While this is indeed suspicious, my current view (until proven
otherwise) is that the futures markets are not directly
manipulated by the Fed or the treasury. What we are seeing is
a huge derivatives market bubble.
Lack of liquidity caused by solvency issues leads to large
downdrafts, while the Fed's recent action on Bear, plus
all these new facilities, have led to patching derivatives
with duct tape (liquidity). It is not possible to prevent an
eventual meltdown in these instruments, short of hyperinflation, of course.
The markets are no longer governed by fundamentals or
investors. Rather, derivative markets (those are supposed
to be "derived" from the underlying securities) are now
the tail that wags the dog.
So, why sharp rallies (or dumps) that originate in the futures
markets?
Answer: the same computer programs on WS to manage derivatives,
as people who write these jump from one firm to another
in quest for ever larger pay, and communicate with each
other. Thus, all firms buy or sell derivatives at exactly
the same moment, or close. This is the most plausible
explanation, IMHO, since it appears the Fed really has no
idea what's going on.
That said, providing liquidity at crucial points is indirect
manipulation, or intervention, and WS counts on that to
make money in derivatives. The Fed definitely does that
a lot, cause if they don't, the system will melt down. |
