Wednesday, May 12, 2010

Was the Stock Market Rigged?

U.S. companies buy back stock in droves as they hold record levels of cash
By Jia Lynn YangWashington Post Staff Writer
Thursday, October 7, 2010
Hewlett-Packard said in August it would spend $10 billion buying its shares. They are one of a growing number of companies using their cash for this purpose instead of to add jobs to their payrolls. (Paul Sakuma Sitting on these unprecedented levels of cash, U.S. companies are buying back their own stock in droves. So far this year, firms have announced they will purchase $273 billion of their own shares, more than five times as much compared with this time last year, according to Birinyi Associates, a stock market research firm. But the rise in buybacks signals that many companies are still hesitant to spend their cash on the job-generating activities that could produce economic growth.
Some companies are buying back shares partly because they don't want to invest in developing new products or services while consumer demand remains weak, analysts said.
"They don't know what they want to do with all the cash they're sitting on," said Zachary Karabell, president of RiverTwice Research.
Historically low interest rates are also prompting some companies to borrow to repurchase shares.
Microsoft, for instance, borrowed $4.75 billion last month by issuing new bonds at rock-bottom interest rates and announced it would use some of that money to buy back shares. The company already has nearly $37 billion in cash, but much of that money is being held by its operations overseas. The tech company is reluctant to repatriate the money, because it would get hit with a huge corporate tax bill.
A share buyback is a quick way to make a stock more attractive to Wall Street. It improves a closely watched metric known as earnings per share, which divides a company's profit by the total number of shares on the market.
Such a move can produce a sudden burst of interest in a stock, improving its price.
Among the biggest buybacks so far this year: Hewlett-Packard, the world's biggest maker of personal computers, said in August it would spend $10 billion buying its shares. Its shares rose 1.5 percent after the announcement.
In March, the giant snack-food maker Pepsico announced it would raise its dividend and buy back as much as $15 billion in common stock over the next three years. The company's shares rose 1.6 percent that day.
Last month, the board of The Washington Post Co. authorized executives to buy back as much as 750,000 of the company's Class B shares. Its stock went up 4.3 percent on the day of the announcement.
Hewlett-Packard, for one, said it is doing buybacks to maintain the number of shares outstanding after employees cash in their stock options.
But critics say buybacks are a shortsighted way for companies to offload cash when they would be better off investing for the future.
"It's totally wasted money," said William Lazonick, a professor at the University of Massachusetts at Lowell and director of its Center for Industrial Competitiveness. "It does not do anything long-term for companies."
Lazonick added that executives like buybacks because they boost their own stock options.
Defenders of the practice say companies are better off buying back shares if they don't see opportunities to spend while demand remains weak.
"There are times when the best thing to do might well be to buy back your stock and issue it back again at higher prices," said Jim Paulsen, chief investment strategist at Wells Capital Management. "There's nothing wrong with that."
Buybacks have become more popular in recent months as companies look for ways to spend the massive cash piles.
Nonfinancial companies held $1.8 trillion in cash and short-term assets at the end of the second quarter, according to the Federal Reserve. That is just slightly lower than in the first quarter, when corporate America set a record for cash holdings.
A third-quarter survey of nearly 1,000 chief financial officers by Duke University and CFO Magazine found that the executives' optimism about the U.S. economy had dropped by more than 15 percent compared with the previous three months. That is nearly as low as survey results from the first quarter of 2009, when the economic turmoil was in full swing. Half of the CFOs said their companies will keep clinging to their cash, and only 0.7 percent said they expect to hire more full-time employees.
Fed Fraud and Stock Market Crash Bamboozles Investors
Steve Betts
May 09, 2010
"One of the saddest lessons of history is this: If we've been bamboozled long enough, we tend to reject any evidence of the bamboozle. We're no longer interested in finding out the truth. The bamboozle has captured us. It is simply too painful to acknowledge -- even to ourselves -- that we've been so credulous." --- Carl Sagan
That’s exactly what has happened, the United States government in cahoots with the Federal Reserve and a number of the world’s central banks, conspired to defraud the vast majority of human beings out of their wealth. The fraud began back in 1913 with the creation of the IRS and Federal Reserve, and for decades was confined to the US.
The end of World War II allowed the US to exercise vast control over large parts of Europe and Asia, specifically Japan, and they used the Marshall Plan to enslave the rest of the world. The central banks were of course the key. Who did this? Principally the Rothschild’s, Morgan’s, Du Pont’s, Harriman’s, Stillman’s and Rockefeller’s were the first shareholders but Rothschild was the key. The creation was in response to the devastating 1907 stock market crash that decimated Wall Street but did not affect Main Street all that much.
The excuse was that a central bank was needed to protect America’s wealth. What everyone overlooked at the time was the fact that the United States had become the richest creditor in the world, without a central bank, while it was on a gold standard. You see the US Constitution requires gold and silver coins to act as legal tender in the United States. No fiat currencies were allowed as the Founding Fathers had bad experiences with paper money. This begs the question as to why any successful economy would need a central bank when the then current formula for success had produced such wonderful results. The simple answer is that the changes were never designed to protect American wealth. Instead it was designed to be a transfer agent: the wealth of the many would be handed over to the very select few. What’s more it would take place over decades and the tool of choice would be fiat currency, backed by nothing but a promise to pay. No assets required.
They were so good at their job that in real terms a fiat dollar today buys just one percent of what it bought in 1913. Even more shocking is that under the guidance and wonderful leadership of the US Federal Reserve the US has changed from the largest creditor nation in the world to the largest debtor nation in the world. They were able to get away with this shift because the dollar had long ago been accepted as the world’s reserve currency thereby allowing them to print as much as they wanted. Two things happened to upset the applecart: too much debt was created and all the other central banks began to print excessively as well. The world became flooded with “cheap money” and it was loaned out for non-productive purposes. Get that? Truck loads of money were loaned out for no practical, productive purpose. That worked as long as the value of the asset purchased rose allowing debtors to refinance and obtain even more “cheap money”. Then in mid-2007 a funny thing happened, the value of these “assets” mysteriously began to decline and “cheap money” disappeared over night. That meant that millions of Americans who had lived beyond their mean, at the insistence of people like Alan Greenspan, were up a creek without a paddle.
All of this facilitated what we now call the “credit crisis”, and if you believed the Bernanke’s and Geithner’s of the world, it was all behind us and better times were on the way. If that is the case, how do you explain this week’s activities? If things are so good, how come the Dow fell more than 1,000 points in less than two hours? If employment is improving how come the Dow was down almost three hundred points an hour after Friday’s open? Thursday’s biggest sell-off in history, point wise, was immediately attributed to an “erroneous trade” but I don’t believe that. There was a two minute period on Thursday when there were no buyers for anything, nothing, zero, not one share! That has nothing to do with a bad trade; instead it has to do with the perception that real value is non-existent in the market marketplace. It also has a lot to do with the fact that money supply as measured by M-3 is falling through the floor even though the Fed continues to print.
The Fed continues to print huge sums of fiat currency but it never reaches the market place. The five or so institutions that are the beneficiaries of this printing, at almost no cost, continue to squirrel money away at a fixed return, and are making a huge spread. Not one penny goes to loans for the average man on the street, or for small and medium sized businesses. The end result is that the economy shrinks and, in spite of Friday’s unemployment report, the job market is more difficult with each passing day. The real unemployment rate as reported by the US government (U-6) jumped up to 17.1% in spite of the one hundred thousand or so new census workers hired by the Obama administration. Without growth among the small and medium sized businesses, now completely shut out of the credit market, unemployment will continue to rise.
The few privileged institutions who receive hundreds of billions of dollars of “free money” look good on the surface, but it’s just a pig with lipstick. When you look below the surface, you can see that none of these institutions has written off any bad debt. A small percentage of these worthless assets have been sold to the Fed, at one hundred cents on the dollar, and the Fed in turn now holds these worthless assets on their respective balance sheet at full value. The rest of the bad assets are still on the first party’s balance sheets at their full value thanks to some significant relaxation of generally accepted accounting principles. Unfortunately, there are still trillions of dollars of bad assets floating around out there, by last count US $620 trillion in derivatives, most of it OTC and unregulated, and no desire to even discuss the problem much less deal with it. The unintended consequence of all of this is that the “debt problem” will very soon speak for itself. It will take on a voice, it will be well-armed, and it will devastate everything in its path.
I maintain that the Fed plan to give free money to bankrupt institutions was doomed from the start and I think the market agrees with me. That is a major reason why the Philadelphia Banking Index failed to recover 50% of the initial bear market decline, unlike every other major index in the US, and it’s also a reason why on Friday the Index broke below the bottom band of a trading of a trading range that goes back more than one year. That’s also why the number of banks taken over by the FDIC has increased substantially over the last couple of weeks. Four more banks were closed down on Friday bring the total to twenty-seven since April 20th. It is no coincidence that the number of bank failures had jumped just before the Dow suffered a significant setback.
With respect to the stock market we saw the first cracks in the dam this week. It started innocently enough with a small gain on Monday, but Tuesday was a different story as the market fell more than 200 points. This comes in spite of the fact that the Transports made a new unconfirmed closing high on Monday at 4,806.01. Wednesday followed up with a small loss that failed to get anybody’s attention, and then the feces hit the fan on Thursday. The day started out on news of better than expected earnings from several companies but the market opened down and never looked back. The market opened on Thursday, falling to the 10,725 support, stayed there for twenty minutes or so, dropped another 100 points, and the fell like a stone. The intraday low was 9869.62 and just above the February 5th 9,835.09 intraday low and 999 points below the previous day’s close. It’s the first time that I saw announcers on Bloomberg speechless, but something tells me it will not be the last.
While it’s true that Thursday’s close at 10,520.32 was more than six hundred points off of the low, the damage had been done and no explanations were offered other than the “erroneous trade” excuse. When the market drops 1,000 points in two hours there really isn’t a hell of a lot to say. As on trader put it “people were selling into a black hole”. The clowns on TV called it an aberration and thought cooler heads would prevail. Then of course on Thursday night you had the usual parade of idiots who postulated that stocks were now dirt cheap and should be snapped up. On Thursday night and Friday morning the futures market seemed to agree as the June Dow futures contract was up as much as 100 points. Then came the great unemployment news so an up day seemed to be a sure thing. The New York session opened with the cash Dow trading as high as 10,580 but it didn’t last. An hour later the Dow was down at 10,250 and would have kept falling if the Fed hadn’t come to the rescue. It finally ended the week down 140 points at 10,380.43. I myself had called for a rally on Friday thinking that all the King’s horses and all the King’s men would be out in full force trying to put the market back together again. I was wrong.
So where do we go from here? When we went to bed on Wednesday night, over the very long run there were four important Fibonacci support levels in the June Dow futures contract: 10,725, 10,490, 10,377, and 9,572. All but one of these were violated on an intraday bases and the same three were also violated on a closing bases (the June Dow futures contract closed out the week at 10,335), and that is a lot of damage to do in just twenty-four hours! Equally important is that all of these points of strong support now become points of strong resistance. Then I throw into the mix that the market failed to penetrate the 11,245 resistance by more than a mere twelve points and closed below it at 11,205 on April 26th. Then we see not one but two unconfirmed higher closing highs in the Transports, first on April 29th and then again on May 3rd. Add this all up and I can now confirm what I suspected last week, and that is the top is now in and it is a significant top.
In the following ten-year weekly chart of the Dow I have penciled in a few of the important highlights. I’ve shown you the last leg up in the twenty-five year long bull market, ending in October 2007, and I’ve also inserted the initial leg down in the bear market as well as the bear market rally. This is now being followed by the beginning of the second leg down in the bear market. It began on April 27th and will not end until stocks are dirt cheap. Since valuations went to extremes on the upside, I look for them to go to extremes on the down side. In short I would not be surprised to see an average PER of 4 and an average dividend of 9% to 10% when the bottom is finally reached. That translates to a Dow at 3,000, give or take a few hundred points, and will rattle more than a few cages!
A lot of the turmoil was blamed on Greece, or Goldman Sachs, or both but at best they are the seed crystals and the real issue is excessive debt all over the world. Politicians went nuts and the voters let them do whatever they wanted. Now we have to pay the price. Stocks will suffer creating a momentary flow to bonds, but bonds are just another form of debt as is the fiat dollar. Deflationary pressures are benefiting both bonds and the dollar right now, but in the end stocks, bonds, and the dollar will all go down together. That end is almost at hand. The only investment worth making right now is in gold and it is never too late. The yellow metal is greatly misunderstood, and it is misrepresented in the press. For years I’ve read that gold rises only when the dollar falls and vice versa, or when we are in danger of an inflationary outbreak. Obviously that isn’t the case so now I read that it’s a safe haven because of Greece, but problems in Greece were priced into the market months ago.
Gold is now rising in every major currency, including the US, dollar and that’s because smart investors realize that fiat currencies are all in trouble. With very few exceptions, everybody is loaded with debt they can’t pay and it is acting as a drain on the world’s economy. As a result smart investors look for a store of wealth and the only real store of wealth is gold. Notice I say smart investors because the general public has little or no idea that gold exists, and the few that do have been brainwashed into thinking that it is an extremely risky, speculative investment when in fact it isn’t any different than any other investment. Aside from the normal road blocks you also have the fact that the Fed and other central banks continually try to suppress the price of gold and have done so for decades. Only now are their methods becoming ineffective! Finally, most analysts reject that gold is in a bull market, or are now calling a top for a ten year bull market they failed to recognize in the first place.
If any major index, like the Dow for example, had a twelve year chart like this one, that’s all they’d talk about on Bloomberg:
Gold has posted a gain for ten consecutive years and I have to believe that we are still a long way from the end of this run. Bull runs have three phases: accumulation by the smart money, accumulation by institutional clients, and then accumulation by the general public. Gold has yet to enter the third phase meaning that we’ll see at least three to five more years of consistently higher prices with one or two significant corrections along the way. Then of course there exists the possibility that we see a fourth phase as the world’s reserve currency, the US dollar, self-destructs. In this fourth phase gold could actually serve as money or back up some form of paper currency.
Currently gold is experiencing a retest of the October 2009 all-time high and also strong Fibonacci resistance at 1,219.20. The spot price for the yellow metal closed at 1,208.50 on Friday and traded as high as 1,213.50 intraday. It must also be said that gold is extremely overbought at this time, but as we witnessed with the Dow, something can stay overbought for weeks at a time. Personally I would not be surprised to see some sort of pullback this week, maybe down to 1,155.80 or even as low as 1,148.70, over a three or four day period. It would be healthy, but that doesn’t mean it will happen. Over the medium and long run gold only has one way to go, and that is up. First it will test 1,219.20, then 1,298.10, then 1,372.80 and maybe even as high as 1,500.00. Those of you who think that you can sell in May and go away have misjudged this market. The character of gold has changed over the last year and that means that gold’s behavior will have corresponding changes. Besides the idea of seasons only works until it doesn’t.
Finally, gold’s Point & Figure chart continues to sport a bullish price target of 1,310.00 and this is based strictly on price movement. Aside from gold we saw the HUI consolidate gains from recent weeks even though the Dow was a disaster, and that tells me that gold stocks finally have discounted a second leg down in the Dow. The HUI is consolidating these gains above the last high at 450.00 as it carves out a series of higher highs and higher lows. Then there’s silver, the manipulators favorite whipping boy! Whenever the boys want to drive gold down they almost always hit silver first, then the gold stocks, and finally gold, and last week was no different. On Tuesday and Wednesday they hit silver hard driving the price down from 18.75 to strong support at 17.53. Gold failed to break so on Friday the silver bears had to cover their short positions and that drove the July silver futures contract up 93 cents to close out the week at 18.45. Here’s a word to the wise; silver is still dirt cheap here!
So there you have it. It should now be clear enough for anyone with eyes to see that deflation is here and it will ravage all classes of paper “assets”, i.e. stocks, bonds, and fiat currencies. Commodities will also take a beating as the world’s economic engine, China, sputters. Supply will stack up and demand will be on the decline. China’s stock market broke down before the Dow and was a harbinger of things to come, but no one bothered to watch:
As I see it Asia, Europe and the United States are all in trouble and the cause is the same, debt. Strangely enough only Russia can claim that they have very little debt, about 16% of GDP versus 100% plus for the US and Japan. The riots in Greece are coming attractions for what will occur in the United States as Americans wake up to reality, finding a bankrupt Social Security and Medicare, a mandatory health care that will prove to be worse than nothing, and big brother involved in absolutely every facet of their lives. Civil liberty and freedom will be non-existent, given up for the illusion of security. Of course Americans will revolt, and better late than never.
Gold will offer a shelter in the storm but then there is the problem of governments trying to take it away. Maybe you live in the US but you decide to store it in Switzerland. So far, so good! Then the US restricts travel and no longer allows wire transfers to and from America without a special permit. How do you justify obtaining a permit for wiring money from Switzerland, with no explanation as to where it comes from. Eventually you could decide to move, but what about your family and extended family. Who do you take and who do you leave behind? Will the one’s left behind be persecuted for your anti-American behavior? I could go on like this for hours but you get the idea.
For an idea s to how the markets will melt down you should read Jesse Livermore’s account of the 1907 stock market crash contained in Edwin Lefevre’s “Reminiscences of a Sock Operator”. In it Livermore tells of how over a two day period, at the height of the crash, not one buyer could be found. I maintain that history will repeat itself. In the end I think you’ll find a lot of ashes as the distortions I’ve talked about for years will finally be purged from the system. What comes from those ashes is another question altogether. The people that created the mechanism to rob you of your wealth more than 90 years ago will simply dig a hole and crawl in until the all clear is given. They are very patient, have amassed tremendous wealth and power, and will simply bide their time. In short they will be back once the dust has settled, and they probably have a plan as to how they’ll extract wealth from China since it will be the next world power. It’s out of their sphere of influence, and will be an irresistible plum to pick. The United States will be relegated to the second tier of economic powers and will have a long, hard road ahead of it if Americans ever hope to recapture lost wealth and glory. The destructive process has now begun and you unfortunately will live to see it all unfold, live on CNN!
Stock Market Collapse: More Goldman Market Rigging
By Ellen Brown
URL of this article:
Global Research, May 8, 2010
Web of Debt
Last week, Goldman Sachs was on the congressional hot seat, grilled for fraud in its sale of complicated financial products called “synthetic CDOs.” This week the heat was off, as all eyes turned to the attack of the shorts on Greek sovereign debt and the dire threat of a sovereign Greek default. By Thursday, Goldman’s fraud had slipped from the headlines and Congress had been cowed into throwing in the towel on its campaign to break up the too-big-to-fail banks. On Friday, Goldman was in settlement talks with the SEC.
Goldman and Wall Street reign. Congress appears helpless to discipline the big banks, just as the European Central Bank appears helpless to prevent the collapse of the European Union. . . . Or are they?
Suspicious Market Maneuverings
The shorts circled like sharks in the Greek bond market, following a highly suspicious downgrade of Greek debt by Moody’s on Monday. Ratings by private ratings agencies, long suspected of being in the pocket of Wall Street, often seem to be timed to cause stocks or bonds to jump or tumble, causing extreme reactions in the market. The Greek downgrade was suspicious and unexpected because the European Central Bank and International Monetary Fund had just pledged 120 billion Euros to avoid a debt default in Greece.
Markets were roiled further on Thursday, when the U.S. stock market suddenly lost 999 points, and just as suddenly recovered two-thirds of that loss. It appeared to be such a clear case of tampering that Maria Bartiromo blurted out on CNBC, “That is ridiculous. This really sounds like market manipulation to me.”
Manipulation by whom? Markets can be rigged with computers using high-frequency trading programs (HFT), which now compose 70% of market trading; and Goldman Sachs is the undisputed leader in this new gaming technique. Matt Taibbi maintains that Goldman Sachs has been “engineering every market manipulation since the Great Depression.” When Goldman does not get its way, it is in a position to throw a tantrum and crash the market. It can do this with automated market making technologies like the one invented by Max Keiser, which he claims is now being used to turbocharge market manipulation.
Goldman was an investment firm until September 2008, when it became a “bank holding company” overnight in order to capitalize on the bank bailout, including borrowing virtually interest-free from the Federal Reserve and other banks. In January, when President Obama backed Paul Volcker in his plan to reinstate a form of the Glass-Steagall Act that would separate investment banking from commercial banking, the market collapsed on cue, and the Volcker Rule faded from the headlines.
When Goldman got dragged before Congress and the SEC in April, the Greek crisis arose as a “counterpoint,” diverting attention to that growing conflagration. Greece appears to be the sacrificial play in the EU just as Lehman Brothers was in the U.S., “the hostage the kidnappers shoot to prove they mean business.”
The Nuclear Option
It is still possible, however, for the European Central Bank to snatch Greece from the fire and rout the shorts. It can do this with what has been called the nuclear option -- “monetizing” the debt of Greece and other debt-laden EU countries by effectively “printing money” (quantitative easing) and buying the debt itself at very low interest rates. This is called the “nuclear option” because it would blow up the hedge funds and electronic sharks operated by Goldman and other Wall Street heavies, which specialize in bringing down corporations and whole countries for strategic and exploitative ends.
Will the ECB proceed with this plan? Perhaps, say some experts. It could just be waiting for the German election on Sunday, which the ECB does not want to appear to be influencing.