The Way the Game Ends
There may be a further series of run ups accompanied by exuberance in the stock markets as smaller investors chime in adding their money in the hopes of regaining some of what was lost in 2008. Certainly, the 60%+ gain in the DJIA since March, 2009 is compelling. On March 13, 2009, I wrote The Way the Game is Played, The Way the game is Played, Part 2 and The Way the Game Continues as a think pieces as to how Treasury Secretary Timothy Geithner and Chairman Bernanke were going to get investors to buy Credit Default Swaps on subprime mortgages bundled as CDOs.
To review some of the ideas set forth in those blogs:
- “Some criteria for the hedge funds involvement would be incentives to buy these toxic assets. Among these would be purchasing the assets at a discount.”
- “The Stock market would have to rise above 9,000 with vigor and head for 1999 – 2000 highs (11,000 in the Dow).
- The smaller investor would be wooed into the market with analyst’s projections of 20,000 Dow.
- “The Recession is Over!” “The “Economy is Saved!!” would be the news headlines and quotes from those in “the know” and political leadership to fool people into believing in a false premise to bolster reinvestment in the markets
All these things have now come about. Within two weeks after my first blog, Geithner made "THE DEAL” with hedge funds to give away the toxic assets to Wall Street . The DJIA has reached 10,729. The smaller investors’ money is being placed back into the market through their 401K managed accounts. Both President Obama and Vice President Biden have marveled at the “recovery from the worst recession since the Great Depression”. Biden is surprised at the speed of the recovery. Bernanke seeing no threat of inflation points to the economic indicators and declares before Congress that “the worst has been avoided." The economy is saved.
Who is fueling the recovery? Click here to hear how Charles Biderman sees it. The investors? The US Treasury! The Fed! We the people…..eventually! Among other clues, Biderman points out the afterhours running up of the Indexes Futures markets in overnight transactions. “Add up all the gains and they have happened overnight. Gains after the futures market closes at 8:15 am Central (the stock market opens at 8:30) until it opens at 3:15 (15 minutes after the stock market closes) have been negligible.”
The amount of money necessary to fund a run up in the stock market would be $500 to $800 billion, but in the futures markets with leverage at ten to one, the same thing can be accomplished for $50 to $80 Billion. Certainly that amount of money most people don’t have underneath the mattress, but the Fed does. Biderman says, “Somebody is doing it! We just don’t know who.”
If the markets are being manipulated upwards as suggested by Biderman, could they have been maneuvered down? Or, have they already been nudged that way in the past? If they are the buyer, what happens when they sell? Charles Biderman's replies, “…the market will crack!” We have a situation. We have no hiring, no mortgage lending no manufacturing rise. What’s propping up the economy?
The Game.
