If you watch the market close enough, tick by tick everyday, you notice things. They start to add up and you can’t avoid the feeling that the markets are tainted, manipulated. If not, they have gotten really, really stupid.

I mention these things from time to time, the most interesting being that every rally is futures led. Buyers are not buying stocks because they like the fundamentals, buyers are just buying futures because they want in the market. Or do they even know what they want?

Another was yesterday. The Russell 2000 ETF, IWM, is closed through a transparent auction process. Nearly everyday this auction process is to buy in a large way. Sellers do fill, but the buying normally outweighs the selling. Yesterday was especially interesting: a buy order for a million shares of IWM popped into the auction cue very early, around an hour before the close. Not too many noticed, however, and by the time the auction completed the closing rotation, the IWM popped to a closing price of 70.73, a huge $0.50 higher than where you could buy it one second before and where you could buy it one second after.

I ask you, why would any fiduciary enter an order like this other than to signal to the market that it is going up? Why would any fiduciary want to pay an artificially high price for his investors? Logic dictates that this is either manipulation by a non-economic entity (infinite capital) or someone really, really stupid.

I can’t rule out the latter, but after a while you would think fiduciaries like this would be out of a job. Regardless. It tells us one thing: there is very little information in the market right now… there is only volatility. That volatility is a function of the ever decreasing liquidity from deflationary pressures (the lower the liquidity, the higher the volatility) and the fact that this market has now become a “news” market. There is so much happening, mainly from the stain of imbalances and too much debt, market participants change their minds with every new piece of news and every rumor.

From the Hank Paulson show on TV every morning explaining to investors that “all is contained” and “improving” and that this is “just a liquidity issue” (completely wrong, it is a solvency issue) to government bailouts and cajoling, markets are being influenced more and more in the short run by government. This only serves to exacerbate the unwinding when markets uncoil.