Plunge Protection Team ConvenedStephen Aust
Please excuse any errors. This brief “extra” blog is a rush job.
Q3 hedge fund letters, conference, scoops etc
On Friday, I sent a private email to clients stating that twelve of MarketCycle’s “13 market bottom indicators” had just triggered and that I suspected that a stock market bottom was close; I just had to sit back and wait for the “event” that would be given the credit for any rebound. Literally everyone in the investing world has been panicking, but I’ve been around long enough to know that this recent drop was just a routine event and not the start of an economic recession.
I was also around during the Crash of 1987. Now this event actually was truly terrifying, although a repeat is impossible because of new market protections that have been put in place. Because of the Crash of 1987, the only actual crash in the history of the stock market, then President Ronald Reagan, on March 18, 1988, signed Executive Order 12631 which created the Working Group On Financial Markets. It is also known colloquially as the “Plunge Protection Team.” Fear always causes the promoters of free markets to want to jettison the word “free” from their world-view. Simply put, the Plunge Protection Team, via banks and hedge funds, uses taxpayer money to buy stocks so that the U.S. stock market is propped up. End of the problem, or should I say the postponement of the problem.
This weekend, and I cannot tell you how important this event is, U.S. Treasury Secretary Steve Mnuchin called the six largest banks to tell them that he was re-convening the group of officials known as the Plunge Protection Team. The plan is to inject the banks with “ample liquidity to buy up the stock market.” Regardless of any government shutdown or of President Trump’s burning desire to fire his recently appointed Federal Reserve Chairman, Jerome Powell (he had recently fired the brilliant Janet Yellen because, in his own words, “she’s too short to be Fed Chairman”)… the stock market now has a base under it. The U.S. government will begin to use taxpayer’s dollars to buy up the stock market when it starts to drop. So, the stock market is now being rigged to go back up and MarketCycle’s “13 bottom indicators” may be vindicated. The end result will be a future economic recession that is much worse, but also a President that is much merrier since, in his own words, he uses the stock market as his personal popularity poll.
As I’ve been saying since April 2, 2009: “We’re still in a bull market for U.S. stocks.”
Calculated economic recession chances 2 months out is at less than 5% and that is still crazy low. Everything currently still says “bull market,” but several indicators now point to a recession on the distant horizon. In my opinion, the market correction bottom may be quite near and with presents under the tree for the opening.
Thanks for reading!
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Article by Stephen Aust, MarketCycle Wealth Management