The fact that shares of the worst financial institutions are both going parabolic and doing so on massive volume has been known since June. Finally, a concerted effort to try and put these numbers in perspective is happening, and the picture painted is both not surprising nor indicative of a "real" market.
Guest poster at The Big Picture, Steenbarger, has a nice summary of what has been going on:
Above I took C, FNM, and FRE and expressed their *composite* volumes (e.g., the volumes transacted across all exchanges) as a fraction of NYSE volume. What we see is that, early in 2007, those three stocks accounted for only 1-3% of NYSE volume. During the financial crisis of late 2008 and again as the market was bottoming in early 2009, that ratio skyrocketed to well over 50%...
Again, the question is what all this means. There is no way that mom and pop trader and investor are involved in any meaningful way in generating these kind of daily trading volumes. Nor are proprietary trading shops capable of generating volumes that exceed those of the entire New York Stock Exchange. While I have no doubt that the algorithmic trade close to the market is participating in this movement, the directionality of the involvement suggests that large financial institutions are systematically buying the beaten-up shares of the poster children for TARP: C, FNM, FRE, AIG, and the like.
It is worth noting in this regard that other major (healthy) financial firms, such as GS and JPM, have seen no such surge in their volume or their trading prices.
My best guess? We’re seeing a massive infusion of capital into very troubled financial institutions, no doubt aided by short covering and the participation of program traders and proprietary day-trading firms. Where is the capital coming from? Why has it poured in so suddenly (the really large infusions began in early August)? Why is it coming in at such a pace that it is dominating NYSE volume? Zero Hedge rightly wonders why this hasn’t triggered alarms at the exchange. And why is it happening with only the weakest financial institutions?..
Compelling.
The bumped up stock prices may allow secondary offerings to occur for the lucky few. Another angle is that the US government is buying the shares of these firms from foreign holders. Remember from last Wednesday's post "Repudiation of US Financial Engineering" it was clear that the US government is taken agency debt off the hands of foreign holders and exchanging them for treasury buys. I think that in a similar manner the US may be taking the holdings of the institutions listed above off the hands of foreign holders as well. In any case, the blatant manipulation going on in these stocks would be a case for the SEC to be involved in, if only they wanted to get involved.
