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Why Is Anyone Surprised?

A number of pundits noted that in the Fed’s recent data dump about its emergency operations during the 2008 “episode”, the Fed took stocks as collateral. The only thing that surprises me is that people are surprised by the fact that the Fed backstops stock prices. Bernanke even announced on November 3 that a key goal of QE2 was to push stock prices higher in his Washington Post Oped the night of the QE2 announcement. In my work tracking the Fed over the past 8 years in the Professional Edition Fed Report, the correlation between TOMO and POMO and the direction of stock prices was very strong. The linked chart is a little dated, but you get the idea.

In Fedpoints on the NY Fed website, the Fed describes how “The Fed’s traders discuss with the primary dealers how the day might unfold in the securities market and how the dealers’ task of financing their securities positions is progressing.” It doesn’t say “not including equities”. They are very clear that they meet daily with the Primary Dealers (PDs) to rig the game, to tilt the game board in the direction they want. There it is in black and white. The smoking gun.

In instituting PDCF, they conducted those operations directly, however PDCF was a brutal failure because the Fed was pulling hundreds of billions out of SOMA at the same time and shifting it into direct lending programs with the banks and every other supplicant who showed up at Ben’s doorstep. That drained cash from PD trading accounts forcing the PDs to sell everything in sight. $200 billion a month in SFP Treasury paper didn’t help. They were required to buy whatever Treasury paper their customers could not diverting resources away from equity and commodity trades. The correlations show clearly, that far from mitigating the September-October 2008 crash as Bernanke likes to lie, the Fed and Treasury caused it.

As someone else recently said so eloquently, Bernanke and other Fedheads are lying liars who lyingly lie all the time, but propping stock prices was never something that they overtly lied about. They may not have crowed on the street corners about it, but they didn’t run away from the fact either. The amazing thing is how incompetent the Fed is when it comes to market and economic manipulation. They are a bunch of delusional stumblebums flailing around in the dark taking us into a black hole with their insane policy actions.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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