Miraculous or suspicious – Italian bond sales and market rallies.

A couple of days ago in ‘Europe’s non-linear moment, I mentioned how Italy suddenly had a very nearly failed debt auction. Only just enough buyers to cover the debt. Failed auctions are bad news. At this time seriously bad news.

Today Italy had another auction. It was, as one ‘strategist’ was quoted as saying, “… a very important test.”

But at this critical moment, would you know it, the auction was a success. Everything sold. There were enough buyers. Not a huge turn out, but a little better than the previous auction. The headline today on MarketWatch was “Italian bond auction soothes debt crisis fears” A quoted economist said the good result, “should help steady nerves’.

Now for a while I have been wondering who was buying all the vast debt issuance of Euroland, UK and the US. I have been suggesting that Central Banks have been buying each other’s debt. It is also possible for that central banks may have been getting banks in their country to buy their debt and funding the purchases in some round about route. I have no proof of this obviously, though in various posts I have offered up suggestive evidence (See ‘UK buys $231’).

Of course it might seem conspiratorial and unlikely. And in part I find myself thinking exactly that.

But then I read the following and I swing the other way again. You decide.

Mr Leigh Skene of Lombard Street Research was quoted in the FT saying (in an article he wrote himself) that in this stock market rally (the biggest since the 1930s), “surveys show that the usual investors in major rallies – pension funds, hedge funds and retail investors – have not been net buyers of equities” So who has been buying and driving the market up and up? Mr Skene, whose business it is to research these things, says the most likely buyers are – “… the major investment banks.” This supports data from months ago from Wall Street which showed the vast bulk of trades were being done by quant trading desks (computer trading) at the few big investment banks.

You can see where my thinking is going. The banks are buying and selling to each other and in so doing driving up the price and notional ‘value’ of the assets. No one is making any profit from the sales as they are just going back and forth. But all of them are ‘profiting’ in the sense that the book value of the assets they own is going up. Therefore the banks can book profits in terms of asset value.

If the investment banks are doing it Is it really so very far fetched to imagine the Central banks are doing it? Also remember the investment banks own much of the bond issuance. So they don’t want a crash in the value of bonds.

All in all I think we are being lied to.

The traders who I read, think the end game is, of course, to lure in the traditional investors – retail investors, pension funds – get them to buy the rally, sell out and leave them all holding the bag. I think this could well be true.

But my point is that the signs of price recovery, the near miraculous way critical sales just manage to happen even when just leading up to it sales have failed or wobbled – is for me starting to wear very thin indeed.

I don’t like people who lie to me. I don’t take well to the people who think they have the right to lie to me on the grounds that they are ‘restoring or building confidence’.

For me, this ‘confidence’, economist, bankers and politicians are always mentioning, is part of the liars lexicon I have written about before. Restoring Confidence is banker and politician speak for LYING. These lies may cost us years of poverty. I would claim they may already have.