Why isn't Wall Street paying attention?greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
Hello, I have never posted anything on this forum, but found this thread very interesting!! Some of you may know that I analyze and monitor hedge funds for a living for an investment bank in New York. I don't feel comfortable saying too much about Tiger, because we have large investments with that firm, but some facts in the thread were inaccurate. Tiger's high in assets was about $18 billion, not $22 billion, and now they have $11 billion in assets. Most hedge funds have only year-end redemption provisions, but their offshore vehicles typically have more frequent redemption provisions, usually quarterly. Tiger has both domestic and offshore vehicles. Much of Tiger's assets are "locked up" for longer than just this year and next. Anyway, enough about Tiger.
One of the reasons I think the fall will be so difficult is that hedge fund investors typically have to give "notice" of their intent to redeem by September 30 or October 31, meaning that hedge funds will have to begin liquidating securities once they receive notice. In addition, they will probably want to "delever" to have more in cash than usual because of their own nervousness about Y2K.
I don't give much credence to CNBC. They are eternal bulls, and do after all, refer to themselves as "The Big Cahuna", "The Brain", "The Bond Babe", "Lola LOng Bond" and they use lava lamps to predict the market outcome for the day!
Why do you all think that Wall Street basically is still not paying attention to Y2K? Because they don't want the bull market to end, or because they really don't get it?
-- Jennifer Yourdon (email@example.com), August 08, 1999
Jennifer, I don't believe it makes much difference. These folks livelihood depends on an ever expanding stock market bubble. Most of them don't make money when stocks go down. They have a vested interest in keeping the bubble alive.
-- Ray (firstname.lastname@example.org), August 08, 1999.
Just what we need is another good specialist on economic matters. You pose a very good question and I have heard from reputable sources that the current wall street position is both DGI and self preservation. Personally, I think that like the classic Polly position, which we have seen is strongly held by some, that there are "Wall Street" folks who just can't psychologically accept the notion that it could all go down in flames, just like in 1929. I am going to mention this thread to Drew Parkhill and ask him to post you a reply, personal if possible, since I know Drew has some good inside info. You do know him right? He manages the CBN Y2k web site.
-- Gordon (email@example.com), August 08, 1999.
Both! Plus they're spun by the Big Lie just like all the other herd cogs. Disorienting, masks reality, the Feel Good anesthesia.
Welcome, Jennifer, hope you have been lurking. *You* are supposed to tell us the answers! If the "experts" can't ferret out their fields, how can we sideliners predict the tea leaves? January 7, what will it look like? Tell us what you think.
-- Ashton & Leska in Cascadia (firstname.lastname@example.org), August 08, 1999.
Yes, welcome, Jennifer! The seeming DGI of economists continually puzzles me. A couple of times, when somebody or other has posted the latest economists' predictions about Y2K's effect on the economy, I have remarked, "Quite the Clueless Crowd", or something to that effect.
Present company excepted. :-)
I think they really DGI. Sometimes, I think that they are taking for granted that either (1) remediation is not really necessary or (2) remediation will get done satisfactorily. However, I sometimes think that's my own misapprehension. Since they have no way to factor in the possiblity of widespread nearly-simultaneous computer failures, since such has never happened before, they are left with looking at things like expenditures and inventories, which gives the impression that they are assuming everything will be Y2K-OK.
What do you think?
-- Lane Core Jr. (email@example.com), August 08, 1999.
Why aren't there any rumblings before the dam breaks? One can begin to feel the electricity in the air before the storm clouds mass. One can almost feel the vibration on the rail ties as the train swerves around bends in the distance, gathering speed in the dusk. Some dream, some feel premonitions in their bones. But the money men squeeze and count their trinkets and are oblivious to the sensitive undercurrents the aware discern running under the neon-twinkling Wall Street canopy.
Jennifer, what do you feel?
-- Ashton & Leska in Cascadia (firstname.lastname@example.org), August 08, 1999.
I just keep getting this mental picture of Wile E. Coyote standing there holding that tiny umbrella over his head as the boulder comes crashing down on him. Wile E. are our self-styled financial wizards and the boulder is the huge, crumbling world financial system.
-- Jeremiah Jetson (email@example.com), August 08, 1999.
Welcome - read your book, gave copies to frinds/family (to no avail I might add), superb balanced job you both did IMHO.
First, CNBC, MSNBC, CNN and the other gubbmint propaganda machines - they are only useful for getting the latest ticker prices and little else - these guys and gals are part of the problem - and necessary to keep the bubble from popping. Maria Bartiromo is the only reason I bother to watch :)
Check this link out for future market trends - her hair last Friday was looking a little "frazzled" shall we say... :)
"The Maria Bartiromo Market Hairdex"
They say that the market is incapable of looking further ahead than 6 months - as we all know we are almost at the four and a half months to go stage so it is perplexing why y2k is not being factored in - actually I think IT is being factored in, very much so, behind the scenes - unfortunately it is Joe Schmoe, with his 401K and dot.com shares that have all just tanked that is going to pay the piper...
The big boys by all accounts have been quietly selling off for some time now, just look at the extremely peculiar shenanigans surrounding the price of gold, this alone should tell you that something is up...
It's in the interest (pun intended) of gov.org, the Admiral and the PPT, that they keep this circus going for as long as possible - I believe a crash is imminent but quite when is anyones guess, certainly I believe it WILL happen before rollover.
It's all a game and the dice are loaded against the small fry - many will lose their life savings and pensions in their 401k's when it tanks - it won't be pretty - this scenario will further exacerbate the y2k singularity when it hits us all HARD at rollover...
Meanwhile the big boys will be nowhere to be seen, holed up somewhere safe with their fiat profits neatly transmuted into shiny yellow metal at a fire-sale giveaway price... quite quite obscene...
When you think about it - it's the scam of the millennium taking place right before our very eyes.
Get out of the markets (or short them if you have the bottle), buy gold, buy cheap, buy now.
Oh - and Jennifer, do you mud-wrestle? :)
-- Andy (2000EOD@prodigy.net), August 08, 1999.
welcome to the forum. Your insights would be most helpful to us regulars.
Do we liquidate? invest in Bear type funds? stocks? real estate? cash out?
and are you staying in the city for the rollover and beyond?
If you can help, we need it.
-- Bob P (firstname.lastname@example.org), August 08, 1999.
From another thread, related to the Tiger fund and the gold scam...
On a related note:
Subject: Re: Tiger Fund in deep trouble Date: 1999/08/08
Author: Paul Milne
TheZenith wrote in message <email@example.com>... >In article <37AB994D.firstname.lastname@example.org>, > email@example.com wrote: >> Steve B. Hill wrote: >> > >> > In article <firstname.lastname@example.org>, "merville" ><email@example.com_> >> > wrote: >> > >> > > This is bad news. My financial contacts have always taken Y2K >with a pinch >> > > of salt, but when I have mentioned derivatives and funds like the >Tiger fund >> > > being vulnerable, they have always perked up. This could be a >serious >> > > trigger point folks .... >> > >> > Hey-the street .com also did a piece on this today with commentary >from the >> > fund manager that these allegations are "obscene". >> > >> >> I'll tell that fucker what's obscene: Major banks giving billions of >> dollars to gamblers so that they can bet on currency fluctuations. >Who >> gives a shit whether the bell tolls today or tomorrow for Tiger or the >> rest of those ass wads? It has to happen. Batten down the hatches >and >> pray we have a few more days or weeks to get done what we need to get >> done. When the bell finally tolls, it's for all of us. That is what >is >> obscene. >>
> >What is happening is the Tiger is investing in the fact that the >dollar is growing stronger than the yen. When the process reverses, >which it is,the Tiger fund will lose money on this "Yen carry trade". >They must then sell stocks to cover the loses on the "Yen carry trade" >and to pay back the loans they have taken. >
>No big deal, unless it involves billions of dollars on our market. >Which it does. >
>It is said all of this will collapse of the Yen to $ value reaches >111Y. It is now 114Y. >
I already said this a couple of weeks ago. However, I came in at 109 Yen to the dollar.
>-- >Zzzzzzzzzzzz...zzzzz..z.z....z....zzzzzz zzz....z.Z >"Even if the date-sensitive equipment blows up >due to a Y2K bug, there'll usually be a >replacement ready to take over." -smpoole7 > > >Sent via Deja.com http://www.deja.com/ >Share what you know. Learn what you don't.
-- a (firstname.lastname@example.org), August 08, 1999.
The puppetteers are laughing their asses off at the pollyanna investors that are still in. They took the big money out and are currently manipulating the gold markets to buy up all the real money cheap. The game is almost over and they know it!! If your not intelligent enough to see through this market farce you deserve to lose everthing next year.
-- Y2K Pro (Y2Kpro@aol.com), August 08, 1999.
-- Andy (2000EOD@prodigy.net), August 08, 1999.
Jennifer: Do you ... !??!?! ... damn it, Andy, I'M supposed to ask that! Stick to your stupid gold, conspiracies, and reptiles!
Welcome, Jennifer, loved Timebomb2000-the-book, and look forward to your contributions as we head for the big one.
-- King of Spain (email@example.com), August 08, 1999.
1. Tiger Fund: $18 billion minus $11 billion equals $7 bilion. What happened? I understand they lost quite a bit in quite a short period of time. Le Metropole Cafe
2. Why doesn't the market discount Y2K?
As the market is primarily earnings driven, I think the analysts are looking backwards at the last few quarters rather than forwards.
I suspect Dr. Yardeni is not too popular for breaking ranks and sticking with his recession/depression prediction.
Market specialists are not computer specialists and may not adequately appreciate their dependence of things they take for granted.
I suspect Goldman Sachs and other big players have known for some time and have been manipulating gold prices to offset their derivative exposure to currency and other fluctuations.
-- Bill P (firstname.lastname@example.org), August 08, 1999.
Hi Jennifer !! As you can see, we all certainly wellcome you to the forum. Proud to have you with us, please stick around.
Good thread, by the way. No trolls so far, good discussion. It's funny to see that posters expect answers from you, and that's the problem. Y2K is such a different animal, textbooks don't help much, do they?
My two cents worth is strictly lateral-thinking oriented. We may have an age factor involved: Wall Street yuppies, brokers, fund managers, operators et al are basically young, very young, too young to know any of the stuff that will hit them/us/everybody in 100 working days.
So, Wall Street "doesn't want to get it" simply because Wall Street is run by kids that can't know any better...
Fat fish though will make their move soon and then, only then, may "kids" get a whiff of burning embers...
-- George (email@example.com), August 08, 1999.
Jennifer: An old adage on Wall Street is the trend is your friend. To say that the trend has been up would be an understatement. The answer to your question, I believe, is that both Wall Street and J.Q. Public expect the continuation of whatever the present trend is, which also prevents them from recognizing the signs for a major change. It is at root a social phenomena. You may want to take a glance at the following short thread from January where this was discussed. It is called Forecasting Shifts in Mass Psychology.
The url is: http://greenspun.com/bboard/q-and-a-fetch- msg.tcl?msg_id=000PRQ
Forecasting Shifts in Mass Psychology
-- Rob Michaels (firstname.lastname@example.org), August 08, 1999.
David Tice, Portfolio Mgr. at the Prudent Bear fund has the best take on the stockmarketand the global financial mess. Get his views at www.prudentbear.com or his phone message on Wednesday and Friday evenings at 1-888-778-2327 and select 5 and 1 on the phone tree to go directly to Tice.
Gary North posed Tice's latest bearish message on Hedge Funds on 8/07.
-- r. gordon (email@example.com), August 08, 1999.
Thanks for the link - must have missed it the first time around - some of the comments are all too appropriate now don't you think?
It will be an "interesting" week -
The term "CONVERGENCE" springs to mind :)
-- Andy (2000EOD@prodigy.net), August 08, 1999.
Thank you for contributing here, I'm feel certain that I speak for the group in general hoping that there will be future contributions. Having been a stockbroker for the last 12 years, I've learned a great deal about 'reading between the lines,'and I can assure you that my recent "recs" to my clientele have been less than well received, almost to the point of being laughed off the phone....which tells me I'm RIGHT ON THE MONEY!For the past several months, I've been encouraging clients to consider moving out of equities into short and intermediate term governments, and either buying gold and silver bullion or buying gold mining companies hedged to the price of gold.(My fave is ABX) My personal income has dropped immeasurably, and I'm losing clients rapidly all for the sake of common sense....but I'm still as determined to do "the right thing."I feel a great deal of responsibility toward my clients' wealth preservation, but I've truthfully never witnessed so much greed and anticipation of much higher prices in the future.An almost assured indication that the markets will soon correct in a rather suprising manner. You know as well as I do that Y2K is only one"factor" in a list of many that could topple the markets in the very near future.It is my belief that we'll look back and blame Y2K when the "technicals" were the real problem to begin with. "Deja-vu" Operation Desert Storm.... My point to all of this is quite simply this....Don't worry about Wall Street not "recognizing" the problem, it simply allows some of us more time to accumulate hard assets (gold silver...etc) The market will "see" long before John Q. Public....and the rest will simply be "history."
-- ContrarianUbet (firstname.lastname@example.org), August 08, 1999.
First, until proven otherwise, it's my opinion that Julian Robertson is too smart for Tiger to be bushwhacked as has been recently forecast in some digital epistles that we've all read. The Robertsons have a Raleigh connection. That doesn't make them smart, but it does allow the family some increased exposure to local scrutiny. Julian's sister, Wyndham, is very accomplished in her own right. They're both smart, not just lucky.
Moving on, I disagree with your premise that Wall Street doesn't get it. My information from the Street is that trenches are being dug as we speak . . . and furiously, but primarly by money that is both big and smart. The perceived risk is uncertainty itself as opposed to actual knowledge of future disruption.
Now I'm definitely not an insider. Nor am I an economic historian. But it's been my assumption for the last several years that the major market indices have been much more of a proxy for populist sentiment, in contrast to the 1975 to 1992 period where sophistication held more sway. (I'm sure data is readily available on this point and I would appreciate any support or refutation.)
Populist sentiment controls 401K money which controls the major markets. Your average schmo has no concept of risk/return. Your average schmo is still plowing dollars into Magellan, Vanguard and the rest. So now, the Street, as reflected by the indexes, is no more sophisticated than the average American worker.
By the time portfolio insurance looks like a smart thing to Joe Schmo, the premiums will be so high that he'll forego protection.
Now that the Street is a cross-section of all but the most ignorant Americans, you've got to differentiate. The Streeters who fly the Concorde get it. The ones flying AirTrans don't.
-- Puddintame (email@example.com), August 08, 1999.
check this out by David Tice (the Prudenr Bear fund) with regard to TIGER...
"The Not Insignificant Probability of a Derivative Accident"
-- Andy (2000EOD@prodigy.net), August 08, 1999.
Be that as it may, the fact remains that I've watched stocks *immediately* respond to comments made by the CNBC meatpuppets. In fact, I believe that every time I've checked in real time, the movement was apparent, and dramatic.
-- Ron Schwarz (firstname.lastname@example.org), August 08, 1999.
Yuck. I tried to double-bracked the quoted text, and look what it did!
-- Ron Schwarz (email@example.com), August 08, 1999.
Jennifer, have you ever noticed how the *golden boys*, *shining stars*,*people to watch*on "The Street" tend to check themselves out any time they pass a mirror? Do you know of even one who would compromise him/herself by distancing themselves from the mainstream? There's a good chance of a meltdown but "I'm sure not gonna be the one to pop the bubble!" Also the thought of losing their easily made fortunes are so far beyond their scope of experiences, they just can't see Y2K as being anything beyond a doomsayer's rant. (Pity the fools!)
-- Roger (firstname.lastname@example.org), August 08, 1999.
Argh, and it persisted italics that I never added!
Did that help?
-- Ron Schwarz (email@example.com), August 08, 1999.
Glad to see that you are trying at least "to do the right thing" - bravo! It seems we think alike regarding gold and the unfolding markets - a question about ABX - don't you think Barrick Gold, and by default the ABX shares, could be in a whole heap of trouble if Bill Murphy and the GATA/Gold Council mess comes to fuition?
Just a heads up.
-- Andy (2000EOD@prodigy.net), August 08, 1999.
Jennifer, Tiger will tank.
-- Randolph (firstname.lastname@example.org), August 08, 1999.
Well, I would be remiss in not saying "welcome to the forum, Jennifer" and I say it sincerely but not without stating that I have not been a regular reader of this forum. In fact, although this site is 'bookmarked' at the top of my list of ammunition for enlightening those I love, I'm not certain if I have ever read this forum. Actually, I just came over from http://www.usagold.com/cpmforum/ because someone referenced a post from Jennifer Yourdon. I always want to hear what a Yourdon has to say. Needless to say, I will definitely be checking back in regularly and thank you for valuable your input, Jennifer. RE: Puddintame's reply - Puddintame said, "..., I disagree with your premise that Wall Street doesn't get it..." My first reaction was to point out to Puddintame that he may have misdiagnosed your position on that rhetorical question. After, reviewing your post, I realized it was possible that I had done that...but I don't think so. Nevertheless, after everyone has had a chance to contemplate it, I hope you will not mind revealing your subtext. I believe that for every group, from day-traders to Senators (not really a range:), there are some who believe things will be bad, most who think it will not (regardless of whether they have put any thought into it or not), and many on the fence. With that said, I believe all that are invested long don't address it for both reasons. Looking forward to more from J, Thanks, Q.
-- e.H. Street, jr. (email@example.com), August 08, 1999.
INVESTORS INTELLIGENCE VERY NEGATIVE ---THE DOW BELOW A 1000
INVESTORS INTELLIGENCE is the very best of the best advisory services and tracks over 140 non-brokerage newsletter writers. They compile weekly stats on who is bearish and bullish-currently 52% of the writers are bullish and this is very negative from a contrary standpoint. I have been closely following this service for the last ten years and can't remember when they have been more bearish. In their Aug. 6th letter they talk of key stocks exhibiting "the most dangerous formation (high pole tops) when indicators are bearish". "The percentage of bullish advisors has been over 50% for the last 37 out of 38 weeks.....with stretched valuations....a potential very bad mkt. lies ahead." DOW 1000---My good friend Robert Prechter once pointed out that in all manias the entire mania is retraced--as in 1929. Inconceivable isn't it? However, the historical record says it has happened often. I mention it because an old friend of mine who trades about $10mill. of his own money and has been in the mkt over 30 yrs. said that he could envision the DOW under a grand. It caught my attention because the remark was so out of character for him--gee, what a dream....the DOW at 850 and gold at $850, just like the good ole days. '
-- Andy (2000EOD@prodigy.net), August 08, 1999.
It took me a long time to find the antecedent to this thread, so I could follow the discussion. For the record, it is:
Today's (Aug 8, 1999) LA Times section C (Business section) contains a column 'YOUR MONEY' Market Beat by Tom Petruno, headlined 'Y2K Jitters are Finally Starting to Register on Wall St.'
(url may not last long)
I won't reprint the article. It starts off chuckling about the French fashion designer Rabanne who has predicted that the Mir space station will crash into Paris, based on his reading of a prediction by Nostradamus, a clue that Y2K may be considered part of the lunatic fringe. The rest talks about companies building up inventories and rushing to buy bonds before Y2K hits.
-- kermit (firstname.lastname@example.org), August 08, 1999.
Flood of Corporate Borrowing Causing Commotion in Markets
-- (email@example.com), August 08, 1999.
It's great seeing you on the site.
I feel that Wall Street just DGI for two reasons. First, they psychologically can't accept that the whole economy and civilization is about to come crashing down. It is like contemplating their own deaths. They are the winners, and as demi-gods they cannot believe that two little digits are not going to destroy their world. Second, they need to keep the bubble from bursting. The little guy only has a limited amount of cash. If the big boys start pulling out, they know that it will be '29 all over again.
-- Mr. Adequate (firstname.lastname@example.org), August 09, 1999.
the CIRCLE is 90% closed.[wagon-train]=no more gravy-train. the PARTY,S=OVER. i SEE THE BIG 7.=[REFINER,S=FIRE]
-- outnumbered=1000 to 1 (email@example.com), August 09, 1999.
Occasionally I have the pleasure of a Market person (industry analyst, trader, broker) in the back of my car. the traders and brokers I have had have, almose universally, been involved in talking up one thing or another to clients all the time they were in the car. Universally, when I did some research, their lyric descriptions to clients came from whole cloth.
-- Chuck, a night driver (firstname.lastname@example.org), August 09, 1999.
This is from the EIR site - please take the time to read it and look at the link supplied...
Alan Greenspan: "Had the failure of LTCM triggered the seizing up of markets, substantial damage could have been inflicted on many market participants, including some not directly involved with the firm, and could have potentially impaired the economies of many nations, including our own.
With credit spreads already elevated and the market prices and risky assets under considerable downward pressure, Federal Reserve officials moved more quickly to provide their good offices to help resolve the affairs of LTCM, than would have been the case in more normal times. In effect, the threshold of action was lowered by the knowledge that markets have recently become fragile.
Moreover, our sense was that the consequence of a fire sale triggered by cross-default clauses, should LTCM fail on some of its obligations, risked a severe drying-up of market liquidity. The plight of LTCM might scarcely have caused a ripple in financial markets, or among financial regulators 18 months ago. But in current circumstances, it was judged to warrant attention."
[End video clip]
Tony Papert: You've just heard Federal Reserve Bank Chairman Alan Greenspan explaining in his own peculiar, funny way, last October, how, if the Fed had not bailed out a speculative hedge fund called Long Term Capital Management, that our entire financial system would have seized up, and come to a halt.
Now, the current issue of EIR, with the cover dated July 16th, proves that the very same thing happened, only on a larger scale, in mid- June of this year, 1999, and that that crisis is far from over.
You're listening to "EIR Talks." It's Wednesday, July 14th, 1999. My name is Tony Papert, and with me is EIR economics writer Richard Freeman, and EIR counterintelligence director Jeff Steinberg.
Richard, what did happen mid-June of 1999?
Richard Freeman: Well, what happened, Tony, was that the Group of Seven governments and central bankers, which is the United States and England, Germany, Japan, and so forth, have been up to their ears, from June 11th through June 30th, in the biggest bail-out of bankrupt bankers yet, spending about $25 billion.
Now, all of this bail-out of banks and hedge funds--in particular, a hedge fund called Tiger Management [Fund]--amplifies but on a grander scale the bail-out of the Long Term Capital Management on September 23rd of last year, in which the Federal Reserve arranged a $3.8 billion capital infusion, which you spoke about, and Alan Greenspan spoke about.
Despite this Tiger bail-out, Federal Reserve Board chairman Greenspan lied on June 29th and June 30th, when he raised the federal funds rate, the rate for interbank money, to 5%. This drew much attention and tons of press coverage. But behind the curtain, the really smart crowd of wealthy people, they--these financier-oligarchs--were not trying to save the system. They were trying to buy themselves a little time so they could bury the system.
They have a strategy. Seeing that we are--the financial system of $300 trillion in financial claims can not be held together, that they would buy a little time, and then move in, in a post-collapse world, to buy up assets at bargain-basement prices, at very, very cheap prices.
In this strategy, there's a second part of what they did in this period of time, which was they launched another short operation, or selling operation, against gold, which began when the Bank of England announced May 6th that it was going to sell a portion of its gold-- more than half of their gold--and the gold price fell to its lowest level in 20 years.
If you put these two events together--the bail-out of the Tiger Management Fund and the gold operation--what we know is that the financial system is finished. The insiders, as opposed to what you read in the Wall Street Journal, know that. Lyndon LaRouche knows that. And therefore, both LaRouche and those insiders are planning for a post-collapse world, in which one shock or another has put the system at a point where it can't be sustained.
And what we need to do, is lift the mystery from what happened during that period.
Tony Papert: Could you tell us a bit more about what happened during that period?
Richard Freeman: Absolutely. Let's start with the Tiger Management Fund, which is a hedge fund, which is just a fund--a pool--of wealthy money. People usually have to put $5 million or $10 million in to get into one of these hedge funds as a starting point. And this one is based Curagao, Netherlands Antilles, which is also where George Soros's Quantum Fund is based. And it's headed by a fellow by the name of Julian Robertson.
Now, what they did, is they had gotten into trouble last year doing the same thing. Let me just say: They had a capital under management of about $16 billion. We know that by June 11th, they had lost $3 billion. And that's when the Fed started a series of secret actions.
Just to say what happened. On June 11th, the wires were filled with stories that the Tiger Management was about to go under, or something very close. And there were further reports that the Federal Reserve was "ministering" to them. That weekend, on the 12th and 13th, there was a meeting in Frankfurt, Germany, of the Group of Seven, the same group I mentioned, finance ministers and others, to discuss what to do.
And we saw that action on June 15th, when the Bank of Japan intervened, buying $10 billion worth of dollars to prop up the dollar and push down the value of the yen. And we now know, piecing this together and doing some investigative work under Mr. LaRouche's direction, that in fact, the Bank of Japan spent $22 billion in the month of June, largely acquiring dollars and pushing down the value of the yen.
Why would they do it? Come back to Tiger Management. What Tiger Management had done, is something called the yen carry trade. And that's the following. The Bank of Japan had lowered interest rates to a very, very low level.
Jeff Steinberg: Almost zero by late February, right?
Richard Freeman: Exactly, Jeff. Almost zero. They're about at 0.1%.
So what happens is that a bank in Japan can borrow at 0.1%, which is practically getting the money for free. The hedge funds then went to these banks in Japan and said "Lend us that money." So they maybe got an interest rate of .25% or a quarter of a percent interest rate.
They then took that money in large volume, and invested it--converted it into dollars--and then invested it in high-yielding instruments: maybe the stock market in the United States, maybe U.S. Treasury securities, something paying 5 to 8%. So they made money that way.
But then they had a second element by which they were going to make money. They figured that when it came time to pay back their loans, which were taken out in yen, that the yen would cheapen, and therefore they could pay less for their loans.
Jeff Steinberg: Because of the economic recession in Japan and the problem with the massive non-performing debt of the Japanese banks-- all those kinds of things.
Richard Freeman: Precisely. Because the Japanese, which we know, still have $600 billion to $1 trillion of non-performing loans in their banking and insurance system, are also suffering an economic downturn, and they lowered their interest rate in a desperate way to both bail out their banking system, and to try and just keep the economy from going further down. That's why they had lowered the interest rate in the first place.
So, just to give an example. Let us say that I borrowed yen--$100 worth of yen, which would be 1,300 yen when I first borrowed the yen. Okay, so I borrowed 1,300 yen, convert it into $100. I invested the $100. I'm betting--or the Tiger Fund of Julian Robertson was betting-- that when it came to pay back, that the yen would have fallen, which means the dollar buys more. So $100 might have bought 1,400 yen.
So, I paid back the 1,300 yen I owe, and I have 100 yen profit. So I've made money by betting the yen would go down. What happened was, the yen went up. And instead, to use this example, let's say I have $100. It's now only worth 1,000 yen. So I have to now be able to purchase more yen to pay back my 1300 yen loan, which means I have to spend more money.
Jeff Steinberg: I think it was the ninth or tenth of June, that one of the Japanese government agencies announced that suddenly, in the last quarter, the Japanese economy had soared ahead by 1.8%, which is something that a lot of people are very skeptical about.
But nevertheless, that was the trigger event, in the sense that it prompted the yen shooting up?
Richard Freeman: Yeah, it was 8.1%. But that was one occurrence. There may have been others going on. It's hard to know. But that certainly was one.
In any event, the yen was strengthening rather than weakening, which meant that every day that the Tiger Fund waited to pay back its loan, it was building up additional losses. And by June 11th, they knew that they had huge losses, and they knew that people were drawing money out from their management fund, which went from $16 billion under management, to $13 billion under management.
Now, let me add the complicating factor, which makes this a world crisis. And remember, we're talking about Tiger Management right now. But there might have been 10, 15, 20 hedge funds in the same predicament; it's just that Tiger Management is the second-largest in the world.
For every dollar that Tiger Management had under management, they borrowed $20 to $50. So if they had $13 billion by that Friday, that means they had somewhere between $260 and $650 billion that they borrowed from banks, that were in play as investments around the world.
So they now had to cover their situation of getting back to getting yen. But if the yen kept rising, it made it expensive. So now we come back to the point I raised earlier. On June 15th, the Bank of Japan intervenes, after coordinating with the Federal Reserve of Alan Greenspan and the Bank of England of Eddie George, and intervenes to push the yen down to save hedge funds from losing on their position!
This is completely remarkable. And what was done, is that this was done repeatedly over a period of weeks, and with the biggest bail-out operation we know. Don't forget: Long Term Capital Management, which was made public, was $3.8 billion of private money. This was at least $22 to $25 billion spent by the Bank of Japan. We don't know how much was spent by the Federal Reserve or the Bank of England. We could be looking at a $30 to $50 billion bail-out. And this one was not made public.
Jeff Steinberg: The European Central Bank admitted they spent $3 billion to buy euro and dump yen.
Richard Freeman: There was a whole set of operations going on at this time. So, when, as Mr. LaRouche says in the upcoming issue of the Executive Intelligence Review that Tony Papert referenced, this was one of the biggest bail-outs if not the biggest bail-out we know of. And yet this was kept totally silent at this particular moment.
Tony Papert: Now, you referenced before that the big financial operators behind the hedge funds and in the City of London, and Mr. LaRouche's friends, are both looking at the situation from the point of view not of saving the system, but knowing that it can't be saved. And they're looking at it from a post-crash perspective. What does that mean concretely?
Richard Freeman: What that means--and again, there's $165 trillion worth of derivatives worldwide, which are these bets, as part of a pool of at least $300 trillion--more than half of the pool of $300 trillion of financial claims and obligations sitting on the banking system, making the banking and financial system as a whole bankrupt many times over. The system is also highly leveraged.
And this explosion, following when we had last year the August 17th declaration that the Russians could not pay on their treasury debt, and then the September 23rd failure of the Long Term Capital Management, which led the Fed to cut rates during that time and begin running the printing presses--this one has told everyone, "Look, we've just had another one, another one, another crisis."
So, what happened--and I just want to read one quote, because this is from a fellow, Eddie George, who is the head of the Bank of England. On June 10th, that is, one day before this massive bail-out operation, Eddie George finally got up his courage to talk about the failure of last August through September. And he said, "When we were last here"--he's addressing a banquet by the Lord Mayor in England that he was holding for merchants and bankers--"When we were here last year for this splendid occasion, I suggested we were living in a dangerous international financial and economic environment," says Eddie George.
"These words were strong words for a central banker. But perhaps not strong enough. There was a great deal of talk about financial meltdown and impending world recession, which was not simply journalistic hyperbole."
He's saying this--saying that the world financial system, admitting it was on the point of failure the latter part of last year, but he's now covering up, at this very moment--as did Alan Greenspan's action when he raised the interest rate a quarter of a percent--what's actually happening now, which is at least 5 to 10 times bigger.
Then, coordinated with this, Tony, the other part of the operation was the sale of gold. And it's very interesting that this same Eddie George, who was warning about this crisis--his Bank of England announced in May, on May 7th, that they were going to sell 415 metric tons of their gold holdings, which total holdings are 715 metric tons.
On the morning of that day, gold was trading at $289 an ounce. It proceeded to fall $35 an ounce over the next month and a half.
Finally, on July 6th, the Bank of England sold 25 metric tons, which is the first installment of the 415 metric tons of gold that they're selling.
Now, why would the Bank of England sell gold? What they're trying to do is to force a drop in the price of the metal, which as the chart shows people has happened, bankrupting those people who have gold right now, or forcing them to sell, so that the very wealthy families, who know that this financial system is long-finished and can not be rescued, can purchase it up cheap, and be able to hold on to these assets going into a post-collapse world, which means that if they buy gold at $250, or they may continue to drive it down with speculation to $240, or to $230, they will buy it up, hold that gold, force it out of public hands where governments have sovereign control over it, put it into their own private wealthy hands; and then, at the point at which the system can no longer be saved, declare that they have a gold standard, shoot the price up to $400 to $700 an ounce. But at this time, use that, with their control of oil, food, precious energy supplies, to have a grip on everything on which human life depends upon, and economic life depends upon.
Jeff Steinberg: So, they rigged the market to do this.
Richard Freeman: Absolutely rigged the market. When the central bank begins announcing that it's going to be selling gold, and the other central bank which began selling gold on July 4th, 1997, was the Reserve Bank of Australia. And you may see a pattern: England, Australia, and Canada, the central banks were all selling gold. Well, they're the heart of the British Commonwealth, which LaRouche has said is the most powerful financial and economic instrument on Earth. That has the majority of holding of precious raw materials, oil control, like British Petroleum, Royal Dutch Shell, and so forth.
So they, operating through the Bank of England, rig a market to go downwards, and force this market to begin the price-falling, so that they can gather these assets up themselves--for a post-collapse world. That's what they're thinking of.
Jeff Steinberg: They're abandoning the paper ship now, knowing it's sinking, and putting themselves in the position to really control the crucial levers of world economic activity for after the blowout.
Richard Freeman: Exactly. I mean, what they've decided is in their post-collapse world, human life is going to be greatly reduced. They have said, as Prince Philip, as you well know, Jeff, has said, "Look, we don't need six billion people on the face of the earth, we'd be happier with a billion, a billion and a half." They will reduce people down to a semi-literate status of roaming, illiterate nomads, and under that system, have their control over the supply of the precious raw materials, the precious metals, iron, copper, zinc, food. And they will, like, release and not release it as they choose, wiping out human life, and having a control over a feudalistic arrangement, which is what they really mean by their "globalistic system."
Jeff Steinberg: It's striking to me--I mentioned in recent shows, that I've been out into the Midwest and the Plains States a few times, and what you're describing vis-`-vis gold, is exactly what the big food cartels have done with respect to beef and grain in the United States. Farmers are being put in the position where they're paid way under cost of production, while the cartels control the pricing structures and the delivery systems and processing, and everything else.
Richard Freeman: Absolutely. If you take Cargill, which announced last year that they were buying Continental Grain division, they will now have, between those two, 45% of world grain production and exports. That's an incredible amount. And these are controlled by a very wealthy family--most people have never heard of the MacMillan, family and the Cargill family, which actually run Cargill, which one of them is a member of the Knights of St. John of Jerusalem.
These are the sorts of families that do it. Or take the buy-up by British Petroleum, which bought first Amoco last year, last October, and then in March announced it was buying Arco. It's now the second- largest oil company in the world. It is the largest producer of domestic oil in the United States, if the Arco deal goes through. They will have their control over the spigot of oil.
The one thing I wanted to just add, if I could, is that in this environment, Lyndon LaRouche released a statement around July 8th or July 9th. And he said, "Look, we have to deploy sovereign governments. Sovereign governments now become even more essential. If this is their strategy"--and it is, and we've documented this in EIR-- then what sovereign governments have to do--and I just want to read one paragraph on this, 'cause I think it's very powerful and pertinent.
He said, quote, "Under conditions of financial breakdown, all these public assets, such as publicly held gold, which are now being channelled into the hand of private financiers, will be confiscated. Whoever is now looting and stealing these public assets, had better beware. Those assets will be seized and put back in the public's hands. No 19th-century private gold schemes will be allowed. We need a New Bretton Woods System in order to rebuild the world, nothing less." End of quote.
And I think that that accurately describes the idea of a fixed exchange rate system, geared around the Land-Bridge, and this tremendous possibility for economic development, and as one post- collapse perspective for survival, and the other post-collapse perspective for survival, which we've just discussed.
Tony Papert: And what it means to the listener, is, if you are participating in this "great stock market boom" through mutual funds or in other ways, or, God forbid, through derivatives, what you're doing, is helping artificially keep the price up, while the Big Guys get maximum returns for getting out of the whole market.
Richard Freeman: Yes, absolutely.
Tony Papert: --by selling to you!
Richard Freeman: Yeah. Because they need someone to offload onto, and you're there. And the thing is that they know, while you're having these fantasies that "My money is going to multiply," and "I just read in this magazine, and my stock broker just told me this," and "I just made $12,000 in two months,"--while you're playing in those fantasies, these wealthy people are simply laughing up their sleeve at you, because they've taken you time and time again.
And what they're thinking is, they know the system is gone. They absolutely, cold-bloodedly, intend to leave you with every piece of paper they can unload, because they're moving into these hard- commodity assets: gold, food supplies as Jeff was saying, oil, and so forth. And in this type of setting, they know that they are going to take you to the cleaners.
And people should just reflect. Think back: Last year, EIR and Lyndon LaRouche said, in August through October--LaRouche had warned in the spring of last year, that this crisis would come, that the financial crisis he actually warned in January of 1997, it hit in Asia. When it hits in Asia--and people say in the early part of 1998, "Well, this is going to clear up." LaRouche says "No, it's not going to clear up, it's going to get worse."
And then you have this very defining moment, when the whole financial system went, between August and October of last year.
We said it uniquely. We reported it here on this show. And yet, this oligarchy said, "Well, it's a little bit of a problem," until we now hear Alan Greenspan say, "Well, it was a lot more than a 'little problem'."
So they sort of tell you after the crisis has happened. So now, we have this crisis with the June 11th failure of the Tiger Management, which is a major, major, monumental event, which every insider knows happens. They may not have all the facts assembled the way we have in EIR, but they know bunches of the facts--enough to know how serious this was.
They then say, "We'll tell you about what happened last August or September." So, the people who are really trying to hold on to their money, should realize that there's a time lag between when the oligarchy tells you something has happened, and when it's already happened. You will find out about the crash once you're sitting there on the floor, crying over the paper that's simply gone.
Jeff Steinberg: Unless you read EIR.
Richard Freeman: Unless you read EIR, unless you get rid of this psychosis, as LaRouche has said--and it is a psychosis--of believing that somehow this fantasy bubble is going to come out. It's probably one of the greatest strategic doctrine mistakes in America's--one of the greatest things misorienting America in national policy-making that you can possibly look at.
Tony Papert: Absolutely.
Jeff Steinberg: You know, it's striking to me that back last fall, with LTCM, there was a certain amount of transparency, in the sense that the fact of the Fed meeting came out. It was no secret the market was going berserk--the near-bankruptcy of LTCM was grabbing front-page headlines every day.
This time, I remember that for about a 24-hour period, there was coverage in the London press and the New York Times and in the New York Post, that Tiger Management was about to go kaflooey, and that there was another secret meeting at the Fed. As this process unfolded in Frankfurt over the weekend of June 11th-12th that you described, the story disappeared completely from the media. And there has been a complete media black-out of this story, which is even far worse than what happened last fall.
And it seems to me pretty obvious that they don't want people realizing just how close to the edge the whole system is, because people who do have their life savings now lured and sucked into this financial bubble, rather than in secured bank accounts and, you know, Treasury paper and things like that are protected, could very well say, "Time for me to get out, too," and then you've got a real--
So, the media's playing a very not surprisingly pernicious game here in this crisis, completely covering it up.
Richard Freeman: Yeah. One quick point is that absolutely, to the extent that the Bank of Japan spent $22 billion in this operation, and that there's no report on that level of thing, tells you that this was a major, major operation, and people simply have to rethink what they're going to do about the policy direction of the United States.
[end big snip]
So there you have it...
Make any sense??? [Andy]
-- Andy (2000EOD@prodigy.net), August 09, 1999.
You know you've been reading the TB2000 forum long enough/ too long when:
You click on a post by Jennifer Yourdon...
see all the responses scrolling in...
and suddenly get a sinking feeling as you think: OH NO!...
"I'm gonna have to hit Ctrl-F and Search for 'Mud' and 'Wrestling'."
Sure enough... (But Andy beat the King to it this time LOLOLOLOLOL!)
-- jor-el (email@example.com), August 09, 1999.
As an antidote to the paranoia, I'd suggest (re-)reading J K Galbraith's "The great crash 1929". The similarities between then and now are quite striking. It's worth noting that a belief that the market was the personal plaything of a few great but hidden powers was prevalent before that debacle, and seems to be an ever-increasing belief now. History shows that it wasn't, it was completely outside anyone's control! (THis isn't to say that there weren't an awful lot of mundane scams going on, which I think is another similarity to today)
And of course the other warning: that a market can crash for virtually no reason whatsoever, apart from a shortage of buyers.
Jennifer - you must have read this book. What's your take?
-- Nigel Arnot (firstname.lastname@example.org), August 09, 1999.
Hey Nigel, when one is about to lose one's shirt on Wall Street I would suggest a healthy dose of paranoia is essential :)
-- Andy (2000EOD@prodigy.net), August 09, 1999.
Bond investors nervous about Y2K A new survey shows that investors, increasingly worried that Y2K glitches could affect the cash flow of corporate bonds and other riskier securities, may seek security in government issues and cash.
July 16, 1999 1:48 PM PT
Well before the curtain falls on 1999, a Wall Street survey found that bond investors are concerned about risks related to the so- called Year 2000 bug, prompting them to seek a safe haven in U.S. Treasuries.
Merrill Lynch & Co. Inc.'s "Y2K Fixed Income Investor Survey" polled more than 100 firms and found that uncertainty over cash flow may prompt investors to sell corporate bonds and other riskier securities, while holding government instruments and cash.
Market participants are increasingly worried that unpredictable factors related to the turn of the calendar from 1999 to 2000 could affect the cash flow of certain bond issuers, and thus the liquidity of their bonds. Liquidity -- the ability to buy or sell a security at will -- is a key concern among market participants who expect declines in liqudity to be evident for some securities later this month and continue until early October.
A "moderate or serious drop"
Holders of debt issued by corporations are most concerned about declines in liquidity: 87 percent expect it to fall moderately or seriously. Many holders of corporate debt will seek a safe haven in U.S. government debt.
Even wary countries will get Y2K bug bites
"Uncertainty on this front is a Y2K conundrum: many investors cannot know for sure the amount of withdrawals and therefore have to overestimate," Merrill Lynch said.
The Wall Street firm found that "most investors face at least some cash flow uncertainty -- 64 percent said they were not very certain about their ability to predict cash flows." Also, 55 percent of investors involved in the asset-backed and mortgage-backed debt securities markets said they expect a moderate or serious drop in liquidity.
Active cash flows raise biggest fears
Merrill Lynch found that markets with an active exchange of cash flow -- money markets and mortgage-backeds as well as asset-backeds -- are the most concerned about bonds with debt service payments around year- end.
"To date, liquidity has been good for securities with late-December and early-January debt service payments. However 32 percent of those surveyed are concerned about owning these types of securities," according to Merrill Lynch.
Corporate debt investors, the survey found, are checking closely for firms that are Y2K compliant. Investors said spreads on debt issued by noncompliant issuers should widen in the fourth quarter. Over half of those polled expected corporate debt spreads to U.S. Treasuries to widen by more than 10 basis points.
Seventy percent of all investors expect liquidity to fall at least moderately. Investors appear to expect supply and demand distortions to occur in tandem.
"Issuance will likely be moved forward, just as investors begin to build their holdings of liquid assets. Almost two-thirds responded that they expect at least a moderate curtailment in Q4 supply," Merrill Lynch said.
-- (email@example.com), August 09, 1999.
Wow, you have all blown me away. As a young family, my retirement fund is small (about 2000.00). This thread has finally made me move what little $$$ I have over to bonds. Does that make sense to anyone. Also, I will now move up my supply (food etc.) inventory up to a year's amount. Since we are not weathly, I can always capture the food value back if things are rosier than it now seems to be heading. What else should I do to best take care of my family. The people around me (and most are pollys) are doing nothing right now to prepare. Quietly very scary to see happen.
-- thomas saul (firstname.lastname@example.org), August 09, 1999.
With time for a more "serious" post, I'm including an excerpt from Galbraith's book, "A Short History of Financial Euphoria," which David Tice posted at the prudentbear.com site awhile back. (Also read his -- Tice's -- account of a Colorado credit card "bank" going under recently.)
I'm not sure I want our y2k forum to be overrun with financial ruminations, and yet it IS relevant, because it has become so much the psychology of US Americans to measure their well-being by these financial indices. And when they crash, y2k panic buying may begin in earnest, closing some of the doors we/I may still need open to complete preparations.
It's also looking to me that y2k curiosity by thousands of folks is exposing the financial system (fractional reserve banking, etc.) as so highly leveraged that it may be even more vulnerable to a collapse than the computer systems themselves. (A software "black box" vs. an overdue "regression to the mean.") This is worth knowing in any year, and especially in these final five months of 1999.
I recommend reading "The Confidence Game" by Steven Solomon, a former Forbes writer, an excellent book about the central banks and their numerous responses to recent crises. You'll see how skilled -- and lucky -- Greenspan & Co. have been in the past. You'll also be able better to project just how much risk "management" has been heaped upon their shoulders again, and at least imagine their behind-the- scenes dealings today that will not be published for years to come.
The words "moral hazard" infest all government-financial system dealings, and basically the conclusion must be that the "private" financial system counts on the taxpayers of US & Europe & Japan to bail out their bad bets. "Heads I win. Tails you lose."
Why WS doesn't "get it" is aired strongly in Galbraith's book: PSYCHOLOGY. The last 5000 Dow points have been all psychology, not supportable investment fundamentals. Wile E. Coyote is right. No one wants to admit that they are part of a chain of fools that is already dangling over a 1000-foot chasm waiting for the final fool who just doesn't/won't/can't show up in time. Guessing which fool that will be, on which day, is just a -- Fool's Game.
("A Short History of Financial Euphoria," the initial passage from the first chapter:)
"That the free-enterprise economy is given to recurrent episodes of speculation will be agreed. These great events and small, involving bank notes, securities, real estate, art and other assets or objects are, over the years and centuries, part of history. What have not been sufficiently analyzed are the features common to these episodes, the things that signal their certain return and have thus the considerable practical value of aiding understanding and prediction. Regulation and more orthodox economic knowledge are not what protect the individual and the financial institution when euphoria returns, leading on as it does to wonder at the increase in values and wealth, to the rush to participate that drives up prices, and to the eventual crash and its sullen and painful aftermath. There is protection only in a clear perception of the characteristics common to these flights into what must conservatively be described as mass insanity. Only then is the investor warned and saved.
There are, however, few matters on which such a warning is less welcomed. In the short run, it will be said to be an attack, motivated by either deficient understanding or uncontrolled envy, on the wonderful process of enrichment. More durably, it will be thought to demonstrate a lack of faith in the inherent wisdom of the market itself.
The more obvious features of the speculative episode are manifestly clear to anyone open to understanding. Some artifact or some development, seemingly new and desirable tulips in Holland, gold in Louisiana, real estate in Florida, the superb economic designs of Ronald Reagan captures the financial mind or perhaps, more accurately, what so passes. The price of the object of speculation goes up. Securities, land, objets dart, and other property, when bought today, are worth more tomorrow. This increase and the prospect attract new buyers; the new buyers assure a further increase. Yet more buy; the increase continues. The speculation building on itself provides its own momentum.
This process, once it is recognized, is clearly evident, and especially so after the fact. So also, if more subjectively, are the basic attitudes of the participants. These take two forms. There are those who are persuaded that some new price-enhancing circumstance is in control, and they expect the market to stay up and go up, perhaps indefinitely. It is adjusting to a new situation, a new world of greatly, even infinitely increasing returns and resulting values. Then there are those, superficially more astute and generally fewer in number, who perceive or believe themselves to perceive the speculative mood of the moment. They are in to ride the upward wave; their particular genius, they are convinced, will allow them to get out before the speculation runs its course. They will get the maximum reward from the increase as it continues; they will be out before the eventual fall.
For built into this situation is the eventual and inevitable fall. Built in also is the circumstance that it cannot come gently or gradually. When it comes, it bears the grim face of disaster. That is because both of the groups of participants in the speculative situation are programmed for sudden efforts at escape. Something, it matters little what although it will always be much debated triggers the ultimate reversal. Those who had been riding the upward wave decided now is the time to get out. Those who thought the increase would be forever find their illusion destroyed abruptly, and they, also, respond to the newly revealed reality by selling or trying to sell. Thus the collapse. And thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang. There will be occasion to see the operation of this rule frequently repeated.
Less understood is the mass psychology of the speculative mood. When it is fully comprehended, it allows those so favored to save themselves from disaster. Given the pressure of this crowd psychology, however, the saved will be the exception to a very broad and binding rule."
-- jor-el (email@example.com), August 09, 1999.
I tried to post an answer before, but the server was busy! Anyway, I haven't read Galbraith's book that was mentioned, but I am familiar with David Tice. I have met with him twice, and am invested in his mutual fund. He is a very bright guy.
I think that Wall Street isn't paying attention because they can't accept the fact that a man-made disaster could bring an end to the bull market. They can accept it if its a natural disaster, or an earthquake, but not something that we did ourselves. Although Wall Street does make much more money when stocks are going up, not down, I am amazed that they don't realize the opportunity costs here.
Anyway, thanks for all the posts, I enjoyed reading them. And no, Alan, I do not mud wrestle.
-- Jennifer Yourdon (firstname.lastname@example.org), August 09, 1999.
Jor-el, Excellent post. People can argue about who is or is not authoritative, but personally I like Galbraith's thinking and writing.I put much more stock in his analysis of economic history than in
You astutely observed the regression to mean rule. I would add that cyclical events do not merely regress to the mean; instead, they fluctuate around the mean. So, whether in a downswing or upswing, the mean is merely the halfway point of that wave.
-- Puddintame (email@example.com), August 09, 1999.
To finish my paragraph from above,
. . . than in Louis Rukeyser's (and all of his huckster brethren) mindless predictions of no-fault investing forever.
-- Puddintame (firstname.lastname@example.org), August 09, 1999.
Link -- http://www.latimes.com/excite/990808/t000070578.html
Y2K Jitters Are Finally Starting to Register on Wall St.
by Tom Petruno
Stocks are sinking, interest rates are rising, oil is nearing $21 a barrel and the dollar is suddenly the planet's wimp currency.
But Wall Street doesn't know what trouble is. The French--now they understand what trouble is.
Trouble is Paris being destroyed as the Mir space station falls on it this Wednesday while a total solar eclipse darkens a broad swath of Europe.
That unscheduled Mir rendezvous, as predicted by fashion designer-cum-mystic Paco Rabanne, has had the French capital in a tizzy for weeks.
If he turns out to be right, Messr. Rabanne will no doubt be elected President-for-Life of France, or whatever's left of it.
Otherwise, his cheery forecast will most likely be viewed as just a foretaste of global pre-millennium nuttiness.
It may be easy to laugh at Rabanne, but on Wall Street, Y2K- related worries are quickly moving from the conceptual to real-world.
Example: Companies worldwide have been rushing to borrow money via bonds before the fourth quarter arrives, on the assumption that few investors will be interested in ponying-up for large financial transactions as Jan. 1 nears.
That borrowing binge is adding to the current upward pressure on interest rates, which have hardly needed the assist--not with oil prices staying aloft (and threatening higher inflation worldwide), economic growth picking up in East Asia and Europe, and the U.S. economy's "Goldilocks" image under severe attack.
Friday's government report that the economy created 310,000 net new jobs in July, well above expectations, may well have been the last straw for the inflation-paranoid Federal Reserve.
Coming just one day after other data showed a sharp drop in worker productivity in the second quarter while labor costs rose, the employment news appears to make another Fed interest rate increase a certainty when Chairman Alan Greenspan and peers gather on Aug. 24.
"We now expect the Fed to tighten policy . . . moving the federal funds rate up to 5.25%" from 5%, Merrill Lynch economists told clients last week, in a missive echoed by many other forecasters.
The bond market didn't really need a memo. Yields on Treasury and corporate bonds rocketed Friday after the employment news, pushing the benchmark 30-year Treasury bond from 6.04% on Thursday to 6.18%, the highest since November 1997.
If Wall Street could believe that another quarter-point rate hike would be all the economy requires to guarantee a slowdown and relieve inflation worries, the uproar in the bond market might soon cease, allowing yields to level off.
But the guesswork about the Fed's plans now also includes Y2K. Many economists assume the Fed doesn't want to be raising interest rates in the fourth quarter, when the worldwide focus on whose computer systems will or won't work starting Jan. 1 seems certain to intensify, potentially riling financial markets.
If you're Greenspan, then, do you raise rates just a quarter- point on Aug. 24--or go for a half-point increase to try to front-run the economy and inflation and avoid having to move again before Jan. 1?
The Fed's decision-making is further complicated by concerns that the economy could accelerate in the fourth quarter precisely because of Y2K worries.
How so? A new report from brokerage Goldman, Sachs & Co. predicts there will be enough stockpiling of goods by companies and consumers in the fourth quarter to have a "noticeable" effect on economic growth.
That poses a challenge for the Fed, because if stockpiling helps boost prices of goods--driving the inflation rate higher--bond investors could demand ever-higher yields to compensate. They would also expect to see the Fed engaged in the anti-inflation fight by tightening credit, which Greenspan might be reluctant to do for the aforementioned reasons.
(Never mind that any inventory-related boost to growth in the fourth quarter could be reversed in the first quarter of 2000, assuming the world doesn't end and most computer systems pass the Y2K- bug test. The bond market probably wouldn't choose to look that far ahead.)
The backdrop for all of this is a classic case of "beware what you wish for": The global economy is looking better, which is good news to most people, of course.
But with an acceleration of growth comes the risk that we've seen the lows in inflation. The oil market certainly is telegraphing that message. Crude oil futures in New York ended Friday at just under $21 a barrel. Prices are up 50% since March, as global demand has risen while producers have held the line on output.
Given the rebound in oil and the surge in bond yields this year, maybe the biggest surprise is that global stock markets aren't faring worse.
True, investors have been fleeing Internet stocks in recent weeks, leaving many of them off 50% to 70% from their 1999 highs. But no one can possibly be surprised that those stocks are coming down from the stratosphere. It was always a question of when, not if.
The Dow Jones industrial average, at 10,714.03 on Friday, is down just 4.4% from its record high set July 16. The Standard & Poor's and the Internet-heavy Nasdaq composite, both of which also peaked July 16, are down 8.4% and 11%, respectively, since.
That's not a great start to August, which has too often been a miserable month for stocks. But share volume on the New York Stock Exchange and Nasdaq has remained subdued, suggesting there's no great rush to sell.
Investors who can make the leap of faith that 2000 will bring a stronger world economy without a dramatic pickup in inflation may well figure that stocks are going in the right direction now--that is, you're getting the chance to buy in at cheaper prices.
* * *
Tom Petruno can be reached by e-mail at email@example.com.
Copyright 1999 Los Angeles Times. All Rights Reserved
-- (M@rket.watching), August 09, 1999.
Lot of posts here! I broached the subject of Y2K with my neighbor who works at the NYSE. He's not worried about the market, although I mentioned a couple of things (like the flood of corproate bond issues) and anticipating seeing the market drop. No, he's concerned about the religious nuts. So, for him at least, it's DGI.
-- Mara Wayne (MaraWayne@aol.com), August 09, 1999.
The fact is that the Dow Industrial average is about the only index that the majority of the public, and probably investors in general, are aware of. The S&P and NASDAQ indexes could go in the toilet, but as long as the DOW stays up, people think everything's great. In fact, as mentioned above, the S&P and NASDAQ indices have both dropped significantly this year, but are virtually ignored.
IMHO, the real rush will begin when the DOW Indutrials start to tank.
BTW, welcome Jennifer. Great post and a ton of responses!
-- ariZONEa (firstname.lastname@example.org), August 09, 1999.
TROLL ALERT!!! SUCKERS!!
-- Jimmy Bagga Doughnuts (email@example.com), August 09, 1999.