DOW down almost 300; now at 9850

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Comments?

-- Looks like the (doomers@were.right), October 18, 2000

Answers

Looks like the (doomers@were.right)

No, they thought we'd be at Dow 1000 by now.

-- Buddy (buddydc@go.com), October 18, 2000.


We were right, we were right. We were right and you can't prove that we weren't right!

-- (Bart@Mr&Mrs.HomerSimpson), October 18, 2000.

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-- Market Watcher (market@watcher.org), October 18, 2000.

Well, actually I predicted a major recession similar to the 1929 fall in the stock market within the next couple of years. I was labeled a polly because I thought that there would be a stock market at all after rollover.

Nice try though. Pollies were labeled based on their stance of the direct effects of Y2k. Just because you expected a major recession and had at least a years food stored didn't qualify you to be an official doomer.

Get your terms right and then try posting about who was right and wrong.

-- Bob Brock (bbrock@i-america.net), October 18, 2000.


And God told Jerimiah in the middle of the war. Buy the Land, buy then land. So now I say by into the equity, this will show us who lives in the land of the brave. justthinkin com

-- justthinkin com (justthinkin@2000.com), October 18, 2000.


"... a major recession similar to the 1929 fall in the stock market..."

If you're categorizing 1929 as a "major recession"....you're a bigger polly than we thought....

-- 1929 no picnic (10@year.depression), October 18, 2000.


No Buddy you are wrong. The Doomers thought the DOW would be at 0001 now.

-- The Engineer (spcengineer@yahoo.com), October 18, 2000.

No Buddy you are wrong. The Doomers thought the DOWwould be at 0001 now.

-- The Engineer (spcengineer@yahoo.com), October 18, 2000.

Comments?....

The markets will fluctuate, even in the year 2000. October historically has been a bad month for equities. Why does the day-to- day movement of the stock market make you believe the doomers were right about Y2K?

-- Jim Cooke (JJCooke@yahoo.com), October 18, 2000.


Look at those charts.

Does anyone still doubt that there is massive government intervention in the stock market?

-- J (Y2J@home.comm), October 18, 2000.


Massive government intervention?

Nah.

It's called bargain hunting.

-- Buddy (buddydc@go.com), October 18, 2000.


Buddy,

You are very naive if you believe that the participants of the stock market all just happened to start buying at the same time today to create that impressive "V" bottom.

The modus operandi is massive purchases of stock index futures, which then causes arbitragers who are selling those index futures to go out and buy the underlying stocks.

Are stock index futures the favorite vehicle of Fidelity Magellan? Considering the short term trading rules to which mutual funds are subject, I highly doubt it.

-- J (Y2J@home.comm), October 18, 2000.

J:

I know that you are a knowledgeable guy about the market. I've seen the government intervention theory before and, although I don't put anything past the boys in Washington, I still have one question - where does the money come from? The government simply doesn't have billions in uncommited funds sitting around waiting to buy futures. It seems that this could only be done through some sort of front organization that is getting covert funding. I'd be interested in hearing your ideas on the mechanics of this type of intervention.

-- Jim Cooke (JJCooke@yahoo.com), October 18, 2000.


>> I still have one question - where does the money come from? <<

The Fed is authorized to buy financial assets of any nature, not just Treasury bonds, bills or notes. The theory is that it is the Fed buying the futures. If they were, it could be a closely held secret for some time.

I emphasize that this is what the conspiracy theorists theorize is happening. No proof exists that this truly happening.

-- Brian McLaughlin (brianm@ims.com), October 18, 2000.


Jim,

I am not privy to the exact mechanics, but the buying has often come through Goldman Sachs. Maybe as you speculate, Goldman Sachs is the front organization, buyig for their own account, with a government guarantee against any losses that they may incur. Or possibly funds are covertly channeled to Goldman Sachs, to cover those purchases.

Brian comes close to explaining what I believe, only it is not the Fed itself doing the buying, but the Exchange Stabilization Fund (ESF). It is quite possible that Goldman Sachs has an account for the ESF, and when these massive index futures interventions occur, Goldman Sachs is merely carrying out investment directives from a client, albeit a client with bottomless pockets.

As far as the government simply not having billions in uncommitted funds sitting around, here I believe that Brian comes even closer to the case. The Fed can create money out of thin air. In this day of electronic funds, they don't even have to print up the bills like they did before.

Watch the money supply numbers. The Fed has been raising interest rates while INCREASING the money supply. If they are so worried about inflation, why the increases in the money supply? Possibly to fund interventions so that the market won't crash?

I believe that the loose money policy of the Fed has backed them into a corner. All of that liquidity is inflationary, but if the inflation cat gets out of the bag, then the market is done. If the market is done, then the strong dollar is done. Without the strong dollar, our interest expense on the national debt will skyrocket.

How they could engineer a soft landing from this scenario is beyond me. Finally, I know that you have been a precious metals investor in the past. Do you really believe that gold and silver have lost their role as inflation indicators?

-- J (Y2J@home.comm), October 18, 2000.


J and Brian:

Thanks for your thoughts on this. I know that, in theory, the government, especially through the ESF, could intervene in the market. In the case of the ESF, they can't do so legally without public disclosure and there hasn't been any announced intervention in almost two years. As to intervention of more covert nature, I guess that it's possible but I find it hard to believe that there haven't been leaks of this type of activity.

The money supply issue is an interesting point. I remember the early 80's when the money supply numbers were real market drivers. Now, no one seems to care. Given the increase in money supply, the strength of the dollar, and price pressure in wages and housing, there should be much more inflation than we see. It's times like this that make me think all those econ courses in college were a waste of time :^)

J, regarding gold and silver. When I was a heavy buyer of those metals, the prices moved pretty much in lockstep with the rate of inflation and, by implication, the price of oil. Obviously, that relationship has become disconnected today. I think precious metals are still an indicator of inflation in the long run but, more so, an indication of confidence in the economy. In the 60's and 70's, there was a widespread feeling that our economy was going out of control and that the dollar wouldn't hold value. In that climate, precious metals do well. The present climate, right or wrong, is that everything is A-OK and that the dollar is hot stuff. As long as the herd doesn't begin sniffing the wind, it appears the predators can continue to cull the weak without much effect.

-- Jim Cooke (JJCooke@yahoo.com), October 19, 2000.


Jim,

Those econ courses were not a waste of time. Inflation is definitely here. The CPI and PPI numbers are massaged and tweaked as much as possible, to disguise the fact. Also, I buy into the belief that some of the historical signs of inflation, such as higher prices of goods and services, are being at least partially tempered by higher prices of intangible assets. In other words, that a lot of those excess dollars have gone into the stock market instead of just into new homes, cars, etc.

I agree that the gold and silver / rate of inflation relationship is temporarily disconnected. I would not doubt that intervention has happened there as well, though I am not as familiar with the precious metals markets, and therefore, I am not as confident in my ability to recognize the telltale signs of intervention in those markets.

The real bottom line is that someone with huge pockets turned this market on a dime today. One can choose to believe that many of the mutual funds, pension funds, and hedge funds just happened to all start buying together at the same time, or one can choose to believe that the U.S. government made the initial buy, and that was the signal to the mutual/pension/hedge funds to jump in as well.

As a final thought, if you were a huge market player trying to purchase at the best possible prices, wouldn't you try to sneak into the market so as not to drive the price up as you were buying?

The turning point today was the exact opposite. The entity that created the bottom came in guns a blazing. Almost as if the intent were not to buy as cheaply as possible, but to instead turn the market.

-- J (Y2J@home.comm), October 19, 2000.

Rally, rally, pitcher's name is Sally!

LOL!

I suppose the government is secretly rallying the market today, huh?

-- Buddy (buddydc@go.com), October 19, 2000.


Buddy,

My argument was not, and is not, that every upturn in the stock market is caused by government intervention. I hope that you can grasp this fact: the government only sees the need to intervene when the market is falling sharply.

You keep believing that yesterday's reversal was a legitimate market occurrence. It coincides nicely with the belief that CNBC's Maria is really an impartial journalist. LOL.

-- J (Y2J@home.comm), October 19, 2000.

The URL for this WP story doesn't work anymore.

http://washingtonpost.com/wp-srv/business/daily/feb/26/plunge.htm

Plunge Protection Team

By Brett D. Fromson

Washington Post Staff Writer

Sunday, February 23, 1997; Page H01

It is 2 o'clock on a hypothetical Monday afternoon, and the Dow Jones industrial average has plummeted 664 points, on top of a 847-point slide the previous week.

The chairman of the New York Stock Exchange has called the White House chief of staff and asked permission to close the world's most important stock market. By law, only the president can authorize a shutdown of U.S. financial markets.

In the Oval Office, the president confers with the members of his Working Group on Financial Markets -- the secretary of the treasury and the chairmen of the Federal Reserve Board, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The officials conclude that a presidential order to close the NYSE would only add to the market's panic, so they decide to ride out the storm. The Working Group struggles to keep financial markets open so that trading can continue. By the closing bell, a modest rally is underway.

This is one of the nightmare scenarios that Washington's top financial policymakers have reviewed since Oct. 19, 1987, when the Dow Jones industrial average dropped 508 points, or 22.6 percent, in the biggest one-day loss in history. Like defense planners in the Cold War period, central bankers and financial regulators have been thinking carefully about how they would respond to the unthinkable.

An outline of the government's plans emerges in interviews with more than a dozen current and former officials who have participated in meetings of the Working Group. The group, established after the 1987 stock drop, is the government's high-level forum for discussion of financial policy.

Just last Tuesday afternoon, for example, Working Group officials gathered in a conference room at the Treasury Building. They discussed, among other topics, the risks of a stock market decline in the wake of the Dow's sudden surge past 7000, according to sources familiar with the meeting. The officials pondered whether prices in the stock market reflect a greater appetite for risk-taking by investors. Some expressed concern that the higher the stock market goes, the closer it could be to a correction, according to the sources.

These quiet meetings of the Working Group are the financial world's equivalent of the war room. The officials gather regularly to discuss options and review crisis scenarios because they know that the government's reaction to a crumbling stock market would have a critical impact on investor confidence around the world.

"The government has a real role to play to make a 1987-style sudden market break less likely. That is an issue we all spent a lot of time thinking about and planning for," said a former government official who attended Working Group meetings. "You go through lots of fire drills and scenarios. You make sure you have thought ahead of time of what kind of information you will need and what you have the legal authority to do."

In the event of a financial crisis, each federal agency with a seat at the table of the Working Group has a confidential plan. At the SEC, for example, the plan is called the "red book" because of the color of its cover. It is officially known as the Executive Directory for Market Contingencies. The major U.S. stock markets have copies of the commission's plan as well as the CFTC's.

Going to Plan A

The red book is intended to make sure that no matter what the time of day, SEC officials can reach their opposite numbers at other agencies of the U.S. government, with foreign governments, at the various stock, bond and commodity futures and options exchanges, as well as executives of the many payment and settlement systems underlying the financial markets.

"We all have everybody's home and weekend numbers," said a former Working Group staff member.

The Working Group's main goal, officials say, would be to keep the markets operating in the event of a sudden, stomach-churning plunge in stock prices -- and to prevent a panicky run on banks, brokerage firms and mutual funds. Officials worry that if investors all tried to head for the exit at the same time, there wouldn't be enough room -- or in financial terms, liquidity -- for them all to get through. In that event, the smoothly running global financial machine would begin to lock up.

This sort of liquidity crisis could imperil even healthy financial institutions that are temporarily short of cash or tradable assets such as U.S. Treasury securities. And worries about the financial strength of a major trader could cascade and cause other players to stop making payments to one another, in which case the system would seize up like an engine without oil. Even a temporary loss of liquidity would intensify financial pressure on already stressed institutions. In the 1987 crash, government officials worked feverishly -- and, ultimately, successfully -- to avoid precisely that bleak scenario.

Officials say they are confident that the conditions that led to the slide a decade ago are not present today. They cite low interest rates and a healthy economy as key differences between now and 1987. Officials also point to SEC-approved "circuit breakers" that were introduced after 1987 to give investors timeouts to calm down.

Under the SEC's rules, a drop of 350 points in the Dow would bring a 30-minute halt in NYSE trading. If the Dow declined another 200 points, trading would cease for one hour. No additional circuit breakers would operate that day, but a new set would apply the next trading day.

Despite these precautions, today's high stock market worries officials such as Fed Chairman Alan Greenspan, who in a speech in early December raised questions about "irrational exuberance" in the markets. Because the market declined following Greenspan's speech, government officials have become even more reluctant to comment on these issues for fear of triggering the very event they wish to forestall, according to policymakers.

A Brewing Concern

Greenspan had expressed similar thoughts a year ago at a confidential meeting of the Working Group. Treasury Secretary Robert E. Rubin and SEC Chairman Arthur Levitt Jr. also are concerned about the stock market's vulnerability, according to sources familiar with their views.

The four principals of the group -- Rubin, Greenspan, Levitt and CFTC Chairwoman Brooksley Born -- meet every few months, and senior staff get together more often to work on specific agenda items.

In addition to the permanent members, the head of the President's National Economic Council, the chairman of his Council of Economic Advisers, the comptroller of the currency and the president of the New York Federal Reserve Bank frequently attend Working Group sessions.

The Working Group has studied a variety of possible threats to the financial system that could ensue if stock prices go into free fall. They include: a panicky flight by mutual fund shareholders; chaos in the global payment, settlement and clearance systems; and a breakdown in international coordination among central banks, finance ministries and securities regulators, the sources said.

As chairman of the Working Group, Rubin would have overall responsibility for the U.S. response, but Greenspan probably would be the government's most important player.

"In a crisis, a lot of deference is paid to the Fed," a former member of the Working Group said. "They are the only ones with any money."

"The first and most important question for the central bank is always, `Do you have credit problems?' " said E. Gerald Corrigan, former president of the New York Federal Reserve Bank and now an executive at Goldman Sachs & Co. "The minute some bank or investment firm says, `Hey, maybe I'm not going to get paid -- maybe I ought to wait before I transfer these securities or make that payment,' then things get tricky. The central bank has to sense that before it happens and take steps to prevent it."

1987: A Case Study

The Fed's reaction to the 1987 market slide, which Corrigan helped oversee, is a case study in how to do it right. The Fed kept the markets going by flooding the banking system with reserves and stating publicly that it was ready to extend loans to important financial institutions, if needed.

The Fed's actions in October 1987 read like a financial war story.

The morning after the 508-point drop on Black Monday, the market began another sickening slide. Corrigan and other Fed officials strongly discouraged New York Stock Exchange Chairman John Phelan from requesting government permission to close the market. Phelan was concerned that if the market continued to erode, the capital of the NYSE member firms would disappear. Corrigan feared a shutdown would cause more panic.

"It was extraordinarily difficult around 11 o'clock," Corrigan recalled. "The market was at one point down another 250 points, and that's when the debate with Phelan took place."

Simultaneously, Corrigan and other central bank officials spoke privately with the big banks and urged them not to call loans they had made to Wall Street houses, which were collateralized by securities that could no longer be traded and whose value was in question.

A final critical moment came that day when the Fed decided not to shut down a subsidiary of the Continental Illinois Bank that was the largest lender to the commodity futures and options trading houses in Chicago. The subsidiary had run out of capital to provide financing to that market.

"Closing it would have drained all the liquidity out of the futures and options markets," said one former top Fed official involved in the decision. Investors use stock futures and options to hedge positions in the underlying stock market.

Recognizing the crucial role of banks if another financial crisis should strike, the Office of the Comptroller recently conducted an internal study of what damage a market decline would inflict on U.S. banks. The OCC declined to discuss the study or its conclusions.

At the SEC, one big worry is how to cope with an international financial crisis that begins abroad but quickly rolls into U.S. markets.

"We worry about a U.S. brokerage firm that is dealing with a Japanese insurance company, where we don't know how they are run or regulated," a SEC source said. To improve its ability to react in a crisis, the SEC and the Fed have begun joint inspections with their British counterparts of U.S. and British financial institutions with global reach.

The most drastic -- and probably unlikely -- move the SEC could take in a crisis would be to propose a market shutdown to the president. That would require a majority vote of the commission. If a quorum couldn't be mustered, the chairman could designate himself "duty officer" and go to the president or his staff.

"Closing the market is, of course, the last thing the commission wants to do," said a source familiar with the SEC's planning. "During a time when people are extremely worried about their investments, you are cutting them off from taking any action. . . . The philosophy of the commission is that markets should stay open."

Just the Facts

Gathering accurate information would be the first order of business for federal regulators.

"Intelligence gathering is critical," Corrigan said. "It depends on the willingness of major market participants to volunteer problems when they see them and to respond honestly to central bank questions."

The SEC, CFTC and Treasury have market surveillance units. They monitor not only the overall markets, but also the cash positions of all the major stock and commodity brokerages and large traders.

The regulators also are hooked into the "hoot-and-holler" system used to notify participants in all financial markets of trading halts. The hoot-and-holler system alerts traders and regulators when a halt is coming.

Relying on Quick Action

In the event of a sharp market decline, the SEC and CFTC would be in constant contact with brokerage and commodity firms to spot early signs of financial failure. If they concluded that a firm was going down, they would try to move customer positions from that firm to solvent institutions.

At least this team of crisis managers already has been through the Wall Street wars. Greenspan was Fed chairman in October 1987. Rubin has served as the co-head of investment bank Goldman Sachs & Co. Levitt has been both a Wall Street executive and president of the American Stock Exchange.

"I think the government is in good shape to handle a crisis," said Scott Pardee, senior adviser to Yamaichi International (America) Inc., a Japanese brokerage subsidiary, and former senior vice president at the New York Fed. "A lot depends on personal relationships. You have a number of seasoned people who have gone through a number of crises. So if something happens, things can be handled quickly on the phone without having to introduce people to each other."

Consider what happened at 11:30 p.m. Dec. 5, when Greenspan made his comments about irrational exuberance. Alton Harvey, head of the SEC's Market Watch unit, was called at home by officials of Globex, a futures trading system owned by the Chicago Mercantile Exchange. U.S. stock futures trading in Asia had fallen to their 12-point limit, they said.

Harvey immediately alerted his direct superior as well as his opposite number at the CFTC. More senior SEC and CFTC officials were informed as well. But there wasn't much to be done until the morning. So Harvey went back to sleep.

REACTING TO A PLUNGE

After the market crashed on Oct. 29, 1929:

* The Federal Reserve provided loans and credit to financial systems.

* President Hoover met with business, labor and farm organizations to encourage capital spending and discourage layoffs; he also promised higher tariffs.

* Federal income taxes were reduced by 1 percent by the end of the year.

After the market dropped 22.6 percent on Oct. 19, 1987, the Federal Reserve:

* Encouraged the New York Stock Exchange to stay open.

* Encouraged big commercial banks not to pull loans to major Wall Street houses.

* Kept open a subsidiary of Continental Illinois Bank that was the largest lender to the commodity trading houses in Chicago.

* Flooded the banking system with money to meet financial obligations.

* Announced it was ready to extend loans to important financial institutions.

What would happen today during a stock drop would depend on the particulars. Here are current guidelines:

* If the Dow Jones industrial average falls 350 points within a trading day, NYSE trading would be halted for 30 minutes.

* If the DJIA falls another 200 points that day, trading would stop for one hour.

* If the market declines more than 550 points in a day, no further restrictions would be applied.

) Copyright 1997 The Washington Post

-- ($@$.$), October 19, 2000.


REACTING TO A PLUNGE

After the market crashed on Oct. 29, 1929:

* The Federal Reserve provided loans and credit to financial systems.

* President Hoover met with business, labor and farm organizations to encourage capital spending and discourage layoffs; he also promised higher tariffs.

* Federal income taxes were reduced by 1 percent by the end of the year.

After the market dropped 22.6 percent on Oct. 19, 1987, the Federal Reserve:

* Encouraged the New York Stock Exchange to stay open.

* Encouraged big commercial banks not to pull loans to major Wall Street houses.

* Kept open a subsidiary of Continental Illinois Bank that was the largest lender to the commodity trading houses in Chicago.

* Flooded the banking system with money to meet financial obligations.

* Announced it was ready to extend loans to important financial institutions.

What would happen today during a stock drop would depend on the particulars. Here are current guidelines:

* If the Dow Jones industrial average falls 350 points within a trading day, NYSE trading would be halted for 30 minutes.

* If the DJIA falls another 200 points that day, trading would stop for one hour.

* If the market declines more than 550 points in a day, no further restrictions would be applied.

Hmmm...doesn't say anything in that article about the government buying and selling securities and/or futures in order to prop up the market.

Yesterday's plunge was mostly a reaction to one stock - IBM.

BTW, I don't know who Maria on CNBC is.

-- Buddy (buddydc@go.com), October 19, 2000.


Buddy,

"Hmmm...doesn't say anything in that article about the government buying and selling securities and/or futures in order to prop up the market".

Exactly. They are not supposed to manipulate a FREE market. That is why they didn't admit to it in the article.

Their intervention in 1987 to ensure that the market didn't lock up was seen as an admirable thing, but the reality may be that they have just prolonged and increased the size of the problem. It is a fine line between doing enough so that the market doesn't lock up in a cross default situation, and not doing so much that you manipulate the markets.

It only takes one stock to start a downturn.

Maria is a commentator on CNBC. Well, technically she is a commentator, in reality she is more like a stock cheerleader. In a really down market, Maria is close to tears. Watch CNBC sometime. It is not unbiased stock information, it is more like bullish stock propaganda.

-- J (Y2J@home.comm), October 19, 2000.

J, a most admirable summary.

-- Peter Errington (petere@ricochet.net), October 19, 2000.

There was a rumor (repeat, rumor) the other day from Australia.

http://greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=003wZd

In recent weeks the third storm hit. But the biggest waves so far have hit Wall Street and not corporate America. The junk bond market has sunk, taking with it billions of dollars of the investment banks' money, and the biggest whisper game right now is which firm is most underwater in the high-yield market.

The second biggest whisper before Friday was about reports of a central bank, possibly not far from New York, selling US Treasuries to raise funds for intervention in financial markets. Friday's rumour was that the Nasdaq market had been the beneficiary. That certainly would explain much, but wave-calming in the junk bond market would seem more needed right now. Barton Biggs over at Morgan Stanley (which coughed up to high-yield losses last week) believes the deteriorating financial position of many telecom companies and their falling coverage and credit ratios could prove a problem for institutional lenders and the banking system.

-- (rumor@from.Australia), October 19, 2000.


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