Back on May 31, 2009 I wrote about suspected stock market manipulation, a suspicion based on my daily observation of stock market behavior patterns. It seemed strange to me then, and since then it has continued to be suspicious. The market has been characterized since March 6th of 2009 by a steady, nearly uninterrupted uptrend. Much of the upward action has appeared near the start and end of the day and after hours.
Since that article was written additional voices have expressed similar disquietude about the possibility of government interventions to manipulate prices upward, also citing strange market behavior they’ve observed.
An influential voice appeared in the ZeroHedge.com blog last December. The article, subtitled “Who Is Responsible For The Non-Stop Market Rally Since March” was written by TrimTabs’ Charles Biderman (whose firm describes itself as: “…the leading independent institutional research firm focused on equity market liquidity.”
Mr. Biderman observes that as of December last year the market had gained over $6.0 trillion in capitalization. He goes on to say:
The “wealth effect” of rising stock prices has soothed the nerves and boosted the net worth of the half of Americans who own stock.
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:
and lists the following “traditional players” who by his observation are not responsible:
Retail Investor Funds
Retail Investor Direct
..and then says:
If the money to boost stock prices did not come from the traditional players, it had to have come from somewhere else.
We do not know where all the money has come from. What we do know is that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers. Why not support the stock market as well?
Biderman then goes on to describe how this manipulation could plausibly, and in his opinion, legally be conducted by the government through the purchase of futures contracts, especially in the ultra-liquid SP-500 futures market.
That was nearly a year ago and the market has continued to defy gravity. I don’t have anything definitive to add to this question, but here are some observations that strengthen my belief that the U.S. Government, probably with the participation of the Treasury, Fed and Goldman Sachs, can and does dishonestly manipulate the upward movement of stock prices for purely political reasons.
The Flash Crash of May 6, 2010 which was blamed on a large ($15 Billion) SP-500 futures trade by a single firm well illustrates the ability of futures prices to influence actual stock prices. If $15 Billion can do that, what can $100 Billion do? At the time of the flash crash I suspected a mistake by government market manipulators, but that was probably wrong.
Monetary Easing Before Elections (lower interest rates, etc.) has been a trick used by every president to try and window-dress his economic performance. This year the Fed couldn’t do that. Interest rates are already at zero. The only good economic news out there is the stock market, so the administration would be desperate to keep stock prices elevated. But after the election, what then?
Lock-Step Stock Price Moves: a recent Wall Street Journal article details the degree to which stock prices have been all moving in tandem, seemingly being influenced by a single force. The Journal reported that: “Between October 2008 and February 2009, at the height of the financial crisis, correlation hit 80%, meaning lots of stocks were moving in lock step. When stocks rallied last year, the figure fell to 40%, then it spiked back over 80% during the European debt crisis, according to Barclays. What has caught many investors off guard is that correlation stayed high over the summer. In mid-August, correlation was 74%. In recent weeks, it has drifted down to 66%.” Might some of this correlation be the result of manipulative pressures?
Government’s Habitual Statistical Dishonesty: Anyone who believes that government statistics are honest reflections of reality would be a good newspaper reporter — gullible and lazy by trade. It doesn’t take a conspiracy for the government to pull off a manipulation of the market for political gain, it only takes a few crooks with access to the resources of the Treasury and the Fed. For a tutorial on dishonest government statistical practices I recommend: John Williams’ Shadow Government Statistics
One needs to look no further than the low moral character and dishonesty of Timothy Geithner, Ben Bernanke, Henry Paulson, President Obama and the economic team that has deserted him to find a cast of characters capable of the deceit necessary for government manipulation of the stock market.
It just gives me the shivers to think about what the consequences will be if a) the scheme is uncovered and/or b) the government considers it necessary or expedient to suddenly withdraw its support of stock prices.
(As an aside, just two weeks before the election the market action has become really hincky. Many market observers would conclude at this point it’s time for a pullback, and the market has gyrated and head-faked, poked and jabbed, but always keeps getting up like one of those childhood clown punching bags. Professional traders don’t argue with Mother Market, she usually does what she wants to do. But maybe she’s being romanced, or more likely, abducted and ravaged against her will.)
For the good of the country, after the November elections I hope that some enterprising congressman will initiate a probe into those government and private organizations and individuals that have the incentive and the wherewithal to engage in market manipulation. If there’s none, then no harm done. If there is, then some people should go to jail for a long time to keep Bernard Madoff company.