Markets in US are not acting at ALL like one would expect given the fact that all the sheeple are feeling warm and fuzzy about Y2K and terrorism. Therefore, it's particularly interesting to note that the Markets are markedly down. The DOW is down 130 points (10 minutes before close), the Nasdaq is down 34points and the S&P 20pts.

This is far from their lows (or highs) of the day. I heard that the S& P was limit down at one point. And, the Nasdaq had the most volatile day in 12 months. On international markets, of the 27 markets trading today, 17 were up and 10 were down. Also, not nearly as Y2K confident as I would have thought.

More interesting is the fact that on the financial channel the reporter in the pits said that although people, (I mean sheeple) were plunging confidently back into the market today, the loses were due to Institutional selling....and....the utilities section of the DOW was getting particularly hammered.

Based on all we know about the eight power plants that had "glitches" and the three Nukes that had to be taken off line (non-Y2K problems there of course). I can't help but wonder "Do they know something we don't know?"

-- Anonymous, January 03, 2000

Answers

Meg,

I doubt today's selloff was Y2K-related. The Dow & S&P were technically set up for a possible short-term correction, and it's not unusual to get a selloff early in January (as was the case Jan 6-9, 1998, for instance). My operative thesis has long been that unless and until Y2K produced a genuinely demonstrable economic impact, the markets would ignore it (except in cases of individual stocks, where the market swiftly punished all Y2K offenders, such as IBM, et al).

-- Anonymous, January 03, 2000

Meg,

Drew knows the market pretty good and I suspect he is correct that it's not Y2k related right now. A ton of money was made (on paper) during December and the decision to unload some of that so as to incur the tax bite in 2000 rather than 1999 could also be a factor.

-- Anonymous, January 03, 2000

Why are institutions pulling money out of the stock market? The resons I submit are based on fundamentals.

Late in the year the Federal Reserve pumped M-3 (money, checking, credit card debt, etc) and reserves into banks at an unprecidented rate on a world wide basis. The Fed's assets have been growing at 12% for the last 12 months, and at 24% over the last three months. In contrast, the European Central Bank is growing at only 0.5% over the last three months and Japan is negative. Much of this money and credit created by the Fed and the banks has gone into the stock market bubble. The Fed has to raise interest rates and sop up this credit and money or risk a run on the dollar -- and do it fast. Apparently Greenspan believed there was a serious Y2K risk of a run on the banks, and now has to pay the piper. He will probably not want to wait until further into an election year to raise interest rates.

Longer term, the so called GDP growth of the U.S. economy over the last few years has been "cooked", primarily by assuming, for example,that in the 12 months ended 3/31/1999 that $5.4 billion increase in computer sales should be recorded as $146 billion chained dollars in new production due to the power of the computers being sold. Meanwhile the sales price of computers is declining and they are becoming obsolete very fast.. Over the years 1996-1998, according to Dr. Kurt Richebacher, U.S. GDP rose by $810 in chained dollars, or 4% annually. "Of this total, a stunning share of $310 billion, or 38%, accrued from investment in computer power (not sales of computers). Taking the computer power assumption out of the GDP accounting, the rest of the economy really had an annual growth rate of 2.5%. Last year (1998), it was just 2%." Welcome to Clintonian accounting! The real numbers are known to institutional investment managers. Only the large mass of voters is fooled.

Concerning debt, up until 1989, every new dollar of income created $1.36 to $1.43 of debt by the Fed Reserve and the banks. Now, for the first half of 1999, every new dollar of income created $2.88 of debt. Meanwhile, consumer spending has declined from $.67 for each new dollar of debt to $.42 cents of consumer spending for each new dollar of debt. The rest of the new debt went into the stock market bubble. These figures are all before the money pumped during the last couple of months by the Fed Reserve.

Further, the U.S. trade deficit, $26 billion last month and a trillion over the last five years since 1994, has left a lot of U.S. monopoly money in the hands of Red China, Japan, Europe, etc. When will one or more of these countries decide to exchange dollars for something better? Red China has upward of $200 billion of U.S. dollars and has announced they want to have several hundred tons more gold for their national reserves instead of a lot of dollar debt. The Wall Street insiders like Goldman Sachs have been quietly accumulating gold options and even buying and taking delivery on gold bullion. Where does this go? Does one invest with the elephants? Meanwhile, the Euro was designed to compete with the dollar as a world trade currency. If you held a 30 year U.S. Treasury bond as an investment or a central bank reserve, since 1971 the loss in value of your bond is 88% due to devaluation of the dollar (measured against gold where 35 dollars did buy one ounce of gold but now $285 is required to buy that ounce of gold); therefore, the world is not especially eager to hold dollar debt. The trade deficit and continuing devaluation of the dollar is a further risk to the dollar, which can only be met by the Fed by reducing the dollars washing around the world and by increasing interest rates. These two steps will hurt stock market prices.

I suspect these fundamental facts are concerning thoughtful institutional investment managers.

-- Anonymous, January 04, 2000

Thanks to all who contributed to this forum. Thanks for helping me, the common man, a professional golfer, embarres myself thoroughly. You see, I'm writing this on my supposedly non-compliant 4.0 version of AOL that, of course, suffered no problems. Not a single person that I know, besides family, prepared didley squat for y2k. And I know a boat load of people. I know that y2k was not a hoax by any means. But I've never seen so many intelligent people wrong about a particular subject. North, Yourdon, Yardeni, Cowles (to a degree), Hyatt, Hamasaki (the last hope of credability for me) and finally, Infomagic. He must feel like a complete moron!! 90% dead and WW3? I actually showed his "comeback" article to my girlfriend (a polly from the start) 2 days before the rollover, and now she may wear the pants for years to come thanks to that load of monkey dung.

Whoever reads this, the sky is the friggin limit. I thought we were all doomed. The bubble might sag a little, but will certainly not burst, Mr North, Mr Yardini, Mr Hamasaki. You guys told us not to rely on hope, not to trust "they" (them) to get it fixed, but "they" did it and now I have no choice but to turn my back on the likes of you for good.

-- Anonymous, January 05, 2000

Jon, First, we will not be home free till Jan. 2001. I agree, those proclaiming 'end of the world' were breathing the wrong stuff. But, if fixing Y2K had not become the politically correct thing for corperations and goverments to do we would have been badly hurt in many areas, including elecrical power. Richard

-- Anonymous, January 05, 2000