K itself and how it will go,'' said Spence Hilton, associate vice president at the Federal Reserve Bank of New York.

In addition to the STRIPs auctions, the New York Fed also announced in September that it would begin entering into repurchase transactions with maturities up to 90 days, up from the previous maximum period of 60 days.

The Fed has already tied up approximately $30 billion in long-term repurchase agreements, a further reinforcement against liquidity concerns in the repo market.

``The only risk at this point is customers -- and by that I mean mutual funds having large withdrawals at the end of the term,'' said Marc Wanshel, economist at J.P. Morgan & Co. ``But the dealers, I think, are very comfortable.''

Vincent Verterano, head government bond trader at Nomura Securities International, said the STRIPs options provide good insurance for dealers who need extra liquidity toward year-end. But he underlined that insurance doesn't come for free.

``The Fed's going to make a ton of money on this,'' Verterano said. ``Chances are they (the options) are not going to be exercised.''

The interest rate on options is 150 basis points (1-1/2 percentage points) above the Federal funds rate, now at 5.50 percent, but traders see the insurance as cheap.

Before Wednesday's auction, the total amount the Fed had received in premiums was ``just shy of $5 million -- a little bit more with today's sale,'' Hilton said.

Many traders say that the premium is a small price to pay for what amounts to peace of mind running up to the new year.

In addition to the options auctions, The Fed now accepts a broader range of collateral for its open market repurchase operations. And it introduced in September a special facility to ease pressure on smaller regional banks toward year-end.

Despite the fact few banks have stepped forward and used the facility, Crandall and other analysts acknowledged that the very fact the Fed made the liquidity facility available to small banks if they needed it was a positive step forward.

-- (M@rket.trends), November 28, 1999.

hmmmm, DOW hovering near 11,000.... what was it suposed to be again? oh, yes....8600-9000

And it was supposed to be between 8900(!?!?)-9500 ending Nov? Not bad. Only off by 1500-2000!

I hope you don't make your living predicting where the market will go, son.

-- watching (waiting@nd STILL. making money in the SM!), December 02, 1999.

Keep watching and waiting.

It's idiots like you who will be crying in their soup when TSHTF.

My mistake was that I thought that more people would realize how incomplete the information is out there.

Uncertainty kills markets, but many people are in denial.

The market was full of idiots like you in 1929 and 1973 as well.

-- nothere nothere (notherethere@hotmail.com), December 02, 1999.

-- Say (no@to.bold), December 02, 1999.

For what it's worth - the markets are a better tracking device for what "just happened"/"Was just announced" rather than what COULD/WILL happen....it does reflect what people HOPE will happen.


Also - as soon as Dec 01 came up, I noticed that Yahoo's S&P tracking site immediately crashed and is failiung to generate any graphes anymore.......gee, and this is first time it is facing less than 30 days to the 0000 date......but probably nothing, just another pothole in the bump-in-the-road-of-life.

The graphing routine stopped only once before, and that for only 2 hours .....

-- Robert A. Cook, PE (Marietta, GA) (cook.r@csaatl.com), December 02, 1999.

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