Telltale Signs That a Significant Correction Isn't Imminent 37 comments
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As has been the case for a while now, in regard to financial stories reported in the media, a breaking story is reported that is often followed by a completely contradictory story just several weeks later.
The latest example of this is the following. On May 6, Friedman, Billings, Ramsey Group analyst Paul Miller stated that J.P. Morgan Chase & Co. (JPM) “would probably be the only one of the 12 commercial banks submitting to the stress tests that won’t need more capital.” Several weeks later, on June 1st, J.P. Morgan Chase (JPM) announced that it planned to raise $5 billion in a secondary offering.
Other large financial institutions, such as American Express (AXP) and Prudential Financial (PRU) also announced respective secondary offerings of $1.25 billion and $500 million.
In my May 12th article, “US Bank Shares: The Pump is Almost Over, Get Ready for the Dump”, I noted the “urgency of many financial institutions to complete their secondary public offerings of stock and debt as soon as possible.” However, given that one of the biggest beneficiaries of this crisis, JP Morgan, has just announced a secondary offering that may not be completed until the end of June, we can now be assured that the markets will not experience an extended correction until JP Morgan has completed its secondary offering.
Thus for now, we can expect this US market rally to continue or at least to channel up and down for a little while longer without an extended downturn until JP Morgan and other large financial institutions have completed their secondary offerings. While volatile trading days over the next couple weeks is not out of the question, and even likely, I believe that the volatility will remain range bound in the very short-term.
Since JP Morgan just announced its intentions to raise capital yesterday, it is highly unlikely that we will see a strong, sustained downward trend in US markets commence for at least another couple of weeks if not a couple more months. However, other important “triggers” in the international world outside of the US will determine if we see this sustained downward trend in a couple of weeks versus a couple more months.
The US stock market is a vastly different creature from the US economy, and due to massive government intervention, the US stock market can continue to rise for extended periods of time even while the fundamentals of the economy continue to deteriorate. There is no experienced, diligent observer of US stock market behavior that will deny the existence of huge anomalies in market behavior in recent weeks that point to massive intervention.
Just consider this video where the commentator notes that during one recent trading day, an estimated $10 to $20 billion entered the US markets and traded S&P futures contracts to prop up general US market indexes during the last 7 minutes of the trading session. In response to this massive injection of capital in the last 7 minutes of market trading, the analyst states, “Who has that kind of money to move the market?” The answer, of course, is the Plunge Protection Team.
I, myself, in carefully monitoring US stock market behavior in recent weeks, have seen these same massive anomalies indicative of market intervention specifically in the trading behavior of many large US financial stocks. Though the bottom title in this video states, “Is the Rally Over?”, there is little doubt and should be little argument over the fact that the US Federal Reserve and the US government will not allow the rally to end until their favored financial institutions have had adequate time to complete their secondary offerings at artificially propped-up share prices.
Do I still believe a very large correction is inevitable in the future? Of course. And when it happens, it will most likely be a very drastic event. But certainly, the Plunge Protection Team will not allow the downturn to commence until after all large US financial institutions have had a chance to complete their secondary offerings.
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This article has 37 comments:
We can not stop the fleecing only protect against it. However I have had to get out of my shorts since the pain has been to much.
Your speculative report tells nothing except more conspiracy theories. Everyone can speculate but news reporting need to have certain factual content. So show the evidence of this special protection team. The last minute buying is essential short covering due to some late news and fear of sudden spike in prices next day.
Right now, the trend is <b>beginning<... to be up. Materials (XLB), which I recommended, are doing particularly well. When the trend flattens out, then it might be time to get out.
BUT it seems they keep pumping the market... I think it goes higher until end of summer .. Reasons why? Does it matter? Follow the money
Thanks for providing some peace of mind that we can now own stocks for the short-term. What signs / metrics do you look for to determine when the next big correction is coming? You mentioned not in few weeks or maybe months ... so are you saying anytime >3 months? I'd be interested in more concrete, actionable insights.
To me, these are nothing more that desperate excuses to why so many previous bearish declarations have been wrong.
On Jun 02 08:50 AM gurb wrote:
> Dear Kim,
>
> Your speculative report tells nothing except more conspiracy theories.
> Everyone can speculate but news reporting need to have certain factual
> content. So show the evidence of this special protection team. The
> last minute buying is essential short covering due to some late news
> and fear of sudden spike in prices next day.
This propping up is setting up a great short-selling opportunity down the road.
Fatcat, the rise in oil prices also signifies 'a green shoot of recovery', a message the gov't are clearly trying to push, despite much evidence that the increase is largely speculative demand.
Frankly, it's impossible to do what you describe, since the Fed is blocking We The People from find out where We The People's money went!
Ron Paul will hopefully succeed in getting an audit of The Fed.
On Jun 02 08:50 AM gurb wrote:
> Dear Kim,
>
> Your speculative report tells nothing except more conspiracy theories.
> Everyone can speculate but news reporting need to have certain factual
> content. So show the evidence of this special protection team. The
> last minute buying is essential short covering due to some late news
> and fear of sudden spike in prices next day.
seekingalpha.com/autho...
: p
On Jun 02 11:03 AM thiazole wrote:
> I'm glad I'm not the only one who is growing tired of the conspiracy
> theories. The bears on this forum are so dumbfounded that the economy
> is showing signs of life and that the stock market is responding
> to that, that they moved to a few steps short of putting on aluminum
> foil hats to keep the CIA out of their heads.
>
> To me, these are nothing more that desperate excuses to why so many
> previous bearish declarations have been wrong.
"For some weeks now this weekly review has ‘called’ Q1 or Q2 2009 as the trough of the economic cycle. Initially there was much risk in the statement as the global and US recovery was by no means certain, but as the weeks have progressed the ongoing stream of economic data has increasingly supported this view. The consensus among market commentators has also moved towards our more optimistic pro-recovery stance and now a Q3/Q4 recovery is a mainstream prediction, rather than the hopeful rhetoric of the enlightened minority. Our view did of course fully consider the unusually bitter and sharp contraction in growth primarily caused by very poor leadership in the global banking sector, ineffective regulatory risk controls and appalling credit procedures in the mortgage and commercial lending market place. But whilst we accepted this scenario as depressingly and worryingly unique in modern times, with only the depression of the 1930’s having close similarities, we also reflected on the impact of the unprecedented wall of money flooding into the global economy via government and central bank stimulus packages and its effect on demand. The global economy has never enjoyed such internationally co-ordinated monetary easing or the simultaneous hard–cash injections by governments, to shore up the balance sheets of strategically important institutions. The consequences of this combined stimulus are already being seen in the price of commodities, including oil and gold. Looking beyond the current market-wide inflation data which does not yet fully reflect improving demand outside of the resource sector, we predict that deflation will not only fade from the vocabulary of pessimistic US economists, but that concerns over inflation will return with vengeance within 18 months. The real challenge for 2010 is not achieving stronger global economic growth, a scenario which looks inevitable relative to 2009, but how to restore stable economic growth without killing the US consumer spending recovery with sharp interest rate rises, the usual primitive remedy for rising inflation. We would stress this view is not implying the deep structural problems within capitalism are being fixed. A move away from a cyclical, debt based economic system would need to be implemented for that. Nor is it an equity market prediction, which is below. But we do think the US and global economy, in terms of Gross Domestic Product, is set for a significant improvement from its Q1/Q2 trough."
On March 18, 1989, Ronald Reagan's Executive Order 12631 created the Working Group on Financial Markets (WGFM) commonly known as the Plunge Protection Team (PPT). It consisted of the following officials or their designees:
-- the President;
-- the Treasury Secretary as chairman;
-- the Fed chairman;
-- the SEC chairman; and
-- the Commodity Futures Trading Commission chairman.
Under Sec. 2, its "Purposes and Functions" were stated as follows:
(2) "Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence, the Working Group shall identify and consider:
(1) the major issues raised by the numerous studies on the events (pertaining to the) October 19, 1987 (market crash and consider) recommendations that have the potential to achieve the goals noted above; and
(2)....governmental (and other) actions under existing laws and regulations....that are appropriate to carry out these recommendations."
In August 2005, Canada-based Sprott Asset Management (SAM) principals John Embry and Andrew Hepburn headlined their report on the US government's "surreptitious" market interventions: "Move Over, Adam Smith - The Visible Hand of Uncle Sam" to prevent "destabilizing stock market declines. Comprising key government agencies, stock exchanges and large Wall Street firms," this group "is significant because the government has never admitted to private-sector membership in the Working Group," nor is it hinting that manipulation works both ways - to stop or create panic.
In 2004, Texas Hedge Report principals Steven McIntyre and Todd Stein said "Almost every floor trader on the NYSE, NYMEX, CBOT and CME will admit to having seen the PPT in action in one form or another over the years" - violating the traditional notion that markets move randomly and reflect popular sentiment
The Exchange Stabilization Fund (ESF)
The 1934 Gold Reserve Act created the US Treasury's ESF. Section 7 of the 1944 Bretton Woods Agreements made its operations permanent.
The Counterparty Risk Management Policy Group (CRMPG)
Established in 1999 in the wake of the Long Term Capital Management (LTCM) crisis, it manipulates markets to benefit giant Wall Street firms and high-level insiders. According to one account, it was to curb future crises by:
-- letting giant financial institutions collude through large-scale program trading to move markets up or down as they wish;
-- bailing out its members in financial trouble; and
-- manipulating markets short or longer-term with government approval at the expense of small investors none the wiser and often getting trampled.
In August 2008, CRMPG III issued a report titled "Containing Systemic Risk: The Road to Reform." It was deceptive on its face in stating that CRMPG "was designed to focus its primary attention on the steps that must be taken by the private sector to reduce the frequency and/or severity of future financial shocks while recognizing that such future shocks are inevitable, in part because it is literally impossible to anticipate the specific timing and triggers of such events."
In fact, the "private sector" creates "financial shocks" to open markets, remove competition, and consolidate for greater power by buying damaged assets cheap. Financial history has numerous examples of preying on the weak, crushing competition, socializing risks, privatizing profits, redistributing wealth upward to a financial oligarchy, creating "tollbooth economies" in debt bondage according to Michael Hudson, and overall getting a "free lunch" at the public's expense.
I guess we can disregard all this as the fundamentals driving the markets and bury our heads further in the sand.
On Jun 02 12:08 PM D. Narby wrote:
> Yes, employment numbers have turned from negative to positive, bankruptcies
> have bottomed, house prices have bottomed, CRE defaults have turned
> around, and banks are lending out all the money we gave them.
>
> seekingalpha.com/autho...;br/>
>
> : p
I suppose you could call is "speculative" in the sense that investors are speculating that the increased demand for oil will continue.
On Jun 02 11:35 AM fletcherchristian wrote:
> Fatcat, the rise in oil prices also signifies 'a green shoot of recovery',
> a message the gov't are clearly trying to push, despite much evidence
> that the increase is largely speculative demand.
Surely the market shouldnt be where it is -- but here she sits, above the 200 day MA.
In any case, trying to think outside the box and at least give a positive, if not unique theory of whats going on, I have this:
Geithner and bernanke gave goldman the dough through the AIG funnel on one condition -- pay 'the people' back.
So, Goldman's making us alll whole by throwing the market up.
Of course they cant admit that, but to assuage their guilt, and comply wiht the almighty feds so they can get their ankle bracelets off, they are running everyones 401k back up -- at least some.
Youll know when your investments have been 'bailed out' when you see Barrack on the TV saying 'now its time to sell stocks'.
He speaks, stocks apparently listen.
Anyway, Thank you Golman, for at least trying to make us whole.
On Jun 02 02:16 PM thiazole wrote:
> When all those things have happened, the economy will have recovered
> at least a year earlier. "Recovering" and "recovered" are the same
> word, but in a different tense. In case you didn't know, the stock
> market leads the economy 6-9 months.
I follow your posts because of your knowledge of detail as well as your grasp of the overall picture of finance/economy.
I've done well since Dec07 by NOT following the traditional finance sites. From that video though, it looks like Fox Business has something to offer, despite my distaste for their general news.
For the doubters about market manipulation, keep in mind that that man speaking in the video is a futures trader who watches these things EVERY day.
I also watch the overall ticker every day, and have watched these reversals happen in the last five minutes of trade, over the past two years.
I have no doubt the market it manipulated, and NOT for our benefit.
Thanks again for your articles.
It's amazing how people actually believe the market is not manipulated and no group is working on a larger agenda. Its like Madoff did not exist or videos of Jim Crammer explaining how he manipulates the market does not exist.
People who refuse to see the bitter truth are children holding on to the belief that Santa Claus exists. Also like children they get angry when you tell them the truth.
Sad.
I could not tell you if these childish adults deserve their fate or not.
On Jun 03 11:32 AM Davinci wrote:
> I have read some of the comments.
>
> It's amazing how people actually believe the market is not manipulated
> and no group is working on a larger agenda. Its like Madoff did not
> exist or videos of Jim Crammer explaining how he manipulates the
> market does not exist.
>
> People who refuse to see the bitter truth are children holding on
> to the belief that Santa Claus exists. Also like children they get
> angry when you tell them the truth.
>
> Sad.
>
> I could not tell you if these childish adults deserve their fate
> or not.
On Jun 02 11:32 AM Roger Knights wrote:
> Tyler Durden and others have pointed to several specific oddities
> in trading patterns over the past months, not just daily spikes.
> Kim assumed we SA-ers were familiar with them.
>
> This propping up is setting up a great short-selling opportunity
> down the road.
The great American financial scam continues! The big "investment" banks need to raise more capital through secondary offerings (i.e. to be read as "they need to find enough fools to buy their stock quickly!").
So barring a financial disaster during June:
the PPT, FED, and the master manipulators JPM and GS will do their best to keep the market from sinking in June.
The old addage: "sell in May and go away" is now, for 2009:
"sell quickly in July, before the ship sinks."
On Jun 02 08:12 AM doubleguns wrote:
> Kim, I believe you have nailed it!! Great insight.
>
> We can not stop the fleecing only protect against it. However I have
> had to get out of my shorts since the pain has been to much.
>
When do "Crazy Fantasies" become popular fact?
The Earth Was Flat At One Point In History and Death Camps Did Not Exist In World War Two Germany. Both of these canons of "Truth" were shown to be false => After Further Scrutiny.
Belief and Labels create a construct that does not allow for further evaluation when new data is presented.
conceptwizard gave a synopsis of Actual Entities earlier in the comment thread that have the Mandate And Mission To "Influence" The Beloved Market. Denial of their existence is to relegate their effects as "Magic". There is a much larger and complex interaction beyond the financial realm.
To Assume Benevolence Is Foolish.
The More You Know The Less Certain You Will Become.
October-November is going to be a bit crazy. The true state of Economic Meltdown will be hard to deny and the limit of "Free Money" from the Treasury will be reached. (No, money can not be "Printed" indefinitely; Eventually the math shows that the debt is not serviceable.)
We May Save The Banks But Destroy The Country.
On Jun 03 11:37 AM thiazole wrote:
> Childish is saying "it's a conspiracy" everytime you are wrong (reminds
> me of the children who would make up rules to games as they played
> in order to benefit them). Those of us who have matured past that
> phase just admit it when we are wrong instead of making up crazy
> fantasies.
As for conspiracy theories, I consider myself to be a rational, scientific, sober realist. And that makes it a whole lot easier to believe Tyler Durden, J.S. Kim, and the rest of their apocalyptic cohorts than the shill coming from the messiah, Timmy, Bennie, Krugman, and Summers. For once, the facts seem to be on the side of the "wackos."
Conspiracy or not, facts are facts - the data don't lie.
But I can sleep good at night. Obviously you and most others on this site can too.
The truth will set you free even if it is a conspiracy.
On Jun 03 02:36 PM Whippet wrote:
> I also agree with Kim's timing, as this will also coincide nicely
> with Q2 earnings season. The banksters don't need to cough up the
> potentially ugly mark to myth data until then, and will be sure to
> recapitalize on false pretenses.
> As for conspiracy theories, I consider myself to be a rational, scientific,
> sober realist. And that makes it a whole lot easier to believe Tyler
> Durden, J.S. Kim, and the rest of their apocalyptic cohorts than
> the shill coming from the messiah, Timmy, Bennie, Krugman, and Summers.
> For once, the facts seem to be on the side of the "wackos."
On the other hand, you might ask for help doing your own research rather than spewing pejorative terms about the work of one who does do his research. There is no requirement for "spoon feeding" on this list.
Having got that off my chest, let me add this. Regardless of the beneficial or, at worst, benign intentions of the PTP, we must remember we are dealing with the government's activities. I have NEVER observed a tool available to government that would not be abused by it sooner or later. The best recent example is technology: wiretaps (euphemistically since we're really talking about "over the airwaves") on the private conversations of the civilian populace without court authority. Using available technology, it was a "mass scan", not targeted at certain suspect individuals only.
My Humble Opinion,
HardToLove
On Jun 02 08:50 AM gurb wrote:
> Dear Kim,
>
> Your speculative report tells nothing except more conspiracy theories.
> Everyone can speculate but news reporting need to have certain factual
> content. So show the evidence of this special protection team. The
> last minute buying is essential short covering due to some late news
> and fear of sudden spike in prices next day.
On Jun 02 08:22 PM djc wrote:
><snip>
> In any case, trying to think outside the box and at least give a
> positive, if not unique theory of whats going on, I have this:<br/>
>
> Geithner and bernanke gave goldman the dough through the AIG funnel
> on one condition -- pay 'the people' back.
>
> So, Goldman's making us alll whole by throwing the market up.
>
> Of course they cant admit that, but to assuage their guilt, and comply
> wiht the almighty feds so they can get their ankle bracelets off,
> they are running everyones 401k back up -- at least some.
>
> Youll know when your investments have been 'bailed out' when you
> see Barrack on the TV saying 'now its time to sell stocks'.
>
> He speaks, stocks apparently listen.
>
> Anyway, Thank you Golman, for at least trying to make us whole.
So the real fun comes in trying to deduce what caused the observed events. You know, formulate a theory, test it against more observations, modify to account for anomolies, ..., rinse and repeat.
It's a "conspiracy" called "The Scientific Method".
Nothing is more fun in the intellectual-exercise arena.
HardToLove
On Jun 03 09:45 PM silver-bullet wrote:
> All we need to do is to pull up the charts and take a look at the
> trading volume toward the end of the day.
>
> Conspiracy or not, facts are facts - the data don't lie.
www.foxbusiness.com/se...
Or it could be that is the interpretation you choose to put on it despite much evidence to the contrary (and purely because it attemtps to support your bullish statements) such as:
1) Inventory draws are largely due to lessor imports and have nothing to do with what you are implying which is a demand increase. US oil Inventory is still clearly at record 15 highs.
2) At least two of the most knowledgable oil experts, Schork and WTG Economics, and most others give their professional opinions that the fundamental outlook for US oil is bearish and there is virtually no support factors for the recent rise in US oil prices.
3) Every major oil company executive that I have seen has also commented that they see no fundamental reasons for the recent rises in oil prices. Nor have any of them changed any of their capital spending budgets in anticipation of any expectation that oil prices will continue to stay at these higher levels.
4) Nor have you been willing to acknowledge the obvious, which is that with recent higher price moves in oil, that it is obvious that OPEC, Russia, Venzuela, and every other cash strapped producer will rapidly move to flood the oil market with increased supplies to attempt to capture the speculative price move upwards.
5) Nor are you willing to acknowledge the shadow inventory of over 100 million barrels of oil sitting offshore and purchased by Goldman, JPM and other speculators at cheap prices. Which in some part were due to Goldman forecasts/fear-mongering of $20 oil just a few short months ago. Nor are you willing to consider the "conspiricy motives" of Goldman recently revising their oil forcast to about $85 oil just recently. Now Goldman wouldn't have any vested interest in their revised forecast now would they?
6) Natural Gas pricing is going nowhere. You would think that if energy demand in the US was truly recovering NG would also be recovering to some extent. It is not and nobody is expecting it too anytime soon.
Or a whole litany of other factors which are extremely bearish for US oil prices in the ST to medium term.
But then again, it seems you are more than happy to expound on any data or factors such as green shoots, leading indicators, marginal second derivative improvements, etc. to attempt to support you bullish view.
On Jun 02 02:22 PM thiazole wrote:
> Or it could just be because crude oil inventories have fallen by
> 12.1 million barrels in the past 3 weeks....
> I suppose you could call is "speculative" in the sense that investors
> are speculating that the increased demand for oil will continue.
>
>
> On Jun 02 11:35 AM fletcherchristian wrote: