Opinions Wanted: If Mr. Bubble Goes Pop and the Dow Circles the Drain...

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If the Dow corrects in a major way this month or next, will it have a corollary effect on Y2K awareness? Aka will the herd lift its collective head and be on the move? Will our national mindset experience a shift to the Doomerside? Opinions?

-- CD (CDOKeefe@aol.com), September 02, 1999


The market mavens will never accept blame. After all, we have the "perfect" economy. Blame it on the fear generated by y2k doomers. It might cause some to think- no, never mind.

-- Mike Lang (webflier@erols.com), September 02, 1999.

We seem to be following the 1929 scenario to a T. The Dow reached its all time high in August of 1929. It then went through several wild swings before the crash on October 29. The underlying causes of the Great Depression was the extreme concentration of wealth and the widespread use of credit to finance stock purchases. The immediate precipitating events were rising interest rates. Does anything here sound familiar?

-- Mr. Adequate (mr@adequate.com), September 02, 1999.

I've been watching the market now for several months (even though I own no stocks) and have noticed several things... 1. The stock market HATES uncertantities of any kind. 2. It seems very emotionally driven. 3. It's highly leveraged, thus causing many to be investing with "scared money". The interesting thing about it is that y2k because it is such a great unknown (economically speaking) plays perfectly into into all these fears. Very little may happen glitch wise, but because of the fear/uncertantity/playing with scared money scenario, I smell major stock market problems in the near future. I think the only thing that has kept the stock market going up to now is that there's still a good amount of y2k denial out there. I think one of the major y2k events that will cause the stock market to reeeeally get shaky is the soon to be released government travel report on which countries are anticpated to have problems. Think about it...If you have a fair amount of money invested in foreign counties, what will you do if you find out that country is anticipated by our government to have major infrastructure problems?

-- Richard (trubeliever@webtv.net), September 02, 1999.

That should have been i.e., not aka. Sorry about that.

-- CD (CDOKeefe@aol.com), September 02, 1999.

Yes, CD, let's watch those i.e. and aka thingies. :-)

But, all seriousness aside :-) , I would guess that it would at least slightly increase attention to potential Y2K concerns. There already have been comments in various investment oriented media, even including such as CNBC, mentioning some of the Y2K concerns that may be affecting bond market spreads. If such comments increase in conjunction with such a "correction", they may have a large effect on stimulating Y2K awareness, IMHO.


-- Jerry B (skeptic76@erols.com), September 02, 1999.

I sure hope it crashes well before the end of the year. Y2K is going to cause plenty of problems all by itself. I would hate for computers to be blamed for wrecking the stock market too! This bubble is due to general stock mania, with just a little help from our .com friends. And the expansion of credit and derivatives has nothing to do with us techies.

Of course, even if it crashed this week, it will probably be so close to Y2K that ten years from now, people will lump them together and blame computers for all of it....

-- You Know... (notme@nothere.com), September 02, 1999.

Here is an interesting and relevant article from CBS Market Watch:

"My risk assessment model, the "Five Market Principles," is at a risk level that suggests the potential for a significant market correction. The fact that the Fed has already raised interest rates twice this year and market breadth is poor suggests that this market correction could be particularly painful." http://cbs.marketwatch.com/archive/19990901/news/current/moses.htx? source=htx/http2_mw

-- claire (themarket@aol.com), September 03, 1999.

The blame for the market crash will be spread around. There will be so much finger pointing that no one will really understand why or how it happened. Even so, with people losing their money and their job, any preparations they do IF they become a GI, will be very little. If you are prepared and lose your job, you are that much further ahead of the game. If nothing more, at least I will have a pot to piss in.

-- no kidding (nokidding@nokiddingg.com), September 03, 1999.

>> If the Dow corrects in a major way this month or next, will it have a corollary effect on Y2K awareness? <<

I love to play this kind of guessing game. My take:

In the wake of a crash, the major obsession of TPTB is to "restore confidence". My prediction is that, if the media and spokescritters decide that Y2K will be officially recognized as the underlying cause of the crash, they will stay fiercely on-message.

They will announce that the market has been spooked by its own shadow, that Y2K is not, repeat not, a problem, and that shortly this will be proved beyond all doubt, as the rollover takes place with no serious repercussions. Then the markets will no doubt zoom ahead, so all you smart folks should see this as (ta-da!) a BUYING OPPORTUNITY!

This has worked so many times in the past, they will grab it off the front of the shelf, dust it off, and launch it once more. Problem is, the real money won't buy it this time. Too many real, actual, screaming, bawling problems that can't be covered over with a flowered quilt. The Fed will move to reliquify, but the bond and currency markets will slap them down. US credit is overextended. As we go down, so does Asia, Latin America, and (a bit later) the EEC.

Thanks for letting me play the game!

-- Brian McLaughlin (brianm@ims.com), September 03, 1999.

But Brian,

where is the real money now?

where are the schmucks to keep on plowing in money?

volume is way down...

the a/d line is a joke...

we have a purported election next year (!!!!!!!)

401k's - that's all, as far as i can see...

401k managers crapping themselves and going, as usual, for the wrong egg...

-- Andy (2000EOD@prodigy.net), September 03, 1999.

Worth pointing out that the 1929 crash did not cause the 1930s depression. That was caused, or at least exacerbated, by inaction followed by perversely wrong action by the politicians in 1930-1. (They tightened money supply, driving a cycle of liquidations deeper and deeper. They should have loosened it. Using "real" money was also unhelpful, because you can't print gold.)

Contrast 1987, where the politicians acted more appropriately, and the economic fallout was less severe (an inflationary boom into 1989 caused by deliberately loose money supply, then a recession as the reins were tightened). I suspect the best action of all in response to a stockmarket crash is no action at all, just continue to watch and manage the real economy.

Neither, of course, involved a technologically-induced discontinuity. Y2K is unique and unprecedented, and just about anything is possible.

-- Nigel Arnot (nra@maxwell.ph.kcl.ac.uk), September 03, 1999.

"Nothing is more disastrous than a rational investment strategy in an irrational world" G B Shaw (I think). Its a mania so it inherently unpredictible by its very nature. We could see mucho foreign money flow here for y2k reasons.

-- Downstreamer (downstream@bigfoot.com), September 03, 1999.

Being a total neophyte to the ways of high finance-I ask one question, in ignorance. If the average joe who dabbles, and some of the semi serious guys see a risk in foreign investments, wont the first line of correction be to pull the bucks from the foreign investments pervceived at risk, and then put much of it in T bills and other US centric investments? Seems like a possible scenario-and Ive heard several small players say this is their plan for year end. So, if even a small percentage of the money gets shuffled in an unusual way, in a short time span of just a few weeks, would this accelerate the fall of the countries at risk, and create another short term but appealing looking boost to the american markets? especially if a significant percentage of investors worldwide do it? Will this make the bubble bigger and nastier when it bursts, or would such an effect potentially stave off a crash until such time as massive and widespread domestic business failures occur, if they do? The big boys with lots to play with might then grab up the falling stocks of some of the igh risk losers in a flight to quality-and maybe get richer, at least in the long run if things settle down in a year or three. Just wondering, based on some of the chit chat ive heard bandied about...

-- LauraA (Laadedah@aol.com), September 03, 1999.

To paraphrase Gailbraith on the crash, "[kind of] the most inexplicable part of the massive sell offs was that there was someone willing to buy the stocks."

Nigel nailed it. Since the bubble was caused by excess liquidity, they tightened up at exactly the wrong time. Here's where the putative parallel stops: in 1929, nothing was physically broken when the market crashed. Ain't so this time.

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

To LauraA, (as opposed to LauraB? :-) ) I remember reading awhile back that the government was apprehensive to print the names of countries far behind on their y2k preparedness because they were fearful of capital flight from those countries. This is especially bad when one considers that many of these countries are just recovering from the Asian Contagion or are 3rd world countries. I will say that I am glad that we have Greenspan in charge of the Fed. Although he's made a few boo-boos in his time, he's a very smart guy. Although at his age, considering the stress he's about to experience in the coming months, I hope he doesnt resign or die from it.

-- Richard (trubeliever@webtv.net), September 03, 1999.

This is NOT an unprecedented event. Charles Kindlegerger in "Manias, Panics and Crashes" details hundreds of years of financial crises around the world. It is always the same. You get a speculative mania start in some sector of an economy. It gets fed by an increase in the money supply in that economy into a "bubble". (Did you know that term is hundreds of years old?) There is an event, usually having nothing to do with the bubble, which causes people to rethink what they are doing. Then you have a panic and crash. You never have a mania twice in an asset class in a lifetime.

Quote of a Chancellor of the Exchequer form the book:

"Now when you impose a limit, there is no question that the existence of that limit, provided it makes itself felt at the time of crisis, must increase the alarm. People feel at the moment that a peril presses on them, they begin to calculate how much remains of that fund to which they look for assistance in times of commercial difficulty...there is no doubt that in times of crisis the limit must aggravate the alarm."

-- ng (cantprovideemail@none.com), September 03, 1999.

Today provided more of Greenspan's "irrational exuberance," with the dow shooting up 235. What does this do to the theory posted a couple of days ago, predicting a crash on or around September 12?

-- CD (CDOKeefe@aol.com), September 03, 1999.


Not to offend anyone who may take such predictions seriously, I think that any prediction of a crash at or near a specific date is worth about what you pay for it.


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

No offense taken, Jerry. I admit that I was being a little snide.

-- CD (CDOKeefe@aol.com), September 03, 1999.

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