When the Music Stops

The FED and "federal" reserves in other countries have held bond interest low for some time and
it appears this will continue for the forseeable future.   From a macro perspective this may make sense.
It allows both the refinancing of national debt at a lower rate and prolongs this eventual demographic
train wreck on the horizon -- robbing Peter to pay Paul.  However, it has forced a lot of people to take
more risk in trying to supplement their current or estimated retirement income.

While the exchanges and market makers love it, as they have created numerous indexes and other
derivative products in order to generate more commissions, the fact these underlying indexes
and derivatives are made up of the same small number of companies (say 5000), means
everyone is chasing these same few companies.

I recently read an article that said three companies (Black Rock, Chase, and State Street)
control 80 percent of the market.  If that is true, then stocks are either being churned within
their own portfolios or among these three companies.  SO what do market actually prices reflect --
the estimated earning power of these 5000 companies -- or -- some artifically inflated price
just like LIBOR was?

Edited by dwnowhere1, 13 February 2020 - 01:13 PM.

This game or scheme is based on the Fed monetary policies. If the Fed starts raising rate, this game will crack and the market will crash from this price level. Obviously there are invisible hands rigging this market. We dont know who they are, but we know where they are ......

Edited by redfoliage2, 13 February 2020 - 04:11 PM.

This game or scheme is based on the Fed monetary policies. If the Fed starts raising rate, this game will crack and the market will crash from this price level. Obviously there are invisible hands rigging this market. We dont know who they are, but we know where they are ......

 

Of note from Investing.com today: ...The major indexes had made it into the green in afternoon trading, but weakened when the Federal Reserve said it will shrink its repurchase agreement operations (REPOs) further as of tomorrow's overnight offering. Any hint the Fed is taking the punch bowl away tends to result in knee-jerk selling...

The fed funds rate at 1.55 is a little below the 10 year treasury which is an ok setup. 5-10 BP separation. And the separation has been larger historically, but I doubt the fed would start thinking about rate hikes again unless the inflation numbers lifted off strongly. Or the GDP numbers jumped into orbit somehow. GDP is unlikely to do anything like that while the national debt is going up a trillion dollars each year.

When a market gets this extreme overbought and doesn't pull back, its sending a message...expect what most don't. Rarely I would think this, but a super blowoff is very possible, and soon. An NDX that goes up 300-500 pts intraday and has a buying climax, then a big reversal. This parabola has no room to pull back in its curve unless its done. If its not done, it is going straight up, scary straight up for a short period, then fireworks:

 

https://stockcharts....id=p91228821839

 

https://bigcharts.ma...t.asp?symb=COMP

 

notice the parabola in '99-'00.

Edited by tommyt, 13 February 2020 - 11:15 PM.

The FED and "federal" reserves in other countries have held bond interest low for some time and
it appears this will continue for the forseeable future.   From a macro perspective this may make sense.
It allows both the refinancing of national debt at a lower rate and prolongs this eventual demographic
train wreck on the horizon -- robbing Peter to pay Paul.  However, it has forced a lot of people to take
more risk in trying to supplement their current or estimated retirement income.

While the exchanges and market makers love it, as they have created numerous indexes and other
derivative products in order to generate more commissions, the fact these underlying indexes
and derivatives are made up of the same small number of companies (say 5000), means
everyone is chasing these same few companies.

I recently read an article that said three companies (Black Rock, Chase, and State Street)
control 80 percent of the market.  If that is true, then stocks are either being churned within
their own portfolios or among these three companies.  SO what do market actually prices reflect --
the estimated earning power of these 5000 companies -- or -- some artifically inflated price
just like LIBOR was?

 Don't mean to be a dck, but ya shouldn't make accusative posts without a source.

 

slupert:

Don't mean to be a dck, but ya shouldn't make accusative posts without a source.

IN re-reading can see your point.  My apologizes.   Did not mean it that way.  

Just raising the question that if 80 percent of the market is controlled by three firms -- or say even 4 or 5,

then are prices reflective of "true" capital markets -- or -- are they being set in some form or fashion. 

Edited by dwnowhere1, 14 February 2020 - 09:53 AM.

 

 

slupert:

Don't mean to be a dck, but ya shouldn't make accusative posts without a source.

IN re-reading can see your point.  My apologizes.   Did not mean it that way.  

Just raising the question that if 80 percent of the market is controlled by three firms -- or say even 4 or 5,

then are prices reflective of "true" capital markets -- or -- are they being set in some form or fashion. 

 

Every time you sell a stock or bond or other financial  instrument there is a taxable event, so churning their behemoth positions is extremely doubtful.. My take is everything going on now is CB driven. 

 

slupert:

Every time you sell a stock or bond or other financial  instrument there is a taxable event, so churning their behemoth positions is extremely doubtful.. My take is everything going on now is CB driven.

I've never got the CB relationship to the markets.  Yes, I agree they can set interest rates which dictates which way money may flow -- (e.g. bonds versus stocks), but this has, IMHO, a long term effect since interest rates change little and have changed little for many years.   This would have no effect on the day to day or week to week movement of instruments besides bonds as I see it.  A lot of financial institutions can't even invest in stocks as their charter prohibits it.  What is your take on how this occurs?