Continuing on my theme of yesterday, the basic question we should ask is; who is/are controlling the stock markets? For answer just look at the price movement of DOW this week;
Monday, August 8, 2011 = -635
Tuesday, August 9, 2011 = +430
Wednesday, August 10, 2011 = -520
Thursday, August 11, 2011 = +423
Friday, August 12, 2011 = + 125
Net effect = -177
Never before we have seen such wild swings and it can only be attributed to HFT and Algo trading by the big black box traders. The same too big to fail banks which now control the Wall St.
The same old “too big to fail banks” who are in bad shape again. GS, down from $ 175 to $ 116. City, down from $ 51 to $ 29, Bank of America, down from $ 15 to $ 7, JPM, down from $ 48 to $ 36. The situation is same with the European banks. The 2008 crisis was started by these big banks and it is only after 2 trillion dollar liquidity injection, they survived and got back their swagger. Bonuses and six figure salaries continued based on speculation. But underneath, the assets in the books continue to lose value. Mortgage loses and legal claims from fraudulent COD and MBS keep mounting. Income from trading operations continues to shrink because retail investors flee the market. Traditional loans to Main St. are not growing and so the traditional banking incomes are not growing either. Only thing that is still keeping them alive are the free money from the Fed and the speculation that they do with the free money.
Now that Fed has stopped the flow of free money, these too big to fail banks are feeling the pain. So they are creating the volatility and panic. I think they will force another round of QE and they do not want the retail investors to be around when the QE 3 comes.
Only fly in the ointment of that plan is that money is fleeing Europe. That is where the fire has started already. All these money fleeing Europe has to find a parking place and so far they have gone to the bonds, pushing the 10 year rate to historic low. But in the next two weeks, some of that money will flow through to equity as well, pushing the stock market higher.
The boyz know that public memory is short and in two weeks we will forget this panic and talk about new highs. I think that is when they will strike again. They will not stop unless the Fed comes out with QE3 and when that happens, they don’t want Main St to be there.
PS. Now MSM has picked up the theme. Here is one from CNN.
http://money.cnn.com/2011/08/12/markets/high_frequency_trading/index.htm?source=cnn_bin&hpt=hp_bn3
