Global Wake-Up Call

March 14, 2001
Marc Dupee

Worries about a global economic meltdown pervaded market
psychology today, sending Dow futures for (nearly) their second 300-point-plus
loss this week. The global panic started in European markets, which sold off as
much as 3.5%, and came largely in response to the realization that a moribund
Japanese economy and potential bank defaults could ripple throughout global
markets. The S&P Globex futures tanked overnight as European bourses fell,
leaving the S&P (as well as the Naz 100) futures limit down at the
open.Â

Japan is the focal point in the current market scare.
Here’s why:Â

At least one high-ranking government official has
said the Japanese economy is “deflating.”Â

Efforts by the government to stimulate the economy by
cutting interest rates to nearly zero (they now stand at just .15%) have
failed to spark growth.

Massive government spending on construction and
public works projects have also failed to spur the economy and have left the
government deeply in debt.Â

The benchmark Nikkei 225 stock index has tanked to a
16-year low.Â

A persistently weak government–there have been two
no-confidence votes this year to oust the Prime Minister that have failed
and six PMs in the past six years–essentially preempts the government from
taking either short-term ameliorative, or longer-term structural measures to
repair an economy that has been in the doldrums for 10 years.Â

Fitch, a credit rating agency, recently placed
negative ratings on 19 Japanese banks. Bank defaults from what were once the
world’s largest economic institutions could impact global financial
institutions.

The end of the Japanese accounting year, a time when
institutions have to balance books by liquidating assets, may also be
accelerating the dumping of global holdings.Â

Nasdaq 100 futures
(
NDM1 |
Quote |
Chart |
News |
PowerRating) recaptured
breakeven levels after starting limit down and closed 30.50 lower at 1776.00.
The capacity of technology stocks to not succumb as substantially
to the heavy selling may be a signal that the majority of the selling here in
tech is done.Â

Interest rate futures gapped open as traders bolted to
the perceived safety of bonds.

T-bonds
(
USM1 |
Quote |
Chart |
News |
PowerRating) tagged their Jan. 3 contract highs, peaking, at 106
15/16 and then sold off from the double-top formation. Basis June closed 22/32
higher at 106 1/32.

10-year notes
(
TYM1 |
Quote |
Chart |
News |
PowerRating)Â behaved similarly, actually Turtle Soup-ing
off the March 1 high to close half a point off their peak, up 18/32 at 106 6/32.

June dollar index futures
(
DXM1 |
Quote |
Chart |
News |
PowerRating), from the Momentum-5
and the
New 10-Day Highs lists, were bought as the buck is seen as something of a
safe-haven play. DXM 1 closed .70 higher at 113.87.

The June Japanese yen
(
JYM1 |
Quote |
Chart |
News |
PowerRating), from the
Implosion-5 List,
popped lower and then cascaded to find a new contract low in its .0087 descent
to .8365, deflation in the works.

Front page lead stories showing burning carcasses in
both the LA and NY Times worked to heighten the public’s awareness about the
foot-and-mouth disease in Europe. The US banned all animals imports from Europe. May pork bellies
(
PBK1 |
Quote |
Chart |
News |
PowerRating),
the leading contract on the Momentum-5
List, gapped to new highs, sold off then recovered losses during the session
before closing up their daily limit, up 3.000 at 85.525. April lean hogs
(
LHJ1 |
Quote |
Chart |
News |
PowerRating)
recovered from a “gap-up sell-off” pattern that has recently
characterized trading in this contract as traders saw the selloff as an
opportunity to get long at lower levels. Basis April closed 1.175 higher at
64.825.

Global Wake-Up Call

BUY THE FEAR, SELL THE GREED

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