The Greenspan Who Stole Christmas

  • December 20, 2000
  • Marc Dupee

Stock index futures continued dropping like lumps of coal
in empty stockings, following through in the aftermath of the Fed’s decision
yesterday to leave short-term interest rates untouched while shifting down two
bias gears to “ease.” Market participants had been pricing in as much
as a 40% chance of a rate cut in the short-end Federal Funds futures
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bellwether and at least one Greenspan Guru–TradingMarkets Tony Crescenzi–had
predicted a 50% chance of a rate cut.

Stock index futures demonstrated their displeasure again at
the Fed’s unwillingness to actually do something about an economy now visibly
screeching to a halt. Anything tech got spanked for a second day and were
further punished by Santa’s Merry Elfs (read Merrill Elfs of Merrill Lynch) whom
removed the penny from the pudding by downgrading stalwart tech bells IBM,
Hewlett-Packard, and Cisco.

The Nasdaq 100 futures
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three limit-down levels in the two-and-a-half regular Chicago Mercantile
Exchange trading hours (yesterday and this morning) immediately following the
Fed’s announcement, an unprecedented move. During a limit down move in the Naz
futures, trading is halted for 10 to 12 minutes. The Naz futures then came
within just ten handles (10.00) of hitting a fourth limit down move late in the
day, but limped up from their lowest levels of the session to close 135.00 lower
at 2275.00, a two-day loss of nearly 13%. Naz futures were on TradingMarkets
Futures Indicators Implosion-5 List,
and like the S&P futures
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closed 38.50 lower at 1279.60 and Dow futures tumbled 263.0 to 10,438.0.

The flight to safety clearly expressed itself in interest
rate futures’ run to new contract highs.
T-bonds
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10-year notes
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List, rallied on the panic down draft in equities and index futures, closing
up 20/32 and 17/32, respectively. 

The failure of the Fed to lower interest rates and revamp a
sputtering economy has brought the specter of recession and an end to the
longest economic expansion on record now into plain view. A recession is defined
as two quarters of negative growth. Lower retail sales, industrial production
easing to a nine-year low, an up-tick in unemployment, and last quarter’s
halving of GDP growth from the previous quarter, all point to the possibility of
a negative quarter. Monetary policy–lowering interest rates–has a delayed
effect, so even if the Fed lowers rates in January, we will not see economic
results for several months, setting up the strong possibility of a second down
quarter and a recession. 

The prospect of slower economic growth in the US, and the
European Central Bank’s forecast today of 2.6% to 3.6% GDP growth next year
reverses the tables, worked to enhance the attractiveness of the euro
relative to the dollar. The
euro FX futures
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List, finished up a sharp .01460 at .91140, or up an impressive 1.63% on
overnight buying in Europe. Meanwhile, the dollar index
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to 111.76. The
Swiss franc
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In thinner trading brought on by nuclear volatility and
higher margin requirements that have forced players out of the market, natural
gas
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as a five-day, 33% gain. The weekly American Gas Association report came in
slightly below expectations, but not so far below as to inspire more upside
fireworks. The February contract closed .134 higher at 8.946.

February crude oil
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or 2.19 to 25.77, and heating oil and unleaded gasoline sank on the apparent
build in oil stockpiles. Crude and heating oil are on the
Implosion-5 List.

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in a Turtle Soup (same day) reversal. Both soybean meal and
January soybeans
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Volatility List, implying they could scale higher and make good on its Momentum-5
reading. 

March sugar
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surged through a key area. I strongly recommend you have a look at Carolyn
Boroden’s piece today to comprehend the power of a failed strong Fibonacci
cluster. Sugar closed .57 higher at 9.99, a gain of 6.05%. 

Cocoa
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lows and closed up 24 at 745 on fund short-covering and speculation about the
possibility of another coup de etat.