Happy One-Year Anniversary Of "The Phone Call Heard 'Round The World"

Submitted by Market Crumbs,

The Battle of Concord in 1775 had "the shot heard round the world," which began the American Revolutionary War and led to the creation of the United States of America.

New York Giants baseball player Bobby Thomson hit the "shot heard 'round the world" to win the National League pennant in 1951.

United States Secretary of the Treasury Steven Terner Mnuchin had the "phone call heard 'round the world" exactly one year ago today.

On Sunday, December 23, 2018, Mnuchin—while vacationing in Cabo San Lucas, Mexico, decided to call the CEOs of the six-largest banks in the U.S. after the S&P 500 fell nearly 14% from its high on the first trading day high of the month through the Friday close. Stocks had sold off basically all month, with the S&P 500 closing lower 12 of the 14 days during the period following a lack of progress on a trade deal, a rate hike by the Federal Reserve and an imminent federal government shutdown.

With the Dow Jones Industrial Average hitting a 1-year low and the S&P 500 hitting its lowest level since 2017, Mnuchin had seen enough and determined it was time to interrupt his vacation to stop the bleeding.

"The CEOs confirmed that they have ample liquidity available for lending to consumer, business markets, and all other market operations," the Treasury Department's statement on the call read. "He also confirmed that they have not experienced any clearance or margin issues and that the markets continue to function properly."

There was one section within the statement that was enough to start one of the most vicious V-shaped rallies in recent memory. "Tomorrow, the Secretary will convene a call with the President's Working Group on financial markets, which he chairs. These key regulators will discuss coordination efforts to assure normal market operations."

The President's Working Group on Financial Markets aka the Plunge Protection Team (PPT) was created by Executive Order 12631 and signed on March 18, 1988 by President Ronald Reagan. The PPT was created to determine what happened on Black Monday in 1987 when the Dow fell 22%, which remains the largest single-day percentage loss for the Dow in history. The PPT makes sure markets operate "smoothly," essentially meaning they don't go down for sustained periods.

The S&P 500 put in a bottom the day after the call and hasn't looked back since. Since the Christmas Eve bottom, the S&P 500 has gained 37%, hitting countless fresh all-times on accommodative monetary policy, buybacks and hopes of a trade deal as economic conditions deteriorate. The timing of Mnuchin's call and the reaction from markets ever since might be the most blatant example of how those who sit on the PPT—Secretary of the Treasury, Chairperson of the Board of Governors of the Federal Reserve System, Chairperson of the Securities and Exchange Commission and Chairperson of the Commodity Futures Trading Commission, care about the performance of the stock market over everything else.

It's certainly been a tough year since the "phone call heard round the world" for those who are bearish. With the markets sitting at all-time highs, it will be interesting to see how much the S&P 500 would have to decline by before Mnuchin makes another phone call. One thing is certain, though, you can hardly call those who have said the PPT is real for all of these years conspiracy theorists anymore.