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Influential Analyst Suggests Gov?t Is Manipulating The Stock Market

Charles Biderman, 63, is no wacko conspiracy theorist. A Harvard Business School graduate, he?s a highly respected Wall Street analyst with his own research firm and many subscribers who pay $20,000 a year to read his insights. According to this report in SmartMoney, he has reluctantly come to believe that the government is ?manipulating the stock market and artificially fueling the rally ... effectively helping prop up equity prices, and presumably encouraging other investors to move cash back into stocks.?

Here?s how the scheme might have worked:

Biderman points out that the cumulative capitalization of the U.S. stock market now stands at roughly $16 trillion, up $6.5 trillion from its low on March 9, 2009. Historically, it?s taken roughly $10 of new money invested in the market to boost market capitalization values by $100, Biderman says -- so to achieve a $6 trillion-plus-boom the market should have needed $600 billion in new money.

But Biderman and his staff couldn?t find the money. ?We track share issuance and money flows. And since this rally started, we just couldn?t figure it out,? he says. He began asking clients where they thought the money was coming from. Nobody knew. Around October he began to wonder if maybe it was the government. ?None of the smartest people I talk to can figure out where it?s coming from,? he says. Biderman says that ?the only logical conclusion? is that money has been coming from the government, quietly and mostly after market hours.

Here?s how the plan, as Biderman sees it, could have worked. Over a period of roughly nine months, the Federal Reserve or the Treasury could have made steady acquisitions in the stock-futures market, to the tune of $60 billion to $70 billion a month. That added buying power could have halted a selloff and ?encouraged huge amounts of sideline cash to flow into equities,? he wrote to his clients.

Such massive government purchases of equities may not be illegal, but it?s certainly not, to pick one of Obama?s formerly favorite words, transparent. And, the article concludes,

[f]or those who think Biderman?s theory is reasonable, he offers a sobering thought. ?If [the government?s] been buying,? he says, ?at some point they?ll have to sell.?

Full post as published by Discriminations on January 10, 2010 (boomark / email).