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Many Market Mavens are Lost for Words

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Its amazing isn't it? A few short months ago some very well respected market experts were right about the economy, corporate earnings, and the negative effects on the consumer, but were wrong about the market.

Under "normal or historical" measures, they would have been right. But, when you have outside influences driving the markets higher, one tends to become disappointed in what was once the free market.

Never before in our history have we seen the law of supply and demand interrupted so blatantly with the exception of periods of market turmoil.

We are seeing some very strange things taking place today. For example;

1) Henry Paulsen takes office as Treasury Secretary in July of 2006 and the markets took off and never looked back. Market Mavens like Jeff Saut at Raymond James said;

October 2006:

"Almost on cue those mysterious buyers showed-up early last week, at 6:30 p.m., to be specific, and drove the S&P 500 emini-futures contract from 1375 to 1397 in only two minutes."

"While we have no idea who those mysterious buyers have been, the October 13th edition of the Wall Street Journal had an article titled "Paulson Pulls for U.S. Markets", which implies it just may be the Plunge Protection Team (PPT) . . . aka the President's Working Group on Financial Markets that was created in 1988 by President Reagan under Executive Order 12631. Whoever those buyers are, there has been an unnatural bid to the equity markets ever since Goldman Sachs (GS/$188.67) unexpectedly re-weighted its much institutionally indexed commodity index in late July, dropping the gasoline weighting from 7.3% to 2.5% in staged increments right into November. We have repeatedly argued THAT has been the major reason for the DJIA痴 explosive rally, for obvious reasons, and the 87.8% correlation between the two (the decline in gasoline and concurrent rise in the DJIA) implies the same correlation."

2) Oddly, many former cabinet members in both the Democratic and Republican administrations have joined Hedge Funds or Private Equity firms. Just recently, Paulsen's former employer (and Jim Cramer's too), Goldman Sachs was involved in a private equity transaction when they purchased Alltel (AT).

Here are a few former Cabinet members, and other Executive Branch employees who are now involved with Hedge Funds or Private Equity;

-Richard Breeden, former chairman of the Securities and Exchange Commission, is now a hedge-fund manager.

-Former Secretary of State Madeleine Albright (Clinton Administration) started an emerging-markets hedge fund called- Albright Capital Management. Albright has no prior investing experience.

-Former Treasury Secretary Lawrence Summers (Clinton Administration) took a job as managing director at the private-equity firm D.E. Shaw.

-Former Treasury Secretary John Snow (Bush Administration) was appointed chairman at the hedge-fund/private-equity firm, Cerberus Capital.

-Former Vice President Dan Quale (Bush Sr.) also took a job with Cerberus Capital.

-Former Secretary of State Henry Kissinger is said to have a roll advising hedge funds "on how geopolitical events affect their investments."

- Even though he wasn't a cabinet member, Democratic Presidential hopeful, John Edwards (D) said "that he worked for a hedge fund between presidential campaigns to learn about financial markets and their relationship to poverty—and to make money too."

Here's something odd. Don't you find it strange that the Federal Reserve can raise interest rates for the average American, forcing their monthly mortgage and home equity payments to rise, but Private Equity can go to Japan and borrow money at 1/2 or .50%, and buy stocks or entire companies with the cash?

Is it me, or is this a classic case of screwing the little guy?

It’s clear those Hedge Funds and Private Equity have enough clout to call on those "mysterious buyers" to drive the equity markets higher. Were the well respected market experts wrong about their predictions on the market? Under “normal" market environments, they would have been right on the mark.

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