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Jan. 5, 2010, 4:19 p.m. EST
Time for Fed to disprove PPT conspiracy theory
Commentary: Analyst charges that government is manipulating markets
WASHINGTON (MarketWatch) -- The massive stock-market rally in the past nine months is mostly due to secret government buying of stock-index futures, a respected stock-market analyst said Tuesday.
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. Read more about Biderman's theory.
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.
Biderman acknowledged that he had no direct evidence that the Fed and other agencies have intervened in the stock market. But he worried about what will happen to the market if the PPT has been buying and suddenly stops.
The Fed, of course, is a major player in the fixed-income markets, buying and selling billions in Treasurys, agency bonds and mortgage-backed securities. It's taken on hundreds of billions in assets from Bear Stearns, American International Group Inc. (AIG 29.40, +0.07, +0.24%) and many unnamed banks to which it's lent money. Presumably, all of those positions are duly reported by the central bank each week.
But the Fed has never said it is buying equities or equity futures. Doing so would likely violate the Federal Reserve's investment policies, and could violate federal law if not disclosed properly.
Aside from the legal issues, the PPT would have operational constraints. It's hard to believe that the Fed could keep such a conspiracy a secret for 20 years or more. An operation big enough to manipulate markets for months on end would be big enough to develop leaks.
With so much money at stake, anyone with direct knowledge of the conspiracy (such as a $30,000-a-year administrative aide) would be highly tempted to blow the whistle.
Yet Biderman's accusation of PPT market manipulation is another argument in favor of a complete public audit of the Fed's books. As any casual reader of this site's community boards knows, 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 wrong. And if they are right, the PPT should be put out of business.
--Rex Nutting, Washington bureau chief
Jan. 5, 2010, 5:47 p.m. EST
TrimTabs suggests government manipulated stocks
Analysts say government's financial rescues have fueled conspiracy theories
By Nick Godt, MarketWatch
NEW YORK (MarketWatch) -- The unusual circumstances that led the U.S. market to rally powerfully in 2009 might be explained by secret government moves to buy stocks, according to Charles Biderman, the founder and chief executive of TrimTabs, a research firm that tracks liquidity flows in the market.
"We cannot identify the source of the new money that pushed stock prices up so far so fast," Biderman said in a statement Tuesday.
The source of approximately $600 billion net new cash necessary to lift the market's overall capitalization by $6 trillion last year could not be identified by TrimTabs, Biderman said. The money, he said, didn't come from traditional players such as companies, retail investors, foreign investors, hedge funds or pension funds.
"We know 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?"
The Federal Reserve or the Treasury, Biderman said, could have easily manipulated the stock market by purchasing $60 to $70 billion worth of futures of the S&P 500 Index (INDEX:SPX) on a monthly basis.
Conspiracy theories on the rise?
Market analysts, however, were quick to debunk the theory. Yes, the government had a heavy hand in rescuing the financial system and the economy as the system started collapsing in late 2008 and throughout 2009. But the huge boosts of liquidity through the system found their way to stocks by the usual means, they said.
"The idea that this is magic is nonsense," said Barry Ritholtz, market strategist at Fusion IQ and a market veteran. "This was a normal behavior in a recessionary bear market. We saw the Dow plunge 5,000 points in 6 months, which had never happened before and created a dramatically oversold market."
Yes, the Federal Reserve slashed interest rates to near zero and Congress allowed banks to keep their bad loans off their books, allowing them to pretend they were solvent, he said.
But "you can't short stocks when the Fed is at zero," Ritholtz said. "Our own institutional clients came on board" as did other big institutional investors, he said.
Conspiracy theories about the so-called "plunge protection team," or PPT, have been on the rise ever since the U.S. government started to bail out financial institutions in late 2008 under the administration of then-President George W. Bush, according to Dan Greenhaus, market strategist at Miller Tabak.
The PPT is a nickname given by some to a group established by President Ronald Reagan in 1988 after the 1987 stock crash to coordinate governmental response to market meltdowns.
Noting that the Fed has been buying Treasurys and mortgage-backed securities to keep interest rates low and support the economy, even firms such as Sprott Asset Management have started to accuse the U.S. government of running a Ponzi scheme.
"There's a lot of backlash against the government right now and the hate for the Fed has gone into overdrive" in some corners, Greenhaus said. "The fact that the government stepped into the abyss [angered] a lot of people, and the fact that things are better a year later flies in the face of some long-held beliefs about free markets."
As to the scale and power of the 2009 rally, it actually trailed previous recoveries from bear markets, according to research from Miller Tabak.
"While the absolute percentage gain off the recent lows has been more powerful than anything since the Depression era, there is no denying that historical rallies in the equity market have recouped a greater percentage of the declines from the highs," Greenhaus wrote in a note.
The stock market, as measured by the S&P 500, plunged nearly 57% from its 2007 highs until it reached lows in March of 2009.
But even after rallying 58% in the seven months after the March lows, the market remained 31.5% off of its 2007 highs. That's nearly the same amount recovered during the market rally of 2003, as the market began to recover from the bursting of the tech bubble.
In other instances, such as 1975, 1962 and 1938, the market had actually recovered a much bigger portion of its losses seven months after hitting lows. And in 1983, it was actually 7.3% above its previous highs.
Originally posted by Rockpuck
reply to post by Dbriefed
i disagree. I don't believe for a second it was the Federal Reserve pumping stocks. I don't know if anyone has noticed, but we freely gave hundreds of billions to the bankster over the past two years.. who used that money to pump the markets to an extreme, pay back the debt, and set it up for a collapse.
Who's been buying the stocks? Just look at the Mega-Bank's earnings from tradings and you will see the only reason they posted profits or paid back the debt was because they were trading en mass... Goldman was making 100mil+ a day..
More at link...
Thursday, January 07, 2010
Latest Government Intervention: The Stock Market?
By Matt Egan
Call it the "grassy knoll" theory of Wall Street. Surprised by the ferocity and timing of the markets’ 70% surge since the depths of the recession last year, some bears have resurrected a theory that the U.S. government’s so-called “plunge protection team” has rigged the rally through clandestine purchases of stock futures.
The theory received an endorsement of sorts this week by TrimTabs, a fund flows firm, which suggested there aren’t any logical sources of capital other than the U.S. government to support the $6 trillion increase in market capitalization seen on Wall Street since the darkest days of last March.
While some traders seemed willing to at least consider such a conspiracy theory, market strategists, academics and former government officials quickly debunked it as illegal, preposterous and, well, downright laughable.
“Speculation about futures purchases recur, but they do not have any foundation,” Vincent Reinhart, a former senior Federal Reserve official, said in an email, noting it would violate the Federal Reserve Act, reporting requirements and accounting rules. “It just couldn't hide the transactions without a conspiracy that is too big to believe.”
The “plunge protection team” is the nickname given to the Working Group on Financial Markets, a team of regulators led by the Treasury Secretary that was formed in the 1980s to maintain orderliness and investor confidence in the markets.
Missing Fund Flows?
TrimTabs issued a report Tuesday saying it cannot identify the source of some $600 billion it says was needed to boost the market's capitalization by $6 trillion. The report said it couldn’t have come from corporations, which were huge net sellers of stock, and retail investors, foreign investors, hedge funds and pension funds can’t make up the difference either.
“I personally don’t believe in conspiracies because most people aren’t smart enough to come up with one or keep it secret,” said Charles Biderman, the firm’s founder. “I just have no explanation for where the money is coming from.”
Biderman said the Fed or the Treasury would need to buy as little as $5 billion to $15 billion a month of futures on margin to lift the S&P 500 67%.
"I think it’s a silly conspiracy theory,” said Art Hogan, chief market strategist at Jefferies & Co. “Do you think the government has nothing better to do than prop up the stock market?”
While skeptical, other market participants refused to discount the notion.
“If you’re in the market long enough and you’ve seen this inexplicable move to the upside that I have seen, it gives you reason to pause. There has to be some force at work that is not immediately understandable; something outside pure market play,” said Peter Kenny, managing director at Knight Capital Group. “Though I discount it, I certainly don’t rule it out.”
$6 trillion increase in market capitalization seen on Wall Street since the darkest days of last March.