by Eric Englund & Karen De Coster
D.C. is concerned about your level of confidence
in the stock market. The bandits in charge are trying
to understand investor behavior better so that they can more
effectively control that which is at the soul of popular economy:
money and markets.
Robert Shiller, at the Yale International Center for Finance,
manages the Stock
Market Confidence Index, wherein the goal is to study
investor attitudes and confidence as they pertain to movements
in the stock market. Such studies
may have some value to other interested parties, but in effect
they assist the central planners in managing the environment
in which its players participate. After all, if they are able
to anticipate certain behaviors at key points in time, a plan
of action to manipulate and manage markets – or the overall
economy – becomes more achievable when time is crucial.
New York Post recently ran a piece on Washington’s
tight-lipped Plunge Protection Team, or, the "Working
Group," as it is formally known. Essentially, the role
of this group is to prevent another 1987 "Black Monday"
in the stock market. It was put into law in 1988, as Executive
Order 12631, by Ronald Reagan. If you read the Executive
Order you’ll note that it essentially allows the government
to intervene in the stock market – should a crash or foreseeable
dip appear to be on the horizon – via legislative law, administrative
fiat, or the manipulation of private bodies via coercive tactics
on the part of the Federal Reserve, Treasury Department, or
the executive office. Section Two of the order states that
its purpose and function is to recognize "the goals of
enhancing the integrity, efficiency, orderliness, and competitiveness
of our Nation's financial markets and maintaining investor
Group was established in order to identify issues – which
studies have vetted out – in regards to the events surrounding
the 1987 market crash. Its purpose is to gather recommendations
from anointed experts and consider what government actions,
under existing laws and regulations, can be undertaken in
order to carry out those recommendations. The last step is
to "appropriately consult" with private sector bodies
and participants in order to seek any possible private solutions.
These "private solutions," however, will come from
puppet organizations of the corporatist establishment.
goal, then, is to "maintain investor confidence"
in the market in the case of sudden declines. When a rally
immediately follows a downturn, the European press will refer
to this as a "PPT Rally." Even the American press
has not been shy about discussing plunge protection. This
is from a
1997 piece by the Washington Post:
quiet meetings of the Working Group are the financial world’s
equivalent of the war room. The officials gather regularly
to discuss options and review crisis scenarios because they
know that the government’s reaction to a crumbling stock
market would have a critical impact on investor confidence
around the world.
government has a real role to play to make a 1987-style
sudden market break less likely. That is an issue we all
spent a lot of time thinking about and planning for,"
said a former government official who attended Working Group
meetings. "You go through lots of fire drills and scenarios.
You make sure you have thought ahead of time of what kind
of information you will need and what you have the legal
authority to do."
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. Officials worry
that if investors all tried to head for the exit at the
same time, there wouldn’t be enough room – or in financial
terms, liquidity – for them all to get through. In that
event, the smoothly running global financial machine would
begin to lock up.
again, Washington is in cahoots with top Wall Street firms
in order to gain the needed leverage over the market should
stock market instability become an issue. Rick
Ackerman at 321Gold notes:
what we should not rule out is the possibility that some
of America’s biggest and savviest financial institutions
have pledged their utmost diligence in helping to support
and stabilize U.S. financial markets whenever necessary.
There are two reasons why this theory is not so farfetched
as it might sound. First, the firms could make quite a bit
of money at it. And second, they would not have to risk
much of their capital to do so.
in mind that, under certain conditions, a buy or sell order
as small as 20 or 30 contracts can alter the course of the
S&Ps over the very short-term. Just imagine what kind
of pop Goldman Sachs, Morgan Stanley and Merrill Lynch could
create, especially late in the day, if they were to simultaneously
enter large buy orders for S&P contracts.
of the Treasury, Chairman of the Fed, Chairman of the SEC,
and Chairman of the Commodity Futures Trading Commission are
known as the "Four Financial Dictators." Their job
is to grow and preserve the power of the state to socially
and financially engineer society. Indeed, they call upon private
interests – such as Wall Street giants – to help carry out
a plan of action that will bring great monetary reward to
them. The post-September 11, 2001, market, in fact, saw massive
intervention in order to preserve the appearance of stability.
plunge protection, that could already be the case with General
Motors. Shorts on GM have been a bit tripped up lately, and
it’s a no-brainer that the government is not going to let
GM go down without major intervention. They will be looking
at intervention tactics that are more doable or affordable
– as opposed to a straight financial bailout.
our assertion that the heavy hand of the Working Group has
been exposed with respect to manipulating the Dow Jones Industrial
Average. Early in May of 2006, Bill Gross – of PIMCO, and
considered to be one of the world’s finest bond fund managers
– wrote a seminal essay comparing General Motors’ problems
to that of the United States’. In his piece, As
GM Goes, So Goes the Nation, Bill Gross conveys three
basic problems shared by both GM and Uncle Sam:
competitiveness compared to global competitors.
labor costs compared to global competition.
future liabilities – healthcare, pensions.
sure, the Plunge Protection Team took this essay as a slap
in the face. After all, everyone knows that America has the
world’s most flexible, dynamic, and productive economy – Alan
Greenspan and Ben Bernanke have said so many times, hence,
it must be true. Mr. Gross, additionally, didn’t exactly endear
himself to the Federal Reserve when he accused
the Bureau of Labor Statistics of being the Federal Reserve’s
lap dog willing to hedonically adjust away any signs of inflation
as reflected in the Bureau’s Consumer Price Index. So it was
time to show the Plunge Protection Team’s hand, take Mr. Gross
to the woodshed, and do something good for GM and, therefore,
the United States itself.
24, 2006, at the behest of the Working Group (in our opinion),
Merrill Lynch came
out with a "buy" recommendation pertaining to
General Motors’ stock. Keep in mind that this recommendation
was made fully one month before Tracinda
recommended that GM explore the idea of forming an alliance
with Nissan and Renault. Shamefully enough, Merrill’s rationale
hinged upon the premise "…that the automaker's restructuring
plans, specifically the number of workers taking buyout packages,
are coming along ahead of schedule." This is nothing
short of harebrained reasoning serving the demented ends of
the Working Group.
highly unusual for a restructuring plan that is so far
away from accomplishing anything substantial to
get such a standing ovation, even from the fraudulent Wall
Street analysts. This move by Merrill Lynch is a hoodwink
designed to keep the confidence level high among
speculators, thus keeping under wraps any unwanted drama or
uprising from the unsuspecting masses. In fact, if Johnny
Beer Drinker could read a balance sheet, he'd bail out of
GM's stock immediately. But Johnny Beer Drinker can't read
a balance sheet; he may watch CNBC and Jim
Cramer, and if he does, he is a blind fool following a
bullish fool who is serving up bad advice to serve his own
Merrill Lynch’s pronouncement, GM’s stock has shown market
leadership like a four-star general – it was up by 40.1% during
the second quarter of 2006, making it the best performing
Dow stock for the three-month period ending June 30th.
Even on days where the Dow Jones Industrial Average had declined
by over 100 points, the "General’s" stock held steady.
One day, it was even up by over 4% when the market swooned
terribly – and this in spite of the fact that gasoline prices
are at $3.00 per gallon. We have little doubt that GM stock
is being accumulated by Caribbean-based hedge funds owned
and operated by the Federal Reserve – the very same folks
who mysteriously emerged as buyers of U.S. Treasury debt (thus,
keeping interest rates down) when other buyers began to shy
away from that debtaholic Uncle Sam. For now, the General
looks unbeatable – as long as "investors" believe
the stock is the company.
examining General Motors’ March 31, 2006 balance sheet, what
comes to mind is not a proud general, but a bloated inmate
of a debtor’s prison. It is boggling that any financial analyst
would recommend purchasing the common stock of a company with
the following financial profile:
Motors’ automotive operations have a combined working capital
position of deficit $15.4 billion.
has total debt and liabilities approaching half-a-trillion
total liabilities to equity ratio is 29 to 1. There once
was a day when financial analysts sounded the alarm bells
when this ratio exceeded 4 to 1.
GM has a deficit net worth of $18.2 billion. Such
a sobering conclusion can be deduced simply by disallowing
intangible assets such as goodwill and deferred tax assets.
interesting to note that GM’s market capitalization was recently
at $12.4 billion, which is smaller than that of Harley-Davidson,
about equivalent to the market cap of Hershey Co., and in
comparison, Toyota’s stands at $194.7 billion. With such a
weak balance sheet, GM will not survive a recession. Hence,
bankruptcy is a possibility – even if the aforementioned alliance
with Nissan and Renault is consummated. GM’s banks understand
this and have required that General Motors provide additional
collateral in order to keep open a $5.6 billion operating
line of credit. On the heels of this move by the banks, Standard
& Poor's and Moody's cut GM's senior unsecured debt rating
even deeper into junk territory. For the banks’ collateral-call
and the debt downgradings to occur shortly after such a high-profile
recommendation to buy GM stock, Merrill Lynch’s top executives
should be embarrassed.
but the top dogs at Merrill Lynch have no shame and will sleep
well. They know that most Americans don’t pay attention to
the corporate bond market nor the backroom dealings of bankers.
It is the Dow Jones Industrial Average that grabs the attention
of Americans. By keeping the Dow up, the Plunge Protection
Team – as assisted by Merrill Lynch – understands that it
is making a key contribution to the insanely expensive game
and circuses" Uncle Sam is playing with its citizens.
Consequently, the Federal Reserve will conjure up as much
fiat money as possible in order to intervene in, and prop
up, the stock market so as to keep our collective confidence
elevated – and, in the mind of these Keynesians, the economy
will be peachy. Ultimately, and Bill Gross not withstanding,
why is GM stock a selected target of the Plunge Protection
Team? As GM’s CEO Charles E. Wilson famously stated in 1953:
"…because for years I thought what was good for the country
was good for General Motors and vice versa."
like everything else involving Leviathan’s very visible hand,
initial interventionist schemes meant to stave off isolated
crises cascade into multiple occurrences of intrusion. The
urge for power is uncontrollable and leads to the central
planners applying a broader range of arbitrary powers. According
to an article in Financial
suspicion has been that the "Working Group" established
by law in 1988 to buy markets should declines get out of
control has become far more interventionist than was originally
intended under the law. This group has since been dubbed
the Plunge Protection Team. There are no minutes of meetings,
no recorded phone conversations, no reports of activities,
no announcements of intentions. It is a secret group including
the Chairman of the Federal Reserve, the Secretary of the
Treasury, the Head of the SEC, and their surrogates which
include some of the large Wall Street firms. The original
objective was to prevent disastrous market crashes. Lately
it seems, they buy markets when they decide markets need
to be bought, including equity markets. Their main resource
is the money the Fed prints. The money is injected into
markets via the New York Fed’s Repo desk, which easily showed
up in the M-3 numbers, warning intervention was nigh.
end, the market manipulation scenario is a win-win situation
for the crisis control mentality of Washington D.C., and,
it’s a huge moneymaker for the Wall Street Corporatocracy
that seeks to separate you from your money while filling their
own pockets. Thus with the current environment of asset bubbles
popping, oncoming inflation, and Federal Reserve money supply
manipulations, the Plunge Protection Team will be called upon
to work lots of overtime.
De Coster, CPA, has an MA in Economics, and is an accounting
and finance professional in Detroit. See her website and blog
Send her mail.