The week before the Dow/SPX quickly plunged 10%, the Fed had reduced its SOMA account (the SOMA account is its “QE” account) by $21 billion. Just as quickly as the stock market dropped, it has sharply recovered more than half of its losses from the previous week. As it turns out, the Fed added $11 billion back to its SOMA account. That’s an $11 billion injection of cash directly into the banking system. Clearly the Fed’s actions were a large factor in the 10% plunge and the subsequent bounce.
The Federal Reserve is targeting stock prices with it’s monetary policy because, if it did not, the financial system would collapse led by collapsing pension funds and the housing market. The pension collapse alone would run into the trillions of dollars.
I have a good friend/colleague who works at big public pension fund. He did a “stress test” study with the data available to him on all big public pensions. He concluded that, based on the current stated amount of underfunding at every big pension fund, if the Dow/SPX declined 10% or more over a sustained period of time – where “sustained period” is defined as 3-4 month – every public pension fund in the country would collapse.
You’ll note in the graphic above that the three 10% drops in the Dow since August 2015 were followed with sharp, “V” recoveries. Each one encompassed 10% drawdowns which were remarkably brief. The latest 10% plunge has been met with an equally forceful recovery, with the 10% decline allowed to persist for less than three trading days.
Craig Hemke – aka “Turd Ferguson” – invited me to discuss the the massive financial pressures building in the U.S. financial and economic system. It’s 2007 before the de facto financial system collapse on steroids. The factors discussed explain why the Fed will not let the stock market sustain a meaningful sell-off – click on the MP3 player below or visit TF Metalsfor the podcast link:
The global financial system is collapsing – not just Europe. If the Central Banks stepped away from both their observable and covert money printing, the system would collapse tomorrow. Brexit is not the catalyst and it’s not the cause. Brexit is nothing more than the cover story – the device used to deflect the public’s attention away from truth.
The truth is that the western Central Banks (let’s leave China aside for now) have created the biggest asset bubble in history. And the time has come for it to pop. It’s been a divisive, albeit brilliant, wealth confiscation mechanism.
Elijah Johnson invited me onto his Finance and Liberty podcast show to discuss Brexit, precious metals and the ongoing systemic collapse, which will be more catastrophic than the 2008 collapse financial crisis:
One of the immediate consequences of the BREXIT has been the “gating” of six UK property investment funds. Investors threw money at these funds and helped inflate a massive property bubble in the UK, similar to the one in the U.S. And now investors are trapped because the funds are unable to sell illiquid, overvalued real estate in order to meet redemptions. The same exact process will occur in the U.S. My view is that investors in mutual funds will get what they deserve because blogs like mine have been warning about this for several years now.
On another note, one of the stocks featured in my Mining Stock Journal is up over 7% today. It’s trading at a market cap that is about 10% of the potential valued of this Company’s primary gold property. It also looks like one of its strategic investors is starting to make a move to eventually acquire the entire Company. New subscribers to my Mining Stock Journal currently receive all of the back-issues when they subscribe, including the above-described company which was an early pick and is still highly undervalued. You can subscribe by clicking here: Mining Stock Journal.
Dallas Fed Manufacturing Outlook for February plunged to -11.2 from -4.4 in January. Wall Street Einsteins were expecting -2.8; Philly Fed Survey fell to 5.2 vs. 8.2 expected but the 6-month outlook “index” plunged to 29.7 from 50.9 December; the Empire State Fed survey was weaker than January but the “new orders” index fell to 1.22 from 6.09 and future business expectations plunged from 48.3 to 25.58. Everyone already knows that retail sales were negative in December (-.9) and January (-.8) – that’s with inflation – real retail sales (better measure of unit volume) were even more negative.
This is an excellent graphic portrayal of the current situation in the U.S. economy. “U.S. Macro” is an index compiled by Bloomberg which measures the difference between the economic data as reported vs. the consensus estimates for that data (click to enlarge):
By now I think almost everyone knows that the Fed has been pushing the stock market inexorably higher on a sea tide of printed money. I think everyone understands that history has shown that market interventions always fail. When the stock market intervention fails, it will trigger a collapse that will likely make the 1929 crash look tame…