Conspiracy Theorists: Government Shoring Up S&P 500

By my calculation, the S&P 500 has rebounded an astounding 70% since its March 2009 lows! $600 billion of new cash needed to lift the market's capitalization by $6 trillion is puzzling...where did all that money to bid up stocks come from?

TrimTabs (an institutional research firm) CEO Charles Biderman expresses a possible explanation, "We know that the US government has spent hundreds of billions of dollars to support the auto industry, the housing market, and the banks and brokers. Why not support the stock market as well? We have no way of proving this,” Biderman said, “but what we do know is that it was neither the economy nor traditional sources of capital that created the boom in equities.” According to Biderman, the Fed or Treasury could have easily manipulated the market by covertly buying futures contracts at a monthly pace of $60-$70 billion.

It would make for a great movie if it actually happened, but it was the Fed's liquidity injections and Treasury's borrowing binge that made its way into risky assets through financial institutions and institutional investor borrowing cheaply and buying higher yielding assets. The amount of money required to lift global equities, commodities, bonds, cross currencies, and anything with risk is beyond what our government can influence. Risk appetite increased. You can't and shouldn't short stocks when the Fed's rates are near 0%. People and institutions alike need yield and when banks as a group are offering 0.25% then the former group turns to other assets; hence the rise across the board. Not to mention, the markets had been severely over-sold due to irrational expectations of another Great Depression.

The growth in conspiracy theories has risen dramatically since the markets became unglued in late 2008. The PPT (plunge protection team, or more formerly the President's Working Group on Financial Markets) has been brought up more than ever before since its inception in March of 1988. In response to the October 1987 stock market crash, President Reagan established this group to provide recommendations on private sector solutions and maintain integrity, orderliness, and competitiveness of financial markets. Most of all, this was theoretically put in place to boost investor confidence.

Psychologically, this can be described as a cortex response to a limbic system-driven behavior. Exogenous forces, according to the conspiracy theories, are what cause events. So when corporate earnings are good and unemployment is low, stocks go up. Since earnings have dropped and unemployment has risen, the cortex-based reasoning is that someone or something is artificially pushing stocks higher. The market is forward-looking about 18 months and is a highly dynamic and complex system with many participants. So many profit-seeking participants that it would be extremely difficult to get away with any kind of mass manipulation.

Sources: Minyanville.com and Marketwatch.com