SoT Market Update: Fed Market Intervention And Stock Market Fraud

The Shadow of Truth presents a “Market Update” in which we discuss the extreme fraud and deception that has engulfed the stock market – see below for our audio discussion:

The governments in my view, with their agents the Federal Reserve and other central banks and with the treasury department, they will do anything not to let asset prices go down…If the stock markets go down, I’m convinced all the central banks will buy stocks. All of them. – Mark Faber on CNBC

The S&P 500 has clawed back nearly 80% of its 250 plunge that occurred at the beginning of 2016.  The pervasive “muscle reaction” of mainstream investors is to behave as if the nascent bear market in stocks is already over and we’re headed to 30k on the Dow.  This tendency is epitomized by Cramer’s latest “c’mon on back in, the water is fine and stocks are cheap” declaration about a week ago.  This graphic below exemplifies the current  mainstream financial media narrative (sourced from Twitter with SoT edits) click to enlarge image:

This graph shows the number of stocks in the Russell 2000 index which have gained 50% Untitled11for more in the last month of trading since October.  As you can see, up until the current bear market dead-cat bounce, the market is “hot” when 20-30 stocks move up 50% in a month.  In the current market nearly 80 stocks have moved up in the last month.   This graph shows the omnipresent footprints of both the Plunge Protection Team and HFT trading.   It’s gotten to the point at which every time the stock market seems ready to sell-off hard, some sort of “invisible hand” comes in and scoops up stocks, driving the market back up.

The other highly fraudulent aspect of this market is the way earnings are reported. Companies now report GAAP and “non-GAAP” earnings.  The difference between the two presentation methods can be summed up as, “somewhat fake earnings” and “mostly fake earnings.”

UntitledIn 2015, 20 of the 30 companies in the Dow Jones Industrial index reported non-GAAP earnings.  For 18 of these 20, non-GAAP EPS was higher than GAAP.  On average, non-GAAP earnings were 31% higher than GAAP for these 20 companies.  In 2014, non-GAAP was 12% higher than GAAP for the non-GAAP reporting companies (FACTSET.COM)  This illustrates the degree to which companies are now going to disguise and/or fabricate their earnings.

As if to throw gasoline of the fire of fraud and deception which has engulfed our financial system, most large corporations are now borrowing money in order to buy back their shares.  This benefits no one except the insiders who receive huge stock-laden compensation packages and then turnaround and sell their stock into the company’s buyback program.  At its root, this is nothing more than a massive transfer of wealth from shareholders to insiders.  Why not just ask the shareholders to get out their checkbooks and send insiders a personal check instead?

 Here’s an idea for reform, which of course will never happen:  prohibit insiders from selling shares whenever a company has a shareholder buyback program in place.  But don’t hold your breath waiting for that to happen….

8 thoughts on “SoT Market Update: Fed Market Intervention And Stock Market Fraud

  1. The obvious question is, “When will the manipulation stop?” I say never. Short of criminal prosecution (which we all know will never happen) nothing will stop the fraud, not even in the “long term.” The same holds for gold and silver manipulation.

    1. The manipulation stops working in the PM’s once profound [wholesale] shortages break the physical selling price from the paper/contract/spot prices.

  2. If you look at the chart of Wall st darling Facebook, you can see the declining trading volume despite the recent run up in price. Sure, the Fed has endless reserves but the market is long overdue for a correction in the near term. All the traders who are gung ho and drooling over break out charts now will be left licking their wounds when the bear mauls them again. The gains made in the past few weeks will be wiped out and then some. January was not an aberration, it was just an early sample.

  3. Rory seems absolutely certain once the bottom is reached in the next correction/crash, that the markets will never recover to these current numerical numbers. I think they can. QE and who-knows-what-else to accomplish that. However…to accomplish that numerical recovery the purchasing power of the dollar will probably, as a direct consequence, be greatly reduced. And with a system moving towards hyperinflation the numerical values could be much higher.

    1. The dollar is already crushed – because it is considered worthless, money has gone into assets considered as “real” value, ie. real estate. Rents have doubled over the past few years. While a few enjoy watching the value of their homes go up, the majority are suffering greatly because they are neither capable of buying a home nor can they bear the pain of exorbitant rents.
      If this is what a “bull market” with the “economy is doing great!” feels like, one can only imagine how bad things will be when the economy goes into a recession – which it will.

  4. The corporate share buy back programs using borrowed money allowing insiders to dump their shares is the biggest ripoff since the Louisiana Purchase. I had never really thought about that before. Thanks for the clear explanation.

  5. I’m going to go out on a limb and predict that the indexes are lower by end of next week no matter what the Fed does at 2:00 pm today.

    If they hold or go negative (or follow the ECBs lead and print more stimulus), the markets may bounce higher for a bit. If they raise rates they may also bounce higher, then sell off.

    Market behavior is crazy these days, so anything can happen.

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