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Dennis - From this email address, I cannot post to the list. Could you do it
for me? Thanks, Steve Poser
The moron newspaper reporters out there than think there is a plunge
protection team buying stocks or futures should be hung from the highest
rafters. While there is no doubt that there is a team of people at the Fed
and Treasury that monitor the markets, I'd say that the odds that they are
actually in there buying futures is somewhat lower than the odds of John
Rocker receiving a standing ovation at Shea Stadium on June 19th when he
arrives there with the Braves.
It is absolutely amazing that people believe this. Might the Treasury (more
likely than the Fed) call Goldman Sachs or Merrill Lynch and ask if there is
a place to buy? Maybe. But, even governments cannot turn markets around.
Look at Hong Kong in 1997/1998. They bought all the way down to to 6000 or
so. Remember the European currency crisis in the 1990s? All the central
banks were trying to prop up the trading bands, and could not stop the
markets from going where they were supposed to go (admittedly, FX is much
larger than equities). If the market wants to tank, it will tank. If it does
not want to tank, it will not tank.
To add to this, if we use 1/2 our brains and eliminate the totally assinine
idea that the government or the Fed is buying futures or stocks, then the
idea that the brokerage or banking community could turn it is so stupid that
it does not even merit consideration.
What can the Treasury do? Nothing quick. Change laws I guess and jawbone the
markets. The Fed can flood the banks with liquidity. That is what they did
in 1987. I have not checked the data, but I doubt that is what happened (I
guess we will find out tomorrow with the weekly M's though the conspiracy
theorists will note that of course that data will be hidden -- I guess that
Fed has a Swiss bank account!). It would make little sense that the Fed is
trying to push the market higher, since they are concerned about it being
too high (though I suspect a stock market crash creates more imbalances than
minor inflation). They might desire to see less volatility, but they might
not know how to do that anyway. They intervene in bonds and currencies in
public and prescribed ways (actually Treasury does the currency trades with
the Fed acting as the agent). There is nothing public about this (of course
it is illegal and is not happening, which explains why it is not public,
because it is not happening).
The other part of the idea, that they are buying S&P futures is just too
laughable. If futures get rich, there must be follow through buying in
stocks, or the markets just fall back. Remember, when these programs of
alleged futures purchases are going on, there are always, by definition,
program trading curbs on, so the Street cannot even easily buy the cheap
stocks to bring about proper parity. More likely then, we would see futures
fall back!
Usually, conspiracy theories grow out because they are neat little
explanations that cannot be explained easily otherwise. They assume markets
are rational. They are not. This theory falls completely apart, even if you
are willing to ridiculously assume that the Fed or the Treasury are
illegally buying stocks or futures. It just takes a minor amount of thought,
something that the idiots in the press hope you never bother with, to blow
this stupidity apart. It is harder to explain the conspiracy theory than it
is to explain it away!
Steven Poser
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