Manipulation is Good
I think that the problem many of us still have is in attempting to make sense of the market in terms of the economy. This is not wise. The stock market has absolutely nothing to do with the economy.
I wrote this in a post on The Stool Pigeons Wire Message Board in response to numerous expressions of frustration about the market from many of the posters there. It elicited a number of responses. Here’s one:
This is exactly right. I shorted the market and real estate from 2005-2007 only to get my ass handed to me. What is obvious to us only becomes obvious to the rest of the world much later because they are ignorant (or possibly stupid). I talk to people that have absolutely no idea what it means to monetize debt. Yet they happily throw money into stocks and bonds (“Because I’m diversified!”).
This rally is crap. The rally/lack of collapse of 10 and 30 year bonds is crap. But who the hell knows when they will all finally figure it out.
But this too is wrong. It misses the point of what it takes to be a successful investor or trader. Not only is it not about the economy. It is most certainly not about everybody else. It’s about recognizing what drives markets.
It’s very simple, really. If the Fed is buying and removing enough securities from the market as it is doing now with its $70 billion in monthly purchases of MBS and GSE paper, then prices must rise.
The Fed’s actions accomplish two objectives, the only two that matter. They increase demand, and they reduce supply, since it’s the Fed’s intention to never sell. Ipso facto, markets will rise until the Fed stops this artificial skewing of supply and demand. And stop they will, either because they blunder and misinterpret the house of mirrors illusion of success, or because some exogenous force or power stops them.
It’s not crap. It’s manipulation. Manipulation is real. Everything else is crap.
The point is, ladies and gentleman, that manipulation — for lack of a better word — is good.
Manipulation is right.
Manipulation works.
Manipulation clarifies, cuts through, and captures the essence of the evolution of markets.
Manipulation, in all of its forms — manipulation for life, for money, for love, knowledge — has marked the surge of mankind into the abyss of moral relativism and moral hazard.
And manipulation — you mark my words — will not only save Geezer Homes, Goldman Sacks and Pillages, and Hewlett Thedogsout but that malfunctioning banana republic called the USA.
Until, eventually, cruel reality brings it all to an end.
With apologies to Gordon Gekko.
The author is editor and publisher of The Wall Street Examiner.
Further to my comment of 9 August 2016, unlike the old Bank Rate system with its high interest rates, Quantitative…
Comment by Jan De Ryck on 13 November 2009:
I don’t get it. Just because the FED removes $70 Billion of crap from the market doesn’t mean that the other crap has turned into gold (metaphysically speaking). So why would the demand for crap go up? Are people afraid it’s going to run out?
Comment by Lee Adler- The Wall Street Examiner on 14 November 2009:
Demand didn’t go up. The Fed was in there as subsidizer. Its purchases did 3 things.
1. It pushed the prices higher than where they would have been in the absence of these purchases.
2. It put cash into the accounts of the sellers. That forced them into, as Russ Winter calls it, “the buy something trade.” So they bought other crap.
3. The Fed removes supply from the market. Certain investors are required by their charters to own certain types of crap. The Fed’s actions created such an artificial shortage in the GSE market, resulting in Fannie paper actually selling for a higher price (lower yield) than Treasuries for several weeks.
That forced the Fed to back off and sharply curtail the rate at which they were buying both direct Agencies and MBS.
The people who run the Fed are delusional if they think zero interest rates and massive market distorting subsidies will have an outcome any different from when Japan tried it, or Greenspan tried it 6-7 years ago. There can only be one outcome–another crash, only bigger, given the size and the absurdity of the Fed’s willy nilly, ad hoc policy responses to actions that misguided Fed policy caused in the first place.
We need a return to rational interest rates where all sorts of investors can return a fair return on their capital commensurate with risk. In the absence of that we get only the irrational speculation, the “buy something trade,” that stokes asset price inflation, another bubble.
Comment by Jariah on 23 November 2009:
Manipulators come in all forms.
The best manipulators are politicians, investment bankers and lawyers.
They work hand in hand to screw the America public and to screw each other.
The only way to outsmart a manipulator is to be smarter than they are.
“If it sounds too good to be true, it is.”
“A fool and his money are soon parted.”
Don’t be a fool. Stop and think about everything, before you make a decision.
Be wise as a serpent.
I had a guy ask me if he could borrow $100.00 until tomorrow.
I answered “Wait until tomorrow and you won’t need it.”