Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Manipulations Rule The Markets

Stock-Markets / Market Manipulation Dec 21, 2013 - 11:59 AM GMT

By: Paul_Craig_Roberts

Stock-Markets

The Federal Reserve’s announcement on December 18 that beginning in January its monthly purchases of mortgage-backed financial instruments and US Treasury bonds would each be cut by $5 billion is puzzling, as is the financial press’s account of the market’s response.

The Federal Reserve conveys a contradictory message. The Fed says that improvements in employment and the economy justify cutting back on bond purchases.


Yet the Fed emphasizes that it is maintaining its commitment to record low interest rates “well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below the [Open Market] Committee’s 2 percent longer-run goal. When the Committee decides to begin to remove policy accommodation it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.”

The last sentence in the quote states that the Fed does not regard its announced reduction in bond purchases as less accommodation or as a move toward tightening. In other words, the Fed is saying that tapering does not mean less accommodation.

To put it another way, the Fed is saying that the economy is doing well enough not to require the same amount of monthly bond purchases, but is not doing well enough to stand any change in the near zero nominal federal funds rate. The implication is that the Fed either does not think that a reduction in purchases will result in a rise in long-term interest rates or that such a rise will not derail the economy as long as the Fed keeps short-term rates at or near zero. If the $10 billion decrease in monthly bond demand results in higher long-term interest rates, what good does it do to keep the federal funds rate at zero? If the $10 billion monthly bond purchases were not needed as part of the accommodation policy, why was the Fed purchasing them?

Possibly the Fed thinks that Congress has taken steps to reduce the federal deficit, which would result in a reduced supply of bonds to match the Fed’s reduced demand for bonds, but the Fed’s statement makes no reference to federal deficit reduction, which is probably a smoke and mirrors change instead of a real one.

Moreover, the Fed’s outlook for the economy is mixed. The Fed says that “recovery in the housing sector slowed somewhat in recent months,” so why reduce purchases of mortgage-backed financial instruments? And surely the Fed is aware that the U3 unemployment rate has declined because discouraged workers who cannot find a job are not counted among the unemployed. As all measures show, real median family income and real per capita income are lower today than in 2007, and real consumer credit is not growing except for student loans. Without rising aggregate demand to drive the economy, why does the Fed see a recovery instead of faulty statistical measures that do not accurately portray economic reality?

The financial media’s reporting on the stock market’s response to the Fed’s announcement has its own puzzles. I have not seen the entirety of the news reports, but what I have seen says that the equity market rose because investors interpreted the reduction in bond purchases as signaling the Fed’s vote of confidence in the economy.

Previously when the Fed announced that it might cut back its bond purchases, the markets dropped sharply, and the Fed quickly back-tracked. Everyone knows that the high prices in the bond and equity markets are the result of the liquidity pouring out of the Fed and that a curtailment of this liquidity will adversely affect prices. So why this time did prices go up instead of down?

Pam Martens points out that there is evidence of manipulation. http://wallstreetonparade.com

As market data indicates, the initial response to the Fed’s announcement was a sharp move down as market participants sold stocks on the Fed’s announcement (see the chart of the Dow Jones Industrial Average in Pam Martens’ article). But within a few minutes the market changed course and rose on panic short-covering just as sharply as it had fallen.

The question is: who provided the upward push that panicked the shorts and sent the market up 292 points? Was it the plunge protection team and the NY Fed’s trading floor? Was it the large banks acting in concert with the Fed? It is hard to avoid the conclusion that this was an orchestrated event that forestalled a market decline.

Short selling in the paper gold futures market has been used to protect the US dollar’s value from being knocked down by the Fed’s Quantitative Easing. Following the Fed’s December 18 announcement, another big takedown of gold was launched.

William Kaye had predicted the takedown in advance. He noticed that the ETF gold trust GLD experienced a sudden loss in gold holdings as shares were redeemed for gold. Only the large Fed-dependent bullion banks can redeem shares for gold. Possession of physical gold allows the short-selling that drives down the gold price to be covered.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/12/17_Absolutely_Shocking_Developments_In_The_War_On_Gold.html

Bloomberg reports that gold is exiting the West. It has been shipped out to Asia. You explain, dear reader, how the price of gold can fall so much in the West while the supply of gold dries up. http://www.bloomberg.com/video/what-s-happening-to-all-the-gold-d33u1c23SDqA0p0e~9_INw.html

In a few days prior to the Fed’s tapering announcement, GLD was drained of 25 tonnes of gold by primary bullion banks, JP MorganChase, HSBC, Deutsche Bank, Goldman Sachs, and Citicorp. As Dave Kranzler pointed out to me, these banks happen to be the biggest players in the OTC derivatives market for precious metals. HSBC is the custodian of the GLD gold and JPM is the custodian of SLV silver. HSBC and JPM are two of the three primary custodial and market-making banks for Comex gold and silver.

The conclusion is obvious. QE helps the big banks, and manipulation of the gold price downward protects the US dollar from its dilution by QE.

The Fed’s reduced bond purchasing announced for the New Year still leaves the Fed purchasing $900 billion worth of bonds annually, so obviously the Fed does not think that everything is OK. Moreover, the Fed has other ways to make up for the $120 billion annual reduction, assuming the reduction actually occurs. The prospect for tapering is dependent on the US economy not sinking deeper into depression. Massaged “success indicators” such as the unemployment rate, which is understated by not counting discouraged workers, and the GDP growth rate, which is overstated with an understated measure of inflation, do not a recovery make. No other economic indicator shows recovery.

Until a whistleblower speaks, we cannot know for certain, but my conclusion is that the Fed understands that it must protect the dollar from being driven down by QE and that the orchestrated takedowns of gold are part of protecting the dollar’s value, and perhaps also the cutback in QE is a part of the protection by signaling an end of money creation. The Fed also understands that it cannot forever drive down the gold price and that it cannot forever pour liquidity into stock and bond markets. To retreat from this policy without crashing the edifice requires successful orchestrations. Therefore, we are likely to experience more of them in the days to come.

Allegedly, the US has free capital markets, and globalism is bringing free capital markets to the world. In actual fact, US capital markets are so manipulated–and now by the authorities themselves–that manipulation cannot stop without a crash.

What American “democratic capitalism” has brought to the world is manipulated financial markets and the absence of democracy. How long this game can play depends on the outside world.

Paul Craig Roberts

http://www.paulcraigroberts.org/

Paul Craig Roberts [ email him ] was Assistant Secretary of the Treasury during President Reagan's first term.  He was Associate Editor of the Wall Street Journal .  He has held numerous academic appointments, including the William E. Simon Chair, Center for Strategic and International Studies, Georgetown University, and Senior Research Fellow, Hoover Institution, Stanford University. He was awarded the Legion of Honor by French President Francois Mitterrand. He is the author of Supply-Side Revolution : An Insider's Account of Policymaking in Washington ; Alienation and the Soviet Economy and Meltdown: Inside the Soviet Economy , and is the co-author with Lawrence M. Stratton of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice . Click here for Peter Brimelow's Forbes Magazine interview with Roberts about the recent epidemic of prosecutorial misconduct.

© 2013 Copyright Paul Craig Roberts - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in