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48 pages of examination/information on the Plunge Protection Team.
- Thread starter EqtTrdr
- Start date
Quote from EqtTrdr:
Yes Dorothy..... there is a PPT
http://www.sprott.com/pdf/pressrelease/TheVisibleHand.pdf
i wonder why they dont collect this easy 100k:
http://www.safehaven.com/article-721.htm
The Plunge Protection Team
by John Mauldin
I have had so many letters of late asking me what I think of and/or know about the existent of the so-called Plunge Protection Team, that mysterious group of government officials who secretly prop up the stock market when it drops too much, that I am going to jump in where wiser minds would just leave the subject alone. It will offer a good opportunity for you to understand concepts of arbitrage and how the markets really work. Plus, if you can prove me wrong, I will show you how to get a quick $100,000.
Following the stock market crash in 1987, the government created something called the President's Working Group on Financial Markets. The group, which includes the Treasury secretary, Federal Reserve chairman, chairman of the Securities and Exchange Commission and chairman of the Commodity Futures Trading Commission, was formed to ensure the smooth operation of financial markets.
Citing a Washington Post article, Carol Baum recently wrote about a 1997 article: "The Working Group's main goal, officials say, would be to keep the markets operating in the event of a sudden, stomach-churning plunge in stock prices -- and to prevent a panicky run on banks, brokerage firms and mutual funds..."
"The thrust of the article is official's efforts to avert a liquidity crisis, which is exactly what the Fed did when it flooded the banking system with reserves following the 508-point plunge in the Dow Jones Industrial Average on Oct. 19, 1987. How an effort to ensure adequate access to credit to prevent a domino effect in the event of market meltdown morphed into a cabal to prop up the stock market is anybody's guess. For a window into the depths of the conspiracy theory, type "plunge protection team" into Google and see what comes up."
Every time the market drops and then "mysteriously" rallies, knowing individuals look at each other and nod, seeing the handiwork of the PPT (plunge protection team).
Let's say it straight out. The plunge protection team does not exist. It is an urban myth. Let me step by step prove it does not exist, and see if we can learn something in the process.
Supposedly the PPT manipulates the market by buying S&P 500 and DOW and NASDAQ futures when the market is dropping. Somehow, this supposedly forces the market back up. The problem is that buying futures cannot drive the stock market, which is obvious to real traders.
I talked with a few good friends about this article prior to writing it, to get some background and ideas. Art Cashin, of CNBC fame, and one of the real veterans of the markets, who ahs seen it all, wrote me the following very clear thoughts:
"Suppose you have a lot of cash and would like to buy the S&P Index. In the old days (circa 1980), you had two choices. You could buy each of the stocks in the S&P according to its weighting. Then you would own a "basket" of the 500 stocks. Or you could buy an S&P futures contract on the S&P. Which should you choose?
"If you bought the 'basket' of stocks, you would get whatever aggregate price improvement (or loss) that occurred while you owned the basket. In addition, you would get any dividends paid. A slight negative would be that it required 500 transactions (1 for each stock) and thus 500 commissions.
"If you bought the "futures," it would give you similar price action since it would mirror the ups and downs of the basket and the index. A negative would be that you would not get the dividends. Positives would be a single transaction with more favorable margin requirements.
"By constructing a formula of the variables - total dividends, time left to expiration and interest rates, etc. - you can determine if one of these choices is cheaper than the other. This is called arbitrage.
"An old example of arbitrage was gold. If gold was selling at $300 in Paris and $350 in London, one Rothschild might send in a pigeon to another Rothschild suggesting A buy in Paris while B sold in London allowing the firm to pocket the $50 (less transportation and currency conversion).
(more)
"The futures/basket formula gives you equilibrium or Fair Value. If stocks (the basket) go up faster than the futures, you might sell the expensive stocks and buy the cheaper futures. If the futures ran faster then you would, do the opposite. This is called index arbitrage or sometimes program trading....
"Anyway, the arbitrage between baskets and futures is now much bigger thanks to the addition of Exchange Traded Funds (ETF's). So now you can "arb" the basket against the futures or the S&P Index (ETF) (or any combo thereof). It is a huge market."
* Trading desks do arbitrage program trading for a fraction of a percent on a trade. Any attempt by the Fed to manipulate the market would just make a lot of money for hedge funds and trading desks.
* The amounts of money required to attempt such a manipulation would be huge. We are talking tens of billions of dollars if there was a true collapse going on. The collective size of the trading community in the world (hedge funds and "prop" desks - a prop desk is a proprietary desk for an investment bank or broker-dealer) is in the multiple hundreds of billions. It would require the willingness to lose billions of dollars every time you took the plunge, so to speak.
* If the Fed or Treasury or some slush fund did buy stocks, it would inject liquidity or more total money into the financial system or money supply. Since the Fed openly manipulates the money supply every day in transactions that everyone can see, in order for the Fed to hide the activity of the PPT, they would have to take out liquidity by selling treasury notes. Otherwise, the numbers at the end of the day or week would not add up, and someone would notice. But if they were taking out liquidity and the money supply did not go down, then someone would know something was up. You can't hide these numbers, unless you can get a lot of clerks at the Fed and elsewhere to agree to lie.
* You could not keep something of this size secret. Period. The orders would have to be entered somewhere. The theory is that Goldman Sachs or Citibank (or pick a firm) is part of this conspiracy. That means that multiple traders and officers would have to be in the know. You cannot mask trades of that size because it would essentially be the largest hedge fund in the world. Someone would spill the beans. Can you imagine the signing bonus from a book publisher if you could prove the existence of the PPT?
I hereby offer a $100,000 advance against 50% of the royalties to anyone who can "show me the trades." Give me names and dates. I will write the book, and we both become famous.
(more)
"Anyway, the arbitrage between baskets and futures is now much bigger thanks to the addition of Exchange Traded Funds (ETF's). So now you can "arb" the basket against the futures or the S&P Index (ETF) (or any combo thereof). It is a huge market."
* Trading desks do arbitrage program trading for a fraction of a percent on a trade. Any attempt by the Fed to manipulate the market would just make a lot of money for hedge funds and trading desks.
* The amounts of money required to attempt such a manipulation would be huge. We are talking tens of billions of dollars if there was a true collapse going on. The collective size of the trading community in the world (hedge funds and "prop" desks - a prop desk is a proprietary desk for an investment bank or broker-dealer) is in the multiple hundreds of billions. It would require the willingness to lose billions of dollars every time you took the plunge, so to speak.
* If the Fed or Treasury or some slush fund did buy stocks, it would inject liquidity or more total money into the financial system or money supply. Since the Fed openly manipulates the money supply every day in transactions that everyone can see, in order for the Fed to hide the activity of the PPT, they would have to take out liquidity by selling treasury notes. Otherwise, the numbers at the end of the day or week would not add up, and someone would notice. But if they were taking out liquidity and the money supply did not go down, then someone would know something was up. You can't hide these numbers, unless you can get a lot of clerks at the Fed and elsewhere to agree to lie.
* You could not keep something of this size secret. Period. The orders would have to be entered somewhere. The theory is that Goldman Sachs or Citibank (or pick a firm) is part of this conspiracy. That means that multiple traders and officers would have to be in the know. You cannot mask trades of that size because it would essentially be the largest hedge fund in the world. Someone would spill the beans. Can you imagine the signing bonus from a book publisher if you could prove the existence of the PPT?
I hereby offer a $100,000 advance against 50% of the royalties to anyone who can "show me the trades." Give me names and dates. I will write the book, and we both become famous.
(more)
If we don't already have a PPT, we should. Millions starving in the U.S. (like in the 1930's), is no longer a tolerable option.
Once you really understand the inter workings of the merc or cbot as far as the clearing and out trades and the way the trades are reconciled at the end of the day. One can only come to the conclusion that this is impossible. There would have to be SO MANY people in on it that you could NEVER keep it a secret. There are way to many people involved in a single transaction for this to be hidden. This would have been especially true back in 1987. No way no how. Jim