Are The Banks Blowing A Stock Market Bubble With Taxpayers Money?

[@contradevian]

http://market-ticker.denninger.net/archive...ket-Bubble.html

So once again we have The Fed blowing bubbles, this time in the equity markets, with (another) wink and a nod from Congress. This explains why there has been no "great rush" for individual investors to "get back in", and it explains why the money market accounts aren't being drained by individuals "hopping on the bus", despite the screeching of CNBC and others that you better "buy now or be priced out", with Larry Kudlow's "New Bull Market" claim being particularly offensive.

Unfortunately the banksters on Wall Street and the NY Fed did their job too well - by engineering a 50% rally off the bottom in March while revenues continue to tank, personal income is in the toilet and tax receipts are in freefall they have exposed the equity markets for what they have (unfortunately) turned into - a computer-trading rigged casino with the grand lever-meister being housed at the NY Fed.

Bull Markets are not formed out of The Fed playing "Quantitative Easing", throwing literally $500 billion dollars into the pool which then get "fractionally reserved" by 10:1 to produce a literal $4 trillion dollar market ramp job. Go ask the Japanese how that works - the BOJ did the same thing, the Nikkei rallied off the bottom in the 90s like a rocket ship, but when reality asserted itself (and it always does) it collapsed again and has never been back to its all-time highs since.

Edited August 4, 2009 by HostPaul TAFKA Rover2000

[Game_Over]

http://market-ticker.denninger.net/archive...ket-Bubble.html

This explains what has been going on very well, but when will the SHTF?

[@contradevian]

This explains what has been going on very well, but when will the SHTF?

I might have got the title a bit wrong. Guess where the QE money is going?

The comments here are interesting:

http://www.zerohedge.com/article/money-sidelines-fallacy

[Game_Over]

I might have got the title a bit wrong. Guess where the QE money is going?

The comments here are interesting:

http://www.zerohedge.com/article/money-sidelines-fallacy

Hundreds of billions of pounds and dollars pumped into the system and we get a stock market rally.

Meanwhile fundamentals continue to deteriorate.

So double, or triple or quadrouple dip it is then.

[Executive Sadman]

Indeed there is now a total disconnect between share prices and yields imo.

[threetimesdead]

Banks have been known to manipuilate the stock exchange in the great depression to the point where they sucked in investors last cash and then let it drop like a brick

But here is a more recent story

http://www.ft.com/cms/s/2/b05f60f2-7df3-11...144feabdc0.html

"Investors would certainly be a little stupid to think that the FTSE rally has been measured on a normal sample of trades. Over the 11 days of gains, daily volumes on the Stock Exchange averaged less than 1bn, compared with 2.3bn-2.5bn a year ago. As market watcher David Buik, of BGC Partners, put it: “Volumes have been absolutely rubbish, 800m-900m – it just goes to show the brittleness of the rallyâ€. It’s insufficient data for Manoj Ladwa of ETX Capital, who this week warned: “A lot of the improvement in corporate performance has been down to cost cutting, stock market volumes are still low, confidence is fragile.â€

Homeowners would be even more stupid to believe those house price rises were based on anything like a meaningful sample size. Over the periods covered by the indices, sale volumes were down by around 75 per cent, compared with the 10-year average – and down by 50 per cent on last summer. As former statistics software vendor Nick Hopkinson, now of Property Portfolio Rescue, put it: “Such an illiquid housing market makes looking at monthly price trends statistically meaningless.†It’s not sufficient data for Paul Samter of the Council of Mortgage Lenders, who this week admitted: “The outlook is still sluggish.â€

[Confounded]

Hundreds of billions of pounds and dollars pumped into the system and we get a stock market rally.

Meanwhile fundamentals continue to deteriorate.

So double, or triple or quadrouple dip it is then.

`

I have argued the entire crisis that the markets were managed down as best they could and that various false bottoms were put in to slow the decline. I felt the March low was another false bottom but with the support of the media they have generated the appearance of a recovery in the mind of those that are important. This has given us a period of stability at a time when the free market would be ravaging itself. The equity markets have been used as a sentiment tool and have worked very effectively, if you believe the UK VI indices some people even felt secure enough to bid up the prices of houses.

In essence propoganda and pumping money into the equity markets is a lot more effective than trying to continually fill the void left by a $50 trillion asset bubble naturally collapsing in on itself. I have now formed a view that the March low may hold as the actual bottom, false or not, because we have passed the fear of total collapse in the banking sector we are now going to witness the struggle of the state who took on the burden and this will be a more drawn out affair. My view is they will now use the equity markets to smooth all the other pain that is still to come managing periods of inflationary euphoria followed by the deflation necessary leading to a very lengthy range bound market. This is the best case scenario though and they need to maintain their control which is not guaranteed.

[Joey Buttafueco Jr]

Indeed there is now a total disconnect between share prices and yields imo.

Why? FTSE is currently yielding 4.4%

http://www.h-l.co.uk/news/Feature-articles/id/1272

How does this compare to its long run average?

[voidal]

`

I have argued the entire crisis that the markets were managed down as best they could and that various false bottoms were put in to slow the decline. I felt the March low was another false bottom but with the support of the media they have generated the appearance of a recovery in the mind of those that are important. This has given us a period of stability at a time when the free market would be ravaging itself. The equity markets have been used as a sentiment tool and have worked very effectively, if you believe the UK VI indices some people even felt secure enough to bid up the prices of houses.

In essence propoganda and pumping money into the equity markets is a lot more effective than trying to continually fill the void left by a $50 trillion asset bubble naturally collapsing in on itself. I have now formed a view that the March low may hold as the actual bottom, false or not, because we have passed the fear of total collapse in the banking sector we are now going to witness the struggle of the state who took on the burden and this will be a more drawn out affair. My view is they will now use the equity markets to smooth all the other pain that is still to come managing periods of inflationary euphoria followed by the deflation necessary leading to a very lengthy range bound market. This is the best case scenario though and they need to maintain their control which is not guaranteed.

I'm thinking a new low as there is issuficient revenues etc to support..., but...hold on... I'm also convinced by the strength of what you have written in your post that my gut reaction is wrong.

it is starting to look like what you say above...but if control is lost, it could go down. Co-ordinated control globally?

[Executive Sadman]

Why? FTSE is currently yielding 4.4%

http://www.h-l.co.uk/news/Feature-articles/id/1272

How does this compare to its long run average?

Arent foward forecast suggesting an unprecedented decline of that figure though?

[Joey Buttafueco Jr]

Arent foward forecast suggesting an unprecedented decline of that figure though?

Will check tomorrow

[Confounded]

I'm thinking a new low as there is issuficient revenues etc to support..., but...hold on... I'm also convinced by the strength of what you have written in your post that my gut reaction is wrong.

it is starting to look like what you say above...but if control is lost, it could go down. Co-ordinated control globally?

During the crash phase of the crisis principally the control was applied to the US market through both futures manipulation and direct intervention into the DOW/S&P. General rule was no two big down days back to back and it held. Often we would get a big down day on the DOW this would send the Asian stocks tumbling then the FTSE would add to the previous days loss until about 11am UK time the US future would then be pumped and the FTSE would claw back the losses just at a time when it was starting to look messy. I would say in the entire crisis there was never a period that could be classed as out and out panic and I believe this was achieved by prevention of back to back large falls. My understanding of human nature is fear is a greater emotion than greed yet the biggest daily up moves trounced the biggest daily down days. All this was the clues to the management on the way down.

The coordination globally seemed to come after the G20. The World media turned positive together, the Chinese agreed to buy comodities to stave of the deflation threat. The US clearly stated they would run the market side of things because it leads the worlds other markets. The World leaders prior to the G20 were starting to come clean about how bad things were then within weeks (with the G20 in between) they turned on a sixpence and started saying that there were signs of a recovery. Something must have given them this confidence to flip so dramatically (I noticed it most with Alistair Darling) and I believe it was the Knowledge the markets would be made to show a sign of recovery and the news China was going to do its part for comodities, copper price has always been used as a very good indicator to economic recovery voila global recovery on a plate (for now).

[interestrateripoff]

Hundreds of billions of pounds and dollars pumped into the system and we get a stock market rally.

Meanwhile fundamentals continue to deteriorate.

So double, or triple or quadrouple dip it is then.

The scary thing is what's going to happen when the stimulus runs out. There is no demand led recovery, everything is still deleveraging and the govt's have bought a bump with several trillion dollars.

The fundamentals are screwed and the end game appears nearer.

Ludwig von Mises describes the endgame brought on by reckless expansion of credit: "There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."

It will be interesting to see whether the govts of the world can beat Von Mises assertion, history suggests it will be a fail.

[interestrateripoff]

http://www.telegraph.co.uk/comment/telegra...ng-bubbles.html

Creating an image of the Mona Lisa out of 3,600 cups of coffee, a feat we report today, seems an ephemeral enough task, until one considers the life's work of Sam Heath: to blow the world's biggest bubble. Mr Heath, known professionally as Samsam Bubbleman, has already succeeded in enclosing 50 schoolchildren in a bubble, but still seeks the bubble reputation (as Shakespeare called it) by beating the record with an example bigger than 104.5 cubic feet.

As the painter Millais's curly-headed victim would have known, a well-blown bubble depends on the right formula. Bubbleman keeps his a secret, of course. As with our recent experience of house prices and the stock market, everything seems to be going nicely, with the bubble getting bigger and bigger, and glowing with iridescent colour, then – pop! – all gone.

The perfect man for the job.

[interestrateripoff]

http://www.telegraph.co.uk/finance/finance...a-disaster.html

Terry Smith, one of the city's leading financiers, has called into question the grounds for the recent rally in equities, saying it is likely to be "soaked up" by a flood of new share issues, while the real economy is a "mega disaster".

"Economic normality" would not be restored in the near future, the chief executive of inter-dealer broker Tullett Prebon said, adding that it was "easier to stimulate a stockmarket than it is to stimulate an economy"

"The stockmarket is only a very small part of the economy and it is particularly susceptible to people's perceptions. If you go out there and dig into what's going on in the so-called real world, it's still a mega disaster at the moment," said Mr Smith, who is also on the board at stockbroker Collins Stewart, where he is stepping down as chairman but will remain as deputy chairman.

Speaking to The Daily Telegraph to mark Tullett Prebon's interim results Tuesday, Mr Smith said: "It's hard for me to see what the underpinnings of the real equity rally are. I would have thought the rally is likely to be soaked up by, for all intents and purposes, limitless new issuance."

Tullett Prebon recorded a pre-tax profit for the six months to June of £91.7m, up 23pc on the same period last year, driven in large part by a sharp rise in trading of fixed income products.

[voidal]

During the crash phase of the crisis principally the control was applied to the US market through both futures manipulation and direct intervention into the DOW/S&P. General rule was no two big down days back to back and it held. Often we would get a big down day on the DOW this would send the Asian stocks tumbling then the FTSE would add to the previous days loss until about 11am UK time the US future would then be pumped and the FTSE would claw back the losses just at a time when it was starting to look messy. I would say in the entire crisis there was never a period that could be classed as out and out panic and I believe this was achieved by prevention of back to back large falls. My understanding of human nature is fear is a greater emotion than greed yet the biggest daily up moves trounced the biggest daily down days. All this was the clues to the management on the way down.

The coordination globally seemed to come after the G20. The World media turned positive together, the Chinese agreed to buy comodities to stave of the deflation threat. The US clearly stated they would run the market side of things because it leads the worlds other markets. The World leaders prior to the G20 were starting to come clean about how bad things were then within weeks (with the G20 in between) they turned on a sixpence and started saying that there were signs of a recovery. Something must have given them this confidence to flip so dramatically (I noticed it most with Alistair Darling) and I believe it was the Knowledge the markets would be made to show a sign of recovery and the news China was going to do its part for comodities, copper price has always been used as a very good indicator to economic recovery voila global recovery on a plate (for now).

Thanks for explantion, hadnt followed the details.

like the "(for now)" sting in the tail

[Toilet-Currency]

Confounded - I agree with most of your points @12

I would, however, say we did see proper panic in the first couple of weeks of October (shortly after the AIG meltdown). I used to trade an equity options book- fondly remember coming in to some of those horrible gap openings (-7%), Eurostoxx futures printing -10% intraday and the evident panic amongst the long-only funds that were dumping anything they could.

Do you think a commodities rally was really what they wanted at the G20 though?

For most economies (excluding Russia, Australia, Canada, Saudi etc), surely this oil & food rally is extremely unhelpful? A continued deflation of commodity prices would make the labour element of goods more affordable, hence good for demand? And it's not as though anyone except the mining companies has over-borrowed against commodities (unlike, say, property).

Not an expert but my gut feeling is that industrial commodities/energy have got well ahead of themselves and this will be reflected in due course in warehouses full of finished goods that nobody wants.

[eightiesgirly]

I know so little about these things, but one thing which struck me in reading through which I found interesting was a comment that the equity markets would be inflated and then collapse, prompting a rush to treasuries, thereby keeping rates down.

[South Lorne]

http://market-ticker.denninger.net/archive...ket-Bubble.html

....No ..!.. Nulabour 'Government' and 'Mr Bean' are coercing the banks to reinflate the bubble ....they think it is the way to save their own knecks ...the deluded bunch....

[Toilet-Currency]

I know so little about these things, but one thing which struck me in reading through which I found interesting was a comment that the equity markets would be inflated and then collapse, prompting a rush to treasuries, thereby keeping rates down.

Yep the person responsible for issuing treasuries will like that idea- especially if QE is discontinued.

On the other hand, stabilising corporate debt and equities was high on governments' agendas just a few months ago. It would be crazy and desperate to intentionally collapse them, especially if it means more company bailouts and yet more government borrowing

[Joey Buttafueco Jr]

Will check tomorrow

Assuming I'm looking at the right thing, Dec09 (ukdz9) dividend future is 186.6, and Dec10 (ukdz0) is 156.6, so <20% fall.

[Charterhouse]

Assuming I'm looking at the right thing, Dec09 (ukdz9) dividend future is 186.6, and Dec10 (ukdz0) is 156.6, so <20% fall.

Dividend swap pricing (and futures pricing) is generally accepted to be mispriced to the downside. I can't remember why, but I've seen a lot of customers interested in buying 1yr forward dividends.

[Confounded]

Confounded - I agree with most of your points @12

I would, however, say we did see proper panic in the first couple of weeks of October (shortly after the AIG meltdown). I used to trade an equity options book- fondly remember coming in to some of those horrible gap openings (-7%), Eurostoxx futures printing -10% intraday and the evident panic amongst the long-only funds that were dumping anything they could.

Do you think a commodities rally was really what they wanted at the G20 though?

For most economies (excluding Russia, Australia, Canada, Saudi etc), surely this oil & food rally is extremely unhelpful? A continued deflation of commodity prices would make the labour element of goods more affordable, hence good for demand? And it's not as though anyone except the mining companies has over-borrowed against commodities (unlike, say, property).

Not an expert but my gut feeling is that industrial commodities/energy have got well ahead of themselves and this will be reflected in due course in warehouses full of finished goods that nobody wants.

The way I see it based on fundamentals we are in a very tricky place, so tricky that there is little that can be done with traditional levers that control the economy. If the masses realised how bad things are going to be the rioting would have already have started. High oil helps every nation and in particular the countries you mention, Russia needed oil above $50 dollars otherwise it was going to implode so this is one disaster averted as a result of higher prices. High oil prices have been reducing the deflationary effects on consumer prices, many nations would have been experiencing severe deflation already had the inflation of commodities not resumed as quick as it did.

There is little that can be done other than paint the picture of things improving. Look at the media and even our beloved house prices. The masses believe this to be over and that is what they need to think, at least for a while to let some of the strains in the system work out. This crisis needs time to unwind and this is what the are trying to buy, $50 trillion debt bubble imploding instantaneously would lead to some of the darker scenarios discussed last year.

I agree the fundamentals do not support a rise in comodities to the level seen, but I do not believe any market has run/been allowed to run on purely on free market fundamentals since early 07. I also have the view that there is potential in this manipulation to back fire, it is a tremendous gamble to stockpile oil in the quantity that they have. Also I think the Chinese stockpiling could leave a lasting effect on comodity prices if they are unable to shift their stock quickly, the supply overhang could weigh on the markets for decades.

I like Hugh Hendry's take on things, it looks less likely in the phase we are in now but I think he will be making more sense to people this time next year.

http://www.youtube.com/watch?v=sJNiMFFRu0g

China is in a mess but it is being used by the media as the shining light that will pull us all out of the abyss!

http://www.youtube.com/watch?v=ektMQGbW3wk...feature=related

Edited August 5, 2009 by Confounded

[Joey Buttafueco Jr]

Dividend swap pricing (and futures pricing) is generally accepted to be mispriced to the downside. I can't remember why, but I've seen a lot of customers interested in buying 1yr forward dividends.

Would be interested to know more - I know very little about divi futures - read about it once in an article in FT and trying to remind myself how to get to the numbers that they were talking about at the time!

Edited August 5, 2009 by Noel

[Toilet-Currency]

Dividend swap pricing (and futures pricing) is generally accepted to be mispriced to the downside. I can't remember why, but I've seen a lot of customers interested in buying 1yr forward dividends.

A number of reasons... most notably because many of the investment banks and a few hedge funds were too long dividends and desperate to get out, even at stupid levels. Some of this exposure came from structured products and other client business, some from prop trades, some from long dated vanilla put positions (reportedly sold by the likes of Berkshire Hathaway)

People only want to buy at levels way below analysts' expctations for the coming year. You even find single company div swaps trading below announced dividend levels, just to get out of the exposure

Also, there are a few technical factors to do with index construction, scrip dividend treatment and borrow costs, e.g.

- mandatory non-cash dividends (e.g. stock bonus issue paid instead of a cash dividend) typically count for 0 in the index div swap price. These have been popular with banks and insurers over the last 2 years

- indices have been changing, as certain sectors (financials, retail etc) have been decimated. Banks were once a high-yielding sector but obviously divs are down in many of the banks that still make it into the index