PPT oder Nicht-PPT - Mauldin und das Problem m. d. schwarzen Schwan

verfasst von kingsolomon, 08.04.2003, 09:27

-->to PPT or not to PPT, the perils of Unicorns


I must confess to a burst of laughter while reading John Mauldin's"proof" of the non-existence of the plunge protection team as it reminded me of the atheist attempts to disprove the existence of God. This is not to argue that God"exists", which argument tends to get bogged down in the semantics of existence rather than the meaning of the term,"God", but rather to point to the epistemic perils of proving negatives. Philosophy 101 students might be familiar with the problem of proving (non-tautologically for those clever souls pointing to the 'mythical' in most definitions) the nonexistence of unicorns.
The now ubiquitous Lawrence Korb, at least if you watch CNBC, gives us a utile example of the form of argument advanced by Mr. Mauldin,"I think if Saddam was dead, we would now be seeing a power struggle, which isn't evident." That is, according to Mr. Korb, under the presumption, if A (Saddam is dead) then B (power struggle), then not B (no power struggle) means not A (Saddam is alive). While Mr. Korb's argument is more logically compelling as an"if and only if" statement, it loses its analytical meaning in that form. Let's get a bit more generic for illustrative purposes. Is it true, to the extent that a rock dropped from my office window will fall to the ground, that a rock on the ground outside my window means that it was dropped, or more germane to our argument, that a lack of rocks means none were dropped? I trust it won't take too much imagination to conjure scenarios refuting those claims, and all without challenging the original premise of"what goes up must come down", which, by the way, has far more empirical backing then either Mr. Korb's or Mr. Mauldin's theories of immutable human relations. All of which is to argue that even presuming Mr. Mauldin knows what evidence would manifest if the PPT existed, that he didn't see any, is hardly proof.
However, let's examine his argument anyway, leaving aside, for the moment, our skepticism of his ability to prove negatives. As I read it, the argument rests on, drum roll please, the views of the man"who has seen it all", Art Cashin, the seer of CNBC, who avers that arbitrage forces prices to"fair value", manipulation would require billions, intervention would add to market liquidity, and one could never keep this secret. Mr. Mauldin then chimes in that the absence of Democrats screaming about the manipulation is also evidence of the absence of the PPT which must hang on the truth by political triangulation theory of Dick Morris.
I smell the canard of the efficient market theory raising its ugly head. Arbitrage, and while I haven't seen everything like Mr. Cashin, I used to make a few dollars at this game, involves the purchase of one security and almost immediate sale of a virtually, if not identical security, usually at a profit. Normally arbitrage opportunities abound when two markets trade similar securities. While I can see how arbitrage can harmonize prices across markets, I fail to see how that means that the current harmonized price equals"fair value". I imagine that Gold market arbitrageurs were doing a bang up trade between Britain and France during the period from 1925-1931, yet their profits did not make the British Pound/Gold exchange rate"fair". Indeed, history demonstrates that the Brits valued their pound a bit too highly.
So, you ask, do you believe in the PPT? Well, I respond, not exactly. I do think that state and corporate interests align with respect to rising nominal equity indices. I have seen repeated coincidental S&P futures buying and Gold selling. The mass media press continues to present views in favor of"insulating the global economy from threats". This suggests to me that a well funded group currently in"control" believes that the best outcomes will flow from conditions where the US$ and US and by extension, global equity markets, remain strong. The succession of"bail-outs" over the past 20 years further supports the view that faith in"free market" work-outs among the powers that be is hardly strong.
I think it quite possible that from time to time, NY financial interests"bet" that equity markets will bottom, perhaps based on well placed faith in continued Federal Reserve support of current low interest rates. Global money supply has been rising at an accelerating pace, which even according to the wisdom of Mauldin and Cashin is consistent with, inter alia, market manipulation. I can't speak to the degree of coordination or formality of exchanges between the members of this group, but that there is a group which believes, and has the wherewithal to act on their faith, that things will be better if the US$ and US equity markets stay strong, seems clear. When and if the alternate free market view gains credence I imagine evidence of the actions of the non-free market group will become much more evident.

Dave Lewis
http://www.chaos-onomics.com/morn.htm
dave.lewis@chaos-onomics.com

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• PPT oder Nicht-PPT - Mauldin und das Problem m. d. schwarzen Schwan - kingsolomon, 08.04.2003, 09:27