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Looks like all world markets are in for some adjustments today:
U.S. Stock-Index Futures Fall; Newmont Drops After China Plunge
http://www.bloomberg.com/apps/news?pid=20601087&sid=aXxoqW5OM1o4&refer=h...
Dow drops over 100 points in the first half-hour. I think the "Plunge Protection Team" will get some OT today...
Markets don't come with safety nets. If the bubble in China is bursting, which is possible since their stocks just had the biggest fall in a decade, then the idea that a small group of people could prevent the effects being felt here is not credible. In 1929 people thought a group of wealthy bankers would step in and prevent a crash, but it wasn't possible then and it isn't possible now.
Stoneleigh, I agree. The myth of the “Plunge Protection Team” started with an article in The Washington Post in 1997:
http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm
And it is even listed in “Wikipedia”.
http://en.wikipedia.org/wiki/Plunge_Protection_Team
In theory and rumor, it prevents stock market crashes and bank runs. In reality it does not exist. Well, a group really does exist:
And what can these guys do to prevent a stock market crash. Absolutely nothing!
Ron Patterson
All comments are accurate, but we should make a distinction in what the PPT can do in an already up market. If you look at the sell off in May followed by the rally the rest of the year, I can buy some of the argument that a PPT was keeping it going so to speak. Without a correction and everyone buying already, a PPT can increase the bids and push it higher than most bears thought possible. However that only works in a low VIX world, but now it's popped over 20% today alone!
Markets are more about perception than reality and behavioral finance will explode in popularity as people seek to understand why it was they we all lost our asses.
Tate, I do not understand your reasoning here. “Everyone buying already?” If everyone is buying already then there is no need for a Plunge Protection Team because the market is going up, not down. But that being said, how can they increase the bids? Remember we are talking about the Secretary of the Treasury, the Chairman of the Federal Reserve, the Chairman of the Securities and Exchange Commission and the chairman of the Commodity Futures Trading Commission. These guys do not buy stock. They have absolutely no power to increase any bid. No one in the government is allowed to buy stock with government money!
Ron Patterson
I don't know what Hank Paulsen did today. He didn't tell me. Duh. One thing I don't believe he did was sit around feeling or being powerless. I don't believe he was busy being a disinterested hapless observer.
Not that you are not entirely correct (in a formal way), but as the distinction between government and private blurs these days, it gives me pause.
Mind commenting on the Sprott study I posted below? I would appreciate your opinion.
Sam, the study has very serious flaws which leads me to believe that it is mostly fiction. From page 2:
A couple of problems here; the Federal Reserve does not have the power to tell banks how to invest their money. Buying currency in order to try to prop up the currency would involve enormous risk. And unless the Fed would be held liable for those risk, no bank in their right mind would go along with it. And it would be illegal for the Fed to accept responsibility for any losses.
And the second thing wrong with that statement is that such an endeavor would be useless anyway. Since the initiation of the FOREX, no bank has enough money to prop up any major currency, especially the US dollar, for more than thirty minutes.
http://www.tradingacademy.com/forextrading.htm
Daily volume on the FOREX market is sixty times the daily volume, in dollars, of the NYSE. 1.5 trillion is a lot of change. No bank has enough money, especially enough risk money, to even attempt to intervene and sway such a market.
To put it mildly, I simply do not believe it.
Ron Patterson
Thx!
If you play with real money it is not necessary to put up trillions to sway the currency markets. Central banks prop up currencies every day as a normal matter of business. Always have.
True, but like some others have pointed out, are you really going to live in an insulated world to think it's not possible? I'm simply a bit more cynical in my short years. I read too much. I know my parents fu*cked this up and now this bull$hit is about to hit the fan.
Hey Ron I read Policy Pete who talks periodically about the PPT and he points to this site
Here is a reference to a study on surreptitious US Govt intervention in the US markets. Move Over Adam Smith: The Invisible Hand of Uncle Sam(.pdf) or this summary.
Why that report comes from Sprott Asset Management!! Aren't they a buncha hipies? Conspiracy theorists? Rumor mongers? Fags? Commies? Don't believe a word of it I tell you. All tables are fair, we deal from the top of the deck, no dice loaded.
Dow down 500 points. Needless to say, that triggered trading curbs to limit the decline...
What caused it to turn around and reverse 150 points before again heading downwards? Very curious.
Prototypical market bounce.
Garth
Then why did CNBC say that the traders on the floor had never seen anything like it? There was incredible downward momentum when it turned around.
Check out these...
http://blogs.wsj.com/marketbeat/2007/02/27/tabulation-trouble
http://forum.themarkettraders.com/read-m/71/2635
Note this did not start with China like they are claiming now. I have been watching MBS' particularly sub prime for two weeks really hard. IN the last eight days the lower credit was being BLOWN out. I mean up to yesterday they were down 40%. No one was buying. I MEAN NO ONE JUST LIKE TODAY! The sellers were in a classic liquidty trap and bids were non existant.
Now the tranches of sub prime im talking about are BBB- and it started working its way UP the credit spreads. Before you knew it the spreadh blew up 100 bps in a two day period last week. I said to a co worker yesterday NO BS, I think in the next two weeks, this unwinding starts. I didnt anticipate this, but my portfolio F#ucking performed! One port had 6% gains for the DAY! I wish it were all real money!
Anyway tomorrow wont be easier. THere is rumors that derivatives positions have been CRUSHED. Tomorrow is the last day of the month and new positions for next month will be adjusted for the new fear. BTW....VIX went up 60% TODAY ALONE. Sellers to buying voulume hit 50:1 at one point. THat was EARLY and i didnt see what it finished at. I know according to this chart...https://image.minyanville.com/assets/FCK/File/Reamer227a.JPG
Down volume hit a NEW record at 77.6 (not on this graph tho) against the old record 55.8 in FEB 2000. Folks the SHTF in econ terms anyway.
CNBC reported that there are huge amounts of unexecuted sell orders out there.
I remember a real estate pro a few weeks ago--who was bearish--commenting that he was seeing people buying houses on 100% financing that he would not rent one of his houses to.
deleted
the market will not crash from a lack of liquidity. Today's move just erases the last three month's gains... China is already bouncing back. i see this as just an overdue correction.
You keep seeing it that way and lets talk again this summer. This is barely the beginning. No one wants to talk about derivative losses. We've NEVER dealt with derivatives to the tune of $240 TRILLION notional value. That's 10X the world market! It's insane and the more imporant point is this. In April Japan raised rates on the Yen and in May look what happened. Japan recently raised rates again and with a little help from China yesterday morning we can see what the Yen carry trade has undone thus far.
All I asked for is volatility and it's finally back. Up 64% yesterday on a SMALL 3% drop. And you think this is a simple correction? Ok, lets agree to discuss this again in three full months.
CNN reported that there were computer glitches that caused a long delay (like, an hour) in the price reporting. So when they finally got it fixed, it looked like the Dow fell off a cliff. It didn't, really, but the "missing time" made it look like it did.
I watched it on youtube later and it was amazing to watch in under 5 mins.
my question is this.... when stocks go down, people move their money to bonds and gold right?.. gold markets open at 8am.. nyse at 9:30. If you were paying attention earlier in the morning, everyone was calling for a big drop; wsj ran a headline saying something to that effect before 9am, but if you look at the 1-day gold prices, they plunged right before the nyse bell, then fought back to even, and seesawed all day.
bonds did something similar it seems.
I am no economist, but my take on it is that "they" have kinda trapped people into the market. What would they do with their money if they pull it out?, gold is (was) down, bonds are down, and real estate? ( it would be better to get it in large bills and burn it for heat..). leave it in cash? (see previous). I think a small manipulation in the gold and bonds market can completely control the stock market.
Kalpa asks:
Ron's mythical PPT.
I suggest that Ron go back and read the financial papers published after the LTD problem in 1998; there were several storiesa about Greenspan convening a meeting of bankers with the purpose of limiting the negative effects of such. So it is clear that the Fed chairman does have some ability to affect the market directly.
Sceptical, you must explain that one. Stories about Greenspan meeting with Bankers to limit the effects of what? A plunge in the stock market? And just what could the bankers do, buy stock? Do you actually think the Federal Reserve banks, or other banks actually bought into the market today in order to stop the plunge?
Banks are in business to make money. They would not buy into a falling market unless they thought they could make a buck by doing it. And there are banking regulations that limit the amount of money a bank can invest in equities. After all, it is not their money, it belongs to the depositors.
Ron Patterson
Ron, after the LTCM blowup hit the news, the market plunged. Greenspan called a meeting of bankers who were creditors of LTCM among others and forced them to bail out the markets; exactly what that entailed is unknown to me. However, this information was published in the MSM on the day of the meetings and thereafter. If you have any MSM publications, eg., the Economist, for that week, you can simply get it out of storage and look it up.
By the way, saying 'banks are in business to make money' doesn't mean that they cannot be persuaded to act otherwise; that's how the stock market crash of 1929 was halted - at least according to the history that I've read - the New York bankers led by J.P. Morgan went into the market and started buying.
As to whom the money in a bank belongs, well that depends on the type of bank. An investment bank is often using its own money, or that of it's directors rather than depositors.
Another feature of banking that most people don't realize is that bankers can do anything they like, as long as the books are clean at audit time. They do not usually deal in cash for major loans; these are just bookkeeping entries, and can be made with no corrsponding cash in the safe as long as their word is good, the cheques will be accepted.
If more people would boil complex issues down to some roots like the money supply, most matters would be easily understood. We take for granted how trivial money IS, but money is the basis for all transactions. When a private bank controls this it creates a moral hazard since the motivations of this org do not jive with the numbers. When a group plain lies about why they stopped telling us how out of control the credit money supply aka M3 is, why would anyone believe a word they utter.
People are self interested even when they aren't. If I volunteer to help someone I am still self interested since I derive SOME pleasure from helping others. They still are seeking something and people generally ALWAYS seek whats in their self interest. An organization such as the FED is no different and I swear the LTCM deal is MSM stuff. Everyone knows in the media how that was handled and it included iBanks basically paying to stop the bleeding all around.
Basic stuff like this helps understand...
http://en.wikipedia.org/wiki/Long-Term_Capital_Management#1998_downturn
Tate what sites/trends do you look at? I bailed last friday - purely lucky timing for me.
Prudent Bear
Minyanville
Urban Survival
Check out my blog for my list:
http://thefinancedude.blogspot.com
Thanks!
Who needs the PPT when you have very good friends running large hedge fund operations? Since these entities are severely under-regulated, who knows what is going on behind the scenes?