A Ferret In Our Shorts

Wouldn’t it be nice for the Dow Jones Industrial Average to act sane for a day or two? Wouldn’t it be nice for it to just open in the morning and not move more than ten or twelve points in either direction? Of course, that would require an actual ‘market’ where traders and investors decide the minute-to-minute valuation of stocks. Instead, the current indexes can routinely plummet and ascend hundreds of points in either direction seemingly for no reason at all. It’s like someone put a ferret in our shorts and shot him up with crystal meth. Who would do such a thing?

Well, the Federal Reserve has a little program known as the POMO (Permanent Open Market Operations). Here’s what it does to the markets. 

Chart 1 is an intra-day look at the Fed’s ace of deception - the Dow Jones Industrial Average (DJIA). The day is Friday, July 29,2011. To set the scene, the debt stalemate was punctuated by both combatant political parties calling the other out and demanding ‘compromise’. For those unfamiliar with political speak, that means ‘I need you to agree with my position 100%’. Also, GDP readings for the second quarter came in at 1.3% growth which was below the expected 1.6%. These numbers were from the DOPE (Department Of Pathological Embellishment - better known as the Commerce Department). To further illustrate this departments ineptitude, first quarter GDP was revised lower from 1.9% to .4%. That’s not even close enough to consider the number ‘data’. So, I think we all know that we can discount this and any other piece of data that comes from government as a lie. They always over-exaggerate economic data to the upside to fool us into thinking all is well. When is the last time they had to revise a number higher? 

Anyway, Merck announced thousands of layoffs, consumer confidence was lower, inflation was higher, and Treasury default was looming. Understandably, the Dow opened the trading day down about 150 points in the first 15 minutes. It bottomed at 12083. The PPT goes wild when the Dow dips to this area. As readers know from my last publication, Dow 12000 is the Fed Viagra line. A buy program immediately pushed the Dow up some 57 points in the next 15 minutes. The index meandered for the next 45 minutes until at exactly 10:45 AM another buy rally hit the markets pushing the Dow up 70 points in the next half hour. Actually, the Dow rose more than that and even went into positive territory (wiping out the entire 150-point morning decline) for a few minutes. What could whip the Dow index so violently in such short periods of time? How could this index drop 150 points, rise 150 points and then some by mid-morning, and then finish down 100 points on the day? How could virtually every index on the planet be down considerably at 10:30 AM and yet the Dow and her sister indexes recover to positive territory in thirty minutes? 

While the media types were all scratching there heads and looking for explanations, there is only one. Let me give readers some more of the truth. July 29, 2011 was a POMO day. Whenever there is an incredibly volatile day with an abrupt arrest of a market plunge, the Federal Reserve stands front, center, and alone. Yes, the Fed was supposed to cease and desist their market manipulation with the end of QE2 in June. Again, that was  a lie. The Fed has continued to intervene with purchases of Treasuries every couple of days injecting on average $2 billion dollars worth of manipulation. In case readers are wondering, the NYSE estimates average daily trading to be about $35 to $40 billion. The Fed is kind enough on their very own webpage (I suggest readers have a crucifix in their hand if they venture to this website) to list the days of intervention and the time of day of their activity. On this day, the Fed listed the time of intervention as between 10:15 AM and 11:00 AM. I have included this intraday chart of the DJIA with the miraculous thirty-minute rally in the blue box. 

As soon as the Fed concluded their morning manipulation, the indexes resumed their selling. We must also understand that the Fed does not buy Treasuries directly from the Treasury. They buy them from the shill banks that are dealers like JP Morgan and Citigroup with credit entries on a spreadsheet. We must ask ourselves a few questions. Why is the Fed still buying Treasuries? Why must the Fed manipulate bond markets and stock markets? When did it become the Fed’s job to instigate stock market rallies? Why are we so spineless that we cannot tolerate a true market? Yeah, I know. We don’t care how. We just want to make money. Here is a word to the wise. The next POMO days on the Fed’s schedule are August 4 and 8 from 10:15 AM to 11:00 AM. August 4 is the big day. The Fed is coming down the chimney with $3 billion that morning!

DJIA Intraday, 15-minute bars, 7/29/11

Chart courtesy StockCharts.com

Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. Advisory services offered through BMF Investments, Inc.