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Strategies & Market Trends : Waiting for the big Kahuna

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To: William H Huebl who wrote (7420)	10/25/1997 9:44:00 PM
From: Defrocked	Read Replies (2) of 94695

Bill, two anecdotes and some Monday indicators( and I agree that 10% down from here would not be a crash.) Anecdote One: The CBOT paid $50 mm for the rights to list DJIA futures and options on futures. Last spring the cheapest seat to trade these contracts, an IDEM, went from under $10,000 to around $100K. This last Friday four( 4 in one day is a lot mind you) , seats were sold off at lower bids in succession now down to 70K. Implication: Margin calls, Tap outs and volatility increasing Caveat: Could be a contrary indicator or that inexperienced floor traders got shook out. Anecdote Two: At least four individual investors approached me at different times Friday to inquire about the safety of their mutual fund holdings and whether they should get out of stocks, some foreign,some domestic. Implication: The public is worried and I question the staying power of those that have shifted from Bank CD's to mutual funds during the last two years. Caveat: The staying power of this market has surprised me before. An Indicator I Will Watch On Monday Grain prices at the CBOT. On Friday grain prices followed the stock market closing slightly up at their close 90 minutes before the stock close. If grains follow stocks down Monday AM then IMHO liquidity concerns are impacting the commodity markets. If grains trade lower with gold down again such action would have deflationary implications of large concern. Question Your Assumptions When Unexpected Occurs Recent stock market activity could be much more related to asset valuations rather than earnings discounting. Much liquidity growth went into financial assets during the last 3 years as evidenced by rising stocks but little inflation. The source could be attributed to changing expectations, less US crowding out due to lower deficits and greater confidence in the Fed. Remove these underpinnings and stocks fall, by how much I don't know since a bid to bonds should help equilibrate the decline. I remain cautious and nervous with a portfolio fully protected with puts. My concern has shifted to deflationary scenarios rather than EPS estimates. Heaven help us if the Fed raises interest rates Nov.12 in this environment. Would be a seismic blunder IMHO. Caveat: I almost always lose my put premium.<ggg>

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