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Forwarded message:
Subj: Re: Gen:Mkt Fix
Date: 97-10-30 23:15:56 EST
From: JBP42
To: rmac@xxxxxxxx
I have watched the stock index futures since 1987.
I believe that the fed believes ,after the 1987 experience, that it is their
responsibility to stabilize the stock market, because if the economy goes
down, then tax revenues decline, and they have big bucks to pay in interest
etc. Negative psychology takes a long time to turn around. So they have
justified that this is a good use of insider information. It is like
attempting to protect Social Security. A lot of folks have invested in the
stock market for their retirement, and they vote !
In the last few days, this is how it could have been implemented as I see it.
They never just put money into the market. They wait till the market is at an
extreme. There would be an orchestrated approach which works like this.
The bonds which the fed controls are used to signal that they will lower
interest rates to what ever level is needed to stabilize the market. The
use of IBM to announce that they would be buying their stock back, would be
worked out in advance, to be announced when the fix is going to be used.
On the 10 -28 open, S&P 500 STOCK INDEX FUTURES WERE DISCOUNT TO CASH ABOUT
32 POINTS. $16,000 per contract. This might happen in the value line pit
which has no liquidity, but not in the S&P 500. So this just indicated an
extreme order imbalance. S&P cash opened at 876.99, 32 points above the
future. When the future opened at a 2.618 projected downside target,
844.00, Bonds were at their high 118. 28/32. The cash low was 855.27.
This is 11 points above the future's low, $5,500/ contract. The future
rallied from the open, and of course, the market was up all day.
If the fed had bought futures with a 32 point discount, that is not much
risk. And you can buy a lot of market exposure with little cash. You
turn the market around before the cash gets down to the futures low where the
fed bought. Riskless transaction. In fact pretty profitable !
The cash market starts down, and the bonds futures begin to decline when it
is apparent that the open is orderly. Then I B M makes an announcement.
I don't know when they made their announcement, but I would guess about
9:00 cst. The market went down about 200 dji points, then turned on a
dime, and all the pros bought. This is very similar to what occurred in
1987. Big day down, 10 - 19 - 87 Next market day biggest day up in
history. So all that happened was that the government's manipulation
stabilized the market for a short time.
I would suggest that they will continue to manipulate the market. They
can't necessarily make the market go up, but they should be able to
coordinate an orderly decline. And because the people who vote are on the
long side of the market and can not get out, the government feels it has a
role to play.
Every time the market looked like it was going down, the bond futures went
higher, lowered interest rates.
If the fed could get this done with the big hitters committing funds at the
feds direction, they would prefer to do that. But if the fed is unable to
get that cooperation, they would do it on their own. They have a pretty
convincing argument when talking to the big money interests. If we don't
help you, the problem could be much greater that otherwise. Big hitters can
not get out of the market when the market is going down, they are the market.
The story goes , "your investors are our voters , so we should work
together.
The problem would be if they guessed wrong, which would likely happen
sooner or later. If they were to put big bucks into the market, and the
decline washes out anyway, then they couldn't get out with out causing even
further selling. It would be real ugly if this sequence were to happen.
Understand I have no insider knowledge, but I have built a trading sequence
around the concept that interest rates preceed price.
Jim Peeke
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