As a long time observer of the stock market and an active participant I’ve been quite amazed by the stock market’s 3 month, 31.7% rise from 3/6/09 to 5/29/09 as this is being written. There is something quite strange about the pattern, in that short term corrections that normally occur in such a market are absent, or lasted only a day or so.
Given the current out-of-control politics, and increasing lawlessness of the federal government one can justifiably ask whether the market is being manipulated by the government. A Google search produced several interesting tidbits.
First, a video of an interview displayed the observation by Dan Shaffer of Shaffer Asset Management wherein he pointed to evidence of what appeared to be government intervention in the markets during the current rally. I encourage you to examine the link yourself. A summary of his comments:
“Something strange happened during the last 7 or 8 weeks. Doreen you probably can concur on this — there was a power underneath the market that kept holding it up and trading the futures. I watch the futures every day and every tick, and a tremendous amount of volume came in a several points during the last few weeks, when the market was just about ready to break, and it shot right up again. Usually toward the end of the day – it happened a week ago Friday, at 7 minutes to 4 o’clock, almost 100,000 S&P futures contracts were traded, and then in the last 5 minutes, up to 4 o’clock, another 100,000 contracts were traded, and lifted the Dow from being down 18 to up over 44 or 50 points in 7 minutes. That is 10 to 20 billion dollars to be able to move the market in such a way. Who has that kind of money to move this market?
On top of that, the market has rallied up during the stress test uncertainty and moved the bank stocks up, and the bank stocks issued secondaries – they issues stock – they raised capital into this rally. It was perfect text book setup of controlling the markets – now that the stock has been issued…” [interrupted by Richard Suttmeier].
A second little bit of information surfaced a few years ago in reference to a so-called Plunge Protection Team, whereby:
The Working Group on Financial Markets, also know as the Plunge Protection Team, was created by Ronald Reagan to prevent a repeat of the Wall Street meltdown of October 1987. Its members include the Secretary of the Treasury, the Chairman of the Federal Reserve, the Chairman of the SEC and the Chairman of the Commodity Futures Trading Commission. Recently, the team has been on high-alert given the increased volatility of the markets and, what Hank Paulson calls, “the systemic risk posed by hedge funds and derivatives.”
The article goes on to explain how the PPT is supposed to work, by buying up massive amounts of index futures so as to squeeze shorts and produce a strong market rally. Again, please read the article.
I’m not a fan of conspiracy theories since conspiracy requires much more secrecy and trust than can usually be found in real life. However, I do believe that the government can keep dirty secrets, and perhaps this is one of them.
Back in August 2005, a Canadian financial firm called Sprott Asset Management published a study entitled “The Visible Hand of Uncle Sam” available here in PDF format. This study provides a lot of details concerning the PPT. An interesting quote from the report (Pg. 5) corresponds in an eerie way with what Dan Shaffer reported. They’re talking about the day after the 1987 crash.
Stewart and Hertzberg combined a detailed reconstruction of that Tuesday’s trading activity with extensive interviews of market participants to underscore the gravity of the situation. By approximately 12:30 p.m., trading in many large-capitalization stocks
had all but ceased, and calls for the NYSE to close grew louder. Despite remarkable pressure, though, the exchange remained open. This proved a fortuitous decision, because as the paper recounted, a stunning recovery would soon commence: In the space of about five or six minutes, the Major Market Index futures contract, the only viable surrogate for the Dow Jones Industrial Average and the only major index still trading, staged the most powerful rally in its history. The MMI rose on the Chicago Board of Trade from a discount of nearly 60 points to a premium of about 12 points. Because each point represents about five in the industrial average, the rally was the equivalent of a lightning-like 360-point rise in the Dow. Some believe that this extraordinary move set the stage for the salvation of the world’s markets.
I suppose some might say that secret government manipulation of stock market prices is beneficial in that it is intended to prevent collapse. I vehemently disagree with this. If such a secret program of intervention exists, who does it serve? Why is it secret? It is apparent that it exploits the vulnerabilities of short sellers, using their losses and fear of losses to goose the market. These are citizens too, and don’t deserve to have the government plotting and acting against their economic interests.
And in the current political context, with banks attempting to recapitalize a rising market is beneficial to them. Has Geithner engaged in market manipulation in order to benefit his banker buddies? Or perhaps Obama wants a rising market as a proxy indicator of his “successful” recover program?