Who’s Buying Stocks? The Answer Is….

In a holiday shortened week, the S&P500 crept up 1.0% on extremely low volume.  Interestingly, the VIX rose over 2% for the week; it seems that traders are willing to buy more insurance “just in case” the stock market hits turbulence when they’re on vacation.

The flow of economic data was light, but mostly negative.  The final revision to Q3 GDP came in well below (2.6%) expectations of 3.0%, and by far the largest factor behind the entire 2.6% growth was inventory growth–which is completely unsustainable as a source of GDP growth.  Existing home sales also came in well below expectations.  New home sales also disappointed vs. expectations; they were also 21% lower than last year’s November figure.  Durable goods missed.  Initial claims came in exactly as expected, but as usual, the prior week’s figure was revised negatively.  Consumer sentiment was worse than expected.  Personal income was slightly better than expected.  Personal spending was slightly lower. 

Needless to say, the technicals are all pointing to an overbought equity market, both on the daily and the weekly charts.

So what in the world can possibly explain the continued melt up in stock prices?  Especially when, as reported by ICI, stock mutual funds have suffered from net outflows for 33 consecutive weeks?  In other words, all data is strongly suggesting the average retail investor has been running away from the stock market for most of the year.

Charles Biderman, of TrimTabs Research has some ideas.  A year ago, he asked the same question.  When interviewed on CNBC, he expressed sincere confusion when he explained the numbers didn’t add up.  He pointed out that almost all of the traditional money flow sources pointed to funds leaving the stock market.  Yet prices were rising.  His conclusion a year ago?  Someone, someone big, was buying.  His guess:  the US government.

Flash forward to last week.  In a follow up interview at CNBC, Biderman updated viewers on the money flows in the stock market.  He noted that “retail investors are not coming back to the US.  Those investors that are investing are buying global equities and are buying commodities.  We are seeing lots of money going into commodity ETF funds, gold, silver…”  He added that “pension funds and hedge funds don’t really have that much cash to invest.”

So who’s buying stocks?

The answer, courtesy of Biderman, is: “if the only buyer is the Fed, and the Fed stops buying, I don’t know what is going to happen…when I was on your show a year ago, I was saying the same thing:  we can’t figure out who is doing the buying, so it has to be the government, and people said I was nuts.  Now the government is admitting it is rigging the market.”

Wow.  There you have it.  Finally a widely respected market analyst coming out and stating the unspeakable–not only is our government artificially propping up stock prices, but pointing out the obvious conclusion:  this market rigging cannot last forever, and when it ends, then the US stock market (and most likely all other international stick markets) will crash.

There, that ought to make you feel better.  Go ahead, the government is daring you not to buy stocks.  Just be sure to get out the day before they stop buying, or else you’ll lose everything you’ve made, and then some.

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