Stock prices have been falling sharply of late. But there is noevidence yet that there is any panic among small investors.
And that's what should worry you.
The Dow Jones industrial average fell 120 points two weeks ago.And stocks fell another 138 points last week, pushing the Dow waydown to 3,635.
Birinyi Associates, which monitors professional trading, saysthat two significant computerized selling programs kicked in after3:30 p.m. on Friday, March 25, and changed what was an otherwise calmday into a bloodbath.
The day started quietly and remained calm, even though the Dowfell 48 points the previous day.
Traders say the professional selling programs late in the day onMarch 25 seemed to be timed almost to the minute to when interestrates on the government's 30 year bond moved above 7 percent.
There is a reason for this. When interest rates started soaringearlier this month because of worries over the Whitewater scandal,bonds were able to rebound before they crossed the 7 percent level.
Barron's, the weekly financial newspaper, said that the FederalReserve was responsible, stepping in and purchasing bonds to keep therate from crossing that threshold. The Fed denied doing so.
But that really doesn't matter. What counts is the fact thatnobody did anything heroic to keep the long-term bond rate below 7percent. When neither the Fed nor a big buyer was willing to go outon a limb, professional traders got spooked.
And professional traders are all that matter right now. They'vehad almost total control of the market for more than two weeks.
Go back to March 17, St. Patrick's Day. With a triple witchinghour looming the next day, traders manipulated stock prices higher bynearly 17 points. The next day, when stock index futures, indexoptions and stock options all were expiring simultaneously, thetraders were able to goose the market higher by another 30.51 points.
Everyone cheered those two big gains. But these last few weeksthe pros have started to beat up on stock prices. They are doing itin a sneaky way - striking late in the day when almost no one islooking.
And one of these days small investors are going to notice.They'll notice, for instance, that the Dow is down 3.2 percent fromwhere it was when the year began. And they'll notice that theStandard & Poor's 500-stock index is down 4.2 percent. Next they'llstart looking at those signs in the bank window advertising rates onsix-month Treasury bills at 3.75 percent. And it won't be longbefore that 3.75 percent rate will look very attractive next to aloss in the stock market.
And, if we're unlucky, a lot of small investors will startnoticing this at the same time. That's when the stock market crisisthat some of us have been warning of will happen.
Americans are investing their money differently than in thepast. For the first time in history, mutual funds have almost asmuch in assets as banks. The trouble is, the money in mutual funds -even if the funds are purchased through a bank - is not insured.
This is a very dangerous situation.
Federal Reserve Chairman Alan Greenspan understands the dangers.The pros who've been fooling around with the stock market for thelast few weeks - and, for that matter, years - understand all ofthis. But the little guy doesn't.
I prefer to call what has happened by its rightful name - abubble. It's no different from the bubble that afflicted the realestate market in the 1980s. At some point people question why theyare buying houses, or stock, at inflated prices. And they stopbuying them.
Someday the small investor - the amateur on a fling in the stockmarket - is going to say goodbye to Wall Street. That's when allhell will break loose.
If the pros aren't careful, that day could arrive soon.
John Crudele is a syndicated financial columnist. His addressis P.O. Box 610, Lincroft, N.J. 07738.
No comments:
Post a Comment