PPT Exposed (Part 2)

This morning I received numerous Emails from those reading PPT Exposed. Caroline Baum emailed me the same thing. Most are unprintable.

I did however, have this Email exchange with Trotsky (One of few who supported my position).

Mish to Trotsky:

PPT Exposed
I hope you find this hilarious.
It's supposed to be.
http://globaleconomicanalysis.blogspot.com/2007/08/ppt-exposed.html
A spoof "telepathic conversation" with "Bob" about the PPT (plunge protection team), Kennedy conspiracy theories, GATA (gold), and in fact conspiracies in general, all of which are poked fun at.
Mish

Trotsky to Mish:

absolutely! you've put your finger on the major flaws - namely how complicated those CT's are, and how apparently everybody involved has kept his mouth shut about them so far (an impossibility, which we can glean from the fact that the contents of the CIA's 'family jewels' collection were all well known in advance - due to the people involved NOT keeping their mouths shut).

Kevin Depew on Minyanvile Emailed "That's a great piece Mish". It was also Minyanville that alerted me to Barry Ritholtz's Big Picture Blog post Mystery Solved: Another Fat Thumbed Trader.

Turns out that 200 point swing was the reversing of a bulge-bracket firm trading error. The following is from a top 5 firm (rhymes with Sheryl), who plainly explains the source of the error, and how its unwind caused the reversal.

"Error at the bell last night (clarification): This error at the bell last night really did contribute to the rally. Bottom line is that one of our competitors inadvertently sold 5346 too many of the SPX Sep 1450 calls and needed to cover them in a hurry. At the time the mkt was down 1% on the day.

In covering, it is likely the crowd front ran the order, exaggerating the move.

Once the move got going, the variance hedging phenomenon kicked in. Most dealers place MOC (Mark on Close) orders to hedge their daily delta risk.

If this theory holds, then they would have put in large sell orders yesterday MOC at around 3:40PM. Once the mkt started to run, their delta position would've changed from net long to net short and they would have needed to buy that much more SPX exposure into the bell. Our index trading desk predicts that for every 2 pt move up in the SPU, dealers needed to buy approx 500MM notional in delta.

With liquidity being lousy right now, that created the violent move."

Barry went on to say: "That makes some sense to me."

But does it? Why couldn't Sheryl Flynch be making this stuff up? Alternatively, how can we be sure that Sheryl Flynch was not in on this from the get go? In fact, what was stopping Sheryl Flynch from purposely entering that order incorrectly on orders from the PPT knowing full well that the unwind of the trade would send futures soaring? How can anyone believe this was just an accident? Was someone on the grassy flow phoning Sheryl? BTW Who is this Sheryl Flynch in the first place? What do you really know about her Barry? Did you trace the call back to Flynch headquarters? If not, why not? Are you in on this too?

Seriously folks, I had a long conversation with Barry this afternoon. He believes as I do, the PPT exists but they seldom if ever act. As Barry pointed out to me in the phone call "a 70% Nasdaq plunge is hardly supportive of effective PPT action". I am also going to take the liberty of sharing an Email from Caroline Baum. "I don't dis the PPT because I think govt is virtuous. I don't. They are corrupt. It's just with his, the paper trail would be too long, and some $30,000 a year clearing clerk at the merc would take his proof to random house and get a $5 mln advance."

Nonetheless in spite of what Barry, Caroline, or I think, some additional proof came in this afternoon proving the PPT can and does act. In what could be the story of the year, Minyanville was able to get a hold of the asset allocation plan of various Fed members. If this is not proof that the PPT is taking action then what is?



The above chart copyright and courtesy of Minyanvile.

As convincing as that chart is, the cynical will suggest that it's just another spoof making fun of the PPT Religious Right (PPTRR).

On that note another telepathic message just came through loud and clear. Here is the message: "Mish it is quite obvious that you, Trotsky, Kevin Depew, Barry Ritholtz , Caroline Baum, The Big Picture Blog, and Bloomberg are all in on the conspiracy to cover up and/or make a mockery not only of the illegal actions of the PPT but more importantly of the PPTRR. We have little choice than to place your blog under watch for further slander of our fine group."

OK - enough of this stuff. Back to the economy and the markets.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/