Otherwise known as the "Plunge Protection Team".
Guys, quit it. C'mon, the people who read this blog are far above average on the intelligence scale. I keep hearing this whenever the market moves up (and people don't think it should.)
Let me put this out there - I
fully believe such a group exists
and I further am 100% certain that any such group is absolutely incapable of preventing a market decline for any material amount of time if the market is inclined to implode through any mechanism other than shutting the market down entirely.Now this does
not mean that the government might not step in after extraordinary events - like 9/11. They did -
they closed the markets!No, I am speaking of
covert activities.
Overt, published activities of the Fed are common. They execute what are known as POMO and TOMO operations regularly to remove and add paper currency into and out of circulation on a regular basis.
All of this is published - it is NOT a secret.Back to
covert operations.
Let's posit that there is a
covert "plunge protection team", the purpose of which is to
prevent market declines.To do this it would have to either add crazy amounts of money to the system, or buy securities directly (to drive up the price by reducing supply)
Let's dispose of the "buy securities" argument immediately. If they did that, they'd now own silly amounts of stock, which would instantly show up in reduced float, massive short squeezes, etc. All of which would have no "logical" explanation and pretty soon someone would figure it out. Never mind that whoever was on the other side of those trades would get damn suspicious when they were able to consistently sell to someone
above the ask!
So that leaves "inject crazy amounts of money" argument.
That's going to be detected, as the amount of money injected won't match the M1 and M2 numbers, and the (now computed, as the government no longer publishes it) M3 number. In short, if the government were to do this on any sort of regular basis, it would get caught, there would be massive exposes', and that would be one HUGE scandal.
So they'd have to trade in a place where there's no differentiation, and where money flows around all the time - in the currency markets.
The entire point of such a system would be to lose money. That is, in supporting the market(s) they decided to target on any particular day,
they would be placing intentionally losing trades!Well, if I find out that someone is placing
intentionally losing trades - and its not hard to figure out either - the guys in the futures and option pits, along with the market makers, have a very good handle on what's going on, as does anyone who's watching the market action -
I can become a billionaire by simply trading against the person who is trying to lose money!There would be an
insane number of billionaires created by such a "plunge protection team" - simply get on the currency markets, look for the trades that make no sense, and take the other side. Make a million a day, ten, 100, easy.
So guys, before you go off half-cocked about tin-foil-hat conspiracy theories, think 'em through. Figure out whether there's really any way for it to work.
Oh, and if you
do detect the PPT at work in the currency markets, please let me know. That sort of easy money is akin to finding the Holy Grail.
I'd really appreciate it if you'd share.
