Saturday, February 14, 2009

The Debts of the Spenders: Gaming the Plunge Protection Team

Government intervention in the markets is a given. But government manipulation? Well, there is a fine line between intervention and manipulation.

Given the flood of horrible fundamentals some traders have wondered - as have I - just where do those rallies come from? Well, look no further.

The President's Working Group or Plunge Protection Team ("PPT"), as it is lovingly called by short sellers, is a cabal of institutional insiders working in collusion with government regulators to promote "market stability". Their actions are a daily reality in bear markets and are responsible for the wild swings in equity, futures, bond, and options markets.

Regulators and their corporate constituency (ever notice how they are often one and the same) cannot abide economic reality and have to resort to cheap tricks to pump the markets higher so that insiders may sell at a better price.

Such tricks PRECEDE the release of major news events.

The PPT and market insiders often telegraph their moves to those savvy enough to know what to look for. Because of the immense volumes of money being moved around, the PPT often gives advance warning signals.

Such signals may include any or all of the following:

a) Large index futures orders (buy orders usually)

b) Sharp jumps in out of the money calls among the insider Wall St banks such as Goldman Sachs and Morgan Stanley. This activity can become glaringly obvious around options expiration week for same month options.

c) Sudden weakening of the yen/usd cross.

d) Steady withdrawal or decreases of liquidity from the repo market (withdrawals are enacted to increase bond demand at the expense of equity bulls) as seen through FOMC operations. This action runs concurrent with marked increases in failures to deliver among the primary credit dealers. (Theoretically the opposite can hold true if the Fed increases liquidity but since the US is in a refinancing binge interest rates must be kept low).

Except for option D the PPT maintains a decidely bullish bias. Famous examples of PPT intervention and insider profiteering include the advent of the short selling bans last July and September. PRIOR to the announcement of the short bans, open interest and volume suddenly spiked in Goldman Sachs and Morgan Stanley same month calls. It was almost as if some market participants knew something in advance. . . . .

For more background information:


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