There are no markets anymore – only interventions. – Chris Powell, Treasurer of GATA
Markets are supposed to act as information transmission mechanisms, with asset prices reflecting all of the fundamental information that goes into the process of “price discovery.” But when Central Banks and Governments interfere – or intervene – in markets, it completely disrupts the information transmission, price discovery function of markets.
If Central Banks and Governments interfere with markets, there’s no reason to even have markets and it becomes completely useful to participate in financial markets in any capacity, unless of course you have access to the inside information connected to the market intervention.
The extreme volatility of the markets right now is nothing more than 100% evidence of Federal Reserve intervention in U.S. markets. It also reflects the extreme degree to which the Fed is interfering and manipulating the markets. Take yesterday for example:
This intra-day graph reflects the tug-of-war that occurred among the Fed’s interventions to prevent the market from a catastrophic drop, the hedge fund algo programs trying to time the Fed’s interventions and the rest of the market trying to unload extremely overvalued stocks. That demonstrates the degree to which the U.S. capital markets have gone completely off the rails.
It is now widely understood and accepted that Central Banks are actively buying stocks in order to support the equity markets. Japan openly admits this. The Swiss National Bank files SEC 13-D filings disclosing its purchases.
If central banks purchase stocks in order to support equity prices, what is the point of having a stock market? The central bank’s ability to create money to support stock prices negates the price discovery function of the stock market.
Dr. Paul Craig Roberts and I co-authored a report which discusses the issue of Central Banks buying stocks. As it turns out, the Fed is likely the entity funding the Swiss National Bank’s purchases of stocks like Apple and Google. You can read the entire article here: Central Banks Have Become A Corrupting Force
With Central Banks attempting to control the direction of markets as a means of dictating policy, it has made any participation in the financial markets completely meaningless.
This will not end well. History tells us there’s a limit to a Government’s ability to manipulate markets. At some point the money printing and market support mechanisms will fail and the result will be much worse than if they had let the markets freely determine the outcome. It’s not a question of “if,” it’s just a question of “when.”