Why futures can ruin the stock market?
Stories of inflation, currency demise, weather and natural disasters, and pure small time speculations (a few thousand contracts) can create and perpectuate stories on Wall Street to crash the market. If stories of a derivative nature gets the ears of Wall street, all the customers were scalped by J.P.Morgan, Bankers Trust, even Merrill Lynch(Orange County). Lawsuits were filed by customers to recover the derivative trades that nobody understood, let alone explained.
Future trades are used in government indexes; but the price of futures works like a booky joint pricing. Long and short prices of contracts depends on balance of demand of contracts. If too many longs, the price goes up; conversely, too many shorts, the price goes down. Professionals in the trading pits scalp both the longs and shorts in turn with stories each and every day. Salomon Bros. can rig the price of silver. Goldman Sachs can rig the price of bonds. george Soros can rig the price of currency. Slaughter houses can rig the price of pork and pork bellies. Oil refiners can rig the price of crudes. All with only a few thousand contracts. And don't forget the price of silver when Hunts' brother ran out of money; took down E.F.Hutton with them.
A small investor has to put his ears on the ground and follow futures stories to avoid surprises on Wall street equity moves. Now the crash around the world, is based on the stories of deflation, and of currency instabilities. Turns out you can dump a few billion dollars of stocks by George Soros' Quntum Funds, and drive the host currency down on the futures market. Thailand's problem was a small $50 million loan insolvancy because of TI's withdrawal of investment in a local company on new Submicron facility. Malaysia's problem was due to Quantum shut down the DEC hard disk plant. Small potatos, but investment decline helped trigger the sentiments of greater problems to come. The new economy (microeconomy=business development)will prevail and this will just be another dot on the chart. |
