Monday, September 12, 2011

BUMMER: The Plunge Protection Team Is Back in Action!

The Markets

Let's face it. US equity and commodity markets are completely, irretrievably, unconscionably manipulated beyond any basic sense of fairness.

On the morning of the first trading day of the week, US equity scalpers were met with futures that forecast a dismal Monday. Every index in every foreign country was lower on the day. In Asia, the Hang Seng led the way with a loss of greater than 4%. European bourses, shattered for the better part of the past three months, were all lower, the French CAC-40 taking over from the German DAX in leading the way to oblivion with a 4% decline.

But here in America, we have advantages. We have Ben Bernanke, the brilliant, often uninspiring and always shaking Chairman of the Federal Reserve. We have Timothy Geithner, the diminutive (matching his brain power) Treasury Secretary who keeps a watchful eye over the nation's exploding debt.

And we have printing presses (actually, they've been replaced by computers) spitting out US dollars faster than a 9th Avenue hobo picks up pennies thrown his way.

More than anything else, however, we have the fabled Plunge Protection Team (PPT), aka the President's Working Group on Financial Markets created by President Reagan in the aftermath of the LTCM blowup in 1987.

According to Executive Order 12631, the "Working Group" was established explicitly in response to events in the financial markets surrounding October 19, 1987 ("Black Monday") to give recommendations for legislative and private sector solutions for "enhancing the integrity, efficiency, orderliness, and competitiveness of [United States] financial markets and maintaining investor confidence.

In other words, when the markets are crashing, the Working Group, or PPT, springs, like trained attack Dobermans, into action to rescue witless investors from parting with their increasingly worthless cash.

Today, the PPT got busy early on. Stocks were hammered at the open, in response to the rest of the world in a near panic over Greece potentially defaulting and European credit market spreads blowing out all over the place. Stocks were down huge in the opening minutes of trading, as an extension of Friday's selloff and the continuing global debt implosion. The fact that Greece will eventually default on a large portion of their debt and ungraciously remove itself from the Euro standard (back to the Drachma) is unimportant to the functioning of the PPT. They buy futures. They buy stocks. They buy whatever is falling fastest, which on Monday, was just about anything that had a ticker symbol.

The PPT doesn't always prompt rallies. Their normal function is to keep US indices from falling too far, too fast, like today, like about six times in the past three weeks, like about a thousand times since the dotcom crash of 2000. And today was no different. They kept he markets in a sane neighborhood, down somewhere between a half and one per cent, until, that is, all the lights turned green.

Around 2:30, the Financial Times, another overstuffed relic from the days of ink and newsprint, ran a story that China was interested in buying Italian bonds, many of which will go up for bid this week as the Italian government seeks to finance its long-standing tradition of turning investor dough into pasta salad, along with assorted mafia side dishes and Berlusconi desserts.

Since noodles are noodles, whether they're doused in marinara or lobster sauce, the nitwits on CNBC were led to believe that this was a great idea, and the markets turned from merely moribund to miraculously magnificent in the final hour-and-a-half of trading. The US wins again. All of the US indices ended the day in positive territory.

Now, some may cheer that the US government has investor's backs, but the stark reality is that the PPT is all that's left between regular day-to-day life and a most serious, full-blown market crash of stupefying proportions. The global economy is on its knees due to too much debt, too many goods and too many currencies trying vainly to devalue themselves. The entire affair is deflationary in the most absolute sense as goods and services become more and more worthless, while the relative value of the currencies which buy such goods plummets into an phalanx of money-crunching debt.

Ah, for the good old days of really free, open markets, like back in the sixties and seventies, when a stock could be worthwhile returning a reasonable four to five per cent dividend along with annualized growth of 15-20%. A quarter point here, a half point there. We were all invested and looking forward to a safe, sensible and sane retirement.

Nostalgia. It's what one gets when one sees the fruits of labor lavished on the already rich.

And by the way, the day should not pass without acknowledging that Jaime Dimon, CEO of JP Morgan Chase, thinks the Basel 3 rules requiring the largest banks, such as his, to hold 9.5% of tier one capital, are "un-American." Right. FU, Jaime. Is JPM the next bank to start selling off assets? Probably should, but probably won't. Hey, the world is an imperfect place, suitable for misfit rich kids like Jaime.

Dow 11,061.12, +68.99 (0.63%)
NASDAQ 2,495.09, +27.10 (1.10%)
S&P 500 1,162.27, +8.04 (0.70%)
NYSE Composite 7,047.12, +2.11 (0.03%)
NASDAQ Volume 1,994,098,375
NYSE Volume 5,034,112,500
Combined NYSE & NASDAQ Advance - Decline: 3178-3364
Combined NYSE & NASDAQ New highs - new lows: 19-514
WTI crude oil futures: 88.19, +0.95
Gold: 1815.80, -42.80
Silver: 40.29, -1.09

Astute readers will understand what it means when all the major indices are up, but the A-D line is negative and especially when the new highs - new lows are tilted so heavily in favor of the lows. For those who still need guidance, it's a con, a complete, total, 100% sham. That oil futures are up while gold and silver suffer heavy losses really cinches it.

Idea: Fresh out, though working hard on "Making a budget and sticking to it," and "Saving 10% of your income." More tomorrow.

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