This leads us back to the present fix, “Why are the markets rising amidst a mid-cycle slowdown?”
Taking in another view from a different lens, it is important to consider that with the fast approaching political season in the United States, conspiracy theories have been floated as possible stimulus to the present dynamics in the financial markets. The supposition is that government’s covert hand had been utilized to create conditions that would favor certain candidates or special interests groups whose political interests are at stake.
During the past month, as the seasonal strength favored rising gold prices, an abnormal degree of selling pressure sent gold prices plummeting. I initially suspected of government’s hand in trying to “manage our inflation expectations” by dumping on the gold market, and was proven right, apparently my suspicions have been confirmed by more sales by the European Central Bank according to their recent disclosures. This seems to have been timed as the calendar year for the European Central Gold Sales Agreement closed last September 26th, where they are allowed to unload 500 tonnes annually.
But it is not only in the gold market where government’s hand was suspected to have intervened; there were signs in the energy markets too.
For one, the widely followed and the largest commodity index, the Goldman Sachs Commodity Index had its weightings reconfigured such that Unleaded gas which was previously allotted 8.72% was adjusted down to 2.3% while the Reformulated Gasoline Blendstock for Oxygen Blending futures contract was adjusted to the upside from 0 to 2.37%. The sharp fall of unleaded gasoline prices which took the broad energy market down with it had been blamed as a political handiwork to the network behind the investment firm once run by Treasury Secretary Henry Paulson. This comes in the light of President Bush’s decision to delay the adding deposits to the US Strategic Petroleum Reserves last April.
Dave Forest of Casey Research identifies another route where perceived manipulation of prices could have been effected. Mr. Forest wrote,
``Another lesser-known influence on oil prices is the “crack spread.” This is the difference between the price that oil refiners pay for crude and the price they receive for the gasoline they produce. Put another way, it’s the profit margin that refiners make on their products.”
``Currently, the crack spread is at - in the words of the U.S. Energy Information Administration - “unusually low levels.” This means that refiners are selling gasoline for little more than the cost of the oil they purchase. This makes no sense from a business perspective… generally in such a situation, refiners would simply up the sales price of their gasoline, improving their margins...
``Why would these companies voluntarily take lower profits? There’s no way to know for sure, but it’s a certainty that the White House and Big Oil are close friends. Witness Dick Cheney’s ties to Halliburton, and George Bush’s background in the Texas oil patch. Might the Republicans be calling in a favor from their refinery manager pals, asking them to keep gas prices down until November 7 has passed?
It is not only in the commodities market, where manipulations have been suspected, the recent rise in the equity markets have likewise been said to have benefited from behind the scenes interventions. Mish Shedlock of WhiskeyandGunpowder quotes John Succo, a professor in Minyanville (emphasis mine),
``In 25 years of trading, I haven't seen stock prices act this way. On any disappointing number (ISM, for example, this morning), stocks react vehemently positively.
``And it's not stock by stock, brick by brick, which is how a stable bull market is built. It is all index led. Tick data today is just another example. They hit +1,000 probably 20 times today and +1,500 twice. Surreal.
``I have my own theories. In a world where geopolitical events are broiling, we have political structures desperate to remain in power. It is possible to believe that in such a world desperate measures like buying stocks by governments (we know Japan did this for quite a while) is certainly plausible. Given the action, I say it is probable.
``The last few years [are] all about liquidity. Who is responsible for that?...And just in time for the elections.”
``I made the big leap yesterday saying governments (no price sensitivity) were buying index futures in the U.S. This is the only answer I see for the odd behavior. Stocks not in an index are severely lagging.
Tick data in our local lingo means either a consummated transaction was a “buy up” (uptick) or a “sell-down” (downtick). What Mr. Succo suggests was that in the face of bad news, there were oddly signs of PANIC BUYING, as measured by an extremely aggressive uptick/buy up counts. Mr. Succo finds no other party except governments being price insensitive as responsible for these recent actions. He says government intrusions are distorting market signals and giving the public the wrong way to price risks and at the same time create a moral hazard problem of “providing easy credit for even worst companies.” Well, that is what I have been talking about, inflationary biases to protect special interest groups.
Of course, except for the gold sales, all of these could be dismissed as outright speculation until some data could be proven to support these allegations.
No comments:
Post a Comment