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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Eddy Blinker who wrote (73909)	11/9/2006 6:52:43 AM
From: Real Man	Read Replies (2) \| Respond to of 110194

Eddie, Bart13 has tons of data to show this. Here is a link that shows treasury bonds are controlled by the banks forbes.com I don't think it's the Fed that manipulates the markets. Rather, it's the derivative markets, and there are only a few players there that control them. The injections of liquidity have lead to declining level of volativity (risk) in the stock market, and spreads (risk) in the bond market. I think risk in stocks and bonds is completely out of touch with reality. In stocks the mechanism is simple - options. Banks and other Wall street firms are market makers in the options market. They use computer models (Black-Scholes, etc.) to manage risk. In normal times, these models simply produce income - whenever you pay options premiums, you pay them. However, there is risk involved, since FREE markets are not normal - they can crash (tail events). The tail events normally involve liquidity crunch, as we have seen, for example, with LTCM. So, the tail events have been eliminated by the Fed injecting liquidity whenever it's needed, thus giving banks and Wall street firms unfair advantage in the marketplace. The net result? The market statistics is completely out of whack. We have not had a 2% down day for the SP for 2.5 years, 6 standard deviations from the norm. The probability of that happening by chance is 0.