Is the market being propped up artificially?

[smirkymonkey]

...in order to convince the public that the market is safe and stable so that the Chimporer's evil Social Security plan can gain support?

It seems like there is a lot of "funny" accounting going on these days and I get the sense that ultimately, it will eventually come crashing down taking the average person's retirement and life's savings with it.

If so, could you explain it to me in laymans terms? Thanks

[Warpy]

1. I posted this article about interference by the Fed 10 days ago

http://www.financialsense.com/editorials/reality/2005/0403.html

It sank like a stone. Yes, the market is being manipulated. Chimp is trying to tell the rubes that the market is perfectly safe and a dandy place to put their FICA payments.

Don't let this one sink like a stone. My post of 10 days ago did.

[LaPera]

3. It would probably not "sink like a stone" if this was posted in the

"General Discussion" fourm.

But we can keep it kicked here.

[smirkymonkey]

9. Okay, shameless kick!

But I think this is important, because it counters natural cycles and eventually I think it will lead to disaster.

[pilgrimsoul]

21. I did read your post from 10 days ago

and this article impacted me so strongly that I saved it to my hard drive. Unfortunately, I was headed out of town and didn't take the time to kick the thread. This article really is worth reading and makes me very glad I got completely out of stocks in my 401K this past month. The Fed can't keep up this juggling game forever because they just don't control all of the balls anymore. One day very soon, they will drop one ball (or someone like, say, China will knock it out of their hands) and all of their screwy market manipulation will cause the economy to collapse. Heaven help us.

[The_Casual_Observer]

2. The market is probably propped up by automatic investment

of 401k money and retirement fund money that flows in each week come rain or shine. I would guess that if it ever stopped their wouldn't even be a stock market.

[JDPriestly]

29. Which will decline once the baby boomers

retire and start living on their 401(k) money. Uh-oh!

[tanyev]

4. Or were they counting on the Social Security "plan"

to further artificially boost the market?

[Prodemsouth]

5. Yes it is - Greenspan and other bullshit eaters for W will not be

able to keep it up forever-hopefully before 2006- but they will try. It will as you say "coming crashing down' but unfortunately those of us who never developed a taste for bullshit- will have the debris crushing us too.

[pie]

6. good question

[Dawgs]

7. Another 'sky is falling thread'...

Here on DU we like to see facts. Please provide some.

[smirkymonkey]

10. Umm...I am ASKING a question, not stating a fact.

And what's with this "here on DU" stuff? Especially, considering your post count.

If the sky is ACTUALLY falling, those who are aware of it are usually better off than those with their heads in the sand.

[uberotto]

22. Explaining the previous post...

First...
Here in the Economics forum there are a lot of threads started which claim that the world is just about ready to explode (finacially), although I don't believe that your original question falls into this category...

Usually these threads are based on a single opinion from a single individual who posted their opinion on a single website. For example, in the past year there have been several threads posted claiming that gold prices were going to be over $1000 oz. by the end of 2004, or that the housing bubble is going to burst in 30 days, or the stock market is headed below 5000, or that oil prices are headed above 200...

When these threads start showing up, there are some who complain (much like the previous poster), there are others, like myself, who, even if we don't believe the threads, still enjoy reading them. There are enough knowledgeable people here who are able to keep reality from wandering too far away.

Second...
Not being aware the sky is falling when it is, is no more dangerous than knowing the sky is falling when in reality is isn't. Both groups are setting themselves up for a whole lot of disappointment.

Third...
Never judge a poster by the post count. There are some of us who have been here for a very long time who don't have high post counts. Just because we only spend a little time saying nothing important, as opposed to those who spend a lot of time saying nothing important, doesn't mean that we are not active members of the DU community.

[smirkymonkey]

25. Thanks for explaining that. I don't hang out in this forum too much

so I am unaccostomed to what goes on here most of the time.

I can be a little thin skinned when I percieve that someone is attacking me, but I apologize for how I handled it.

Also, I do think sooner or later it will come crashing down, but whether it's weeks, months or years I have no idea. I don't think this "growth" is going to be sustainable for much longer. It may not be devastating, but I just have a feeling that there is so much corruption and dirty dealing going on behind the scenes, it is much more likely that we are not going to have a soft, gentle market correction. Just my opinion though. :)

[leveymg]

8. This is how it works:

There are several components that go into the inflation (or propping up in a downward market) of share values: increases in the "book value" of the company (acquisition or creation of assets); cuts in costs of operation (greater efficiency in production or layoffs); and stock buybacks by the company itself.

Of these three, it is the latter -- buybacks -- that have had the greatest impact in supporting the price of stock since the mid-1990s. In order to boost demand for its shares, companies often go into the markets and buy up big blocks of their own stocks. While this drains cash reserves (and may increase debt), it makes the stock appear to be more desirable than it would otherwise be, driving up values. It also consolidates control of the company back into the hands of majority stockholders and management.

How do companies finance this? They can pay out from retained earnings -- savings from profits or cost cutting (laying workers off or offshore production), or else go into the credit markets and borrow (artifically low interest rates make this an attractive option).

Any way you want to look at it, a very large percentage of the market value of stocks is due to this sort of shell game.

:bounce:

[smirkymonkey]

11. Thanks for your great explaination!

That was the kind of thing I was wondering about. Also, if layoffs are being as a way to free up capital, that shortage of disposable income among the downsized masses seems like, sooner or later, it's going to cut into corporate profits.

How long can the shell game continue before it collapses? It seems like there are so many variables that could blow it all apart.

[leveymg]

12. "How long can the shell game continue before it collapses?"

What you've described so well is the cyclical nature of capitalism --booms followed by busts. Risks are hedged across markets, so that things aren't supposed to all fall part at once. The bubbles and the contractions are spread out -- at the same time that one sector (say, tech stocks) blows out another is pumped up (real estate). That in turn is replaced by commodities (oil, natural gas).

The insiders know what's about to burst, and move their money quietly into the next big thing before the public knows what's about to hit. You see frenzied buying in sectors (real estate) that have already been abandoned by "smart money" operators. Making money is all about stealthy insider trading, selling out during panic buying, and timing the markets.

:bounce:

[smirkymonkey]

13. That's how it's supposed to go, but is there any chance of them

occurring all at once?

It seems to me that not only is the stock market on shaky ground, but so are real estate, oil & gas and many other sectors. I don't know why, but for some reason I get the sense that the old rules don't apply anymore when such corruption is so pervasive.

I get the sense that there is a possiblity of something unprecedented happening. Markets were never so global or as dependent upon each other as they are now. I don't know, but I am wondering about the possibilty. It's like the Robber Barons of the early part of the century, except that it's now worldwide.

[leveymg]

14. I agree. Cross-market risks haven't been so great, and fundamentals

more shaky in at least thirty years. That's when Vietnam War debts the 1973-74 Arab-Isareli war tripled oil prices and the US started into a period of double-digit stagflation and Dollar devaluation versus other major currencies. Something akin to that triple-whammy is happening right now.

Not exactly unprecedented, and central bankers have had a lot of practice creating rolling recessions as a means of managing crises. This one, nonetheless, is stacking up to be a major cross-market global crisis. Many financial institutions and corporations are very vulnerable right now because debt loads are high compared to reserves. What's really appalling is the level of national and personal debt. Really unprecedented to have both so high. The risk of defaults on mortgage-based debts and consumer lending is staggering right now.

:bounce:

[smirkymonkey]

17. Thanks!

There were a few interesting posts today in LBN's Stock Market thread, which I read after posting this yesterday, but there are certain experts who agree with your assessment. :hi:

[leveymg]

18. Believe me, on this one I'd rather be wrong. I too am overleveraged

and undercapitalized.

There's only one upside to this. I really think the thing that drives Bush and the Repubs out will be a massive wave of home foreclosures, and the Right-wing's refusal to provide debt relief to the middle-class. The banks will get bailed-out, all right, but the homeowners will be ruined.

A lot of people are going to be desperate and really, really angry.

That one's going to hit awfully close to home.

:bounce: :eyes: :mad: :bounce:

[Kweli4Real]

31. So you're saying that the game is rigged?

Or is there a way to peer into the stealthy, insider trading world?

Is there a way to track key players and mimic their moves?

[FogerRox]

16. just think tulip scandal 1629

maybe a sign of whats to come. Were taking the same as the Dutch in that same era.

[smirkymonkey]

19. What happened there?

I know it had something to do with "Irrational Exuberance" but could you explain it?

[FogerRox]

20. hmm gotta go to work but quickly

big financial collapse-akin to 1929. The dutch had a great economy but then they embraced trans national economic alliances or Globalism. they destroyed everything they built. we are now following the same path.

[Massacure]

15. Yes, it is propped up artificially by the $450 billion dollar deficit.

When inflation and higher interest rates kick in, good game. You, as a member of the middle class, lose.

[sinjamin]

23. Currency Question

Any opinions on the valuations of Euro, dollar, and gold if French reject signing of European constitution?
This is not the perfect place for this question, but is as close as I can get at the moment.

[newyawker99]

33. Hi sinjamin!!

Welcome to DU!! :toast:

[Kmarx]

24. The Coming Crash

I hope your prediction comes to pass!. The country wanted a moron like Bush so let them get their just desserts. :evilgrin:

[Kweli4Real]

32. Except the rain falls on the just and unjust...

they won't get without us getting too. I really don't want to suffer through the depression that my parents told me about. Do you?

[adamd]

26. not really

The economy did have something of an upswing, but it was virtually exclusive to Wall Street, not Main Street (if I may be so cliche). Bush's tax cuts and capital gains tax elimination gave wealthy people a lot of money to freely invest. So the stock market is up, up, up. But corporations for the most part used the additional inflow of cash to increase productivity gains, not hire more people.

So now that the economy is starting to pick up, investors and economists are starting to talk about inflation. Some inflation would be good. It would expand the economy and the average Joe and Jane might actually see some benefit out of all of this. But with inflation comes market uncertainty, and investors don't like that because it destroys the market stability that currently exists (more or less). Stability is good for them because when you have thousands of shares a few cents up or down translates to a lot of money and that's ok to win or lose on a daily basis because you know you'll end up straight in a few days. And people don't flood the market to cash in on huge gains or move stocks around constantly to find a few cents the way day traders did in the late 90's. When there's inflation and the market rises quickly, a lot of people get on board and start day trading which causes market instability and people end up finding themselves holding low value or no value stocks. And if you have a lot of money tied up in the market, that's very bad for you.

So the Fed (Greenspan et al) moves interest rates to keep the market stable. He's suggesting a tax hike (on everybody, I assume) to take money out of the economy to prevent the little people from investing, thus keeping the market stable. I think he also realizes that the massive deficit spending, in combination with the declining dollar value and the trade imbalance is going to result in something very bad for the economy, because it's an unsustainable economic situation. Raising taxes would remedy some of that by taking money out of the economy, raising the value of the dollar, and by inputing more money to the government to allieviate some of the deficit spending.

The reason I suspect Greenspan approves of the privatization of Social Security is because it would input money into the stock market, raising the value of stocks, without any market instability since the money flowing in would be controlled.

I don't think the market is being held up artificially, at least not any moreso than normal. Bush, like Greenspan, knows that his plan won't even begin to come into fruition until the public is behind it. And the most opposition is coming from lower income and middle income people, who voted for him, who typically don't invest in the stock market on their own anyway. I do think that Bush is taking it in for the long haul and making a political campaign out of it to try to win people over on the idea over time, regardless of the state of the economy. If the economy is up he can claim it proves it would be beneficial for people. If the economy is down he can claim it will be a remedy to a bad economy.

I would expect to see Bush push an actual plan next year or the year after, when he's had time to make his case to the public but before any blowback could screw Republicans in 2008.

[sendero]

27. Some people..

.... would consider holding the Fed Funds rate at levels basically below the real inflation rate to be manipulating the markets.

Problem is, they are "pushing on a string", this incredible attempt to boost the economy has barely done anything at all, or maybe it kept us from falling into a serious trough.

Either way, the Fed is now in a damned-if-you-do and damned-if-you-don't situation. Rates will have to rise, and the results on an already struggling economy will be negative.

We can all quibble about just how negative, but anyone expecting a glorious rise from the ashes better have many many years to wait for it.

[adamd]

28. however

Fair enough, but it's not anything different than what Greenspan did in the late 90's during the boom...which admittedly it is market manipulation, but I don't think Greenspan is doing so to give Bush a hand.

[sendero]

30. How so?

Were interest rates kept at the 1% level during the late 90s? I don't think so.

[On the Road]

34. The Markets are Definitely Being Held Up Indirectly

by some of the things posters are mentioning, such as keeping interest rates low.

However, I think you asking about a more direct kind of intervention, such as the fabled "plunge protection team" that allegedly puts in huge orders if the market suddenly starts to tank in order to prevent panic and hold prices up.

I lurk on Clearstation.com quite a bit, and many of the daytraders there seem to be convinced of market manipulation through the major brokerages orchestrated by the Federal Reserve.

Personally, I don't know enough directly to have a clear idea of whether and how this happens. There are enough heavy players in the game with vested interests already. Major brokerages see their trading business decline during bear markets, so they have an interest in preventing it. Major speculators, foreign and domestic are always watching the market and can swing things either way.

Often the effect of speculation is to destabilize. But if people are convinced the market is buoyant, they can also work to prop up high prices. Many, many people today are convince that the averages are sitting on resistance and will go back up. Normally I would not agree with this assessment, but the market is always surprising.