John Crudele: Sure looks like governments rigged stocks after Brexit vote


Analyze this, technical analysts.

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By John Crudele
New York Post
Thursday, June 30, 2016

Ah, that wasn't too bad.

I'm figuring that is what investors were saying on Wednesday after financial markets around the world regained more than half of the losses caused by Britain's shocking decision to leave the European Union.

And if you include the hokey rally the day before the British voted to Brexit -- as Britain's abandonment of the EU is being called -- stocks barely budged.

I say the decision was "shocking" only because the powers that be were pretty sure voters wouldn't dare escape the EU.

The PTB were wrong.

... Dispatch continues below ...


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Now you can take a naive view of what world equities markets have done this past week and conclude that stock prices went down because Brexit might cause all sorts of world economic calamities.

And then -- suddenly and improbably -- investors who had been contemplating such terrible things just days ago suddenly changed their minds. So they bought stocks by the bucketful and turned the market around.

You could think that -- if you are naive and believe, as modern humans mostly do, that crises last a very short time.

But perhaps you'd like to really understand what happened: The stock markets were rescued by governments. In other words, the markets were rigged.

Don't believe me? These are brief statements credited to German Finance Minister Wolfgang Schaeuble on Wednesday morning by Bloomberg: "Schaeuble: EU Ministers, G-7 Agreed to Avoid Market Chaos. Schaeuble: Measures to Avoid Market Chaos Have Been Successful."

As far as I could tell, Bloomberg never carried a full story.

In case you think those short statements are too vague, consider what Schaeuble had to say before the Brexit vote. According to an earlier Bloomberg story: "Schaeuble said EU policymakers have safeguards in place to avoid 'chaotic developments' should Britons vote to leave the bloc."

Schaeuble added that, should Britain pull out of the EU, "it's also clear that then you have to do everything possible to avoid chaotic developments. We are well-prepared for that."

There you have it. Anyone who still thinks the market righted itself should have his or her head examined.

The rigging of the stock market shouldn't surprise anyone. I've been telling you that this has been going on for a long time -- because it has. The Japanese and the Chinese are blatant about their market manipulation.

In fact, Japan -- which is a Group of 7, or G7, nation -- pretty much spilled the beans earlier this week when it rather obviously halted a slide in stock prices on the Tokyo Stock Exchange and caused a big worldwide rally.

And as I've also been saying forever, the rigging of the market was a proposal that went all the way back to 1989, when Robert Heller, who had just left the Federal Reserve Board, suggested that the equity markets be rigged through the purchase of stock index futures contracts.

Heller proposed that this should only be done during emergencies, which the Brexit vote certainly was. But I think the Fed's and G7's definition of what constitutes an "emergency" has been pretty generous.

Should the markets have been -- let's find another word for rigged -- rescued? Propped up? Kept from hurting themselves?

Absolutely. You don't let a panicked child run into the street. You don't let a drunk person drive. And you should definitely allow financial markets to get hold of themselves before they create financial calamities.

Should this be done in secret so that only the financial sector in-crowd knows about it? Absolutely not.

Does rigging, propping up, or saving the market -- whatever you want to call it -- create a very dangerous situation for investors in the future? Absolutely.

Markets are supposed to be rational. Someone is supposed to want to own the stock of a company because that person sees good things happening -- and not because the G7 nations are standing by with a safety net in case something goes wrong.

The riggers may not always be able and willing to intervene, because someone will ultimately be responsible for the bubbles they are blowing. How do stock market fundamentals look right now? Not very good.

According to Greg Harrison, senior research analyst at Thomson Reuters, second-quarter earnings for S&P 500 firms will be down 3.9 percent when they report, which will happen soon.

Even when you take out energy companies -- which are having a particularly hard time -- earnings only gain 0.1 percent.

That's no reason there for a stock market to cheer. The third quarter might be better, says Harrison. Wall Street is looking for 2.2 percent earnings gains overall and 5.1 percent gains if you ignore energy companies.

But the Wall Street analysts who made those predictions are notoriously optimistic, and they have barely factored Brexit into their numbers, despite the fact that they were claiming for weeks that Britain's move out of the EU would be devastating.

And stock prices are still very high when measured by the usual historical standards.

Will the G7 nations be able to keep stock prices aloft? And will their game-playing in the stock market eventually translate into some trickle-down benefit for people who don't gamble in the stock market? That's anyone's guess.

The last thing you should ask yourself, considering what happened in Britain, is this: Will all the manipulation that's now going on fuel the populist revolt we are seeing around the world and make it mightier?

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