J.P. Morgan - Savior -- The Panic of 1907

Speculation in the early 1900s was rampant. The lack of a central bank became a worrisome topic for many because the banks were intimately involved in the market, either as underwriters or investors. This included the trust banks, a group separate from commercial and investment banks. Trust banks were administrators of trust funds, money invested on behalf of estates, wills, and the like. They provided a tenuous link to the markets and many of them made loans to market speculators, taking securities as collateral. Thus, if stocks fell, the trust banks as well as other banks would be severely hurt, as would their investors. Without a central bank, no one would loan them money if a depositor's run developed or they needed cash to prop up their positions under duress.

The U.S. economy had taken a downturn in 1906. At Princeton University, the school's president, Woodrow Wilson, attributed the country's economic troubles to the government's "aggressive attitude toward the railroads, that made it impossible for them to borrow." President Teddy Roosevelt was under fire from the business community who urged him to ease up on regulatory measures and antitrust prosecutions. Instead, Roosevelt threatened at the end of 1906 to subject all large trusts to federal control. Americans were enjoying "a literally unprecedented prosperity," he said, ignoring the storm clouds on the horizon.

In her book "Morgan: American Financier," author Jean Strouse writes of this time and J.P.'s emerging role in the spring of 1907.

"Morgan planned to leave for Europe in mid-March 1907, but the combination of monetary shrinkage [largely due to financing of the Boer and Russo-Japanese Wars] and a rumor that Roosevelt would make some dramatic new move against the railroads called him out of his 'Up-Town Branch.' He went to Washington on March 12 and spent two hours discussing 'the present business situation' with the President. As he left the White House he told the press that Roosevelt would soon meet with the heads of leading railroads to see what might be done to 'allay public anxiety.'"

On March 12, the Dow Jones Industrial Average stood at 86.53. On March 13, the stock market began to fall and closed that day at 83.12. Morgan sailed for Europe. On March 14, the market crashed, losing 8.3% of its value (DJ 76.23). The next six months saw the market steadily erode.

Then on October 21, a run developed on The Knickerbocker Trust Co. of New York (this was before the signing of Latrell Sprewell). According to author John Steele Gordon, "Depositors lined up in front of the bank's headquarters on the future site of the Empire State Building to demand their funds. The bank closed the next day after an auditor found that its funds were depleted beyond hope. The bank's president, Charles Barney, shot himself several weeks later, prompting some of the bank's outstanding depositors to commit suicide as well."

After this fiasco, J.P. Morgan and his Wall Street cronies put together a rescue package designed to prop up the other trust institutions. The group got together with Teddy Roosevelt's Treasury Secretary, George Cortelyou, who provided them with $25 million to keep the system from collapsing. The funds were then deposited in the national banks in New York with the intent of adding funds to a system sorely in need of more liquidity. The banks were to apply the funds as they saw fit to prevent further panics.

[On October 21, the Dow closed at 60.81…it would bottom at 53.00 on November 15, a decline of 39% since March 12]

Roosevelt had tremendous faith in Morgan. But it was extraordinary that the Treasury of the largest emerging economy in the world had to transfer funds to private bankers in order to prevent a financial collapse. The rumor was rampant that the bankers had orchestrated most of the panic themselves in order to make speculative profits.

After the Knickerbocker failure came the Trust Co. of America. Morgan organized a $3 million pool to save it. The bailout worked and a measure of confidence was restored. The $25 million pool from Treasury was parceled out as needed and it kept the stock market from totally collapsing, though imagine the chagrin today if the Dow fell from 11400 to 7000 (39%).

But the stock exchange continued to be weighed under by all of the margin selling. [Today, margin debt is soaring, up 46% over last year's high levels.] On October 24, the NYSE President, "Pay Me" Ransom Thomas, pleaded with Morgan to provide $25 million in funds to back the exchange, fearing it would not be able to remain open that day if help was not forthcoming. Morgan and the bank presidents responded quickly, pledging the funds, and the NYSE was able to remain open. Gordon writes that "when the support package was announced, pandemonium broke out on the exchange. Morgan heard a thunder of noise at his office across the street. It was the members of the NYSE giving him an ovation."

Morgan was hailed as the savior of the banking system, the stock exchange, and even New York City at the time. [Morgan had engineered a bailout package for NYC also in October. The city was in the throes of a depression with the market slide and bank failures which forced the city's back to the financial wall. Morgan agreed to underwrite a successful $30 million bond issue].

Of course Morgan did not go unrewarded. Recall from our story of two weeks ago that Teddy Roosevelt, despite his antitrust proclivities, allowed Morgan to purchase the Tennessee Coal and Iron Company for about $45 million when the true value was closer to $700 million, thus expanding Morgan's steel empire.

----- Brian Trumbore, President/Editor, StocksandNews dot com
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Nifty Intraday Shorting Setup - 23 September 2008

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OI Charts - Nifty September Puts/Calls - 23 September 2008

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Adlabsfilm Intraday Shorting Setup - 22 September 2008

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Nifty Intraday Shorting Setup - 22 September 2008

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OI Charts - Nifty September Puts/Calls - 22 September 2008

16 charts on Nifty puts and calls for September have been posted below. Some charts show minor build ups in the open interest. The changes are minor and as such clear cut pattern cannot be appreciated from this. Perhaps the crude oil shoot up post the market hours does not reflect.

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Nifty Shorting Setup

Nifty is giving a rather perfect Head and Shoulder Pattern for a down side to test the previous lows. Can this work ? If it does .... it shall be a beautiful trade to initiate. What more things do we need to look into to be sure that this works ? We are at supports or close to supports and can do a break out breaking everyone's contention that things are going bad now. This is what the big fellas must be thinking as they trades verses the rest of the herd. If you are an Elliot wave counter, try to visualize if the trend is down or up. Volumes have to seen in response as well. Volumes give a good picture. But the punter is again smarter. Doing a massive volatile gap up or gap down spoils the whole volume perspective. Here comes a different item to track. See the delivery volumes. Lots more .... lots of other parameters can be visualized. Do your study before you do any thing. All the best !
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Invest in what India needs

Investment guru, college professor and author Jim Rogers is best known for the Quantum Fund he co-founded with George Soros. A person who doesn’t mince words on the policies of central banks, politicians and the need to invest in commodities, he was in India to inaugurate a commodity-linked equity fund launched by Birla Sun Life Asset Management Co. Ltd.

Cutting quite a flamboyant figure with his blue bow tie with pink stripes and suspenders that have charts of stocks, commodities and currencies etched on them, he spoke on the bull market in commodities, inflation, crude oil and the subprime crisis.

On stocks and bonds

Stock markets around the world are very expensive and can be for some more time. Bonds are terrible places to invest.

We are going to have more inflation. I tell people all the time to sell any bonds if they hold any. Anywhere in the world. I tell people’s bond portfolio managers to get another job because they are in the wrong place at the wrong time.

On commodities

Most people need a sector in order to make money. We have a sizeable market where things are going up all the time. We have such a market—raw materials, natural resources, commodities—call it what you will.

We have long periods of rise in commodity prices, followed by long periods of decline followed by long rise again. It’s been going on for a long, long, long time.

Commodities are the second largest asset class in the world, second only to foreign currency.

We have a bull market in commodities as we’ve had many times in the past. If you’ve got to own something, you got to be owning commodities because supply-demand imbalances are in commodities and not in stocks.

On oil declining

Oil doubled in the last year. Whenever you have something doubling in a year, its overdue for correction. And we’ve had world economic recession. You put this together… This is the way markets work. There is nothing evil, or nefarious, or dangerous about it.The bull market in oil started in 1999. Oil has gone down 40%, or 50% three times and everytime people said the bull market is over. But it’s not over. There is a correction happening and I’ve no idea how long it will go on. But I do know that nobody’s discovered an major oil fields in the past 40 years. Supply has declined for everything. Short of a perpetual economic collapse, prices of oil will go higher and higher.

On subprime crisis

A lot of mortgages were ill-conceived to say the least. We’ve had the worst credit bubble in world history and it originated from America.

We are now paying the price. Of course, the whole world is paying the price. And it’s not over yet. It’s going to last longer than anyone expected. We are going to have the worst recession in America since the second world war. If they (the US government) keep on propping up failed companies (such as Freddie and Fannie) the situation will get worse and worse. America is the largest economy in the world and it’s going through hard times...so anyone who does business with America will be affected.

On agri-business

In agriculture, you invest in about anything. It has recently come down, but I expect it to much much higher over the next decade, or so.

The world has the lowest inventory of agricultural products for the past 50, or 60 years. The number of acres, or hectares (under cultivation) are declining.

Lots of what we consume—sugar, wheat—we are using it in fuel tanks. In my view, therefore, it is a good place to invest.

Top picks in commodities

Things like sugar and cotton are far, far below their all-time highs. I am not saying these are the best, but I will go and do some homework and some research on coffee, sugar and cotton...maybe silver...maybe Zinc... These are the places I see an opportunity.

Top picks in India

If Asia is going to continue to grow, if India is going to continue to grow, the best way to invest is to buy things that India has to have and has to consume. The best is commodities.

Some (equity) sectors are going to do well whatever the situation. India has a huge water problem. Gigantic. If you are in the water business, you are going to make a fortune. If you are in the agri business, you are going to make a fortune. Indian tourism has a great future.

On the dollar

I’m pessimistic on the US dollar and have been for a long long time. The US dollar is a terribly flawed currency and getting worse.

Many people are worried about paper currency and are looking for something to protect themselves against inflation. The dollar has been going down for the past seven years. Everyone is pessimistic on the dollar.

I still try to get out of all the dollars I have. Some countries are already moving away from the dollar (for merchandise trading). Eventually, everyone will move away from it.

On inflation

Inflation is going to get worse in the whole world. It is next year’s story, next decade’s story.

Part of is due to money supply (increasing), but supply and demand imbalance too contribute.

Unless they destroy demand, which I don’t think is going to happen, you are going to see worse and worse inflation.

On controls and bans

Controls have always been negative. They have never worked and have only worsened the situation, throughout history.

When things go up, they (politicians) say a temporary ban will save us. They say that inflation in India is because of futures trade.

It’s astonishing anybody can say something like that. If they (politicians) want prices to go down, I suggest they go to the fields and produce some more food.

----- With due apologies and full credits to livemint dot com
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Highest Volatility Stocks

Following is a list of stocks on the NSE which are traded in the futures and had the highest volatility in the futures segment after trades on the 8th September 2008 :

SYMBOL	CASH QUANTITY TRADED	CASH ANNUALIZED VOLATILITY	FUTURES ANNUALIZED VOLATILITY
IBREALEST	4776164	123.475554	125.024443
RANBAXY	2764538	65.920491	116.514486
FSL	1958032	104.254926	102.467203
HDIL	3677208	99.582945	102.176732
NOIDATOLL	1147979	95.397913	95.985889
INDIAINFO	1578541	89.867503	94.215517
KOTAKBANK	1709104	90.230179	90.312429
ORBITCORP	423085	87.789115	89.242916
AIRDECCAN	1094402	85.691003	87.868163
WALCHANNAG	1488927	86.088491	87.285421

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OI Charts - Nifty September Puts/Calls

Some minor buildup in 4600 puts. 4500 puts added over 6 lac puts. 4400 puts added whooping 9 lac puts.

Over 7 lac added in 4600 calls. About 3 lac was added in 4700 calls. Over 2 lac added in 4800 call. 1.5 lac was addition in 4900 calls.

Both sides some setup made. Can be both sides on Tuesday.

Dow has fired very well, so the long calls will benifit.

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