I like this better:
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On Soros & Rubin & Alan Greenspan
Posted By: dieQQQ
Date: Saturday, 2/12/0, at 3:51 p.m.
Soros' writings state that:
"The Boom & Bust Sequence only if the market is dominated by trend following behavior."
"Trend Following Behavior is necessary to produce a violent market crash"
"What generates trend following behavior?....Mutual Funds....and Derivative Instruments...."
On Mutual Funds: "The problem with with institutional investors is that their performance is usually measured relative to their peer group...this makes them trend followers by definition....they have many new inexperienced shareholders who have never invested in the stock market before."
[Note that at the time of the these writings, direct Online Access to the Markets did not exist...I would guess that Soros would include this argument NOW, as the evidence of compound trend following, especially in the NASDAQ is irrefutable via the Online Trading phenomenon.]
On Derivatives: "...if there is an overwhelming amount of dynamic hedging done in the same direction, price movements may become discontinuous. This raises the spectre of financial disclocation. Those who do engage in dynamic hedging, but cannot execute their orders [illiquid markets - sound familiar?] may suffer catastrophic losses....This is what happened in the crash of '87...portfolio insurance was the main culprit...."
VERY IMPORTANT!!! "The issuers of many of these derivative instruments are commercial and investments banks. In the case of a MELTDOWN, THE REGULATORY AUTHORITIES MAY FIND THEMSELVES MAY FIND THEMSELVES OBLIGED TO STEP IN AND PRESERVE THE SYSTEM. IT IS IN THAT LIGHT THAT THE AUTHORITIES HAVE BOTH THE RIGHT AND THE OBLIGATION TO SUPERVISE AND REGULATE DERIVATIVE INSTRUMENTS."
Rubin, lately has made quite important comments on the integrity of the stock market...calling HISTORY to our attention...and a number of "wake-up calls" of late to risky levels of the market. This is our former Treasury Secretary speaking....the one who resigned last year folks....
So what has happened since then? Now let us look at Greenspan's actions:
1) In late 1996...Greenspan calls out "Irrational Exuberance"
2) Bails-out the market in October 1997
3) Bails-out LTCM and the market in 1998
4) Ignores signs of Inflation in 1999, uses weak "Baby step" rate hikes, but only enough to replace that which he lowered the year before.
5) Bails out hedged positions in Fall 1999 Gold Spike. Gold retraces.
6) Summer of 1999: "How can all these investors be wrong" speech. Turns Bullish. Classic case of Trader's "WRONG" syndrome....Bearish at the Wrong Time, then turns and get Bullish at the Wrong Time.
7) He opened the spigots late last year that created a "crack-up boom" in the already highly priced market and ignored the signs of deteriorating breadth - all in an over-reaction to potential Y2K problems.
8) Post Y2K: Has not reversed his pre-Y2K preparations, but instead aggravates this on the cover of yet another "baby" interest rate hike. INSTABILITY hits the Bond Market...Suddenly, debt repayment becomes the number 1 priority as foreign markets (who own 40% U.S. Bonds) begin to smell trouble in the U.S. Credit Markets...Rise in Gold prices, supposed to follow decrease in stock and Bond markets makes an Independent Upward Move.
Greenspan, quite possibly, can go down in history, as the Man who destroyed the U.S. Financial Markets.
prudentbear.com |
