Monday, September 12, 2005

The Plunge Protection Team

Amidst all the gloom and doom (like this and this) Peter Brimelow brings us some comic relief. Mr Briemelow reports in all seriousness that reliable sources tell of a group of investment banks, backed by the Federal Reserve, which leaps into the breach and buys - buys -buys every time the stock market is in danger of a plunge. How these guys know that the market is about to plunge beats me, but I guess that's why they have more money than I do!

I first heard about this all-powerful cabal of stock market manipulators during the 2000-2002 bear market. Everytime the market rallied 20 % the bears would chorus that the "plunge protection team" was at work. The implication of course was that the natural course of prices was downward and that rallies were purely artificial - despite the damage they did to the shorts' pocket books.

Now I again am hearing about the " plunge protection team ". Here is my interpretation of this particular fantasy. When someone tells you the plunge protection team is at work you can safely draw three conclusions. First he is bearish on the stock market while it has rallied. Second he either has been mostly in cash or worse, short, during the rally. Third, he doesn't want to take personal responsiblity for his misjudgement - he is still smarter than the bulls but that nasty plunge protection team is trying to send him to the poorhouse.

I don't think people who fantasize about the " plunge protection team " are grounded enough in reality to be successful speculators.

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