THE FED ANNOUNCES IT WILL HIDE M-3 TO KEEP YOU FROM KNOWING WHAT?

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THE FED ANNOUNCES IT WILL HIDE M-3

TO KEEP YOU FROM KNOWING WHAT?

by Robert McHugh, Ph.D.

November 14, 2005

 

The Federal Reserve announced on November 10th, without explanation, and I

quote, “On March 23, 2006, the Board of Governors of the Federal Reserve System

will cease the publication of the M-3 monetary aggregate. It will also cease

publishing the following components: large-denomination time deposits, RPs, and

Eurodollars. The Board will continue to publish institutional money market

mutual funds as a memorandum item on this release.”

 

Why? It’s simple, really. So that the Plunge Protection Team can hide its market

manipulative, equity buying activities. You see, one of the key differences

between M-2 (which it appears they will report) and M-3, is repurchase

agreements. This is perhaps the most obvious reporting item where PPT market

buying transactions show up. If they no longer report this item, folks like us

who monitor the growth of M-3 for clues as to when the PPT is likely to buy the

market, will have a harder time reporting that fact before, or even as, the PPT

buys. Investors will be left more in the dark as to any secret rigging of the

stock market. Why now? Apparently the Federal Reserve (a key member of the

Working Group, a.k.a. Plunge Protection Team) sees a coming need to buy — or

facilitate the buying — of markets, including the equity market, incognito.

Apparently, they don’t want investors knowing they are the ones doing the

buying, keeping prices up, or pushing them higher.

 

We have continuously demonstrated the high correlation between growth in M-3 and

a rising stock market. We have also demonstrated that when M-3 either declines

or stays the same, the stock market is prone to decline. The Fed knows its

hypocritical hyperinflationary expansion of the money supply recently has been

publicized by Fed watchers, and that 12 percent annualized growth in M-3 during

a time when the Fed is raising short-term interest rates aggressively, and

jawboning a determination to stop inflation, is nothing short of illogical,

bizarre Fed behavior. The reason for the dichotomy is quite simple. The Fed can

electronically print money and hand it over to the PPT to buy this stock market.

That has to be why all the extra M-3 growth over the past several months.

 

When we presented the Hindenburg Omen analysis several weeks ago, we warned that

the PPT would likely buy this market to stop the higher-than-normal probability

that the market could crash. Why did we warn that the PPT would likely buy this

market, and stop any potential crash? Because of the M-3 numbers. We could see

there was too much money being created. We know that the way money gets into the

economy is by the Fed buying securities. Inflation is too much money (M-3)

chasing goods. Well, GDP (goods and services) is growing annually around 3.8

percent, yet M-3 was being pumped at three times that rate of growth. The

difference had to go somewhere. It did. Into markets, and very probably equity

markets.

 

Why all the M-3? Undoubtedly because the PPT wanted to manipulate markets at

this time for reasons that are secret to everyone but them. We are left to

speculate as to those reasons. Is the economy closer to the brink than anyone

realizes? Or, is it politically expedient to goose markets? Do the corporatist

elitists want the big payback for backing the powers that be, and insist upon a

rising market into year end? Does Greenspan have an all-encompassing, overriding

desire to ensure his legacy by seeing the Dow Industrials at an all-time high

when he retires in January? We aren’t privy to the reasons because the Master

Planners do not believe in the forthright flow of information. They believe that

bad news cannot be handled by the flock, that confidence must be boosted at all

costs, even if it entails manipulating the markets. Don’t let the dead be

honored, instead sneaking them into Dover at night. Don’t let the real jobless

figures be released, goose them with a phony birth/death

adjustment, and so on. Now we can kiss goodbye the most important Fed statistic

computed. Do you see what is happening folks? The Unpatriotic Act steals your

civil liberties. Three young girls from Kansas cannot board an Amtrak train to

New York unless they have a government issued photo ID. Not some futuristic

sci-fi plot. Now. It is called Corporatist Fascism. Next could be freedom of

speech. Then martial law. A computer chip under your skin (they advertised one

for dogs on Sunday). Eventually, your right to vote. Then it is all over, game

set and match.

 

Not a peep from Congress on the massacre of M-3. Oh the figure will be

calculated. We just won’t be allowed to know it anymore. Really begs the

question, once again, why? Obviously because the Master Planners expect to have

to increase the Money Supply very rapidly, to extraordinary levels next year.

Obviously because they believe they are going to need to buy equity and bond

markets aggressively next year. Do they see a catastrophe coming that will

require hyperinflation to bail the U.S. out? Maybe. Every time we’ve had a

tragic event of mass proportions in 2005, the equity markets have mysteriously

risen out of the blue, sharply, taking shorts to the cleaners. London bombing,

Katrina, Rita, indictment of a top administration official, Refco, etc… Yes, the

Master Planners have learned that they have the wherewithal and the gall to buy

the markets — and get away with it. They have learned that at those times when

markets are at greatest risk, when shorts have their positions lined

up, a little S & P futures index buying, a select few large cap stock buys, a

leak to the trading floor that their golden boy trader is buying is enough to

send the shorts scurrying for cover and buy the market. You see, the PPT only

needs to kick start the buying. Then the shorts buy. Then the Hedge Funds jump

on the bandwagon in search of that elusive trend — either up or down — deciding

it is going to be up, and keep the rally going. But by the time the Hedgies are

buying, the PPT is able to get out (and their Wall Street friends who took the

risk and bought with them early) at a nice profit, the shorts are out licking

their losses, and we watch a waning rally with low upside volume, low

advance/decline ratios, and a high number of New Lows — kinda like right now.

 

Yes, don’t let the technical analysts and Fed watchers know when the PPT is

coming in. That will spook the shorts out and the PPT needs the shorts in. But

the March 2006 M-3 announcement makes one wonder. What in the world are they

going to be up to next year, that will require hiding the growth of money supply

from the U.S. citizenry who used to own this country, who elected this outfit?

War? A big-time war? Martial law? Could it be as simple and corporatist as

merely wanting to drive equity markets higher so weak political ratings improve?

Maybe nothing to do with national security at all? These are the types of

questions every thinking man and woman needs to ask themselves and their

congressional representatives, given the Fed announcement. Remember, the

original mandate of the Fed was to ensure a stable currency. Money. So now they

aren’t going to release their measure of money to the public? One thing that can

be agreed upon, based upon our technical analysis work, is that we

are sitting upon an incredibly fragile moment in the markets, one that is in no

shape to psychologically withstand a catastrophic event on its own. It would

thus appear that the Federal Reserve, in tandem with the Master Planner Team, is

taking steps to prepare for the worst, and unfortunately that requires secrecy

from the people. Secrecy about how much money is going into the economy.

Secrecy.

 

Where does that leave us as investors? Well for one thing, it makes it

incredibly difficult to short, or buy puts, and expect a return on your money.

If every time the market should drop, the Master Planners are going to dip into

their secret M-3 stash and buy the markets, well, shorts might as well lift the

cap off, and shove their money down the sewer riser. That is the psych-ops

objective of the Master Planners.

 

We developed our buy/sell signals for many reasons, but one of the key reasons

was because of the PPT. The PPT stopped a crash in April/May 2004 (the last time

we had a cluster of Hindenburg Omens prior to now). Heavy doses of M-3 were

thrust upon the economy back then, and markets were mysteriously supported

before panic selling could occur. Then M-3 growth settled down to a reasonable

level until recently. Again, huge M-3 growth coincident with Hindenburg Omens

and deteriorating technicals. But, the buy/sell signals did not get trapped.

They turned to “buys” soon after the PPT did their initial buying, soon after

the shorts did their buying, and the Hedgies took over to start a multi-week

rising trend. Elliott Wave analysis is more predictive in an environment without

active PPT involvement. It still works with PPT involvement, but not as

predicatively. It is stuck describing the past. Interestingly, PPT activity does

not thwart EW analysis, it simply forces a change of labeling.

But Elliott’s rules still apply, labeling still follows EW principles, and the

past can be mapped fully in spite of PPT intervention. But, at least this

practitioner has noted, the predictive capacity of EW analysis is muted to some

extent during interventionist periods — which up until now have not been

perpetual, but rather selected moments, most notably whenever we reached the

precipice of a significant degree wave three down. Since especially 2003, at

those moments, the PPT — also fully aware of deteriorating technicals and the

set-up for a wave three down — intervenes. Intervention does not seem to be

important at any other time. That may be about to change given the hiding of

M-3. Once intervention completes its course, from PPT initial buying, through

short-covering buying, until final Hedge-fund buying burns the rally out, EW is

usually left with a complex corrective wave two of higher degree, or a

completing wave five up. This would seem to mean that the PPT is only

effective in postponing wave three down, not delivering mankind from it. We

remain believers in Elliott Wave analysis, and find terrific navigational value

in it. EW is wonderful for letting us know where we’ve been, and where we are

scheduled to go.

 

 

 

Our Stochastic and Purchasing Power Indicators are trained trend-finders. It

doesn’t matter whether the PPT jumps in or not. These signals will identify

trend-changes that have high probability of extending in points and time. That

is why we spend so much time presenting them. They are not fooled. Maybe for a

day or two or three, but not for long. Those of you who have been following them

since we introduced them can attest. The point here is, until these signals

agree with other technical analysis studies we present, we would be hesitant to

expect the timing of an outcome painted by other technical analysis tools to

appear. When in doubt, lean on the signals for the best guidance. And, should

the signals agree and generate “sells,” be mindful we are no longer in a free

market environment, but a centrally planned one, and thus you must be aware of

serious risks of going short, as at any given time, the PPT can jump in and

change the trend. This will probably remain the case until

either so catastrophic an event occurs as to overwhelm central planning efforts

— such as the decline Russia experienced under its central planning experiment —

or until an action of Congress puts a stop to the ever-widening usurpation of

the Working Group’s originally intended charge.

 

Why is Plunge Protection Team intervention so wrong? There are probably fifty

reasons, but I want to focus on one ironic and critical reason. PPT intervention

destroys one of the most time-tested, conservative easy-to-understand investment

strategies ever devised, that is guaranteed to make money over the long-haul for

both the professional and the novice. It is Joe six pack’s chance at a nest egg

for retirement. It works for people who know very little about investing, and is

fabulous for 401(k) plans. Dollar Cost Averaging. What happens here is simple. A

person sticks the same amount of money into a stock market investment at regular

intervals, no matter how high or low the market is. There’s no thinking. Just

saving. If this discipline is kept up, the reason it works is because stock

prices decline from time to time. It is the drops in prices that produce the

highest returns for the overall portfolio over the long-term. Let’s examine.

Suppose that in ten years, if the PPT

intervenes, the Dow Industrials rise to 20,000, however if the PPT does not

intervene, the Dow Industrials end up only at 15,000. But between then and now,

in a free markets environment, we see volatility where the DJIA drops and rises,

and drops and rises, whereas the PPT scenario has the market going straight up.

Let’s see under which scenario our unsophisticated investor does best. Assume

our investor invests $5,000 per year in the market in shares of the DIA, an

exchange traded fund representing the Dow Industrials, where one share equals a

value of 1/100th the DJIA index value.

 

No PPT Intervention

 

PPT Market Manipulation

AnnualAnnualDJIA

Scenario A

Free MarketsPurchased

# Shares DIACumulative

# Shares OwnedDJIA

Scenario B

Planned MarketsPurchased

# Shares DIACumulative

# Shares

Owned20069,20054.3454.3411,00045.4545.4520078,70057.47111.8112,00041.6687.112008\

7,00071.42184.2313,00038.46125.5720099,10054.94239.1714,00035.71161.28201010,800\

46.29285.4615,00033.33194.61201112,10041.32326.7816,00031.25225.86201211,50043.4\

7370.2517,00029.41255.27201312,80039.06409.3118,00027.77283.04201413,90035.97445\

..2819,00026.31309.31201515,00033.33478.6120,00025.00334.31

Total Value: $71,791

(478.61 shares x $150/sh)

 

Total Value: $66,862

(334.31 shares x $200/sh)

 

 

Even if under free markets, the Dow Industrials climbs only 63 percent over ten

years, while the manipulated market climbs 100 percent, yet our unsophisticated

investor comes out ahead under free markets. He gained his greatest return power

from the periods of time the market dipped. Further, if under free markets, the

DJIA caught up with manipulated markets by year 15, and both were at DJIA

25,000, the above shares in his/her portfolio would have grown to a value of

$119,656 under free markets versus $83,577 under manipulated markets. The point

is, from the investor’s perspective, stock market declines are a good thing,

creating buying opportunities that have a huge impact on long-term returns.

Problem is, the Master Planners are not looking out for the investor. They are

looking out for Corporations and their own political hives — Corporatist

Fascism. It is when instead of eliminating the Alternative Minimum Tax (that

eliminates basic deductions on incomes that were originally

considered to be rich, but because of the massive monetary inflation under the

Greenspan Fed, now has pushed millions of middle income taxpayers into this

onerous tax), the Master Planners instead elect to increase the corporate

investment tax credit. It means further, in addition to offering tax breaks to

corporations at the expense of individuals, the Master Planners outright buy

that corporation’s stock to keep it from falling, thereby helping CEOs keep

their jobs, the same CEOs who round up political contributions for the Master

Planners. It means encouraging Joe and Jane Middle Class to borrow up to their

eyeballs in debt to pay for basic necessities after their family job was

exported overseas, and then once Joe gets on his feet again with a new lower

paying job, yanking a huge chunk of the interest deduction on all the home

equity debt he was encouraged to acquire so he has to bear a larger share of the

nation’s tax burden so Corporations can keep their breaks, and even get

new ones. It’s called allowing pharmaceutical companies to push drugs people

don’t really need or want subliminally on television during Desperate Housewives

or the ballgame so we can have everyone in America on 4.7 pills at a time, and

at the same time watch Congress sit on their hands while the FDA prepares to

unilaterally pass a law that requires a prescription to buy a bottle of vitamin

C, and the FTC arrests/sues anyone who claims vitamin C can heal an ailment,

even if it is true, because the FDA has unilaterally created a law (outside of

Congress) declaring that only drugs can heal ailments, not vitamins or herbs —

in fact, the FTC just trumped up a similar claim against Kevin Trudeau for using

his First Amendment right to free speech about natural health claims on an

infomercial, according to the Author’s Guild (check out Kevin Trudeau’s best

selling book, Natural Cures “They” Don’t Want You To Know About, available in

most bookstores). Where’s George Washington, Thomas

Jefferson, Abraham Lincoln, Franklin Roosevelt, or Ronald Reagan when you need

him? Where’s the leadership that is going to stand up for Americans and say,

“Enough already!” How about you, Rick Santorum? Or you, Jim Bunning? Or do the

Master Planners have some secret file hanging over your head, ready to be sprung

the second you step to the plate. Yes, the Fed will no longer let the American

taxpayer know how much money it is creating. It is none of your business.

 

“And he causes all, the small and the great, and the rich

and the poor, and the free men and the slaves, to be given a

mark on their right hand, or on their forehead,

and he provides that no one should be able to buy or to sell,

except the one who has the mark, either the name of

the beast or the number of his name.

Here is wisdom. Let him who has understanding calculate

the number of the beast, for the number is that of a man;

and his number is six hundred and sixty-six.”

Revelation 13:16-18

 

 

© 2005 Robert McHugh, Ph.D.

Editorial Archive and Bio

 

CONTACT INFORMATION

Robert McHugh, Ph.D.

Main Line Investors, Inc.

TechnicalIndicatorIndex.com

Kimberton, PA USA

Email l Website

The opinions of FSU contributors do not necessarily reflect those of Financial

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