Wednesday, January 6, 2010

Charles Biderman of TrimTabs Claims US Government Supporting Stock Market

I'll let this story speak for itself, but it is quite striking to see some relatively prominent people now asking the questions we, and a few other websites in the dark corners of the internets (sic), have been asking for a very long time.
Just 2 weeks ago we noted in [Dec 23, 2009: One Strange Year]

According to, this year has seen

  1. OUTFLOWS from U.S. stock funds all year
  2. RECORD AMOUNT ($311 billion) of new stock offerings (includes IPOs, secondaries, and converts, but particularly a large offering of secondaries in the second half of the year);
  3. Announced cash M&A, as well as corporate stock buybacks, AT THE LOWEST LEVELS FOR ANY YEAR THIS DECADE.

  1. U.S. stock funds: $32 billion OUTFLOWs
  2. U.S. ETFs: $18 billion OUTFLOWS
  3. International stock funds: $26 billion INFLOWS
  4. International ETFs: $35 billion INFLOWS
  5. U.S. bond funds: $370 billion INFLOWS
  6. U.S. bond ETFs: $39 billion INFLOWS  

Yet the domestic stock market goes up and up and up... on pitiful volume, as opposed to 1999 when volume surged as every tax driver and barber was piling into the market.  I'll go back to my grassy knoll and let Biderman take over from here.

Via CBS Marketwatch:
  • Charles Biderman, chief executive of TrimTabs Investment Research,a research firm that tracks liquidity flows in the market is the latest and most credible person to charge that the Federal Reserve and the Treasury (in league with top Wall Street firms) is rigging the stock market.
  • We cannot identify the source of the new money that pushed stock prices up so far so fast," Biderman said in a statement Tuesday.  (I believe it's called "magic" Charles)
  • The source of approximately $600 billion net new cash necessary to lift the market's overall capitalization by $6 trillion last year could not be identified by TrimTabs, Biderman said. The money, he said, didn't come from traditional players such as companies, retail investors, foreign investors, hedge funds or pension funds.
  • "We know that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers. Why not support the stock market as well?"  (someone's been reading my blog...)  The Federal Reserve or the Treasury, Biderman said, could have easily manipulated the stock market by purchasing $60 to $70 billion worth of futures of the S&P 500 Index on a monthly basis. (especially in premarket when the market is thin...recall so much of the rally in the spring and summer was overnight, rather than during the day )
  • Biderman acknowledged that he had no direct evidence that the Fed and other agencies have intervened in the stock market.
  • Conspiracy theories about the so-called "plunge protection team," or PPT, have been on the rise ever since the U.S. government started to bail out financial institutions in late 2008 under the administration of then-President George W. Bush, according to Dan Greenhaus, market strategist at Miller Tabak.   The PPT is a nickname given by some to a group established by President Ronald Reagan in 1988 after the 1987 stock crash to coordinate governmental response to market meltdowns.
  • "The fact that the government stepped into the abyss [angered] a lot of people, and the fact that things are better a year later flies in the face of some long-held beliefs about free markets."
  • "While the absolute percentage gain off the recent lows has been more powerful than anything since the Depression era, there is no denying that historical rallies in the equity market have recouped a greater percentage of the declines from the highs," Greenhaus wrote in a note.
Of course this sort of talk is massively conspiratory, but one must ask why a person whose firm is all about accurate data flow would go out on a limb like this other than truthful inability to explain what is going on inside the Matrix.
  • Market analysts, however, were quick to debunk the theory. Yes, the government had a heavy hand in rescuing the financial system and the economy as the system started collapsing in late 2008 and throughout 2009. But the huge boosts of liquidity through the system found their way to stocks by the usual means, they said.
  • "The idea that this is magic is nonsense," said Barry Ritholtz, market strategist at Fusion IQ and a market veteran. "This was a normal behavior in a recessionary bear market. We saw the Dow plunge 5,000 points in 6 months, which had never happened before and created a dramatically oversold market." (Barry, I believe in magic - especially of the central bank sort!) :)
  • Yes, the Federal Reserve slashed interest rates to near zero and Congress allowed banks to keep their bad loans off their books, allowing them to pretend they were solvent, he said.
From this seat it is not the degree of the market rally that strikes me as "suspicious" - as I believe in reversion to mean and the drop in 2008 and early 2009 was SO dramatic; hence a huge rebound would be expected.  Instead it's "how" it has happened that causes the senses to tingle - especially if you've watched the market day after day for years upon years..  So much of this epic move has been overnight or premarket.  Whenever a key technical level was about to be broken to unleash the sell orders in the computers, a mass of buying occured from out of the blue - even on days there is limp volume. We had months on end mid 2009 where "3:30 PM" buying set off fireworks (remember that?)  And "V shaped" moves after any sell off usually are seen once every year or two.  We now see them almost every monthl stocks were never consolidating after minor selloffs; they simply rocketed back up. Repeatedly.. So it's not the SCOPE of the rally that raises this writer's eyebrows; it's the COMPOSITION of the rally.

Combined with a gentleman named Summers who worked at hedge fund DE Shaw and knows how the quants (HAL9000) think and work... and a President who told us 2 days before the ultimate low in the market (March 2009) he thought stocks would be a good buy.... and a market that saw net outflows in equities, along with massive new share issuance, and very low corporate stock buybacks, et al - and you have to question the "coincidences".

That said, I am sure the bodies will be buried where we can never find them and all I can do is play along and make money in the alleged charade.  So play along I shall....

/Returning to seat on grassy knoll.

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