The Greenspan Pus
Commentary by Barrie Walsh
The Performance of U.S. equity markets in the month leading up to the mid-term American elections has been heralded by Wall Street as the beginning of the long awaited recovery. Belief in the Greenspan Put has been reborn. What is the Greenspan Put? A better question to start with is, what is a put?
Simply stated a put is an option to sell a stock or an index at a specific price and time in the future. Investors choose puts when they expect the market to fall. In the glory days of the equity bull market in the 1990’s some investors believed all they needed was the masterful intervention of Federal Reserve Chairman Alan Greenspan to support the equity markets.
Greenspan’s financial engineering consisted of massive liquidity infusions, which were funneled into the great equity bubble that burst in the spring of 2000. This intervention by the Fed chairman was referred to as the Greenspan Put.
There was a belief held by many that the Greenspan Put would always be there to support the market. Unfortunately for millions of investors the Greenspan Put let them down to the tune of trillions of dollars. That is why I call it the Greenspan Pus.
On Nov.6 The Federal Reserve lowered interest rates by a half-point.
The spin accompanying the Fed announcement was the economy is evenly balanced between higher inflation and slow growth.
If the economy is evenly balanced why make a double cut in interest rates? What is the economic reality at the present time in the U.S.?
Mr. Greenspan knows the big picture but all we get from him is constructive ambiguity. He has turned lexical tuning into near total obfuscation.
Most Americans are not aware of the fact that the Federal Reserve is a private body formed in secret in 1913 and is accountable to its bank shareholders, not the American people.
In 1946 George Orwell wrote a composition entitled Politics and the English Language. He said, The great enemy of clear language is insincerity.
When there is a gap between one’s real and one’s declared aims, one turns as it were instinctively to long words and exhausted idioms, like a cuttlefish squirting out ink.
The present economic reality is scary. The money supply is expanding rapidly, the U.S. dollar is falling, consumer confidence is shaky, unemployment is increasing at an alarming rate and many corporate executives are displaying hues of greed that are shocking to the hard working men and women of America.
Rumors now abound that J.P Morgan Chase is in trouble with its loan portfolio, especially its gold derivative position.
This does not sound like an evenly balanced economy. This sounds to me like more of the Greenspan Pus.
It is no coincidence that the equity markets started a rally in the weeks just before the mid-term elections. It seems clear that the White House, the U.S. Treasury and the Federal Reserve worked in combination to bring about a stock market rally.
In the six months prior to the pre-election rally the market was ready several times to fall into the financial abyss when out of nowhere a miracle occurred and a crash was averted.
There can be little doubt that these miracles were the work of the Working Group on Financial Markets, perhaps better known as the P.P.T. or the Plunge Protection Team.
It should be noted that it is not official policy of the Federal Reserve to target equity markets. One of this investor’s biggest frustrations is how the media continually place positive spin on financial and economic bad news.
Since the equity bubble burst in 2000 the pundits perpetually proclaim that the market has reached bottom and now is the time to jump back in.
Finance T.V. has smiling, pleasant, well-dressed and nice looking reporters.
Unfortunately North Americans have been conditioned to think that if a reporter meets these criteria then that reporter must be telling the truth.
The suppuration of Finance TV is a daily occurrence.
Wall Street’s biggest scandal is being almost totally ignored by American TV networks and newspapers.
According to GATA or Gold Anti-Trust Action, the price of gold is being manipulated by the Federal Reserve, other world central banks, the U.S. Treasury and a group of Wall Street bullion banks.
GATA has determined the manipulation began around 1995 in an effort to keep the U.S. dollar strong. The price of gold and the dollar are in an inverse relationship so that if the price of gold goes up, the value of the dollar goes down.
To suppress the gold price it is estimated that as much as 15,000 tonnes of gold have been sold short by N.Y. bullion banks.
The process of selling gold short involves borrowing gold from central banks and then selling it.
The big problem for the bullion banks is that after they sell the gold they have a future obligation to return it to the bank where they borrowed it. If the price goes down, the gold can be repurchased at a profit.
Meanwhile if the price goes up the bullion banks have to buy it back at a higher price and they incur a loss. The bullion banks are in a panic situation because gold is threatening to break through $325-$330. If this happens GATA says, Watch out, gold will explode and it is possible J.P. Morgan Chase could go under.
In 1998 Alan Greenspan said, Central banks stand ready to lease gold in increasing quantities should the price rise.
Greenspan claims this statement was taken out of context. The Fed Chairman also says the Federal Reserve does not buy or sell gold. Could this be another example of the Greenspan Pus?