Mysterious index futures buying cushioned market on Monday

Wall Street's Stormy Week

By John Crudele
New York Post
Tuesday, September 16, 2008

http://www.nypost.com/seven/09162008/business/wall_streets_stormy_week_1...

It could have been worse. In fact, it should have been an utter disaster.

The Dow Jones industrial average lost more than 500 points yesterday and it's difficult to find the bright side of that.

But with the financial system coming under enormous stress this past weekend -- and with big stock market losses already commonplace -- a lot of people on Wall Street were probably sighing with relief that yesterday wasn't the Armageddon many feared.

There are so many story lines here that it's hard to know where to start, so I'll begin at 7 a.m. yesterday.

That's when, despite sharp declines in stock futures markets overnight, someone in New York vigorously and valiantly began buying Standard & Poor's futures contracts.

When that buying was completed, the S&P futures had rallied about 13 points -- cutting overnight losses by a third.

Stock prices were cushioned when the market opened for trading yesterday.

Readers already know my take on this: Someone with an untraceable link to Washington keeps the markets in line whenever they seem to be straying.

And the US equities markets were not only straying in the pre-dawn hours yesterday they were collapsing.

But the fix didn't hold for long. And by the end of yesterday's session traders decided that the better part of valor was to get the hell out of the market.

John Thain, head of Merrill, and Bank of America's CEO Ken Lewis, said all the right things yesterday and that helped cushion some of the shock of Lehman Brothers' sudden departure from the world of finance.

But just last week, a Bank of America executive told Wall Street that $7.3 billion of its $13.4 billion in loans to builders are considered troubled. Bank of America, of course, is also a large issuer of credit cards to consumers. That pain could soon be seismic.

Early this year Bank of America stepped in when someone needed to purchase collapsing mortgage giant Countrywide Financial. That deal was nudged forward by the government, which also arranged for the Federal Home Loan Bank of Atlanta to backstop the financing.

When the government recently bailed out Fannie Mae and Freddie Mac, the so-called government-sponsored enterprises that bought mortgages from banks, Washington also included a provision by which it would lend to the FHLBs.

To anyone who is paying attention, that indicated the government was already nervous with Bank of America's Countrywide transaction even as it was encouraging it to take on the Merrill Lynch acquisition.

Adding to the market's drama this week are two other events.

This morning the Labor Department will announce the consumer price index (CPI) for August. Experts are expecting a drop of 0.2 percent from last month.

If inflation doesn't meet or better that expectation, Wall Street will have another reason to worry about the Fed's ability to cut interest rates.

The last worry for Wall Street could be the biggest: this is one of those triple expiration weeks that tend to be exciting even when nothing else is happening.

That could make the chaos doubly exciting.

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