THE PLUNGE PROTECTION TEAM

RIGGING THE MARKETS SINCE 1987

THE OPAQUE HAND OF THE PLUNGE PROTECTION TEAM AT WORK?

The Author first reported on the “Plunge Protection Team” in a post from September 30, 2005, “Is Uncle Sam Manipulating the Stock Market-Are a Few Large Investment Firms Fronting For Government Intervention?”

The Author again posted on the Plunge Protection Team (PPT) after the PPT came up in polite poolside chatter in 2006.

IS THE PLUNGE PROTECTION TEAM AT IT AGAIN?

Gary Dorsch, Editor of “Global Money Trends Magazine” says “yes” in an August 9th article.

Dorsch writes:

Since the appointment of Henry Paulson to the helm at the US Treasury, the US stock market has always found a way to defy the law of gravity. During Paulson’s short reign, the Dow Jones Industrials (DJI-30) broke an 80-year old record for the longest streak of gains with only three declining days in between. During the first seven months of his tenure, the S&P 500 did not decline by 2%, the second longest-period without a 2% correction since 1964.

Why? Dorsch theorizes that such market manipulation is being done to counter the housing market slide.

The PPT’s strategy is to offset weakness in the US housing market, with increased household wealth in the stock market, in order to avoid a recession. However, the weakness in housing has gone on longer and deeper than the PPT would like. Existing US single-family homes marked their eighteenth consecutive monthly price decline in May, bringing the annual loss to 3.4 percent.

US homebuilder sentiment slid in July to its lowest since January 1991, the National Association of Home Builders said on July 17th, as fallout from the housing slump and sub-prime mortgage crisis caused a glut of new homes. US home foreclosure filings rose 58% in the first six months of the year and could surpass 2 million this year as the housing market continues to deteriorate, RealtyTrac, said on July 30.

Dorsch’s article is detailed and well-supported. But in the end, we are still left with this question?

Is the “Plunge Protection Team,” Myth or Reality?

Is the legendary PPT just a myth, conjured up by a bunch of conspiratorial nuts? Former president Clinton advisor, George Stephanopoulos told “Good Morning America” on Sept 17, 2001, “There are various efforts going on in public and behind the scenes by the Fed and other government officials to guard against a free-fall in the market, what is called the “Plunge Protection Team.”

“The Federal Reserve, big major banks, representatives of the New York Stock Exchange and the other exchanges have an informal agreement to come in and start to buy stock if there appears to be a problem. They acted more formally in 1998, during the Long term Capital Crisis, and propped up the currency markets. And, they have plans in place if the markets start to fall.”

On August 8th, 2007, President Bush hinted at government intervention in the US stock market. “Treasury secretary Paulson and his advisors are paying close attention, as the market begins to readjust its assessment of risks and are watchful for any downturn,” he said. “There is a lot of liquidity in our system and liquidity will provide the capacity for our system to adjust,” Bush added, alluding to the Fed’s tolerance of double digit M3 money supply growth.

The big question is whether US Treasury chief Henry Paulson and Fed chief Bernanke are pursuing a more active interventionist policy than what was originally mandated for the PPT? The turnover of interest rate, currency and stock index derivatives rose 24% to $533 trillion in the first quarter, and that’s a big time bomb that can blow-up at anytime. It requires constant surveillance and “vigilance” over the world’s greatest casinos. Warren Buffett calls derivatives “weapons of mass destruction.”

If correct, then the PPT is “watching the markets closely”, (Japanese code words for intervention) and Paulson and Bernanke aim to prevent a 10% correction at all costs. There are glaring signals in the marketplace that indicate when the PPT appears to be intervening in stock index futures, and these signals were revealed in the August 3rd edition of Global Money Trends, with plenty of cool charts. If you expand your imagination, as Einstein suggests, and accept the notion that the PPT is “managing the markets,” you might become more successful in trading.

Dorsch’s last sentence bears repeating, "[If you] accept the notion that the PPT is “managing the markets,” you might become more successful in trading."

AN AUTHOR’S ANECDOTE

In July, the Author took some short positions. At that time, all market indicators were negative. This was discussed in the post somewhat prosaically entitled “Market Indicators Negative”

And although a couple of very weak indicators hinted at a market bottom, and were addressed in the August 20th post, “Are Stocks Ready for an Uptick?” , the Author did not believe the market would rally in the face of tremendously negative factors. But it did and the Author sold his short positions with modest gains. So the Author is left with one question?

Did the PPT prop up the market and screw the Author out of his short gains?

IT AIN’T OVER UNTIL WE SAY IT’S OVER IN THE DESERT OF THE REAL!