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Is the FED propping up the stock market?

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posted on Jan, 7 2010 @ 09:59 PM
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Is the economy really recovering or is the Fed illegally manipulating the market by buying up stock futures? Some think the little known PPT or Plunge Protection Team may be secretly manipulating the market to prevent an all out crash.



The New American


Stock Rally Owing to Plunge Protection Team Conspiracy?

The 60 percent gain in stocks since March was largely caused by secret government purchases of stock-index futures, the CEO of TrimTabs claims.

The Plunge Protection Team (PPT), otherwise known as the Working Group on Financial Markets, has been the target of conspiracy theorists ever since an article in the Washington Post in 1997 first shed light on the operation. The Working Group was created by Executive Order following Black Monday’s market crash on October 19, 1987, when the stock market declined more than 20 percent in a single session. Its purpose was to give recommendations for legislative and private sector solutions for “enhancing the integrity, efficiency, orderliness, and competitiveness of financial markets and maintaining investor confidence.”

The Group is made up of the Secretary of the Treasury (Timothy Geithner), the chairman of the Federal Reserve Board (Ben Bernanke), the chairwoman of the Securities and Exchange Commission (Elizabeth Murphy), and the chairman of the Commodity Futures Trading Commission (Gary Gensler). Claims are made that this committee consists of an “orchestrated mechanism that attempts to manipulate U.S. stock markets in the event of a market crash by using government funds to buy stocks, or other instruments such as stock index futures — acts which are forbidden by law.”


Robert Heller, a former board member of the Federal Reserve, said in an op-ed article in the Wall Street Journal, “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.”

Such support for stocks during a market crisis was confirmed by George Stephanopoulos, a former Clinton administration officer, in an article in the Daily Telegraph, where he referred to “an informal agreement among the major banks to come in and start to buy stock if there appears to be a problem.”



Tyler Durden at ZeroHedge.com pointed out that “virtually all of the market’s upside since mid-September has come from after-hours S&P 500 futures activity.”

There are strong objections to calling such potential manipulation a conspiracy. As the writer at MarketWatch.com put it, “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.

But he points out that “Biderman’s accusation of PPT market manipulation is another argument in favor of a complete public audit of the Fed’s books.”




Are we in the midst of a govt induced recovery illusion?





[edit on 7-1-2010 by FortAnthem]




posted on Jan, 7 2010 @ 10:55 PM
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I would bet between futures and High freq trading (hft) done through intermediaries the PPT has keep prices and volume artificially high to spur retail confidence. Part of the game. I just hope the "masters of the universe" can keep the game alive until the real economy recovers



posted on Jan, 7 2010 @ 10:59 PM
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When you take into consideration that at least 20% of the Dow volume/movement on any given day is accounted for by the financial stocks in which Obama has taken an ownership interest, the answer is obvious.

Add in the fact that in every Treasury auction, the Fed "buys" a majority of the bills/notes/bonds that the primary dealers acquire, thus infusing cash for them to "invest" in equities.

Pure market manipulation. It is not sustainable and a day of reckoning will soon come.

jw



posted on Jan, 10 2010 @ 05:14 AM
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reply to post by jdub297
 


I remember reading basically just this at another site a couple of months ago, referencing just how much of the volume was largely the stocks you speak of and it really took off in July.

The Dow shouldn't really be used as a benchmark because when you get right down to it, it's basically the health of 30 large companies and those companies have changed over the years, representing different areas of the business sector.

The economy has become more market driven over the last 25 years or so and lending has become more the focus over that time as well. Check out this graphic:



Realistically, we should probably still be trolling along at around 1,000-1,500 but around '84 it starts to climb. You can see Black Monday from '87 in that sudden drop not long after. It doesn't look like much compared to today, does it? Right there in the mid-90s you have the tech boom and the relaxation on mortgage lending rules, then you have the dot com bubble bursting as well as 9/11, followed by the rise in the housing market. Housing became the hot commodity, people bought, prices exploded, then it all went to hell in a hand basket within a few years.

[edit on 10-1-2010 by Graybeard]



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