"What are we doing in this market?" said a trader after the recent surge in stock prices forced him and some colleagues to buy shares. "This is crazy. We are all going to wonder why we are invested in this market."
This is the typical lament you hear on Wall Street these days. With the Dow Jones industrial average toying with the 3000 level, small professional traders are getting nervous. The market's ascent in spite of current weak economic conditions makes about as much sense as a jump in the price of raisins would because Raisin Bran started using three scoops.
But in a way there is a connection between commodities such as raisins and today's stock market. Commodity markets are notorious for being lassoed by high-pressure traders. If someone wants the price of coffee beans to rise, all he has to do is spread a rumor about frost in Brazil. Even better, a big-time commodity trader can force prices up simply by showing up in the trading pit. He doesn't have to buy a single bean -- his presence alone will affect prices.
Stocks -- or rather stock index futures contracts -- are trading a lot like commodities these days. If one big-time brokerage firm buys a couple of hundred highly leveraged Standard & Poor's futures contracts, for instance, his actions will reverberate throughout the market. Other brokerage firms will be forced to mimic his actions. As the price of futures contracts rise, still others will be forced to join the game.
Rising futures prices, of course, have a direct, positive impact on stock prices. So when stock index futures prices are rising, the temptation is great for small-time traders such as the trader mentioned above to hop into the market.
And it all began because one heavyweight trader decided to buy a few hundred stock index futures contracts.
There is, however, one problem with this game. It can't go on forever. Just as a bumper bean crop in Brazil would scotch any gossip about an impending frost, something eventually will take the stock market out of the hands of the manipulators.
What will that "something" be? Here are some odds:
Bad economy: Odds, 10 to 1. The economy is slowing and everyone knows it. But this isn't the favorite "something" that will cause a steep and sudden plunge in stock prices because Wall Street always sees the silver lining in this sort of bad news. Wall Street thinks the bad economy will lead to a loosening of credit conditions by the Federal Reserve.
Inflation: Odds, 5 to 1. Inflation is still running at about 5.8 percent a year, which is an unacceptable level. If inflation rises -- perhaps because the OPEC cartel reduces oil supplies -- at the same time the economy is slowing, this problem could be the one that does the stock market in. With high inflation, the Fed won't be able to reduce rates much even if the economy is weakening.
Donald Trump: Odds, 25 to 1. Trump is indicative of what can happen to people and companies who borrowed too much money during the 1980s. While there is a lesson in the problems that Trump is having with his banks, his sad saga is probably too far removed from Wall Street to cause a problem in the general stock market. As far as Wall Street is concerned, Trump is just another crazy real estate guy. Besides, too many people in New York are happy that Trump is having problems.
Savings and loan crisis: Odds, 75 to 1. After years of hearing horror stories about what went on at the nation's S&Ls, Wall Street is no longer shocked. And no matter how many hundreds of billions of dollars this fiasco ends up costing, there is probably no single event in the S&L story that could sink the stock market. Bailing out the S&Ls will mostly have the cumulative, long-lasting effect of keeping interest rates high.
Banking crisis: Odds, 10 to 1. Wall Street knows that some banks are in trouble because of poor real estate loans. But if a major money-center bank had a sudden crisis that kept it from doing normal business, and it had to be bailed out by the government, that would shake the faith of Wall Street in the economic system.
Insurance industry crisis: Odds, 15 to 1. Insurance companies are having pretty much the same problems as banks, again because of bad real estate loans. If a major insurance company had to liquidate a big portion of its stock and bond portfolio in a hurry, it would hurt -- and surprise -- Wall Street. But the shock wouldn't be as great as if the trouble happened at a bank.
Japanese stocks: Odds, 25 to 1. Not too long ago, a crash in Japanese stock prices would have been the odds-on favorite to create a worldwide financial crisis. But Japanese stocks did crash earlier this year, and the other markets managed to shrug it off. After a bad showing like that, this problem has to move down considerably on the list of favorites.
UAL Corp.: Odds, 100 to 1. The failed takeover attempt of UAL Corp. last fall was the direct cause of the mini-crash in stock prices Oct. 13. The company's unions are still trying to buy UAL. But another failed attempt wouldn't have much of an effect on Wall Street, where few people really expect this deal to ever be completed.
Corporate profits: Odds, 4 to 1. Worrying about the overall economy is too remote for Wall Street. But if the profits of some major, high-impact corporations -- such as IBM or General Electric -- come in below expectations in the second quarter, the stock market will be shaken.
Change in regulation of stock index futures: Odds, 3 to 1. This is the favorite "something" of a lot of people who see a crisis looming for the stock market. If the Securities and Exchange Commission takes over control of the stock index futures markets (as it wants to) and imposes tighter margin requirements, this could have a major impact on stock prices. After all, it's the low -- 5 percent to 10 percent -- margin requirements in stock index futures that give these financial instruments so much power. If investors are required to put up 50 percent of the purchase price in cash, stock index futures would no longer be able to act as a brake during market downturns.
Something else: Odds, 2 to 1. The odds still favor that some crisis will develop that nobody has thought of yet. "Something else" is always a good pick for starting a financial market crisis because, by their very nature, the markets react most to the unexpected.
The International Association of Financial Planning in Atlanta says Americans who responded to a recent survey believe the 1990s will be a decade of decreasing economic opportunities.
The most pessimistic respondents, the survey found, belonged to what it called the "triple squeeze generation" -- those 35- to 44-year-olds who see their retirement plans hurt by the need to put their children through college and the need to care for aging parents. The survey found that 61 percent of those answering were less inclined to take financial risks now and 62 percent are more inclined to save money over the next 10 years.
John Crudele is a columnist for the New York Post.