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Guest Post: There Is A Plunge Protection Team - It’s Called The FOMC
Authored by MarketWatch's Howard Gold, via Contra Corner blog,
Things were looking grim last week, especially on Wednesday, when the Dow Jones Industrial Average was at one point down by 460.
The CBOE VIX indicator soared to the mid-20s for the first time in two years. Fear was palpable as investors had a classic panic attack.
But then, like the cavalry in those classic John Ford westerns, the Federal Reserve rode to the rescue.
James Bullard, president of the Federal Reserve Bank of St. Louis, said inflation far below its 2% target could lead the Fed to “go on pause on the taper … and wait until we see how the data shakes out into December.” The Fed is on track to finish “tapering” its extraordinary bond buying, or quantitative easing (QE3), at next week’s meeting.
‘They are afraid of the [stock] market going down and they will be blamed.’
James Bianco, president of Bianco Research
But, he added: “If the market is right and it’s portending something more serious for the U.S. economy, then the committee would have an option of ramping up QE [in December].”
Boston Fed President Eric Rosengren later said QE3 should end next week, but he could “easily imagine” not raising rates until 2016.
Translation: We’ve got your back. Don’t fight the Fed.
Investors got the message. The S&P 500 Index advanced for three straight days and the VIX fell under 20 again.
Bullard was only the latest Fed official whose words or actions “just happened” to boost the stock market when it was down.
“They are definitely in the market-manipulation business, and nothing has changed,” said James Bianco, president of Bianco Research LLC in Chicago and a longtime student, and critic, of the Fed.
Called the “Greenspan/Bernanke put,” the Fed’s willingness to jump in when stocks fall dates back a quarter-century.
“The put option is back. If the market sells off enough, they will give us QE4,” Bianco told me.
Conspiracy theorists have pinned it on a government “Plunge Protection Team” that wants to keep stocks from crashing at all costs.
But conspiracy or no, consider these actions:
Aug. 31, 2012: In his annual speech in Jackson Hole, Wyo., Fed Chairman Ben S. Bernanke all but announced the third round of QE, extraordinary bond buying of $85 billion a month. The S&P 500, which had languished after a nearly 10% decline, rallied from 1,399 points and hasn’t corrected substantially until now.
Sept. 22, 2011: Following a 19.4% stock sell-off amid a debt crisis in Europe and the U.S., the Fed launched Operation Twist, in which it sold short-term and bought long-term securities to push down long rates. After first slipping, the S&P 500 resumed a multiyear take-off that, with a little help from the Fed, ultimately drove it 80% higher.
Aug. 27, 2010: In another famous Jackson Hole speech, Bernanke vowed the Fed would “do all that it can” and would “provide additional monetary accommodation through unconventional measures if … necessary.” After a 16% correction in the S&P 500, the Fed’s purchase of $600 billion in securities through QE2 would help push stocks 22.8% higher, according to Bianco Research.
Nov. 25, 2008: In the heat of the financial crisis, Bernanke announced the Fed’s first bond-buying program in which it wound up purchasing $1.7 trillion worth of securities. QE helped launch the new bull market and drove the S&P 500 up 50%.
“Three times they put down markers they were going to end QE,” Bianco said. “In all three cases — 20%, 17%, 10% down in the stock market — they reversed.”
As this terrific chart shows, Bianco Research estimates that during all the QEs, stocks rose by 147.5%. Subtracting periods of QE, they lost 27.5%.
Back in the fall of 1998, Alan Greenspan cut rates three times during the Asian/Russian financial crisis and after the bailout of Long-Term Capital Management. That set the stage for the 1990s bull market’s final blow-out phase.
Bianco Research LLC
And after the 1987 stock market crash, when the Dow fell 22.6% in a single day, Greenspan’s Fed bought $17 billion worth of bonds (a lot in those days) and declared the central bank ready “to serve as a source of liquidity to support the economic and financial system.” The panic eased and the bull continued for years.
As in 1987, the specter of 1929 still haunts the Fed. “They are afraid of the market going down and they will be blamed,” explained Bianco. If that means “guiding” the stock market, so be it.
Problem is, Congress gave the Fed a mandate to “promote maximum employment, production, and price stability”; it never explicitly authorized propping up stocks. Yet through a remarkable theoretical stretch called the “wealth effect,” that’s exactly what the Fed is doing.
Don’t get me wrong: This bull market reflects a genuine, albeit below-normal, recovery, and the U.S. is much stronger than the rest of the world. The Fed helped by giving the economy time and breathing room.
But the emergency is over and once accumulated, power is not easily shed. If this pattern continues, the U.S. economy and markets will never stand on their own feet again.
This may be the ultimate test for Janet Yellen and could determine whether she’s remembered as a great Fed chair or just another caretaker of a dead-end course if there ever was one.
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And the Constitution gave Congress the ability to regulate interstate commerce, which was expanded into regulating just about everything.
Government grows until resistance to it cannot be overcome. Sheeple provide little or no resistance.
So what else is new?
History shows time and time again how empires begin, grow, and then collapse. When it comes to the arrogance of men, very few truths ever universially apply at any given time/place.
A couple that might hold true and come to mind are;
1) That which cannot be sustained, won't be.
2) Laws that cannot be enforced are not really laws at all.
3) When fraud is the status quo, possession is 100% of the law.
No man is ever an island folks, so get your tribes in order.
same as it ever was.
Durr!
Ok, that was less than intellectual, however, what exactly were you anticipating a criminal, fraud based organization to do but be criminal and engage in fraud.
Ergo
Durr!
Any inflation is not price stability... it is inflation TAX
All traditional economists view a normal level of inflation of around 2% as benign.
And should be hung from the nearest tree before they do any more damage.
"If this pattern continues, the U.S. economy and markets will never stand on their own feet again."
The pattern will continue until the sheep eat the herder.
Japanese peeps are still the Sheep after how many years? Maybe they are wating for sushi.
Show folks the roaring roller coaster!
http://www.showrealhist.com
Has there ever been a "GREAT" Fed Chair?
Directly or indirectly they ALL have a hand in the demise of this nation.
The worthy Fed ...
http://www.showrealhist.com/3warnsRD.html
... and the U.S. is much stronger than the rest of the world.
Because they have the frickin reserve currency and are willing to abuse it without limit.
Until that exorbitant privilige is taken away, all these analysts and economists (who are largely compensated by the US-dominated financial system) can continue to make the US is stronger claim. But it's still 100% bullshit.
The US is leading the world to collapse, consuming the fruits of the rest of the world's labor every step of the way.
Every time a Fed chairperson opens his or her mouth, a flock of doves fly into the air, a glitter rainbow magically appears in the sky, and a new factory pops into existence somewhere in the midwest. Why would the US Economy ever need to stand on its own again when it has this dependable source of magic and god-like power to drive it? All hail the Fed!
I don't know what the delay is in deifying these fuckers - get to work on the temples and statues you lazy fucks! How can we worship our new saviors without a fucking temple?!?
Take a look at Jim Rickards velocity of money chart. That tells you all you need to know about this "recovery". Velocity of M2 has cratered.
http://research.stlouisfed.org/fred2/series/M2V/
yes, but for potentially very different reasons than the usual "low economic activity".
Looks more like the death of fiat to me.
The Fed's choice is naturally to kill the US dollar.
Their IMF SDRs are already ready to replace the US dollar.
One morning you wake up and the Fed banksters annouce it's a done deal. Theft complete.
Given the prevailance of guns and veterans in America, as well as the political clout of Veteran's groups, the NRA, and weapons manufacturers in America, I don't know if I completely agree. I simply don't see how that could happen quickly (as in you wake up and your dollars don't buy you shit). A bit of cognitive dissonance in that relationship between the Bankers and the MIC. In a battle to the death, I know where I would put my money.
King Dollar has other plans
2 weeks ago FOMC minutes came with concern on dollar strength ... a lot of crap followed about weakening the dollar.
DXY higher now than then
Lacy Hunt has pointed out the inherent logical flaw of the so-called "wealth effect": If a person wishes to increase spending based on an appreciated asset, he has two options: 1) sell the asset, capture the gain and buy something else; or 2) borrow against the asset. In the first instance, money balances increase for the seller, but fall for the buyer. In the second instance, the accumulation of debt simply accelerates future consumption, so there is no net gain. Debt, after all, is future consumption denied.
Lacy Hunt the best out there ... bar none
the the the ..market is down....can that happen?
"The Fed helped by giving the economy time and breathing room."
Correction:
"The Fed helped banks/corporations/insurers by giving them public money from the Treasury while choking savers and retirees in a small closet."
Can't tell if this pic is rayscism or caste-ism. Either way, themz some nice Birkenstocks.
Exponential debt. Just watch it grow to infinity. Until it blows the dollar.
Extraordinary times call for extraordinary measures. The fed is working to reverse course on its extraordinary supportive measures. When markets have returned to more normal conditions they will be able to give markets more leash.
"and the U.S. is much stronger than the rest of the world. The Fed helped by giving the economy time and breathing room."
hogwash
The Fed - at best - has had minimal positive impact; - at worst - negative impact
The past 5 years "growth" courtesy of normal business cycle recovery, fedgov with elevated outlays ... going into recession FY2007 $2.7 trillion ... FY2014 $3.5 trillion, Saturn V launch of student loan debt, subprime auto lending back to peak, squatter stimulus, fedgov shenanigans re housing
"wealth effect" outweighed by lost interest income ... people spend income ... not asset appreciation
I think I would have liked seeing all those derivatives blow up. Our local city can no longer afford fireworks.
Fireworks will resume if EBT stops working. But then you might well find yourself a participant rather then a spectator.
Yeah, and so far they are doing a bang up job, Dow now down 120+ again. Is this round 2? http://www.alchemyfinancials.blogspot.com/2014/10/round-2.html
Yeah, and so far they are doing a bang up job, Dow now down 120+ again. Is this round 2? http://www.alchemyfinancials.blogspot.com/2014/10/round-2.html
POMO on thurs - we didn't see afternoon sell offs on Mon and Tues after POMO - yellen said proceeds from bond buying would be used too
Thurs is POMO or POMO + INT
INT doesn't run well on its own to hold markets up
No shit? Ever since the crash of Oct. 1987, the PPT has been around and every trader worth a bucket of warm spit has know of their activities. Just now you figured out they have "muscled" the SP500 higher over the last 3-5 days? Where the fuck have you been?
www.traderzoo.mobi
But, the only thing that matters is, “Will you have health and vitality to enjoy your profits, and to witness those looming unprecedented crashes?”
I mean, what’s the point of aiming at such profits – or preparing for such crashes, if you don’t have the good health to enjoy them?
If you’ll follow my health regimen, you can reduce your biological age as much as 50 years – as I have done.
My health regimen involves no actors, no cosmetics, no wishful thinking; instead, I support it with real, physical and metabolic, action. (Metabolic: loosely, the work of building and repair of tissue, and removal of toxins.) I’ve had many former pro and college players tell me that if I played competitive ball at the level of a major college, I would “wreck” or “lead” the league and hit “0.700”. Players at this level range around the age of 20; I’m 70 years of age. Why do they say that? Perhaps, it’s the fact that I’m currently putting on a show hitting 117-121 mph pitches (of 25 pitches, I routinely hit 15-20 into fair territory); major league hitters can hardly match my numbers… as they struggle to hit 95 mph pitches. Go to YouTube, search “1668-85” for verification; it will lead you to a web page that explains my regimen in some detail.
And, when you get to that web page, pay particular attention to my remarks about DMSA. If there’s only one thing that you can do, DMSA is it. But, DO NOTHING with it until you have studied my web page.
I don’t promise to make anyone a professional athlete, or more beautiful… just give them the health and physical condition of what they should have had as a teenager.
You'll never get another dime on your savings account either because of it. I can't believe the stupidity of people and willfull ignorance of those on government pensions. They think we should be oh so happy eating the load like this.
Just the biggest welfare for the rich scam I've ever seen.
FED policy has done following:
1. negligible genuine sustainable economic growth resulting from to lower interest rates to consumers & businesses for genuine sustainable economic activity (instead of financial engineering)
2. grossly inflated the prices of financial assets through HUGE carry trades, record high leverage & financial engineering (eg record high stock buy backs by corrporations using cheap debt), ie the MOTHER of all bubbles
3. destroyed the interest-earning power of earned-money savings from who-knows-how-many-trillion dollars of created-money
4 greatly increased the inflation in agricultural commodities, ie FOOD, the ultimate essential
5. greatly suppressed the volume of lending from banks & non-banks due to absurdly low lending profits from record-low net-interest margins
6. provided White House & Congress with MEGA green-light to spend & issue trillions more debt with reckless abandon due to twilight-zone low treasury rates
7. increased my net worth by 50% in 6 years by exploding the market value of my financial assets - I already sold everything to keep the gains and am waiting in cash for the inevitable bubble burst
Plus many, many, many other negative effects, eg draining off securities needed as collateral in free market.
FED is an EXCELLENT example of a "domestic enemy".
Did I just read this twaddle?
"This may be the ultimate test for Janet Yellen and could determine whether she’s remembered as a great Fed chair or just another caretaker of a dead-end course if there ever was one.
Its time for me to meet the tyler .fedgov infiltraitor in the parking garage
WTF? Where has this guy been since the 1970's? He couldn't possibly have done more drugs than I did then and I knew all about the Plunge Protection Team! Did Rip Van Winkle write this article? Also, and most importantly, why did ZH post it?
It looks just like a real market, until you look at it. One at a time, wake up, pull head out.