As reported by "The Big Picture" (www.bigpicture.com), Treasury Secretary Hank Paulson "said he hoped declines in housing prices had been largely offset for Americans by higher stock prices:"
Oh really, Hank? So, is your "Plunge Protection Team" at work driving the markets higher?
Here are Paulson's comments courtsey of the Big Picture;
"We had a retail housing market in this country that was growing at an unsustainable rate for a number of years, so we had to make that transition from...unsustainable growth to a more sustainable rate," he said in a radio interview by WTMJ Milwaukee.
"There's been a correction, a significant correction," he said. "I know the individual homeowner is feeling this concern as we have the correction. Hopefully some of that impact has been offset by an equity market that has added a trillion dollars of value and impacted positively peoples' 401K, their savings and other things."
Jeff Saut in his weekly column at Raymond James made reference to the fact that something weird was going on in the market.
Saut said;
Yet, there remains an eerie bid in the equity markets since those July lows. For example, markets typically rally, then correct by about one-quarter to one-third of that rallys point gain, before beginning another rally phase. After that phase, they again correct by one-quarter to one-third before re-rallying. This, however, has not been the case recently. Indeed, every time it looked like the indices were about to correct, mysterious buyers materialized in the futures markets. Those buyers tend to widen the futures premiums so far above the cash markets that it attracts arbitrageurs. The arbs, in turn, short the futures and buy the appropriate baskets of stocks. That operation allows the arbs to lock in the spread between the futures price and what they paid for the basket of stocks, assuring them a risk-less profit and, in the process, driving stocks higher.
Not many people are familiar with the "Plunge Protection Team", but after the 1987 market crash, President Reagan signed Executive Order 12631- Working Group on Financial Markets - Mar. 18, 1988; 53 FR 9421, 3 CFR, 1988 Comp., p. 559.
Here are some highlights of the order;
"By virtue of the authority vested in me as President by the Constitution and laws of the United States of America, and in order to establish a Working Group on Financial Markets, it is hereby ordered as follows:
Section 1. Establishment. (a) There is hereby established a Working Group on Financial Markets (Working Group). The Working Group shall be composed of:
(1) the Secretary of the Treasury, or his designee; (2) the Chairman of the Board of Governors of the Federal Reserve System, or his designee; (3) the Chairman of the Securities and Exchange Commission, or his designee; and (4) the Chairman of the Commodity Futures Trading Commission, or her designee.
Section 2. Purposes and Functions. (a) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence, the Working Group shall identify and consider:
Well I'll be darn, Henry Paulson, as Secretary of the Treasury, is one of the four people who can manipulate the markets through the use of futures options.
Is this happening? We will never know. But as Jeff Saut states above, "Yet, there remains an eerie bid in the equity markets since those July lows."
Comments (1)
Since this market looks like driven up by the Plunge Protection Team I have a simple question: Why go against the Big Boys?
John: I remember that you recommended/wrote about some Short Funds last summer, but you must be deep in the red with them. Do you think the time has finally come to buy some protection, e.g. Short Funds?
Posted by tinman | October 26, 2006 4:22 PM
Posted on October 26, 2006 16:22