Customer Service 1 (888) 261-2693
Advanced Search

Is the Government Manipulating Stock Prices?

By Jeff Clark
Thursday, January 21, 2010

After a 20-year career trading S&P 500 futures contracts on the floor of the Chicago Mercantile Exchange, my friend Charlie suddenly retired last November.
 
"There was no way to protect yourself," Charlie said to me over lunch a couple weeks ago when I asked him about his unexpected decision. "This guy would walk into the pits and just start buying. It was unconventional. He'd buy at times when it really didn't make any sense – at least not to those of us who'd been around for a while. And he'd buy HUGE."
 
"It got to the point," Charlie continued, "that we'd have a bunch of our interns just watching the guy when he was off the floor. We'd know if he took a phone call. We'd know if he'd gone outside for a smoke. And we'd know if he started walking in the direction of the pit. That was our cue to start buying futures contracts ourselves – just to get in front of the guy.
 
"I knew it was time to retire," Charlie sighed, "when I started planning my trading day around this guy's bathroom breaks."
 
For the past 20 years, conspiracy theorists have engaged in stories about the "Plunge Protection Team" – a group of traders funded by the Fed whose sole purpose is to prop up the stock market. I never really bought into the argument, though. After all, an awful lot of people "in the know" have to stay quiet in order to keep the conspiracy going. And it's unlikely any group of people can maintain that sort of silence for two decades.
 
But Charlie's story got me thinking.
 
Then, last week, Charles Biderman, CEO of TrimTabs – one of the most respected and widely read financial research organizations – published a report that raised the possibility that the Fed is actively involved in boosting stock prices.
 
In the article, Mr. Biderman suggests it would only take $5 billion to $15 billion each month to buy enough S&P 500 futures contracts to boost the market 70%. Surely, with all the hundreds of billions of dollars used to prop up the real estate, auto, and banking industries, it's reasonable to suspect the Fed might use a few bucks to prop up stock prices, too.
 
At least it's something to think about.
 
I'm still not sure if I can completely buy into the whole conspiracy theory just yet. There is, however, one thing I do know for sure...
 
If the Fed has been actively engaged in manipulating stock prices higher, then it can manipulate them lower as well. You won't want to be the one left holding the bag when that happens.
 
Best regards and good trading,
 
Jeff Clark




In The Daily Crux
Market Notes
Silver slips below $18... down 4.5% yesterday on commodity selloff.
 
Miners tumble... BHP, Rio Tinto, Anglo American, and Newmont all slide over 3% yesterday.
 
Euro hits five-month low of $1.41 on Greek debt concerns. The long dollar trade is on.
 
Earnings today... American Express, Burlington Northern, Goldman Sachs, Google.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

Recent Articles