Who Is Doing The Buying?

Excellent piece.



US Equity Markets have rallied some $7T since the lows on March 9, 2008, for this to happen some $500-$800B in net new money has to flow into the market. Where is this money coming from? Its not equity mutual funds as money continues to flow into bond funds from equity. The ETF's are not buying. Pension funds are not buying. Foreigners are not buying. Companies are not buying back stock.

Somebody is buying futures. The logical explanation is that the Fed and Treasury have been doing the buying. Biderman makes a great point that most of the gains in the markets have come after hours and in the overnight markets. How many times have we stepped into the office to find out the markets have already rallied some 1% overnight? This has happened on many occasion's. The Treasury has also engaged the primary dealers in the market with Permanent Open Market Operations(POMO).

http://tradersutra.blogspot.com/2009/09/institutionalized-manipulation.html

http://tradersutra.blogspot.com/2009/10/shams-scams-schemes-one-big-clunker.html

Now you know why the Fed doesn't want to open their books to the public. Its not that the Fed doesn't want to let the public know their business. We know that their balance sheet has exploded to over $2T. They total net buying that is needed to mark up equities is probably in the $50B-$80B range, as that futures are usually levered 10-1. The Fed doesn't ant the public to know that they are the only ones buying. This is extremely dangerous to market participants. The Fed/Treasury has has a shady plan for almost every asset class except equities.

I have always stated that the primary dealers are being subsidized and guaranteed by the government for their futures buying. That is what POMO is for. The view here is that they will keep buying until employment, housing, and spending picks up. When that happens is anyone's guess.