A week ago we presented the observations of TrimTabs' Charles Biderman, who laid out a logical case for why there is significant circumstantial evidence that the Fed is manipulating markets by purchasing index futures in the aftermarket: "One way to manipulate the stock market would be for the Fed or the Treasury to buy $20 billion, plus or minus, of S&P 500 stock futures each month for a year. Depending on margin levels, $20 billion per month would translate into at least $100 billion in notional buying power...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." Today MarketWatch has an open appeal to the Fed to put Biderman's allegation to rest by publicly disproving that it is involved in any direct market manipulation. "Biderman's accusation of PPT market manipulation is another argument in favor of a complete public audit of the Fed's books...there is a widespread belief that the PPT does manipulate stock prices on a daily basis to enrich its pals and screw individual investors. It would be useful to prove them. " We couldn't agree more.
Here is a summary of MarketWatch's Washington Bureau Chief thoughts on the issue:
Charles Biderman, chief executive of TrimTabs Investment Research, is the latest and most credible person to charge that the Federal Reserve and the Treasury (in league with top Wall Street firms) is rigging the stock market on a daily basis.
In a special report released Tuesday, Biderman said the $6 trillion increase in U.S. stock-market capitalization since March can't be explained by the usual sources of funds flowing into the market -- such as mutual funds, direct retail investment, pension funds, hedge funds or foreign purchases.
The only logical explanation for the extent of the rally, he suggested, is secret buying by a government committee known colloquially as the Plunge Protection Team. It's like the dark matter that astrophysicists conjecture must be there, even if we can't detect it.
The PPT was established by President Ronald Reagan in 1988 after the 1987 stock crash to coordinate the government's response to market meltdowns. It consists of the Fed chairman, the Treasury secretary, the head of the Securities and Exchange Commission and the head of the Commodity Futures Trading Commission.
And while direct confirmation of PPT actions would be in a legal gray area, and maybe not result in the immediate incarceration of all those at the Federal Reserve and ancillary Wall Street firms who are aware of this activity, "doing so would likely violate the Federal Reserve's investment policies, and could violate federal law if not disclosed properly."
While non-circumstantial evidence of the PPT is still missing, numerous truth seekers have made their life pursuit to catch the Fed red handed in what will likely be the biggest piece of financial journalism ever, when disclosed. Alternatively, Bernanke can go on the record and confirm that he does not know or participate in any Fed-sponsored or directly initiated (choice of words here is very critical) purchasing of equity securities. Somehow we don't think we will hold our breath on that one.