AEP on Plunge Protection

Ambrose Evans-Pritchard is back!  Actually, he never left.  The London Telegraph correspondent who did much to expose the shenanigans of the Clintons during the 90s has made the European Union his beat in recent years.  But he weighs in this week on familiar topic — the return of the Plunge Protection Team.

Evans-Pritchard expands on a Wall Street Journal piece from last week that confirmed Treasury Secretary Goldman Sachs — er, Henry Paulson — has stepped up the Plunge Protection Team's pace of activity (although the Journal inexcusably steered clear of any reference to "Plunge Protection Team," using only its official name of the "President's Working Group on Financial Markets.")

Where Pritchard goes the extra mile is in linking the PPT's revival to the SEC's move to cut margin requirements for institutions and hedge funds:

The move is so odd that conspiracy buffs are already accusing SEC chief Chris Cox of juicing the markets to help stop the implosion of the Bush presidency.

As it happens, I used to eat Mexican enchiladas with Mr Cox 20 years ago at a dining club in Washington, where California Reaganauts gathered to plot the defeat of Communism. Die-hard Republican he may be, but I can think of nobody less likely to betray the public trust in such a way.

So one is tempted to ask if Mr Paulson and Mr Cox know something that we do not: whether other hedge funds are in the same sinking boat as Amaranth Advisers and Vega Asset Management, keel-hauled by bets on natural gas and bonds.

From there, Evans-Pritchard examines some of the recent U.S. economic numbers — espcially the inverted yield curve — and concludes that 1) A 2007 recession is a near-certainty, and 2) "Those speculative positions may have to be unwound very fast."

The Daily Reckoning