It’s Plunge Protection Time!!!
The DOW and S&P 500 plunged on Christmas Eve by 3% and 2.7% respectively. This was unprecedented – the S&P 500 had never fallen on Christmas Eve by more than 1% in the entire history of the exchange. This plunge was a continuation of a general pull-back in stocks that started when companies were barred from buying their own shares during the corporate reporting period in October, halting a $1.1 Trillion stock buy-back binge this year, and the plunge has picked up steam from there. Markets are now officially in bear territory having fallen 20% + from their peaks.
It seems that the “powers that be” are getting a tad worried about this.
On December 23rd, Steve Mnuchin called the heads of the six major US banks to discuss the situation as well as other issues. The government press release following the meeting stressed that there were no liquidity problems that sparked the call. This comment may have spooked stock markets. Many investors may have thought that the only reason that the government would stress that there were no liquidity problems would be if there actually were such problems, as no one had been talking about this before the call!
The markets plunged on December 24th, as noted above.
Also on December 24th, Mnuchin called the “Plunge Protection Team” to discuss the situation. The PPT is formally called the President’s Working Group on Financial Markets, and was established by President Reagan following the market collapse in October of 1987.
On the first day of trading following this call to the PPT from
Mnuchin - that is December 26th - the DOW and S&P 500 rose by more in that one day than on any previous day in their history. It is obvious that following the call from Mr. Mnuchin, the PPT took action to “stabilize” the stock markets by triggering a wide range of aggressive buying of equities.
The point of such buying is to restore confidence in the market – to make it look like a bottom has been reached in order to get average buyers back into the market. The problem with this approach is that, absent some reason inherent in news or the economy itself for people to buy equities again, any government-led buying of equities could look amateurish and incompetent. In fact, such buying may even backfire and may even trigger even more concerns about the market the and the underlying economy, because after all, why would the government be intervening if all is well?
Consider this…CNN has a tracker of a range of indicators that are indicators of investor confidence, which it reports on its website here…
The measure is out of 100 possible points, where 100 is maximum possible confidence and 0 is minimum possible confidence.
Today the measure is at a whopping 5, after being at a stunningly worrisome 4 yesterday!
Yes, you read that right, this measure of investor confidence is at FIVE out of a possible 100!!
I follow this measure daily – I have never seen this measure of investor confidence at such a low rate.
So, did the PPT save the day?
As of the mid morning, the S&P 500 is down 44 points, or 1.75%, and the DOW is down 429 points or 1.88%. The markets stayed well down until about 2:30 pm...then, almost on cue, they all started to rise again! The DOW ended the day up 260 points, for almost a 500 point turn around in the last hour and half of trading. The S&P 500 ended up 21 points.
The point of the PPT is clear. Forget trade wars, massive corporate buy-backs coming to an end, government shut downs, rising interest rates, and economic expansions that are long in the tooth. The powers that be will simply not let markets fall...until they do.
It is conspiracy time again!
What is the next shoe to drop?
Now that this year’s unprecedented stock buy-backs seem to be over as an artificial support to stock prices, will central banks start printing money to buy equities to support the stock market? Some are already doing so and they have been doing so for years now (i.e. the Swiss and Chinese central banks, at least.)
On that, “Helicopter” Ben Bernake has previously suggested that having central banks print money to buy equities is one way for those central bankers to fulfil their core mandate to keep inflation low and employment high. On the surface, there seems to be no rationale link between stock market prices and these two measures – what matters to support long term employment is profit, not day to day prices. As well, central banks are over 100 years old, and no central banker has ever expounded on this supposed link before.
But is it possible that Bernake is just so much smarter than everyone else that he has seen something virtuous in supporting equity markets to keep people employed that every other central banker before him was just too stupid to figure out? Or is this just much simpler - are central banks now so utterly corrupt that they will say and do anything to keep their wealthy buddies in the Black?
We may soon find out.
All together now!....
“One, Two, Three, Four,
Who Are We For!?
PPT, PPT!
Yeah…PPT!!!”
No comments:
Post a Comment