Biderman’s Daily Edge 3/9/2012: Rigged Market Conventional Wisdom

Mar
10

The stock markets are being rigged by the Federal Reserve and European Central Bank and what is more, just about everybody knows that. My CNBC buddy Bob Pisani said today that kicking the can down the road, a euphemism for the rigged economies both here and in Europe, is an effective policy tool because it has worked, so far.

 

Compare today’s conventional wisdom that the market is rigged with the response to my year end 2009 appearances and early 2010 appearances on television. Back then I said that the stock market had to be rigged by someone, probably the Fed. I got booed, in essence, and was called a conspiracy theorist nut, wacko by some of your favorite bloggers.

 

Today the stock market does not go down for longer than a day or so. As we said earlier this week, the Fed has been flooding the economy with $5 trillion of no cost money since 2008. US public companies are using some of that free cash to buy back enough shares to payoff all those individuals selling US equities whether directly or through mutual, pension and hedge funds.

 

Think about it for a second, individuals are selling US equities, probably because they need to pay bills and stuff. How are they able to do that and get decent prices? Simple, the Federal Reserve prints money that boosts the value of US equities and therefore the sellers can get a good price. All of this is driving me even more nuts than I already am.

 

Today, the Bureau of Labor Statistics, stuck in a world of surveys overlaying historic data while ignoring real time data, guessed that 227,000 seasonal adjusted jobs were created in February. In the real world, each month on average about 4 million jobs are lost and added.

 

In February, a midwinter month historically, less people work on average primarily due to weather. The BLS current estimate is 1.53 million jobs need to be added to those actually working in February to come up with 227,000 new February jobs. Income tax collections say to us that the BLS guess is too high. But so what, who cares as long as the number reported looks good?

 

The US stock market is only about $3 trillion in market value below the all time high set October 2007. Yet the US job market has only recovered about 3 million of the 8 million jobs lost since the stock market peak. The five million lost jobs does not include those new job market entrants that resulted from the 10 million US population growth.

 

To summarize, the US economy is barely inching along and the stock market is roaring.

 

Let us not forget that this is a presidential election year. What would help President Obama the most would be if the US economy has a sustained recovery between now and election day. While that recovery is not occurring in reality, it certainly appears to be occurring in the minds of investors who are sitting on huge increases in stock market wealth.

 

Coincidence, or something more sinister, we have no idea. But it does make one think.

 

Here’s the video from Bloomberg Television recorded on January 19, 2010:


Charles Biderman
President & CEO TrimTabs Investment Research
Portfolio Manager, TrimTabs Float Shrink ETF (TTFS)

 

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10 Responses to Biderman’s Daily Edge 3/9/2012: Rigged Market Conventional Wisdom

  1. lushfun on March 10, 2012 at 6:09 am

    The problem of bifurcating returns between labor and capital, is that the subsidy of capital and the amortization of labor. If labor is priced at 0 and is not inter-changeable due to ‘legal’&’capital’ barriers to entry in some industries while is inter-changeable in others there should be a slow but unrelenting river of pressure upon that side of the market. Sooner or later that dam of reality breaks.

    Eventually this will force capital goods that are used in those industries to reprice to realities (ergo real negative returns or much lower returns) and sink the equilibrium of average revenue to affordable levels for consumers. Every industry that has a high labor component or low barriers to entry for people even of modest capital should be under margin pressure. Sooner or later the supply chain will have to eat those pressures because passing them on is no longer an option, the consumer simply has no more spare cash. Once the ball gets rolling capital will reprice, one way or another.

    The Fed can only create an incentive environment and the banks can only nudge those incentives through implicit prices, once those prices are non-responsive we enter the final act of the opera. In the long run they are only lying to themselves because the reality of them pushing rates up to slowly seep out asset pricing earlier will be replaced by the market doing it at the worst possible moment, right around the most impotent point for the system.

  2. Sunil Singh on March 10, 2012 at 12:37 pm

    Thanks a million for educating us by expressing the Truth about current markets, backed by evidence.
    Besides The Great Lord is watching everyone’s action. Nothing is hidden from Him. wrongdoers will experience mental pain (self created unhappiness) and rightdoers will experience mental peace (self created happiness) in near future.
    Keep doing the great work. We as your followers are proud of you.
    Sincerely, Sunil

  3. Katie on March 11, 2012 at 8:50 am

    Thank you, thank you and thank you again for telling the truth about what is going on with the markets.

    Friday’s “rally” just shows the strength of the central banks and the Fed in providing plenty of liquidity to make Greece’s “selective default” a non-issue so that the markets have a soft landing.

    I am so sick and tired of watching quant idiots on Yahoo Finance and reading MarketWatch commentators rant about how the markets will go up another 20% in 2012 because it’s an election year. WTF is going on, it’s like the HFT and the central banks have the ability to stop the markets from falling, so they just keep pumping and pumping up share prices.

    For example, BAC is a total joke, it should really be trading somewhere in the $3 to $5 at most, and what insanity for BAC’s share price to have gone up 8% on more than one or two days in January on NO NEWS whatsoever. OMG

    And the fund managers and investment geeks all buy into this smoke and mirror fantasy that the US is in the middle of a roaring recovering. What absolute BS.

    I’m a small retail investor who’s been unable to find fulltime work anything close to my former 6 figure job in IT, and I wasn’t surprised when the clerk in one of the CA EDD offices (employment development for the out of work) said “what hiring” in reply to my question if employers have picked up the pace of hiring. It’s a total fairy tale.

    How much longer can the ‘house players’ continue propping up the markets? This is totally insane and they will eventually run out of printed paper since they keep pumping up the markets regardless of what is going on in mainstreet.

    Thank you for sharing your insights on the market on these videos, it is like a breath of fresh air!

  4. Ray Pfeuffer on March 11, 2012 at 3:07 pm

    When you say that individuals are leaking from the markets, are you considering participation in pension funds?

  5. DDearborn on March 12, 2012 at 12:32 pm

    Hmmm

    And why does the FED care if people can sell off their US equities holdings? Because in 2009 at the very depth of the crash the FED handed out literally trillions of dollars to its best friends and buddies. They in turn bought US equities which at that point had crashed. So the FED crashed to US stock market to historic lows. The Fed turned around and gave insiders trillions of interest free loans. This free money was in turned used to buy equities that were now priced at about 5 cents on the dollar. The Fed then spent the next year pumping up the markets. This in turn allowed the gradual sell-off of US equities by these same insiders after a year (avoiding capital gains issues of course) However to maintain an orderly market (preventing price collapse in the face of massive selling) these same people (and yes in relative terms it was just a handful of people/corporations) have been selling ever since. Now very soon now there exposure will have been minimized and the FED will crash the markets again. Only this time it will be for good. In short the FED and its friends are the ones playing the music, controlling the chairs and even who gets to play. So suggesting that these markets are “rigged” doesn’t begin to do justice to the crime that is being committed against the people. Why against the people? Well who do you think is buying all those equities? Can’t be the working class they are broke. It is the funds that are entrusted to invest you pension funds, the local, country, state and federal funds etc. They are of course personally making billions to commit what amount to fraud. Insider ownership of corporations is at an all time low. the people at the top know the score…….Great article bye the way.

    • Katie on March 13, 2012 at 5:26 am

      So this is how the Fed will pull the plug on public pension funds and what’s left of 401k, IRA’s invested in equities, by crashing the market again. Ka-boom.

      Until that day, how much longer will they keep pumping up the market?

      What is “very soon”? A week, a month, a year? Waiting until Israel attacks Iran? Please give us some idea.

      Thanks

  6. David Rogers on March 12, 2012 at 1:32 pm

    Ok. What has been stated makes total sense! The craziness about the economy recovering is even laughed at by common people who don’t invest in the market. We couldn’t figure out why it was being reported? Now it makes total sense. So, now what do we do with our money? Sell all our stocks? Where would be a safe haven for it? When the music stops with the Fed printing money, it seems to me that the individual investor would have the most to lose. What should we do?

    • joe schmoestein on March 13, 2012 at 9:35 am

      keep it in your pocket, or stuff it in your mattress.

  7. Charles Biderman on March 13, 2012 at 1:02 am

    You ask what individual investors should do.
    I am in the process of creating a weekly market video letter that will highlight what I would be buying and/or selling that week and an overall market view.
    Do you think something like that would be of interest not only to you but others?

  8. RICH on March 13, 2012 at 12:01 pm

    It’s all about timing. How about a long/short etf?

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Charles BidermanCharles Biderman is the Chairman of TrimTabs Investment Research and Portfolio Manager of the TrimTabs Float Shrink ETF (TTFS)

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