forwarded message from Spirit Of Truth Page

From: John Conover <>
Subject: forwarded message from Spirit Of Truth Page
Date: Sat, 10 Jan 1998 17:24:54 -0800

The attached is more Domesday prognostications from the macroeconomics
community. The attempt utilized is to establish some sense of
credibility for such prognostications through a consensus of media
reports. Not being daunted by the selective democratic polling of a
the members of a profession which is founded on inductive reasoning,
(ie., statistics,) I worked my way through the numbers:

    Chances of 1998 being a "bear" year? 62%, (and a 38% chance of
    being a "bull" year.)

    Chances of January, 1998 being a "bear" month? 41%, (and a 59%
    chance of being a "bull" month.)

    Chances of next week, (starting 12 January,) being a bear week?
    29%, (and a 71% chance of being a "bull" week.)

    Chances that the day of Monday, 12 January, will be a "bear" day?
    45%, (and a 55% chance of being a "bull" day.)

    Chances that the day of Monday, 12 January-if it is a "bear"
    day-of the equity markets dropping at least 6%? 0.13%. (Note that
    such small probabilities do not mean something will not
    happen-only that there exists a remote possibility that it will. A
    better way of looking at such things is that we would expect a 6%
    daily drop in the equity markets every 769 business days, or about
    once every 3 years.)

Although not cause for unbridled optimism, the probabilities certainly
do not justify cynical pessimism, either.

Is a US equity market disaster possible? Yes it is, (that's life.) Is
it probable? There is a little less than a 0.0001% chance that the US
equity markets will drop 33% in the month of January, 1998, (or, very
roughly, about the same chances of perishing in a commercial aviation
disaster,) which is about the average drop in the Asian Tiger's equity
markets for the month of December, 1997. (Note that such small
probabilities do not mean something won't happen-only that there
exists a remote possibility that it will.)

How about the probability of 1998 ushering in a sustained bear market
lasting at least 25 years, (as from 1930-1955, ie., a great depression
starting again?) 20%. (20% sounds almost eminent, huh? Well, not
exactly. There is also a 27% chance that the "bull" market that
started in 1984 will continue through 1998. There is, also, an 11%
chance that the current very "bull" market, that started in 1992 will
continue through 1998.)


------- start of forwarded message (RFC 934 encapsulation) -------
Message-ID: <17EDA916FS86.JPA94001@UConnVM.UConn.Edu>
From: Spirit Of Truth Page
Date: Sat, 10 Jan 98 10:20:31 EST

                          BLACK MONDAY?

                             J. Adams
                        January 9th, 1998

                     The Spirit Of Truth Page


            "Current financial excesses made the boom
             which led to the 1929 Wall Street crash
              'look like a tea break in a nunnery'".

               The Reuter European Business Report
                   November 11, 1993, Thursday
       "Stocks Set To Crash As Mania Grips, Says Dr. Doom"


    "It seems likely that the derivatives market is massively
    undercapitalised and it can do this because it is trading
     off the implicit guarantee of world governments. We, the
     taxpayers who will have to pay when things go wrong, are
                      crazy to allow this."

      From: "This is an option we cannot afford to bank on"
  By Andrew Smithers, Evening Standard (London), April 07, 1997


    The  DJIA  plunged 222 points today to below critical support
at the 50-day and 200-day moving averages for the index.$indu&d=1

For this first full week of trading in 1998,  the Dow  fell  more
than  5 percent following a test of the psychologically important
8000 mark on Monday.

(Notably,  a  sell signal was generated today according to the 1%
rule- i.e.,  the DJIA fell more than one percent on rising volume
from  the  previous trading day;  NYSE volume today was the third
heaviest ever.)

    The accelerating  decline  in  equity  prices  and  technical
breakdown indicates that the U.S.  stock market and stock markets
around the world are crashing.  Indeed,  there is  a  possibility
that  when  trading  resumes  on Monday,  history will be made by
another Black Monday like occurred  on  October  27th,  1997  and
October  19th,  1987.  That  is,  a single-day collapse of 10% or
more in equity values  could  soon  occur-  possibly  on  Monday,
January 12th, 1998 (although circuit breakers could constrain any
potential single-day crash).

    As  explained  in  my  previous  post,  one should note that,
according to the "January Effect",  1998 will be  a  bear  market
year  for U.S.  stocks.  The first five trading days of 1998 were
down.  Historically, this means there is a 90 percent chance that
1998 will be a down year for stocks.

    Another indication that a bear market is starting comes  from
Dow Theory.  According to Dow Theory,  a bear market is signalled
when the Dow Jones Industrials,  Transports and Utilities peak at
different  times  (there are diverging tops) and then each of the
averages confirms a stock market reversal by reaching lower  lows
than had occurred in previous secondary corrections.

    As  can  be  seen  in  recent  charts of the Dow Industrials,
Transports  and  Utilities,   the  three  Dow  Averages   reached
diverging  tops  during  the  last  six  months.  The Industrials
topped  in  August,  the  Transports  topped  in  October and the
Utilities peaked last week.$indu&d=1$djt&d=1$dju&d=1

    For an official  Dow  Theory  bear  market  signal,  the  Dow
Industrials and Transports would need to close below their recent
secondary  lows of 7600 and 2865,  respectively.  An all-out bear
market will be indicated when the Dow Industrials, Transports and
Utilities drop below 7000, 2865 and 237, respectively.

    One should note that when the DJIA had its largest single-day
point loss on Monday,  October 27th,  1997,  it occurred  as  the
Industrials fell below the key 7600 mark such that the first half
of  a  Dow  Theory  bear  market  signal occurred.  When 7600 was
breached,  panic selling ensued and the DJIA ended  up  down  554
points on the day.  Fortunately, the second half of a bear market
signal never occurred last October as the Transports stayed above

    Today the DJIA closed below 7600 once again.  This means  the
first  half  of  a Dow Theory sell signal has occurred and leaves
open the possibility that,  come Monday when trading  resumes  on
Wall  Street,  panic  selling  will ensue like occurred after the
DJIA dropped below 7600 on October 27th of last year.  (Strangely
enough,  negative developments in overseas market like  an  Asian
financial  meltdown  may  occur for Monday to seemingly make this
prove true.  Historically,  one notices that negative events will
occur  to  fit the bear market rather than a bear market emerging
in response to negative events.)

    Of  equal  importance,  the  Dow Jones Transportation Average
closed at 3200 today.  Should the Transports fall below 3000, and
particularly should the Average close below 2865, then an offical
Dow Theory bear market signal will occur (given  the  Industrials
are below 7600).  In the event of such a  signal,  extreme  panic
selling  would  be  probable as the first major bear market since
the 20% decline in 1990 will be signalled.  This could  occur  as
soon as Monday.

    A financial meltdown including an international banking panic
would  come as no surprise next week.  Technically,  as explained
above,  there are developing indications that a  bear  market  is
getting  underway  in  U.S.  stocks as 1998 begins.  Furthermore,
Asia's worsening economic and financial collapse is  starting  to
become an acute crisis and spread around the world.  Should these
two  factors  combine into a global stock market crash here than,
with the magic of derivatives,  the world  banking  system  might

    In  recent  years  banks  around  the world have been reaping
enormous profits in creating and trading  derivatives  and  today
there  is  a  staggering $50 trillion in the derivatives markets,
nearly twice world gross domestic product.  A loss of 2%  of  the
contract  value  of  global derivatives would be roughly equal to
the total capital of all the world's banks.  This is probably the
most perilous  situation  in  world  banking  history.  (See  the
Evening  Standard  article  below  dubbed:  "This is an option we
cannot afford to bank on".)

    In the event of a major worldwide stock market crash,  say of
20  to  70  percent of equity values in a matter of days or weeks
(already the case for some Asian stock markets), banks around the
world could fail literally  overnight.  Why?  Because  banks  are
the   main   backers   of  derivatives.   Since  derivatives  are
effectively insurance against large, unexpected market movements,
in  the  event  of  historically  unprecedented  movements,   the
insurers  might  find themselves unable to cover the insured.  In
other  words,   banks  have  effectively  become  the   insurance
companies  used  by  financial  instutions and investors to hedge
against  financial  earthquakes.  Unfortunately,  however,  banks
don't  keep very much in reserves for paying-off those insured by
derivatives in the event of earthquakes.  As  long  as  financial
quakes are relatively minor,  there are no problems and insurance
policies are settled smoothly.  However, in the event of a global
financial  "Big  One",  banks  that  have  become  involved  with
derivatives  will  likely  not have enough in reserves to pay off
oustanding derivatives contracts- rightful insurance  claims  for
the   financial   earthquake   that   unexpectedly   took  place.
Accordingly,  many banks will go broke.  Thus,  a  world  banking
crisis  of  unprecendented  magnitude could go along with a major
international stock market crash,  something that might occur  as
soon as next week.

    Should a world banking crisis ensue like is  outlined  above,
it  will  be  bitterly  ironic to the field of so-called economic
"science".  Last year the Nobel Prize in economics was awarded to
the  economists  that  developed the mathematical and theoretical
framework for derivatives  markets.  In  retrospect,  this  might
prove  as  foolish a choice for an award in economics as it is in
that derivatives,  rather than being a source  of  financial  and
economic  progress,  could  end  up  being  the  source  of world
financial and economic ruin.

                    For more information, see-

- -----------------------------------------------------------------

        "Old Wall St. rule of thumb may bolster the bears"
                      Wednesday, January 7th
                           By Huw Jones

NEW  YORK,  Jan 7 (Reuters) - An old Wall Street rule of thumb --
that the first five trading days of January determine  the  Dow's
fate  for  the  rest  of the year -- may well back the bears this
time around.

Seasoned Streeters,  however,  say the rule  has  about  as  much
credibility  as  that  other  forecaster favorite,  the Superbowl

That one goes that if  one  of  the  original  National  Football
League teams wins the final later this month, a bull market is in
store for stocks.

So far, the bulls are on tenterhooks.

Thursday  will be the fifth trading day of the year,  and dealers
are looking to see if the Dow Industrial Average index ends above
or below its close at 7908.25 on December 31, 1997.

Richard Cripps, chief market strategist at Legg Mason Wood Walker
said the rule of thumb has been 89 percent accurate since 1950.

``Is it taken seriously?  I would say technicians  take  it  more
seriously  than  the  fundamentalists think they should,'' Cripps

``Short-term, the very trading oriented might react to it to some
extent,'' Cripps added.

At the close of trade on Tuesday,  the Dow was up just two points
from the end-of-year close.  The index was down 74 points by noon
on Wednesday.

``It's very important that the market starts to  dig  in,''  said
Joseph Barthel, chief investment strategist at Fahnestock & Co.

``Today  and  tomorrow  will answer the question as to whether or
not we will have a good 1998 using that  indicator.  Wall  Street
will make hay of this,'' Barthel said.

Traditionally,  fresh,  start-of-year  cash flows boost stocks in

``The rule does not always work,  but it does give us a  clue  to
what  the month of January might do,  and so far we are not doing
too well,''  said  Harry  Laubscher,  market  analyst  at  Tucker

``If we are down for the first five days,  it would suggest to me
that we might be in for a troublesome month,'' Laubscher added.

``Most people don't trade off it, but some people do, though most
people do pay attention to it. It's probably more valid than that
silly Superbowl theory.''

- -----------------------------------------------------------------

              "On Wall Street, all signs point down"

NEW YORK (January 9,  1998  5:07  p.m.  EST)  --  Stocks  plunged
Friday, with the Dow industrials falling as much as 275 points as
investors worried that the continuing Asian economic crisis would
eventually hurt economies around the world.

The  Dow  Jones industrial average finished with a loss of 222.20
points,  or 2.85 percent,  to 7,580.42 after a modest recovery in
the final half-hour. Trading was heavy in bringing the Dow's loss
so far this year to 328 points.

It  was the Dow's worst day since its 554-point drop Oct.  27 and
its fourth-worst point drop ever.

Broad market indicators also were sharply lower,  with the Nasdaq
Stock Market suffering its second-worst point drop.

Stocks  fell  after  another  decline in financial markets across
Asia.  Investors  fear  that  continued  problems  in  Asia  will
eventually hurt global economies and erode corporate profits.

A  key  stock market index in the Philippines tumbled more than 8
percent today to its lowest level in  almost  five  years,  while
prices in Singapore,  Malaysia,  Indonesia,  Hong Kong, Thailand,
and South Korea also finished lower.

While Indonesian  markets  recovered  Friday,  there  were  still
worries about the country's outlook.  On Friday, Indonesia's main
stock index fell only 1.2 percent after a devastating 12  percent
plunge  Thursday.  The Indonesian currency rebounded more than 20
percent from Thursday's decline after President Suharto  promised
to  implement  sweeping  economic  reform  under an International
Monetary Fund bailout plan.

But the latest turmoil in parts of Asia failed to rattle  several
other  key  markets.  Tokyo's  Nikkei stock average fell just 0.2
percent,  Frankfurt's DAX index fell 2.5 percent and London's FT-
SE 100 fell 1.9 percent percent.

Despite news of booming employment from the Labor Department this
morning,  the report also showed only a slight increase in hourly
wages.  The continued news of low inflation gave the stock market
some support in early trading.

- -----------------------------------------------------------------

        "Last-ditch bid to rescue sinking Peregrine bank"
                    Saturday  January 10  1998

                          BY DEBORAH ORR

Desperate  efforts  were  being made last night to save Peregrine
Investments Holdings, Asia's largest independent investment bank,
after the collapse of a rescue led by Zurich Group.

Three senior executives - chairman Philip Tose, managing director
Francis Leung Pak-to and head of equities Andrew Jamieson -  were
making  last-ditch  attempts  to  find local,  European or United
States investors to inject funds into the troubled bank.

Their efforts came at the end of a dramatic day as  long-standing
rumours about the bank's financial difficulties intensified.

Employees,  just  three  weeks  away  from receiving their annual
bonuses,  were told of the collapse of the rescue talks at 5  pm,
although  the gravity of the situation had become obvious earlier
in the day when traders were told not to answer their phones.

"There was complete shock when we were told.  We thought they had
a deal with Zurich," one said.

The Swiss group abandoned  plans  to  buy  nearly  a  quarter  of
Peregrine  for  US$200 million (HK$1.54 billion) after its shares
plunged 36 per cent since the deal was agreed in mid-November.

Mr Tose said:  "The company has been unable  to  reach  agreement
with  Zurich Centre Investments on the final terms concerning the
investment.  Discussions have therefore been terminated."

The Securities and Futures Commission  responded  by  restricting
Peregrine's business "effective immediately pending clarification
of the position of the group".

Its  traders can sell securities and settle existing trades,  but
they cannot take any new  positions.  However,  even  before  the
restrictions were announced,  Peregrine's debt,  foreign exchange
and interest rate derivatives  trading  desks  were  "paralysed",
sources said.

They  claimed that without a capital injection this weekend,  the
firm risked default on a line  of  credit  that  would  fall  due

Peregrine  spokesman  Tom  Grimmer refused to comment on the debt
deadline, but added: "We are funded.  We will continue to operate
our business."

Analysts  were  not  surprised that the Zurich deal fell through.
Peregrine has extensive exposure to some  of  Asia's  hardest-hit
markets, particularly Indonesia.

The  Indonesian  rupiah  has  lost more than half its value since

Since late last year, Peregrine's US$265 million bridge loan to a
troubled Indonesian taxi company,  Steady Safe,  has been  thrown
into question by the falling rupiah.

With Zurich pulling out of negotiations,  the rest of Peregrine's
plans to bring in new capital have come undone.

First Chicago, a US commercial bank,  had planned to take a US$25
million  stake  through  the  purchase  of convertible preference
shares,  but that deal was contingent on the  Zurich  transaction
coming through.

However,  there  were  rumours  last night that the Bank of China
Group or original Peregrine backer Li Ka-shing could  orchestrate
a rescue bid.

Peregrine's  announcement  helped  spark  an immediate 6 per cent
drop in local shares trading in  London.  The  Hang  Seng  London
Reference Index plunged 526.72 points to 8,367.92.

- -----------------------------------------------------------------

          "Moody's cuts Indonesia, South Korea ratings"
              Friday January 9, 3:27 pm Eastern Time

NEW  YORK,  Jan 9 (Reuters) - Moody's Investors Service on Friday
cited increased pressure on Indonesian companies  and  banks  and
pointed  to  the rollover of South Korea bank obligations when it
lowered the two countries' ratings.

Moody's said it needed to cut South Korea's foreign currency bank
deposit ceiling to Caa1 from B1 because of the forced rollover in
late December of interbank credits.

``These rollovers are a default in the way we define  it,''  said
Vicent  Truglia,  managing director at Moody's.  ``The definition
forces our hand.''

The ratings move also reflected concerns over  Korea's  currently
fragile external payments position, coupled with adverse regional
factors,  which  could  prolong  the forced rollover period,  the
agency said.

But Moody's considered it highly likely the  Korean  debts  would
ultimately be repaid.

``There  is probably going to be an extremely high recovery value
of principal, but it's nonetheless defaulting,'' Truglia said.

Moody's also said it may downgrade Korea's Ba1  foreign  currency
ceiling  for  bonds,  but  noted that the country's problems were
short-term in nature.

``The fundamentals remain good,'' Truglia said.  ``If  confidence
returns you will probably see a move up in these ratings.''

Regarding  Indonesia,  Moody's  downgraded the country's foreign-
currency country ceiling for bonds and notes to B2 from  Ba1  and
its foreign-currency bank deposit ceiling to Caa1 from Ba3.

The  downgrades  resulted  from rising concerns over the economic
consequences of  continued  volatility  in  Indonesian  financial
markets, the agency said.

An  economic  contraction,  sustained  weakness  in the country's
currency and  questions  regarding  presidential  succession  are
affecting the banking and corporate sectors, Moody's said.

The  Indonesian  corporations,  in  particularly,  will likely be
unable to repay a considerable portion of the large external debt
on a timely basis.

``You're going to be getting increasing  defaults  by  Indonesian
corporates,'' Truglia said.

``As  a  result,  you've  got  to  have  increasing pressuring on
nonperforming assets in the banking system,  and that's going  to
add pressure on the ability of banks to finance themselves.

- -----------------------------------------------------------------

              "Clinton Steps Into Indonesia Crisis"
                   Friday January 9 7:45 AM EST

                      By Raju Gopalakrishnan

JAKARTA,  Indonesia (Reuters) - President Bill Clinton personally
stepped into Asia's financial crisis on Friday, telling President
Suharto in a 25-minute  telephone  call  that  Indonesia  has  to
follow through on economic reforms.

Suharto  agreed  with  Clinton's  assessment and would "seriously
implement" reforms, Indonesian State Secretary Murdiono said.

The White House said  Clinton  also  talked  for  12  minutes  to
Singapore's  Prime  Minister  Goh  Chok Tong and announced a U.S.
delegation would travel to Southeast Asia for consultations.

Separately,  calls for the 76-year-old Suharto to  step  down  --
unthinkable  just  a  week ago -- were published on Friday on the
front  page  of  the  Jakarta  Post,   Indonesia's  most  widely-
circulated English-language newspaper.

Jakarta was calm on Friday, and there was no sign of an increased
troop  presence  in  this  capital  city  of more than 10 million

But  the  military  vowed  to  crush  any   attempt   to   create
disturbances and said peace would be maintained.

As the country sought to steady itself, the international credit-
rating agency Standard and Poor's issued another downgrading.  It
cut  Indonesia's long-term foreign currency rating to BB from BB-
plus and long-term local currency rating to BBB from BBB-plus.

The financial markets were calmer after Thursday's historic falls
but supermarkets were still crowded with shoppers eager to  stock
up on food and other essentials for fear of hyper-inflation.

The  rupiah  surged some 25 percent after falling below 10,000 to
the dollar on Thursday,  but the Jakarta stock market  index  was
down  more  than two percent in the afternoon on top of a dive of
almost 12 percent the previous day.

Suharto's  eldest  daughter  Siti  Hardianti  Rukmana  sold  U.S.
dollars  for  rupiah  at a state-owned bank on Friday in a public
bid to restore confidence in the Indonesian currency. She did not
say how much she sold but aides said it was $50,000.

The Indonesian financial  crisis  exploded  into  chaos,  sending
shock  waves  throughout other Asian countries already struggling
with their own economic woes,  after Suharto unveiled the 1998/99
budget on Tuesday.

Market   analysts  said  the  budget  did  not  contain  concrete
proposals to follow through on a reform program agreed  with  the
IMF in exchange for a $43 billion bail-out plan.

Whispers  that  Indonesia  may  declare  a moratorium on its huge
overseas debt  of  $133.3  billion  persisted  despite  Suharto's
pledge earlier this week to honor all debt commitments.

Mohammad  Syahrial,  head  of research with Pentasena Securities,
told Reuters only 22 of 282 companies listed on the Jakarta Stock
Exchange were  financially  viable,  with  the  rest  technically
bankrupt because of overseas debt commitments.

That  raised the specter of liquidations and massive unemployment
in multi-ethnic  Indonesia,  the  world's  fourth  most  populous
country with 200 million people, analysts said.

The  president  ordered  officials  to  ensure  food  supplies to
markets were maintained,  which one economist said appeared to be
a far bigger problem than the monetary crisis.

Analysts  said any shortage of food during the holy Islamic month
of Ramadan,  when devout Muslims fast from dawn  to  dusk,  could
trigger social unrest in the sprawling archipelago.

The country, which straddles major trade routes from the Far East
to the West, was calm except for the rush on food counters.

Traffic was normal in Jakarta and there were no reports of unrest
anywhere in the country.

Discussing Clinton's call to Suharto,  a senior U.S.  official in
Washington said:  "The president made it quite clear that the IMF
program needs to be followed."

Clinton  also  underscored  the  importance  of  Indonesia to the
region and to the United States.

The official said  Deputy  Treasury  Secretary  Lawrence  Summers
would  visit  Indonesia  and other Asian nations from Saturday to
outline Clinton's position on the region's economic crisis.

The IMF's top two officials,  Managing Director Michel  Camdessus
and First Deputy Managing Director Stanley Fischer, would also be
visiting Indonesia next week, officials said.

While  Jakarta's  markets  took  some  solace  from the announced
visits of U.S.  and IMF officials,  intriguing questions remained
over the political future of Suharto.

The Jakarta Post quoted former cabinet minister Mohammad Sadli as
saying a change in government was needed to restore international

"The  existing  government  must  be  replaced," he was quoted as
saying,  a clear reference that Suharto should step down after 30
years in power.

In another article,  political scientist Arbi Sanit was quoted as
saying the 76-year-old former army general must quit.

"We need a president who is in good health," Sanit,  a  professor
at the University of Indonesia, said.

"Because  we  are  facing  a  serious  economic problem,  the new
president must have a good reputation and  credibility,  be  well
experienced in the government system,  be widely supported by the
people  and  capable  of  mending  the  country's  political  and
economic systems."

Suharto  has  ruled  Indonesia  with  an  iron grip since he took
effective control of the country in 1965. He has tolerated little
dissent and calls  for  his  removal  from  the  presidency  have
usually been restricted to marginal or underground groups.

Rumors that Suharto was critically ill broke out last month after
the  president  was  advised  to rest by doctors when he returned
from an exhausting foreign tour.

But he has appeared several times in public  since,  including  a
55-minute   nationally   televised  speech  on  Tuesday  when  he
announced the budget.

Analysts have said the biggest fears on the markets was that  any
change  in  government  would  be  accompanied  by massive social

Indonesia has undergone only one change of  government  since  it
gained independence from Dutch colonial rule.

Suharto  took  over from founding president Sukarno in 1965 after
what the government now says was an abortive Communist coup.

At least 500,000  people  were  later  killed  in  anti-Communist

- -----------------------------------------------------------------

   "Panic-buying hits Indonesia as currency and stocks plunge"

JAKARTA,  Indonesia  (January  8,  1998  5:07  p.m.  EST)  -- The
Indonesian rupiah sank to an  all-time  low  Thursday,  losing  a
quarter of its value in one day and sending thousands of panicked
residents  to  supermarkets  where  they snapped up everything in

Ignoring an army appeal for calm  in  the  world's  fourth  most-
populous  nation,  Indonesians lined up more than 20-deep at cash
registers to buy sugar, rice,  cooking oil and whatever else they
could grab before yet another price rise.

The  rupiah's  dive  apparently  was  driven  by  fears  that the
International Monetary Fund will  yank  back  a  bailout  package
extended  late  last year when Asian economies began falling like
dominoes.  The IMF is losing patience with Indonesia's failure to
implement  reform measures that were required for the $40 billion
in rescue money.

Financial analysts warned that the rupiah's dreadful performance,
compounded Thursday by a record tumble on the stock market, could
leave many companies unable to pay the interest on their foreign-
currency debts, thus forcing them into bankruptcy.

While President Suharto has yet to face a credible opposition  in
his  30-year  reign,  the  prospect of social unrest triggered by
inflation and unemployment is looming.  The army has  pledged  to
back Suharto in the event of widespread tumult.

For half a year, Indonesians have remained calm as their currency
has  continued to slide.  They have maintained faith that the 76-
year-old president would revive the economy in the  same  way  he
built it up years ago.

But  their  confidence plunged Thursday -- along with the rupiah,
which fell 26 percent.  The  dramatic  one-day  drop  leaves  the
rupiah   down  76  percent  since  the  country's  July  currency

Thousands of people dashed  to  stores  and  picked  the  shelves
clean.  "I only wish I could buy more. Who knows what is going to
happen?" said one  woman  as  she  and  her  family  pushed  five
shopping carts of groceries.

To  calm rattled nerves,  state-owned television flashed pictures
of a national rice stockpile,  and quoted  officials  saying  the
nation's  food supplies remained plentiful -- despite the need to
import rice because of prolonged drought.

The rupiah's crash left it at a record 10,550 rupiah to the  U.S.
dollar  Thursday,  while  the Jakarta Stock Exchange index closed
down 12 percent.  The index rallied after hitting a four-year low
in the afternoon -- a record drop of 19 percent.

Spooked  by  the  rupiah's  sharp  fall,   stock  markets  across
Southeast Asia plunged Thursday.  Singapore shares hit a  5  1/2-
year low and Philippine stocks reached a 4 1/2-year nadir.

Critical to the resusciation of Indonesia's economy is the nearly
$40  billion in bailout money from the IMF.  The fund,  which had
demanded sweeping financial reforms including deep spending cuts,
was taken aback Tuesday when Suharto announced a new budget  that
lacks a clear reform agenda.  According to the plan, an expensive
modernization  of  the  politically  powerful  military  will  go
forward and spending on social projects is up.

The  buying  panic,  the  latest chapter in a financial crisis in
Southeast Asia  that  has  hobbled  economies  from  Thailand  to
Malaysia to South Korea,  has turned the focus on Suharto and his
future as president.

The former five-star general,  who took power after  crushing  an
abortive  communist coup in 1965,  is Asia's longest-serving head
of state.  Backed by the military,  he has  ruled  by  tolerating
little dissent among his 202 million people.

All  indications are that he will be elected to a seventh,  five-
year term  in  March  by  a  1,000-member  People's  Consultative

Until recently,  he delivered consistently strong economic growth
and stability.  The major blemish on his record is the corruption
that  has  steered  lucrative  government  contracts and official
monopolies to his six children and close friends.

While Suharto continues to dominate the country's administration,
the current turmoil,  combined with his age and speculation  that
his health is failing, has fueled calls for him to step aside.

Adding to the anxiety, he has failed to name a successor.

Amien  Rais,  a  leader  of  the country's second-largest Islamic
organization,  said in a Jakarta  newspaper  Wednesday  that  the
government's   mishandling   of  the  financial  crisis  demanded
Suharto's replacement.

In  addition,  a  group  of  retired  high-ranking  military  and
political figures has called for reforms, and student groups have
demanded more democracy.

Anti-government  rioting  broke  out in 1996 and political street
fighting marred a parliamentary election in 1997.

With officials predicting the 4.4 million Indonesians now without
work could swell to 6.5 million in 1998,  analysts say the  level
of unrest could reach new heights.

- -- By GEOFF SPENCER, The Associated Press

- -----------------------------------------------------------------

                    Evening Standard (London)
                          April 07, 1997

         "This is an option we cannot afford to bank on"

                        By Andrew Smithers

    NATWEST'S  recent discovery that it had unexpectedly lost L90
million has been attributed to mis-priced options. To the outside
observer,  this claim has real charm as it suggests that the mis-
pricing  of options is a rare accident,  whereas it appears to be
standard practice.

    Options are a form of insurance.  If, for example, you have a
portfolio  of shares and you wish to ensure that their value does
not fall by more than 5%,  you can do so by buying a "5%  out  of
the money put".

    This  is  not  like selling the portfolio,  as you will still
benefit if the shares rise in value,  but you will lose the  cost
of your option.  If the value falls,  however, you will lose only
5% plus the cost of the option.  The risk to investors  can  only
be  reduced  if someone else takes it and this falls to the banks
that deal in options.

    Since we cannot know the future, the only reasonable guide to
whether or not options are mis-priced is the past.

    What  constitutes  past  experience  is,  however,   an  open
question.  If  the past 10 years is a reasonable guide,  then the
prices of equity market options are also reasonable.  If you take
30 years as your guide, however, they are much too cheap.

    The  relative  youth  of  the traders has been the subject of
widespread comment, but it is the relative youth of the databases
which poses the more serious problem.

     Derivatives contracts are currently estimated to  amount  to
L36 trillion, which is nearly twice world gross domestic product.
A  loss of 2% of the contract value would be roughly equal to the
total capital of all the world's banks.

    It is not surprising,  therefore,  that central bankers  have
expressed  concern  about the banking industry's vulnerability to
derivatives.  The surprise is that they have not  sought  tougher

    Studies  of  the  world's banks' exposure have tried to offer
comfort.  Some assure us that banks run matched  books.  If  this
means  that bank profits will not be hit by a stock market crash,
this borders on the incredible. They are providing investors with
insurance and if the hurricane strikes investors will collect.

    The buyers of this insurance seem  well  aware  of  the  risk
being  run by the sellers.  Everyone I know insists on buying his
puts from large banks,  as these are assumed to be  "too  big  to

    This  is  the  real  problem.  As  taxpayers  we  effectively
guarantee banks.  It can be argued that  this  is  sensible  with
regard to bank deposits,  as worries about the banking system can
cause economic crises and we benefit from reducing  the  risk  of
such crises.

    Subsidising  the  banks'  options  business,  however,  seems
madness.  The easier and cheaper it is to insure against a market
collapse, the higher stock markets are likely to climb.  Allowing
the banks to write options therefore increases the risk  that  we
will have to pay for a bank failure and we also increase the risk
of overvalued markets leading to economic crises.

    This  type  of  problem  is  known  to  economists  as "moral
hazard", which is the reason why "you can insure against anything
but poverty and prison".

    Insurance that encourages anti-social behaviour is, to put it
mildly, un-desirable.

    It is the combination of the  implicit  Government  guarantee
and  the  ability  of banks to trade options which results in the
business being so dangerous.

    If banks did not offer options,  those  doing  business  with
option  traders  would be very concerned with the credit-standing
of those businesses, which would then have to hold,  as insurance
companies do, large reserves.

    Limited  liability  companies doing business at Lloyds's have
to have capital equal to half their premium income, whereas banks
need only "tier one" capital equal to 4% of their liabilities.

    It seems likely that  the  derivatives  market  is  massively
undercapitalised and it can do this because it is trading off the
implicit  guarantee of world governments.  We,  the taxpayers who
will have to pay when things go wrong, are crazy to allow this.

- -----------------------------------------------------------------


               February 18, 1996, Sunday, BC cycle

   Banks in most countries still run the risk of collapsing  like
Barings,  the  British merchant bank that was brought down almost
single-handedly by trader Nick Leeson, Bank of England supervisor
Brian Quinn said on Sunday.

   No banking system could include both  freedom  of  choice  for
investors and absolute safety, Quinn told BBC television.

   "It's  a  question  as  to whether you want a financial system
that has all the risk taken out of it,  or more of the risk taken
out, so that people have greater reassurance," he said.

   Barings  collapsed  one  year  ago  after  the Singapore-based
Leeson ran up losses through unauthorised derivatives trades that
eventually amounted to around $ 1.4 billion.

   Leeson is just  beginning  a  6-1/2-year  prison  sentence  in
Singapore for fraud and forgery.

   Quinn said many banks were at risk of such a disaster.

   "The  existence  of deposit insurance arrangements in the U.K.
and most other countries,  is,  in fact,  an explicit recognition
that banks go bust," he said.

   Regulators  such  as  the  Bank  of  England  could not always
protect a bank,  he added.  But he said Britain had a lower  bank
failure rate than other countries.

   After  its  collapse,  Barings  was  taken  over  by the Dutch
banking group Internationale Nederlanden Groep NV <ING.AS>.

- -----------------------------------------------------------------

                     Financial Times (London)
                   October 15, 1997, Wednesday


   The principles underlying the use of options were known to the
ancient Greeks.  Yet it was not  until  the  1970s  that  options
trading  became a mainstream activity in financial markets around
the world.  That development owed much  to  the  work  of  Robert
Merton  and  Myron  Scholes,  who  with  the  late  Fischer Black
established the option pricing models that have won them the 1997
Nobel economics prize.

   The timing of their respective seminal papers,  which  emerged
in  1973,  was  perfect.  The  new  ability to put a value on any
option coincided with the rupture of the Bretton  Woods  exchange
rate system. With central banks ceasing to stabilise the exchange
markets,  the  need  for  a  private  means  of  insuring against
volatility in a floating world became paramount.

   At the same time the first post-war  moves  towards  financial
deregulation  led to increased domestic interest rate volatility.
Between them these academics provided financial institutions with
a new and effective tool for managing and reducing the  resulting

   To  most men or women in the street the differential equations
at the heart of these models are as incomprehensible as the names
of Black,  Scholes and Merton are obscure.  The wider derivatives
markets  appear  equally  remote from their experience.  Yet they
touch many ordinary people very directly.

   In Britain the reintroduction of a fixed-rate mortgage  market
after  the  great  inflation  of the 1970s was facilitated by the
new-found ability of  financial  institutions  to  hedge  against
interest rate risk. Many Americans have enjoyed access to cheaper
student  loans  for  similar  reasons.  The risk that people with
money purchase pensions may retire when  markets  are  collapsing
can now be hedged via the options market.

   The  models of Merton,  Black and Scholes have so far stood up
well.  But they are still relatively young;  and while individual
institutions can use them to reduce risks,  the incidence of risk
within a system is merely shifted  from  one  group  to  another.
Since  the 1987 stock market crash it is striking that the amount
of portfolio insurance  conducted  via  the  options  market  has
greatly increased.

   Whether  the growth in derivatives has increased systemic risk
remains controversial.  But  their  innate  complexity,  lack  of
transparency  and  leverage,  whereby modest outlays secure large
exposure to market risk,  are a cause for concern.  Nor is option
trading any more immune from moral hazard than basic banking. The
markets  may  yet present these models with a more stringent test
than the Nobel prize judges.

- -----------------------------------------------------------------
Date:  Wed, 29 Oct 1997 08:24:38 -0600 (CST)
From:   Mary (
Subject: stock market (fwd)

Submitted this to Vanguard's list back in August....and am
forwarding it to you as it seems relevant to the events of the
past week.  Whether this applies I do not know, but I know the
source and he has a very proven track record in the office of the
prophet.  I will quote him:


  "...In my last article I mentioned a vision of the Stock
  Market's 'Big Board' having serious upcoming problems.  I saw
  the Stock Market soar and then crash.  After the crash, many
  big business corporations and private parties bought up stocks
  because of the low cost to buy in.  Then I saw the market begin
  to climb again in a short period of time.  Then it crashed
  again bringing tremendous loss, ruin, and devastation to all
  who bought in the first time.  This is what I have labeled "Two
  Black Mondays."  The time period between the Two Black Mondays
  was very close together.  I could not tell exactly how close.
  It could be a couple of days to a couple of months.  There are
  some tell-tale signs indicating the season and the setting.
  *I saw the season to be when 'the leaves fall to the ground'
  then the first crash would occur.*  I also saw the Yen and Mark
  fall dramatically just before this sudden and inexplicable
  crash.  Like Joseph in Genesis, I believe America will have fat
  years of financial blessing.  I also believe there are coming
  lean years of financial difficulty for America.  I do not
  believe God is showing this so people can beat the game
  financially.  I rather believe He is saying keep your eyes on
  eternal things.  Store up treasures in Heaven."

  "The Lord is speaking to us through many types of revelatory
  and tangible waves.  There are financial waves, natural
  disaster waves, health waves, political waves, and last, but
  certainly not least, are spiritual awakening waves.  Whether it
  is natural waves of revelation or supernatural waves of
  prophecy, we are called to have ears to hear what the Spirit is
  saying.  God is saying these are days for repentance, healing,
  salvation, and blessing.  Our God is speaking.  The question
  is, are we truly watching, waiting, and listening?"

- --from The Trumpeter Journal
  Summer 1997
- ---

NOTE:  I am only quoting, so for more information or to
correspond, please contact Harold Eatmon directly at:

  Harold Eatmon Ministries, Int'l
  PO Box 48402
  Minneapolis, MN  55448-0402

- --

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