Did the Fed Buy the Market to Stop the Collapse?

Phoenix Capital Research's picture

Now that the market has rolled over and erased most of the gains from last week, I can’t help but wonder just why the market rallied at all. True, it was oversold… but the FOMC announcement wasn’t exactly bullish (Seriously… ZIRP for another year was reason for an 8% rally in four days?).


I found it interesting that the New York Post published a story containing the following quote just 3 hours before the post-FOMC market ramp job started.


Back in October 1989, a guy named Robert Heller, who had just quit his post as a Fed governor, suggested that the government should purchase stock index futures contracts to calm the markets in times of distress.


"The Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole," Heller wrote in an op-ed piece in The Wall Street Journal after saying the same thing in a little-noticed speech. "The stock market is certainly not too big for the Fed to handle."…


This is a rather odd turn of events… a former Fed official urges the Fed to step in and buy the stock market… just three hours before the markets mysteriously reverses and rallies hard on no real news of note.


This begs the question… did the Fed buy the market to put a floor under the collapse? There’s no telling for sure. But it’s rather odd that this article came out just three hours before the market magically reversed and exploded higher


If the Fed did actively buy the stock market to try and put a floor under it, we can assume three things:


1)   The Fed is becoming truly desperate

2)   The Fed realizes QE isn’t helping

3)   QE 3, if it arrives, will be coming later down the line


If the Fed did in fact buy the market two weeks ago, then the Fed is getting extremely desperate. We know the Fed has been supplying juice to key Wall Steet firms who then bought the market, but never before has it been so obvious that the Fed itself may have been buying the market.


Remember since March 2009, QE has been the primary tool the Fed used to deal with the Financial Crisis. QE 1 was something of a success in that in restored investor confidence in the system. However, as I’ve noted in previous articles, by the time we got to QE 2, the negative consequences of QE (inflation) far outweighed the positive consequences (stocks rising).


So the fact the Fed did not announce QE 3 two weeks ago but chose to buy the market (at least it looks that way), indicates then we’re are DEFCON 1 RED ALERT for the entire financial system as it indicates that the Fed is abandoning its more traditional monetary tools and simply trying to buy the market it means the Fed is losing control of the system in a big way.


It also indicates that the Fed realizes that the benefits of QE come at too high of a cost for it to engage in more of this for now. Instead, the Fed will save QE 3 for a little further down the road as a final Hail Mary pass.


Which brings me to the most important point from yesterday’s Fed FOMC: there were three dissenting votes (an 18 year high). This tells us that Bernanke’s “inflate or bust” mentality is coming up against serious friction at the Fed. And it also tells us that there will be fierce resistance to QE 3 if the Fed chooses to unveil it down the road.


The take home point here is that the Fed is not as market friendly as before. There is growing dissent amongst Fed officials. And we’re beginning to see signs of desperation.


In plain terms, the situation in the markets right now is very VERY dangerous. It is easily the most dangerous market I’ve ever seen. We are going to see greater losses and sharp rallies. But the overall trend is now down.


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chinawholesaler's picture

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orangedrinkandchips's picture

KING OF THE HILL....is a game we all played at a young age. On the playground, find a hill or mound, and one person starts off....when you are on that mound you try to do whatever possible to stay there.....see...it is true...all we need to know we learned in Kindergarden. Same shit now...the powers that be are on that mound and are going to kick, bite, scream, push, shove, kill to stay there...shit fire, the list is never-ending...look at all the mid-east countries and their "leaders". I cant call them all a-rabs and take a racist stance....I am not a racist and I JUDGE PEOPLE INDIVIDUALLY NOT BY RACE, RELIGION ETC. Those people in Northern Africa or the middle east are in pain and have had enough....luckily, with the advent of technology, cell phones, computers, the internet....these people are saying FUCK YOU finally and have my support 100%.


Like the Red Hot Chilli Pepeprs said.."people in pain I do not dig it...."


The times they are a'changing and the people in power now are losing it....rightly so....

MGA_1's picture

Shoot, I think the fed's been buying futures since March '09.

Dingleberry's picture

Of course the Fed bought the market....THEY HAVE BEEN DOING IT SINCE REAGAN.  Plunge protection team, anyone??  They use their prmary dealer/brokers, swaps with foreign banks, etc. to do it. On top of penalizing us fools for putting our cash in bonds and forcing us to buy stock broker shit.  But this shit can ony last so long until gravity catches up with it, which I pray is SOON>.

mailll's picture

The Fed can up their balance sheet as high as they want, buy anything they want, and do anything they want. We have no say in the matter.

virgilcaine's picture

These am rallies are great Short opportunites.

TBTF's picture

"If the Fed did actively buy the stock market to try and put a floor under it, we can assume three things:


1)   The Fed is becoming truly desperate

2)   The Fed realizes QE isn’t helping

3)   QE 3, if it arrives, will be coming later down the line"

I'm confused as to why we can assume these assumptions.  The Fed has been desparate.  It has even indirectly purchased stock indexes in the past before.  Why is this so different?  If the Fed realizes QE isn't helping, why would it announce QEIII further down the line?  Are we now assuming that the Fed is making QE decisions based on alterior motives?


"We know the Fed has been supplying juice to key Wall Steet firms who then bought the market, but never before has it been so obvious that the Fed itself may have been buying the market."

Mainstream hasn't pushed forth with fitchforks and torches as of yet.  Why not continue to buy through these same firms?  Why step out now and leave a footprint? 

I apologize in advance if these questions appear rude or arrogant - the written word sometimes does that.  I meant them only as doors to open discussion.  I have the utmost respect for Phoenix Capital.  Their prior analysis stands out by itself, but the significantly louder pounding of the table in the weeks ending July to prepare for a dip are worthy of considerable praise, regardless of how easy it is to say now that the writing was on the wall.

snakehead's picture
Did the Fed Buy the Market to Stop the Collapse?

Find out the REAL answer after your FREE subscription pumps enough glitter and smoke up your ass to make you spring for a paid subscription.  It only works on one in a million but what the hell?  The advertising is FREE on Zerohedge.

tony bonn's picture

the role of the federal reserve is to serve its bankster masters....qe3 will come surely as night follows day....the fed has to support its crapulent balance sheet.....and the government's propaganda machine demands lies - such as the economy is sound.....and the plutocrats demand rising stock prices....

the usa is a criminal state in need of regime change..

sbenard's picture

Without free markets, there is no freeDOM! We are watching the destruction of freedom as we have known it, and the imposition of a global communist empire under the total control of elites! A true global plutocracy!

wattsnotsaid's picture

@boiltherich-  I like your analysis of what it would take for the fed to buy the market. Good to see some numbers.

Questions to others- 

Are there less costly ways for the fed to do this?   options?  triggering HFT?  pumping up the futures market before market open (lower volume than main markets)?  some cost numbers please.


Does the fed have to do it themselves or do they call buddies on Wall st? 


Follow the money: how would it flow?


boiltherich's picture

The Fed/treasury should not be involved in any way in the equities markets, when a player steps into an otherwise orderly market and that player has unlimited buying power they must just by their presence there be distorting prices in that market.  There are quite a few laws on the books that were made for just this reason, stock price manipulation is seriously illegal.  Either up or down, but also when the government gets involved in buying into equities they are the ultimate insider traders.  One of the main reasons why these laws exist, and one of the biggest factors in American capitalisms rise to prominence was that our markets were the cleanest and most transparent anywhere.  You start playing games with secret support by the central bank and you lose credibility, ultimately it will destroy the very market it attempts to "save." 

We already have major roadblocks to fundamental price analysis, hinkey accounting, regulations/taxes that prevent repatriation of earnings from abroad, there are a host of reasons price discovery is bad enough as it is, add in buying by the fed and there is simply no way to decide what a stock's value should be, or for that matter what company is healthy and which should be takeover targets, or which to avoid because their shares are being supported in spite of really sick internal weaknesses in the company. 

And I think we widely agree that this is being done, so if it is legal and ethical why is kept secret?  If it is going to be done then I say that at minimum all trades and the entire portfolio must be made public, on a daily basis not once every six months or so.  But it is not in the Fed's mandate to stabilize stock prices.  Since FRN's are the legal tender currency each of them in effect belongs to the people/USA and the Fed has no right to gamble with our money.  What if it is just banks and other financial companies they are plowing money into?  And the CEO's and other ranking officers are stripping trillions out for personal enrichment?  It is a pretty major crime in the USA to make a gift of public funds to a private party.  This is nothing more than making thousands of huge gifts to the wealthiest people in the nation for no compelling reason other than crony capitalist greed. 

One last thing, buying and holding in a market that is known to be manipulated is the stupidest form of investing.  It is not even investing by any definition I learned in college getting my finance degree.  It is no better than a gigantic bucket shop stealing from many to enrich few. 

END the FED.

Eagle Keeper's picture

What reason is there to believe the current numbers spit out by the market's computers are even real. I expect they are completely disconnected from what reality is down at the ground floor of the "market". While 2+2=4 in the real market, it's easy to just make the output display whatever you want. The FED probably has a big knob for where the market is to close on any particular day. For that matter, they could program days, weeks or months of daily close numbers. Let the numbers skew all over the place during the day but always move to the programmed number by close....

monkeyboy's picture

I think I preferred his previous article on how to prepare a dessert cock.

The picture of the dessert clown and cock were pretty cool.


Dick Fitz's picture

Dessert cock...nah, too easy. But I'll take two!

gmrpeabody's picture

The Fed could buy dessert cocks at $12 a pop..., it wouldn't take long to set this market straight.

rsnoble's picture

We didn't close below yesterday which signaled a high probability of a bounce today, regardless of fed bullshit.

Not only that, we're not going to DOW 5k in 2 weeks lol.

I'll be looking to short this pOs later but right now it's not good in either direction.  You'd be taking a 50/50 shot at this level.

mailll's picture

They bought the stock market, and the bond market.  The trouble is that as easily as the Fed can buy both markets, they can crash them both also.  That's the plan, I believe. (Plunge Protection Team?)

BeerGoggles's picture

If this cunt stopped posting articles with a link to his shitty newsletter, it would have much more credence.

As is, he's just a snake oil salesman.

Bagsnatcher's picture

Of course they didn't. Mfoste1 must be braindead to think that this crap market could hold such a secret a secret for anything more than 45 seconds.... THEY DID NOT PROP UP THE MARKET. 

mfoste1's picture

of course the fed was buying stock indexes and individuals....you gotta be fucking brain dead to think otherwise!!

anony's picture

Noam Chomsky nailed it.  If THEY can "Manufacture Consent" out of nothing, the indexes and their futures and their triples, are kid stuff.

Personally, I hope they invent 4 and 10x ones.  And that the govt steps in when no one else will buy.  It's prudent, inexpensive vis a vis a crash, and no different than the govt spending money when consumers won't.

But I'd prefer it after all my shorts have made me rich enough not to care.

anyways's picture

I am happy with the contributors of zerohedge, though i mostly enjoy reading Tyler.

But this particular article is at best naive. Could have been written 10 years ago. The market manipulation goes far behind the old ppt. Almost every asset price is rigged and pointless. The 'fundamental' analysts should look for a real job, maby hft trader ;-)


The Deleuzian's picture


The gx equity markets have a quantum of 'snake charmer' type affects on the population's sentiment.  Whether they are aware of this is irrelevent/Regardless of personal involvement in equities even....

If the equity markets can be managed and juggled via futures etc...

Then & therefore...

The population can be managed and juggled and sentiment is created.

Sounds about right for the Power-Junkie-Elite!!


bid the soldiers shoot's picture

You must be pretty dim to think the Fed is buying the market. Do you know who the Fed's broker is? Or what kind of a commission deal they're getting? Or maybe the Fed has a seat on the NYSE?

Why should the Fed buy stock when It can kill two birds with one stone (just like they said they were doing). The Fed pays top dollar to the banks for their Treasury bonds and thereby keeps interest rates low.

Then the banks who are not making any loans because no one is borrowing step in with the billions they got from the Fed and buy the the markets and make big money trading. In the 2nd half of 2009, the banks surprised everybody by reporting profits trading.

Your statement:

"However, as I’ve noted in previous articles, by the time we got to QE 2, the negative consequences of QE (inflation) far outweighed the positive consequences (stocks rising)".

Will live in stupid statement infamy forever.

How the fuck can you say that? How can you pretend to know what the economy would be like without the injection of hundreds of billions of dollars? How can you pretend to know what the economy would be like if the DJIA had been overing around 5000 since the summer of 2010 and every 401(k) was in the toilet?

Are you Edgar Cayce?

DaveyJones's picture

Are you Edgar Bergan or one of his puppets? There is no "broker" in a broke system. The Fed and the government are both addict and dealer using each other to hide their diseased truths. Both are breaking the law. Both are lying. Both are robbing us blind.  And like most addicts, an "injection" is the last thing they need. 

bid the soldiers shoot's picture

Okay, so you think that a 5000 DJIA headed south would have been a more positive proscription. Everyone with a 401(k) down 65-70%. The incredible shrinking demand that it would have produced. The ability of foreign corporations to take the dollars they were swimming in, and go to Wall and Broad and buy up good corporations at fire sale prices.

Did you mention what would have brought us out of the recession that we have been suffering with for the last 2 1/2 years; a market over 12,000 less than a month ago? Don't you think a 5000 or less DJIA would have made things infinitely worse? The only good news we have had has been the stock market. Certainly not the gold market, which is betting on hyperinflation.

Perhaps you don't know what I consider the truth, Davey Jones? I think we are so close to Peak Oil I can hear your car turning over but not starting because you're out of gas. I believe that one on of the diseased truths you want and expect to hear is that this 2 1/2 year old recession is the government's way of reducing demand for life's most important natural resource that is drying up for all 7 billion of us on the planet.

I know that great minds like yours think that we have enough oil until "The 12th of Never" and that the minute supplies get low, Leonardo di Vinci will reappear with his formula for synthetic oil. A minimum of100 million barrels a day.

DaveyJones's picture

You must not be that familiar with my views on peak oil.  I see you've been a member for four months. That might explain. 

Case in point, corruption and criminals keep us from addressing peak oil proactively, constructively, successfully. No different than the collapsing debt based financial system built on a fantasy of never ending growth and bloated and bought by criminals serving no one but themselves. You act as if the two issues are disjointed but they are joined at the hip and no surgery will separate these twins. It all goes down together. The least we can do is stop feeding these criminals and start feeding ourselves and our children.     

bid the soldiers shoot's picture

I agree.

I think that Peak Oil is the tail wagging the the dog of today's global economy.

As a matter of fact I believe that the global economic quicksand serves to take everyone's mind off of PO which is much harder to accept than global recession.

I respect your desire to address PO proactively, constructively, and successfully. As long as you understand it is by no means a fait accompli

bid the soldiers shoot's picture

I suppose my main point is this: Thus it has ever been. All the way back to the corn markets in ancient Rome and Egypt.

So for us us to suddenly get all bent out of shape about what is probably the REAL world's oldest profession, rivals Claude Raines in "Casablanca" when he says "I'm shocked, shocked to find that there's gambling going on in Casablanca".

It would be hypocritical of me to be indignant about the corruption. Didn't I sell out everything in March 2000 only because the NASDQ hit 5000. Only because I knew the crooks would be selling out too.

You can't be self-righteous about what the crooks do on Monday and then jump in with them on Tuesday to make a profit.

bid the soldiers shoot's picture

Come on, DJ, don't you think we've been addressing PO 24/7 since Hubbert hit the the fricken nail on the head on 1970.?

Don't you think the Military has taken the lead on solving PO?

Sure we we might still hit it. But aren't the odds get awfully long?

Spastica Rex's picture

I'm honestly trying to see the point of your post. It sounds like you just wanted to call someone stupid, is there more? Are you saying that QE was the best of all possible responses becasue we know what the outcome was and it wasn't global collapse?

bid the soldiers shoot's picture

The reason I called these guys stupid, is because they are pretending to know what life would be like today if the Fed had not instituted its QE program.

Can you tell me what life would be like today if 9/11 hadn't occurred? Or if Teddy Kennedy had not got brain cancer?

Of course, you can't.

And neither can these guys make any statements about what the economy would be like with QE1 and QE2.

It's as simple as that.

Spastica Rex's picture

Can you tell me what life would be like today if - etc., etc. - Of course you can't.

You are correct, and no - you can't either. We can all speculate - what's wrong with that? Would you argue that there have been no negative results from the intensely centralized decisions made by the Fed, banks and .gov? I don't think I have to agree with you to find what you have to say valuable. All of this is inductive, there's no QED. Thanks for the response.

bid the soldiers shoot's picture

Of course, I can't say whether life would be better off or worse today without QE1 & 2. I can only look at history and see what consumers do during periods of a bear market. Or whether bottoms are broken by millions of Ma and Pa Kettles buying 100 share lots or by a couple of dozen investment banks acting in concert.

Of course, there have been plenty of negative results from the decision the Fed made. Was it because the extent of our problem at the end of 2008 was overwhelming? Would it have been greatly ameliorated if the Republicans and had worked with the Democrats and hit the collapse with everything the government had at it's disposal in the Q1 of 2009?

As I replied above, Peak Oil is the real problem and crooks in charge of investments goes back to the Corn markets in Rome and Egypt. Probably Sumeria.

Sathington Willougby's picture

It's not rocket science.  Misallocate capital.  Counterfeit some capital and misallocate some more.  What the fuck did you expect?  DUH

HungrySeagull's picture

Get a quality radiation sniffer. (In digital to read alpha gamma etc.)

Wait for a rain storm.

Go outside, wipe a rag and put it near the scanner.

Skyshine, starshine and soon ground shine.

Sathington Willougby's picture

Got one.  No rain in TX.  Don't drink that shit. 

TruthInSunshine's picture



Bananas,Bubbles&BustsTheBernank is going to break it AGAIN!!!


Breeeeeeaaaak it again, Bernank!!!!!


I've got one even better. The markets look like they could crash right,(people who have the information, like real time short interest) buy the market and squeeze themselves some short money. Its an effortless way to make free money, and like any other market mystery; just blame it on the fed. Its total fucking bullshit.

IMA5U's picture

market couldn't roll into the red despite bofa CDS blowing out to new wides and financials in the krapper


clearly there was a PPT today

boiltherich's picture

Never been a doubt in my mind they have put a floor under equities, since 1986 anyway.  It is welfare for the investor class.  I would be shocked to find out otherwise.  And even if one cannot prove direct and illegal intervention in equities one can easily prove indirect support for stock prices via the banks they support, it might be illegal for the fed or treasury to support private equity but it is not illegal for banks to do so.

We are so fucked it is not even remotely funny, and it would be OK if people got mad and did something, but these days even the British are less apathetic than Americans.  Banana republic. 

Catch22's picture

If the government can make us buy health  insurance, what's to stop them from making us buy the market? It's clearly in the interest of promoting the general welfare.

Buy stocks or go to jail.

zorba THE GREEK's picture

The game is rigged. Just stop playing the game. Don't buy stocks, don't buy bonds, don't buy oil, and don't buy paper PMs. 

Stay out of the game and only buy physical PMs. If you have money in a retirement account, take it out, even if you have

to take a big hit. Hold a little cash and buy silver and gold and take possession. If you ain't holding it, you don't have it.

I have been out of the game for over 10 years and I sleep like a baby every night. Considering what is going on in the

world today, gold and silver are still cheap, in fact they are on sale. PMs should be much higher now and smart money

knows it. That is why we are not seeing the pull-back in price that many are looking for. There are so many people

waiting for a pull-back that if we get one it will be met with ferocious buying that will take the price to new levels far

above $1900. I hear too many people say they missed the move in metals, but they have been saying that since gold

hit $1000 and they will still be saying it at $2000 and $3000 and $5000. 

Citxmech's picture

Did exactly that at around $800/oz. Best decision I ever made. FWIW, I felt just as nervous at the time as I would doing it now - but it's still the best decision for anyone with any form of retirement "savings" IMHO.

And yes, I sleep like a baby =]

DaveyJones's picture

same but how the hell do I convince my parents and inlaws to do the same? Their brokers keep reassuring them and, as mother in law says, "they must know what they're doing because they advise people much wealthier than me"  Shit. 

my puppy for prez's picture

Have you been reading Vox Day and Wiedeman?  I have, and they support your position!

Just waiting for my physical to arrive!

the grateful unemployed's picture

what did this guy just fall off the turnip truck. really what planet do you live on? of course the Fed/UST buys the market, using futures. you're surprised? they own the market, (break it you bought it, rules on Iraq, well break it, the taxpayers own it) this is silliest thing i have read in ten years. and a Fed board member isn't aware of the plan? well thanks for falling on your sword, whatever your name is, you stupid dope.

boiltherich's picture

Really, when the market was at 14,000 the total market cap was about 26 trillion, or 1.857 billion per point on the index.  Then comes a 700 point sell off in a day, 700X1.857 billion= a cool trillion 3.  Who in their right mind is going to get in front of that train wreck?  In fact the market dropped from an intraday all time high of 14,198 to just above 6k.  Almost 8 thousand points, or almost 15 trillion bucks.  Yet people who lost so much managed to not only swallow their fear after such losses in 18 months they had plowed 15 trillion back into the market.  I know the market is still well below the high of over 14k but the market cap is nearly back to it all time high, because of "flight to quality" each point is worth more now than it was before because of the mix of issues and their individual prices per share. 

Point is that a great percent of that selling went from being equity to cash on the sidelines, and with some rather huge losses, but in spite of that carnage that and more cash went right back into equities, it certainly was not teachers unions, or man on the street investors that got bullish in the face of this.  Trillions of the rebound had to be support from the Fed/treasury.  And that also explains why the market frequencies and moves within range have been so perfect since regaining total market cap.  Do we have down days?  Sure, but, given the VIX and economic fundamentals I estimate the market should be around 6-7,000 again and sideways from there for a long time.  Every time there is a sustained move down the bulls take over and we pop back up like a cork. 

I think that more than half the market cap at this point is in Fed/treasury accounts.  And here is the thing that amazes me, it would be relatively easy to prove forensically.  Given publically available market data and a few good computers, a couple of savvy assistants, and about a month to work on it, I think it can be shown beyond any doubt that a pattern so consistent it is tantamount to statistically impossible for it NOT to be intervention on a scale that goes well into the multiple trillions.  Further I believe banks can and have afforded this and found out the same things I am thinking, and that this is what has spawned high frequency trading and auto pilot algos, intervention is so easy to spot once you admit it is possible and actually look for it that you can milk it like a Wisconsin heifer.  And the Fed/treasury does not go after them, or even care who gets the money, they just care that the facade of a 20+ trillion market cap is maintained. 

Fucked we are and fucked we will remain.