Gyroscopic Investing

How much credibility do PP investors give to articles that suggest that the equity, gold and treasury markets are manipulated to serve some purpose? If you are convinced that markets are driven by institutional or government entities, what, if anything, can an investor do to protect their investments. An article that I am unable to locate suggested that Goldman Sachs was purchasing GLD as other investors were selling during their recent comment to short gold. With a substantial ownership in the ETF, can GS manipulate the price of gold on a whim?

buddtholomew wrote: How much credibility do PP investors give to articles that suggest that the equity, gold and treasury markets are manipulated to serve some purpose? If you are convinced that markets are driven by institutional or government entities, what, if anything, can an investor do to protect their investments. An article that I am unable to locate suggested that Goldman Sachs was purchasing GLD as other investors were selling during their recent comment to short gold. With a substantial ownership in the ETF, can GS manipulate the price of gold on a whim?

I read about that and more. It seems GS was telling clients to sell gold while they were buying it up. I suspect there is a certain amount of monkey business going on but there is not much we can do about it.

I believe that all markets are manipulated by the government at all times and that there is little I as an individual investor can do about this unless I withdraw from participating entirely. So given that I want to participate in order to beat inflation and hopefully earn a real return, I would prefer to have wide diversification across all the manipulated markets.

With your gold example, all one had to do was wait. And maybe pick up more gold at the artificially depressed prices, which is exactly what my PP rebalance bands had me do! Sweet sweet $1,250/oz Krugs!

I expect the same will happen with bonds soon.

Yes, markets do get manipulated.  One need look no further than the fed's "zero interest rate through 2015" or QE 1,2,3 to see that setting interest rates to zero or pumping a lot of cash into the world's reserve currency has a tremendous impact on the price of bonds, equities and commodities across the world.  History is also full of examples of private entities trying to corner or manipulate various markets for profit.

Without making political judgements on the merits of such attempts to prop up the market (or make profit in the case of private entities), it is a fact of modern life.

Which is why I like the PP idea - it works across four assets with very low cross-correlation to mitigate risk, and has weathered various manipulations (private and public) well over the past 40 years.

There is certainly an aggressive manipulation of the Bond Market going on both here and abroad. That is however no great secret and is as far as I know not seriously contested. Beyond that I am rather leery of conspiracy theories. That's not to say that there has never been or could never be some sort of conspiracy. I just find most of the more popular ones lacking in credibility.

Ad Orientem wrote: There is certainly an aggressive manipulation of the Bond Market going on both here and abroad. That is however no great secret and is as far as I know not seriously contested. Beyond that I am rather leery of conspiracy theories. That's not to say that there has never been or could never be some sort of conspiracy. I just find most of the more popular ones lacking in credibility.

Who exactly is manipulating the bond market and in what direction? IT and LT Treasury rates are increasing to the dismay of the federal reserve (unless of course they realize that inflation is rising and are willing to let these rates move upward...).

The US Government has flooded the bond market for the last five years with freshly printed money. Most other central banks have done similar things. Sorry. that is manipulation on a massive scale and the fact that bond interest rates have risen a bit in no way alters that fact.

Ad Orientem wrote: The US Government has flooded the bond market for the last five years with freshly printed money. Most other central banks have done similar things. Sorry. that is manipulation on a massive scale and the fact that bond interest rates have risen a bit in no way alters that fact.

Yes. The Fed literally has a mandate to manipulate the Federal Funds Rate (which influences the entire bond market). That's their job.

Big players (and the government is one of the biggest) allways try to manipulate markets, but markets have their own forces. You talk about bond market for example, of course government can try to lower rates and can get it for some time, but if people really think higher inflation is comming they won't buy low yield bonds and less bond demand will cause higher yields.

Gumby wrote:

Ad Orientem wrote: The US Government has flooded the bond market for the last five years with freshly printed money. Most other central banks have done similar things. Sorry. that is manipulation on a massive scale and the fact that bond interest rates have risen a bit in no way alters that fact.

Yes. The Fed literally has a mandate to manipulate the Federal Funds Rate (which influences the entire bond market). That's their job.

So, how do we explain a 10-year yield at 3%? Isn't it in the Fed's best interest to keep rates low during a time of economic recovery?

buddtholomew wrote: So, how do we explain a 10-year yield at 3%? Isn't it in the Fed's best interest to keep rates low during a time of economic recovery?

Not the Fed's interest.  Gov'ts or possibly my grandchildren's, but not the Fed's.

And yes, low rates can be construed as part of the mandate of the Fed.  One part.  They have at least three:  moderate interest rates, full employment, stable prices.  Quite the balancing act.

AgAuMoney wrote:

buddtholomew wrote: So, how do we explain a 10-year yield at 3%? Isn't it in the Fed's best interest to keep rates low during a time of economic recovery?

Not the Fed's interest.  Gov'ts or possibly my grandchildren's, but not the Fed's.

And yes, low rates can be construed as part of the mandate of the Fed.  One part.  They have at least three:  moderate interest rates, full employment, stable prices.  Quite the balancing act.

What does it mean to "moderate interest rates?"

I was under the impression that interest rates were a tool for the fed to use to help strike a balance between their dual mandate, price stability and full employment, not an end in and of itself.

Ever read the federal reserve act?

"moderate" is an adjective just like "full" and "stable."

MangoMan wrote:

AgAuMoney wrote: Ever read the federal reserve act?

"moderate" is an adjective just like "full" and "stable."

Except I think it's being used as a verb here.

No, it is not.

USC›Title12›Chapter3›SubchapterI›§225a wrote: The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall ... so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.

I remembered "full" instead of "maximum" for the employment goal.  Sue me.