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To: Bill Grant who wrote (21208)	10/9/1998 10:22:00 AM
From: Alex	Read Replies (2) \| Respond to of 116822

The word on the street of fear: sell into any rallies By BRIAN HALE in New York Wall Street's most volatile week this decade is ending in near-panic with a plunging currency and a tumbling long-bond yield keeping watch on the death-throes of the seven-year bull market. A short bear market rally seemed a possible conclusion for the final sharemarket session of the week overnight after four days' of turmoil, but few experts have any hopeful expectations left. Even the best advice from the Merrill Lynch broking empire after a tumultuous Thursday was "sell into any rallies". Nor did the outlook seem brighter on currency desks after the US dollar's stunning fall this week; or on bond-trading desks or futures pits after a totally unexpected "flight to quality" away from 30-year bonds; or in a host of other financial markets. The mood in the world's financial centre has gone from negative to dismal to black over the past week, with Wall Street awash with rumours and hedge funds liquidating positions while beset by worries about a global credit crunch and fears of an apparent sudden fading in the strong American economy. Nothing has gone right for Wall Street since the US Federal Reserve stepped in to organise a $US3.5 billion bail-out by the blue-blooded investment banks and securities firms a fortnight ago for the Long-Term Capital hedge fund. Hopes that last weekend's round of meetings of the IMF, World Bank and leading industrial nations would provide a solution for the ongoing world financial and economic crisis proved completely misplaced and financial markets were left to cope as best they could. Rumours leaped from market to market of more struggling or collapsing hedge funds and deep problems for the banks and securities firms that had lent vast quantities of money to them - an amount estimated to be more than $US2 trillion ($3.27 trillion) on a conservative basis, given total hedge fund capital of around $US200 billion. With Wall Street lenders squeezing the funds for repayment or margin calls, hedge funds scrambled to unwind positions in a range of markets around the globe, forcing the Australian dollar and the yen markedly higher, sinking the US dollar and roiling bond markets as well as a spread of US credit markets. In New York, the mortgage-backed securities market hurtled downwards all week with traders saying the unprecedented quantity of paper flowing from mortgage bankers, coupled with an absence of buyers, had given their market its worst two days in history as it tried to cope with an estimated $US10 billion of selling yesterday alone. The junk bond market yesterday struggled through the sound of the rumours and the smell of fear on what everyone agreed was its worst day of the decade as prices fell and spreads widened. There was talk that institutional broker Donaldson Lufkin & Jenrette and investment banker Goldman Sachs (both part of LTC's 15-member rescue group) had ceased acting as dealers and making markets and were just accepting orders, rumours denied by DLJ and not commented on by Goldman. On the major Treasury bond and sharemarkets, the fear was evident in wide swings and surprising movements as nervous investors compounded movements often initiated by hedge funds forced to unwind positions. Bankers for the funds were increasing margin requirements on borrowings - and they themselves were often stepping away from markets to avoid the down draughts. In the Treasury bond market, heavy selling by the funds resulted in a stunning price reversal for the benchmark 30-year bond - the favourite target for "flight to quality" money from around the globe for 18 months - as investors fled to shorter-dated paper. At the start of the week, the benchmark bond's yield fell to a 12-year low of 4.72 per cent. By the end of trading on Thursday, it was back over 5 per cent with few prepared to predict the liquidation of hedge fund yen-carry trades had reached a climax. While long-bond prices were falling (and yields rising), two-year note prices were climbing with their yield dipping to 4.13 per cent. Meanwhile, the three-month Treasury bill yield fell to 3.93 per cent, bewildering traders who had not expected a flight to quality within the bond market, nor such heavy selling of 30-years by hedge funds rushing for funds to cover the "short" positions in the yen accompanying their Tokyo borrowings, left exposed by the US dollar's tumble. All this uncertainty and distress, compounded by fears about the upcoming quarterly profit-reporting season, sent Wall Street's sharemarkets on a wild ride. On Monday, the 30 stocks of the Dow Jones Industrial Average swung in a 366-point range before ending down only 58 points (0.75 per cent), but the broader market was savaged with the Dow Transports dropping 2.79 per cent and the Nasdaq market's Composite Index tumbling 4.85 per cent. Tuesday was a mirror image for the Dow Industrials with an early 154-point rise disappearing by the close, but the Nasdaq Composite dropping another 1.68 per cent. Wednesday saw the Nasdaq Composite plunge to a 15-month low - taking its fall in eight days to more than 17 per cent. Ahead of the Australian market's opening yesterday, Wall Street thought the abyss was opening. The Dow Industrials was down 270 points and the major Nasdaq measure had slumped more than 100 points in a huge trading day that saw the New York and Nasdaq Stock Exchanges battle through their third-largest trading days in history, with each handling well over a billion shares. By the close, the Dow's losses had been erased after last-minute buying support for its 30 stocks that raised suspicions of a support operation - but the Nasdaq Composite dropped another 3 per cent, the Dow Transports plunged 4.2 per cent and many indices hit 18-month or two-year lows. smh.com.au