Paul Bogdanich

Who's Blowing This Bubble - And When Will It Pop?

And it is the primary dealers that are fueling this rally. If the Fed allows the T bill/bond purchase program to lapse September 30, 2009, the primary dealers bail and the markets go South.


On Aug 08 01:12 PM bearfund wrote:

> Distribute by helicopter would actually be a lot less harmful than
> what we have today. At least you have some chance of standing where
> the helicopter happens to be. The current regime enriches traders
> employed by Primary Dealers and basically no one else.

Who's Blowing This Bubble - And When Will It Pop?

A very worrisome situation indeed. If the policy of reflation is abandoned it will be becausee the policy makers were forced, compeled, to abandon it. The only way that happens is if we can't borrow the money and the monetization of the debt breaks or threatens to break the currency. In that situation cash is of diminished use as well. Gold is good for squat besides giving you a warm feeling but you can't buy anything with it nor pay your bills with it. I personally don't see anything that's "safe" right now. So when in doubt follow the liquidity.

Goldman Sachs: No Global Financial Espionage Story Here

The thing that goes unmentioned and is scandalous in my estimation is the treatment of the low liquidity issues in the index rebalancing. It is widely known that Goldman, Morgan and formerly Lehman contract with the funds that don't maintain trading desks or proprietary trading affiliations to do the index trading for them. No big deal so far. What is a big deal is Goldman and formerly Lehman were in the habit of selecting baskets of low liquidity issues and delivering index receipts to their index fund customers without ever buying the underlying stock. Then sometime during the following year they use thier trading power against selected low liquidity issues to drive the shares into the dirt and cover the counterfeit position or drive it down and watch it fall off the index with the next rebalancing and close the position with another book entry. This practice should not be allowed. I can see giving them 120 or 180 days to accumulate the index positions based on the liquidity in the issue in some of these low liquidity issues but allowing them to make the trades through book entries only and hold the positions open unreported short under the exemption indefinitely creates an incentive on the part of Goldman and the other banks to make sure these lower oliquidity issues never trade well. This perversion of incentive really hurts capital formation on the lower end and that hurts everyone as these smaller firms are generally the one who are hiring. Just a corrupt system and in all our "reforms" we steadfastly refuse to look at these perverse incentives created by the regs. It's just a mess and as it looks now the system will fail again in a few more years and then what? All in my humble opinion of course.