Anyone who follows the Financial Market Vigilante blog and has read my book, Theory of Financial Relativity , knows that my research looks at the U.S. financial markets systematically. Finally your claim that interest rates follow fundamentals seems to be at odds with your figure 1. What that figure brilliantly shows (and i realized a long time ago) is bond rates more or less act as if current rates will prevail in the future. Can you share the chart on Fed asset purchase vs Bond yields, Corporate yields, Stock prices, GDP for these years (2009-2014) Also share dollar index chart during this period. It controls the rate by using temporary open market operations (TOMOs) called repurchase agreements (repos) but it doesn’t directly set the overnight interbank lending rate.
I don’t think the primary deal banks even lend to each other now because they all have way too much reserves at this current time. Take Apple, for example, who’s issued $20+ billion in debt this year just for stock buybacks (even though they have $200 billion in cash). Now, Charles Biderman, CEO of TrimTabs, argues that the government may, in fact, have been buying stocks to prop up the stock market.
Given that 25% of the top 50 hedge funds in the world use TrimTabs’ research for market timing, it is a credible source. This type of intervention could explain some of the unusual market action in recent months, with stock prices grinding higher on low volume even as companies sold huge amounts of new shares and retail investors stayed on the sidelines. And if the stock market tanks again in 2010, it might add circumstantial evidence to a short-term attempt to prop up the market by the government.
For example, Tyler Durden of ZeroHedge has pointed out that virtually all of the market’s upside since mid-September has come from after-hours S&P 500 futures activity. If we were involved in a scheme to manipulate the stock market, we would want to keep it in place until after the wealth effect” put a floor under the economy of, say, three quarters of positive GDP growth. Assuming the economy were performing better, then ending the support for stock prices would be justified because a stock market decline would not be so painful.
The stock short sale -proves the ultimate in naivete of the American public about financial matters. And now that the really stupid money has all but dried up in the stock market, the government has stepped in to buy shares so that these swindlers don’t ever go without! Based on this analysis, the US equity market should have a bullish tailwind this week.