[Reader Mailbag] How the Fed Buys Stocks without Getting Into Trouble
We’ve covered a lot of ground over the last week, so let’s do a quick wrap-up of everything we know so far.
Central banks are now openly intervening in the stock market. The Swiss National Bank and the Bank of Japan both print money and buy stocks outright.
The Fed is also intervening in the stock market, though it is doing so not as an investment but to prop up the markets when they are in danger of breaking down.
We know these are interventions because:
- They show indiscriminate buying (real investors don’t want to move the market when they establish a position).
- They occur at a specific time of day (the 9:50AM-10AM window) on days when the market is falling.
- Trading volume actually falls while the market rips higher indicating that real buyers are not driving the move; rather, it’s the Fed’s “ghost money.”
The Fed’s interventions focus on four key stocks: Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), and Facebook (FB). Together, these companies account for over 10% of the stock market’s weighting.
If the Fed can get these big four companies to rally, the automated trading programs that make up 90% of all trading activity in the stock market will take over, buying everything else to drive the market higher.
With the review out of the way, I want to take a moment today to address the most pressing question I’ve received about these interventions.
The No. 1 Question in the Reader Mailbag
The single most common question I receive when writing about the Fed buying stocks is this:
“If the Fed is not supposed to buy stocks and they really are, how are they getting away with it? Aren’t they breaking the law?”
This is correct, the Fed is not supposed to buy stocks. Doing so is technically breaking the law. Unfortunately, however, there is nothing we can do about it. The Fed is effectively “above the law” as far as the financial system is concerned.
- The Fed is not supposed to monetize the U.S.’s debt – but it’s been doing so via quantitative easing (QE) since 2008. The Fed gets around this by claiming that because someone buys the debt before the Fed does, it technically isn’t monetizing the debt… even if we’re talking about a 24-hour window of time!
- The Fed is not supposed to bail out or provide support to foreign banks – but it’s been doing so since 2011. Some research suggests that the bulk of the QE 3 money went to European banks. And former Fed Chair Ben Bernanke has even admitted the Fed didn’t know where much of the 2008 bailout money went.
- The Fed is not supposed to buy stocks – but the Fed is part of the Working Group on Financial Markets, an entity created in 1988 to stop another 1987-style crash from happening. This group is allowed to buy stocks to stop the stock market from collapsing and it does not publicize any of its meetings or actions. In fact, it only reports to the President of the United States.
Put simply, the Fed has been skirting the law for years by finding small arbitrary loopholes to do things that it shouldn’t. Buying stocks is one of these activities.
However, there is no reason why we can’t use this information to our advantage!
“Front Running” Fed Interventions for Massive Gains
It would be one thing to simply know this market anomaly exists… that would you put you well ahead of nearly every investor on the planet.
But learning how to “front run” these interventions takes it one step further – delivering you hard and fast LIFE CHANGING profits.
In fact, the system I’ve built around this discovery has already produced gains of:
- 22% in 35 minutes
- 56% in 100 minutes
- 70% in 130 minutes
- 85% in 90 minutes
- 123% in 65 minutes
- And even 367% in one day.
I’m nearly ready to reveal EVERYTHING to you about this trading strategy. Stay tuned…
Editor, Money & Crisis