FED behind move on Monday ??

Discussion in 'Economics' started by Fari Hamzei, Jul 17, 2002.

  1. very good point.

    still keep in mind:
    being short on trading capital is least of their worries....

    Section 20 of Glass-Steagel Act of 1933 still rules.

    #21     Jul 19, 2002
  2. ddefina


    Interesting excerpt from www.stockmarkettimer.com:

    ...The Fed PPT we referred to Friday is the "Plunge Protection Team". We wrote about the PPT a few weeks ago in this column. For those who missed it, the PPT actually does exist, although its proper name is the Working Group on Financial Markets. It is headed by the Secretary of the Treasury and counts the Fed chairman as one of its members. The theory is that the PPT acts to prevent large declines in the stock market by buying S&P 500 futures at critical times. Here's how the PPT attempted to put a floor under the market last week.

    On Monday, the PPT entered the S&P pit and bought some 10,000 contracts at 880, thereby making a $2.2 bln bet against prices declining below that level. They had to put up 25% or $550 mln to make that bet. They placed additional orders on Wednesday at 900 to defend the 880 level. The S&P's traded as high as 929.50 Wednesday morning before settling at 905 at the close. On Thursday, the market meandered between 907 and 895 for most of the session before finally succumbing to heavy selling at the end of the day, closing at 875.50 and below the PPT 880 floor level. That set up the potential for a steep decline Friday, since any serious buying pressure was no longer present. The PPT hedge may have worked if liquidity had been increasing. The Fed can increase liquidity by issuing what is called a coupon pass, which in effect adds permanent reserves to the system. But liquidity has been decreasing due to the fact that mutual funds are being forced to sell stocks to meet redemptions from investors wanting to get out. We estimate the PPT lost at least $90 mln with this little failed ruse. Our tax dollars at work.

    Government attempts to manipulate free capital markets have never been a good idea. It seemed to work during the go-go '90's, at least that's what we were led to believe. Every time President Clinton got into trouble, Treasury Secretary Rubin and the PPT stepped in to buoy up a normally self-correcting free market. The heady gains of the late 90's leading to the biggest stock market bubble in history helped keep Mr Clinton in office. "It's the economy, stupid" was more than just a campaign slogan. Should we be surprised to find out now that a few corporate executives decided it was OK to break the rules? Just don't get caught, and if you do get caught, stonewall. Our last president set the example. Unfortunately, the consequences of such morally corrupt behavior may haunt us for many years to come...
    #22     Jul 22, 2002