Is The U.S. Government Buying Stocks?
As I pointed out in December 2008, Nouriel Roubini wrote the month before that the government might buy U.S. stocks:
The Fed (or Treasury) could even go as far as directly intervening in the stock market via direct purchases of equities as a way to boost falling equity prices. Some of such policy actions seem extreme but they were in the playbook that Governor Bernanke described in his 2002 speech on how to avoid deflation.
Given that Roubini was previously a senior adviser to Tim Geithner, he probably knows what he's talking about.
Now, Charles Biderman, CEO of TrimTabs, argues that the government may, in fact, have been buying stocks to prop up the stock market. Given that 25% of the top 50 hedge funds in the world use TrimTabs' research for market timing, it is a credible source.
Specifically, Biderman writes:
As far as we know, it is not illegal for the Federal Reserve or the U.S. Treasury to buy S&P 500 futures. Moreover, several officials have suggested the government should support stock prices.
For example, former Fed board member Robert Heller opined in the Wall Street Journal in 1989, “Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thereby stabilizing the market as a whole.”
In a Financial Times article in 2002, an unidentified Fed official was quoted as acknowledging that policymakers had considered buying U.S. equities directly, not just futures. The official mentioned that the Fed could “theoretically buy anything to pump money into the system.”
In an article in the Daily Telegraph in 2006, former Clinton administration official George Stephanopoulos mentioned the existence of “an informal agreement among the major banks to come in and start to buy stock if there appears to be a problem.”
Mike Whitney - in commenting on Biderman's essay - adds another juicy quote:
Consider the comments of former Clinton advisor George Stephanopoulos who verified the existence of the PPT in an appearance on Good Morning America on Sept 17, 2000. He said:
"What I wanted to talk about for a few minutes is the various efforts that are going on in public and behind the scenes by the Fed and other government officials to guard against a free-fall in the markets . . . perhaps the most important the Fed in 1989 created what is called the Plunge Protection Team, which is the Federal Reserve, big major banks, representatives of the New York Stock Exchange and the other exchanges and they have been meeting informally so far, and they have a kind of an informal agreement among major banks to come in and start to buy stock if there appears to be a problem. They have in the past acted more formally . . . I don't know if you remember but in 1998, there was a crisis called the Long term Capital Crisis. It was a major currency trader and there was a global currency crisis. And they, with the guidance of the Fed, all of the banks got together when it started to collapse and propped up the currency markets. And, they have plans in place to consider that if the markets start to fall."
Biderman continues:
This type of intervention could explain some of the unusual market action in recent months, with stock prices grinding higher on low volume even as companies sold huge amounts of new shares and retail investors stayed on the sidelines. For example, Tyler Durden of ZeroHedge has pointed out that virtually all of the market’s upside since mid-September has come from after-hours S&P 500 futures activity.
If we were involved in a scheme to manipulate the stock market, we would want to keep it in place until after the “wealth effect” put a floor under the economy of, say, three quarters of positive GDP growth. Assuming the economy were performing better, then ending the support for stock prices would be justified because a stock market decline would not be so painful.
Whitney summarizes another of Biderman's arguments:
"We cannot identify the source of the new money that pushed stock prices up so far so fast. For the most part, the money did not from the traditional players that provided money in the past."
Huh? So, this vast infusion of liquidity--which helped the banks to avoid painful deleveraging--did not come from the usual suspects?
That's right. According to Biderman, the money did not come from (a) companies ("which were a huge net seller") (b) retail investor funds, (c) retail investors, (d) foreign investors ..., (e) pension funds [or (f) hedge funds].
Has it happened? Has the government or it's primary dealers really purchased stocks?
I
don't know, but Bernanke's refusal to open up the Fed's books - and the
lack of accountability and transparent accounting standards for the big
banks - isn't helping to dispel suspicions.
And if the stock market tanks again in 2010, it might add
circumstantial evidence to a short-term attempt to prop up the market
by the government.
(5 votes)
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on Mon, 01/04/2010 - 03:51
#181836
I guess one of the big questions I have with this (which most here believe implicitly to be true) is whether this "willful suspension of disbelief" that the PPT has engendered here will in fact translate to real market sustainability given sufficient belief in the system. After the LTCM collapse in 98, the PPT float of the market did push the tech bubble popping back by two years, though I've often had my suspicion that Greenspan's move after 9/11 to drop interest rates to below the rate of inflation was held in place for so long thereafter because it provided additional liquidity to the banks in order to help them recover from LTCM and the Asian Flu faster, rather than being done to stimulate re-emploment.
Of course, I'm also reasonably sure that the housing bubble and the Ownership Society that Bush pushed in 2004 was a quid-pro-quo between the Fed and the Bush White House to keep those rates low in order for him to more readily finance the Iraq war, but perhaps I"m just being paranoid about that.
Either way, I suspect that the ability of the PPT to use the market to stimulate the economy this time around is a non-starter - this is not an ordinary secular recession, but a structural one, and the tools that were used in 1998 will work only so long as people actually believe in fairies. Unfortunately, there's not a lot of clapping going on, save perhaps at Goldman Sachs.
on Mon, 01/04/2010 - 10:27
#181959
Kurt, nice comment.
Just wondering if fairies are necessary... Now that we all know what the boyz have known all along (maybe accepting as a "given" is a better perspective), will not PPT involvment become a matter of mass understanding?
And, if the "consumer" comes to realize that his own tax dollars are being used to artificially raise stock prices...
Even worse, the boyz no longer can hide behind "the newz" because it wasn't the story, it was The Fed.
'course, that doesn't mean they won't pump to infinity, either.
on Mon, 01/04/2010 - 12:39
#182077
Kurt:
Like your thinking, as I see similar things is say housing, every time they do something that is supposedly in interest of homeowners to stop foreclosures etc...it all seems overwhelming in the interest of the banks, if some few owners were helped a tidbit, so be it, that's how we will sell it...but it usually means US taxpayers spend a fortune to fix a problem in a hugely inefficient way that really could have been addressed with a few, cheap, structural fixes. Like making banks/securities take principal cuts on mortgages that are severely underwater...this of course would leave them with more principle than if they incurred cost of several years no-payments and cost take house and re-sell but the banking system would rather take a pittance interest payment and pretend they still had reserves than admit they are really insolvent.
It sure seems like this whole scenario has benefited GS et al greatly also, give them liquidity when no one else has it, wipe out their competition, give govt contracts to retail money, and then also, goose the market for them right when everyone else is hunkering down.
I do think even the govt is limited in long-term how much they can fight market forces...but it makes since that really, many market indicators peaked around September at similar levels to historic bear market rallies and the very slow topping process since then, as TD pointed out with no volume, all futures manipulation,could certainly be a short term prop up. Markets are behaving close enough to natural patterns in non-manipulated historic markets to not be definitive, but since I thought SnP topped in Sept, I say everything since then is manipulation!
on Mon, 01/04/2010 - 12:46
#182084
"Is The U.S. Government Buying Stocks?"
Do we really have to ask the question at this point? Maybe it depends on what your definition of "is" is.
Buying stocks and selling gold ( gold they don't have?), still gold is up 300% over stocks this decade.
on Mon, 01/04/2010 - 21:15
#182605
great comment, kurt.
the PPT doesn't sprinkle magic pixie dust over the ES and voila. why / how ?? because they actually do have both rhyme and reason when and where "they" act. its called technical analysis and is a very naughty term / concept as per most folk.
fantastic highlight / post, George Washington ! thank you for it.
on Mon, 01/04/2010 - 04:44
#181840
Just to buy futures could be an act of stabilization but should only be appropriate around the lows. Nevertheless we had at the low the craazy ratio of 220 in the ISEE index of calls to puts hence someone loaded up with tons of calls exactly at the low which is not a plain intervention but a disturbing manipulation to say the least.
on Mon, 01/04/2010 - 06:14
#181848
Well, it sure isn't fundamental valuation that is holding up the stockmarket.
on Mon, 01/04/2010 - 08:05
#181849
Assuming for the moment the Fed and the PPT have been directly intervening in the equity markets by purchasing futures on the sly, an interesting question arises as to why they choose to do so covertly.
Furthermore, presumably the central banks of other major countries as well as their respective PPTs must be coordinating covert equity market interventions because equity markets globally have been rising dramatically, in most instances, outpacing the rapid gains see in the US.
With respect to interventions in the debt markets to date, officials at both the Fed and the Treasury have trumpeted not only their intention to buy but also the mammoth scale of their purchases. The thought process being that the announcement of the intent to intervene massively is at least as important if not more important for restoring confidence as the intervention itself. Or as Paulson might quip "Is that a bazooka in your pocket or are you just happy to see me?"
The overt nature of the intervention in the debt markets has been the case globally. Is their something sacrosanct about equities versus debt that makes overt intervention in equity markets either politically unpalatable or otherwise leads to undesirable financial market outcomes? And why make purchases of bank equity overt but purchases in the rest of the equity market covert?
On one level the admission that the government and the central banks are intervening in the equity markets would make it apparent that the financial markets are truly a rigged game. But is this really any different than the Fed and Treasury bailing out corporate and mortgage bond investors by purchasing and guaranteeing trillions of dollars worth of toxic debt obligations?
Or is intervention by the world's central banks and PPTs in the equity markets only a temporary prop in a drawn out, controlled demolition of the global economy and the capital markets?
In other words, they would only covertly intervene in the equity markets if they wanted the flexibility to be able to withdraw intervention at a moment of their choosing without the investing public realizing it had just been mauled.
Or like Denninger we could simply bury our head in the sand with our ass hanging out of our trousers and demand trading confirmation slips with Bernanke's name on them.
on Mon, 01/04/2010 - 07:33
#181858
I think you've hit on why this ultimately
backfires. So, they've pulled it off.....
Congrats to the central bankers. But
now that they (and their agents) are
viewed to be at the root of this peculiar coordinated
global trading, why should we want any?
They've been thoroughly indiscriminate
and ridiculously aggressive in their
buying. Who wants cat and dog pre-bankruptcy crapshoots that
have been bid up indiscriminately or even bubble
multiple survivors in a world that is destined to
to have a 2% GDP for many years?
Not me.
on Mon, 01/04/2010 - 10:44
#181972
Or is intervention by the world's central banks and PPTs in the equity markets only a temporary prop in a drawn out, controlled demolition of the global economy and the capital markets?
I think you hit the nail on the head with this question. It certainly appears that the extraordinary financial measures being used are ultimately giving TPTB the ability to time the global financial collapse to when they want it to happen.
on Mon, 01/04/2010 - 11:03
#181989
Think of it as a choice between a flat out "Air France over the Atlantic" vertical plunge and hard crash, where everybody perishes, or an intentional slowing the descent of a heavily damaged aircraft running on fumes while looking for a Hudson River to land on, all the while hoping the pilot is skilled enough to pull it off. . . which of course, and merely as a coincidence, mind you, allows time for the passengers in First Class to disembark the aircraft via some very special (and limited quantity) parachutes.
on Mon, 01/04/2010 - 11:48
#182028
And that will be when Treasury auctions start to falter and they need to chase money out of equities into bonds.
on Mon, 01/04/2010 - 11:52
#182033
The ability to control the timing of such a collapse would give the PPT players power over national as well as global politics. Whether by design or coincidence, these people would become the global government.
Want carbon credits / reduced regulation / more bailouts at taxpayer expense? How about we crash the global economy next week if you don't? And do know that if we crash it, we will be in perfect position to benefit from it financially. So you can either comply now, or later when you are bankrupt and we own all of your assets...
on Mon, 01/04/2010 - 15:13
#182290
Controlled demolition -
If there were to be a giant mark-to-market come-to-Jesus on everything, Obama would have to go on television and say -
"Sorry folks, but all that money you've been investing in stocks, bonds, mutual funds, 401K plans, IRAs, and insurance policies over the last 40 years is GONE. You got tricked fair and square and now its time to move on."
*
Such an announcement would galvanize public opinion against the banks, bankers, FED, Treasury, Obama admin, etc -
They'll stretch the implosion over 20 years so the public won't freak out and demand restitution.
on Mon, 01/04/2010 - 12:46
#182085
really good question...I think it is simply that govt buying stock is something every regular person can understand, and so it would invoked a more brutal populist response. Ala AIG bonuses..we could all understand that no one at a bankrupt business shoudl be getting bonuses when govt just bailed them out...but really, there has been way more egregious bail outs and bonuses, Fred/Fan bonsuses, govt guarantee, backdoor stuff with GS and other WS banks, Fed purchasing junk from banks, TALF, TARP, all the things you note and god knows what else ZH has found this last year.
They are just avoiding be obvious about something even a CNBC talking head would have the sense to understand and to say was wrong...(maybe even that's a stretch)
on Mon, 01/04/2010 - 15:00
#182267
It may be impossible to tell. However, the consequence of the intervention (assuming it is intervention) is an artificially, over-inflated market which will be compounded by those who are/will piling in believing they have missed the boat. (Since March.)
I've seen this before and it is usually a tell-tale sign of a market top. Suddenly, people who have stayed out are kicking themselves all the way downtown while they withdraw their money from the safety of CD's and run around the corner to their (new or old) broker and throw the money at them while screaming, "get back in there and buy, buy, buy." (My best Mortimer Duke!!)
Of course, this time it might be different as the DOW races to 16,000 by year end.
on Mon, 01/04/2010 - 07:15
#181857
The reason they must buy stocks is because of failing derivates. It's much cheaper to buy the stocks and keep the prices at a good level then when derivates would implode.
Let's hope they are able to prevent this.
on Mon, 01/04/2010 - 07:36
#181859
The easiest answer for the covert nature of the buying is that if most equity investors (big, small, and in between) knew this was the only thing holding up the indexes, they would be outta there, and at a time of their own choosing, thus negating the ability of the Fed to throw them under a bus at a time of its own...
on Mon, 01/04/2010 - 10:11
#181938
There is ample evidence in the academic papers that this is the case. Many Keynesians believe that the Japanese Central Bank should have bought the equity markets in addition to reducing interest rates. The question is whether the economy can recover before the Fed runs out of ammunition
on Mon, 01/04/2010 - 11:10
#181999
Actually, the Japanese Central Bank and proxy government organizations did buy equities directly. It happened and you can look it up.
on Mon, 01/04/2010 - 12:56
#182093
I so, given the had a real world test case in Japan, are they still doing this...didn't Japan prove that it does not work long-term.
There must be somethign beneficial to the insider elites about extending and pretending rather than crashing and then helping people getting re-started...or better yet, not setting us up for crash.
Regular folks would be far better off to have prices crash. Seems like housing prices have really taken out middle class as their wages stagnated by housing prices kept on going up. If housing prices crashed to be below typical wage/price seems like most of us would be better off, as long as we could walk away from mortgage.
Letting credit/debt crash is proably the reason democracies tend to have more lenient bankrutcy laws than tyrannical governments, if no way to clear decks, then rich stay rich, poor stay poor and economy stagnants into modified slave plantation. Slave plantations were good for masters, but they were killer for overall economic performance...planations taken over by slaves directly after civil war, like SC, improved in 5 years more than 50 years under master
on Mon, 01/04/2010 - 10:17
#181942
Mr Freeman-Nice.
That's the way I see it too. Once you accept what they've already put their hands in, it is not that much of a stretch to start seriously looking at something like this.
on Mon, 01/04/2010 - 07:52
#181861
You really need some evidence... if the US is buying, and in large quantities, there has to be somebody, somewhere, issuing and executing trade orders, there must be accounts, there must be transfers of money. Things like that really aren't kept secret for long.
on Mon, 01/04/2010 - 08:55
#181885
Here is the only relevant comment from Biderman's innuendo filled column:
"We want to emphasize that we have no evidence that the Fed or the Treasury are throwing money into the stock market, either directly or indirectly."
Not that evidence is required for ZH and the rest of the blogosphere to advance a conspiracy theory.
on Mon, 01/04/2010 - 08:56
#181886
I could not agree more with the writer If I tried. As much as I try to discount myself and my thoughts, there is still some remains of common sense and reality.
I think since July I have been pointing fingers at the fed who keeps proping this crap up.
Are they bigger than mother nature?
It gives everyone a fatal sense of bliss. Buy like mad cause the govt. will backstop everything and will never let the market run by itself ever again.
I cant sit back and relax thinking they have my back.
It all makes so much sense...they have no other option and if/when the market does go down like it should they have nothing to save us with.
"along with the sunshine, there needs to be a little rain sometimes..."
death to manipulators!
on Mon, 01/04/2010 - 09:22
#181895
I am getting REALLY nervous! I feel like I am looking at one of those trick boxes magicians use to make you think you are seeing something real when nothing is real, really.
on Mon, 01/04/2010 - 09:24
#181897
While reading Justin Fox's book, "The Myth of the Rational Market" it occurred to me what the rationale might be for direct buying of stocks by the government. (Or, perhaps government funding of such purchases by GS, MS and others.) Fox argues that modern portfolio theory is based on the notion that markets are, in fact, rational and the information markets provide about prices is reliable and, DUH, "rational."
Without disputing the theory or supporting Fox's case the government rationale for direct intervention in the markets would be some version of: (a) restore "rationality" to markets so they would be dependable/reliable or (b) support the markets so they would "appear" rational (based on the belief they have somehow become irrational)
With so much of MPT riding on the idea of a rational market any appearance that they are irrational could undermine the economy. Thus, it is not so much that the government is engaged in some sort of subterfuge or illegal activity as much as it is to provide a prop to a market theory which has guided the markets since the early 1960s.
What would happen if people suddenly concluded that markets were "irrational?" How many of the 50% of American families that own stocks wouls withdraw their money?
on Mon, 01/04/2010 - 09:34
#181906
"How many of the 50% of American families that own stocks would withdraw their money?"
Let me be the first to raise my hand.
n=1
...unexpectedly...
on Mon, 01/04/2010 - 10:38
#181968
I think it's both: The markets have been distorted for an extended period (so they want/need to prop them up), and these purchases are illegal (but nobody in the government cares, and nobody will prosecute).
For the first, the markets are a mess because of the mis-pricing of capital and risk for decades. Finally, as a result, the US economy simply cannot afford current liabilities. We are at the conclusion of an unsustainable exponential progression (i.e., ponzi), and they will try to grab every branch on the way down.
For the second, there is a reason the Federal Reserve Charter of 1913 prohibits the Fed from purchasing any security not backed by the full faith and credit of the Federal Government: If it could, then the Fed merely "snaps fingers" and instantly holds tangible stocks, bonds, real estate, everything. This is merely an overt "seizing" of property because the Fed inflates the dollar to zero, exchanging it with seized assets. Thus, the Fed by charter is barred from purchasing stock in IBM, Fannie&Freddie, banks, and all the other toxic crap they have on their books. It is absolutely revolting that the Fed actually holds specific title to individual shopping malls (the Fed created nothing to seize those real property assets).
The markets are not operating rationally (rational markets suggest assets are not mispriced so bubbles don't occur). These are merely desperate attempts to "fiddle" with the system because there will not be consequences -- the Federal Reserve Charter of 1913 provides no punishment whatsoever if the charter is violated (no prison, no fines, no nothing).
They are doing whatever the hell they want without fear of legal consequence.
This one is dangerous: They are playing with fire, because we're talking about people being so burned that they withdraw money from the market for the rest of their lives.
That was the lesson coming out of the 1930's -- People so hated Wall Street and bankers that many of them did not invest their money in anything other than CD's for the next 50 years (those people are mostly dead now, but some are still around, and they still have strong feelings on the subject).
As a *huge* capitalist, it disturbs me that I'm concluding that those people have a lot of merit to their vitriol -- the markets (especially now) are a rigged sham, winners and losers are arbitrary, and do not correlate in any way to productivity, value, merit, and legal contract.
On the bright side, the Fed's wholesale purchasing of securities tells us that we're finally getting close to the end. Increasingly they are playing with themselves (because we no longer want to play).
on Mon, 01/04/2010 - 09:39
#181908
The PPT could follow Jim Cramer's example, let everyone jump in before the PPT buys and jump out before the PPT sells. Makes as much sense as extending food stamps, EUC, and Medicare/Medicaid.
The quantification for Republican tax cuts working to create jobs is simple. Tax cuts shouls work immediately, or, at the longest, within two business quarters, the 26 weeks that UI runs out. It would be cool to see how many on food stamps and EUC also own equities.
on Mon, 01/04/2010 - 09:58
#181926
Jefferson,
"Or like Denninger we could simply bury our head in the sand with our ass hanging out of our trousers and demand trading confirmation slips with Bernanke's name on them."
I don't understand what you mean by that, could you explain please?
DavidC
on Mon, 01/04/2010 - 10:04
#181931
Don't overlook the government's political interest in keeping the sheeple off the streets by pumping those 401K balances back up by any and all means. And it has worked ... one year in to the No hope for Change regime and Wall Street is back to unrestrained looting while the brain dead populace is focused on American Idol. Mission Accomplished!
on Mon, 01/04/2010 - 10:11
#181936
The BOJ openly admits it. I have no doubt the FRB does it. No doubt. The real scandal, though, is that a private banking cartel controls our money supply. Everything else, from FOMC actions to quantitative easing to covert quantitative easing to covert stock or futures purchases are just an extension of that power. Once a people allow a private cabal to control the money, the people have committed themselves to slavery.
on Mon, 01/04/2010 - 10:13
#181939
of course they are-through the banks. It's a short squeeze technique and a supply side squeeze. buy and sock away equities on the DOW and S&P in State Street and Barclays until you can dump it on the sheep. If Goldman and other banks also get the insider purchase and sell info, they can game the market and recapitalize for record profits. Where have you been? Under a rock?
on Mon, 01/04/2010 - 10:23
#181953
Without a massive equities prop, all the other Fed-induced recovery confidence schemes fall flat.
Everything the Fed and Team Obama have proposed is intended to accomplish 2 objectives : Buying time and instilling confidence. Every manipulation we see in the markets, equity or fixed, is geared toward sustaining the 2 objectives. Ditto for Marking-to-Myth and the auto and housing rebates. We all know that on this site.
It would be naive to think equity purchasing is not in the Fed recovery toolbox, either directly or through intermediaries ( Banks ) or both.
The biggest blunder is with the time horizon on unsupported asset recovery. Without a pre-bust credit scenario, time becomes the enemy for unwinding all of the manipulations.
The Fed will continue to blunder along the same wasteful course despite the miscalculation on the asset recovery time horizon. It will work until it doesn't. And then a different plan will be hatched to mop up the mega-mess caused by the artificial manipulations.
on Mon, 01/04/2010 - 11:25
#182008
Rainman, My thoughts exactly. The better question is, with all the market manipulations the fed does, why would any suggest that the fed is NOT manipulating the stock market?
on Mon, 01/04/2010 - 10:53
#181982
This must be connected somehow to how the Fed manages to provide 3.6 Billion $ per month (Time, Dec7, 2009) for Afghanistan "war" and all the other military expenses not pre-budgetted for--but I have not succeeded in finding a written explanation of how that works. It must be the key somehow to what is going on.
on Mon, 01/04/2010 - 10:57
#181987
The answer is "yes".
on Mon, 01/04/2010 - 11:04
#181992
The Markets have been wierd for the last 8 years.
on Mon, 01/04/2010 - 11:10
#181998
When you have a government big enough to give you all you want, it's big enough to take it all away.
on Mon, 01/04/2010 - 11:29
#182013
They can open up the LOCK BOX and buy some
stock for Social Security!
on Mon, 01/04/2010 - 11:39
#182024
Since people are living out of their 401Ks, think of it as a stimulus package. Levitating the markets requires constant attention, however. Markets tend to fall without the support of new money. To repeat ad nauseum, this isn't really money they're playing with, its credit, or collateral put to use in a margin account. Ideally the Fed wants someone else to buy the stock, and they will back the transaction.
This is the point of the bailouts, little ducklings, the process of putting a bid under the market, was going on all along, when things unravelled it started moving faster and harder than it had been.
After painting the tape, the suckers (individual investors) come in and they buy and hold (cause thats what Cramer told them to do), and the next wave up readies itself. If you look at the chart of the stock market for several years now you see the anti-bull market, or bear market reversals, at even the smallest increments. The smart guys quit trying to read the charts years ago. Most investment firms sold or disbanded their tech analysis, and at the bottom in 2003 Bob Prechter issued a mid term report imploring his clients to remain 200% short. If you did that you live under a freeway bridge right now.
Bush started the Iraq war as a fiat stimulus package, he sure wasn't going to get the Congress to help. The market went well for a few years, but once the money was spent, the war was over, the market dropped again to its preordained levels (sometimes all the kings horses and men cannot pull the Dow Jones up again). Then stimulus II, more brazen and obvious manipulation, to try and draw a line in the shifting sand. Ideally these stocks will not end up on the Feds balance sheets, they will end up in the reitrement accounts, where they are placed by the agents of their pension boards, who despite evidence to the contrary continue to invest recklessly in Wall Street paper.
You can start to see where the fault lines are being drawn. Ultimately if a company keeps buying its own stock, they will someday control the float at a much higher price. They then have two choices, go private, and buy back all their stock, which they already own, buy it from themselves, or try to sell their overpriced paper into the market so they can expand their business. ooops... This becomes the Fed/Treasury problem in a nutshell, they now own the America banking and auto industry, who are they going to sell it to?
on Mon, 01/04/2010 - 12:12
#182049
Easy to answer, audit the retail arms of the Federal Reserve like JP Morgan, Goldman Sachs, etc. While the Federal Reserve is not the US Government, it appears the US Treasury (currently headed by ex-NY Fed Turbo Timmy Geithner) and the NY Fed itself are indeed gaming the system. So auditing these retail arms of the Federal Reserve would be as good a place to start as any other.
on Mon, 01/04/2010 - 12:26
#182061
on Mon, 01/04/2010 - 12:31
#182064
BERNANKE SHOPPING FOR STOCKS!!? THIS IS TOO MUCH:
U.S. IS A BIG FAT FAKE!!!
on Mon, 01/04/2010 - 13:00
#182102
nicely said Robo
on Mon, 01/04/2010 - 13:51
#182179
Theoretically this could go on as long as they are willing to create funny money.
At what point will "confidence" be restored enough so that companies will throw caution to the wind and start hiring and expanding again even though the demand for their products doesn't warrant it? At that point, if we were able to identify it, the PPT would discontinue its market manipulations (one would surmise), but then the genie would already be out of the bag.
Or, will it be that that point never arrives and the real economy just keeps contracting? In this scenario, wouldn't the PPT just continue with its make believe existence?
Either way, don't we end up with hyperinflation with prudent money management getting killed and the speculator's pockets filled?
What's the key to watch here? The Dollar? Is the bond market really going to keep quiet and take it in the rear? It seems to me that long term inflation risk, as well as default risk (the two major risks out there for bond holders), need to be priced into the bond market, and the fact that they aren't makes one wonder if Central Banks are have not already become the Treasury market itself.
So let's assume that the Central Banks ARE the Treasury market. What's to bring down a market that's a ponzi scheme backed by funny money created by the very issuers of those Treasuries?
What does REAL CAPITAL do in that context?
on Mon, 01/04/2010 - 15:31
#182313
Is the government buying stocks? What for, they don't need to:
http://www.zerohedge.com/article/outlook-2010-black-swans-or-black-sloths#comment-182312
on Mon, 01/04/2010 - 17:28
#182431
sit around watch there savings dwindle just as in Japan - savings rate has now drained to a mere 3% from its 20% peak !!!
on Mon, 01/04/2010 - 19:00
#182507
Is the fed buying stocks legal?
Denninger says not.
Bernanke was directly asked by a congressman under oath whether the fed was buying stock and he quickly said no.
on Mon, 01/04/2010 - 22:21
#182649
The way I understand it, the Fed doesn't have to tell the truth to anyone regarding monetary policy and, in fact, can lie to congress. This is the way the law is written into the Federal Reserve Act as amended. Ron Paul has stated this many times in hearings. They can say one thing and do another, legally!
How we ever allowed an institution to have so much power is beyond comprehension. They say "absolute power corrupts absolutely" well the FED has even more power than that.
As an analogy, a middle age despotic ruler can cut someones head off for not bowing low enough as his coach passes but there will be terrified witnesses that could form the basis of a future uprising. Using the same analogy, the FED can cut someones head off also BUT no one will ever know who did it. Now that's power!
on Tue, 01/05/2010 - 00:02
#182706
That's because the Fed is not directly buying stock - rather, it's an illegal agreement among the TBTF financial institutions to buy stock with funny money printed by the Fed and loaned at 0% for that express purpose.
The concern that banksters will be conviced of any illegal activity is somewhere around the interest rate that they pay to conduct this scheme.
Meanwhile, these loans and the recipients aren't publicized by the Fed.
When long duration US Treasury interest rates reach alarming levels, the financial cartel will short the heck out of the equity market and use the proceeds to buy Treasury bonds and further extend their gains.
It will happen when it happens. Farther in the future than bears expect; nearer to the present than bulls expect.
The interest rate spike combined with equity selling will result in the second down-leg of the economy. Since the proceeeds of this are going in large part to executive compensation rather than building capital, the banks will again line up at the bailout trough.
The sheeple will once more pile into the "safety" of US Treaury bonds just in time for the banksters to go short with more newly-printed bailout cheese funded by the very people they intend to screw over.
What happens from there doesn't really matter to the banksters since they'll be able to retire to their own private islands thanks to you and I.
on Tue, 01/05/2010 - 10:30
#182961
guys, we all know the stock market being up is the only "success" Obama can point to. I am not shorting anything until i know its not being manipulated anymore. Im also not getting long anything that hasnt been restructured and is hugely compelling.
HOWEVER, i AM long treasuries as of a few days ago. It is the only way to be aligned with the governments interest while protecting from the multiple of negative externalities that can occur. One way or another, yields will go down far before they go up.
on Thu, 01/21/2010 - 01:57
#200439
The Fed purchased equities in the late 1920's to seed the market. What makes any of us think that they wouldn't do it again?