Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Fed Rigs Markets, Not the Flash Boys

Stock-Markets / Market Manipulation Apr 15, 2014 - 05:34 PM GMT

By: Michael_Pento

Stock-Markets

There’s been a lot of attention being paid to high frequency trading (HFT) as of late. The question has been raised as to whether or not HFT rigs markets. It is true that HFT adds nothing to GDP and is simply a legalized form of high-tech front running. However, the real problem with the stock market—and the economy as a whole—isn’t the fact that HFT skims pennies off transactions from institutional traders; but rather that the Fed has rigged interest rates and asset prices to the extent that investors can no longer distinguish reality from fiction.


It is well known that the Fed has already purchased trillions of dollars’ worth of MBS and Treasuries since the start of the Great Recession. It also is no secret that the Fed Funds Rate has been pegged at zero percent since the end of 2008. Yet, somehow, this is not considered rigging the market. Nor do these conditions elicit the proper scrutiny of most investors. But instead, are nearly universally embraced as the perfunctory and necessary undertakings by a prudent central bank.

Market participants are ignoring the fact that the cost of money and the supply of credit and savings--the most important signals in an economy—should be set by the free market and not manipulated by the Fed.  But investors are now taking their ignorance a step further. Since investors refuse to acknowledge the central bank’s unprecedented influence in monetary affairs, it then follows that they have also deluded themselves into believing the Fed has not been the primary driver behind stock market gains.

Wall Street is fond of claiming that earnings growth has been relatively healthy throughout this “recovery” from the Great Recession and that earnings are the “mother’s milk of stocks.” Earnings growth comes from consumer spending because consumption drives the U.S. economy. In fact, seventy percent of U.S. GDP is derived from consumption. Therefore, it is logical to conclude that this was the reason behind our government and central bank’s efforts to boost consumption following the credit crisis.

Forty nine percent of Americans receive transfer payments and yet only 47% of U.S. citizens pay Federal income taxes. The Fed has monetized $3.5 trillion worth of government obligations since 2008. It did this in order to allow the Federal government to run trillion dollar deficits for years on end without debt service payments spiraling out of control.

It is abundantly clear that the Fed rigged lower debt service costs for both consumers and the government in order to artificially boost consumption. In addition, keeping interest rates at record low levels directly re-inflated bond, real estate and equity market bubbles. This further boosted money supply growth and fueled greater consumption.

Since real wages have been falling, our government has sought to boost consumer spending by propping up asset prices and lowering interest expenses, rather than seeking a viable market-based economy.

Therefore, it is completely silly to believe our stock market is not rigged. It is. But much more so by the government than it is by the “Flash Boys”. The markets, and the economy as a whole, are rigged in favor of the wealthy and those involved with financial services, but against the middle class and those that embrace free markets.

To believe otherwise is to claim that interest rate levels have no relationship to; debt levels, money supply growth, asset prices, equity market values or economic activity. Only a fool would then maintain that the Fed has not rigged markets. And it has done so for the direct purpose of artificially boosting consumption, which has led to an increase in GDP and earnings growth. This has in turn created a synergistic effect and spurred stock prices to an even more unsustainable level following the initial boost received from the Federal Reserve.

Once the Fed stops buying banks’ assets (the very essence of QE) these institutions will have no need to replace them. Therefore, the money supply will shrink as asset prices tumble. It is then logical to conclude that the end of the Fed’s manipulation of interest rates and money supply will lead to a collapse of this phony consumption-driven economy, as it also takes the stock market along for the ride down.

Michael Pento is the President and Founder of Pento Portfolio Strategies and Author of the book “The Coming Bond Market Collapse.”

Respectfully,

Michael Pento
President
Pento Portfolio Strategies
www.pentoport.com
mpento@pentoport.com

Twitter@ michaelpento1
(O) 732-203-1333
(M) 732- 213-1295

Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.
               
Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. 
       
Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career he spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Michael Pento graduated from Rowan University in 1991.
       

© 2014 Copyright Michael Pento - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Pento Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in