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Stock Market Story: March 2009 to September 2009

Elevated stock prices are an integral part of the bailout/recovery plan to re-inflate the economy and maintain the status quo, including the power structure in the United States. This is one way to explain the sudden reversal in the stock market in March 2009, the subsequent disproportionate rise of stock prices relative to current and likely future economic conditions, and the lack of any significant correction in spite of continued underlying bad news.

Except for small downturns to make it look realistic, there may be no significant correction until the economy has stabilized and can withstand it, because the Big Banks will prevent it.  With plunging asset prices across the board, the economy was in a free fall in late 2008/early 2009 with no bottom in sight. There was no way to reverse housing prices to calm consumers, but the stock market can be manipulated. So, in return for the bailout goodies, the Big Banks were expected, if not required, to start moving the stock market and 401K Plans up in March, and then keep them up until confidence in the economy is restored. It is slowly working as market volatility subsides, complacency is re-instituted, and consumers start to shop more.
 
Now after establishing huge stock market positions while filling in the crater during March lows, all the Big Banks have to do is fill in the pot holes and smooth the bumps to lure more investors in and keep the market moving up in a stable, systematic way. So far, pretty much any hint of a significant sell-off has been absorbed within a day or so.   Soon enough, the Big Banks can start cashing out to prevent an obvious bubble when the herd starts jumping in, but not enough to trigger a sell off that would rattle investor confidence.

Along the way, the Big Banks get re-capitalized through equity offerings based on their elevated stock prices, very substantial investment/trading profits, and the ability to make huge gains on their new loans using essentially free money from the Federal Reserve. They also are able to get bigger and gain customers as smaller banks, which were left out of the deal, fail.
 
This deal is also Big Bank’s restitution for sabotaging the middle class. Big Banks benefit even more as consumers become more confident as their net worth recovers, which also supports housing prices reducing toxic asset generation. Big Banks need viable and confident consumers to borrow money, especially at today’s spreads. While at the same time, substantial market reform and regulation have been mitigated since negative public sentiment is subsiding as stocks go up and the economy appears to be getting better. 

The stress tests were a side show to reinforce the whole scheme. The tests didn't have to be too stressful because the assumptions were based on the plan working. Changing the accounting rules so Big Banks don’t have to “mark-to-market” allowed the skeleton’s to hide in the closet – no more bad news head lines on huge write downs at Big Banks to make people nervous. To put the icing on the cake, the Federal Reserve keeps feeding the press with their positive outlook, which Big Media passes on without a blink of the eye, since they are part of the status quo.  
 
The “green shoots” that the Federal Reserve saw was probably a stabilized and increasing stock market leading the economy out of the abyss. This is why Federal Reserve speaks with such confidence that the recession is over. The stock market variable has been taken out of the equation.

Thus, even though the bears have the best argument based on economic data, the stock market is still likely to go up, at least for a while, since the recovery plan is dependent on it.
 
On the other hand, perhaps everyday investors are still as gullible as ever and will throw their money into the pot during the last innings of a rally once again only to be slaughtered once more by Wall Street. But where would Big Banks be without a consuming middle class?
 
What do you think?