Monday, March 26, 2007

Charades, Anyone?

How many times do we have to see this same pattern before we all become complete skeptics?

I pose that question in response to the unusual market movements today which saw all US Equity indices fall sharply at 10:00 am when the
Commerce Dept. reported new home sales fell 3.2% in February. The number of new homes sold in the month was the lowest since June 2000.

At the time, (yeah, they're probably in on it) said this:
Even though the data do not mean that the housing market is crashing and will pull the overall economy into recession, the broader perspective shows that housing is still in a correction and will remain a moderate drag on real GDP for several more quarters.

Yes, that's laughable, along with exhibiting very poor grammar skills. "Moderate drag" my behind.

With this quick drop-off (the Dow was down more than 114 points by 11:00 am) in mind, let's take a look at how the indices closed on Monday:

Dow 12,469.07 -11.94; NASDAQ 2,455.63 +6.70; S&P 500 1,437.50 +1.39; NYSE Composite 9,341.36 +2.96

Now, it doesn't take a genius to conclude that something, somewhere, somehow made the majority of traders feel more secure about buying stocks after noon. It's also not a reach - after the Plunge Protection Team, otherwise known as the President's Working Group on Financial Markets has been mentioned with some frequency of late - to believe there are nefarious forces at work, vainly attempting to keep struggling US stock markets afloat.

Manipulating stock markets is not new, nor is it impossible. There are people, corporations and governments which would think it virtuous to rescue the financial markets from imminent collapse. However, continual, systemic pumping of US markets to sustain a bull market that is already bordering on an absurd length of time (53 months), is quite another thing.

It's not like putting a temporary support - akin to Greenspan's famous 1% "emergency" federal funds rate - under the markets to assuage fears; it is more like extended tinkering with the wheels of commerce, which, after a while, look nothing like what they were originally. Piecemeal adjustments eventually lead to situations in which chain reactions cannot be averted, kind of like fixing various parts of an old clock. In the end, something's going to break that can't be fixed, taking down all of the other "little fixes" along the way.

In any case, whatever evil lurked below 12,350.00 on the Dow was negated by the movers of markets. In a real world, as opposed to our current bizzaro-war-on-terror-take-off-your-shoes-at-airports-world, the Dow would be hovering in the 10,800-11,500 range, and people would be really concerned about their investments. But, thanks to the PPT, no worries!

Besides, crude oil for May delivery is only 62.91 (+0.63 today). Gold and silver were also up and hey, Georgetown's in the Final Four. What's to worry? Be happy.

For more on the President's Working Group on Financial Markets, either Google that term or the term Plunge Protection Team or read this interesting article at the link below (fair warning: it's a PDF):
Move Over Adam Smith: The Visible Hand of Uncle Sam

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