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Is the US Government Pumping Up the Stock Market?

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The truth? No one is driving this train.

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By now everyone has seen some version of the statements made by Charles Biderman, of TrimTabs, suggesting that the government manipulated the stock market.

"We know that the US government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers. Why not support the stock market as well?" Biderman said in a statement last week. "We have no way of proving this," Biderman said, "but what we do know is that it was neither the economy nor traditional sources of capital that created the boom in equities."

And so, with no way of proving it, we're left with the simple conjecture that because nothing can possibly explain the rally from last March, a conspiracy must be afoot. Quod erat demonstrandum.

However, when one takes a closer look at the TrimTabs argument, the main problem is that it only holds when looking at the S&P 500. When you look at all other worldwide risk markets -- currency crosses, commodities, corporates of all stripes, securitized assets, equities -- they all went up in price. It was a global move to risk. And simply put, there's no way that the Federal Reserve was able to "engineer" such a thing globally.

Moreover, they all went up in price, more or less, at the same time, so it's not as if the US government "catalyzed" the, say, SP futures overnight and somehow that got people to buy, say, the Mexican peso, the Thai baht, or stocks in whatever corner of the globe you want to look.

Someone I respect agreed, for a moment, but then suggested that it wasn't the Fed acting alone, but rather every central banking authority... worldwide, acting in concert. Well, bubba, you got me there. If you shouldn't fight the Fed, you for damn sure shouldn't fight all of them at the same time, and especially not the ones that deal in currencies and languages most of us have never heard or seen up close.

So, what to do? Well, before we slip into the straitjackets just yet, let's back up a bit and study what really has been going on.

The irony is that the manner in which financial markets have acted not just since March but from 2000 to now -- worldwide -- actually decreases the plausibility that there's some active conspiracy to manipulate markets. The fact that risk markets have moved together can only support the idea that global risk appetites are the only source.
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No positions in stocks mentioned.

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