What if we were to just accept the fact that the government and the Federal Reserve are interfering in the stock market to engineer higher prices?
While I have long maintained that this is indeed the simplest explanation for the market behavior we’ve been seeing, it remains speculation because we have no audit of the Fed to either confirm or refute the idea.
But what if we could just accept that it was true. How would that change anything in our lives? Would we invest differently? Would we have a darker or brighter view of the future? Would we calculate that risk had been improved or worsened?
Here’s one of the writers I respect the most out there: “Mr. Practical” from Minyanville, who has deep professional experience as an investor and trader, opining on this subject.
Many are marveled at the boom in stocks, given really rotten fundamentals. Of course, so far it’s been a function of a lower dollar and there’s a way to “reflate” with those printed dollars that normal conduits won’t allow.
What if the government/Fed realized the most efficient way right now to “print” dollars and “reflate” the economy was to get stock prices up? What better way to do that than print dollars to buy stocks?
There’s ancillary evidence that stocks are acting “artificial”. Stocks aren’t only climbing a wall of worry, they’re scaling the Mt. Everest of bad fundamentals. Tick data is extreme, especially when the stock market is down. We constantly see 1000+ tick prints when stocks are down; this is very strange indeed. Volumes are down at least 20% from normal levels (and much more if you discount for high-frequency trading), making it easier to get stocks up.
Under TARP, the fine print allows dealers to REPO stocks to the Fed as collateral (holy cow is right).
by cmartenson