Sunday, July 18, 2010

Graham Summers – I Thought Quantitative Easing Ended?

Last week Graham once again pointed out that the expansion of the Fed’s balance sheet always seems to occur during options expiration week.

Let’s see, two plus two equals ???

You have the largest banks that ARE THE FED who had ZERO losing trading days during the first quarter of the year, and now you see that the “Fed” is fueling their game directly. Graham is right, when are we going to do something about it? Again, I caution all “players” (gamblers) in this market that it is anything but a free market…
I Thought Quantitative Easing Ended?

Well, it’s options expiration week again and as usual Wall Street is gunning the market for all it’s worth. The bulls are falling for this shenanigan yet again, just as they did in June.

How’d that work out?

Tracking options week manipulations isn’t easy because there are no strict rules: the action all depends on where the market is and the number of outstanding contracts at given price points.

For instance, back in April investor bullishness was at extremes. Consequently, Wall Street ramped stocks first upwards (the usual predilection) to shank the puts… only to swiftly reverse the action in the middle of the week to shake out the calls.

This whole system occurs courtesy of the Federal Reserve which openly and blatantly pumps the market on options expiration week. I’ve shown the below chart before. It’s staggering that no one in Congress or any of the regulators actually bother following up on this. How much more obvious does Bernanke need to get?

Options expiration weeks in bold


Week


Fed Action


July 8 2010


+$1 billion


July 1 2010


-$13 billion


June 24 2010


+$175 million


June 17 2010


+$12 billion


June 10 2010


-$4 billion


June 3 2010


+$2 billion


May 27 2010


-$16 billion


May 20 2010


+$14 billion


May 13 2010


+$10 billion


May 6 2010


-$4 billion


April 29 2010


-$1 billion


April 15 2010


+$31 billion


April 8 2010


+$420 million


April 1 2010


-$6 billion


March 25 2010


+$5 billion


March 17 2010


+$25 billion


March 11 2010


+$2 billion


March 4 2010


-$5 billion


February 25 2010


+$8 billion


February 18 2010


+$21 billion


February 11 2010


+$7 billion


February 4 2010


+2 billion


January 28 2010


-$4 billion


January 21 2010


-$39 billion


January 14 2010


+$56 billion


January 7 2010


+$1 billion


December 31 2009


-$1 billion


December 28 2009


+$35 million


December 17 2009


+$49 billion


December 10 2009


-$17 billion


December 3 2009


-$2 billion


November 27 2009


-$2 billion


November 19 2009


+$73 billion


November 12 2009


-$30 billion


November 5 2009


+$3 billion


October 29 2009


-$39 billion


October 22 2009


+$8 billion


October 15 2009


+$54 billion


October 8 2009


-$3 billion


October 1 2009


-$17 billion


September 24 2009


+$18 billion


September 17 2009


+$51 billion


September 10 2009


+$4 billion


September 3 2009


+$8 billion


August 27 2009


+$14 billion


August 20 2009


+$46 billion


August 13 2009


+$25 billion


August 6 2009


-$11 billion


July 30 2009


-$38 billion


July 23 2009


-$33 billion


July 16 2009


+$80 billion

Notice that on non-expiration weeks the Fed either pumps the system slightly or, more commonly, removes money.

However, once options expiration week hits, it’s PUMP time. To whit, the Fed has NOT had a single options expiration week in which it HASN’T pumped the market in nearly one year.

Moreover, note that despite the Fed’s Quantitative Easing Program ending in March, the Fed continues to pump $10+ billion into the system EVERY month when options expiration week rolls around.

Didn’t Bernanke say he wouldn’t continue buying assets from Wall Street after QE ended? More importantly, didn’t QE end? Why is the Fed still pumping money into this system?

And finally… how many times does this have to happen before someone in power actually notices it? Seriously, we’re talking about the Fed going 12 for 12 in the last year. And it’s not like the pump jobs are even subtle: they’re DRAMATICALLY larger that any other capital infusions the Fed makes during non-options expiration weeks.

Good Investing!

Graham Summers