Outside The Box: 'Global meltdown or why I love . . . .'

The stock markets Tuesday saw, at the very least, the global psychological connection between virtually all nations’ equity markets. The Shanghai stock market thrives on rumor and insider trading. It is not an exaggeration to say that this stock market is the most corrupt of all major exchanges. Traditional trading activity based on fundamental corporate earnings or technical price analysis has little meaning for its active participants. Get a tip on next weeks’ price manipulation and gain a 1,000-percent profit in a few days. On Tuesday the Chinese government announced further measures to try to put a halt on this casino-like practice (Bloomberg). “Stocks fell after the State Council, China’s highest ruling body, approved a special task force to clamp down on illegal share offerings and other banned activities.” Remember also that corruption that publicly embarrasses the Chinese government is usually punished by a firing squad. The Shanghai and Shenzhen 300 Index fell by some 9 percent after reaching an all-time high last week. Regional markets followed China but more was still to come in Europe as regional indexes fell around 3 percent. Then the New York Stock Exchange opened. There has been much speculation, most unfounded, that the US economy is in trouble. One major indicator is the housing market where much personal American wealth is stored. Real estate has not performed as well in the last few months as it has in the last few years. Very hard to get rich-quick buying anymore. A report released yesterday showed that housing sales are good but prices are not rising. Another piece of economic data from the US said that orders for durable goods like refrigerators and television fell more than expected in January. However, the fall is not unexpected coming off the holiday buying season. In addition, former Federal Reserve Board chairman Alan Greenspan spoke the other day via satellite to a business conference in Hong Kong. His comments were taken out of context in a way that bordered on false quotation. The headlines read, “Greenspan warns of likely US recession.” That was not what he said. “While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 ... with some slowdown.” In other words, the economy is growing with stability but not as fast as before. But “recession” is a very nasty and fearful word sort of like saying “an asteroid could hit the earth and destroy all life.” No prominent economist is speculating that the US economy will do anything more than slowdown; recession is not a word being used. Stocks began an early selloff in sympathy to the rest of the world’s dropping equity prices. Besides, New York is coming off repeated historic highs like China. Then it got very interesting. Very late in the trading day with the market down almost 300 points, a computer glitch causes a delay in the computation of the Dow Jones Industrial Average. Suddenly, the computers come back to normal and it shows the market down more than 400 points. Imagine a basketball game where you are mentally keeping score but the scoreboard has stopped updating the action on the court. You know your team is behind by 20 points but the scoreboard says the gap is only five. Suddenly the correction is made. Anyone who did not know the correct score beforehand as you did would be thinking that the other team must have scored 15 points in just a few seconds. This sort of mistake matters little in basketball but is serious to the computers that monitor and help stockbrokers trade the market. The computer programs saw the instantaneous and huge downward price change as an indication that, literally, all hell had broken loose in stock trading. Sell orders were automatically triggered into the exchange overwhelming any rational buying orders that came in. Because it was late in the day, the market continued to dive and after the mistakes were caught, the market gained more than 100 points in the last hour of trading. The Philippine Stock Exchange followed suit yesterday, making shares of good companies more attractive in the medium term. Is the rally over? I think not. The next test on the downside will come at 2,900 if and when the market decides to fall more. Then support lies at 2,600. I recently wrote that a short-term move to 3,300 was expected. I did not see 3,000. The market should find a base at 3,000 and move to its next resistance at 3,200 then 3,300 and the target at 3,400. What a wild ride. Well, at least the technical gap at 3,300 has been closed. There is a bright lining to every dark cloud.

http://www.businessmirror.com.ph/03012007/opinion02.html