Is The Fed Artificially Pumping The Market
As the market has defied gravity rising on ever decreasing volume over the past 9 months....PEs reaching levels never seen before in market history..........and net outflows of money from equity funds over the past four months.....one has to ask, what invisible hand has been keeping the market up against a net selling environment and deteriorating fundementals?????
Here is a very interesting piece:
As I pointed out in December 2008, Nouriel Roubini wrote the month before that the government might buy U.S. stocks:The Fed (or Treasury) could even go as far as directly intervening in the stock market via direct purchases of equities as a way to boost falling equity prices. Some of such policy actions seem extreme but they were in the playbook that Governor Bernanke described in his 2002 speech on how to avoid deflation.
Given that Roubini was previously a senior adviser to Tim Geithner, he probably knows what he's talking about.
Now, Charles Biderman, CEO of TrimTabs, argues that the government may, in fact, have been buying stocks to prop up the stock market. Given that 25% of the top 50 hedge funds in the world use TrimTabs' research for market timing, it is a credible source.
Specifically, Biderman writes:
As far as we know, it is not illegal for the Federal Reserve or the U.S. Treasury to buy S&P 500 futures. Moreover, several officials have suggested the government should support stock prices.
For example, former Fed board member Robert Heller opined in the Wall Street Journal in 1989, “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.”
In a Financial Times article in 2002, an unidentified Fed official was quoted as acknowledging that policymakers had considered buying U.S. equities directly, not just futures. The official mentioned that the Fed could “theoretically buy anything to pump money into the system.”
Imagine what happens if the world finds out that the current value of the market is simply a result of the Fed covertly creating a new bubble?????
Can you conceive the reaction to a Fed that gives unlimited credit and liquidity to its Wall Street buddies and cuts off the private economy????
Anyone remember what happened after housing popped???? This bubble is structural in nature.