Painting the Tape for the G8 Summit?
Today's Thoughts
Dave Lewis
Jun 10
The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts. - Bertrand Russell
A few weeks ago I read an interesting financial/philosophical essay on what it termed the two classes of investors, those who believe they can (and do) know the future and those who think they cannot. In part, I believe this distinction flows from the diverging views of the ability to know the present. Some think they have a handle on what is going on and some work with possible realities. While I have a pathological tendency to live in a defined universe, as a habit of mind I find that withholding judgment tends to lead to a broader sense of the possible. Lets' call it internal ideological diversification, instead of betting on one view of the universe, bet on a range of possible scenarios without committing to one before the truth becomes obvious.
It is within that frame of mind that I entertain the work of GATA, among other competing theories "explaining" recent financial market developments. What I know, from my own experience, is that people tend to "gild the lily" or in the patois of finance, "paint the tape" at all levels of the game. I've previously related my own trick, when trading FX options, of selling low delta options near month end to boost "mark to market" P&L due to the bank's then practice of valuing all similarly dated options of one currency pair at one volatility level, i.e. not accounting for the volatility skew. The profits gained were an illusion, and at times cost me more in future profit then I gained at the time.
When working for a Hedge Fund we would routinely drive the futures market during the last minutes of month and quarter end trading to make our position appear more profitable. Even the mainstream financial network, CNBC, regularly speaks of "window dressing" among portfolio managers. Yet, it would appear that while people are willing to accept that fund managers might do such things, the government would not. Given that people are people I am hesitant to believe that appointment or election to political office suddenly leads a leopard to change its spots. Further, the historical record on the subject contains numerous accounts of just such efforts.
Of course, until the "smoking gun" is revealed, allegations of such activity remain allegations, however plausible they might seem. This isn't to argue against the GATA view of covert Gold price suppression, but rather to retain that skeptical state of mind. I can't refute their view, it comports with my understanding of history, my experience in the financial markets, and my sense of human behavior. Even so, one needn't accept the view to speculate on a possible reality, to wit, have the powers that be been "painting the tape" ahead of the Bilderberg and G8 conferences?
Why might certain elements within the oligarchy try this tactic? As often related in this space, the US has long ago ceased to be a surplus nation and must rely on external savings to finance its growing deficits. In a sense then, these meetings over the past few days and through the weekend might be seen as a global annual shareholder meeting where the creditors get a chance to speak with the debtors about the returns on investment. Leaning further on the corporate metaphor, one might recall many companies that dress up their balance sheet before a merger, equity or debt offering.
As many recent Treasury Secretaries, inter alios, have alluded, the dollar is the "stock" of America. Just as investors feel more comfortable expanding investment in a company whose stock is on the rise, so too, I imagine would investors on a national scale be more inclined to expand investment in a country whose currency is on the rise. What better time, I speculate, to show the world that the US$ is stable, US bond and stock markets are resilient and even oil is under control then coming into these meetings where continued finance will be under discussion.
Alternatively, recalling Peter Fisher's comment from his days at the Fed, of teaching the markets that there was two way risk, perhaps prices were manipulated to push the ever growing number of hedge funds out of trades before the meeting. Further scenarios include the potential of simple private sector exiting of trades in front of the meeting and even just the normal ebb and flow of markets.
I don't know which scenario or combination thereof will prove true and I assume that I haven't even covered all the possible bases. They are, however, a few possible scenarios I am entertaining as I wait for the smoke to clear and the policy decisions made over the past few days to manifest. For what it's worth, the site of the G8 summit, Sea Island Georgia, is but a few miles, as the crow flies, from Jekyll Island, the site from which emerged the plan to create the Federal Reserve.
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