HOW STOCKS TURNED BACK FROM THE ABYSS
John Crudele
SOMETHING happened at around 1 p.m. our time yesterday that pulled the stock market back from the edge of the cliff.
Traders say it was almost like divine intervention. One minute the Nasdaq was down 11 percent -- say it out loud, "Eleven percent in one day" -- and then it suddenly rallied several hundred points in the matter of an hour.
The Dow followed suit. Down 500 points around mid-day, the blue chip index's decline -- along with the horrible showing of over-the-counter stocks -- was destined to make yesterday's market an unqualified disaster for investors and the country.
Then, traders said, someone started buying large amounts of stock index futures contracts through two major brokerage firms -- Goldman Sachs and Merrill Lynch. These transactions are usually done on the QT so we don't really know how many of these contracts were purchased.
And unless the brokers tell, there is no way of knowing which of their clients were making the purchases. Goldman wouldn't comment on this and Merrill did not return a call for comment.
But traders said enough were bought to catch everyone's attention. In fact, the buyers seemed to want people to know they had an appetite for stocks.
Then the market rebounded.
It didn't go all the way back. At the end of the day the Dow Jones index had still lost lost 56 points or half a percent on the day. And the Nasdaq lost another 74 points, or the equivalent of a 1.77 percent drop. Yesterday's loss by over-the-counter stocks nearly put the Nasdaq index back to ground zero for the year -- in two days all but 2 percent of its gain for the year was gone.
It was real nice of Goldman and Merrill to stick their necks out like that. In fact, it was downright uncharacteristic for Wall Street outfits to put the thought of possible losses aside for the greater good.
Because of the purely unselfish nature of what went on, traders are naturally suspicious. Hell, so am I.
"I think some one or more persons saved the market today. There was a suspicious urge to buy stocks at an opportune time," says one trader. "Why drive the Dow up 350 points in a half hour? That's never serious buying. That's someone trying to establish prices," he adds.
I'm especially suspicious when the market suddenly rebounds at nearly the very same moment that a member of the Clinton administration -- economic advisor Gene Sperling -- is on TV telling investors not to worry.
And there's the obvious connection between Goldman Sachs and the administration, the Wall Street firm having given Robert Rubin to the Clinton administration as its Treasury Secretary.
Plus, what better way to make investors not worry than by having the stock market recover a lot of the ground it had just lost. That gesture almost makes a guy want to buy some stock -- bottom fish, if you are into sporting analogies.
I'm not saying that government intervention in a collapsing market is wrong. In fact -- except for the obvious contradictions with the free-market system -- it is politically and socially a very right thing to do.
I've written about this before. And I've mentioned that Washington has had a secretive group call the Working Group on Financial Markets, made up of investment industry and government people, that would be in just the right position to rescue the market.
Informally the folks on Wall Street call this the "Plunge Protection Team." In February 1997, the Washington Post did a piece on this team, just in case you don't believe it exists.
And while I can't swear that Goldman and Merrill are captains of that team, they sure acted like it yesterday.
Please send your e-mail to: jcrudele@nypost.com