I must admit that I am embarassingly ignorant of financial matters when it comes to Wall street,hedge funds and so on. I try to read and understand all the articles but My attention span stops abruptly after a paragraph or two. Also I must admit that I was a y2k junkie and I need a new problem to worry about:)

But seriously, from what I can understand, the Dow and Nasdaq are hugely inflated and ready for a fall.

Can someone put together a scenario of events as they might happen (perhaps like a news story ) so that I might better understand the mechanism of Wall street,hedge funds etc. Use either a best case or a worst case based on the near future as you see it.

-- citizen (lost@sea.com), January 29, 2000

Answers

Sorry for the double post.. I don't know how I did that!

-- citizen (lost@sea.com), January 29, 2000.

Soitenly I can put together the 2 scenarios. BEST CASE: You lose 75% of tour investments & lose job Worst case: Well... you can probably figga dat one out

-- Curly (Oh-No@its.Mo), January 29, 2000.

citizen -

Can't really give detailed scenarios, and frankly, there are too many variables. At a high level: momentum drove this market up last year, and it will now in all likelihood bring it back to earth. Markets are driven by fear and greed, and fear is the stronger. Money looks for safety. Lots of people have bought stocks with borrowed money of various kinds. If that "leverage" turns into dead money (no gains or worse yet, losses), they will be in a world of hurt.

Here's a taste of the current psychological state after this week's reversal. From The Street.com: The Coming Week: A Market Running in Circles

..."Until we get the Fed out of the way, I think we're going to continue to be volatile with a downward bias," said Tony Dwyer, chief market strategist at Kirlin Holdings. The problem is not just the Fed but a fear of losing the money made in the fourth-quarter run-up. "Everybody's trying to get out the door at the same time, to not give up the gains. That's a more important backdrop to the market than even interest rates."

Fanning the fear, the market's technicals are not good. Important levels of 1380 on the S&P 500 and 11,000 on the Dow Jones Industrial Average have been broken. The next major lines of support are a ways off -- 1300 and 10,000, thinks Bob Dickey, managing director of technical analysis at Dain Rauscher Wessels.

"That's a real good floor area, and that's probably where we're headed," he said.

The Nasdaq Composite has yet to hit its big support level at 3750, the place it hit in that first, bad week of the year. And that is a good thing, said Dickey. "Underneath there, I don't know where the support is, so it's real important that it keeps it."

Scared? A lot of people are. The highfliers are cracking, and people are seeing those once-in-a-lifetime gains melt away. Those who stand their ground, who buy when the weak holders capitulate, will make out well, Dwyer believes.

"The momentum stocks that took the market up to unstable levels are bringing it back down," he said. "You're even beginning to hear panic in people's voices. Panic brings opportunity."

It will be an interesting week for the bond market, which rallied strongly on flight-to-quality trades Friday. It is a good -- but not sure -- bet that bonds will decline again once the scare over the full inversion of the yield curve resolves itself. Details remain sketchy, but it appears that when the yield on the two-year lifted above the 30-year's, a major selloff in the mortgage-backed area ensued. That money moved to the safety of Treasuries...

-- DeeEmBee (macbeth1@pacbell.net), January 29, 2000.

1) You seem to have a good grasp of the current market position...way too high for price performance. We should see the bubble burst. Read about the great tulip bubble and the east (west??) indian trading company, and you will see what I mean. Even Greenspan has mentioned tulips in his speeches.

2) Best case, I'm out of equities for the time being, and won't go back in until the market is rational. Recession.

3) Worst case, it will hold up and inflate further, giving further to fall...another depression...

-- Mad Monk (madmonk@hawaiian.net), January 29, 2000.

Hey Citizen,
On the off chance you are serious here are a few links to try.

Needed Vocabulary
A misunderstood word can prevent you from understanding an article, spend some time carefully learning these terms and definitions.

To truely begin to see financial matters in a proper perspective, you must understand money and its history.
Mon ey

A custom written tutorial just for you is a little much to ask for, I will provide more links to existing sites if you are "for real".

-- Possible Impact (posim@hotmail.com), January 29, 2000.

"Sorry for the double post.. I don't know how I did that!"

Yes you do. You added a parantheses before the word "perhaps" that was not there the first time you posted it. Otherwise the system would not allow you to post it twice.

Shame on you! You better get it together or they're gonna send you back to mother in a cardboard box. (not really, though) :-)

-- Hawk (flyin@high.again), January 29, 2000.

COMBINE AND FIX DUPLICATE THREADS:

The near future scenario looks pretty bleak for you citizen. But, you never know. Might be some kudos left over at debunkys.

Nice try. No joint. Hey, what's with outing Patricia by LL? I like

Patricia.

-- Carlos (riffraff1@cybertime.net), January 29, 2000.

---------------------------------------------------------------------- ----------

The Market is more suseptible now for a big crash than ever. Margin debt has been increased. Investors now can borrow as much as 50% on their margin account to invest in the stock market. So now when the crash hits, there will be a mad dash for the exits, because investors will be liable for their margin loans and they could lose big time if they do not get out. So even the Klinton Plunge Protection Team will not be able to stop a crash now. So when it starts going, the big sell off will cause it to crash even faster.

-- freddie (freddie@thefreeloader.com), January 29, 2000.

---------------------------------------------------------------------- ----------

"I try to read and understand all the articles but My attention span stops abruptly after a paragraph or two." Place the bulk of your life savings in a stock market investment and your attention span won't be so short.

-- Guy Daley (guydaley@bwn.net), January 29, 2000.

# 3

-- I AM a number (sysops@re.us), January 29, 2000.

Citizen;

Read "At the Crest of the Tidal Wave: a Forecast for the Great Bar Market" by Robert J. Prechter, Jr., New Classics Library, ISBN #0- 932750-39-7, available on-line at varius bookshops or call (800) 336- 1618.

This 500 page book is an easy read, very interesting and comes at the issues from a unique perspective. The scenarios your're looking for are detailed in the book.

Read it several times and see if what Prechter speaks of reflects what is going on in the madness you suspect.

Flamers will roast, broil and bake Prechter and me. Expect it. It's OK. His message is not welcome in most circles. An end to perpetual prosperity is not attractive. Flamers will corectly note that his prediction of the start of the great bear market in 1996 or so was missed. As a result, it will probably be worse.

A snippet from page 10: "Tis book is written partly as an academic exercise in applying the Wave Principle to an exciting juncture in history. Indeed, that will be its long term value. However, it is also written with what is at the moment an equally important goal: to help you conserve your wealth and perhaps be one of the few people who prosper in a financial and social environment that will surely confound 99% of the population."

Chapter 10 and 11, starting at page 149, explain the 99%.

D. Howard Rusling

-- D. Howard Rusling (jdrusling@aol.com), January 29, 2000.

Many folks have recommended the John Kenneth Galbraith book on the Great Depression. It literally took years before most folks figured out that times had really really changed for the worse. By any fundamental measure, the equity market is today more overvalued than the '29 peak. We could see a '29 style sudden collapse, or a '73 style slow collapse that speeds up as it goes. The real trigger may well be a run on the dollar, just look at our exponentially increasing balance of payments (current account) deficit. At some point folks overseas will quit trading us real goods (oil, electronics, etc) for little green pieces of paper. This would precipitate a '79 type of situation. I especially love the classic "Extraordinary Popular Delusions and the Madness of Crowds" by Charles Mackay. The first 150 pages or so deal with financial manias. But at some point the bubble bursts, and a whole lot of retirement plans will have to be rewritten.

-- Les (holladayl@aol.com), January 29, 2000.

D.Howard Rusling,

You mentioned 1996 as the target...and yes it failed. Just as in 1929 RADIO pumped the market a couple of years past a natural correction, so too now it has been the INTERNET.

There are more than 20,000 Startups, many of which are pure bets on the Internet. Do a search on "Startups" on Yahoo! Israel boasts of having a number of Startups second only to the U.S. in absolute numbers, which means they are even more dependent than we are (They started their version of the Startup craze to handle all the educated Russian Jews that emigrated.)

Now look at this...ths best established dot com, Amazon, is nowhere near being profitable! This market was a pure momentum play!!

No wonder Chucky Schumer is suddenly more worried about Margin Requirements that evil looking guns. In fact, if this starts to unwind fast, it could be a mess. Next week will tell!

-- K. Stevens (kstevens@ It ALL went away 29 days ago but we missed it .com), January 29, 2000.

CITIZEN:

You don't have to go as far forward as to Prechter or Galbraith. There was wonderful insight into the psychology that precipitated 1929. I have in my hand a Bantam Giant paperback (Cost me 35 CENTS, new, in 1952 -- doesn't that tell you a little of what's going on in our economy?) entitled "Only Yesterday," by Frederick Lewis Allen.

His book was first published in the Fall of 1931 (timely?) and went through a couple dozen printings during that decade. Essentially says the same story, but in a much more readable fashion than either of the other two above.

Will the Dow and NASDAQ continue to rise indefinitely? I'm sure my grandfather and my dad, both of whom lost it all in '29, along with everybody else in our neighborhood, would vouch for that prediction --- but only if massive brain tumors were to totally wipe out their memories.

You have taken the first step, Citizen. Keep inquiring. But do it in a hurry if you happen to be invested in the Big D or the Big N.

Bill

-- William J. Schenker, MD (wjs@linkfast.neta), January 29, 2000.

I echo Dr. Schenker's recommendation. I've read a number of excerpts from "Only Yesterday" at various sites and hope to acquire an actual hardcopy soon. Fascinating book. Here's one excerpt posted at PrudentBear.com --

Excerp ted from "Only Yesterday"

Frederick Lewis Allen, 1931

[excerptions and additions made by James B. Stack]

"By the summer of 1929, prices had soared far above the stormy levels of the preceding winter into the blue and cloudless empyrean. All the old markets by which the price of a promising common stock could be measured had long since passed. By every rule of logic the situation had now become more perilous than ever. If the price level had been extravagant in 1927, it was preposterous now. But the speculative memory is short. As people in the summer of 1929 looked back for precedents, they were comforted by the recollection that every crash of the past few years had been followed by a recovery, and that every recovery, and that every recovery had ultimately brought prices to a new high point.

"Time and again the economists and forecasters had cried, "Wolf, wolf," and the wolf had made only the most fleeting of visits. Time and again the [Federal] Reserve Board had expressed fear of inflation, and inflation had failed to bring hard times. Business in danger? Why, nonsense! Factories were running at full blast and the statistical indices registered first-class industrial health. Was there a threat of overproduction? Nonsense again! Were not business concerns committed to hand-to-mouth buying, were not commodity prices holding to reasonable levels? Where the overlooked shelves of goods, the heavy inventories, which business analysts universally accepted as storm signals? As look at the character of the stocks which were now leading the advance! What the bull operators had long been saying must be true, after all. This was a new era. Prosperity was coming into full and perfect flower."

And if all that portrays some eerie parallels, then what about today's merger mania, and the unrelenting pressure for the public to be on board with regard for risk...before the mania leaves them behind:

"Still there remained doubters. Yet so cogent were the arguments against them that at last the great majority of even the sober financial leaders of the country were won over to some degree. Everybody heard how many millions a man would have made if he had bought a hundred shares of General Motors in 1919 [substitute Microsoft in 1986] and held on. Everybody was reminded at some time or another that George F. Baker [substitute Warren Buffet] never sold anything. Mergers of industrial corporations and of banks were taking place with greater frequency than ever before, prompted not merely by the desire to reduce overhead expense and avoid the rigors of cut-throat competition, but often by sheer corporate megalomania. And every rumor of a merger or a split-up or an issue of rights was the automatic signal for a leap in the prices of the stocks affected--until it became altogether too tempting to the managers of many a concern to arrange a split-up or a merger or an issue of rights not without a canny eye to their own speculative fortunes...The Big Bull Market had become a national mania...

-- DeeEmBee (macbeth1@pacbell.net), January 30, 2000.

Wait a minute! Our national motto is "They won't let it happen."

There is too much money to lose. Watch for new market highs by February 15, 2000.

Trust me.

-- Joseph Almond (sa2000@webtv.net), January 30, 2000.

WE won't know until 2015 how much this is costing us. Much the same way we didn't find out for at least 10 years that we ran out of money the weekend of the Penn Central Baknruptcy/Loan restructuring.

Chuck

-- Chuck, a night driver (rienzoo@en.com), January 30, 2000.