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To: ViperChick Secret Agent 006.9 who wrote (44038)	5/29/1998 9:59:00 AM
From: ViperChick Secret Agent 006.9	Read Replies (3) \| Respond to of 58727

..I think this is talking about the Oct crash...why didnt anyone see this big jump in Dec contract ???? should have been a clue.. guess I have to watch for that next time exchange2000.com To: +ole 49r (12324 ) From: +Alex Friday, May 29 1998 5:44AM ET Reply # of 12343 Here is the total post ole 49r.................... HOW IBM AND THE FUTURES MARKET SAVED THE DAY FOR THE DOW By JOHN CRUDELE ------------------------------------------------------------------------ WHAT really went on in the stock market yesterday? Here's what we know for a fact. Stocks fell about 14 percent in Hong Kong Monday night, leading to an all but certain sharp decline in U.S. equities yesterday morning. Equities futures prices fell sharply prior to trading in the cash stock market on Wall Street, leading experts to expect at least a 200-point drop in the Dow Jones industrial average in the open minutes. And that's precisely what happened. The Dow was down 189 points within minutes of the market's opening yesterday morning. Then, apparently to improve investor confidence, companies started announcing share repurchase programs. While this is nothing particularly new, IBM's well-timed announcement that it would buy back $3.5 billion worth of its own stock did help boost all equities. Another fact. Washington was very concerned about Wall Street's decline on Monday. And we also know that there's been a so-called Plunge Protection Team in place, probably for years, to deal with a stock market emergency. We also know that in 1989 former Federal Reserve governor Robert Heller proposed precisely what should be done in the event of another market collapse. Heller, who left the Fed just months before making his thoughts known, suggested rigging the markets through the massive purchase of stock index futures contracts. "Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole," wrote Heller in an op-ed piece in the Oct. 27, 1989 Wall Street Journal. These derivatives can be purchased cheaply and they tend to pull up the cash market on Wall Street along with them. The last thing we know for a fact is that the Dow ended yesterday up 337.17 to 7,498.32, a 526-point reversal from the morning's declines. By the end of the day there was a buying panic on Wall Street equal to Monday's selling panic. At this point, knowledge has to give way to suspicion since nobody in Washington will confirm what really went on yesterday. When the Dow was down 180 points Monday morning, there was a sudden surge in purchases of S&P 500 stock index futures contracts, the precise mechanism that Heller suggested should be used to support the market. Of course, a sudden urge to own these stock derivatives contracts could have simultaneously come over a number of Wall Street brokerage firms. But in the dark minutes of early trading yesterday, you have to ask why this would have happened. At precisely 10:30 yesterday morning, heavy purchasing of these stock index derivatives caused the price of the December S&P futures contract to jump a massive 35 points over the value of the S&P 500 index. The fair value between these two indices should be only 4.75 points - when you take into account that the futures can be purchased with only 10 percent down but someone buying them forfeits dividends. The 35-point gap indicated that someone, or many someones, really, really, really wanted to own the futures. Did people just see Monday's sell-off as a buying opportunity and decided to take advantage through the futures market? Or did something else go on, perhaps Washington intervention? Anything that stops a market crash is good. But if this was government intervention, there is a problem. While Heller's solution could provide a short term fix, it won't help the stock market if there is a fundamental reason - like declining corporate profits or chaos overseas - why prices should be declining. Worse, if Wall Street believes Washington did come to its aid this time and will always come to its aid, then arrogance and overconfidence will cause investors to continue to pay too much for equities. The problem of "irrational exuberance," to use Alan Greenspan's words, will only get worse if someone thinks Washington is guaranteeing a profit in stocks.