What the blogosphere has been claiming for months is starting to make its way into the institutional realm. In a brazen press release by Moonraker Fund Management, caught by Tracy Alloway at FT Alphaville, the fund is alleging that the equity-rally has been orchestrated by banks, who using bailout capital and free liquidity from the Federal Reserve, have reallocated capital to purchase equities in the open market, which of course explains a lot of the inexplicable market phenomena witnessed recently. Including why the market does not reflect the underlying economic reality and is merely a function of burgeoning liquidity, and represents an impairment of broad fiduciary interests stemming from an opaque agenda which remains hidden courtesy of the Bank-Fed duo.
Excerpts from the Moonraker press release:
September 24, 2009 - Moonraker Fund Management, the independent investment boutique, is concerned that banks may have been using their bailout money to buy equities, helping to fuel a rally that is vulnerable to a major correction if they consequently sell in thinly traded markets.
Instead of lending to businesses and homebuyers, banks may have been using some of their bailout money to buy stocks from an oversold base in March, Moonraker believes. The British Bankers’ Association’s own figures show that gross mortgage lending by the banks has fallen from a high of £21.5bn in June 2007 to £9.1bn in August 2009, while new term lending to small businesses was £796m in July, compared with around £900m last October.
Jeremy Charlesworth, Chief Investment Officer of Moonraker and manager of the Moonraker Commodities Fund and Global Opportunities Fund, commented: “Little of the bailout money given to banks seems to have been passed on to businesses or consumers. But it must have gone somewhere and it might have gone to the proprietary desks of the banks to punt the markets. Given all the calls for more transparency, it would be good if the banks could clarify this.
“The banks have every right to use the money they borrow in any way they choose. But it would be good to know how much of the bailout money has been used to buy equities. Clearly, someone has been buying, and given that it hasn’t been ordinary investors and the institutions that does just leave the banks.
“The banks’ balance sheets will certainly have benefited from their equity holdings. If they could sell these investments into a rising market then they would be in a better position to repay their debts. But there will be a problem if the public and institutions do not join the rally and the banks have to sell equities into a vacuum.”
While Moonraker is undoubtedly correct, definitive evidence will never come as long as the Fed keeps hiding in its shroud of secrecy and promotes the liquidity-based divergence between the market and the economy. Which bring to mind Barney Frank's commentary on why Congress is delaying the passage of HR 1207 - specifically so that "it wouldn't be market sensitive." Undoubtedly the market would be very "sensitive" to discovering that the Fed, in collusion with the banks, has taken equities to fundamentally unsustainable levels, especially when one considers that the bulk of market movement comes courtesy of futures positions, with large volume drop gaps getting filled by a few hundred futures in overnight trading. Just who trades these futures? Which bank prop desks move the market on little to no volume? And are these movement flow based (clients), or purely from proprietary interests, which have everything to do with bank viability courtesy of selling equity securities from a higher artificial price point.