Rev Shark looks askance at the many theories floating around about  Government intervention in the Equity and Energy markets: Debunking Conspiracy Theories:

"With the election just a week off, there is a lot
of talk in certain quarters about how the market is being "manipulated"
for political gain. The theory is that the Republicans are driving the
market up in order to give the impression that economic conditions are
good, which would in turn cause voters to support the incumbent party.
That certainly explains the market action and has a great appeal to the
conspiracy theorists but is it realistic?

I have a great
aversion to the idea of conspiracies simply because I don’t believe
that its possible for a large number of politicians and bureaucrats
with big egos to keep anything a secret."

The most cogent analysis I have seen about the sudden drop in Energy prices comes via Tim Iacono’s  Friends in High Places?  Iacono’s argument is backed by the details of how and when the widely followed Goldman Sachs Commodities Index (GSCI)dropped its gasoline exposure in half. What was originally made out to be a minor shift in the types of gasoline blends turned out to be a major reduction in exposure for the GSCI — and done in a rather surreptitious manner.

Goldman made a little change in their commodities index, and that caused $6 billion in unleaded gasoline futures to be dumped onto the NYMEX. Read it and decide for yourself how "improbable" a manipulation of the energy markets actually is.

Quite frankly, while I detest the intereference in the political process, I must admit to admiring the ingenuity and audacity of Goldman Sachs. As far as I can tell, either it was a brilliant ploy to impact the energy markets two months before elections, or the index is run by a bunch of naive, ham-fisted idiots,  blissfully unaware of what they wrought so close to mid-term elections. So my own answer about energy manipulation turns on the question whether Goldman Sachs is a sharp collection of rocket scientists/traders, or a bunch-o-morons. 

As to manipulations in the equity markets, I am undecided about that. I will note that several people far more experienced than I — and far less cycnical, too — have been commenting about the "Preternatural bid underneath." I may have to assemble some of the more cogent commentary along those lines.

Of course, the Fed does control money supply, and while it is understandable their providing additional liquidity during the rate tightening phase (i.e, more money supply as rates go higher) the most recent firehose of cash hitting the past few months since the pause is a bit harder to rationalize . . .

Category: Energy, Markets, Politics

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

53 Responses to “Conspiracy Theories?”

  1. angryinch says:

    Gives a whole new meaning to the term “prop desk.”

  2. David Yaseen says:

    Barry, who’s talking about the “preternatural bid underneath?” I’d love to read their takes on the situation.

  3. emd says:

    it’s certainly felt like a different market since GS has been given a key to the candy store.

  4. Kevin_r says:

    In anything so noisy as global equities markets, it is so easy for our advanced primate brains to imagine patterns that aren’t there. After all, when it came making a predecessor into an ancestor, it was better to be a little too eager to detect a pattern that said “tiger” or “enemy warrior” or even “mating chance” than to be not eager enough.
    Like Jody Foster in “Contact” listening for patterns in the noise of washing machines. Still, in the end, she did find her aliens.
    Every time that Barry has said “don’t short yet, hedgies sitting on too much cash”, I did wonder where that cash came from. Profits are high and re-investment opportunities not so good, so lots of cash could flow to the hedgies for perfectly innocent reasons. But “could” does not prove “did”
    Pure speculation: If I were the current administration, asking the Saudis, who are all but drowning in cash, to send a bit of it into US equities for a few months would cross my mind. If I were Putin and I were as bright as he seems, I can think of a few good reasons to do it without even being asked.
    {End of pure speculation}
    More rational question: If money were being fed into equities markets for the elections, where would we find the tracks? If have read rumors about the “plunge protection team”, but they were just rumors.

  5. Ricardo says:

    Look no further than today’s action on the YM (Dow) futures. Spends all day in the red, except for the last half hour when it all of a sudden rallies strong on absolutely no news. With the index less than a 100 points from all-time highs, what’s the rush to buy? There is no fundamental reason why a sane person would want to invest right at the moment of the economy slipping into a recession. Aside from the tech-mania, I’ve never seen such an irrational market.

  6. Kevin_r says:

    I have a great aversion to the idea of conspiracies simply because I don’t believe that its possible for a large number of politicians and bureaucrats with big egos to keep anything a secret.

    I completely agree with this in general. If there is manipulation at work, it would have to be something that could be handled by a very small team, on which each member had powerful motivation to stay quiet, and with good natural cover. Some group with fairly low transparency to start with.
    Someone with a Russian or Arabic accent fronting up at my local brokerage with a dump truck full of cash would make the secret a bit hard to keep.

  7. Kevin_r says:

    On the other hand, the anti-conspiracy conspiracy theory:

    Obviously, if there is a conspiracy to pump up the market until the elections, the Republicans are the obvious beneficiaries. But who would benefit from simply spreading the rumor of such a conspiracy even though it did not exist?
    It would be a great move by some shorter to convince the market that it was walking on the invisible gangplank from the last Indiana Jones movie and wait for the market to get half way across the chasm before it realized it was walking on air.

  8. CV says:

    Timing aside– I believe if not mistaken that the GS commodity index has had no cap on oil as a % of its make-up, AS opposed to the Dows Commodity Index and Jim Rogers, which are/have been capped at 30% [i believe]. this has been why i have invested in those, to get more grain, base metals exposure etc–one can always supplement with OIH or XLE for more oil.

    one explaination at any rate [being they realized that this over weighting was a mistake]

  9. Ricardo says:

    Come on guys! The Russians?? Arabs?? You really for a minute think they have anything to do with this rally?

    It’s the top brokerages trading their own accounts up. Spitzer should investigate!!!

    The fact of the matter is we are looking for conspiracies because it’s so damn hard to explain this latest rally in terms of fundamentals or rational, logical modes.

    This is a head-fake rally and a half and if you don’t want to short, stay in cash and earn an easy 5%.

  10. anderl says:

    Rational expectation theories are too complex for most people to grasp. How can a majority of market participants all be influenced into moving in to relatively the same direction by a single change of a metric. That metric is The Fed Rate. It’s easier for people to except that there is some rich fat cat of a power broker that is out to swindle the common man that caused the drop in prices and collected the rewards.

    The “measured pace” of the fed rate was rationally expected by the market because market participants expected them to continue. So much so that they fully priced in 2 to 3 more rate hikes into the future. People talk about an efficient market pricing in all known information. Well it prices in more than just known information. It prices in the highest probability of information available. There was a high probability of more hikes in the future and markets priced them in. It is common knowledge that commodity prices and interest rates (to be specific the fed’s rate of lending) typically move hand in hand. As rates move up commodity prices move up. Rate move up because they are used to combat inflation. Inflation of circulated money, not price inflation. Inflation of circulated money causes price inflation. Thus price inflation returns as rising prices. Rising commodity prices for one.

    With 2 to 3 rate hikes priced into the markets Oil at @80 a barrel did not equal a Fed Rate of 5.25%. $80 oil was in anticipation that rates were going to be 5.75% to 6.0% within 2-3 meetings. the same can be said for most energy and metal prices. When the Fed announced a pause the markets digested that a pause in the rates had to erase the expectation for 2-3 more hikes. Just like P/E multiples for future earnings. You buy a stock not for their current earnings but what they will earn in the future. Eventually when earnings reaches your expectations of earnings. The price per share will be inline with present earnings. But at that point in time price will be higher because it will be expecting further growth. Until growth slows or reverses.

    The drop in across the board demand for energy commodities was the result of lost expectation. And I say if the Fed decides to drop rates to protect against deflation, of money supply, not prices, you will thus see a further fall in commodity prices because expectation will be that current businesses and consumers are using money to pay down debts and streamline operations (cost of business or living). the expectation will be that money will be cheaper to borrow in the future when the Fed Rate bottoms so expansion plans will be sidelined until then. To see what I mean go look at the volumes in commercial paper and when the big spike in volume occurred. Not when the fed Rate bottomed because expectation was for the rate to fall below 1.0% back then. It was when the Fed announced that they would start raising rates. Expectation shifted and borrowing went through the roof.

  11. cornerkick says:

    There are a few obvious flaws with the conspiracy theories:

    1. Goldman Sachs

    The problem here is that Goldman Sachs is traditionally the biggest supporter of the Democrats on Wall Street. From an InvestmentNews.com article:

    “Some Wall Street firms long have been in the Democratic camp in terms of the total amount of donations made by their employees. The Goldman Sachs Group Inc. of New York and its employees, for example, are the securities industry’s top contributors to Democratic candidates so far in 2006, as they were in 2002. So far in the 2006 election cycle, the company and its employees donated $2.6 million to political candidates and committees, 60% of which went to Democrats.”

    With all of the Democrats there, is it really likely no one would have blown the whistle on the fact that they drove down gas prices merely to help the Republicans?

    2. Stocks

    The question that conspiracy theorists have to answer regarding stocks is why global equity markets are all heading higher. If this was just some Republican scheme to pump the Dow, then why are the FTSE and DAX over 6000, the Hang Seng over 18K, the Bombay Sensex at 13K, etc. If we weren’t heading higher we would be conspicuous by our absence.

    Excess global liquidity, a fair amount in the hands of hedge funds that have moved out of commodity plays and into equities, combined with a more optimistic global economic outlook than most people here have would seem the more likely explanation rather than believing that Karl Rove is behind everything that happens in the world.

  12. rosstock says:

    can’t help scratching my head with what appears to be almost unnatural oil price action. Huge selloff and no bounce? Bad mid east news nowhere to be found. Downward economic revisions are not bringing any real selling. Retail is That strong? Been at this game 10 plus years and my best idea is long GS!

  13. anderl says:

    “Excess global liquidity, a fair amount in the hands of hedge funds that have moved out of commodity plays and into equities.”

    Cornerkick hit the nail on the head. Deep money that was sitting in commodities over the last x number of years exited leaving the performance chasers to but the top on commodities. That money had to be invested. No one other than Berkshire Hathaway and Bond investors are willing to sit on a measly 5% growth. They would have their clients fly to funds that take on greater risk and potentially greater reward. All that money poured into equities because there was value there. But because of rates were fair to high and the Fed was able to slow the economy and inflation of money down somewhat there was risk in investing in lower market capitalization companies who could not afford the high rate of borrowing and the high costs of materials relative to the environment 3-5 years prior, to expand their businesses. So those funds played it safe and put their money in the large caps and blue chips. Now what we are seeing in performance chasers and retail investors running their money into the large caps on the expectation that the market is going higher.

    I should say that it may very well go higher from here as it can go lower. I really am not sure which way it will go. I will say that selling by the early birds that bought in back between July-August will want to take profits. That will more than likely increase volatility in the near term.

  14. fearlessmanateehunter says:

    I’ve got just three words for you dude…! “Henry M. Paulson”.

    The Fearless Manatee Hunter,
    Killer of the Gentle Sea Cow

  15. joe says:

    Gasoline futures being responsible for taking down the price of oil is the ultimate tail wagging the dog. While the GSCI component change certainly marginally affected the price of gasoline, most of the decline has been due to falling oil prices.

    If someone can explain how selling gasoline futures affected the price of oil, maybe I’ll listen, but until then this is just an example of the mind seeking a rational explanation for a seemingly irrational market rally.

  16. Q-Ball says:

    joe,

    You beat me to the punch on the key point that I have not heard answered.

    To expound on it just a little further. As you say, gas follows oil, not the reverse, but lets suppose that short term you could drive down just the price of gas by dumping gas futures like crazy from the GS index. Ok, so then why does oil go down with it in tandem. Not only that but when looking at the GS index while gas exposure was reduced oil exposure was increased. Thus if its as simple as the futures activity in the GS index driving the action in the price, then gas should have decreased but there should have been a bid under oil as they increased their exposure to oil by almost 1 percent more.

    Granted the oil exposure increase was smaller than the gas exposure decrease but it still doesn’t explain why this decrease in exposure to gas and increase in exposure to oil would drive down both oil and gas prices. This correlation discrepancy is never discussed. And the reason is because its logically inconsistent with the thesis of the conspiracy and therefore it is either overlooked or simply dismissed.

    What say you Barry about how this could occur? If this is a gas index issue what explains the drop in the price of oil?

  17. Leisa says:

    Jeffrey Saut at Raymond James is certainly one of those folks who finds the market action unnatural and who has referenced the Goldman Sachs re-indexing. I think that Barry has referenced his work. He’s definitely worth a listen. YOu can find him here: http://www.raymondjames.com/inv_strat.htm

  18. speedlet says:

    As baffled as I am by the rally of the past few weeks, and although I wouldn’t put it past this administration to manipulate the markets if they could (they would probably crow about it), there’s one problem here — the sheer size of the markets in question.

    It’s one thing to manipulate some lightly traded small-cap stock. It’s another thing entirely to move a multi-trillion dollar market up day after day after day for months. There is an old urban legend about “the big boys” (whoever they are) stepping in and walking up the S&P futures on Black Monday, 1987. But that was one day, not three months.

    No one has the capital, individually or collectively, to do this for this long. There is no line item in Goldman’s budget (or the Federal Government’s, for that matter) that provides a $1 trillion slush fund for the manipulation of the equity and energy markets.

    There’s only one party out there with that kind of money, obviously — the Federal Reserve itself. So what you’re asking us to believe is that Gentle Ben (at the behest of the White House) is printing money and then moving it directly into the futures markets.

    Is this plausible?

  19. Kevin_r says:

    Speedlet,
    I think it would only be possible if the market was ready to go up a bit anyway. It might take a lot less, especially if it was aimed and timed precisely, to boost and extend a rally and to prevent it from slipping back. If you got a bit of momentum going, others would hop on for the ride and do most of you work for you.
    What would be impossible would be hold a large market far from where it wanted to be for any length of time.
    For example, _if_ the Goldman-Sachs index rework did help bring down oil, that would only have been possible because oil was ready to come down anyway. If war with Iran had broken out the day after the index rework and the Persian Gulf oil flow all cut off or dear Kim had done something sufficiently stupid, oil would have soared past $100, GS or no GS.

  20. Jason M says:

    Someone here mentioned that the Plunge Protection Team is a rumor. That’s not true. It absolutely exists, it is called the President’s Working Group on Financial Markets. It was created after the 1987 crash, and was supposed to meet only in times of great crisis. Under Henry Paulson, the group has been meeting every 6 weeks.

    I will say, I’ve been watching the markets every single day, and I agree that it’s been acting weird. Markets do move in waves — even healthy bull markets go up and down, and have healthy corrections as they ascend. We haven’t had a single day with a greater than 1 percent downturn in months. On Friday, we got news that the US GDP was an abysmal 1.6 percent — well below expectations. It would be only natural for the market to take a nice hit on this news. Any trader who knew ahead of time that that was going to be the number would have!

    And yet, as was stated above, today, the market had a very negative trend. And suddenly, going into the bell, it snapped higher to close at almost even.

    If you go to the website Minyanville, a lot of the “Professors” there — very experienced traders, have noticed these “preternatural” upticks in market trading. These are huge volume block trades, all to the upside, the likes of which none of them — and many have been trading for decades — have ever seen before.

    Now, there are two non-conspiracy explanations out there that I know of. One is that there is a record amount of short interest in the markets right now. So these huge upticks are shorts (who have been getting killed) covering on every downturn. I don’t think this first explanation is very likely, because the downturns haven’t been big enough for shorts to cover. Panic short covering happens during up-ticks, making them go higher — not the other way around.

    The second explanation is that foreign central banks, such as China and the Saudis, are buying U.S. indexes. Not at the behest of the Bush administration, but simply to hold up U.S. consumer confidence so that we keep consuming at such a rabid rate. The Chinese have had their fill of U.S. treasuries, so now they have moved on to U.S. securities.

    The final possible explanation is that the Fed is reflating the U.S. economy by buying equities through foreign central banks. I don’t know exactly how this would work, but the idea is that this isn’t a political decision on the Fed’s part — it’s a practical one. The Fed cannot have deflation — not now, not ever — given the U.S.’s current debt position. So they are using all means at their disposal to avert the dollar deflation that should be a natural by-product of globalization.

  21. speedlet says:

    Kevin r –

    Thanks for your comments. I wonder, however — even if the markets could be manipulated by one party (Goldman, for instance) wouldn’t the profit motive kick in and cause them to sell shortly thereafter, defeating the purpose of the whole exercise?

    After all, most — if not all — market manipulation schemes are about realizing a short-term profit, which require that the manipulator dump shares into the frenzy he has just created.

    The manipulation we’re talking about is about making political gains that would presumably have a long-term benefit somewhere down the road, in the form of legislation, political influence, etc. The problem is, on Wall Street, short-term gains trump long-term strategy every time. After all, managers are compensated based on their quarterly performance, not their political loyalty.

    If Goldman were able to engineer a massive three-month rally, presumably they would feel enormous pressure to realize their paper profits, and they would start dumping assets — causing a huge downdraft. So any manipulation of the market for political purposes would be self-defeating.

    Which means that the only party that would be able to pull something like this off would be “not-for-profit”, so to speak — a wholly political entity, such as the White House….. or the Fed.

  22. Bullion says:

    The US stock market ismore and more a third world market: no matter want happensand what the news are, at the end of the day a misterious strong hand comes to put the market where it wants!!!
    How long can this farse continue?

  23. challo says:

    “There’s only one party out there with that kind of money, obviously — the Federal Reserve itself. So what you’re asking us to believe is that Gentle Ben . . . . . ”

    REPO’s

    http://www.bullandbearwise.com/FOMOChart.asp

    POMO’s

    http://www.bullandbearwise.com/SOMAChart.asp

    and another permanent injection made today that is not included in the above chart – for $1.430 Billion.

    See the Fed site -

    http://www.ny.frb.org/markets/pomo/display/index.cfm

  24. BDG123 says:

    If you believe there is a PPT, and because Reagan signed some bill people now consider this nefarious organization and that they are able to stop market dumps, why didn’t they stop small caps from cratering 40% in 1998 or the Naz 85% in 2000?

    Something is ominously odd here and I’m wondering what is going on myself, although I tend to think a rather simple explanation exists, the Fed is NOT CAPABLE of propping up every stock market in the world. Today, every stock market in the world is going up. So, do we have a mass global conspiracy propping up $100 trillion in equity valuations?

    Be real.

  25. cButler says:

    Conspiracy? What conspiracy? Stock indexes almost everywhere are at or well above their May highs, with the most interest rate sensitive ones greatly outperforming US markets. The feeding-frenzy, incomprehensible as it may be, is worldwide. The only political connection I can see is some euphoria at the possibility that George Bush will finally be manacled.

  26. wunsacon says:

    >> I have a great aversion to the idea of
    >> conspiracies simply because I don’t believe
    >> that its possible for a large number of
    >> politicians and bureaucrats with big egos
    >> to keep anything a secret.

    Generally, they don’t necessarily *have* to keep it secret. As long as people share your natural aversion — and we do or, er, I used to — then “proof” can become “public” without very many people actually reading about it.

    For a long time, I wasn’t aware how many coups we’ve helped succeed. The information was always out there (well after 25, 50, or 75-year intervals, so people just assume “that was then…we’re not like that now”). I just tended to discredit it. That dynamic results in the phenomena we call “information cascade”. And, if the information stops cascading before “enough” people know about it, we end up with “open secrets”.

    Uh oh, I remember writing something similar to this before. Instead of repeating it, here’s the old URL:

    http://bigpicture.typepad.com/comments/2006/09/calling_all_con.html

  27. S says:

    Regarding the price of oil, I find it interesting the reserves taken from the strategic petroleum reserve following Katrina haven’t been replenished.

    And you’ll recall the intense political debate prior to releasing the reserves. It was fiercely argued the reserves are so critically important to national security that they shouldn’t be released in the wake of Katrina. So, you’d think that since the reserves are so important to national security, they would be replenished ASAP after the emergency subsides.

    Wrong.

    Bush first ordered the DOE to halt refilling the reserves prior to the summer driving season. More recently, as the elections approached, he decided it might be a good idea to wait until after the winter heating season.

    I have a feeling they’ll get around to it after the elections.

  28. speedlet says:

    Challo –

    Forgive me if I’m mistaken, but POMO’s (permanent open market positions) refer to open market purchases in the Treasury Markets, do they not? This is all above board and not unusual.

    It’s another thing entirely if they were secretly making purchases in the derivatives markets….

    Another question for those of you more astute than I: could any of this have a connection to the Fed’s recent decision to stop disclosing the M3 (money supply) numbers?

  29. wcw says:

    Probably not. Gerrymandering works. In rough terms, to have a 50/50 chance at House control, the Democrats need 52% of the votes, and 55% to be almost certain. National 55/45 splits are hardly unknown in US politics, but we haven’t seen one in a long, long time. Remember the “Republican Revolution” in 1994? The GOP got 53.6% of the two-party vote that year.

    In re: conspiracy, I am enheartened that folks have noticed Goldman is the Street’s traditional (D) house. Paulson is the exception; Rubin is the rule. You can believe it if you want, or you can pay more attention and start shorting refiners the next time crack spreads look kooky. Spreads were up, refiners were up, but inventories kept building; my first short trade was July 7.

    On the market, I don’t doubt it can be gamed, but I’d like to see evidence that beats “feels weird, man.”

  30. Mark says:

    S, good point.

    let’s also remember everyone and his sister jawboning over the summer how this years hurricane season would be worse than last year’s and we all know how that prognosis turned out-

  31. rebound says:

    You are naive. If today’s wars are about oil and pipelines, then market swings advantageous for the reelection of an “Oil Party” should be considered with skepticism. If the tables were turned, the same scrutiny should be applied to other parties and their interests and affiliations.

    So go ahead, forget about Enron. And this bit about Goldman being traditionally a Democratic outfit? Well, traditions change and people and corporations act in their own best interest. Besides, who was recently appointed treasury secretary?

    http://en.wikipedia.org/wiki/Henry_Paulson

    What organization did he head?

    BTW: Aside from his connections, he is probably INFINITELY qualified for his new job … as may be helicopter Ben who has been given mission impossible, and is very early in his tenure. It’s way too early to judge either on job performance.

    Therefore there may be absolutely zero market manipulation in this case, but it would be foolish to try and dismiss theories before analysis has been completed.

    If you want a conspiracy theory then consider, after a few beers, that OPEC is simply trying to lower prices so that it no longer becomes economically viable for coal gasification and oil shale production to ramp up in North America.

  32. blam says:

    From 1990 through 1996 Sumitomo metals manipulated the copper market through control of the futures market and buying physical copper and hiding it in warehouses all over the world. The exchanges knew what was going on, the speculative banks funded the illegal contract purchases, the companies knew it. No on made a move to stop it.

    The energy crisis of 1999, especially in California, was a scam that was promolgated by a number of utility companies that had “started” trading desks including Enron. The money behind the scam was the speculative banks. The swindle went on for months in one form or another.

    A speculative bank was caught and prosecuted for cornering the treasury market in the early 1990′s.

    As a part of the Greenspan sell out, he allowed Citigroup to openly break the law and combine retail and commercial banking. Since that time, we have had the credit bubble, changes in the bankruptcy laws, shylock credit card rates, and who knows what else.

    The large speculative banks have been making their money “trading”. Who the hell are they trading against. They are not a crowd that likes a fair and honest game.

    In the aftermath of the NASDAQ, the major wall street speculative banks were prosecuted and pleaded no contest to swindling investors by using analysts research to pump and dump NASDAQ and Telecom stocks. They were also trading IPO shares off line to gain business.

    The speculative banks funded the LTCM hedge fund far in excess of statutory lending standards and without performing due diligence. They also traded with LTCM in their own accounts. The collapse of LTCM almost brought the financial system down.

    Henry Paulsen is a Republican that ran GS prior to the current questionable market activity, which stretches across all markets. We know nothing really about Bernanke other than that he was Bush’s head of the council of economic advisors. My reading of Bernanke is not good at the current time. He has been instrumental in the inflation of serial bubbles and massive expansion of the money supply. He appears to be passing low cost financing to the speculator banks to pump the equity markets prior to an election for political gain. This party has been engaged in serious constitutional offenses in the area of elections and civil liberties.

    Not only do I think it possible, it’s probable.

  33. Test says:

    No question this market is highly manipulated, the traditional supply and demand theory never apply to the market at all, believe or not.

  34. society_against_the_society_for_tinfoil_hats says:

    All this talk of conspiracy is poppycock.

    Changing the index means nothing.
    Not refilling the SPR means nothing.

    Let’s not theorize about conspiracies until someone admits to it. Conspirators always go on record to announce their conspiracies, even while the topic remains relevant.

    All market activity is completely impervious to attempts by private participants and especially by larger (and therefore less powerful) market participants like governments. This is so well known that no one even tries to manipulate markets.

    Anyone who disagrees with this conventional wisdom just wants to wear a tinfoil hat, like in “Signs”.

    (Did I express the conventional wisdom?)

  35. whipsaw says:

    I can’t vouch for the methodology or accuracy, but I ran across a link at minyanville today to Reconstructed M3 which shows that it is going thru the roof notwithstanding all of the Fed posturing about inflation concerns. Purely coincidental that it was dropped as a published metric in the Spring and the rate of change went vertical in July, right?

    Apparently, there are some people here who did not live under Richard Milhous Nixon and don’t understand that his former toadies are the ones actually running things now. They are not as dumb as they act and don’t recognize any boundaries of any description.

  36. JGarcia says:

    Hedge funds are a majority of current trading. Many hedge funds believe in conspiracy theories (e.g. Minyanville). They have also been VERY negative on the economy, earnings, the consumer, the dollar, productivity, inflation, energy ($100 / brl), etc.

    It seems to me that the bears have been wrong for quite a while. Conspiracy theories make a nice smoke screen for that. Perhaps we can consider that the equity market has been held back by the emotional and physical drain of the 2000 bubble, and after 6 years of recovery and growth, equities have become CHEAP compared to every other asset extant.

    Meanwhile, the bets have been placed, in a crowded fashion, as hedgies crib each others playbooks…the recent energy rinse job is the latest example. They are now collectively racing each other to the liquid growth names. Enjoy it if you dare.

  37. Oh, this conspiracy stuff is nonsense. There’s no there, there. “blissfully unaware of what they wrought”?? As if these guys would think “hey- there’s an election a few months away, maybe we should put this change on hold just in case it gets interpreted as a political manipulation”. My pals at Goldman are there to make money, not to think of potential political consequences. And make money they did, as usual, and exited with admirable elegance at the tippy-top!

  38. JGarcia says:

    We’ll see if this was the tippy- top Sherman. Yes it would make sense, but…

    The market has its sights set squarely on the easing process, and the consequent wind at the backs of equites (despite the rational, crowded bear case).

  39. Mark says:

    Minyanville please, most of what i’ve been seeing there lately is called CYA. How are those Goldman Sachs puts doing? that NAHB graph overlayed vs. the S&P, now that was some serious analysis. Overnight blips in the eMinis points to “proof” of a master plan behind the scenes, yeh ok. Cramer’s a moron, but its becoming more obvious why he parted ways with Toddo the bartender.

  40. alexd says:

    Ok,

    Someone this year asked me why the price of oil was going up at the time. I said because we were one barrel short. Stunned look then “your right”.

    I definetly have to at least wonder why the feds would load up the oil reserve at higher prices per barrel than now, and not be buying at these more reasonable prices. If the price of gas goes down, I fill up the tank if I think I am going to use it in short order. How much oil does our military eat in short order? It becomes an issue of what is salient. What is on peoples minds. I buy a value stock because the price is low and I feel that hopefully sooner than later the market will recognize that value and bid it up. Or even better another entity will come along and make a real offer for the whole shebang. The question with prices is: on what volume?
    What is usual or unusual. I bet the people reading this blog, if they all got together could manipulate a market in a stock. Not that we should. But I get spam from a- holes aobut once a day touting some penny stock that they likley already have a postion in . It just does not take that many buyers to move some issues. The oil reserve bought how much per day? What is the amount needed to effect a change in price?

    I do think not reporting m3 is blatent coverup. I also agree the gov. cannot afford deflation. Especially the Republicans for then the increase in debt would really come home to roost and a lot of folks with substantial investments in both politics and investments would loose big. Not to mention almost everyone.

    Cash does follow high returns and that snowballs into price.

    Be well.

  41. Paul Jones says:

    Hey Kevin R,

    They kept the Manhattan Project Secret, they kept Tonkin secret, Enron was also secret for some time as was the WMD/Iraq scandal. So yes people do consipre, and yes things can be kept secret. It’s simply that the internet makes it harder and harder to do that for any sustainable period of time.

  42. Although widely thought of a Democratic firm –- Goldman Execs include NJ Senator/Governor Corzine and former Treasury Secretary Rubin are both widely known Dems – several current and former employees have insisted that this is not the case. They have argued that GS is far more GOP leaning than most people realize; At the very least, it is of mixed partisan leanings.

    Consider: President Bush’s Chief of Staff Josh Bolten is a Goldman alum, as is Treasury Secretary Paulsen. Actually, GS has quite the list of alumni at the White House, including Stephen Friedman (Director of the National Economic Council), and recent nominee Robert King Steel (Under Secretary for Domestic Finance,
    Department of the Treasury).

    As a former Goldman Sales-trader said, “GS, US what’s the diff?”

  43. JGarcia says:

    How does speculating on conspiracy theories make you money? It’s a distraction, no?

  44. Poly Anna says:

    What if it’s not about the election. What if it is about hedge (and other large) funds making up for their dismal returns after May. After all, who is the beneficiary of this massive liquidity…mom and pop and their son the day trader? Since that day under the Buttonwood tree the biggest money has relied on insider info and collusion for their best trades…and to think they couldn’t all pull their highly leveraged selves together (with a tip or two from GS) to create a “rally” is naive. Make Main Street think they are really missing something, then distribute to them at the top. And won’t that election make a nice distraction.

  45. whipsaw says:

    Pretty good wrapup of this stuff here. You don’t have to call it a conspiracy if you prefer otherwise, you can just consider it a timely episode in the pattern of intervention that began nearly 20 years ago and has been accelerating as we move towards fully managed markets.

  46. T says:

    Everyone here is too market focused. Do you really think the median American has much interest in the stock market, given that 50%+ of the wealth in stocks is concentrated in the hands of the top 5% of the population? Almost all of the equity holdings of the average guy is concentrated in long-term retirement holdings, and this recent market run of 5-10% just isn’t enough to grab the attention of the average guy with a few bucks in his 401k.

  47. jpmist says:

    “I have a great aversion to the idea of conspiracies simply because I don’t believe that its possible for a large number of politicians and bureaucrats with big egos to keep anything a secret.”

    I see his point, but four or five years later we still have no idea exactly who met with Cheney’s Energy Task Force or what was discussed. The Sierra Club went to the Supreme Court and their request for details was slapped down.

    I’m quite convinced that there is a sub-set of politicians and CEOs who know how to keep their mouths shut, particularly when the stakes are so high. . .

  48. Damian says:

    Everyone here seems to be focused on one answer – what if, as in most markets, all of these things are going on at the same time:

    - Hedge funds/mutual funds chasing performance.
    - Record short interest/wall of worry. Entire hedge fund world being, essentially, bearish.
    - Huge global liquidity constantly looking for returns.
    - Changes in the Goldman oil index causing a selling of energy-related futures and money flowing into equities.
    - Speculative housing bets coming off and money flowing back into equities.
    - Relative stability in the middle-east causing stabilization of energy prices.
    - OPEC looking to decrease the price of oil to prevent alternative forms of energy from coming into focus.
    - Not refilling the strategic oil reserve until after the election.
    - Continued printing of money by the Fed now not reported because of the loss of M3.
    - Rise of technical trading strategies like Jim Simons making weird, unexplainable “blips” in the market.
    - Banks becoming large hedge funds themselves and trading their own, now huge, books.
    - Insert your addition to the list here.

    In other words, if all of these are true, then there is little reason to talk about market manipulation – it’s just one of a host of things going on out there.

    I do find things like the Amaranth situation very interesting. To me, that looked very LTCM in one key way. One trader, very long in a relatively thin market. Whole community likely knew he was long, and my guess is that they knew they could cause him pain. Witness the change in natural gas futures once the transfer of the positions to JPM/Citadel happened – once the positions were with a major bank without any cash problems, natural gas prices turn up. I’d love to hear people’s thoughts on that.

  49. challo says:

    Speedlet,

    WRT repo’s and pomo’s; I did not say that there is anything underhanded or secretive about them. Perhaps many “conspiratoralists” (sp?) believe they are propping up the market. Maybe they are simply a product of demand. I wouldn’t know.

    As a trader, I don’t care what they are. I just find it interesting that the market seems to move in the same direction that they do.

    http://www.marketswing.com/forum/attachment.php?attachmentid=6552&d=1162395071

    You ask if pomo’s refer to open market purchases in the Treasury Markets.

    Here is the Feds’ description of repo’s and pomo’s -

    “The Federal Reserve Bank of New York implements monetary policy on behalf of the Federal Reserve System, as mandated by the Federal Open Market Committee. To accomplish this, the Bank targets the federal funds rate through temporary and permanent open market operations with primary dealers. Securities purchased through these operations are managed in a portfolio known as the System Open Market Account and are lent on a daily basis through the securities lending program. The Bank also implements foreign exchange policy on behalf of the System and the U.S. Treasury.”

    It is interesting (and maybe telling?) that this topic has brought forth so much attention . . . . . .

  50. angryinch says:

    Bears wrote: “If housing is slowing down, then RE speculators will flood the stock market.”

    With what? You can’t buy stocks with no money down.

    As i recall, the big attraction for RE flippers and others was that you could “buy” property without “risking” much capital or even putting any cash down at all.

    How does that translate to buying stocks? It doesn’t.

  51. Barry,

    You might as well give Goldman Sachs an assist on the latest stock market pullback as well…. hit the URL link for an explanation.

  52. heather says:

    Now that oil prices are going up post-election, can we blame the oil producers for the price decrease pre-election? Or do we still blame Goldman?