The key to this “rally” is funny-money printed by the American Politburo (a/k/a Federal Reserve).

They have printed, or will print, up to $1.75 trillion new dollars, which will be conjured out of thin air. Of this amount of newly printed cash, most was injected into the economy in the form of mortgages, in a vain attempt to raise housing prices to help banks repair their failing balance sheets.

About $500 billion plus, however, was injected directly into the stock market, in the form of futures buying and buying on the cash market. Other than momentum hedge funds, who chase any stocks movement upward, no one else is buying stocks. This is illustrated by the nearly non-existent volume. Although, all the services that track mutual fund money flows show that the existing dollars are moving AWAY from equities funds and into bond funds.

Amazingly enough, $500 billion can create a huge fake rally, even though the total market cap of the U.S. markets is measured in the tens of trillions of dollars. Not all stocks are traded each day. In fact, something like 99.66% of shares are stagnant for years, sitting in the accounts of various institutional and private investors. They buy and hold, and ride the ups and downs without trading. About 1/3rd of 1% of shares trade each day. Even though the U.S. market cap may be, for example, $25 trillion, only about $100 billion per day actually trades.

To make the use of $500 billion more efficient, it was injected into the vehicle of Goldman Sachs’ proprietary trading software, and, also, similar software that is used by other primary dealers of the Fed. Such software buys and sells, from other coordinating software of the other dealers, and itself. Although regular investors can get in between the trades (which results in a net cost to the intervention), most of the trades will be by or between the software itself. Since the buys and sells arise out of the trading, essentially of the same entity, only an incremental loss is taken. The incremental loss occurs when outside investors get between the trades.

This type of behavior allows the Fed to pump a $25 - $50 trillion market using relatively small amounts of money. The process of creating false values involves convincing other market players that the prices are legitimate even though theyb are not. Non-connected players, however, lack sufficient knowledge as to how the prices was determined. That is why the Fed cannot release the information that Bloomberg and others have requested. If all the money flows are followed, it will be damning, and will put an end to the great game. Most players do not realize that the current rally prices for equities are set by proprietary software that trades against itself, and other cooperating primary dealer versions of the same software. If they ever put 2 + 2 together, and realize that it equals 4, the whole scheme will fall apart.

There is a negative to this type of market manipulation, and it involves the U.S. dollar. Because of decades of economic mismanagement and gamesmanship, the Fed has no foreign currency reserves other than gold. It doesn’t want to part with any more gold than is needed to suppress gold prices on COMEX. So, the only way to pay for of this manipulation is to print new funny-money dollars.

Funny-money dollars are not legitimate, but they are “counterfeited” by the Fed itself, and, therefore, are indistinguishable from real dollars. Eventually, funny-money dollars make their way into the currency markets, causing a fall of the American dollar. That is why the dollar and the stock market are now so tightly linked.

The rally will end when foreign nations make it clear to the U.S. Treasury that they will no longer buy U.S. bonds denominated in a falling dollar and the Treasury tells the Fed to stop. This is now happening, so the fake rally is going to end badly.

- JohnMD

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