I remember sitting in my car in college listening to Howard Stern on the radio before class sometime in 2000. Howard and his crew were talking about the stock market which was roaring. The Tech Bubble was in full effect. The sky was the limit. If you weren’t in the market you were losing out. It was a similar vibe to the Housing Bubble which would emerge only a few years later.
Stern took a call from a listener.
The caller, who sounded like he might have been on the tail end of a serious bender explained in candid terms that he was affiliated with some unsavory characters and that he and his unsavory friends were manipulating the market up. He said there was little under the prices of many of the stocks which were rising at breakneck speed.
In a few months we would see how right that caller was.
What seems like reality often is not in stock markets. Being able to decipher what is actually going on makes all the difference. And almost no one can figure things out with any consistency. That goes even for the people doing any rigging.
In the attached article Jon Crudele argues that central banks are rigging markets. The Bank of Japan has explicitly said that it is, and I suspect, like Jon that our Fed has intervened to prop shares.
So what’s wrong with that? The Fed steps in and buys the market and the market goes up. Win for everybody, or at least everybody who owns stocks right?
Well, no. This (alleged) intervention masks the actual price of stocks, which would likely be lower, thereby sewing the seeds of a future crash. Things will get too harry for the Fed to handle at some point and all those fake prices are going to get real, real quick.
When will this happen? I wish I knew.
Such manipulation also shuts people out of markets, and not just stock markets. Because the reversion to economic reality is staved off for a time people lose the opportunity to enter the stock market, the housing market, even the jobs market at a price which is close to reality. As such the real value which would be created in a real market with real prices is lost. Capturing real value in an economy is how one builds wealth.
So, sorry young people. The central banks are going to intervene to keep asset prices high, and to keep pensions for babyboomers from imploding (at least for now.) You are going to have to deal with the overvalued stock market, housing market, and other markets until the day of economic reckoning comes which ought to pummel any portfolio you’ve been able to cobble together.
(From The New York Post)
With stock prices rushing far ahead of economic reality over the last six or so years, more experts in the financial markets are coming to the same conclusion — even if they don’t fully understand how it’s being rigged or the consequences.
Ed Yardeni, a longtime Wall Street guru who isn’t one of the clowns of the bunch, said flat out last week that the market was being propped up. “These markets are all rigged, and I don’t say that critically. I just say that factually,” he asserted on CNBC.
Yardeni’s claim is the most basic one: that the Federal Reserve won’t do anything that will upset Wall Street and, in fact, is doing all it can to help the stock market.