MARKET COMMENT

March 22, 2007





We’ve been dancing around the issue of market manipulation and still we don’t have any evidence of any direct current or past market intervention by the Treasury or the Fed. We’ve just been observing their policies combined with open market operations they conduct in the context of modern primary dealer structures. With that circumstantial evidence you may be able to connect the dots. However, an interesting story released yesterday via an interview in the Belfast Telegraph of Bank of England’s ex-Governor Lord Eddie George was revealing.

“The Bank of England deliberately stoked the consumer boom that has led to record house prices and personal debt in order to avert a recession. Lord George said he and his colleagues on the Monetary Policy Committee ‘did not have much of a choice’ as they battled to prevent the UK being dragged into a worldwide economic slump by slashing interest rates. And he said his legacy to the current MPC was to ‘sort out’ the problems he had caused.” Read on here.

I wonder if Greenspan or Bernanke would be so forthcoming?

Now posting all this is getting pretty monotonous isn’t it? I may back off from this for awhile [the math is giving me a headache]. But in the meantime $15 billion expired while $17 billion was added for Fed temporary loans [repos] of $31 billion. Treasury activity today amounted to a paltry $2 billion. That combined with $17 billion expiring brought the total from the Treasury to $18 billion still outstanding. Added to the Fed’s equals $49 billion total. Like I’ve always said, it’s good to be a primary dealer.











Okay, now to the markets. The well-trained bullish headline writers tell us the markets “consolidated gains” today. That’s a fair description and I’ll go with it.


































So overall the tech sector looks pretty uneven and finding the true strength or leadership isn’t that easy to spot.

Just as investors were jubilant over the prospects for interest rate cuts, bonds got hit today and most dismissed the possibility of any interest rate cuts any time soon.








































And overseas markets are still outperforming US markets at least on the upside.















I could go on, but that’s enough to give you the overall picture of things. It was interesting to note that sentiment of bond traders for a rate cut over the next few months dissipated in just one day. At the same time most equity sectors didn’t budge.

The story of note given the Fed’s actions yesterday is to remember there’s a trade-off given there actions or nonactions. Whenever a central bank is perceived as about to weaken their interest rate policy and other countries aren’t the currency will suffer and gold prices will rise. That’s natural.



Are there attempts at market manipulations occurring from central bank activity? With policy and interest rate actions, yes. And usually one could or should argue that is their job, to keep the economy growing and healthy. What bothers most people is either policy mismanagement, which is printing too much money or allowing asset bubbles to grow unchecked. We can see from Lord George’s confession that there they let thing’s get out of hand. Here too unfortunately as we’ve gone from one asset bubble to another. I guess its something we knew already even without Lord George’s confession.

Other folks see conspiracies of direct intervention in markets. We have no evidence of that and no one else has produced any. One could look at the contemporary structure of primary dealers [now owning brokerage firms] and look at Treasury and Fed activity, connect the dots and reach manipulative conclusions. That’s fair in my opinion.

Have a great weekend!

Disclaimer: Among other issues, the ETF Digest maintains positions in: IEF, GLD, DBP, DBE, DBA, UDN, FXA, EWJ and EWA.