Conspiracy Theory "Caranoia"
You see, HPEC (KKR, Carlyle Group, Blackstone, Bain, Cerberus et al) represents the Gnomes, and these are the very private string-pullers who pull the chains of the President and key Senators of the US, and central bankers and finance ministers, and people like them who have been boosted to power by so-called “democratic” forces in other countries.
HPEC, in May 2006, had an agenda in place, which has been playing out since then. It involves the take-over of listed corporations in many countries, and the total funds being provided by Humungous Bank & Broker (HB&B) is over $1 trillion. A Bear market starting in May 2006 would have stopped those plans.
Bill Cara, May 20 2007
A market is driven by information. The price at which any transaction clears in any market is essentially a process of price discovery driven by information. However, the dissemination of information is imperfect. No one market participant holds all information to set the the most efficient price. As more and more information becomes available to market participants, the price tends towards the most efficient price. It moves closer to its "true" price. The market of ideas is no different. As more and more information becomes available, the closer we tend towards the "truth." Or at least it does so if you believe humans are rational.
This is a post about conspiracy theories. I am not inclined to believe in conspiracy theories. That does not mean conspiracies do not happen. They do. However, I do not believe they occur with the regularity the conspiracy theorists maintain.
Today, I am going to focus on Mr. Bill Cara. I do so not to discredit Mr. Cara. In fact, I do so because Mr. Cara is a highly credible person. There are all sorts of conspiracy theorists in markets. Most of them seem to be in the gold market. Most are, I believe, odd. Mr. Cara is not one of those.
Mr. Cara is a very successful man. He has worked at high levels of finance in Canada and has more experience than I do. He is a "Gray-Hair." I use that term with great respect, for people who have spent a very long time in the investment business are rare, and nothing beats experience in this business. Nothing. I could talk to the Gray-Hairs all day about investments. And, when I use the term "Caranoia" or "Caranoid," it is meant as good-natured ribbing. I intend no malice. Rather, it is an easy play on words. :)
I read his blog every day. I suggest you do so as well.
It is what I read on his blog this morning that made think about this post tonight. In fact, right off the bat, I'm going to post what Mr. Cara wrote on his blog today, which is a refutation of what I am about to write.
I do not accept the remarks of those who attribute my remarks here and those of some readers as being conspiracy theorists. In fact, I’ll be blunt and say that those who express themselves in such a fashion don’t have an iota of a clue as to how capital markets work. I do.
When you understand how markets work, you see that it is like a dance. There is an undulating price motion as market drivers go through an ebb and flow. Occasionally you get poked in the ribs or have your foot stepped on and you call that the work of an interventionist. All I am saying at times like that is there are participants in the market who do not share the values and the mission of independent buy-side traders who have a need to protect and to grow capital.
So the market is a place of conflict, and unfortunately for you and me, the rules are not the same for the major interventionists (central bankers, Finance Ministers, bankers and so-called private equity). The game is slanted in their favor, which is a fact.
Now that is different than calling the market shady. I don’t call the market shady. In fact, I respect the market. There are shady operators in the market and it is our job to point them out to the regulators, and to register our complaints when we feel the regulators are not doing their job. Last evening, as a comment to yesterday’s Report, I pointed out the yeoman effort of Dave Patch. I hope you see that there are people in our midst who do care enough for fair markets, and who point to its deficiencies.
So, at the end of the day, I hope we drop the words Conspiracy Theory in favor of discussion and resolution of the concept of Market Conflict, and to work for a capital market system that does not favor any one player. If we can’t get to that point, then capital markets will destroy themselves as people like Dave Patch and I and a growing chorus of others speak out against its failings.
You see, we will not stop in our efforts to force the authorities to give us capital markets that serve and protect the independent owner and manager of capital.
Everyone has cognitive biases. I am no exception. In fact, my own experiences may be biasing me to not see what I should. I have been identified by name as participant in a conspiracy theory that, even though I was identified positively, was utter bullshit. Also, I am completely disgusted at these idiotic 9/11 conspiracies. So perhaps my own cognitive biases are to disbelieve conspiracy theories when, instead, I should be more skeptical. This may be ironic since I consider myself to be a value investor, and being a value investor requires skepticism of prevailing wisdom when analyzing investments. Thus, maybe I'm wrong and Mr. Cara is dead right.
There is also an element of truth in almost all conspiracy theories. There must be, otherwise there could be no foundation upon which a logical argument - and I differentiate between "logic" and "common sense" - could be built. And every once in a while, the conspiracy theories are true, or at least machinations of participants are, which gives the appearance of a conspiracy. Mr. Cara's writings about the Stelco bankruptcy is a good example.
But conspiracy theories proliferate because the human mind wants to find order in chaos, and thus we tend to see conspiracies where none exist.
There are psychological explanations for why conspiracy theories are so seductive. Academics who study them argue that they meet a basic human need: to have the magnitude of any given effect be balanced by the magnitude of the cause behind it. A world in which tiny causes can have huge consequences feels scary and unreliable. Therefore a grand disaster like Sept. 11 needs a grand conspiracy behind it. "We tend to associate major events--a President or princess dying--with major causes," says Patrick Leman, a lecturer in psychology at Royal Holloway University of London, who has conducted studies on conspiracy belief. "If we think big events like a President being assassinated can happen at the hands of a minor individual, that points to the unpredictability and randomness of life and unsettles us." In that sense, the idea that there is a malevolent controlling force orchestrating global events is, in a perverse way, comforting.
I don't disagree with everything Mr. Cara says. In fact, I agree with much, if not most things he writes - the government has created too much money, gold is going to $1000 or higher, there is a big correction coming, financial markets are tilted towards insiders, etc. And there is no doubt that markets are manipulated in some manner. They must be when the government controls the money supply and has legislated goals to effect the economy. However, I question Mr. Cara's interpretations of the protagonists' motivations.
Mr. Cara says that labeling the machinations of market players as "conspiracy theories" is not helpful in describing the current uneven playing field in financial markets. This is the definition of "conspiracy theory" from Wikipedia to which Mr. Cara links.
A conspiracy theory attempts to attribute the ultimate cause of an event or chain of events (usually political, social, or historical events), or the concealment of such causes from public knowledge, to a secret, and often deceptive plot by a covert alliance of powerful or influential people or organizations.
In fact, it appears this definition describes pretty accurately some of Mr. Cara's writings.
Now, I'm not necessarily saying that Mr. Cara is wrong. However, I am going to highlight what could be interpreted as a conspiracy theory, an interpretation of what Mr. Cara is saying, and an alternative explanation. I will bold in red where I have added emphasis.
My take is that central bankers, working closely with HB&B, have purposefully knocked down the price of precious metals in order to give themselves some breathing room.
Interpretation - Big banks are working closely with central banks to knock down the price of gold. A rising gold price is indicative of anxiety, worry and fear in the market.
Alternative explanation - Big banks' commodity desks have made big money in commodities in both trading and selling products to clients, and they have done so because it is a bull market. Banks are hiring commodities traders, including gold traders. Gold price movements have become positively co-related to equities. Gold has gone up in eight of the last ten equity bulls markets and have outperformed in five. Gold is no longer viewed as an indicator of fear as it once was. Now, it is another fixed commodity which will do well when there is excess creation of money, as there has been the past decade. Why would the European central banks limit themselves in the amount of gold they wish to sell, as they did with the extension of the Washington Accord, if it was their intention to manipulate the market? Central banks are holding less gold because there is a cost of carry whereas you get paid to hold a bond. Gold is falling because interest rates are rising and the dollar is strengthening. Gold appears to have topped out, at least in the short-term. Other metals, such as copper, may have also seen near-term tops.
I think that what happened in the past two months was “Paulson’s Pride” at work. US Treasury Secretary Hank Paulson and Fed Chairman Prof. Bernanke seemed to be over the top in their enthusiasm for the economic stability and growth of the US, and consequently bond prices were excessively strong on any basis of true risk measurement. I believe the circumstances were being engineered in order to help Friends & Family within Humungous Private Equity Corp (people like ex-Treasury Sec John Snow) gather the capital they needed to acquire management control over worthy assets.
That process is one I have attributed to as being among the reasons many hundreds of millions of dollars are being spent by politicians seeking jobs paying very few hundreds of thousands of dollars. It’s not about the money, stupid; it’s the power to manage (ie, to plan, organize, direct and control). We The People are now seeing these people in action, and consequently we are being directed to turn our wealth into their wealth.
Look at the Exchange Traded Fund (ETF) phenomenon for example. These were designed and managed by HB&B. Just like the Administration has instruments like the Bully Pulpit, the Strategic Petroleum Fund, and the supposed Gold in Ft. Knox, to dangle, HB&B has its own tricks, like margin requirements, so-called research reports, proprietary trading funds, knowledge of the client order flow, ETF’s, and many other tools to keep them in profits.
The Country ETF’s has been an interesting phenomenon I picked up on in recent weeks. I noted that the prices of these ETF’s was moving quite differently than the index levels of the international stock exchanges the ETF’s were supposed to be emulating. I believe the public was being led, just like they are when margin requirements are suddenly changed in various markets like the futures and metals exchanges, and when HB&B shifts huge holdings of precious metals.
Interpretation - The US government is actively conspiring with wealthy financiers so that the financiers can take over companies on the cheap. Rich people enter politics only to make themselves richer. ETFs were created by large banks to manipulate markets.
Alternative explanation - Interest rates were held extraordinarily low to avoid a depression after the Bubble burst. This has lead to the creation of excess monetary balances. Because of the entrance of China and India into the global market, wages have been held low, and the excess money has made its way into asset prices as opposed to consumer prices. After the equity market collapsed, institutions began looking at alternative asset classes to meet actuarial returns. Alternative classes such as private equity have done very well, and funds such as Yale and Princeton which invested in such classes have done very well. This has lead to a stampede into alternative asset classes as funds moved money out of stocks into private equity, real estate, commodities, etc. This confluence of events has lead to the explosion in these alternative asset classes, which will inevitably end badly. There is no evidence that the government is actively conspiring with private equity interests to subsume corporations.
Politics is appealing to those who wish to shape public debate. Rich people are just as prone as middle class people and poor people to do so. Rich people are generally ambitious. That is why they are rich. Ambitious people often enter politics, whether they are rich or not.
ETFs were created because there was a market for exchange traded passive funds. Passive mutual funds are inferior structures for those who want to actively trade and short. There are discrepancies between country market ETF prices and indices because there are settlement, custody and transaction issues in foreign countries, especially in emerging markets. Also, index arbitrage is more difficult for American investors in foreign markets.
The bottom line is that I believe the US Admin and Fed are conspiring to keep the price of West Texas Intermediate light sweet crude oil lower than it should be. That skews the inflation data in the favor of these politicos who want to impress traders that inflation is not a serious problem, that interest rates do not have to rise, that equity prices should expand and, last but not least, CPI-indexed Social Security payments can be lowered.
I believe this is a fraud. Moreover, when the Admin/Fed want to kill the Bull, all they need do is start buying more oil for the so-called Strategic Petroleum Reserve, which will push the price into the 70’s, above the Brent (as it should be), which will cause the Fed to say, “We need to raise rates to head off the inflation-push caused by oil” and voila. Dead Bull.
But not before Friends & Family clear their inventory of stocks, and load up on puts.
I mean why else would people spend several hundred million dollars to get elected to a job paying a couple hundred grand? It’s called ‘management control’ – otherwise known as an opportunity to ‘get theirs".
Interpretation - The US government is deliberately keeping the price of oil low to manipulate inflation and fool investors. Why else would Brent oil - which is heavier and more sour than West Texas Intermediate - be higher in price than WTI? The government will eventually buy oil through the SPR to jack up the price of oil so the government can manipulate inflation to raise interest rates and kill the bull market. They will signal to their rich backers when their manipulation is over so they can short the market. Why else would rich people go into politics?
Alternative explanation - Oil has already risen from $10 to $75. What is another $10 or $20? Energy is something like 3%-4% of total input costs in the American economy and thus does not have the effect the economy as it once did. The delivery point for WTI is Cushing OK, which is awash in crude at the moment. This is why WTI is trading below Brent crude. The SPR was buying crude, filling up its inventory as the economy was coming out of the recession. Why would the government do so at that time if it were actively manipulating the economy and financial markets for its backers? There is no evidence that the government is or would use the SPR to manipulate equity markets and inform select individuals that this occurs so they can adjust their investment portfolios accordingly. If there is, please let me know. I will post it on this blog.
Why is the Goldman Sachs internal hedge fund losing money? If the government is being used as a cash register for the investment banks, why isn't Goldman making money on their most important internal fund? In a bull market?
See above for why rich people would get into politics.
Is it any wonder that when the majority of independent analysts figured that the current Bull market had ended in a normal 4 year cycle in May 2006 that along came Goldman Sachs to deem that the equity market would expand and that, with the help of Friends & Family in Humungous Private Equity Corp, they were “going to get theirs”? ...
Henry Paulson, Goldman Sachs chairman and CEO was nominated to the position of Treasury Secretary by the President on May 30, 2006, confirmed by the Senate on June 30 and sworn in on July 10, 2006. Ten days later, after visiting Family & Friends on the trading floors in NY and Chicago, the depressed US equity market took off like a rocket, performing like never before in history.
Here is the chart as of the close last week. Look at the key date when Hank Paulson took over the US Treasury.
In November 2006, William Dudley, 10 years the chief US economist for Goldman Sachs was parachuted in to the Federal Reserve Bank to oversee all open market trading operations of the FOMC, a position that was confirmed by the Fed executive on Jan 30-31, 2007. In my article, “Non Trader is now America’s CTO, Nov 29, 2006”, I alerted readers that Mr Dudley was not a trader, and that he often joked about how bad a trader he is.
But I suppose he takes instructions well from Hank Paulson.
I think the Goldman Sachs control situation is dire. Today we learn it has been extended to now cover the president’s job of the World Bank, with the intention to install GS Vice-Chairman Robert Zoellick in that position.
America now is under control of the “Gold”man. I don’t think the People have a clue.
Interpretation - The market moves according to a well-defined pattern based on the calendar. The majority of independent analysts are never wrong. Goldman Sachs, whose alumni run the most important government agencies overseeing financial and capital markets, is actively conspiring to extend the bull market so that private equity can continue to expand. Otherwise, the normal four year cycle would have ended. The country is run by Goldman Sachs.
Alternative explanation - After a withdrawal of liquidity by the Bank of Japan in May 2006, the markets swooned. As a response, the Fed, injected liquidity into the financial system, as they have for the past 20 years. The economy has become asset dependent and the Fed instinctively responds to sharply declining asset markets by supporting it. The Fed does not mind declining markets as long as the decline is orderly.
Why would those in positions of power who are conspiring to assist private equity obtain corporations keep the prices of those corporations up? Why would they not tank the market so private equity could buy companies cheaper?
Goldman Sachs is considered to be a top-tier, if not the top-tier investment bank on Wall Street. Many smart people work there. Goldman has a long history of encouraging its employees and executives to engage in public service for their country.
Today we learn the US Existing Homes Sales data. Yesterday’s data was a pip, so let’s see this story.
What gets me about the multi-year record gain in New Home Sales in the US (+16 pct M/M) is that not a single US housebuilder, that I can recall, actually warned the marketplace that they were enjoying rip-roaring sales gains. Are any of these people buying their own shares, and not guiding the market higher with their explosive growth? If so, are they planning to spend their winnings in the prison canteen?
I think maybe if this industry had been enjoying record-setting sales gains in April, somebody would have been telling us. Shouting from roof-tops is more like it. Don’t you think?
So who’s kidding whom? Seriously. We have a right to know. In fact, I will put a sharp point on it. Who is the liar? We the People have a right to know who is screwing with our capital by issuing disinformation? That’s deliberate misinformation of financial data and ought to be a felony. Right?
So let’s get to the bottom of this nonsense.
Do you think maybe it was govt data related to well-timed govt approvals to commence federal housing aid in Louisiana and Mississippi related to Hurricane Katrina? I think so, and what’s irking me is that the govt knew this would skew the numbers, and then they had the absolute unmitigated intellectual dishonesty to link the broad data to a story that the US housing problems are over.
It’s no different than the sleazy political campaigns these pols run in tying to get elected.
It’s not going to change because that’s the culture today apparently. Let’s see what we get this morning with US Existing Homes Sales. Maybe we’ll learn that the average period to sell is another ridiculous number. Maybe we’ll see how many home owners in Louisiana and Mississippi suddenly decided to take the “For Sale” signs down now that Federal aid seems to be on the way.
Interpretation - There is a discrepancy in the April housing data. New home sales were stronger than expected. Either the companies or the government is lying about the data. The data is being deliberately manipulated for political ends. The government is using the tragedy of Hurricane Katrina to manipulate economic data and argue that the decline in housing is over.
Alternative explanation - The April sales data may have been an anomaly. The data may be faulty. The sales do not look as good as they appear because sales were down 10.6% from the prior year. Existing home sales fell 2.6% in April. Why would the government, along with the National Association of Realtors, not manipulate existing home sales since the volume of existing home sales is approximately 6x that of new home sales?
Is there any evidence that the federal government is using the deaths of 2,000 people to influence economic data? That is, I would content, a fairly serious accusation.
Just like I believe that Precious Metal bullion and share ETF’s have been used by market interventionists to try to create an image that inflation and speculation are in control, when we know they are not, I think the inverse broad market ETF’s, used today to protect portfolios, could soon be used to drive this equity market to great depths.
I have also opined that there will be a massive Bear market that will be followed by a G-20 Agreement on currencies – before the next Bull market begins. I still believe that will be the case, as well.
I truly believe that the natural market cycle reversed from Bull to Bear on or about May 10, 2006. I believe the Gnomes panicked, and had Pres. Bush pull Treasury Sec. John Snow out of his position and, as a ‘thank you for favors rendered’ put him into the head position at the Humungous Private Equity Corp (HPEC) unit Cerberus.
You see, HPEC (KKR, Carlyle Group, Blackstone, Bain, Cerberus et al) represents the Gnomes, and these are the very private string-pullers who pull the chains of the President and key Senators of the US, and central bankers and finance ministers, and people like them who have been boosted to power by so-called “democratic” forces in other countries.
HPEC, in May 2006, had an agenda in place, which has been playing out since then. It involves the take-over of listed corporations in many countries, and the total funds being provided by Humungous Bank & Broker (HB&B) is over $1 trillion. A Bear market starting in May 2006 would have stopped those plans.
It might have even kept the Chinese from joining HPEC. Yes, China has agreed to take a $3 billion stake in Blackstone Group. Hmmm.In any case, after John Snow was shuffled off to Cerberus, possibly the only person in the world who could sustain a Bull market beyond its natural cycle, Henry Paulson, was parachuted into the Treasury Secretary position in June of 2006. A month later, after visiting the trading floors in NY and Chicago, Paulson and Bernanke managed to juice the equity market for another year, and gold took off as a result. Few people then talked Bear market.
The checkerboard is almost complete by HPEC: Texas Utilities, ABN AMRO Bank, Equity Office Properties Trust, Trizec Properties, Chrysler, maybe Ford next, GMAC, pieces coming out of General Electric, First Data Corp, Biomet, HCA, Clear Channel Communications, the re-org of Cendant, probably Canada’s Alcan, following Stelco, and a list of others… and now China.
And all the time you thought Paulson was mad at the Chinese, and talking over their Yuan issue.
Interpretation - The government is using ETFs in the gold market to manipulate perceptions of inflation. Private equity controls the President and the Senate. Private equity and banks are conspiring, assisted by the US and Chinese governments, to take over corporations around the world. The 8.5% drop in the S&P 500 last Spring signaled the end of the bull market. The former Chairman of Goldman Sachs has the power to save all the financial markets around the world. Bull markets have well defined time schedules.
Alternative explanations - See previous explanations.
I too believe the financial industry is tilted towards insiders at the expense of everyone else. However, I also believe that smooth-running financial markets are critical to the functioning of an economy. If people believe markets are tilted against them more than they are, people will stay out of the market, which is ultimately harmful to them and the economy.
Perhaps I am dead wrong, I don't know. But Mr. Cara is a widely-read man. Thus, when such a widely-read and respected individuals postulates about machinations of the government and market participants which certainly appear conspiratorial, it is important to posit other possible explanations for occurrences in the market and let participants decide for themselves. That is the market of ideas.
If Mr. Cara wishes to respond, I will post a rebuttal unedited and in its entirety.
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