I Thought Quantitative Easing Ended?

Well, it’s
options expiration week again and as usual Wall Street is gunning the market
for all it’s worth. The bulls are falling for this shenanigan yet again, just
as they did in June.

How’d that
work out?

Tracking
options week manipulations isn’t easy because there are no strict rules: the
action all depends on where the market is and the number of outstanding
contracts at given price points.

For
instance, back in April investor bullishness was at extremes. Consequently,
Wall Street ramped stocks first upwards (the usual predilection) to shank the
puts… only to swiftly reverse the action in the middle of the week to shake out
the calls.

This whole
system occurs courtesy of the Federal Reserve which openly and blatantly pumps
the market on options expiration week. I’ve shown the below chart before. It’s
staggering that no one in Congress or any of the regulators actually bother
following up on this. How much more obvious does Bernanke need to get?

Options expiration weeks in bold

Week	Fed Action
July 8 2010	+$1 billion
July 1 2010	-$13 billion
June 24 2010	+$175 million
June 17 2010	+$12 billion
June 10 2010	-$4 billion
June 3 2010	+$2 billion
May 27 2010	-$16 billion
May 20 2010	+$14 billion
May 13 2010	+$10 billion
May 6 2010	-$4 billion
April 29 2010	-$1 billion
April 15 2010	+$31 billion
April 8 2010	+$420 million
April 1 2010	-$6 billion
March 25 2010	+$5 billion
March 17 2010	+$25 billion
March 11 2010	+$2 billion
March 4 2010	-$5 billion
February 25 2010	+$8 billion
February 18 2010	+$21 billion
February 11 2010	+$7 billion
February 4 2010	+2 billion
January 28 2010	-$4 billion
January 21 2010	-$39 billion
January 14 2010	+$56 billion
January 7 2010	+$1 billion
December 31 2009	-$1 billion
December 28 2009	+$35 million
December 17 2009	+$49 billion
December 10 2009	-$17 billion
December 3 2009	-$2 billion
November 27 2009	-$2 billion
November 19 2009	+$73 billion
November 12 2009	-$30 billion
November 5 2009	+$3 billion
October 29 2009	-$39 billion
October 22 2009	+$8 billion
October 15 2009	+$54 billion
October 8 2009	-$3 billion
October 1 2009	-$17 billion
September 24 2009	+$18 billion
September 17 2009	+$51 billion
September 10 2009	+$4 billion
September 3 2009	+$8 billion
August 27 2009	+$14 billion
August 20 2009	+$46 billion
August 13 2009	+$25 billion
August 6 2009	-$11 billion
July 30 2009	-$38 billion
July 23 2009	-$33 billion
July 16 2009	+$80 billion

Notice that
on non-expiration weeks the Fed either pumps the system slightly or, more
commonly, removes money.

However,
once options expiration week hits, it’s PUMP time. To whit, the Fed has NOT had
a single options expiration week in which it HASN’T pumped the market in nearly
one year.

Moreover, note that despite the Fed’s
Quantitative Easing Program ending in March, the Fed continues to pump $10+
billion into the system EVERY month when options expiration week rolls around.

Didn’t
Bernanke say he wouldn’t continue buying assets from Wall Street after QE
ended? More importantly, didn’t QE end? Why is the Fed still pumping money into
this system?

And finally…
how many times does this have to happen before someone in power actually
notices it? Seriously, we’re talking about the Fed going 12 for 12 in the last
year. And it’s not like the pump jobs are even subtle: they’re DRAMATICALLY
larger that any other capital infusions the Fed makes during non-options
expiration weeks.

Good
Investing!

Graham
Summers

PS. For more hard-hitting investment insights revealing the real reasons the market moves as it does, join me at www.gainspainscapital.com

Comments

[Bertie Wooster]

#1  the two biggest increases on your list don't fall in the options expiration week.  These two increases are bigger than all the others combined.  Explain that.

#2  If you're going to make an accusation that the Fed'l Gov't is buying stocks, you'd better document just what data you're tracking.   An increase in the Fed Reserve's balance sheet doesn't mean that increase is spent on stock purchases which go against put options.  You've skipped steps.  I shouldn't have to read in the comments where your data came from, it should be supplied in the article.  Also, if you're trying to imply that increases in Fed balance sheet indirectly boosts stock buying in the week the balance sheet is expanded, please explain to all of us how that happens; you know, so a 4th grader could understand it.  Cuz I for one don't know how it happens.   In the Alan Grayson video cited in the comments, I appreciate him trying to nail down why the Fed'l Reserve is loaning money to foriegn govts like New Zealand, but swaps lending and stock buying are two different things.

#3  Options expiration was last week, not this week.   So you need to either properly date your article at the top (appropriate LAST week, not this week) so as not to confuse the reader, or determine why the author thinks options expiration is tomorrow instead of a week ago.

So overall, this is sloppy reporting typical of ZeroHedge.  Your blog would be much better off if you better specified which areas are cloudy, instead of overstating your case for the benefit of effect.  Maybe you're right, our gov't is buying stocks during options week to aide investment banks who sell the puts, but this article is just as much smoke and mirrors as the Fed'l Gov't.  So I hold both you and the Fed'l Gov't are in the same degree of skepticism-- and that's a shame bc ZH I'd like to believe.

[mephisto]

1. The data is ok, I checked - dont confuse millions and billions

2. Agree.

3. This is an old post from the contributors blog 2 weeks ago.

Its a contribution not a ZH piece.

[gerryscat]

Someone in power? The Fed runs the government, not the other way around.

[tyler]

Ron Paul?

[DavidRicardo]

You thought, Graham, because you don't have the slightest idea what is going on.

Mellonesque liquidation is what is going on.  In case you hadn't heard, that's government removing itself from the society at the behest of the powerful.

It means looting.  It does NOT mean

1.  government spends less;

2.  government gets smaller;

3.  government gets less intrusive.

Mellonesque liquidation is a serious, complex discipline.

Too bad you don't have the same intellectual discipline.

You do a disservice to everyone who wants to understand, by your own willful failure to understand.

Shameful.

[tony bonn]

i have been reading graham summers for quite some time and am a huge fan....this article should be mass mailed to everyone in america....that would be an opportunity to expose the lying scumbag shitpiles who charade as banksters, politicians, and bildebergers and incite voters to burn these punks into oblivion....

[wgpitts]

We need to initiate a class action lawsuit

The Federal Reserve Bank on Thursday April 1, 2010 admits it secretly and illegally purchased tens of billions of dollars of equities in companies, from their co-conspirators/insider traders, and did not disclose this information to investors. This was material information that affected the financial stocks that was undisclosed. This is a felony offense for the following reasons.

1. They were not authorized by law to purchase these stocks or equities

2. These were material transactions that effected entire market segment and investors were not made aware of these material transactions.

3. Only insiders knew of these purchases and invested accordingly

Additionally, the owner’s of the Federal Reserve Bank are the same banks and institutions that received this illegal money. They obtained personal benefit from these illegal/insider transactions.

Investors who had short positions or purchased “put options” were defrauded of billions. I purchased short positions and was defrauded. I want to prosecute.

Those guilty by their own admission should be arrested. Those who lost because of this fraud should be compensated for their loss.

Below is my complaint.

Fed Releases Details on Bear Stearns, AIG Portfolios
http://www.bloomberg.com/apps/news?pid=20601087&sid=aymTlczlMmpA&pos=1

Fed in hot water over secret bailouts
http://www.csmonitor.com/Money/Robert-Reich-s-Blog/2010/0401/Fed-in-hot-water-over-secret-bailouts

The Fed Admits To Breaking The Law
http://networkedblogs.com/21Xqv

Geithner: Pickpocketing Trillions from the People to Give to the Oligarchy Was "Deeply Unfair", But We ... Um ... Had To
http://www.washingtonsblog.com/2010/04/geithner-looting-country-for-trillions.html

Why Is The Fed Actively Managing A $25 Billion Maiden Lane MBS Portfolio When Its $2.4 Trillion SOMA Holdings Have A $1 Billion DV01? (And Are Unhedged)
http://www.zerohedge.com/article/why-fed-actively-managing-25-billion-maiden-lane-mbs-portfolio-when-its-24-trillion-soma-hol

Dylan Ratigan MSNBC exposes Federal Reserve Con
Part 1 -http://www.youtube.com/watch?v=ACm1ntw_4dM&feature=player_embedded
Part 2 - http://www.youtube.com/watch?v=oSpCSzgB4MA&feature=player_embedded

Dylan Ratigan states that US Attorney’s office in New York investigating. Re: Lehman Brothers
http://www.msnbc.msn.com/id/21134540/vp/35841681#35841681

April 9 (Bloomberg) -- U.S. banks masked their true risk levels by temporarily lowering debt before reporting it, the Wall Street Journal said, citing data provided by the Federal Reserve Bank of New York.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aXNVR4sYxMKU&pos=6

4/9/10 Major U.S. banks masked risk levels: report
http://www.reuters.com/article/newsOne/idUSTRE63813R20100409

The SEC Complaint filed is below

My complaint below was filed in December.

Investors have lost billions of dollars taking short positions on financials while you allowed the private central banks to manipulate the banks financial positions without disclosing to investors. Only the bank insiders knew. They made a killing. This is fraud. What are you going to do about it? My complaint that I filed is below.

So how can the central banks secretly loaning banks hundreds of billions of dollars and not tell the public? How can one make market investment decisions when this info is not disclosed?

How can the central banks secretly provide hundreds of billions of dollars to banks and not disclose this information to investors? Isn’t this market manipulation? Where is the SEC? All those with put options or short sales were defrauded. I am one of those persons!

Barnanke admits they gave $1/2 Trillion dollars to foreign banks...then the foreign banks did this...the fed subornated fraud in the financial markets through the ECB and with direct undisclosed purchases...everyone who purchased put options or shorted the banks was defrauded

Alan Grayson: "Which Foreigners Got the Fed's $500,000,000,000?" Bernanke: "I Don't Know."
http://www.youtube.com/watch?v=n0NYBTkE1yQ&feature=player_embedded

BoE Secretly Loaned $102.9 Billion to RBS
http://www.cnbc.com/id/34126826

Bank of England tells of secret £62bn loan to save RBS and HBOS
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6646923/Bank-of-England-tells-of-secret-62bn-loan-to-save-RBS-and-HBOS.html

Bank of England advisers not told about secret £62bn loan to HBOS
http://www.guardian.co.uk/business/2009/dec/03/bank-england-secret-loan-hbos

Bank gave RBS and HBOS 'secret' £62bn loan
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6929451.ece
Fed Refuses to Disclose Recipients of $2 Trillion
http://www.bloomberg.com/apps/news?pid=20601109&sid=apx7XNLnZZlc

Fed Fights Request To Disclose Who Got $2 Trillion In Bailouts
http://www.istockanalyst.com/article/viewarticle/articleid/3775032

Is Obama manipulating the stock market?
Economist claims president 'jawboning' economy to boost Dow
http://www.wnd.com/index.php?fa=PAGE.view&pageId=92100

VIDEO: Federal Reserve Manipulating Stock Prices?
http://www.chartingstocks.net/2009/09/video-federal-reserve-manipulating-stock-prices/
Does The Government Actually Manipulate The Stock Market?
http://www.businessinsider.com/does-the-government-actually-manipulate-the-stock-market-2010-2

[DrLamer]

A class action lawsuit?

C'mon, dont You see this is not a court "US People vs. US .gov". This is a court "God vs. USA". Today the US Government is simply a punishment for stupido idolatro americano (no personal offense for honourable readers of ZH).

If You are going to win a court vs. USA .gov, first win the court vs. Creator.

Do you need a list of USA' sins ? (Again ?!)

[laosuwan]

the real issue here is not that the market is corrupt; we all know that. The issue is, when will the market collapse? The Fed has been keeping this game going for decades and during that time analysts have been warning of the end, advising to stock up on guns and butter, buy textured vegetable protein, move to Alaska, bury gold in the ground, etc. And yet the market and the west keeps going its merry old way. What will it take for the house of cards to collapse? I would guess it will take either (a) a military that can no longer be sustained due to its cost of corruption, (b) the dollar / euro collapses, or (c) social collapse in US, Canada and Europe due to taxation, muslim immigration and birth rates, and / or  crime. Experts have been predicting and warning about all of these for decades and still the machine keeps limping along. Personally, the only solution that seems to make sense to me is to move, and that's waht i did (not Alsaka, too many flies in the summer) but Asia, with a back up place in South America. As I have posted before, the only good investment at this time is to get out of the US or Europe while you still can. 

[daverinda]

The derivatives market-making community, including the major Wall Street dealers, have an enormous need for capital to support expiration week trading demands, and the Fed activity reflects that.  The week following, the extra liquidity is removed.  It's really pretty benign.  The trend is down as Anonymouse has pointed out.  And, that fits with an overall downward trend in equity markets volume, including options, during the analysis period.

[Trifecta Man]

Sure looks like the Fed is directly affecting the stock market during options expiration week, or they are buying (dubious?) assets from .... banks or trading firms .... who then affect the stock market.  Or could they be "LEASING" those assets to the Fed for some quick trading cash?

Holy smokes!  No wonder the Fed does not want to be audited.

[Nikki]

St. Louis Fed has all this data downloadable. A colleague at work downloads sp from yahoo all into excel and shows how fed monetray expansion and contraction leads the market for the last 30 years !!!!

Recently the action only takes days before you see the effect. How do you think Doug Kass called the bottom a few weeks ago ?. He got a tip the pump was back on and voilà 500 points just like that...

Don't believe ???, due your own research then. The data is available with two week time delay.... So you goyem don't get the signal in real time. That is reserved for the kosher nostra of course. Lol.

[Hang The Fed]

Hahahaha!  Brilliant analysis...it only goes to show that there really is only a thin tissue of lies between what's reported by the moronic hacks at CNBC or (more deplorably) CNN Money, and what is actually occurring on the ground and behind the scenes.  As I said once before...the fact that a "shadow economy" exists is a bald-faced indication that we are being bought, sold, and swapped, so long as there's a sufficient number of good little sheep who will continue to buy the lie presented by continous buggering of the numbers...lies, damn lies, and statistics, in descending order of credibility, so long as they happen to be furnished almost entirely by a political-corporate aristocracy that only cares for themselves, and no one else.

"And Darkness and Decay and the Red Death held illimitable dominion over all."  In the present context, you could substitute "the Federal Reserve," or, "the IMF" for "the Red Death," and it would be contemporarily accurate.  What a sad bunch of fucking clowns.

[freshman]

Where did you get the "Fed Action" Numbers? If you can verify this, the Fed really needs to be prosecuted for openly manipulating the equity market.

[mephisto]

Market makers hae been pumping options week since Black & Scholes were babies. No Fed intervention was ever necessary before, don't see why it would be now. 

Note the volume on op ex day is now multiples of the average daily volume, and it's concentrated in fewer hands - so options are now a more important feature of market dynamics. In this world simple hedging, with no manipulation, can get you some systematic moves. I don't know of any way they can offload the risk to the Fed. Even if the Fed was funding them, the banks wouldn't like the delta risk on the scale of the "Fed Action" here. It's bigger than Kerviel. Doesn't make sense to me.

However, the data pattern is odd. Like others here, am curious what the "Fed action" column is...

[egdeh orez]

Thanks for the info Graham Summers!

Quick question: where do you get the stats for the "fed action" column?

Seems like they dumped a lot of money into the markets in the week of June 24!

[Trifecta Man]

See my note above.

[Miss American]

It's the same with the PM market.  What I can't figure out is what sucker, at this point, even buys PM call options.  

[intrinsic_value]

Hello, just a question to the author -- is the number called "Fed Action" repo transactions, securities purchases of some sort, or some other expansion of the Fed balance sheet?  Just trying to understand where the numbahs come from.

[Trifecta Man]

In each week's link:

See table 10, row Total assets,  column Change Since Wednesday {prior week date}.

http://federalreserve.gov/releases/h41/

Yes, they added over $8 billion of assets during the week of July 15th.

Rich

[Goldenballs]

Either the Feds out of control or there is a section of the Government out of control or probably both.This action seems to amount to institutional fraud,or is it that the finanancial system is so irretreivably broken that this is the only way it can be kept limping along.Smoke screens and funny money can,t last for ever,if you drop a stone in water you get ripples,what will the long term effects of all the ripples be,and who will ultimately pay the price,won,t be the people dropping the stones thats for sure ? I am pretty sure if we knew the whole truth there would be a run on the banks and people would be converting everything they could to Gold and Silver. Just check the ever growing list of insolvent US banks,growing day by day,imagine the outflow of funds from these institutions,where is this cash ending up,certainly not back in the banks with interest rates so low.

[lumen ex lumine]

the finanancial system is so irretreivably broken that this is the only way it can be kept limping along . ( "irretrievably" actually, but what difference does it make? )

[Goldenballs]

Sorry about that,I think "knackered" just about sums it up....

[Shell Game]

Nice article, Graham, thanks.

[Shell Game]

It's a matter of national security now, the proxy is all they've got..

[Leo Kolivakis]

Very interesting article, thank you for posting your thoughts. Always wondered about this.

[johngaltfla]

That's one hell of an article. And what is sad is we can never analyze the overnight balance sheet of the Fed. I'll bet it is quite interesting if not disturbing.

[Quinvarius]

Numbers are getting bigger too.

[Anonymouse]

I think you are reading the data backwards.  The numbers are getting smaller, not larger.  While there has been activity since April, the overall position has not really changed since then.

Even so, plotting it out shows it even better than a data table.  The trend is quite blatant.  It would be intereting to see this against SP500 performance

[bxmckenna]

Outstanding analysis and reporting.  I would love to see the actual assets on the Fed's balance sheet if we were ever allowed.  Then again, they're probably not much more than IOUs written on some Post It notes anyway. 

[metastar]

Excellent Article!

Thanks.

[tictawk]

This has been going on for 20 years.  What you need to watch is the P/C Open Interest totals for the front month on the options on futures contracts.  The P/C ratio is 2:1 average.  It has been a little lower in the recent months but usually 2 or 3:1.  The put sellers are the primary dealers and I am sure that their interests are well looked after.  The Fed covers them in every way.  I still remember the time the market tanked big time on the day before option expiry and the Fed lowered interest rates one hour before settlement the next morning and the SnP ran up 80pts.  Greenspan was the crook in charge. So yes, it is a stacked deck.  Know your enemy if you are buying puts because they are out to screw you. I have been trading and watching this market for 25 years.