Who wants a great conspiracy theory? I got one!
Okay, what the hell is going on out there in the market? One day it's falling off the cliff, the next it's rallying and everything is great. Actually, lately, any pullback and a clear warning sign of another leg down has been met with an unusual buy spree. For those who've traded for years and hang on the market's every tick of the day, much of the trading lately has been very strange. What 'should' happen suddenly turns into a smack across the head if you're trading the wrong way because your experience of what 'should' happen actually ends up being something that 'shouldn't do that'.
So, what gives?
First off, it could be as simple as a reversion to the mean on a larger scale. Sure, pull up a chart of the DOW or SPX and you can clearly see a monster selloff and extension of the mean average price over a couple of years on a weekly chart. That's pretty obvious.
But, is there more to it? Take a step back to last year when the freefall began to pick up steam around late summer. Now remember that the then treasury secratary was Hank Paulson who used to run Goldman Sachs was all over the place telling anyone who'd listen that they needed money and fast. That money had to come from Congress and at first, died, sending the DOW down 700 points. Remember? Then a week later the Congress passed the $700 bill in two separate packages with each having to be approved before spending it. But that money was SUPPOSED to go to buying off the bad loan portfolios of the problem banks. Remember? A month later, we found out that none of that happened. Instead, they used the money for something else that to this day is still a mystery. Or is it?
Remember how I told you how the market works? Market makers and specialist companies are just your ordinary large investment firms. However, in order to have the priveledge of being a market maker, you have to agree to be the buyer or seller of last resort. That means when everyone is selling, you gotta be buying it from them creating that liquid market.
But what happens if the company you work for has no more money because another division of that company is bankrupting the rest of it? Can you say, LEH, or BS?
Yes, both of them were market makers. Now imagine you wake up one morning ready to trade and you see that there are no bids for your stocks? Can you imagine what the hell that would do to the market psychology? NO BIDS????
Apparently, much of that first $350bill went to these firms in order for them to 'make a market' in the stock market. Also, a ton of it went to pay off CDS insurance policies that European banks bought which they threatened to pull their investments in the US markets if they weren't made whole. Remember the big deal last month about them getting 100% of their money back from AIG when US banks were only getting (or told to get) only 30%? That dies a quick death, didn't it? Why? Because if the public ever realized how bad it was about to get - ie, the entire market having all bids pulled because none of the large firms had the ability to be buying all that panic selling, you literrally could have seen the DOW open up at under 1000 one day in Sep or Oct. Yep! Imagine that.
Every retirement account destroyed. No capital for anything. Depression? No, no, no. Implosion.
The reason why you're not hearing all this from the Congressmen who were pounding the table about getting to the bottom of where all this money went is because they have been enlightened as to the seriousness of what the deal was back then and to let it go because if the public becomes aware of where things truly are even to this day, that scenario could still happen.
Not for 10 or 20 years will this story be told. But what about now? Well, word on the trading desks is going around that much of the money that's juiced the market to this level is also from this TARP fund passed around via the treasury because higher stock prices act to function as not only a calming mechanism, but also allows various companies to sell stock to raise their own money without needing handouts even when possibly much of that money that pushed the stocks up was handout money. It just looks better.
However, much of that stuff has been done now. That stock that got sold off in the initial legs down has been and still is being sold back into the market to investors who are jumping in now. (fools). It's a trick to pass off phony assets to dumb investors.
The market isn't trading on anything fundamental - it's trading on mechanics. No one cares about fundamentals now. They care about stability. The next leg down could be a bad one because those that got caught in the last 6 months without selling aren't going to be fooled again.
The UK today just raised taxes on top earners to 50%. Do they not see history for what it is? With Obama and this congress about to triple the debt to north of $15tril, taxes here are going to get ugly. Baby boomers are going to need their money out of the market to live on. Who's gonna be buying up all that inventory of stock? Especially in this market? Huh?
Don't listen to hypsters. If the SPX hits 1000 this year, it will only be a mechanical thing such as short squeezing, etc. Just watch your wallets.
