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The Government: Your Portfolio Manager


State control of banks seeming more and more plausible.

Been away so long I hardly knew the place
Gee, it's good to be back home
Leave it till tomorrow to unpack my case
Honey disconnect the phone
I'm back in the USSR
You don't know how lucky you are, boy
Back in the USSR

"Back in the USSR," The Beatles

Welcome to Socialism

Allow me to be frank (of course, I've never had a problem with it before): I'm angry about what's happening to our once-great country. I've spent the past 30 years trying to understand free markets, and the concept of risk versus reward. I've attempted to understand macro-economics, and to protect both my own personal wealth and the wealth entrusted to me by my clients. I have, at times, made some unpopular predictions that have fortunately played out well (at least for the most part).

What gets me, though, is the fact that I no longer seem to have a choice what assets are in my portfolio. And you, as a US citizen, no longer seem to have a choice as to what assets are in your portfolio.

During the late 1990s, I began to see a gargantuan debt bubble forming, and I believed it would eventually burst. Debt was growing rampantly everywhere and at every level - government, individuals and corporations. We had a Fed Chairman growing the money supply at alarming rates and, in August 1998, he began the first in a string of interventions that persist up to the present moment.

During the LTCM crisis in August 1998, Alan Greenspan stepped into the market for an intra-day rate cut. Not coincidentally, this was done during options expiration week, as are most intrusions.

Let's face it: Greenspan, even for his lack of ability as Fed Chairman, was one heck of a stock market technician. During options expiration week, when many market speculators are "short gamma" -- short call options, as they decay fastest during expirations week -- you get the most bang for your buck by intervening then. Or perhaps you get the best bang with my buck, and your buck. And the age of intervention was born.

I must admit I've been on both sides of the interruptions. In early 2001, I was long the QQQQ (the NASDAQ 100 ETF) and made 5% in an hour. The next time, in April 2001, I was short - and promptly lost 5%. What a country.
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No positions in stocks mentioned.

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