There are conspiracy theories floating around to explain the unexplainable rise in stocks. http://seekingalpha.com/instablog/4...is-the-fed-buying-stocks-to-reflate-the-banks Trim Tabs says the Fed has been buying stocks : http://www.fool.com/investing/general/2010/01/08/is-fed-buying-behind-the-stock-rally.aspx Something is definitely wrong with this rally since July. This type of action is unprecedented, retail inflows have remained very low. Where does the money come from ? Hedge funds have participated but they weren't in it for the long haul and are probably mostly out by now. Yet there hasn't been any correction. If the Fed bought stocks , how come that cannot be detected on their balance sheet, and how could they get away with it ? How would they go about doing this "through the banks" like some say they could have done ? Is there any evidence the big banks have loaded up on stocks ? What about a supposed $1 trillion of short positions last year that needed to be unwound and thus provided fuel for the rally ? Is that number correct ? Could it explain everything ? It seems to me that maybe a big part of it but my guess is by late summer something else was at play . And where is the retail selling ? I have been liquidating long term positions throughout summer , that was a mistake in hindsight but I am sure most long term retail investors have done the same and are still happy with it. Baby boomers would be nuts not to seize that chance to get out after the 2008 heart stopping drop . Because even if it goes to the moon, who wants to ever risk another drop like the 2008 one?
Well, it's either them or the tooth fairy. Just a question of whether you believe in the tooth fairy. But seriously, it's just the carry trade from the trillions of printed USD. Not really central banks but the bulge bracket firms that have doing it.
0% interest rates can't be the only explanation, Japan had zero interest rates and stocks have trended down since 1990, you need something else for a non stop straight up rally like we are seeing. And if the banks bought stocks , how did they know it was going to be free money, who 's backstopping them and the stockmarket ? Lastly are there enough good reasons for the Fed to do this and hide it from the public (Bernanke testified under oath that they didn't do it) ?
Yep. I have no doubt the distortions they have created are somply unbelievable. What are the risks? no one knows until an accident happened
The point of the article is to ask questions and then to continue asking them even as he answers them. Short covering and an increase in risk appetite are responsible for this rally. The increase in risk appetite came from high yields in corporate bond markets and an increasing expectation of inflation, which discounts present dollars and reinflated commodity markets. Equity markets followed in the slip stream on decreasing volumes and volatility.
And why would there be increasing expectation of inflation? Oh right, because of Fed monetary policy. Back to square one you go now.
it will be limit down for days or do mean the exchanges will be shut down indefinitely? is that what u mean by unwinding?
Must be easy for the Fed, "let's buy stock while it pays more dividends than we pay interest, and we can decide when we want to start raising it!"