Here’s an Idea: Let’s Nationalize the Stock Market

Finally, there is a light at the end of the tunnel.

No, we’re not talking about the Metropolitan Transportation Authority and L.A.’s subway-to-nowhere.

We mean the dark tunnel into which emerging-market stocks have been plunging for much of the last year.

There’s a way to stop the insanity, and the Hong Kong Monetary Authority, that city-state’s de facto central bank, has figured it out: When your market goes down, you simply make your government the stock buyer of last resort.

The HKMA’s first-ever intervention in the Hong Kong stock market, on Aug. 14, was good for an 8.5% rally in the Hang Seng stock index that day, following a long decline that had pulled the index down 38% from Jan. 1.

The Hang Seng turned in another sharp performance on Wednesday, rising 5.7%, as the government kept traders guessing about which stocks it might like, and for how much.

By Friday, with global markets in another tailspin on concerns that Venezuela might join the Devaluation Club (perhaps the fastest-growing club on Earth, other than Hair Club for Men), Hong Kong stocks went with the flow, and the Hang Seng lost 2.8% for the day. But it still rose 4.2% for the week, which must have left the new investors at the HKMA very happy indeed.

Across the South China Sea, Malaysia’s government also got the investing bug last week. Prime Minister Mahathir Mohamad said his government, too, would begin buying stocks. His words helped drive the main Malaysian share index up 8.8% on Wednesday, from what had been a 10-year low.

By Friday, however, the malaise was back in the Malaysian market, and the main index slid 7.7%, leaving it off slightly for the week.

Just as soon as Mahathir publishes the government’s “buy” list, however, it seems certain that Malaysian stocks will be back in bull market mode in no time. . . .

As desperate as Hong Kong and Malaysia obviously have become--to think that government purchases of stock might be anything more than a stop-gap measure--they were merely taking a page from the Japanese government’s handbook of market manipulation.

Of course, you see how well that has worked with Japanese stocks in the 1990s.

Perhaps we shouldn’t poke fun. Try to imagine this scenario:

It’s January 1999, and the U.S. stock market is down 50% from its 1998 peak, amid a crumbling global economy and dashed U.S. corporate profits.

Congress has begun hearings on what happened to the high-flying market, as thousands of individual investors demand redress, claiming they’ve been duped by years of bullish ads from mutual fund companies.

Suddenly, our elected representatives have a great idea: It’s time to start putting Social Security funds into the stock market!

We were going down that road anyway, eventually, Congress figures. Why wait? Everyone knows the stock market is the best place to be in the long run, and the long run is what Social Security is all about, so. . . .

It wouldn’t be quite the same as the Hong Kong Monetary Authority using national reserves to buy stocks, but it still gives some veteran Wall Streeters the shivers.

Last week, as the economic virus that felled East Asia a year ago spread to Russia and much of Latin America, investment strategists started running out of red CRISIS labels to stick on their maps of the world.

Even little Norway got caught up in this mess: Its central bank was forced to raise interest rates as the Norwegian currency, the krone, fell to a six-year low.

When they start picking on the defenseless krone, we know for sure we’ve got problems.

Kidding aside, as James Flanigan points out elsewhere in these pages, the disasters that have befallen many stock markets, currencies and economies are, on some level, about the ongoing transition to global capitalism.

In a capitalist system, stocks and currencies should be worth whatever the market says they’re worth. If you don’t like the market’s decision, you’re supposed to try to change its mind by making your economy more attractive to investment.

You can, on the other hand, have government bureaucrats try to decide what your currency and stocks are worth. But their record with this is, shall we say, less than admirable.

There is a chance that the pain involved in this deepening global crisis will get so bad that some countries will want to opt out--to close their markets and, they hope, remove the risk entailed in allowing money, and goods, to flow freely across borders.

Opt out to what is the question: If you’re not a capitalist today, what are you?

Meanwhile, it’s worth pointing out that it wasn’t all bad news last week.

The Japanese yen, rather than weakening further from 8-year lows, has been strengthening. True, bureaucrats are involved here: The Japanese government keeps threatening to intervene to bolster the yen’s value.

But if the yen also is gaining because the market believes Japan may, at long last, be making a serious stab at solving its economic woes, that might go a long way toward stabilizing the situation in world markets overall.

In the U.S. market, despite the Dow Jones industrial average’s 280-point fall on Friday morning, it finished the day down 77.76 points at 8,533.65--which worked out to a 1.3% gain for the week, the first weekly rise in five weeks.

And while the majority of stocks fell last week, investors still are responding well to good news--Apple Computer and Fluor Corp. as two cases in point (Apple’s new iMac sales, and Fluor’s better-than-expected earnings, respectively).

Could we have reached at least a short-term bottom in the U.S. market?

Watch what happens to stocks vis-a-vis bonds: If yields continue to fall to new lows, but the stock market fails to respond, it will suggest that investors’ fears are becoming serious.