What’s going on with the U.S. stock market’s amazing performance in these pandemic times?
All Psychology?Nobel laureate and financial legend Robert Shiller thinks the market’s behavior has less to do with market and economic fundamentals, and more to do with crowd psychology.
But where’s the crowd in the market? Sellers (should) outnumber buyers.
Trading volume is uneven at best, and asserting that market behavior is driven by investors' assessments of “other investors’ evolving reactions to the news,” as Shiller does, rather than the news itself, would seem to detach market behavior well beyond the realm of economics or real live financial situations.
Numbers Don’t Add UpFor one, the economic data has improved, but that can’t justify the record numbers we’ve seen lately. Sure, manufacturing orders are up over the past quarter, and unemployment claims are down, but those numbers alone aren’t nearly enough to justify or explain the market’s spectacular performance this year.
Future Uncertainty AboundsThat’s not normal. Typically, uncertainty is one of the main forces that drive stock markets downward and raise volatility.
This is especially true with future uncertainty, of which 2020 has seen plenty already and surely isn’t through it by any stretch of the imagination.
Where to begin with the 2020 future uncertainty list?
Actually, any place will do.
But wait, there’s been more uncertainty for the future—much more, in fact.
And yet, still the markets rise to record highs.
How can that be?
It’s a Federal Reserve MarketThe answer may well be, as any stock trader or savvy financial adviser will tell you, to “never bet against the Fed.” The meaning of that adage is clear: The Federal Reserve drives the market as well as the economy. That’s as true today as it’s ever been.
There’s a very good reason for this, and it has little to do with market forces and much more to do with foreign policy. The U.S. equity markets are an effective instrument used by the federal government to work with or even reward foreign nations.
“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. ... 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.”Did you get that? S&P futures contracts are the vehicle of choice for rigging the market.
Crudele also pointed out, in a very modest way, just who the primary market players are: “Foreign central banks, of course, really don’t need a discount to buy S&P futures contracts. ... The rigging of US stock markets by foreign entities has likely been going on for some time.”
The U.S. government would be foolish not to leverage them to their advantage, just as it leverages the reserve currency status of the U.S. dollar to its advantage.
No sleight of hand or misrepresentation.
But Crudele is neither the first nor the only one to point this out.
Catch that? The U.S. government manipulates the stock market.
But the U.S. market is the most effective, efficient, and prolific money machine on the planet, bar none. That’s no exaggeration and is precisely why the world comes to Wall Street.
It’s also a big reason why the markets are up when the rest of the country has been down. The world needs financial help, and the U.S. stock markets are there to provide it. No behavioral theories or investor sentiment observations needed.
And, yes, surprise!—The biggest players make the rules. That’s the way it is and how it always has been.
Just like the old adage that war is too important to be left to the generals, the stock market is too important and far too valuable a foreign policy asset to be left to market forces.