The stock market knows better than the computer industry : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Once again, the harbinger of the economic future, the stock market predicts that it couldn't be rosier. Trillions of dollars and millions of investors are betting that the New Year rings in with zero problems and higher profits. HOW CAN THEY BE SO DARN SURE OF THEMSELVES!! A tidal wave of investment before the clock hits midnight, WHY!? - I think this is an example of how widespread the denial is. If anything major happens the ultra vast majority is going to be caught with there pants down.

-- Guy Daley (, November 18, 1999


Hmm, I'll take a stab at that one. It seems to me that markets don't actually respond to real events, just to internal market pressures. As I understand it, prices jump around based on rumours and information about company/sector performance, but only because these indicators tell you that other investors are likely to jump on/off that stock. Price movements have no REAL connection to the actual performance, only to the understanding among investors that good news means prices go up, and bad news means they go down. Sure, you get dividends from owning shares in profitable companies, but they're nothing compared to the profits you can make from buying low and selling high.

And it takes a lot of specific bad news about an attractive company to drive the market away from it - look how stable Micro$oft's share price has been despite a lot of bad news and stupid statements from their exec's ("Our stock is overvalued."). Every time it drops, it's bought right back up again.

Because there are no meaningful disclosures about companies' Y2K preps, there's no incentive for the market to run from any of them. But why is there no general withdrawal from the market, like most of us (me included) have been expecting?

Well, I think I've figured it out. It's just that there really REALLY is NO connection between the real world and the market. Until some SERIOUS money starts leaving the market (and we're talking banks and investment trusts here), it's not going to drop. Why should it? As long as more money keeps pouring in, the pressure to buy stays on, and the prices stay high. It's as simple as that.

Yes, I know, bad stuff is going to happen. The new money will stop flowing in, but until that happens, the existing money isn't going to leave. I'm sure that investors are expecting a slump, but it's a staring contest to see who flinches first.

The only thing that will force the issue is a drying up of the new money, or a real drop in the funds being invested. That means large scale withdrawals from banks, or the cancelling of pension funds and other investments. Until and if that happens, the market stays up, regardless of actual events, or our frenzied speculations.

Anyone with a shred of knowledge care to correct me? :)

-- Colin MacDonald (, November 18, 1999.

They are sure of themselves because (like us) they are being lied to. The stock market is not a free market, but is the subject of massive manipulation and lying. Here is what is going on at Microsoft.

You may be "out" of the market, but you cannot get out of the way, unfortunately.


-- dave (, November 18, 1999.


Wednesday November 17, 7:10 pm Eastern Time

Fed's Y2K liquidity measures keep markets calm

By Ross Finley

NEW YORK, Nov 17 (Reuters) - While the Federal Reserve has financial markets guessing whether Tuesday's interest-rate increase may be the last for several months, the central bank has taken great pains to quell fears about year-end liquidity.

The Fed has put in place a series of measures to make sure markets work smoothly when the clocks on the world's computers change over to 2000 and investors decide whether to hold their positions or convert to cash because of fears of technology-related disruptions on the financial markets.

New York Federal Reserve Bank President William McDonough affirmed on Wednesday that the Fed had ``gone a long way'' toward addressing year-end liquidity fears that peaked in August and September of this year.

Analysts, economists, market players and primary dealers -- the firms that conduct securities transactions with the New York Fed -- agreed.

``It's certainly been useful -- it's a valuable backstop to have there. The mere fact that the Fed has been so aggressive has been helpful,'' said Lou Crandall, chief economist at R.H. Wrightson & Associates.

Economists also say market interest in the Fed's new liquidity insurance scheme means investors are approaching the issue calmly rather than with panic.

Until the Fed came to the rescue, many investors said they were content to park money in safe, liquid short-term U.S. Treasuries and keep their money away from riskier assets such as stocks or debt from corporations and government-sponsored agencies. If that occurred, it might have led to a liquidity squeeze similar to what was seen last year at this time.

Instead, stocks have rallied and so-called spread products have also performed rather well.

But many analysts added that the bond market's resilience running into the last quarter before the date changes to 2000 is only partly a result of the Fed's preemptive measures.

Crandall cited the concern several months ago in the corporate bond and mortgage-backed markets about widening of spreads -- which indicated a preference by investors for Treasuries, securities which are much easier to turn over in the event of a crisis.

``We've seen liquidity in lots of other markets hold up,'' Crandall said. ``The corporate bond market had this expectation spreads would widen dramatically and they haven't.''

One of the Fed's main tools in fighting Y2K fears is STRIPs options -- securities that allow dealers to cash in the value of the option on one of three maturity dates offered.

This ability to exchange STRIPs for cash readily if needed is the kind of safety net prudent dealers crave as insurance against a year- end liquidity crunch. The December 30 maturity date, two days before computer clocks change over, has met the highest demand. The other two maturities are December 23 and January 6.

The Fed has auctioned five separate offerings of STRIPs since October 20, all of which have generated widespread interest, according to the New York Fed.

``There has been a tremendous amount of interest in the options auctions that have taken place,'' the New York Fed's McDonough said on Wednesday.

Analysts say that with five of seven STRIPs options auctions already behind them -- totaling just over $370 billion -- many market players who were concerned about cash on hand at year-end have already taken out their respective millennium insurance policies and are now sitting comfortably.

Citing strong demand, the Fed on November 4 added two additional STRIPs auctions to the original total of five and said it could add more if there were a further strengthening in demand.

The Fed has twice increased the amount of securities offered in individual auctions, also citing increased demand. But the amounts offered in the November 17 auctions decreased slightly, indicating the market may be more confident about year-end cash flows.

``In terms of why they were recently cut back, I would say it could reflect a number of things -- perhaps some greater confidence in the market about Y2K itself and how it will go,'' said Spence Hilton, associate vice president at the Federal Reserve Bank of New York.

In addition to the STRIPs auctions, the New York Fed also announced in September that it would begin entering into repurchase transactions with maturities up to 90 days, up from the previous maximum period of 60 days.

The Fed has already tied up approximately $30 billion in long-term repurchase agreements, a further reinforcement against liquidity concerns in the repo market.

``The only risk at this point is customers -- and by that I mean mutual funds having large withdrawals at the end of the term,'' said Marc Wanshel, economist at J.P. Morgan & Co. ``But the dealers, I think, are very comfortable.''

Vincent Verterano, head government bond trader at Nomura Securities International, said the STRIPs options provide good insurance for dealers who need extra liquidity toward year-end. But he underlined that insurance doesn't come for free.

``The Fed's going to make a ton of money on this,'' Verterano said. ``Chances are they (the options) are not going to be exercised.''

The interest rate on options is 150 basis points (1-1/2 percentage points) above the Federal funds rate, now at 5.50 percent, but traders see the insurance as cheap.

Before Wednesday's auction, the total amount the Fed had received in premiums was ``just shy of $5 million -- a little bit more with today's sale,'' Hilton said.

Many traders say that the premium is a small price to pay for what amounts to peace of mind running up to the new year.

In addition to the options auctions, The Fed now accepts a broader range of collateral for its open market repurchase operations. And it introduced in September a special facility to ease pressure on smaller regional banks toward year-end.

Despite the fact few banks have stepped forward and used the facility, Crandall and other analysts acknowledged that the very fact the Fed made the liquidity facility available to small banks if they needed it was a positive step forward.

-- (M@rket.trends), November 18, 1999.

Very true:



In addtion, we hope most members of the stock market (the people actually buying stock for a long term investment, not the daily traders manipulating stock) understand that year 2000 disruptions will eventually end, and eventually, stock prices will again rise from their present levels - or given that we don't know the final level stock averages may reach this year, back to their previous high.

BUT - as noted, stock prices are strictly based on what the two people trading stock certificates for cash "believe" the future price of the stock "might" be. The true value of a stock is the current value of the company divided by the number of the shares issued.

The PERCEIVED value of the stock is the asumed future value of the company divided by number of shares. The TRADED (instanteous) value is strictly "what can I get for this piece of paper based on demand RIGHT NOW. It is that traded value that is likely to drop - based on how short-sighted the market appears to be as "it" receivec each piece of news dropped from the administration and the allof, independent and highly trusted financial press......"who don't have any interest in the high price of stocks"....right?

-- Robert A. Cook, PE (Marietta, GA) (, November 18, 1999.

Here is one from Bob Metcalfe. 45.102.htm

"...Akamai was yet another sign. This fine Internet company was founded 14 months ago by people whom I know from around the MIT Laboratory for Computer Science. Akamai generated $1.3 million in revenue for the nine months ending on Sept. 30.

Morgan Stanley priced Akamai's IPO at $26 per share. On the big day, Oct. 29, the 250-employee company's new stock closed at $145 per share, giving it a market cap of around $13 billion, less than Chevron but more than Sears.

The Weird Als who buy Internet IPOs saw interest rates not going up much and must have thought, hey, Akamai is worth five times more than what Morgan Stanley just estimated. This makes me think that investing in Internet stocks is beyond gambling; it's more like rooting for sports teams. So we should ask, "How do you like them Akamais?" "

-- Brooklyn (, November 18, 1999.

To add one other point worth repeating:

The stock market is strictly based on impressions, opinions, and perceptions.

The computers (in general - regardless of whether one reviews data exchanges, data failure, program failure, program error, processing error, processing failure, or control systems failure) DOESN'T CARE about anybody's opinion, anybody's perception, or anybody's pessimistic (or optimistic) HOPES or WISHES.

The computers (in general) will only and simply do what they are programmed, exactly how they are programmed and operated. And if the programs, databases, and exchanged files are incorrect - they will simply and exactly fail.

Exactly like they are programmed to operate. Once they have failed - regardless of the nature of that failure, they will continue to fail UNTIL the program/data/control process is changed/corrected/replaced/worked around.

It's a simple matter - regardless of what the stock market or politicians "say" or "predict" - each and every computer will either operate correctly and reliably, or they will not.

People can adapt and change without programming - though on ecould argue that we are endlessly subjected to the advertising media and political media to do such programming. Computers can't.

-- Robert A. Cook, PE (Marietta, GA) (, November 18, 1999.

All the dollars created and repatriated gotta go someplace. U.S. imports much more goods than it exports. That means US dollars rather than U.S. goods are flooding the world. So the world ships the dollars back here to put into the bond and stock markets.

Now, say some foreigners get nervous, and they pull some dollars out of the markets. CRASH!

Browse articles on

-- A (, November 18, 1999.

From: Y2K, ` la Carte by Dancr (pic), near Monterey, California I just noticed an interesting symmetry. Contrast this line by Robert A. Cook from above:
The computers (in general - regardless of whether one reviews data exchanges, data failure, program failure, program error, processing error, processing failure, or control systems failure) DOESN'T CARE about anybody's opinion, anybody's perception, or anybody's pessimistic (or optimistic) HOPES or WISHES.
with this "gem" spoken by Bob Brinker on his radio show Money Talk.
Here it is! The audio file of possibly the "Most DWGI" person in the world!
That is, the stock market is discounting the future into the present and it is telling us that those who are hoarding food supplies years into advance and water and fuel and cash and all the other things that the century date change junkies are ordering that they are basically spinning their wheels, because the stock market is telling us it doesn't care. The stock market is telling us, every day that goes by that it does not care about all of this business.

-- Dancr (addy.available@my.webpage), November 18, 1999.


...The Dow Jones Industrial Average went from a low of 191 in early 1928 to a high of 300 in December, 1928, and peaked at 381 in September 1929. Due to the anticipation of continued increases in earnings and dividends, Price/Earnings ratios rose from a conservative 10 or 12 to 20, and higher for the market's favorite stocks. Many observers believed that stock market prices in the first six months of 1929 were overpriced, while some perceived that stocks were cheap. On October 3, the Dow began to drop, declining throughout the week of October 14.

The night of Monday, October 21, 1929, margin calls were heavy, and numerous Dutch and German sell calls came in overnight for the Tuesday morning opening. On Tuesday morning, out-of-town banks and corporations called in $150 million of call loans, and Wall Street was in a panic before the New York Stock Exchange opened.

On October 24, 1929, people began selling their stocks as fast as they could. Sell orders flooded market exchanges. On a normal day, only 750-800 members of the New York Stock Exchange started the Exchange. However, there were 1100 members on the floor for the morning opening. Furthermore, the Exchange directed all employees to be on the floor since there were numerous margin calls and sell orders placed overnight and extra telephone staff was arranged at the members' boxes around the floor. The Dow Jones Industrial Index closed at 299 that day.

October 29 was the beginning of the Crash. Within the first few hours the stock market was open, prices fell so far as to wipe out all the gains that had been made in the previous year. The Dow Jones Industrial Index closed at 230. Since the stock market was viewed as the chief indicator of the American economy, public confidence was shattered. Between October 29 and November 13 (when stock prices hit their lowest point) over $30 billion disappeared from the American economy. It took nearly twenty-five years for many stocks to recover...

-- Mac (sneak@lurk.hid), November 19, 1999.

Brinker demonstrates, indadvertenetly (?), the dangers of "anthropomorphizing" (ascribing human attributes) to a mechanism or concept. It is not the "stock market" that is saying essentially that the preparers are wackos, it is those who have the most money in the market who are saying (and hoping) that the preparers are wackos.

The "market" does not think, emote, or make any judgements of any kind. The "market" tells you NOTHING. Substitute "people" for the "market" in his comment, and the translation is that the people in the market don't give a crap about what is happening or might happen.

-- A (, November 19, 1999.

Or that the PEOPLE in the market are just as clueless as most others, even though they may be making or having more money.

-- A (, November 19, 1999.

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