This message came from an investor who has provided me with some very useful research from time to time:
Mike Belkin, who writes a weekly technically-based look at lots of markets—the only technical service to which I subscribe—notes today that last week equity fund flows netted to a $22.9 billion inflow, broken down as $3.3 billion of mutual fund outflow, and $26.2 billion of ETF inflow. His inference is that the Fed/Treasury is buying ETFs. Just so you know, Mike is an ultimate insider, although he views things with a very jaundiced eye, and views them from Seattle. He ran a Salomon prop desk for years, and is the opposite of a conspiracy theorist or a perma-anything—he’s very good at noting crosscurrents and catching shorter term countertrend moves within broad longer term trends.
The reason I consider this credible is that I was told back in 2000 by my derivative trading buddies that the Fed, known as the Turk, would place orders in S&P futures. Note that the Fed has no responsibility for the health of the stock market despite what its actions would lead you to believe.
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Mike needs to talk to John Crudele.
A canadian money managemnent firm has a white paper floating around the web discussing this at length -that is the use of index futures to manipulate the market. Makes perfect sense when you consider the confidence report this morning. Fed has turned from hoping it could play for time and liquidity to “clear” the bad assets (selling them to a bigger fool that is) to trying to hold confidence up as Americans have a notorious short attension span. Sheer conjecture about the Fed but how could you possibly not presume it is true. Fed flow of funds shows US “wealth” is home equity + equities fully. Fed can’t possibly let both deflate at the same time. The Fed did an adequate job of toggling between the two over the past decade juxtoposed against the explosion in mortgage and consumer debt that is) to maintain the fascade.
Fed/Treasury must be looking at the auction data and asking themselves what if? The arrogance factor surely has them believing it could never ever happen. Maybe not – then again if I am China you don’t buy worthless paper forever employment notwithstanding? Fed must be begging the ECB to cut rates and Japan too with the perverse systemic logic that led them to the “creative” BSC deal. There is great irony in China stroy about governement giving tax rebates to compnuies to hold up shares. The Fed prefers overt manipulation.
I think the 75bp cut back in January settled the issue. As if there should have been any doubt.
credible market followers have little doubt markets are gamed all the time by central authorities whose interest it is in to do so. Eric Sprott’s firm has done some write ups on this as well and are quite persuasive.
Question (perhaps a dumb one): How would the Fed/Treasury get these futures OFF their balance sheet after they’ve served their purpose? Just a slow trickle of sales?
I’m not sure how an inference is made that the Fed/Treasury is buying ETFs from the numbers presented. Was there something in that fund flows data which specifically implicated the govie types in the transactions?
Weren’t index futures what got Jérôme Kerviel at SocGen into trouble?
absurd
I’m not convinced. That could be flows from commodities traders cashing out their futures, retail investors for whom ETFs are increasingly popular, and even foreign buyers. Is he saying that the large net inflow is indicative of Fed buying, or that the breakdown between mutual funds and ETFs is the key? Either way, there are plenty of other reasons for it.
OTOH, if he really truly believes he has evidence for this, he should write a nice letter to Sen. Dodd’s staff on the Banking committee. The Fed would rightly be taken to the woodshed for this type of behavior.
Aren’t the Fed/Treasury balance sheets data available in the public domain? I would have thought that you could take a peek and tell what they’re up to.
illegal
PPT white paper:
http://www.sprott.com/pdf/TheVisibleHand.pdf
I may have the details wrong and a lack of any evidence, but…
In my warped mind this is pension money being taken away from hedge funds and re-routed to goose the market upward and place pressure on shorts making money on the downside. That also happened at the same time in commodities almost syncro!
I also have the warped opinion that this is related to Bear Stearns plea bargain with The FBI, SEC, Paulson and Fed, i.e, you either get on board and stop shorting the market or yah go to jail for your accounting fraud… at least for now, play ball, get your arm twisted and shut up.
I know…
I will believe it when someone can show the accounting entries. There are too many controls for something like the PPT to intervene in equity markets.
On Feb 18 the Pension Benefit Guaranty Corporation announced in a press release that they would be shifting 55 billion dollars into equities. The PBFC Board of Directors are the Secretaries of Labor, Commerce, and Treasury.
I think the actual number going in is a total of 40% to equities — up from the current 28%. That’s 12% of $55B or $6B if I read the actual release correctly. Not enough to account for the moves…
Hell yes, and to think other wise is pretty ignorant.
The real question is:
Does the Federal Reserve or the US Treasury have the legal authority to purchase equities or futures contracts on equities?
Can anyone answer this question?
I strongly suspect that the big five investment banks have an unwritten informal agreement to collectively buy stocks (or futures) at times when the market is about to move down more than 300 points on the Dow in one day.
The interventions to reverse the market direction seem to always take place in the first 1/2 hour (when the market starts the day falling hard), or in the last 2 hours (after the market has been steadily declining all day).
Don’t you find it almost impossible to believe that since the very beginning of this “credit crisis” in July 2007, that there has never been even a single day when the Dow declined by more than 400 points? That is a decline of only 3%–which is really nothing considering the incredibly large number of negative news items that have hit the markets since all this began last year. Single day declines always seem to be limited to 200 points or so.
How is it that when the markets first learned of Bear Stearns near collapse that the Dow was down only 200 points that day?
How is it that the Dow rallied 400 points when the Fed cut by 3/4 point instead of the expected full 1% at their last meeting? The Fed futures had fully priced in a 1% cut. This was clearly below expectation and yet the market rallied hard. Gold got slammed, yet stocks rally on the less-than-expected cut. How so?
Now today after consumer confidence came in far below expectations, the market is unchanged. Naturally, I would assume that if it came a little over expectations, the Dow would have added on a nice 200 points. The market response is clearly asymmetrical and smells of market rigging.
The Sprott report lays out all the evidence to support this conclusion. George Stephanopoulos (advisor to President Clinton) once admitted right on national TV that the PPT exists.
Yet it seems that nobody ever followed up to verify what he said. If there is a conspiracy, it seems to me there is a conspiracy of silence in the media on this issue. Nobody wants to ask this question of the government, because it is “socially embarrassing”. It is pure herd mentality as no one wants to take the risk of being painted as a “conspiracy theorist”.
Which brokerage are they using? E-Trade? Imagine the back room types at E-Trade piggy-backing, they must all be rich. Did they get a margin account? Were they able to get authorization to trade options on their application? Who pays the taxes on the gain(s)? Is the IRS in on it too?
Wouldn’t they be better off telling everyone “Hey, Bernanke’s buying 10,000 XLF’s 5% above market today.” That would sure make the market go up. Or just say, “We will not let the S&Ps drop below 1300.” That would be a floor and it would be much cheaper.
Fold up your tin foil hats and go back to the home now, time to take your meds…
Evidence?
http://news.goldseek.com/RickAckerman/1201071660.php
I think the FED is doing everything they can to defend 1300 on the SP500Index because it’s forming a double top. Back in 2000 when support at 1300 collapsed it turned into resistance and SPX fell to 800.
The stock market is the LAST store of baby boomer wealth. If that crumbles a generation of wealth is wiped out.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=spx&time=8&freq=1
Oh well, that chart link failed. Just look at a ten year chart of SPX.
I don’t understand why anybody would be surprised. The events of the past few weeks should lay to rest any belief in a free market system. It is total bull shit. We have a “service” economy, more specifically a financial service economy. A great deal of our wealth is tied into the stock and housing markets. When asset prices decline, it decreases our confidence and wealth and diminishes our influence in the world. Hence you can make a rational, though ultimately a totally fallacious argument that our national security is thus tied to asset prices. Just like the government could not let Lockheed fail during the Cold War, they must prop up asset prices, at any cost in their minds, during the Credit War. I think it will ultimately fail because the scope of the problem is just so great. At some point, political pressure will be insurmountable, and the government will have to return to transparency and sanity. But maybe that’s just wishful thinking. For the time being, we should just write a check to our favorite investment banking charity.
It is just as possible it was the denizens of the comment sections of the blogosphere funneling their money into double short ETFs that accounted for the inflows.
nice trade
Alan Greenspan admitted the Invisible Hand theory was true, already.
Oddly enough, he admitted it on Jon Stewart’s ‘The Daily Show’.
http://www.thedailyshow.com/video/index.jhtml?videoId=102970&title=alan-greenspan
The existence of the PPT has already been admitted by Bernanke and Paulson and Bush.
The question should be what Jim Rogers points out just about every day.
Do we really need a Fed?
Think about it.
They don’t have enough money to save all the Bear Stearns out there.
Thus, the answer is, how much Taxpayer money are we going to let them waste, propping up failed businesses?
Sprott and the rest of the gold bugs are conspiracy theorists unlimited
It’s not a conspiracy anymore if it’s been publicly admitted.
The question is… does it make sense?
It took Japan 15 years to recover from a housing decline because the government kept meddling in the market.
I don’t think it’s necessarily evil to meddle with markets, I think it’s done with good intention, possibly.
Problem is, the best intentions can sow dire consequences.
Would you rather have 15 years of drudgery, or a couple years of outright pain?
Gimmee the pain, I’d say. Get it over with.
Meddling just prolongs the agony.
The above Goldseek link refers to events on 22 January 2008 and exactly fits the MO described by Yves’ derivative trading buddies. The chart shows a strong and confident hand appearing at a critical time on a bad day.
I am a bit loath to put up this sort of post precisely because a lot of people who hold believe in this sort of thing are indeed conspiracy minded or otherwise dismissed as extremists. But we are now in very extreme times.
I was in Japan during the 1987 crash. Japan is a funny place, if you are on the inside, the Japanese tell you an amazing amount of stuff about what goes on, and if you aren’t you are pretty clueless.
Anyway, the Japanese reacted to the crash as if they were watching someone else’s house burn, then it dawned on them that their house might catch fire too. A week or so after the crash, trading in Treasuries dropped precipitously (this was going to have bad knock-on effects for reasons I cannot recall and don’t want to rack my brain reconstructing). The Fed called the BoJ. The BoJ called MOF. MOF called all the Japanese banks (the banking industry was highly concentrated) and told them to start buying Treasures in big sizes. They did. So I’ve told at the time by parties directly involved about large scale interventions, admittedly not in equities. The fact that this operations are reported to take place in equities is what makes the skeptics wince.
Belkin is apparently a sober, sensible guy and the data he cites is so bizarre as to almost defy explanation. The chart mentioned in the comments, even if it is from a goldbug’s site, seems pretty persuasive.
And that day, an S&P double short ETF (yes I own it), the SDS, traded up way way out of line with the S&P right after the open on what appeared to be buy orders lodged overnight. That to me suggests that the S&P may well have gone much lower in the absence of bidding by whoever that was…..
It’s nice to believe there’s a single invisible hand, rather than an unimaginably complex marketplace where people write and cover huge out of the money index puts, where forced liquidations are measured in yards and get front-run by prime brokers who cover their index bets right after, etc. It’s funny, but a lot of people besides the Fed and Treasury can bend prices and if enough of them happen to act at the same time it looks like a deus ex machina to those who want to believe in one.
Coming from anyone else than Mike Belkin, I would discard this hypothesis as BS, without a second tought.
Still, Lune has a valid point: there could be a myriad of different actors in the market buying these ETFs.
I wish we could have access to Belkin’s line of reasoning.
Steve, did you take a look at the chart linked above in the goldseek article? Given the circumstances on the day it occurred, if you were going to have evidence of an intervention that chart is exactly what it would look like.
I liked this PPT story most:
http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm
It seems nobody mentioned it yet in the discussion.