How Long Can Fed Keep The Stock Market Propped Up?

Is the Stock Market Rigged?

Paul Craig Roberts, Dave Kranzler, and Michael Hudson

On February 6 PCR asked if the Plunge Protection Team had stepped in and prevented a stock market correction by purchasing equity index futures. https://www.paulcraigroberts.org/2018/02/06/another-arrested-equity-correction-paul-craig-roberts/ Sure enough, the daily exchange volume chart shows an increase in futures activity on February 2 with sharp increases on Feb. 5th and 6th. Those are the days when the stock market averages were experiencing large point drops. So, ask yourself, would you purchase equity futures while experiencing cumultive stock market drops? One can understand shorting a dropping market, but not buying futures.

Unless this is what happened. Seeing the beginning of a correction, the Plunge Protection Team placed a futures bid just below the existing price. Traders saw the bid, recognized that the government was intervening to support the market, and the bid was front-run with the hedge fund algorithms automatically picking up the action.

Who but the Federal Reserve with its unlimited ability to create money would take the risk of buying futures in the face of a falling market. Moreover, such an infusion of money into the market does not show up in the money supply figures.

The futures purchases prevented margin calls and stop/loss orders in a heavily leveraged equity market that would have collapsed the market.

What are the pros and cons of this kind of intervention (which might have occurred also in May 2010 and August 2015)? By stopping a correction, the intervention prevented a pension fund collapse, both private and state. However, by propping up over-valued equities that the Federal Reserve’s quantitative easing created, the intervention rewarded over-leveraged speculative risk-taking and prevented price discovery. We still have an equity market whose values rest on record margin debt, stock buy-backs, and prices pumped up by money-printing. The problems waiting to come home continue to build.

The question is: can intervention prop-up over-valued, problem-ridden markets forever?

After today’s drop, we will see what happens tomorrow.

8 thoughts on “How Long Can Fed Keep The Stock Market Propped Up?

  1. Is the Fed and its cronies propping up the market to allow the central banks to exit their $30 trillion stock market equity positions. Once the CBs have sold their positions, will the Fed allow the market to crash?

  2. The insanity continues. The real scary part is that segments
    of the public believe that this is normal and everything will
    be ok. A 20% plunge is normal because “I’m invested for the
    long term”. We are living in interesting times. I would like to
    be living (I won’t be) fifty years from now to see how this period
    of history is written.

  3. Whether going up or down, the so called market will only do what it is allowed to do by TPTB. If they decide to take it lower, then nothing or no one can stop it. The 666 point drop last Friday seemed like a signal of sorts. Janet Yellen is gone and a new Fed chair is in. Trump has bragged too much about the stock market, setting himself up beautifully as the patsy when it first goes down lower than it’s election wve levels and then much lower. In a flash, 10% is gone from the market’s value. When the algos which have been relentlessly buying reverse course, one can only.imagine the level of damage they will unleash.

    1. “Whether going up or down, the so called market will only do what it is allowed to do by TPTB. ”

      I don’t believe that. They have power but are not omnipotent ad infinitum.

  4. “Is the stock market rigged?” How about the Dow rising 500 points
    in twenty minutes. That just happened between 11:30 cst today,
    February 9th. Bwaaaaah, yes it’s rigged and thats the way the Fed likes it !

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