This story was purposefully released by a clandestine office of the U.S. Government at the urging of the Fed and Treasury.
Why?
To break the negative psychological feedback loop that is keeping our markets and economy in check.
Bear with me on this and pardon a little economic theory.
The stock market is now in its third year of decline; John Q. Public, whose 401K is now a 101K, is convinced the market is stacked against him, is full of crooks and questionable accounting, and is nothing more than a way to lose money. Clearly he has empirical basis for his opinion.
As risk aversion increases among public investors like John Q. and they withdraw from the markets, demand for stocks declines, which brings down prices: it's the law of supply and demand. Fewer buyers=lower prices. The supply of stock doesn't change much, so if demand falls, price falls.
Now, lower stock prices prevents many companies from doing merger and acquisition deals they need to do to increase efficiency and maintain growth; when was the last time Cisco bought another company? And lower stock prices also causes corporate debt rating agencies to lower their credit ratings on companies, since credit worthiness is coupled with companies market capitalization, among other things. Companies' reduced borrowing power that results from debt downgrades prevents them from upgrading plants and equipment or advertising as heavily as they should. Revenues fall further, dragging down share prices more. IPOs can't get done, so new companies can't get new products and ideas to market. Innovation suffers.
Some companies go bankrupt, which causes John Q. Public to be even more wary of the market; and as unemployment rises and John Q. Public gets laid off, clearly he isn't putting anything into his 401K (or 101K?)
So a vicious cycle begins. Vast economic wealth is destroyed.
Problem is, the stock market *can* be an enormous wealth creation machine, as we saw in the 95-2000 period: the wealth effect, whereby investors increase their real and perceived wealth by stock market gains, leads to greater consumption, which leads to greater production, which leads to full employment, which leads to increased 401K and retirement plan contributions, which leads to stronger investment, which leads to more economic strength. Its a 'virtuous cycle'. But the Fed has now shot all of its interest rate cutting bullets, which is the way it has prodded new virtuous cycles in the past, so its power to initiate another virtuous cycle this way has been weakened.
Hence the conspiracy theory.
What if the Fed released this story to get John Q. Public thinking: "Hey! I got $800 back in taxes this year--what if *I* could make $350M in two weeks like that crazy guy!" The Fed figures this is a nifty way to break the negative risk-aversion feedback in the mind of John Q. Public, and it uses this story as 'financial Psy-Ops' as a way to jumpstart the virtuous cycle. $800 bucks into $350M in two weeks? Better than lottery tickets.
What's special about the original release date of this article? It came out close to the day the market bottomed in March. And just a month before the tax filing deadline, when most folks who are expecting refunds are probably filing. And by the way, the market has been rising again since April 15th, when lots of folks have refund checks in hand. Coincidence? Maybe.
"They" make the story just implausible enough to avoid suspicion, and just silly enough to be off the radar screen of intelligent investors; but they also throw in just enough to get people to start trusting the SEC again: after all, the SEC caught this guy for "insider trading", it must be doing something right again, that's got to be good, huh?
"They" release this story on an Opinions and Gossip venue, to get it circulating and get people talking about it. The ultimate 'viral marketing' effect ta
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Howz this for a conspiracy theorist twist:
This story was purposefully released by a clandestine office of the U.S. Government at the urging of the Fed and Treasury.
Why?
To break the negative psychological feedback loop that is keeping our markets and economy in check.
Bear with me on this and pardon a little economic theory.
The stock market is now in its third year of decline; John Q. Public, whose 401K is now a 101K, is convinced the market is stacked against him, is full of crooks and questionable accounting, and is nothing more than a way to lose money. Clearly he has empirical basis for his opinion.
As risk aversion increases among public investors like John Q. and they withdraw from the markets, demand for stocks declines, which brings down prices: it's the law of supply and demand. Fewer buyers=lower prices. The supply of stock doesn't change much, so if demand falls, price falls.
Now, lower stock prices prevents many companies from doing merger and acquisition deals they need to do to increase efficiency and maintain growth; when was the last time Cisco bought another company? And lower stock prices also causes corporate debt rating agencies to lower their credit ratings on companies, since credit worthiness is coupled with companies market capitalization, among other things. Companies' reduced borrowing power that results from debt downgrades prevents them from upgrading plants and equipment or advertising as heavily as they should. Revenues fall further, dragging down share prices more. IPOs can't get done, so new companies can't get new products and ideas to market. Innovation suffers.
Some companies go bankrupt, which causes John Q. Public to be even more wary of the market; and as unemployment rises and John Q. Public gets laid off, clearly he isn't putting anything into his 401K (or 101K?)
So a vicious cycle begins. Vast economic wealth is destroyed.
Problem is, the stock market *can* be an enormous wealth creation machine, as we saw in the 95-2000 period: the wealth effect, whereby investors increase their real and perceived wealth by stock market gains, leads to greater consumption, which leads to greater production, which leads to full employment, which leads to increased 401K and retirement plan contributions, which leads to stronger investment, which leads to more economic strength. Its a 'virtuous cycle'. But the Fed has now shot all of its interest rate cutting bullets, which is the way it has prodded new virtuous cycles in the past, so its power to initiate another virtuous cycle this way has been weakened.
Hence the conspiracy theory.
What if the Fed released this story to get John Q. Public thinking: "Hey! I got $800 back in taxes this year--what if *I* could make $350M in two weeks like that crazy guy!" The Fed figures this is a nifty way to break the negative risk-aversion feedback in the mind of John Q. Public, and it uses this story as 'financial Psy-Ops' as a way to jumpstart the virtuous cycle. $800 bucks into $350M in two weeks? Better than lottery tickets.
What's special about the original release date of this article? It came out close to the day the market bottomed in March. And just a month before the tax filing deadline, when most folks who are expecting refunds are probably filing. And by the way, the market has been rising again since April 15th, when lots of folks have refund checks in hand. Coincidence? Maybe.
"They" make the story just implausible enough to avoid suspicion, and just silly enough to be off the radar screen of intelligent investors; but they also throw in just enough to get people to start trusting the SEC again: after all, the SEC caught this guy for "insider trading", it must be doing something right again, that's got to be good, huh?
"They" release this story on an Opinions and Gossip venue, to get it circulating and get people talking about it. The ultimate 'viral marketing' effect ta