US financial system intervention buying behind false market momentum

It is evident that there are active elements in the US equity and futures markets responsible for buying large volumes of “benchmark” assets to induce positive sentiment and risk buying by investors, young and old.

Given the non-public disclosure of who is buying what at scale in these benchmark assets, this conclusion is reached based on patterns inconsistent with legitimate buying interest patterns.

An abnormally large volume of S&P futures purchases ahead of the FOMC’s January 26 policy statement drove the price up during a period when all real market participants’ bets would have been placed, and the normal pattern would be characterized. by low volume and static prices. Investors leading these markets are generally waiting to see what Fed policy will actually look like.

S&P 500 Futures Volume Rises Ahead of FOMC Meeting

A benchmark asset, for clarity, is an asset whose daily price and volume performance is widely considered to be indicative of the general direction, condition and sentiment, in the broader markets.

The positive performance of indices, futures and ETFs on the derivative assets of the most liquid markets, i.e. the Dow Jones Industrial Average, the NASDAQ 100, the NYSE and the S&P 500, are known for foster positive, risk-friendly buying interest in the broader market, while negative performance of these assets causes risk aversion and stimulates seller interest.

It was Barack Obama who, after winning the presidential election in November 2008, first indicated that stock market closes were being watched as a way to gauge the severity of the financial crisis then unfolding and that they could be targeted by direct asset purchases by government-affiliated companies. entities.

Since then, the very policy of the Fed has been described as being driven by the realization of the “wealth effect” whereby the injection of manufactured liquidity into the markets at the upper level trickles down to the general population, the banks lending based on the volume of Tier 1 capital on their balance sheets. (US Treasuries are Tier 1 capital because of their so-called “zero risk” of default).

The problem with the decade and more of quantitative easing is that the more liquidity pumped into the system, the more money there is chasing a finite set of investable assets, which don’t proliferate as well. easily than Fed stimulus dollars. Thus, inflation. But stock price inflation is followed by consumer staples price inflation, as stimulus-fueled demand drives up the prices of everything from oil to copper to soybeans.

At the same time, the zero interest rate policy penalizes savers – mainly pension funds and pensioners – by causing yields to shrink to zero just as inflation howls higher.

Inflation has always been the inevitable result of the Fed’s relentless stimulus. The onset of inflation was only delayed by the explosion of new assets, as the Fed allowed the advent of crypto alongside increasingly obscure derivative formats to soak up all that extra liquidity.

Now, with runaway inflation forcing the Fed to recognize that stimulus and zero rate policy has achieved this inevitable result, it has no choice but to raise rates and spur stimulus. Unfortunately for them, the stock market has become dependent on stimulus and zero interest rate policy to achieve positive growth year after year with little or no risk.

So, being in a situation where there is no choice but for the Fed to reverse an accommodative monetary policy means that investors will reduce their investments proportionally. And so here we are.

The Fed can only guide its affiliated entities to offset stock market deflation through direct asset purchases – its last avenue of market influence.

As far as evidence of this activity goes, I can’t cite any, beyond the aforementioned pattern of increasing asset volume prior to Fed press releases and announcements. So I guess you could classify this as a conspiracy theory.

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Don F. Davis