Wednesday, January 13, 2010
Stock Market Bulls and Treasury Bears
Something doesn't smell right. The bullish stock market trend of late in the face of reality seems overheated. Trim Tabs Investment Research, a firm that tracks liquidity flows in the market, says that December was the fifth month in a row where mutual fund investors pulled more money out of domestic equity mutual funds than they put in. According to a Bloomberg survey investors are the most bearish on Treasuries that they have been in over two years. I have friends asking me if they should take their money out of stocks and put it into bonds. But 10-year Treasuries are yielding 3.7% - only slightly more than my one-year CD. (A word of caution - I am not an independent financial adviser. Not that they know what they are talking about...) So where is the money? And who is supporting this stock market rally? One possibility is that the US government is. Charles Biderman, CEO of Trim Tabs has theorized that the Federal Reserve and the Treasury, with the help of the bulge bracket Wall Street banks, are supporting the stock market. The approximately $600 billion of net new cash that is needed to lift the market's overall capitalization by $6 trillion last year could not be identified, Biderman said. The money, he said, didn't come from traditional players such as companies, retail investors, foreign investors, hedge funds or pension funds. Hmmm. Not only that, the bulk of the bullish activity over the past year has come in after hours trading on the futures markets. Hmmm. The idea that there is a 'plunge protection team' out there is not new. I proposed this possibility last year. The Wall Street banks were not bailed out with gazillions of dollars in taxpayers money without promising something in return. Using algorithms and high frequency trading strategies, it is really quite simple to gently goose a market. Expecially when the goosing in in lockstep with other banks. If you look at it, the stock market movements resemble trying to sink a life preserver. Disappointing employment figures? The market dumps... then gently resurfaces. Cue sighs of relief from the 401K-crowd. Ahhh. Maybe the economy IS recovering. Maybe we ARE invincible. Maybe my house will be worth a million dollars by next year and I can retire. And this is why the theory is so plausible. What better way to keep the public happy/quiet/complacent than by supporting the stock market? As conspiracy theories go, this is a doozy. Let's just hope the money doesn't run out.