On February 22nd, I wrote;
If you are going to invest ANY money in the financial markets, you need to understand two things.
1) Who controls the money supply?
2) Who or what can possibly manipulate the stock market.
These are two very important things to keep in mind.
On Tuesday, Chinese stocks fell almost 9% in a day. Who pulled the plug? Do you really believe that all fund managers were telepathically connected to one another and decide in concert to sell? No way Jose’!
Don’t get me wrong, I am not defending the sell-off in China. My point is simple. I just want to make sure we all understand who really controls the financial markets.
Case in point, in March 2000, we saw first hand what the “Button Pushers” can do. The “Button Pushers” are financial elites who control monetary flows, and have incredible power over stock market booms and busts. For the past 6 months, they were content with keeping a steady amount of buying pressure on the U.S. market indexes.
After the US delegation ( Hank Paulsen -Treasury Secretary, Ben Bernanke -Fed Chairman, and Susan Schwab -U.S. trade representative) visited China in December, and came back empty handed, do you think it is possible that these “Working Group” members turned their pit bulls lose on the Chinese markets as a warning shot across the bow?
Keep in mind that Paulsen and Bernanke are members of the "Plunge Protection Team". The PPT came about 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:
Even Jeff Saut, managing director of investment strategy at Raymond James acknowledged the PPT with these observations about our stock market rally since July;
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.
We will find out in the days ahead whether the sell-off in the Chinese markets was a one day wonder (warning shot) or the real deal.
I don’t believe the PPT can control foreign markets like they can our own, but I am convinced they know a number of investors who can.
As an example, what investment banks were involved in the underwriting of some public Chinese stock offerings?
Goldman Sachs- As CEO of Goldman, TS Hank Paulsen called on Industrial & Commercial Bank of China (ICBC) CEO Jiang Jianqing regularly. In May 2006, Fortune Magazine reported that “Jiang's daughter had worked as a summer intern at Goldman in New York City”. They also said that “Paulson had underscored the firm's commitment by pledging to buy a 7% stake in the bank for $2.6 billion”.
As it turned out, Goldman Sachs didn’t get the IPO business for ICBC, but Merrill Lynch, Credit Suisse, and Deutsche Bank did.
The bottom-line in this example is that US Investment Banks were the leaders in taking many, if not most Chinese IPO’s to the market. These firms also acquire stakes in the companies they help underwrite.
