Last week we saw the S&P 500 break through technical resistance to a new high for the year. But this week major market indices have been unable to add to those gains. In general, most sectors of the market remain overbought and the threat of a significant downturn is very real. In the meantime, Washington power brokers continue to do everything possible to maintain stability and keep the current market rally alive.

The obvious answer to the question about whether the market is being manipulated is yes. But this does not mean there is a secretive group that is part of a government conspiracy to profit from controlling market movements. Someone or some group is always trying to influence the markets to their personal advantage. That is why we have government agencies charged with overseeing the financial markets in an effort to ensure that no entity can gain an unfair advantage. The fact that we have both bull and bear markets is a testament that no single interest can control the markets on a continual basis.

Right now the Obama administration, the Federal Reserve, Congress, the banking system and anyone else who can is attempting to boost the entire economy, including indirectly the financial markets. No one wants to see a major market meltdown and no one wants to see the country endure an economic downturn that lasts for years.

The question dividing analysts, economists, politicians and investors is whether or not those who are trying to bolster the economy will be successful in ending the recession and in keeping the stock market from plunging. 

In an article published by Yahoo! Finance this week, best-selling author Robert Kiyosaki explained that he believes the worst is still ahead for investors. 

“1. I believe the stock market is being manipulated. I suspect the government, banks, and Wall Street are doing everything they can to keep the market from crashing. Our leaders know that nothing makes the world feel better than a raging bull market.

“Do I have any proof that the market is being manipulated? No. I just smell a rat, or a pack of rats. I believe greed, self-interest, arrogance, and fear control the financial markets. I suspect those in charge will do anything to keep us all from panicking… and I don’t blame them. A global panic would be ugly and dangerous.

“2. In my view, this global crisis has been caused by the Federal Reserve Bank, the U.S. Treasury, Wall Street, and the central banks of the world. They caused the problem, profited excessively in doing so, and now profit by being asked to fix the problem.

“Every time I hear a politician mention the word stimulus, my mind flashes back to high school biology class, when I touched battery wires to a dead frog to make it twitch. Today, you and I are the dead frogs. Pretty soon the dead frog will be fried frog.”

There are plenty of others who espouse the idea that current conditions have been artificially induced. Todd Harrison, CEO of financial web site Minyanville.com, said this week that he currently believes there is less risk in shorting the market than in holding long positions. “This is a Splenda market– because there’s so much artificial sweetener involved,” Harrison said.

“The government is showing its hand and what they want to do: They want to transfer our obligations to our children, which will inherently lower the standard of living to our children,” he said. … “That transfer of risk to future generations is in the hands of foreign holders of dollar-denominated assets,” he said. “A seismic currency readjustment is a legitimate risk.”

Of course there are plenty of experts who believe that government intervention in the economy and the markets will be successful and is necessary.

In a speech before the Chattanooga Area Chamber of Commerce this week, Federal Reserve Bank of Atlanta President Dennis Lockhart said, “My forecast for a slow recovery implies a protracted period of high unemployment. … The challenge my colleagues and I face is navigating between the risk that early removal of monetary stimulus snuffs out the recovery and the risk that protracted monetary accommodation stokes inflation expectations that could ultimately fuel unwelcome inflationary pressures,” he said.

In summary, there are conflicting opinions about whether or not the economy will stay propped up or whether it will succumb to negative fundamental factors and suffer another major correction. Regardless of what occurs, both sides seem to concur that right now market risk is very high.

I compare the economic situation to my flock of chickens. For the most part, the chickens need very little help from me. I give them a little feed and some fresh water and I collect eggs. Just before dark the chickens climb back into the coop. I come along and close the door to keep the foxes and raccoons from killing them. Everything works well until something interrupts the routine.

Sometimes the routine is interrupted because the chickens need to be put away early. I can try to facilitate this by getting their attention and then spreading some food inside their coop. Often that does not work. Next I can try to herd them toward the coop by chasing them and guiding them with a rake or something else to extend my reach. Usually this approach is successful on about half of the chickens.

I have a Brittany that loves to chase the chickens. Sometimes I try to enlist his help to chase them in the right direction or at least to help tire them out. Once the dog is chasing them the chickens’ behavior is unpredictable. Sometimes most will run into the coop. Sometimes only one or two will succumb and the rest will scatter over a couple of acres of brush. 

The last resort is to catch any and all stragglers by hand. This involves prolonged chases where the chickens normally have to be cornered in the barn or against a fence. It is a tiring process and carries the chance of injury for the chickens and for the elderly man (me) chasing them. Sometimes one or two cannot be caught and they are left overnight outside of the coop to fend for themselves. That is usually a death sentence because a predator will virtually always find and kill them during the night.

This reminds me of the current economic mess. The chickens are out of the coop and the various government and financial entities are trying to get them back in using any tactics they think might work. Some are easy and effective. Others are less so. Will they be able to get them all back before nightfall? Only time will tell, but so far we are still early in the process and while a hen or two might be headed toward the coop, the majority are still scattered in the fields.
F.S.