Did the Fed Buy the Market to Stop the Collapse?

Tuesday, August 23, 2011
By Paul Martin

by Phoenix Capital Research
ZeroHedge.com
08/22/2011

Now that the market has rolled over and erased most of the gains from last week, I can’t help but wonder just why the market rallied at all. True, it was oversold… but the FOMC announcement wasn’t exactly bullish (Seriously… ZIRP for another year was reason for an 8% rally in four days?).

I found it interesting that the New York Post published a story containing the following quote just 3 hours before the post-FOMC market ramp job started.

Back in October 1989, a guy named Robert Heller, who had just quit his post as a Fed governor, suggested that the government should purchase stock index futures contracts to calm the markets in times of distress.

“The Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole,” Heller wrote in an op-ed piece in The Wall Street Journal after saying the same thing in a little-noticed speech. “The stock market is certainly not too big for the Fed to handle.”…

This is a rather odd turn of events… a former Fed official urges the Fed to step in and buy the stock market… just three hours before the markets mysteriously reverses and rallies hard on no real news of note.

This begs the question… did the Fed buy the market to put a floor under the collapse? There’s no telling for sure. But it’s rather odd that this article came out just three hours before the market magically reversed and exploded higher

If the Fed did actively buy the stock market to try and put a floor under it, we can assume three things:

1) The Fed is becoming truly desperate
2) The Fed realizes QE isn’t helping
3) QE 3, if it arrives, will be coming later down the line

The Rest…HERE

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