May 21, 2009
I guess I can throw away my tinfoil hat. I’m not so paranoid, after all.
Back on December 18, after discussing the bank bailout boondoggle, I made this observation about what had been taking place in the equities markets during that time:
Do you care to hazard a guess as to what the next Wall Street scandal might be? I have a pet theory concerning the almost-daily spate of “late-day rallies” in the equities markets. I’ve discussed it with some knowledgeable investors. I suspect that some of the bailout money squandered by Treasury Secretary Paulson has found its way into the hands of some miscreants who are using this money to manipulate the stock markets. I have a hunch that their plan is to run up stock prices at the end of the day, before those numbers have a chance to settle back down to the level where the market would normally have them. The inflated “closing price” for the day is then perceived as the market value of the stock. This plan would be an effort to con investors into believing that the market has pulled out of its slump. Eventually the victims would find themselves hosed once again at the next “market correction”. I don’t believe that SEC Chairman Christopher Cox would likely uncover such a scam, given his track record.
Some people agreed with me, although others considered such a “conspiracy” too far-flung to be workable.
Thanks to Tyler Durden at Zero Hedge, my earlier suspicions of market manipulation were confirmed. On Tuesday, May 19, Mr. Durden posted a video clip from an interview with (among others) Dan Schaeffer, president of Schaeffer Asset Management, previously broadcast on the Fox Business Channel on May 14. While discussing the latest “bear market rally”, Dan Schaeffer made this observation:
“Something strange happened during the last 7 or 8 weeks. Doreen, you probably can concur on this — there was a power underneath the market that kept holding it up and trading the futures. I watch the futures every day and every tick, and a tremendous amount of volume came in at several points during the last few weeks, when the market was just about ready to break and shot right up again. Usually toward the end of the day — it happened a week ago Friday, at 7 minutes to 4 o’clock, almost 100,000 S&P futures contracts were traded, and then in the last 5 minutes, up to 4 o’clock, another 100,000 contracts were traded, and lifted the Dow from being down 18 to up over 44 or 50 points in 7 minutes. That is 10 to 20 billion dollars to be able to move the market in such a way. Who has that kind of money to move this market?
“On top of that, the market has rallied up during the stress test uncertainty and moved the bank stocks up, and the bank stocks issues secondary — they issue stock — they raised capital into this rally. It was a perfect text book setup of controlling the markets — now that the stock has been issued …”
Mr. Schaeffer was then interrupted by panel member, Richard Suttmeier of ValuEngine.com.
My fellow foilhats likely had no trouble recognizing this market manipulation as the handiwork of the Plunge Protection Team (also known as the PPT). Many commentators have considered the PPT as nothing more than a myth, with some believing that this “myth” stems from the actual existence of something called The President’s Working Group on Financial Markets. For a good read on the history of the PPT, I recommend the article by Ambrose Evans-Pritchard of the Telegraph. Bear in mind that Evans-Pritchard’s article was written in October of 2006, two years before the global economic meltdown:
Hank Paulson, the market-wise Treasury Secretary who built a $700m fortune at Goldman Sachs, is re-activating the ‘plunge protection team’ (PPT), a shadowy body with powers to support stock index, currency, and credit futures in a crash.
Otherwise known as the working group on financial markets, it was created by Ronald Reagan to prevent a repeat of the Wall Street meltdown in October 1987.
Mr Paulson says the group had been allowed to languish over the boom years. Henceforth, it will have a command centre at the US Treasury that will track global markets and serve as an operations base in the next crisis.
* * *
The PPT was once the stuff of dark legends, its existence long denied. But ex-White House strategist George Stephanopoulos admits openly that it was used to support the markets in the Russia/LTCM crisis under Bill Clinton, and almost certainly again after the 9/11 terrorist attacks.
“They have an informal agreement among major banks to come in and start to buy stock if there appears to be a problem,” he said.
“In 1998, there was the Long Term Capital crisis, a global currency crisis. At the guidance of the Fed, all of the banks got together and propped up the currency markets. And they have plans in place to consider that if the stock markets start to fall,” he said.
The only question is whether it uses taxpayer money to bail out investors directly, or merely co-ordinates action by Wall Street banks as in 1929. The level of moral hazard is subtly different.
John Crudele of the New York Post frequently discusses the PPT, although he is presently of the opinion that it either no longer exists or has gone underground. He has recently considered the possibility that the PPT may have “outsourced” its mission to Goldman Sachs:
Let’s remember something.
First, Goldman Sachs accepted $10 billion in government money under the Troubled Asset Relief Program (TARP), so it is gambling with taxpayer money.
But the bigger thing to remember is this: The firm may be living up to its nickname – Government Sachs – and might be doing the government’s bidding.
The stock market rally these past seven weeks has certainly made it easier for the Obama administration to do its job. That, plus a little fancy accounting during the first quarter, has calmed peoples’ nerves quite a bit.
Rallies on Wall Street, of course, are good things – unless it turns out that some people know the government is rigging the stock market and you don’t.
That brings me to something called The President’s Working Group on Financial Markets, which is commonly referred to as the Plunge Protection Team.
As I wrote in last Thursday’s column, the Team has disappeared.
Try finding The President’s Working Group at the US Treasury and you won’t.
The guys and girls that Treasury Secretary Hank Paulson relied on so heavily last year when he was forcing Bank of America to buy Merrill Lynch and when he was waterboarding other firms into coming to Wall Street’s rescue has gone underground.
Anybody who has read this column for long enough knows what I think, that the President’s Working Group Plunge Protectors have, in the past, tinkered with the financial markets.
We’ll let interrogators in some future Congressional investigation decide whether or not they did so legally.
But right now, I smell a whiff of Goldman in this market. Breath in deeply, it’s intoxicating – and troubling.
Could Goldman Sachs be involved in a conspiracy to manipulate the stock markets? Paul Farrell of MarketWatch has been writing about the “Goldman Conspiracy” for over a month. You can read about it here and here. In his May 4 article, he set out the plot line for a suggested, thirteen-episode television series called: The Goldman Conspiracy. I am particularly looking forward to the fourth episode in the proposed series:
Episode 4. ‘Goldman Conspiracy’ is manipulating stock market
“Something smells fishy in the market. And the aroma seems to be coming from Goldman Sachs,” says John Crudele in the New York Post. Stocks prices soaring. “So, who’s moving the market?” Not the little guy. “Professional traders, with Goldman Sachs leading the way.” NYSE numbers show “Goldman did twice the number of so-called big program trades during the week of April 13,” over a billion shares, creating “a historic rally despite the fact that the economy continues to be in serious trouble.” Then he tells us why: Because the “Goldman Conspiracy” is using TARP and Fed money, churning the markets. They are “gambling with taxpayer money.”
It’s nice to know that other commentators share my suspicions … and better yet: Some day I could be watching a television series, based on what I once considered my own, sensational conjecture.
The Scary Stuff
July 6, 2009
During the past week, a good number of Americans had been soothing themselves in Michael Jackson nostalgia . . . others watched tennis, many were intrigued by the military coup in Honduras and everyone tried to figure out what was going on in Sarah Palin’s mind. Meanwhile . . . there was some really scary stuff in the news. With Fourth of July behind us, it’s time to start looking forward to Halloween. We need not look very far to get a good scare. Those of us who still have jobs are afraid they may lose them. Those who have lost their jobs wonder how long they can stay afloat before chaos finally takes over. Many wise people, despite their comfortable positions in life (for now) have been discussing these types of problems lately. Their opinions and outlooks are getting more and more ink (or electrons) as the economic crisis continues to unfold.
As we look at the current situation, let’s check in with the guy who has the biggest mouth. During an interview on ABC’s This Week with George Stephanopoulos, Vice-President Joe Biden admitted that “we and everyone else misread the economy”:
This was basically a concession, validating the long-standing criticism by economists such as Nouriel Roubini (a/k/a “Dr.Doom”) who refuted the administration’s view of this crisis. Many economists (including Roubini) have emphasized the administration’s unrealistic perception of the unemployment problem as a primary flaw in the “bank stress tests” as established by Treasury Secretary “Turbo” Tim Geithner. Now we’re finding out how ugly this picture really is. Here are some points raised by Dr. Roubini on July 2:
All right . . . So you may be thinking that this is exactly the type of pessimism we can expect from someone with the nickname “Dr. Doom”. However, if you take a look at the July 2 article by Tom Lindmark on the Seeking Alpha website, you will find some important concurrence. Mr. Lindmark discussed his own observation about the unemployment crisis:
Lindmark included the reactions of several economists to the latest unemployment data, as quoted from The Wall Street Journal Real Time Economics Blog. It’s more of the same — not happy stuff. Federal Reserve Chairman Ben Bernanke’s self-serving, self-congratulatory claim that “green shoots” could be found in the economy was made during a discussion on 60 Minutes back on March 15. That’s what you call: “premature shoots”.
Just in case you aren’t getting scared yet, take a look at what Ambrose Evans-Pritchard had to say in the Telegraph UK. He draws our reluctant attention to the possibility that there might just be a violent reaction from the masses, once the ugliness of our situation finally sets in:
Do you think those bankers are saying “EEEEEK!” yet? They probably aren’t. Many other similarly-situated individuals are likely turning the page to have a look at the action in “emerging markets”. Nevertheless, Mr. Evans-Pritchard, in another piece, exposed the hopelessness of those expectations:
So there you have it. You wanted to see Thriller again? Now you have it in real life. This time, neither Boris Karloff nor Michael Jackson will be around to keep it “lite”. This is our reality in July of 2009. Hang on.