Proof the Stock Market is Manipulated by Investor Class

From Bloomberg:

"[The Fed] will complete the purchase of $1.25 trillion in agency mortgage-backed securities and about $175 billion of agency debt by April.

Buying agency debt is good for Treasuries because it displaces investors in that market, forcing them into Treasuries. Barclays strategists estimated in a Nov. 12 report that this accounted for another $750 billion of Treasury purchases.

“Federal Reserve purchases of securities has artificially reduced supply of fixed-income securities coming into the market,” the minutes from the Nov. 3 TBAC meeting with the Treasury said. “Next year, financial markets should expect even greater issuance with no support. Such an outcome could pressure rates,” according to the minutes, which don’t list individual speakers."

Nice to see the free market working so well, lol. But this is the warning: if the US does nothing to curb spending, the unintended consequence is that more bonds will be sold by the Chinese and others, further putting pressure on interest rates, a certain death pressure for the economy. If there is pressure coming just by the Fed no longer intervening, think of the adverse pressure against the bond values if the foreign countries start selling the bonds!  I still say it would be better had the Fed not bailed out the banks, bought bonds, bought stocks, controlled the housing market. Since the Fed has done all that, the financial system is vulnerable to higher interest rates even without inflation.

This is such a terrible scam. I came to the decision that the Fed primarily is a bonds sales organization that pushed bonds and increased demand for bonds by taking liquidity from the stock market. I came to that conclusion completely on my own, And sure enough, an analyst for Cantor Fitzgerald (who should know since Cantor is a primary dealer for US treasury bonds) made this amazing statement:

"The Fed also happens to be exiting the Treasury market at a good time,” Goncalves added. “Other markets, such as equities, which performed well due to the expansion of the Fed’s balance sheet are retreating and that will provide a backstop for the Treasury market.”"

As this evidence of blatant manipulation may have gone unnoticed by the author of the article, it hit me between the eyes and should hit all of you as well!

Keep in mind that the opposite to this scam is another scam, the carry trade. Until the Fed needs to sell these bonds because of reduced demand, that private bank may just allow the carry trade to continue. This will likely end badly, however, after the big boys have made their money and the little guy is left holding the bag.

One additional danger of the carry trade is that the US is attempting to compete with the entire world on price. This will hurt Japan and other exporting nations. The effect of hurting Japan will be a possible economic default there, resulting in a danger to the world banking system. Japan has huge debt, and the US will likely play this export growth to the detriment of the entire world stability or until it all crashes like Roubini says willl happen.

Here is a warning. The stock market is a bubble scam. It is a dangerous scam for any retail investor:

"The CPDF provides a glimpse into the Fed's, up to now speculative, and hereby confirmed, willingness to (in)directly manipulate equity markets via its Primary Dealer network. If there is no risk associated with borrowing practically free taxpayer money, it is obvious that banks will manipulate stock prices to the point where nobody but other Primary Dealers who enjoy the same Fed backstop benefits will remain in the market. As more and more American retail and institutional investors realize the magnitude of the scam, the risk that equity markets will remain an isolated bubble in perpetuity where Primary Dealers simply play around with the Fed's excess capital, becomes tangible. And as long as there is no regulatory reform to commence the split of TBTF institutions, as long as financial system crutches persist and as long as the opportunity cost of being wrong is zero (and borne only by US taxpayers), US equity markets will continue to be a scam. Therefore, Zero Hedge advises all readers to immediately remove all their capital from the stock market, until such time as proactive steps are taken to remedy these numerous concerns, or alternatively suffer the consequences of not only another Fed inflated market bubble, but the even sadder consequences of its unwind."

Read more about the scam here.

I believe that the stock market is being manipulated. I believe that if you ride that manipulation, you need to be able to turn on a moment's notice and get out of this gamble. The saying is don't fight the market, or don't fight the tape. I believe that really means: Don't fight the Hedge Funds. I believe I have proof that the market is being manipulated big time. I will come back and update this subject regularly based on how things work out between now and 2012, when the toxic mortgages quit resetting. For now let us see what some of the headlines have been since March 2009.

1. The big three banker CEO's of JPM, C and BAC stated that they made money in January and February. At the same time President Obama was stating that the stocks in the US markets were oversold and undervalued. Of course the banks made money because AIG paid them billions of dollars in derivative payments that came from the US taxpayer! What a scam to say this was a successful profit!

2. As the G20 meeting rolls around at the beginning of April, 2009, President Obama and Tim Geithner both say that economic recovery is assured. On the same day, the Mexican stock market soared because the IMF gave Mexico a much bigger line of credit than they were expecting. The same day Bloomberg.com announced that the global economic slide may be ending. While no one wants President Obama to fail, he is working with a plan that is backed by the investor class, which does nothing to stimulate the real golden goose of world prosperity, the American consumer!

Now, we know that in the beginning of this March 2009 rally, hedge funds were participating like crazy. It was reported on CNBC that the first three weeks of the rally were hedge fund driven. CNBC came out and admitted it!

Why would hedge funds participate in unity and why would banks benefit? The answer is an easy one. Hedge Funds had the power to take the market down as they sold good stocks in order to deleverage their positions. And they have the power to drive the market back up. Hedge funds have an interest in helping their counterparty buddies, the big banks. Hedge fund see forward and see a lull in bad news. They have the ability to get out of the market on a moment's notice if bad news is worse than anticipated. Trust me, this process is rigged.

The question then is: Was the market oversold? I believe that the answer is no for the long term but yes for the short term. Why? Well, we were in a lull in defaults.in early 2009. The subprime debacle had passed and the alt a and option arm tsunami had not yet hit with a vengence. Also the commercial real estate tsunami has not yet hit, but will. So, the market was oversold in the short term.

As small investors come in and as mutual funds and pension funds start following the hedge funds into this market, there is a very good chance that these boys will get killed. So far, the market is ignoring the ominous sign that commercial defaults are starting to pick up, also announced by Bloomberg on 4/1/2009.

Since this move in the stock market is a blatant manipulation, it is a risky business to be investing too much of your money for the long term. I am not a stock analyst or a stock advisor, and I would hope that you would check with one before doing anything with your money. However, based upon the knowledge that this is a manipulation, what is the long term investor to do?

Certainly the market has been leveraged by hedge funds who take their lead from the big kahuna of all hedge funds, Goldman Sachs. With Lehman and Bear out of the picture, they are taking on great risk in the market and will likely short industries in trouble as the market reaches unsustainable heights. But who knows what is unsustainable in the Goldman plan?

Some say that investing through dollar cost averaging is the way to go. Others say you need to time the bottom, which could be difficult. But here is the deal, we could drop precipitously from here. If the commercial real estate default rate truly soars, and if the walk aways from Alt A and Option Arm loans are particularly bad, some have said that we could go to 400 on the S and P!!

So, it all boils down to what you are comfortable in doing. I am personally tired of being ripped off by pumpers of stocks who have been shown to be associated with people who short stocks. Believe me, if data comes in that shows bad earnings or bad guidance, then you can be sure these guys will have short positions and they will rip your heart out because you trusted the upbeat President and others.

While no one has a crystal ball, I would suggest that investors tread carefully if they cannot afford to lose a lot of the money that they invest or if they will need the money withing ten years. Japan's market has lost money for over 15 years. That is a sober and serious fact. It is my opinion only that people with time or savings limitations be very careful in this market and don't get greedy.

The following Video is a sobering warning of what could happen. Jim Rogers, who predicted the meltdown, has said that it is likely that the United States government could default on her debt and the currency could be debased! This is a must see video and we need to be on guard for this possibility.

We must also realize that the California housing market could take down the entire US economy. The fear of deflation that comes from this California market is igniting the massive spending that is taking place. But the spending is misplaced, with more needing to go to the beaten down US middle classes, the golden goose of world prosperity. Otherwise, loan demand will continue to be down, and any credit manipulated recovery will not come to pass.

Housing Bubble Bloggers have written from the beginning that California herself could throw the country into a great depression. California is ground central for option arm and alt a loan resets. You need to take a look at the "Dr Housing Bubble" link labeled "Real Homes of Genius" below to see that this California crisis remains the weak link in the chain and could cause continuing deflation and probably major inflation down the road as the federal government strains to spend out of the deflation that is coming out of California.