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Q:In 1982, S&P index futures were introduced. Back then I remember a friend's explanation of why he went bullish in October 82 and went sailing. "The Index guys have forever changed the market place. Can't go short this market for a while. October 25th is set to be the launching date of OneChicago, LLC Single stock futures. Is this potentially bulish as well?

A:The periods could not be more different. In 1982 we were breaking the back
of a major stop-go economic inflation cycle that had brought stock values
very low over a prolonged period. We were viewed as weak in international
affairs as evidenced by the Iran hostage crisis. We had suffered from
increasing government intervention into the economy and expensive social
programs introduced by both Republican and Democratic presidents. Carter's
appointment of Volcker to head the Fed and then Pres. Reagan's election
changed all that. We were entering a period of much lower inflation and
faster economic growth prospects once the adjustment was out of the way and
doing so from a very depressed level of stock prices. Relative to that the
introduction of index futures was a small factor. In contrast, we have now
had a long period of economic growth that was about as good as it gets. That
had the effect of creating some excess and very optimistic valuation of
stock prices to reflect that envirnoment. We have had a short period of
adjustment as we worked off some of that excess and confronted some new
problems in the environment. Stock prices have given up a substantial
portion of that excess valuation. By many standards they are not viewed as
cheap, whereas in 1982 they were clearly cheap with any sort of decent
economic growth prospects. In short, the basic dynamics are quite different.
This may turn out to be a good time to buy, or it might not, but the
introduction of new futures instruments will at most play a small part in
determining the magnitude of stock price changes in the overall market.
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