Yes … the Stock Market Is Rigged
We noted last year:
Several central banks are directly buying stocks. They include the central banks of Switzerland, Japan, Israel, the Czech Republic, and a total of 23 percent of all nations worldwide. (And it has long been rumored that the Fed buys stocks through proxies.)
The Wall Street Journal adds details as to the Japanese stock purchases:
The Bank of Japan’s aggressive purchasing of stock funds has helped Japanese shares climb to multiyear highs in recent months. But some within the central bank are growing uncomfortable about the fast-paced rally and the bank’s own role in fueling it.
Since Gov. Haruhiko Kuroda took office in March 2013 and introduced monetary easing of what he called a “different dimension,” the central bank has sharply increased its buying of baskets of stocks known as exchange-traded funds. By directly underpinning the market, officials have tried to encourage private investors to follow suit and put more money in stocks in the hope of stimulating the economy and increasing inflation.
During the past two years, the central bank entered the stock market roughly once every three days, picking up a total of ¥2.8 trillion ($23 billion) of ETFs that track Japan’s major stock indexes, according to Bank of Japan records.
Analysts say the bank’s action has been a significant driver of Japan’s stock-market rally in recent months, combined with hefty purchases by the $1.1 trillion Government Pension Investment Fund. Their buying has often countered selling pressure from individuals in the market and made up for a weaker appetite among foreign investors.
BOJ officials used to be cautious about purchasing ETFs, worried that it could distort market activities and put the central bank’s own financial health at risk. But under pressure from politicians following the global financial crisis, the bank changed its stance in late 2010.
Other countries aren’t so forthright …
John Crudelle notes:
The Wall Street Journal carried an intriguing story on March 11 about how the Bank of Japan was “aggressively purchasing stock funds.” (The Journal is owned by News Corp., the parent of The Post.)
“By directly underpinning the market, [Bank of Japan] officials have tried to encourage private investors to follow suit and put more money in stocks in the hope of stimulating the economy and increasing inflation,” read the report with a Tokyo dateline.
That’s called rigging the market for a higher purpose, or hoping people who can afford to invest in stocks will make lots of money and spend it. The benefits, Japan’s central bank believes, will then trickle down to the rest of the economy.
The Journal provided lots of details that I won’t get into here. But the paper also presumed that all these central bank stock purchases were being done on the Tokyo market and that only the shares of Japanese companies were being rigged.
That’s not necessarily the case. The Bank of Japan — and other central bankers around the world — could easily be purchasing shares of American companies to help out the US stock market.
And Japan could even be doing it with the blessing of Washington, which is afraid any direct intervention in equities on its part would be discovered by nosy people like me.
Last fall, we learned that one American exchange has made intervention in — rigging — foreign governments easier and cheaper to accomplish. In October, it emerged that CME Group, the Chicago exchange that trades options and commodities, had an incentive program under which foreign central banks could buy stock market derivatives like the Standard & Poor’s futures contracts at a discount.
As I’ve reported many times, S&P futures contracts are the vehicle of choice for rigging the market. They are a cheap and very powerful way to cause an artificial buying frenzy.
After the market’s sizeable drop on Wednesday — the Dow alone lost 292.60 points — be on the lookout today for aggressive S&P futures buying today. It could start in Asia or Europe, but it almost always occurs.
Foreign central banks, of course, really don’t need a discount to buy S&P futures contracts. That’s like billionaires clipping cents-off coupons. But what the CME’s discount tells us is that the Bank of Japan and other central banks are probably already customers.
So the rigging of US stock markets by foreign entities has likely been going on for some time.
Has the US ever directly rigged the stock market? I’m sure it has. The sloppiest attempt seems to have occurred in 2008 during the financial crisis, when Washington was sure our whole financial system was toppling.
Phone logs that I received showed numerous calls between Treasury secretary Hank Paulson and Wall Street banks — Goldman Sachs, in particular — that seemed to coincide nicely with stock market rallies.
Unlike the Bank of Japan, Washington would have been coy about rigging the stock market and probably would have used proxies. The New York Federal Reserve Bank, for instance, would wink and nod at its favorite banks, and trades that turn the stock market upward would suddenly be made.
The Fed has admitted that one of its main policy objectives is to boost stock prices. Many well-known financial analysts – such as Jeremy Grantham, Charles Biderman and Scott Nations – say that the feds manipulate the stock market. And see this, this and this.
And the government facilitates fraudulent acts and fraudulent accounting by big corporations, and always settles prosecutions for pennies on the dollar (a form of stealth bailout) … which allows the companies to avoid losses and to falsely inflate their valuations.