29 March 2012

SP 500 and NDX Futures Daily Charts - Another Light Volume Wash and Rinse - Quarter's End

Durable Goods, Stock Market, Fed in the Driver's Seat & Why
by Ilene

After reading Lee's article, I asked him, "Why is it the Fed's job to be propping up the stock market? Doesn't it make the whole market a Fed-controlled game, rather than what it started as - a mechanism for companies to raise money and people to invest in public companies?"

Lee answered: "Bernanke has made no bones about it. He sees the stock market as a legitimate instrument of policy manipulation. It's his biggest tool, much bigger than the ones between his ears and his legs. The Fed works for the banks, and the capital markets exist as a means for 'capitalists' to extract wealth from the public. Stock markets weren't started for the purpose of enriching the public, that's for sure... The Fed has two clients, the US Treasury, and the banking system. It operates to make sure that they stay in business."

Lee also noted that the history of the Fed is replete with a variety of programs where it tried to manipulate something. "The stock market manipulation is relatively new as an overt policy tool, but the Fed can't manipulate indefinitely. Eventually the unintended consequences will rise up and bite it in the ass."

Worth moving up, "the grateful unemployed" asked an excellent question in the comment section of Zero hedge: "So why did the Fed precipitate the 2008 crash? Any thoughts?"

Lee: "It was just another one of their serial blunders. It's just that some of their mistakes look good on the surface for a while until the unintended consequences overwhelm the intended ones. That one went bad immediately. I was shocked at the time that they would sterilize the alphabet soup programs that started with the TAF in 2007, by pulling the funds from the SOMA, thus crippling the Primary Dealers. I warned repeatedly that it would precipitate a crash, especially as the Treasury began selling over $100 billion a week in new debt to fund the TARP in Q3 2008. Bernanke fucked up, plain and simple. They started to realize the mistake in November by starting direct purchases of limited amounts of GSE paper, but didn't go full bore until they started massive Treasury purchases in March 2009. That turned the market."

Read the rest here.

Tomorrow is the end of the first quarter. hi ho