I day trade S&P futures and have some experience in what moves markets. In my opinion a worldwide decline would not be brought about by a U.S. rate hike or profit taking due to tax deferral to 2001. There needs to be a common cause that effects all the nations such as the recent near meltdown in Asia with many nations investors and banks holding the proverbial bag. The selloff now in progress is an orderly process without signs of panic. This should concern us because (in my experience) it shows that the "smart money" is looking to the exits. This would be insiders and institutional investors with good insider contacts. Could Y2K problems at day 4 cause this??? Would like reasonable responses. Jon

-- Jon (jon@jps.net), January 04, 2000

Answers

'Easy' Al Greenspan has not provided $5 billion coupon passes the last 2 days like he has for the past several months. Amazing watching the market act like a junkie in withdrawal when it doesn't get its fix.

-- fubar (foo@bar.com), January 04, 2000.

I ain't buyin' it! We've been hearing the "threat of the fed to raise.." yet have not seen a plummet like this as a result in recent history. OBVIOUSLY there's alot of issues at play.

Japan just dropped 540 points with there morning trading (on radio, 10pm EST).

-- Hokie (Hokie_@hotmail.com), January 04, 2000.

I would give you a reasonable response, but your post highlights your lack of knowledge of the market. Day trader?. Dont quit your night job.

-- hamster (hamster@mycage.com), January 04, 2000.

FWOOSHHH!

(that's the sound of an industrial toilet)

not pretty...

-- Hokie (Hokie_@hotmail.com), January 04, 2000.

Sounds like a possible reason. Could be other economic factors. BTW, why are traders so afraid of a rate hike? There's no new inflation to note, the banks said that they sent back the extra doh that the FR printed, and the FR didn't raise rates the last time they met. So, what is driving everyone to state that the sellout was due to a possible rate hike? Especially after some analysts stated yesterday that they saw smooth sailing ahead? I don't get it, but I admit that I this is not my field. Any explanations? -- thoughtful discussion would be most appreciated.

-- Mello1 (Mello1@ix.netcom .com), January 04, 2000.

I agree with you Jon. I am a recently retired analyst/financila planner and I, like you, do not buy the tax deferral/profit taking spin on this thing. When I see markets tanking hard like we are seeing today and now into the night overseas....I get very concerned. If we see more blood the rest of the week into next week, it's over. Plain and simple. I believe that the smart money moves the markets. Some argue that. I feel that they always are a step ahead. What country in their right mind would let Y2K failures and business interruptions to leak out to our "controlled" press. I wouldn't. Talk about panic. Today's activity is not a coincidence world-wide. If Y2K really were believed by the institutional and inside players to be a non-event, the indices would have gained tremendously today. I could be wrong ( I have been for the last 18 months...I am very bearish) but I don't think that it's over. I saw an interview with John Templeton tonight on NBR (Public television). He is a very wise man who has seen it ALL in his sixty plys years in the investment world. He said, for the record, that the market is in a BUBBLE and it must be revalued. He also said that eventually the trend up would continue well into the 21st century. I believe him. I learned most of what I know from guys like him. The value investors. The guys who remember why we buy stock.....not for a fast buck but for a vested stake in a company and their potential to EARN PROFITS....not media accolades. He also stated that the last few years have been years of raising capital for growth and expansion, but now that avenue may be exhausted because this "growth" era has spawned little profit and exhorbitant share prices. It must end....

-- el snipor (faraway@distantland.net), January 04, 2000.

Agreed regarding orderly (thus far) liquidation. The CNN commentator this evening pointed out, optimistically, that the selling pressure, though severe and sustained, was orderly and without sign of panic. She thought this to be a good thing! In fact, I believe that so long as complacency prevails, the market has not even completed one-tenth of the 'correction'.

I also agree that the smart money is exiting, but believe that a lot of smart money has yet to do so (whatever smart money is.) Note the number of block trades. Big guys leaving a little guys, who have been well trained to "buy the dip" kept buying. The market was never pulled from under their feet but kept eroding all day.

If they can't turn it around in the next few days (and I believe they won't/can't/don't want to) then it's over. Blood will flow. But at this point, *most* investors will stay in, white-knuckled but, hey, they are "buy and hold".

Here's the key to the whole thing. There will be a sharp descent here. Watch it pick up momentum (volume). After a 'correction' larger than anyone expected, stability and then a push to the upside. A classic "bull-trap" in which "smart money" will be drawn back in and the one who stayed in will feel vindication as it starts to move back up. These will even borrow more to get in deeper. If that rally fails, and I believe it will (though it will appear to be very powerful to the upside for a day or two), the *next* break down will be unstoppable. Unrelenting waves of selling will sweep over the markets. *That* is when we will see panic. *That* is when EVERYONE will be jamming the internet and the phone lines trying, desperately, to get out. "Get me out, dammit, NOW, I don't care what the price is - just get me OUT!!!!!!"

Good luck with your day trading. (That's sincere)

Oh, the reason for the sustained selling is that everyone has run out of money. That always happens at the point that the 'last bear' turns into a bull (e.g. Yardeni). Everyone is now fully invested. Nowhere to go but down.

-- Me (me@me.me), January 04, 2000.

The stock market bubble has been brewing for a while and it is certainly unclear if it is manipulated or just stupidity run amok.

If it were manipulated then there would be a reason to pull all the sucker money into the market, buy the asset that is ignored while the bubble grows and then pop the bubble. After the bubble is popped, you own the really valuable asset because all the suckers abandonded it for the fake stuff the bubble was made of. Now you can convert small amounts of the real asset and buy what was in the bubble for cents on the dollar and all the fools are in debt to you or declaring bankruptcy and liquidating their hard assets which you can also buy for cents on the dollar or equivalently small amounts of the real asset.

Question for you.....WHAT IS THE REAL ASSET????

-- William R. Sullivan (wrs@wham.com), January 04, 2000.

Greenspan has stopped adding liquidity via coupon passes. I didn't say "rate hike". In a coupon pass, the Fed's so-called open market desk buys Treasury notes or bonds, in order to inject enough liquidity into the banking system to keep the fed funds rate on target.

-- fubar (foo@bar.com), January 04, 2000.

Me- If you are buying and holding for 10 to 20 years out, does it make any difference?

-- Timothy W. Hudson (thudson@preferred.com), January 04, 2000.

Me: Do you have a web site? I appreciate your insights.

-- dinosaur (dinosaur@williams-net.com), January 04, 2000.

I say again: if you think Y2K panic is driving the market correction, look at the scenario.

1. Everyone is so scared of Y2K in December (because of the mounting horror stories as government and industry rolls into FY 2000, no doubt) that the market booms.

2. Y2K rollover comes and goes, and is a bigger nonevent than even most of us optimists thought was possible.

3. So, confronted with intact infrastructure, functioning software, and intact supply chains, everyone panics because of Y2K and pulls out of the markets.

Or maybe just the "smart money" pulls out because of Y2K...even though they didn't before the rollover. Maybe they know things we aren't hearing, because of our "controlled press" (with command centers full of journalists that would have killed for Y2Katastrophes to report)...things I can't find through any of the news conduits I monitor, up to and including forums full of Y2K doomers. But the truth is getting out to the "smart money," and, I guess, through osmosis to everyone else selling off their shares...even though investors don't know about the mounting Y2K crisis, they know enough to sell because of it.

But a tech-based bubble getting poked with a rate hike...nahhh, too tenuous.

This is real Black Helicopters stuff. The cognitive dissonance is really setting in.

-- Craig Bryant (ckbryant@mindspring.com), January 04, 2000.

@Timoth W. Hudson:

Well yes, it does matter if your horizon is 10-20 years out. After 1929, it took 26 years to get even. By the early thirties the decline was 90%. Would you rather sell near the top and re-purchase to realize a 5 to 10 bagger, or hold and break even after 26 years?

-- fubar (foo@bar.com), January 04, 2000.

Fubar,

What is out of the Feds control is the long bond. I have a guess that the growth in M3 was Alan purchasing long-bonds to keep the spread in line with the manipulated discount rate. The fed cannot really control long-bond rates because those aren't traded in a short term market like the T-bills are. The long-bond has been stubbornly moving upward in the last three months. You should pull the 3-month chart from Yahoo. We have established a support level of 6.5 percent and breifly broken through 6.6. If we keep up the same rate of advance, the rate by the end of January should be around at least 6.65 and possibly as high as 6.75. By mid year we should be at 7.3 or possibly as high as 8 percent. In order to keep the spread less than 1 to 1.25 the discount rate needs to move to at least 6% by June and possibly as high as 6.75. What does the Fed have to do at the next couple of meetings to achieve that?

-- William R. Sullivan (wrs@wham.com), January 04, 2000.

Me & fubar: Is that what Me meant by "it's over", a 1929-style crash?

-- TWH (thudson@preferred.com), January 04, 2000.

Me: You have described the double dead cat bounce of 1929, detailed at www.futuresfax.com

-- dinosaur (dinosaur@williams-net.com), January 04, 2000.

Jon, I day trade the S&P also. Volatility? Bring it on. It's the bread and butter of guys like us. Nothing like a few dozen point spread (intra-day hi-low spread for you non-traders) to make me giddy. I think your point does have validity. The post from "Me" is nearly identical to my own view.

-- JC (vedaguy@mediaone.net), January 04, 2000.

At 12:50 PM here in Japan (currently down 4%+), the fears are always about the US market. The propsect of rising interest rates (from the decline in the bond market) is a frightening thing when mixed with the philosophy that the US is the cornerstone of consumption for Asian exports. The high yen is battering the exporting industrials here and domestic consumption continues to be flat.

With the yen at 102:1, current Japanese interest rates at 0%, no real structural economic reforms, massive tax shortfalls looming for cities and the federal government, companies burning up employee pension money for operating expenses (co-mingling is allowed) and government debt planned at 140% of GDP (for the FY starting April) using yet unsold bonds... the continued consumption by the US is the key to stretching the Japanese fantasy of recovery another month or two.

But the weather is very pleasant today...

-- PNG (png@gol.com), January 04, 2000.

Didn't I read a week or two ago that margin requirements were reduced from 75% to 25%? I wonder how many lost it all in margin calls today.

-TECH32-

-- TECH32 (TECH32@NOMAIL.COM), January 04, 2000.

I forgot to add that I think the Nikkei will come back up a little this afternoon - maybe finish at down 3% to 3.5%.

I'm just not ready for a meltdown, so it can't happen today.

-- PNG (png@gol.com), January 04, 2000.

This is so incredibly bizarre. Y2K, which in late '99 the investors clearly did not expect to amount to much, didn't. Then, first thing in 2000, there is a big sell-off. My completely wild guess is:

The smart money knew that the party had to end sometime, and it was just a matter of when. Not believing that Y2K was going to really do anything (I guess thath is why they are the "smart" money), they hung on to see if they could get some bargains at year end from people where wanted to get out before Y2K hit. But, that did not happen, they stayed in too. So, given that there is no longer a compelling reason to stay in the precarious bubble as of this date, the smart money is moving out. And, of course, once these things start, they take on a life of their own.

Got gold? (Not that it's all that great either. Today.)

-- King of Spain (madrid@aol.cum), January 04, 2000.

Thanks, Ron, & all, for your intelligence. Reasonable men might agree that we have a bubble. All debt from government to margin is at historic levels. The recent growth in derivatives & hedge fund activity exceeds the ability of governments to track it. LTCM alone had almost a trillion $ in off balance sheet exposure, which if unwound, could have toppled the world financial markets. Large banks are huge players in these hedge funds. Gold based hedge funds have built huge short positions. Neither their equity or credit is sufficient to cover in the event of even a modest gold price rise. Unregulated currency speculators threaten entire countries. And the DOW is at historic highs by any one of a dozen indicators. And the nature & relationships of money & markets have become more intertwined. A US stock investor might have an equity line on his house margined on Nasdaq stocks. And his bank is lending to hedge funds... And the bank's reserves are <2%, a fraction of what reserves were in the 1930's.. We rely on International bond markets to float our historic, (& now short term) debt. And so on. Does anyone but the dimmest polly doubt that this "New Paradigm" is unstable? "New Pyramid", more like. The question is, what may happen, & when. What is predictable, & what is not? Unpredictable events may occur that increase the chances of EXTENDING the game. Y2K cash finds it's way back into the markets, Greenspan gains breathing room to lower or maintain rates from a yet unforeseen breather in world bond rate hikes, Y2K events create unforeseen short term forces that buoy up the markets, etc. Perhaps even the dead cat bounce on the way to DOW 3000 is higher than expected. Like Dow 12,000. But it's easy to see instability increasing. Is it reasonable to see the forces at work today creating a panic which gets out of hand, drives the market to DOW 3000 or so in the next few weeks, or months? I say yes. But is Dow 3000 predictable by mid 2000? I say no. Contrarywise, Is it reasonable to say Dow 16000 by 2001? (Or Nasdaq 6000). I say no. Predictable? I say no again. I don't think the smart money really knows exactly when either. Warren Buffet began edging out of equities & into silver over a year ago. And the big commercials (Check commitment of traders) are short, The S&P, Gold AND Bonds. But so what, they typically go short & long on about a 3 month cycle. And the markets react loosely, to their positions. Or vice versa. I just don't think the black helicopter, Bilderberg guys have it pegged that tight. Hedged maybe, but not pinpointed. I might be wrong, though. Assume for the moment that an ugly crash occurs sometime in the next year. Accompanied by a world recession, or depression. In the classic deflationary collapse (following a credit bubble), cash is king, & in short supply. Large ticket items, like property and luxuries get cheap, basics get scarce & expensive. Gold skyrockets, but not neccessarily at a predictable time, contrary to the convention that has gold pegged to inflation. And inflation comes along, in increasing numbers of sectors, near the bottom of the deflationary collapse. Like in mid or late 2001. Maybe things get a lot worse from Y2K gradually hitting the big accounting programs, & the IRS shutting down, maybe not. Not neccessary to weight this scenario heavily, but adds urgency to the sometime this year time frame. I consider myself an informed, conservative, & rational person, & from my study, I think there is a good chance the IRS is down right now & will never come up again. With 70% of the income stream of the US governmentsort of in the ozone. Sure they will bluff, send out notices, demand estimated payments, promise refunds, etc. But that game can only go on for a limited number of months. Or perhaps I am dead wrong, they are up & limping, but COMPLIANCE, already shaky, begins to slip, On rumors, & economic neccessity from unemployment hikes, etc. Does it take advanced math? EITHER the shutdown or collection SHORTFALL scenario would create bond market distortions many orders of magnitude greater than the much feared FED adjustments. It looks like a bad ending to me. Comments? I would appreciate plausible contrary opinions/scenarios, intelligent non polly contrary responses are so hard to come by, but would be much appreciated. Or perhaps a sharper point, tighter timeline? Thanks again, Greg

-- Greg Donovan (GregD49@Aol.com), January 05, 2000.

Greg,

"New Pyramid" - classic!

-- Nathan (nospam@all.com), January 05, 2000.