The current illiquid market situation can be dangerous

Market forces June 1,

MSNBC/Pravda, Yahoo and the SEC have pretty much done away with market volume data. In a fully electronic system volume is easy to provide yet since January 2005 most volume information is completely fabricated. Then four of the American exchanges began to show the public the same volume data. Why do they show any volume if it is false or manipulated? Volume tells us not just how liquid the market is but also the strength of the market move. If you look at May 29 2009 volume for the DJA, DJI, DJR, and even the S&P you will see they all report an identical volume last Friday of 6,050,420,000 shares traded. Obviously three of the four different indices are knowingly false and our analysis shows they actually are all the same in the Yahoo data base which Yahoo apparently gets with SEC approval. Why does the SEC put out fake data? Our studies show that there are sometimes large differences relative to real NYSE data on days of large cash flows out of the market. That is to say that whoever produces this fabricated data sometimes reduces volume by 20% or more on very large volume down days to slant the data to be bullish. In our way of thinking this is SEC corruption that started in 2005 and virtually no one seems to know this has happened. We have also seen a growth (inflation) in reported fabricated volume that hides an illiquid market situation.

Ok, the corruption of the data slants to the bullish side and the inflated volumes being reported appear to be to hide liquidity in the stock market. That is a dangerous situation. Just as our financial system collapsed because banks got to be too manipulated and undercapitalized it seems the American 401 and pension plans have made the stock market awash with cash, and manipulated. There is simply too much 401 and other pension fund assets for the market to absorb. That used to cause greater swings in the market until CEOs discovered they could take the excess money in personal bonuses without affecting the market rate of advance. In fact there is so much excess money entering the market that it can't all possibly be used for capitalization. The market has been and even now is a bubble ready to collapse.

Particularly today and the beginning of every month that excess of money entering from 401 and pension plans can cause mini bubbles that can trigger rallies that are bubble rallies not bull markets. Bubble rallies can pop suddenly and the market equity then vanishes instantly.

This recent bear market bubble rally is happening on very low volume. We should first say that we believe we have figured out how to compute a somewhat uncorrupted data set for the largest market though we are not certain we have avoided all the manipulation of data. That data tells us the market is being moved with very low historic volume. We find that the market is still so awash with cash that even the thin end-of-the-month retirement inflow of cash can’t be absorbed in an orderly fashion. That is a dangerous situation today.

The bear market bubble could inflate rapidly today and it could pop tomorrow or next week. There is far too much money chasing very few worthy assets creating a very thin and manipulated market system at this point.

Market Outlook

The last minute buying on Friday probably was based on inside knowledge of how much pension and 401 cash would be coming into the market today. It will be interesting to see if that has fooled investors and will cause a bull trap today.

Our analysis does not change every other day as you typically see on the NBC/GE/Pravda network. A new ominous wrinkle may be the rise of interest rates that can delay economic recovery and lead to a premature socialist system bankruptcy. The treasury can monitor the bids for Treasury bonds and just exercise the low interest bids and silently print the rest of the money that is needed to buy the remaining Treasury bonds. That makes the auction look successful but in fact we are just running the money press like they do in Zimbabwe. With real interest rates set close to zero just a 1% rise in rates can triple the cost of national debt.

Last night Asian markets were up. China’s was up 3.4% Hong Kong up 4%, India up 1.5%, and Japan up 1.6 %.

European markets are up today in the range of 1.5% to 3% mid way through their day.

US futures indicate the markets will start about 1% higher today. The current rally is pure froth at this point. At the end of a bear market rally another 5% upward spike followed by a collapse is not atypical when investors are so bullish with MSNBC/Pravda spinning of marvelous news and cash being dumped with great abandonment into the system by the Treasury.