US stocks: The visible hand of Uncle Sam

[bemildred]

John Embry and Andrew Hepburn provide a valuable entry into the world of finance. The two analysts illuminate the shadowy trail of the "Plunge Protection Team" in its apparent mission to rig the American stock markets.

Their account is backed up by considerable indirect evidence, as well as statements by credible insiders. If their account is correct, it means that US markets look a lot like the Japanese markets that were long derided for being subject to repeated official manipulation. A more important conclusion may be that US markets are even shakier than many believe.

The trail that the two analysts follow is long, dating to just after Black Monday, October 19, 1987. On that day, the US stock market abruptly crashed. The Dow Jones average dropped by 508 points, to 1738. It threatened to do even worse the next day when, after a brief rally, it went into reverse.

The markets seemed on the edge of a meltdown, but the abyss failed to open up. This lack of a meltdown has generally been attributed to the Federal Reserve Board's (FRB) steady hand and promises of liquidity. But sophisticated research on the events of those two days indicates that a sudden and unprecedented rise in the Major Market Index (MMI) sparked a recovery across the board. There is good reason to suspect that this recovery was the result of concentrated buying by a few firms.

Asia Times

[orwell]

1. This is absolutely true

I know it from first hand knowledge. But it goes back even further than 1987.

[raccoon]

8. Not disputing you, but do you know this from your line of work,

or from what source?

[phantom power]

2. Sooner or later, manipulation always fails.

Then comes the implosion.

[bemildred]

3. Control is always limited.

A more interesting question is: "Would TPTB be remiss if
they did NOT act to keep the markets orderly?" Well of
course, that is what "market makers" do, provide an
orderly market, so in fact one can argue the PPT are
just doing their job, and doing it well too, as long as
they are not pursuing personal profits for themselves
or their friends.

But as an investor, someone who is deciding what to do with
excess money, it is very important not to have any illusions
about the nature of the market, of the process one is
committing one's money to. It is rigged and managed and
manipulated, all the time, by traders and big investors and
regulators.

[phantom power]

4. Good point. What I worry about is...

the difference between "orderly" and "artificially inflated."

It raises a question of whether whatever they're doing is sustainable or not. If somebody is keeping the market on artificial life support by pumping in money, that doesn't bode well for things when/if that supply of money runs out.

It also makes me wonder about motivations. There are various reasons for keeping the market "looking" healthy. For instance, one less than charitable motivation might be that it makes certain political parties look good. That motivation might suddenly disappear if the opposing political party gained power. Or, it might cause them to only care about strategies that work for a few years, and not any longer. After all, Bush's term ends three years from now. Certain people might not care very much what happens after that.

[bemildred]

5. There is no killing to be made in stable growth.

Many of the players in the market are out to make a killing.
They don't care a fig about "fundamentals" and sustainable
appreciation in values, they want something that will give
them a big "pop". People that go to Las Vegas are not looking
to invest in a 3% CD. They like bubbles, the bigger the better.
Any bubble will do: savings and loans, venture capital, hi tech,
the internet, real estate, metals, oil & gas, one ponzi scheme
follows another. Government money is great for getting a
bubble started, e.g. the filling of the National Petroleum
Reserve these last few years.

The people that do the trading make their money from trading,
they make money on movement, so they have incentive to drive
the markets up, and then when things get "frothy", they drive
the marketrs down so they can start over. The one thing they
dislike is everybody happy sitting on their portfolio. That
sucks for them. Your brokers interests are exactly opposite
to yours.

[ktlyon]

7. yes, it looks like the stock market is being driven up like last year

In Jan. profits will be taken and the market will come back down. When people can make money pushing and pulling the market the whole economy must suffer. I think it is wrong when people can make a fortune without creating a product or employing people, the stock market is bogus.

[AX10]

6. kick

[MazeRat7]

9. Having never heard of Embry and Hepburn, I googled "Plunge Protection Team

One of the results was this article from the WP.
http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm

Having been an active trader for many years, I find it difficult to believe that any group (fed or otherwise) could "control" the markets to achieve a predictable outcome. That being said, I do believe that groups like the fed and financial task forces have the ability to mitigate damage caused by panic in periods of radical fluctuation.

As to the point of recovery during a down cycle being the result of a few "firms" buying specific commodities... I don't see it. The level of investment they would have to make to effect a positive market movement would be larger than the gross quarterly revenues of the current Fortune 50 companies. If there is such a cabal... they certainly know how to fly under the radar of 1000's of eyes, regulations, reports, and of course analysts.

MZr7

[bemildred]

10. He slips into pejorative mode in the 2nd paragraph.

It does not need to be a cabal, it does not need to be the government, just a group of traders with an interest in talking the markets back up, in selling stock, and it may well take one quarter, or two, or three. You have very large trading firms with huge pots of money and a strong interest in market movement. You have Corporations with an interest in stock buybacks to keep the price up, etc. There are many factors, it is a complex system, and there is a good deal of herd behavior, speculation, etc.

He seems mostly to be a sensible fellow, I wonder what he thinks of charting, which seems much more fabulous than the notion that traders meddle with the markets.

He is right, I think, in saying that the government or PPT or whatever one wishes to call it is not involved in forming market tops and bottoms, it is more as he says in the first paragraph, and done more with regulations rather than by dumping in pots of money.

It is worth pointing out that this fellow, being a trader, has an interest in the notion that the markets are in some sense "honest", and that traders never lie. Having worked with some, I found them dishonest to the bone and more like card sharps than bankers or accountants.

Nevertheless, he is correct in that for an individual it would be foolish to rely heavily on these sorts of considerations.

[fasttense]

11. It is not that the PPT keeps the market from crashing,

We would expect any reasonable government to try and prevent a crash or huge plunge. It is that they do it behind a cloak of secrecy. They don't inform the paying voters of this country that they are doing it.

And how often do they do it? To protect the US from a crash is reasonable but to meddle with the market on a daily or, I suspect, weekly basis is merely a ploy to keep from looking bad to the American public.

And what have private firms earned by helping the PPT? The cronyism and rampant greed of the bush administration is everywhere but in the PPT or other vehicle of manipulation. How can we rely on a secretive bush manipulation team? We can't. You know in your gut someone is making billions off of this rigging.