July 2001 Newsletter
Issue Seven, Volume Two

INDIAN STOCKBROKERS ON STRIKE

By Mike Gasior

So how do you like that for a headline for my newsletter? All I can imagine is all of you wondering if this might be the month where I have finally gone off the deep end. Well I can assure you that although I could certainly lose my mind completely at any moment, this does not mark that event. It just seems that no matter how frequently I might think that I have "seen it all", events always conspire to prove me wrong. I will explain the situation with regard to the Indian stockbrokers soon enough, but I want to take a moment to make you marvel at the day and age you've had the privilege to live through.

I do realize that I sometimes try to make myself sound as old as the hills, but in truth I think I just feel that way sometimes...like many of you. The fact is that I have been watching the financial markets up close for a little over 20 years now and I actually feel privileged to have lived through some of the most amazing moments in financial history during that relatively brief period. Many, or most of you have lived through these moments with me so stop and consider the following list:

--In November 1981 the U.S. Treasury issued 20 year bonds with 15.75% coupons

--During that same November of 1981 money market accounts paid 22%

--The creation of "junk bonds" and the advent of the LBO

--The stock market crash of 1987 when the Dow dropped almost 21% in a single day

--The "bubble" economy of 1980's Japan and the following collapse of their financial markets

--Explosive use of derivatives during the 90's and some spectacular failures and losses

--Our Internet/NASDAQ bubble and burst at the end of the Millennium

Truthfully, only one of these items might normally occur as a "once in 50 years" type of phenomena. For us to have experienced them all in barely 20 years is amazing. I even omitted some other unbelievable stories that were huge in their location and extremely important to their local economies. Whenever I think there can't be anything left for the financial markets to surprise us with I am always left shaking my head. Well here I am shaking my head again this month.

INDIAN STOCKBROKERS GO ON STRIKE

Normally; this is a story that people might have to wonder why I (and you) would give a damn about. Anyone who has been reading this newsletter of mine for the past year and a half have heard me beating the T+1 drum every chance I get. This story will touch on that subject a little which is what made it catch my eye. As a former broker, I just cannot imagine going on strike, nor anything else that might cost me one red cent.

Let me start by telling you that the Indian stock markets have been plagued with one scandal after another during the past year and there is very little investor confidence left in it. If you could imagine, the president of the Bombay Stock Exchange was forced to resign for insider trading. The amount of suicides and bankruptcies has been outrageous and when I have read some of the articles I wanted to believe that the writer was just making this stuff up.

Here is the current story. Right now it can take as long as two weeks for a stock trade to settle in India. During that time the brokers can manipulate the price of the stock (after the customer has purchased it) and lay a tremendous screwing on the client.

To add some credibility to the markets the Indian government has tried to shorten the cycle so trades will settle the day of the trade, meaning "same day" settlements. Of course the brokers are upset that they won't be able to rip off their clients if this goes through so they went "on strike" last week and brought trading volume down from 50 million shares the day before the strike, to around 300,000 on strike day.

What I will be curious to see is whether the Indian government actually gives in to this form of extortion. If they do cave, I have to imagine that any remaining shred of confidence investors had in the system will be long gone. I need no imagination to know that the collapse that their stock markets have suffered since March will only prove to have been a warm up. But at least the brokers are standing up for their right to screw over the customers. One must have some principles.

A BAD OMEN FOR U.S. BROKERS

During this past week a brokerage firm paid $400,000 to a doctor who claimed that he bought a stock thanks to the recommendation of an analyst from the broker. The doctor claimed that he lost $500,000 thanks to the recommendation and was troubled by the firms close relationship with the company that was recommended.

This will bode poorly for brokerage firms going forward from here. Not because this case has any impact on cases that will follow. Arbitration cases don't care about prior cases the way court cases do. What is bad is that LOTS of firms suffer from the same situation where the broker was a little too close to the firms they were recommending. What is worse is that there are LOTS of clients out there who have lost buckets and buckets of money in the stock market who are going to be getting in line for THEIR money. Not good news for the brokers.

NO GOOD NEWS

I'll be very brief here after beating you guys over the head in last months issue with regard to the parade of "bad" news announcements recently. But I did want to update a few items:

--The parade of losses and bad news continues

--Economic growth in the U.S. is the worst it's been in 8 years

--The rest of the world continues to slow even faster

--Morale and performance is on the decline in the corporate community

The only real healthy sector of the economy has been the housing market which doesn't make any real common sense to me. Then I read an article this week that talked of a real boom of refinancing which has allowed homeowners to "cash in" on the increased value of their homes. What troubled me is that these people seem to be spending this windfall of cash on a bunch of crap. It's no wonder that consumer spending continues to accelerate. It will also come as no surprise that the economy will suffer enormously if there is ANY decline in housing values sometime soon. Just a little food for thought.

WATCH WHAT YOU WRITE IN E-MAILS AND INSTANT MESSAGES

Here is a story that should scare some people.

A gentleman named Frank "Quint" Slattery, who is a general partner at Azure Capital Partners, sent an instant message to some friends about a rumor that PeopleSoft was under investigation by the Securities & Exchange Commission.

During the next two days PeopleSoft stock managed to drop about 27%, which meant a loss of $3 BILLION in losses for shareholders. Somehow the honchos at PeopleSoft got hold of this instant message and guess who is now ACTUALLY under investigation by the SEC.

Moral of the story? Watch anything you put into writing.

GRAND CAYMAN WAS GREAT!

I just want to quickly say "thank you" to all of you who attended sessions during my visit to the Caymans last week. The groups were wonderful and I enjoyed everyone’s company. Although it was awful hot!

The Bermuda programs are beginning to fill up so don't wait too long to register for the days you would like to attend. Visit the website at:
http://www.afs-seminars.com/bermuda.html

You can also call my office at (860)347-6568. I hope to see you there.

http://www.afs-seminars.com

Copyright 2001, Michael Gasior. All Rights Reserved

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