The slush fund for the 1% otherwise known as the Federal Reserve's POMO program is once again pushing Wall Street higher:
Over the last week, the volume has dried up significantly in the markets. This means a large buyer in the markets can have a much bigger impact. That buyer is clearly the Federal Reserve. Operation Twist is in full swing and is essentially QE3. This plan by the Federal Reserve is to buy $400 billion in long term treasuries while selling $400 billion in short term treasuries. Short term is something there is demand for and investors will gobble up (due to fear), while long term has more hesitation. Throughout October, the Federal Reserve will be buying $40 billion in long term treasuries. This happens on an almost daily basis and was seen during QE2. During QE2 the term used was POMO (permanent open market operations). In other words, the Federal Reserve would use POMO to prop up the stock market. Considering the light volume, this works like a charm. Should volume get heavy, it will have little effect.
POMO is back in full force. While Europe tries to sort out its issues and get a plan together, the Federal Reserve is keeping the markets from collapsing. Note the POMO schedule below. This clearly shows there was no POMO yesterday, the markets fell sharply. Today, the markets opened lower but mysteriously surged to go positive between 10-10:30am ET.
On Tuesday, the indomitable Goldman Sachs posted a quarterly loss for the first time since 2006. It was exposed after the end of QE2 in June, rendering toothless the secret sauce or proprietary trading programs which it and other Wall Street firms use to illegally front-run markets.
This was only a temporary hiccup by the squid, however, which unbeknowest to most Americans was able to thrust its tentacles back into our pockets with the launch of QE3, code named “Operation Twist”. The FED's latest moniker is a ruse to distract us from the fact that the money dumped onto The Street is leveraged 40-to-1 and pocketed by the same firms which happen to own the Federal Reserve.
The preposterous correlation between POMO and stocks, dating back to 2005, is guaranteed to continue at least until the FED's latest round of Wall Street handouts ends early next summer.
Chart Source: Zero Hedge