Is there a short answer to the question: Why didn't the Stock Market go South? : LUSENET : TimeBomb 2000 (Y2000) : One Thread

I don't have money in stocks, bonds, mutual funds, etc. and I don't even understand much about the stock market, but I have tried to follow the threads on this forum explaining it. But nearly ALL GI's expected a big crash before the end of the year and of course just the oposite happened. How did THEY manage to keep it growing? I don't get it!

-- Jenny (HomeFor@Good.Now), December 30, 1999


The Market has been manipulated by the Clinton Plunge Protection Team. They have used Federal Reserve money and bought millions of shares of Stock to drive the price up and to keep it from crashing. On December 20th the Dow started to crash. It turned right around and went back up again because of a huge buy up by the Clinton Team!! Stock Market manipulation is illegal!

-- bbb (, December 30, 1999.

The majority of investors in the stock markets are driven by need and greed. They are blinded to all else since they were told that the market only "goes up". They ignore all signs of impending disaster, focusing only that, in the end, the market goes up...

So what if it only took 25+ years to recover from the '29 crash... It went up after that, didn't it? (sarcasm off)

A lot of people went to their grave without recovering their money...


-- Forum Refugee (formerly Forum Regular) (Here@y2k.comx), December 30, 1999.

Jenny, the majority of stocks on the NYSE and NASDAQ have been losing value (in a Bear market) for about 18 months. A minority of stocks have been holding up the Dow, S&P500 and other Indices. Soon these stocks will be heading south to join their brethern. You are witness to the biggest bubble in stock market history. It makes the Tulip Mania look like kids play.


-- Ray (, December 30, 1999.

As long as they can fool the invester the stock market will climb, but when they get wise to over sold stock it will fall and fast.

-- ET (, December 30, 1999.

It has remained as it is because the dominos haven't begun to topple yet. IF, the dominos start to fall, the market will cascade right there with it because then, Y2K, will be the reality. If ya know what I mean.

It is on the edge now. When the Y2K blurbs start showing up, it may crash aong with that ol' 386 PC. Just my opinion for what it's worth.

-- Rob (, December 30, 1999.

If you want a really short answer, I can think of one reason that is keeping a lot of investors in a holding pattern, even though they are nervous about Y2K.

Capital gains taxes.

Next week, we'll see some of the nervous ones bailing out in the new tax year if they have any doubts about Y2K, or the markets in general.

-- Hawk (flyin@high.again), December 30, 1999.

A well coordinated plan:

1. Companies that make up Dow Industrial Average were changed to include more Hi Tech firms by Dow Jones.

2. FED Reserve has increased M3 aggregate money supply by >20% and has purchased T-Bills to keep interest rates stable. Easy credit fuels stock prices.

3. Flight to Quality - Savy investors are looking for safer havens to park assets in places like hi tech, blue chips and mutual funds.

4. .gov has 90% (my guess) of population believing that a BITR is no big deal and it is all minor technical stuff that is of no concern.

5. Gold prices have been manipulated by massive short selling by investment banks like Goldman Sachs and by massive forward selling of mine production by gold companies.

6. Most people have a blind spot that refuses to consider the dark side of Y2K and jump to believe the Happy Face all is fine speil.

7. US EXecutive Branch hired Madison Avenue PR firms to manange the perception of Y2K - they are the best on the planet. Too good in my opinion - we are underprepared for anything > BITR.

The powers that be have painted themselves into a tight corner as serious problems could alter perception in short order.

My own prediction is we will see more action late next week Jan 6-7 as the actual impacts sink in and must be acknowledged, rather than a 3 day BITR. Like other .gov (Russia, China, Japan, Germany) defaulting or oil supply disrupted (Iran, Iraq, Nigeria, Russia, Venz, others).

-- Bill P (, December 30, 1999.

The short answer is that since the overwhelming majority of investors do see anything about the market to be worried about -- least of all, Y2K -- the bubble gets bigger and bigger. It is a big confidence game, and confidence is high, with Internet .com stocks soaring, because investors believe in them, even with no visible signs that there will actually be a payback.

I think that you are quite right when you say that Y2K "Get Its" fully expected a big crash before the end of 1999, since we expected that John Q. Public would start becoming alarmed about Y2K and start reacting. For the stock market, this would presumably have been a very negative impact.

As big as the bubble is, if Y2K should turn out to be a lot more than the bump-in-the-road that people are expecting, it's collapse will be much worse than if it had had a chance to gracefully correct itself in response to gradual Y2K awareness many months ago. Ironically, since the bubble is sustained by Internet .com stocks, Y2K glitches would presumably have a greater effect than they otherwise would, since the companies are clearly computer dependent themselves.

1 day.


-- Jack (jsprat@eld.~net), December 30, 1999.


-- Brett (, December 30, 1999.

Greed that glazes the eyes over!

-- rumdoodles (, December 30, 1999.

It has always been said that the stock market doesnt like uncertantity. If Y2K is not uncertantity, what the hell is?

-- Earl (, December 30, 1999.

Try these:

1- "sheep" syndrone 2- "herd" syndrone 3- "ostrich" syndrone 4- "schoolfish" syndrone 5- "flock" syndrone

Stock Market Definition: " Fiction winning over Reality " The Biggest Bubble Burst in History is a-Bout to Blow ! GET IT !


-- Canuck (, December 30, 1999.

Simple answer? There have been no major disruptions...yet.

A hell of a lot of people are just NOW clearing out stores of water, TP, propane, etc. Almost all major New Years Eve events have been cancelled. The flock is not exactly feeling all that warm and cozy and safe at this moment. One or two major visible screwups and the market will tank. The whole thing is built on confidence (or as Greenspan put it "irrational exuberance") anyway.

Did you know that New York's famous "Coming Out" party for the 16 year old daughters and grand-daughters of cities 'Power Elite' was cancelled for the first time in 45 years? This is a huge event and if *these* guys are pulling the plug (and breaking the hearts of their 16 year olds) you just KNOW the market is not long for this world. Y2K and/or terrorism it doesn't matter. They are scared. Fear sells confidence buys.

I don't know where the market will bottom but I believe that MOST of our Y2K problems will be worked out by May/June (assuming oil doesn't bite the big one). By the end of August I think the market will be higher than where it is now. Why? Because once they've had a taste of the good stuff (unrestrained growth) they're going to want it back bad. Really bad. As in junkie needs a fix NOW bad. That alone will start the wheels rolling again. I mean, it's not as if a companies financials have anything to do with the stock price anymore...


-- TECH32 (TECH32@NOMAIL.COM), December 30, 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), December 30, 1999.

Friday December 10, 5:19 pm Eastern Time

Y2K paranoia or Greenspan's irrational exuberance?

By Pierre Belec

NEW YORK, Dec 10 (Reuters) - The stock market just keeps on climbing and Federal Reserve Chairman Alan Greenspan has been making a massive amount money available in the financial system.

Is it irrational exuberance or Y2K paranoia? Or Both?

Greenspan has permitted the biggest expansion of money supply in the Fed's history in the weeks leading up to the end of the year, when the so-called Y2K computer bug could disrupt financial systems.

The Fed's move has been explosive on Wall Street because a free flowing money faucet at the Fed boosts confidence in the financial system, and the economy at large, and is the stuff that makes bull markets get bigger.

M3, the Fed's broad definition of money, which includes currency, travelers' checks, bank deposits and money market mutual funds, has climbed $194 billion over the past 13 weeks -- the biggest increase ever. The money supply increased at an annualized rate of 15 percent, which is well above the Fed's target growth rate of only 5 percent.

Just a week ago, M3 went up a huge $36 billion, which would seem to indicate that the central bank is buying insurance against some possible disruptions as the calendar changes from 1999 to 2000, analysts said.

``The money supply has gone through the roof and the increase, adjusted for inflation, is the biggest in the nation's history,'' said Don Hays, president of The Hays Market Focus Advisory Group, an investment consulting firm.

``The Fed may be flooding the nation with cash because of jitters among central bankers that the Y2K computer bug could do more damage to the financial system than most people expect,'' he said.

``I just don't have another excuse other than Y2K to imagine why the Fed would flood the system, unless there is something that's happening behind the scenes that we don't know about,'' Hays said.

``This huge liquidity is the reason for the big rally in stocks since October,'' Hays said. ``It's a replay of the market's run-up exactly one year ago, when the Fed rushed to flood the system after the panic from the Russian loan default and the Long Term Capital Management hedge fund disaster.''

The Fed came to the rescue of the LTC fund, which teetered last year on the brink of bankruptcy due to the global market turmoil. The fund's losses threatened to slam the financial system, which in turn could have hurt the economy.

But the increase in money supply and financial system liquidity may also ``reflect Greenspan's thinking that the stock market is on a very unstable foundation because of valuations and Y2K might be the trigger that could keep it from coming down softly,'' Hays said.

One of Greenspan's goal's over the last four years of extraordinary gains in stocks has been to ``talk'' the market down, or to set the mood for the market to come down from its lofty levels in a gradual way and to avoid a panic on the Street, which would demoralize business confidence. But the market has not yet suffered a serious reversal.

And the Fed may fear that Y2K could be the thing that could yet punch a big hole in the market bubble, analysts said.

Three years ago, in December 1996, Greenspan sent global stock market reeling with a comment about investors' ``irrational exuberance,'' and Wall Streeters now say the Fed head is not practicing what he preaches.

There are few signs of panic in the run-up to the new year, when computers may confuse the year 2000 with 1900, messing up date- sensitive functions.

Corporate America says it is confident that it has fixed the Y2K problem, but the Fed is apparently not taking any chances.

The concern is that disruption on a large scale could stun corporate earnings, slam the stock market and drive the economy into recession, analysts said.

``We don't have the slightest idea how Y2K is going to play out,'' Hays said. ``From listening to all the 'informed' sources, I have to come to the conclusion that no one else does either.''

Paul Kasriel, chief U.S. economist for Northern Trust Co. in Chicago, said there is no doubt that the cash from the Fed has been the elixir for the market's rally.

``People are not borrowing just to stuff the money in their mattresses,'' he said. ``They borrow to spend and it ain't a coincidence that the stock market has picked up as the money supply has exploded.''

The Fed can boost confidence in the financial system and make the economy grow faster by making more money available to banks, which eventually leads to cheaper loans.

It can also discourage lending when the economy grows at a fast clip, and threatens to fuel inflation, by withdrawing money from the banking system, or by raising short-term interest rates.

Kasriel said the money supply growth was revved up in October, which is about the time that stocks began their recovery from a selloff that threw the Dow Jones industrial average for a loss of 1,300 points -- a classic correction of 10 percent -- between September and mid-October.

The other major market gauges were also battered, with the Standard & Poor's 500 index slumping 12 percent and the Nasdaq Composite index skidding more than 6 percent.

Since then, the Nasdaq has been rewriting the record books, making highs on an almost daily basis. In addition, the S&P last week hit a new high while the Dow Jones industrial average came within less than 50 points of beating its Aug. 25 record of 11,326.04.

``Without the money supply growth, I am convinced that the market would be in much weaker shape at this time,'' Hays said.

Kasriel said that things could get interesting for the market next year as a result of the Fed's action.

``The Fed may choose to ignore the rapid growth in credit and money that it has a hand in creating,'' he said. ``But investors ignore it at their own peril.''

Kasriel said that, unless the Fed can rope in credit demand, it will have to raise interest rates more than the half percentage point that he has been expecting in the year 2000. The Fed this year has already boosted interest rates by three quarters of a point.

``It is beyond me how the stock market could continue to be immune to further increases in both short-term and long-term interest rates,'' he said.

So the big question is: Will the 73-year old Greenspan leave his job the same way he came in, in 1987, with a stock market crisis?

For the week, the Dow Jones industrial average was down 61.48 points at 11,224.70. The Standard & Poor's 500 index was off 16.26 points at 1,417.04 and the Nasdaq Composite index was up 99.65 points at 3,620.25.

-- (M@rket.trends), December 30, 1999.

I think the STRIPS are being used. There is just no way there can be that much new money available from overseas or elsewhere. I think this STRIPS insurance is allowing some insurance companies, banks and so forth to play fast and loose in the stock market. The individual just doesn't have the cash needed to drive the NASDAQ in the direction it is going. This has to be a monopoly money effect. There may be a crash if the gambles can't be safely unwound. The scary part about all of this is that there has to be a loser in these bets, the markets are almost by definition a zero-sum game.

This is something most folks fail to see. They just aren't looking for the losers and the media aren't about to show them who the losers have been.

-- Willy Boy (, December 30, 1999.

I don't claim to have a real good understanding of the stock market, but my take on the "flooding with liquidity" is it's like giving somebody a credit card with a HUGE line of credit. It doesn't matter what the person already owes, it doesn't matter that the person has no savings, no source of income, etc. That credit card allows the creation of all the appearances of wealth and prosperity.

Of course, the credit limit is eventually reached. And it all has to be paid back, with interest.

-- King of Spain (madrid@aol.cum), December 31, 1999.


I have been a student of the stock market since 1978. The long answer to your question would fill a decently sized book. The short answer is because it has been going up, and up, and up. Meaning that buyers have been rewarded with more buying since August 1982.

I read a facinating article at "" today which stated that in the last 100 years (with one near exception in Spain) no market index has moved away from its 200 day moving average to the degree of today's NASDAQ Composite index. More precisely, the Nasdaq Composite index is now four standard deviations away from its 200 day moving average. This may sound trivial to you but what it means is that the NASDAQ have moved up farther and faster than any equity market in history.

The market is not just rising in the face of Y2K. It is going up faster and farther than any other time in memory. Some people (and I see their point) believe we are in a terminal blow off phase and are headed for a "correction".

-- gary (, December 31, 1999.

When examining the stock market trend, there is one factor that will elude most people on this board. What if nothing happens as we roll over? Many investors believe Y2k will be a non event at this point. IF this happens, current economic conditions are such that the market will soar to levels most people cant even imagine. Money slowly drained off the market over the the year due to Y2K fear will come rushing back in. There isnt an investor who wants to miss out on that. So the usually year end sell off isnt even going to occur. It is greed, pure and simple.


-- nyc (, December 31, 1999.

nyc, good point. Next week the stock market will go bonkers with bucks.

-- dinosaur (, January 01, 2000.

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