Market myth and y2k : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Thought that this thoughful post from another forum would be of interest to some here. If some think that threads like this are "off subject", consider the fact that money and this economy directly affect all of our lives. I believe that Y2K will affect confidence. This in turn will affect all of our lives as the markets will surely bust.

BTW, last year, on this forum, most of us were doomers regarding the markets. We were wrong. The markets did not bust. In fact they went to new highs. Please read the post below. It will provide a great insight as to what probably has happened in the last 10 months. ww

Posted By: John G. Date: Sunday, 8/29/99, at 11:05 a.m.

The 90 day treasury bill now yields about 4.8% annualized.

The S&P 500 has an EARNINGS YIELD of about 3.8%.

The dividend yield is only 1.3%. If you manage to retire with a MILLION dollars in your account, you will get $13,000 of income, enough, when added to Social Security, to get you a nice trailer along the Texas-Mexico border.

Microsoft pays no dividend at all.

Is there anyone out there who believes that by holding Microsoft for the next 20 years you will recieve an INCOME STREAM from the stock anywhere close to the equivalent of 4.8% on your PRESENT investment compounded over those next 20 years in inflation adjusted dollars?

Remember, 4.8 percent of Microsoft's half trillion market cap is $24 billion, about equal to Microsoft's present sales. You will never see it folks, NEVER!!

Indeed, the only way you will get any return at all out of Microsoft is to sell the stock to someone else at a higher price. It's called the greater fool theory, and it is the reason Bubble Vision pumps so hard on this concept that the marked-to-market value of your portfolio means something. If you are a trader or market timer willing to sell all your stocks, it means a great deal. If you are a long term investor it means very little.

Marked-to-market portfolio values are a meaningful measure of what you can get for your stocks only if you sell them now at current prices. Thus, stocks are meaningful collateral only behind callable loans. Marked-to-market values say nothing about what greater or lesser fools will be willing to pay you for a stream of dividends or eanings 10 or 20 years from now.

The problem is that stock prices are highly leveraged to very small changes in net inflows and outflows. On a fairly active day the New York Stock Exchange dollar volume is about $35 billion, the NASDAQ about $13 billion. Throw in the AMEX, the Philly and Pacific and you are somewhere modestly north of $50 billions per day.

The majority of that volume will be investors selling one issue, and then buying another with the proceeds. That is, most sales proceeds are quickly recycled into purchases and vice versa. If all sales are "recycled" into new purcases, then the market is in equlibrium and overall market averages would not move even as individual issues continue to fluctuate. (Actually, absent new money flows, the market averages would gradually sink due to management fees and brokerage expenses, but ignore that for the moment.)

Very small amounts of money, a billion dollars a day or so in new money buying will drive prices up until new sellers appear to match the new demand. The same is true of new net selling. A tiny fraction of $50 billion will be enough to drive down prices until new buyers appear to match the supply.

It doesn't take anywhere near $50 billion a day in new selling ressure to produce dramatic price moves. About a billion or less a day will do the job quite nicely.

Thus, although the NYSE and the NASDAQ might have a marked-to-market value of about 14 trillion right now, if the 401(k) crowd decided to begin selling to the tune of a mere 1 billion per day (250 billions per year) instead of buying the 850 million per trading day they purchased in 1997 and about 600 millions per day in 1998, the rk-to-market values would fall quite dramatically. Further, such selling would have "dynamic effects" on prices as soon as market professionals figured out that the trend was likely to persist and lowered their bids. The selling would accellerate.

The selling would end when common stock prices had fallen enough to become attractive as t-bill substitutes, with a dividend at 3 1/2 to 4% plus anticipated increases of 7% to 10% per year.

That is somewhere around Dow 3500.

The irony is that while Maria and the gang on Bubble Vision have been working overtime for the past several years making anyone selling or sitting on the sidelines feel like a fool for not being in the market, they have neglected to tell you that "households" consisting primarly of wealthy retirees, corporate executives and corporate founders (Bill Gates and Michael Dell) have pulled a Trillion dollars of CASH out of stocks in 1997 and 1998.

It is the greatest wealth transfer in the history of the world.

Getting one segment of the population (primarily Baby Boomer 401(k) mutual fund buyers,corporations buying back stock to prop up option values, state and local government pension plans and foreigners) to hand over a Trillion dollars to another segment of the population involves a process, and, with the exception of Corporations which are helpless in the face of the self-interest of their CEOs, the process involves an intense psychological conditioning to convince Joe Sixpack of the truth of one obviously silly idea - that you can buy and hold stocks for retirement and the marked-to-market values that arise because of YOUR actions will motivate a new generation of investors to duplicate your behaviour years from now when you retire.

The problem is the present generation of movers and shakers who have been selling into this rally has made off with a Trillion dollars of cold hard cash by providing stock to the market over the past two years.

Do you suppose that the corporate execs who sold option stock or founders stock in 1997 feel bad because marked-to market prices are higher now?

I doubt it.

First, these sellers over the past several years are the ones who write the checks to Bubble Vision for advertising that keeps the psychological conditioning going. They understand the psychological conditioning process because they finance it.

Second, these people understand that making money on stocks is a process, and that this process involves FLOWS and not STATICS such as marked-to-market stock values.

So who do you think is the smart money?

Wealthy retirees who have owned stock since the 1950s and Corporate CEOs selling option stock? Or Joe Sixpack, State and Local overnments, and foreigners who have been buying over the past 3 years?

Warren Buffet once said that if you have been playing poker for 30 minutes and have not figured out who the patsey is, YOU are the patsey.

If you allow the psychological conditioning of Bubble Vision to make you feel bad about "missing the rally," then you are the patsey.

And the reason is that there are very powerful sellers who want you to feel that way so that you will part with your cash. They could care less about what happens to marked-to market portfolio values after they get that cash and tuck it safely into the two year note.

In response to their massive cash hauling activities over the past three years, liquidity has started to crack. First, the advance decline line topped in April of 1998 and has been sinking for 16 months. Second, the on-balance-volume indicator on the NYSE Composite Index has been sinking since January of 1999 (8 months) indicating massive distribution. Finally, volume peaked in April of 1999 on the NYSE and the NASDAQ and hit lower highs in the July Rally before resuming its downtrend of 4 months, signalling falling demand.

The end of the cash hauling party is near.

And in this respect, you can look upon Greenspan's newfound concern about the "bubble" in two ways. One theory is carreerist "ass covering". Knowing that the flows are going to produce a bear market in any event, he would like to be able to claim credit for having produced it and then manage it on the way down so as to do the least amount of damage to the economy.

The second and more realistic view is simple fear of political instability and revolution if the half of our population that is invested in stocks and is counting on those stocks for retirement suddenly discovers that their marked-to-market portfolio values have disappeared and that they can no longer retire, while while the massive debt they have incurred to buy those stocks still must be repaid.

Complex societies must distribute perceptible, tangible benefits to its members or risk collapse. The loyalty of the middle and upper middle class is absolutely vital to the legitimacy of the American government.

The anger and disillusion that would be created by a serious bear market could easily destabilize and overwhelm our political system. The Federal Reserve has prudently decided that it wants to be on record as opposing the bubble.

And it looks like the situation has become so freighted with danger that the Fed might be taking some small, timid steps toward actually doing something about it.

That should tell you all you need to know about the balance of risk and the durability of marked-to-market values.

-- wayne (, August 29, 1999


Kudos! This is exactly why I have it all sunk into candy bars and cigs.

-- Porky (Porky@in.cellblockD), August 29, 1999.

The second and more realistic view is simple fear of political instability and revolution if the half of our population that is invested in stocks and is counting on those stocks for retirement suddenly discovers that their marked-to-market portfolio values have disappeared and that they can no longer retire, while while the massive debt they have incurred to buy those stocks still must be repaid.

Thanks Wayne & John. An excellent analysis. What forum did it come from?

-- a (a@a.a), August 29, 1999.

"Posted by John G." ... John Galt?

-- curtis schalek (, August 29, 1999.


I wasn't on this board last year and wasn't following the stock market closely.

But this year I have been watching the bubble expand ever upwards to new record highs.

I expect the Crash of '99 to be awesome in its devastation.

-- Randolph (, August 29, 1999.


Go to, log on to the Bear Chat forum. Some of those boys and girls are pretty well versed. Great source for other links.

-- wayne (, August 29, 1999.

Now if I could just get my wife to recognize that the sailboat would be more valuable than that IBM stock...

-- Mad Monk (, August 29, 1999.

The markets are generally understood to nothing more than a pyramid scheme (P/E's are greatly out of historic whack). Illegal under other circumstances. When the last buyer (sucker)piles in, down this house of cards will come.

Unfortunaly, its the mis/mal/dis/uninformed, joe 6-pack, which will probably be hurt the most. No more new shiny thingys.

A new Paradigm??? Who knows.ww

-- wayne (, August 29, 1999.

Wayne, You forgot to tell us how all this will end.Maybe a good thread to start. Let me see now joesixpackers loose everthing,take back their gobunmint and its payback time in spades.Think it c'ant happen stay tunned.What the moneymen always forget, is not to go too far, but greed is an uncontrollable beast.The day of Reckoning is upon us.

-- Ponzi (wall@street.con), August 29, 1999.


I would be a future richman if I really knew how it would end. It may be that Ben Ladin Pops one of those suitcase nukes he's reported to have bought. Mayby repatriation of moneys back to Japan. Mayby a collapse of the dollar. Mayby Y2k fright.

One thing I feel certain of. Something big is on the horizon.

I feel that if we do experience terrorism, It will be when they feel embolden enough to attack. Perhaps Y2K, real or percieved, will provide the cover that they will need. I think that the threat of the military might of the USA will deter till then. Just my opinion. ww

-- wayne (, August 29, 1999.


EXCELLENT post, good catch... ye Gods! The next four months are going to be an veritable laugh riot...

I think I'm being clever having a big chunk of change in the prudent bear to take advantage of the crash... if it comes before rollover... now, I'm questioning daily if I'm doing the right thing, whether to bail now, take the money and run... or not...

-- Andy (, August 30, 1999.

This is John G's final take on the matter...

"This is the greatest transfer of wealth in history. The culmination of the NWO final scheme. And to top it off the Goverment sanctioned and sponsored it thru the Credit Bubble.

As long as the general public doesn't sell it perpetuates itself. This will be the SUPREME DISASTER."

I agree.

-- Andy (, August 30, 1999.

Absolutely correct.

-- rambo (, August 30, 1999.

Officials fight public panic over Y2K By Erich Luening Staff Writer, CNET August 20, 1999, 10:55 a.m. PT

[...] A recent worldwide survey of 14,000 people conducted by the Gartner Group found that more than half plan to take two to six weeks worth of cash out of their bank accounts a week before January 1; 65 percent said they plan to modify their stock investments; 17 percent said they plan to top off their car with gas; and 60 percent will top off their home heating oil. [...]

-- Dave (, August 30, 1999.

Back to the top (of New Answers) with this one!

and thanks to the author and poster for giving me the numbers behind market mania I've been wondering about.

when that ol' sinking feeling hits the markets, that $Trillion will go shopping, at a stockpiling center near you...

now, back to finish reading...

-- jor-el (jor-el@krypton.uni), August 31, 1999.

Moderation questions? read the FAQ