Reagan Budget Director: Recovery of Stock Market Rigged
Was the recovery of the stock market rigged? David Stockton, President Reagan’s Director of the Office of Management and Budget, says it was:
The markets plunged on a vague recognition that the central bank promoted recovery story might not be on the level. But that tremor didn’t last long. Right on cue the next day, one of the very dimmest Fed heads — James Dullard — mumbled incoherently about a possible QE extension, causing the robo-traders to erupt with buy orders. By the end of the day Friday, with the market off just 5% from its all-time highs, the buy-the-dips crowd was back, proclaiming that the “bottom is in”. This week the market has been energetically retracing what remains of the October correction.
So addicted to and dependent on central bank action are the stock markets of the entire world that a mere word from one member of the Fed can correct a correction. All that matters, in other words, is whether or not the Fed is going to keep printing all that free money for its member banks. Stockton goes on to say,
Everywhere state action, not business enterprise, is believed to be the source of wealth creation…. Thus, several nights ago Japan’s stock market ripped 4% higher in the blink of an eye after the robo-traders scanned a headline suggesting that Japan’s already bankrupt government would start buying even more equities.
Others also say recovery of stock market rigged
Since recovery efforts for the Great Recession began, the stock market has not functioned as an actual market where interest in companies is bought and sold, but as a casino in which nearly all players are betting on what the federal government will do next and what affect that will have on all the other players.
Events after the New York Stock Exchange’s nose dive in October reveal a stock market rigged for recovery. Says New York Post columnist John Crudele:
Later in the day — after a lot of shocking ebb and flow — the Dow bottomed out with a decline of 460 points. It was only in the last hour of trading that the market saviors managed to trim the Dow loss to just 173 points…. Welcome to a new kind of stock market — one that the average investor should refuse to be invested in…. But let me explain about the unknown forces in the market these days. Call it by a nickname — the Plunge Protection Team. Or call it the President’s Working Group on Financial Markets, the official name given to the group when it was formed by President Ronald Reagan after the market turbulence of 1989. These forces may be working from a script in the “Doomsday Book,” which the US government recently fought to keep secret when it was brought up last week during the AIG trial in Washington. Here’s the bottom line: Someone tried to rescue the market last Wednesday. And it’s becoming a regular occurrence.
The market dove that day so deep that it erased all the gains that had happened in 2014! Then, just an hour before closing, someone began buying enormous amounts of futures on the S&P 500.
Still don’t believe it was a rigged stock market recovery?
Maybe you’ll believe that there was some manipulation going on if you knew that a guy named Robert Heller, who was a member of the Federal Reserve’s Board of Governors until 1989, proposed just such a rigging as soon as he left the Fed.
Heller proposed that the federal government was big enough that it could buy enough futures in the stock market during a crash to assure every investor they could sell stocks at a favorable price in the future if they buy now at the low point because someone (the government) had just promised to pay a solid price down the road. The government, he suggested, could do this via proxies — foreign emissaries. (Sounds a lot like the Federal Reserve’s M.O. in the bond buying of quantitative easing, doesn’t it — where the proxies are the nation’s largest banks?)
Wow! Doesn’t that seem a lot like what happened Wednesday at 9:41 a.m., when S&P futures contracts were suddenly and mysteriously scooped up?
After an almost invisible hand scooped in to buy stocks with a promissory note, the European Central Bank contributed to the rally via the bond market:
“We’re hearing about the ECB buying bonds,” Benjamin Dunn, president of Alpha Theory Advisors, which advises hedge funds with about $6 billion in assets…. “The market’s a sugar addict and the sweet nectar of free money, any kind of incremental liquidity from a central bank, whether it’s Europe or China, is what the market’s looking for.” (The Washington Post)
Wether it is a mere word by a Federal Reserve bank president or an action by the European Central Bank, the stock market is continually being propped up by the intervention of central banks.
Did the Federal Reserve make sure the stock market was rigged for the end of Q.E.?
The main force that I said would likely cause a stock market crash this fall was the Fed turning off the free money supply. If I and others are right that the Fed’s free money created a huge stock market bubble, it only stood to reason that turning the money off would deflated the bubble. No one was more aware of that risk than the Federal Reserve, but it cannot maintain quantitative easing forever, and the magic is gone as soon as the stimulus fades because there is no lasting correction in that kind of medicine.
The thing is, however, the last injection is never enough in today’s stimulus addicted casinos.
As with most drugs, the longer the addict is on the drug, the more he builds up a tolerance. Greater amounts of stimulus bring smaller highs in the market.
If turning the free money off caused the market’s sudden deflation, turning free money back on, should help keep the bubble (more of a hot-air balloon) inflated. The Fed couldn’t continue with quantitative easing because it was, as I’ve been saying all along, getting less bang for the buck with each round. It had to ween the addict off of the stimulant the Fed has been administering for recovery. Mere talk of that stimulant got the junky excited again. (Though, according to Crudele, it may have been more than talk.)
The market’s addiction can be confirmed by the fact that, as soon as the Fed scheduled the end of its “quantitative topix buy ambien wheezing,” it had to immediately start talking about not stopping it in order to save the market from crashing. The Fed and the market are now completely co-dependant. The only game in the market right now is chasing the next hit of market magic — the Fed’s free cashish.
Another hit of quantitative easing, in which the Fed promises to buy up all bonds that banks purchase from the U.S. Treasury, would not be very long-lasting due to the addict’s tolerance and the ill health that has piled up from so many years of mainlining the Fed’s free cash.
So, perhaps the Fed, seeing an all-out market crash in the making, came up with an alternate plan to keep money flowing into the stock market — a new drug to maintain the market high — the Bit Jolt that had been talked about a long time ago by that guy named “Heller.” Instead of essentially buying futures on all bonds issued by the United States by promising banks to immediately buy those bonds at a mark up (Q.E.), perhaps the Fed promised to buy up S&P stocks at a marked up future price. (Through some unknown proxies, of course, just as the Fed buys all national debt through national banks as its proxies.)
Without a doubt, the anomalous purchase of massive quantities of futures in the S&P 500 — wherever it came from — assured some investors that the game was still on so that they would stay in the game and keep the market going.
The glasnost policy of the once-silent Federal Reserve, initiated by Ben Bernanke, is not the noble act of transparency that it appears to be. It is really just a new way to steer markets by coaxing speculators with future promises. It’s a set of reins to steer the economy.
Says billionaire Carl Icahn,
The Fed turned this market around here because it let it be known that the Fed funds rate isn’t going to be raised in March. I am concerned about the high-yield market, I think that’s in a major bubble, but nobody knows when it’s gonna burst….
When the Fed tells its Federal Reserve banks that it will buy up all U.S. bonds they purchase, it completely rigs the bond market. Naturally, national banks will buy up all U.S. debt if the Federal Reserve telegraphs its promise of an immediate profit on the bonds. The Fed doesn’t have to finance U.S. debt directly.
The Fed guarantees the debt with a promise of immediate secondary purchase of the debt with interest so there is no risk for the banks. The overnight interest is free money, so why not buy all the bonds you can and sell them the next day? It’s a game that everyone seems willing to play along with. Let’s pretend the nation’s central bank is not buying nearly all of the nation’s debt. So, long as it is making everyone money, what is the harm of going along with it?
What Bernanke really meant when he said he would make the Fed more transparent in its talk was that he would use the Fed to steer stock and bond markets by telling them where the nation’s one creator of money was going to put (or create) all of its money. Money follows money, and big money follows big money. The Fed, as the only entity that can create money at will, is the biggest money of all. When the Fed gives a whisper, investors hear a roar. That’s why the Fed was once silent, so as not to oversteer markets. Now, the Fed whispers its secrets all the time to keep the markets running uphill.
Recovery isn’t recovery when all markets are rigged
Does any of this build true economic recovery, or does it just create a rigged stock market and rigged bond market? What the Fed is doing in buying all national debt should be transparently obvious to anyone, yet everyone is going along with it. (Because money follows money, and who doesn’t want to catch as much of the Fed’s free money as they can for as long as the Fed lets it fall from on high?)
Tyler Durden writes in the Zero Hedge report:
It should be clear to all except that subset of Homo Sapiens also known as “economists”, that the Fed’s QE is not helping the economy. In fact, it is merely boosting wealth inequality, leading to asset price (hyper)inflation, middle class devastation, and its inevitable outcome is yet another asset bubble can which will need to be kicked eventually leading to even greater economic misery, greater inequality, more conflict, and increasingly: outright warfare.
In other words, making the balloon so that it can last longer before it breaks while you continue to inflate it, only means a greater explosion. It’s not recovery. It’s self-annihilation. It’s now worse than bubble, bubble everywhere. It’s an economy of hot-air balloons. (Housing held up by adjustable rate mortgages and anomalous interest rates, bond markets kept aloft by the Fed’s promise to immediately buy all bonds from banks with interest, and now perhaps a stock market supported by the mere promise of stock purchases months from now at healthy prices.)
Anyone should be able to see that we don’t have economic recovery for the simple reason that we have no major U.S. financial markets free of Fed manipulation. So long as the markets require federal life support, they are not true capitalist markets. They are government-manipulated markets.
The game continues because the fat are happy, but…
It’s all dope for dopes
The reason Durden (and I) say the Fed is boosting wealth inequality is that the free money goes only to the fattest bankers on the block under the peculiar belief that the bloating of the Fat Ones will somehow trickle down to eventually feed the skinny ones. However, the only way fat trickles down is if you light it on fire! Otherwise fat sticks to fat in huge globs.
Just as was the case in 2008, it is the economists and market bulls who have no ability to see a great economic crash coming and no ability to learn from the past. The longer the addict keeps taking hits of Fed free cash, however, the greater his withdrawl will be when the party and the free dope are finally done.
More reading on a rigged stock market:
[amazon_enhanced asin=”0393244660″ /][amazon_enhanced asin=”0307887189″ /]