Saturday, January 2, 2010
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.Mike Whitney - in commenting on Biderman's essay - adds another juicy quote:
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.”
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:Biderman continues:
"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."
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.Whitney summarizes another of Biderman's arguments:
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.
"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."Has it happened? Has the government or it's primary dealers really purchased stocks?
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].
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.
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You didn't connect the dots here. It would be more interesting if you proved the point, instead of just throwing out conjecture.
ReplyDeleteIf all other normal sources flowing into the market are accounted for and the amount that the FED won't tell us what they did with it match, how much more can you do till they open the books. It's our money , till they open the books I'm going to say it was them. It's up to them to prove otherwise.
ReplyDeleteI would have to agree. If you look at the stock market it has risen from 9,926 in March of 09' to 10,548 in Dec 09' that's approx 4,500pt increase. If you look at the history of the stock market it has NEVER risen so fast in a short period of time, which I would say that the market is being manipulated. Then the bigger question is "who has that kind of money". It would have to be the government or the big banks that are making record profits cause they are keeping their dirty laundry off the books.
ReplyDeleteThe fed bought shares of Lehman Bros, which Goldman Sachs sold to them -short. Think about that!
ReplyDeleteCome on! This is the American way! Look at Fannie Mae and Freddie Mac buying up all the defaulted mortgages in the country, at a steady profit -for the sellers of these mortgages! In some cases the housing behind the mortgage being bought -has already been scheduled for demolition, and they still buy the defaulted mortgage!
The stock short sale -proves the ultimate in naivete of the American public about financial matters.
It's necessary to add flexibility to the market, is the justifying-argument given. Huh? It's necessary for people -who do not own stock-, to be able to sell it, when they are tipped off that the company is going to report some really bad news? Sure, that makes sense, -to an idiot.
It's also what makes it so profitable for these companies to commit all this fraud.
Someone got massively rich on Lehman Bros, WaMu, Enron, WorldCom, and hundreds of scores of others as they went bankrupt. Short sellers got massively rich because they were tipped off concerning the timing of the ultimate demise of a fraud.
But the SEC can't track or divulge who's getting rich like this! No, of course not! It's too lucrative.
In the majority of cases, those who got massively rich were insiders with knowledge of the collapse that came beforehand. In some cases, like Lehman Bros, it was companies like Goldman Sachs who actually precipitated the collapse of the company that went under.
And now that the really stupid money has all but dried up in the stock market, the government has stepped in to buy shares so that these swindlers don't ever go without!
And like I said, the government isn't just buying shares, they're buying short sales from Goldman Sachs.
It's a like a back door into the vault at the Treasury.
It's better than being a counterfeiter with perfect printing plates and the exact paper.
They don't even have to smell the ink coming off the printing presses.
Great info. Thanks!
ReplyDeleteThe equities market is vast and broad.
ReplyDeleteThink of the conventional definition of the equities markets, which includes everything from stocks and bonds, to mortgages and debentures. The equities markets even encompassed insurances, in the conventional view.
The ethic of the systems that have grown up around the equities markets has been corrupted, spendidly rewarding a very small segment of the much larger pool, taking what are now very common, excessive risks.
These players view themselves as casino gamblers who gamble with other people's money. That's the ethic of the equities markets today. There's no responsibility, anywhere. This is all a white knuckles approximation of what used to be the equities markets.
We'll all be on our knees again soon enough, at the rate the much ballyhooed better judgment is showing up, because, it's a no-show thus far in the shadow recovery being piloted by the green-visored river-boat gambling fed.
that is exactly human race, we kill each other and don't care about ours kids future, i hope this year all exploit and go to 5000 or maybe less
ReplyDeleteExcellent article. Suggestion: why doesn't someone better connected than me simply ask Bernanke or Geithner?
ReplyDelete"And like I said, the government isn't just buying shares, they're buying short sales from Goldman Sachs."
ReplyDeleteThat makes no sense. The Fed, by either directly buying stocks or manipulating the dollar lower, does not help short sellers. To the contrary, they're trying to put short sellers out of business.
I think hedge funds have been buying stocks.
ReplyDeleteExogenous market factors which unbalance equilibrium pricing can be expected to fail unless the function of those markets is forever changed. Take note Timmy, et al, you may succeed in destroying capital markets around the world. You might want to re-read Kindleberger also.
ReplyDeleteThe Fed comes in around 2pm just about everyday and buys futures...fact...look at the daily charts..
ReplyDeleteAnonymous at Jan 04 10:06 is sadly misinformed. SEC rules prohibit naked short trades (the short selling of equities that the seller neither owns nor has borrowed from a broker), yet naked short selling was rampant in the markets throughout 2007-8 and continues today - without ONE prosecution by the SEC despite virtual campaigns by people like Jim Puplava at financialsense.com to get them to do so.
ReplyDeleteDuring later 2008, in order to stop the rush of naked shorts that were created by and targeted against banks , the SEC issued a completely superfluous rule that short selling against selected banks would be prohibited. In effect they were trying to stop the worst offenders from doing to one another what they'd been doing to others for a long time.
Naked short selling produces 'ghost' equities; the appearance on the market of equities that don't actually exists. Through this illegal form of trading major banks and other players have driven many smaller companies into bankruptcy. There's not space here to explain, but go to financialsense.com and search the site - there's certain to be a wealth of information about this.
Here's the kicker - if a company goes bankrupt, holders of shorted stocks in that company do NOT experience a taxable event with respect to the profits they made on the way down. So there's a significant inducement to use naked short selling to effectively produce bankruptcies in the targeted companies, thereby making oodles of profit on the way down (assuming you cash out in time) without having to pay taxes on the gains.
more...
...If the government provides liquidity for this process, it enables short sellers as well as naked short sellers (the difference between which, thanks to on-line trading are relatively transparent to the buyer) to make both legitimate and illegal profits.
ReplyDeleteBank of America last year discovered during their annual shareholders vote that there were more than twice as many voters (presumed shareholders) as there were booked sales for their stock issues. This is just one example - people who bought up naked shorts that were sold against BOA had no way of knowing that they'd bought an illegitimate 'ghost' equities because few people actually take the paper stock certificate in hand.
This kind of fraud exists in virtually all the markets, particularly in precious metals. There are, on any given day, 8 or 9 times the nominal value held in silver futures contracts on the COMEX as there IS actual bullion to back them in the warehouse (according to global silver expert, David Morgan). The effect of all this paper trading is the APPEARANCE that there's more silver than there is - and hence the price of silver is artificially depressed by this mechanism.
Not to worry, the COMEX contract specifies that on the day the lights go and the musical chairs are revealed - with 8 or 9 people standing around unable to settler their silver contracts in the commodity itself - holders will be forced to settle their contracts in paper. Great - and that's actually day AFTER the last day that anyone would want to do that.
more...
... On a related note... the media treats the misguided American public to the daily fiction that a rising stock market equals a recovering economy. This propaganda has been so effective that few ever question it... yet look at what happened in Germany between 1918 and the collapse of the Reichsmark in 1923: The best treatment I've found, which documents the German currency's stages of collapse and correlates them to the same stages in the Unites States can be found at: http://www.nowandfutures.com/us_weimar.html
ReplyDeleteYou'll note that the German stock market went from 126 in 1918 to an index of 26,890,000 at the point of collapse in 1923... which destroyed the middle class and ushered in the era of the National Socialist Party, aka the Nazis.
Finally (and I apologize for this long note), a friend of mine sent along a link last week that clearly indicates what will produce the global tipping point for this mess later in 2010 (it's a food crisis). If you're interested in how that point will be reached, see: http://silverbearcafe.com/private/12.09/cropcrisis.html
I remember back during the primary campaigns when Ron Paul asked John McCain about the Plunge Protect Team:
ReplyDeletehttp://youtube.com/watch?v=rJ1OB2iLxcY
Too bad John Q. Public had no f'n clue what it meant. Ron Paul was and has been ahead of his time.
There is a three-day settlement period for stock trades, people. Don't be fooled, fool.
ReplyDeleteAnyone who thinks naked short selling isn't still going on, on a massive scale, is simply ripe for getting harvested like so many other suckers stupid enough to put their money in the stock markets.
Naked short selling is more profitable than buying short positions in the futures's market because no one has to know in advance when a naked short sale avalanche is about to occur.
Naked short selling, is also what makes running a discount brokerage so profitable. Ameritrade is actually selling you shorts they create.
This is why the markets pop up and down with such regularity, so disproportionately, and with no more reason than that the bullshit financial news is playing the market one way -one day, and -another way -a couple of days later. This has been what's going on for a very long time. It's so regular, it just like milking a cow. Just pull the teat.
Most stock purchases made through a discount broker are in fact purchases of naked short trade shares. Brokers make THEIR money within the three day settlement cutoff.
The chances they can buy any stock for less than when you made your trade within the three day period -is simply far better than 50-50, far-far better!
Three days, fools. THREE DAYS! That's three days in an era when everything is electronic, Bozo.
Just ask your Ameritrade customer service representative for the security registration numbers for the stocks you bought today.
Impossible! But why is it impossible?
What an utter embarrassment all these stock experts are.
And don't think for a second that three days is cut in stone. They can also flip your purchase with the shares another client in their account and make it all look kosher for months.
It's like that theory, that there's really just one electron in the whole Universe, as it's being passed around so fast to all the atoms that require it for when the experimenter comes looking for just such an electron. LOL!
Anyone here want to buy the Brooklyn Bridge?
Given the size of currency and debt markets versus equity markets, no PPT (in their right mind) would act to "come in and start to buy stock" were some sector of debt or currency markets in distress. Only were these larger markets stabilized would PPT equity buying have any worthwhile effect, thereafter allowing equity exposure to be offloaded sometime soon after debt/currency market stabilization, such that risk of incurring loss on equity positions were made minimal.
ReplyDeleteI rather suspect we saw this sort of thing over the first few months of '09. For the most part over the last four months of the year, too, it's likely much of PPT equity risk was offloaded (thus explaining volume contraction on the NYSE in particular).
It probably is along similar lines PPT equity "support" came in following Fed-coordinated rescue of LTCM counter-party exposure in '98. Ditto collapse of the U.S. corporate bond market in '02.
This year's goose of pre-market index futures appears a means of attracting foreign capital already seeing U.S. assets as "cheap" in relative currency terms given the dollar's weakness.
Legal shorting is a strategy the gummerment allows the naked shorting of its friends to hide in its mechanisms.
ReplyDeleteLets put a stop to it
www petitiononline com/shortNOT/petition.html
I have no doubt that there are arms of the US government purchasing stocks.
ReplyDeleteThe biggest problem is, of course, they do not have the money to do it.! So they create the money.
This means that the stock market increase is in no way a reflection of the underlying forces, and what's more, this applies to the wholde world, since it watches what goes on in the US.
The frigtheing thing is this: the purchases are done for IOUs, created out of nothing and backed by even less. It is like an undrawn cash cheque being passed on in good faith. It works as long as everybody plays along, but if someone tries to cash the cheque, there are no funds. By implication, the money you have saved and stashed in the bank, is declining in value, as long as this fraud continues, because the pizza is shrinking, yet there are many more slices, each getting thinner than the next.
The mind boggles. It can continue for a while, but ultimately, it must come crashing down.
When, why, where is anyones guess.
But it is going to feel as if the sky had just fallen!
And there will be no shelter.
We should be aware of the said funds because maybe in time we sacrifice on stuffs like this.
ReplyDeletereyes ceo
looks quite a great post, it's having good information for research analysis. great job
ReplyDeleteNobody is bailing out the average american worker. Why should the banks and automobile company's get bailed out. I know if I start a business and fail, nobody is going to bail me out. The largest casino in the world is the stock market and the house always wins. Put your money in gold and the credit unions. I know mine is paying 2.7%. Alot better than Fidelity's money market acct.
ReplyDeleteAnnoymous
Annoymous
That's really awesome.. I hope I can see more of this.. I am looking forward for your next post..
ReplyDeleteThere were numerous stories about traders on the CME Floor who would watch for an unknown large trader who would step into the pit and start buying in huge numbers. No one knew who he was or who he represented so they came to the conclusion it was the "Fed Guy".
ReplyDeleteEvery time there was a sell signal on the hourly S&P chart and the market turned down a buying flurry would appear. It made no sense whatsoever so it had to be the government!
In the majority of cases, those who got massively rich were insiders with knowledge of the collapse that came beforehand. In some cases, like Lehman Bros, it was companies like Goldman Sachs who actually precipitated the collapse of the company that went under.
ReplyDeleteAnd now that the really stupid money has all but dried up in the stock market, the government has stepped in to buy shares so that these swindlers don't ever go without!
And like I said, the government isn't just buying shares, they're buying short sales from Goldman Sachs.
It's a like a back door into the vault at the Treasury.
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Online Stocks
I definitely think that stock trading is a good strategies to increase the value of our mutual money...
ReplyDeleteGreat post!
http://www.tradingstrategies.ca
I have been sure in my own mind that the government was somehow keeping the stock market looking "healthy". They want us to believe the recession is over. How can that be when the jobless numbers keep rising. Since Obama took office 1,468,180 people have become unemployed. I
ReplyDeletepredict a double dip recession and we will be lucky to avoid a BIG depression.
Great article. Yeah the gov't did all kinds of things including buying penny stocks during the financial crisis and ensuing recession.
ReplyDelete