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Strategies & Market Trends : HONG KONG -- Ignore unavailable to you. Want to Upgrade?

To: Tom who wrote (2421)	10/12/1998 3:30:00 AM
From: Tom	Read Replies (2) \| Respond to of 2951

Market-Rigging: Sort-term Fix, Long-term Disaster By JOHN CRUDELE (Printed in entirety. Don't know when their edit overwrites. ty) Thank goodness someone has finally decided to rig the stock market. With the impeachment process in motion and Ken Starr confirming my exclusive of a few weeks ago that there are more impeachable offenses being looked into, someone had better take action to rig the market before the political crisis turns into an economic one. My bet on the rigger is Washington, probably through something that the Washington Post last year called the Plunge Protection Team. That's a group of financial big shots from the Treasury, the Fed and Wall Street whose stated job is to keep the financial markets from collapsing - as evidenced by Thursday's dramatic turnaround and Friday's 167-point gain. But the prop under the stock market could just as easily be coming from Wall Street firms, with the blessing and assistance of the Federal Reserve. That's not so preposterous, considering these very firms - with the Fed's blessing - had to step in a few weeks ago to protect the financial system from the mess created by the Long-Term Capital hedge fund. But there are right ways to rig the market and there are wrong ways. There are also legal and illegal ways. As it turns out, the right ways, or the effective ways, at the present moment also happen to be the illegal ways. The wrongheaded and ineffective way would be to continue to try to correct the current stock market downturn through things like interest rate cuts. First, I'll tell you how the stock market is being rigged. Then I'll tell you what's even more important - what's going to happen in Washington and why you should get out of stocks before this rigging adventure leads to disaster. Here's some history: Back in 1989 a Fed governor named Robert Heller proposed rigging the stock market. Heller had just left the Fed when he gave a speech suggesting that the central bank should step in and take direct action to keep the stock market from collapsing. The Fed had taken action before. It made sure there was enough liquidity during the crash of '87 to keep the system going. It may have even strong-armed a few banks into propping up the market. And it has often lowered interest rates at opportune times. But Heller's idea was different. He wanted a more direct approach, especially when the bond and currency markets were becoming uncontrollable (like they are these days). Heller believed that in an emergency, the Fed should start buying stock index futures contracts until it managed to pull stocks out of their nosedive. Essentially, whenever there is heavy buying of these futures contracts it causes the underlying stock market to rise. The futures contracts can be bought cheaply; they are highly leveraged so you get more bang for each buck, and they eliminate the need for a rigger to purchase, say, all 30 stocks that make up the Dow. Heller explained that the process was simple. And it is. The trouble is, the government never has had authority to rig the stock market. But there are indications that this sort of rigging works, at least for awhile. Hong Kong authorities rigged their stock market last month when selling pressure became too great. That government did it openly and proudly. How do I know the market is being rigged? I really don't. But I am very suspicious. Take last Thursday, when the Dow was down more than 200 points and the House was passing a resolution to investigate the President of the United States. Exactly when the debate was going on in Congress, the S&P 500 futures contracts shot up in price like someone needed a market rally awfully bad. A noble effort. Maybe even a necessary one. But let's keep this to ourselves. If the rest of the world found out what was going on they might want to find some other place to invest. The U.S. is likely to need a lot more market riggings in the months ahead as more of Starr's findings come to light. The bottom line? Washington is going to have to perfect its market rigging technique. Make it a little more subtle. Perhaps start at 2:35 p.m. in the trading day rather than always at 3 p.m. And do it in a hurry - the next big explosion in the Starr investigation of the President will probably come soon after the elections. But if you're an investor who doesn't trust the government to pave your street much less protect your portfolio, it's time to skedaddle. (New York Post)