Before I go further, my son David is on vacation this week, so you’re stuck with me, the old man. If you call the first number on the web site, which is David’s, you’ll only get an answering machine, as he is in sunny California. I have no idea whether he got your check or not, and if you want to know if your order has been shipped, I will need the trade number.
We’ve all talked about the Plunge Protection Team, but it has now been brought out fully in Kevin Phillips new book, “Bad Money.” Here’s a few quotes from pages 58-60. (I haven’t finished the book yet, and when I do, I’ll give you a report on it). “I wrote back in 1994 that “the investment community also buzzed with another rumor that the Federal Reserve…has been quietly buying the S&P futures to prop up the stock market on critical days. The working group’s (PPT) purposes, as elaborated in a 1997 Washington Post article, were to enhance “the integrity, efficiency, orderliness and competitiveness of financial markets and maintain investor confidence.” Robert Heller, a retiring member of the Fed’s Board wrote, “instead of flooding the entire economy with liquidity, the Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole.” The Telegraph in London described the Plunge Protection Team as a “shadowy body with powers to support (the) stock index, currency and credit futures in a crash.” It then quoted George Stephanopoulos as saying that the PPT had “an informal agreement among major banks to come in and start to buy stock if there appears to be a problem.”
“In March 2002, the Financial Times quoted an un-named Fed official, as saying that the Fed could “theoretically buy anything to pump money into the system.” The Australian Financial Review said, “There is a belief that this team (PPT) represents a powerful and secretive hand that is ready to act anytime the Dow looks ready to tank big-time.” US News and World Report described how, in the last two hours of August 12, 2007, the Plunge Protection Team might have put the word out to a major institution or two to buy stock index futures, and a 300 point Dow decline was relentlessly wiped away.” Phillips doesn’t want a law suit by swearing it exists and does its dirty work, so he just quotes a lot of interesting people. There’s no doubt but that it exists, and buys stocks to prop up the market with taxpayer money. Make you proud? The whole economy is on stilts.
Has the PPT kept the stock market up? Is there any reason why the S&P, Dow, or any measurement of stock levels, should be as high as they are, when the P/E ratios are so large? Richard Russell, for years has said that a P/E ratio of ten or less might be a good stock to buy, and no stock should be bought unless it pays dividends. I own no stocks, and want none, including mine stocks, which I understand a lot of people have made money with, and a lot of people have lost as well. Las Vegas is more fun if you wish to gamble.
Isn’t buying gold and silver a gamble? “After all,” you might say, “gold was over a thousand dollars an ounce, and silver was over $20, now now look at it. If I had bought it at its peak, where would I be now?” I’ll tell you where you would be. You would have bought real money, historic money, and tangible wealth, which you can hold in your hand and love and respect for what it is. It is self backed, needs no government to tell you what it is worth, and if prices go down on occasion, a quick look at a graph will show you that metal’s prices are like a ratchet. Prices roar up and people sell, take their profits, and flood the market, thereby driving the price down, and this is true with any commodity. When the price goes down, people say, “Look at how low it is, I think I’ll buy now,” which makes the supply dwindle, and prices go up even higher. How long has the DOW been in the 12,000 range? Long before gold hit the 800’s it now is, I’ll guarantee you that. One wag insists that on May 13th, the S&P will crash, and that will be the beginning of metal’s upward sweep. Who knows? Just get out of dollars, and if you don’t like gold and silver, which I can’t imagine, get a huge refrigerator and buy a ton of butter. It’ll go up too, but of course there’s the electric bill to keep it refrigerated, and who can you sell it to? You could buy a huge amount of rice, because that is going to be in short supply some say, but that would require a lot of storage space, and you have to be careful not to let it get eaten by mice. Gee, is there any better way to hedge against inflation that gold and silver? It certainly isn’t real estate, which is still going down, and treasuries pay in interest about a third of the actual inflation rate. You decide.