Institutionalized Manipulation

There has been much speculation about the rally that began on March 6, 2009. All type of theories that suggested that most of the gains was the result of massive manipulation. These theories range from HFT Program Trading Systems to institutionalized manipulation by both the Fed and Treasury. Many traders I have spoken to have stated that the traditional indicators and metrics they have used for over 20 years have stopped working, and that there is simply no correlation among markets and participants. There is much speculation in the markets that there is a coordinated effort by Government along with chosen financial institutions to keep the peace. Meaning keep stock prices higher at any cost.

Record program trading by Goldman Sachs as reported by the NYSE itself, only heightens the focus on HFT systems. The Fed & Treasuries incessant participation in open market activities only fuels the manipulation/conspiracy speculation.

I can only make an educated guess to explain all of this, piecing together my own 20 plus years of experience. I know 20 years of experience and 2 bucks gets me on the subway.

After doing my research, which basically is "Google Search", I was able to put one major manipulation theory on its feet. The greatest evidence I have for a grand institutionalized manipulation is the simple fact that the FRBNY or NY Fed has been conducting something called POMO or Permanent Open Market Operations since March 25Th 2009. The FRBNY has conducted over 50 of these actions since. These are just auctions that are conducted by the FRBNY with certain dealers on Wall Street. The FRBNY announces that they will be buying back anywhere from $1.5B to $7B in Treasury securities from these Wall Street institutions. So Treasuries go from Wall Street to FRBNY, FRBNY sends cash to Wall Street, Cash goes straight into equity markets. When you look at the actual days the POMO takes effect, they are highly correlated with paint the tape closings in the equity markets, with the theory that these large institutions that receive cash from FRBNY use the cash to run up equities. If you follow the days that POMO takes place, you will notice that the markets ramp up huge into the close. Every time the market corrects or goes down a little, you can guarantee that the FRBNY is doing some sort of Treasury buyback. The Wall Street dealers get to lighten up on Risk Averse Assets, and get to leverage back up Risk Assets like equities and commodities. So as long as the FRBNY keeps pumping money into Wall Street, equities will continue to ramp. It has nothing to do with the economy. Nothing to do with the state of housing. Nothing to do with non farm payrolls.

The media in turn takes all of the so called good economic data and parlays that onto main stream America, so they can be ponzied into thinking its all fundamentally driven action. The Financial media(CNBC)is just a marketing arm for Wall Street's distribution network. Its Wall Street's job to distribute wealth from the many to just a few, most importantly itself. Its the media's job to transmit the sales pitch. Its the Financial Infomercial Media that is providing a platform for Wall Street to screw over the masses. Its the greatest shill that there is. Why do you think strategists from BOFA, GS, MS, Citi all come on CNBC and Bloomberg all day long? Its one big secret handshake society.

The Media is Wall Street's and Governments biggest co conspirators in a massive criminal scheme to separate people from their money. And they have done a great job of doing it. The Fed/Treasury wants to let the masses know that there is still money left to scam from. So what we have is real wealth going from public to private while all of the risk going from private to public. All along telling everyone that all is going to be all right.

There is a big fight at the moment between The NYFRB and the Fed in general. What the NYFRB is doing is making the safety trade disappear. Which means sell Treasuries and USD assets to buy equities. The Fed is in a position where they need to keep long term interest rates low enough to keep the ponzy scheme of ever lasting Treasury Auctions going, which means there has to be a healthy bid for Risk less assets. So simply speaking high yields is the biggest threat to the Pyramid Hoax. With record funding still on tape for the foreseeable future, how does Bernanke keep demand for Treasuries high when the FRBNY is doing the opposite?

It seems to me that the only way to keep long term interest really low is to kill the stock and commodity markets. The only way is to bring back the safety trade via a flight to quality. This is precisely what the ECB did last year to kill the commodity trade, they hiked rates to kill the crude trade. Unfortunately it killed everything else in the process.

So what we have at the moment is a rain dance between Bernanke and FRBNY. Clash of the Titans, equities vs. bonds, a very dangerous game that so far has gone well.

I know that I am painting a binary picture here. I apologize for that. Life is more then black and white, in fact its all shades of gray.

If the stock market crashes, its all over the media and Obama's poll numbers go into the toilet. It would create a flight to quality to keep rates low, making Bernanke's job of auctioning Treasuries easier, but all of the shenanigans done by Treasury and the FRBNY goes into the toilet as well.

So what we are going to have with regards to the markets is periods of up activity with no volume then a sudden 2% drop in the markets. This push pull period I believe will be the new norm, absence of any type of bad news in the macro economy. As I am sure that the Government is going to spin every single housing and employment report that comes out to their benefit.