Tag Archives: Plunge Protection Team

Stranger Than Fiction: The System Is On Full Retard

I said half-facetiously in early 2004 that if a small nuke detonated in Times Square that the Dow would probably shoot up 200 points.  Today I reiterate that assertion with full sincerity.  All of the markets, but especially the stock market, are now openly manipulated. The Fed and the Treasury never bother even to tacitly deny it.

Yesterday in our conversation with Paul Craig Roberts, Dr. Roberts rhetorically asked, “why does the Fed operate a massive and highly sophisticated trading desk in New York?”  I add to that question, rhetorically of course, why does the U.S. Treasury’s Working Group On Financial Markets office in the same building as the NY Fed in NYC?

The Fed officials are back at it threatening us with interest rate hikes in April once again after weeks of bluffing before blinking at the March FOMC meeting.  If these guys can’t raise rates just one quarter of one percent – if for no other reason than to avoid looking like village idiots – then the true condition of the underlying economic system must be far worse than any of us can imagine.

This rate-hike “meme” dove-tails well with Chicago Fed National Activity report  released last week showing a sharp contraction in economic activity, as its index fell from +.41 to -.29 in February.  It takes a lot to move the needled on that index, which means economic activity contracted precipitously during February.  This was reinforced by the big plunge in existing home sales during February per the NAR yesterday.

Lewis Carroll’s imagination could not make this stuff up.

By now everyone is well aware of the fact that the S&P 500 has retraced nearly the exact path that it took after the 11.2% plunge in August (click image to enlarge):

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Here’s a few interesting statistics: Through yesterday, there have been 26 trading days and only six have been down days; during the September rally there were a total of 26 trading days before the market rolled over and only eight of them were red; from the Feb 11 bottom through today (Mar 22), the SPX has rallied 12.3%; from the bottom on Aug 25 to the top on Nov 4, the SPX rallied 17.3%; as you can see from the two bottom panels in the graph, the RSI and MACD momentum indicators are as “overbought” now as they were at the top of the last plunge/spike-up rally;  in both cases, the SPX has rallied back above its 200 dma (red line).

Currently the stock market is more dislocated from the underlying fundamentals of the U.S. financial, economic and political system than at any time the history of the country. While it seems that current push higher in the stock market is climbing the euphemistic “wall of worry,” at this point the current rally is less powerful than the previous move off of the September 2015 lows.

I was chatting with a prominent cycle theory analyst, Longwave Group’s Ian Gordon, who successfully forecasted the 2008 market crash in 2007.  He thinks the Fed will be unable to contain the next stock market sell-off the way it was able to in September.  He thinks this current move has, as most, another three months.  I told him I thought the market would tip over sooner than that…

In the meantime, one has to wonder if both Fed officials – Dennis Lockhart and John Williams – have somehow been wandering around Alice’s Wonderland with their heads firmly inserted where the sun never shines.

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Insanity Engulfs The Stock Market

I have no idea who is throwing cash into this highly overvalued stock market to push it higher right now. Any registered financial advisors or pension managers who are buying into this stock market right now are in serious breach of their legal fiduciary duty.  While there’s likely a modicum of retail daytraders and momentum-chasing “hedge” funds chasing the upward velocity, I have a an educated hunch that the Fed and the Treasury’s Working Group on Financial Markets – headquartered in the same building as the NY Fed – are behind this insane thrust higher in the S&P 500 and the Dow.

But as Shakespeare once said (in Macbeth) “nothing is but what is not.”  Beneath the facade of the S&P 500 index spike up over the past 2 weeks, smart money appears to be unloading long positions before this “Titanic” hits the iceberg (click to enlarge):

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With good reason, too. If GAAP earnings were calculated the way they were calculated 20 or even 10 years ago, the p/e ratio for the S&P 500 would be at its highest in history. Furthermore, “smart” investors would not be chasing stocks higher while earnings and revenues are declining, as they have been for several quarters.

The on-balance volume and positive volume indicator signals in the graph above show an extreme divergence from the direction of stock market.  This indicates that – away from the key stocks used to push the S&P 500 and Dow higher – big money is unloading stocks while the SPX/Dow appear to show strength.  It’s brings to mind the “Rome burns while Nero fiddles” metaphor.

In the graph above, you can see that the S&P 500 appears to be carving out a pattern similar to the path it took from last August through early November, before it dropped off a 12.5% cliff.  No one knows if this same pattern will repeat, but there’s always the chance that the Fed is trying to push the S&P 500 back up to its 200 dma (red line).  We’ll know if this gets accomplished soon enough.

Meanwhile, it’s still possible to make a lot money shorting the stock market as long as you are “nimble.”  On Monday mid-day, I emailed my subscribers with what I call a “quick hit” trade set-up that had developed in Big Five Sporting Goods ((BGFV) – click to enlarge:

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The suggested trade was to buy puts or short BGFV before the close on Tuesday and cover it or sell the puts right after the open on Wednesday (today).  I had some additional analysis to support the trade idea.  BGFV actually “beat” its earnings number but it required some hard-core GAAP engineering to accomplish this.  Revenues were in-line but the stock was hit for over 18% at the open today.

Several subscribers emailed me today with their success on this trade:  “Good call on BGFV. Scalped it twice…Thanks for this trade, 117% return in less than 24hrs, not too shabby, lol…Got small position in the $12.50 puts just before the close. Sold this a.m. as instructed for 112%…We did this trade-our first with your service–and got a little better than a triple!!

You can subscribe to the Short Seller’s Journal here:   LINK  or by clicking on the image to the right.  It’s been a difficult stretch for shorting this market but most of my emphasis and NewSSJ Graphicideas are focused on longer term trade ideas (12-18 month). I always include ideas for using options with specific examples.

The intra-week email “alert” was not originally part of the service but I tried it out several weeks ago and had a great response.  I only send them out when I come across an idea that merits doing so.  Finally, SSJ subscribers will be able to subscribe to the coming-soon Mining Stock Journal (hopefully Friday) for half-price.

A Gift From The Fed – AMZN

Don’t worry about the price difference it is already a incredible bargain so $5 is insignificant.  Besides I made $600 on a $1,060 investment selling a BZH call a few weeks ago. On Monday morning I closed a Put option on AMZN that tripled my $1,306 investment in 4 days.  Both of these are because I read your reports on these companies. 

You have a good website with quality info especially during these crazy times.  Thanks for the info.  –  research report testimonial

Note:  AMZN has already faded 9 points off its high of the day while the SPX has “powered” to highs of the day.

The Plunge Protection Team has given us a gift.  Many of you who read my research report have sent me emails about making a lot of money shorting AMZN and buying puts based on my Amazon dot Con report.  I responded by suggesting, especially the put buyers, to take some profits and roll them into further out and lower-strike puts.

Notwithstanding today’s bogus GDP revision in which the Government’s mathematically-challenged statisticians are attributing an increase in “economic wealth” to a massive build-up in auto, housing and electronics inventory that will go largely unsold, this bounce in the stock market is absolute gift to anyone looking to capitalize on stocks, like AMZN, that are more overvalued than at anytime in history.

Here’s my “swing trade” call on AMZN – click to enlarge:

Untitled You can purchase the research report that goes with this chart here:

AMAZON dot CON

When someone presents you with a “gift horse,” it’s a mistake to examine its teeth.

Don’t Panic, The Fed Is Control Of The Markets

There’s no such thing as markets anymore – only interventions.  –  Chris Powell, co-founder and Treasurer of GATA

If today’s market action does not convince the last skeptics that the U.S. financial markets are completely rigged, nothing will.

The action in the U.S. markets today after the Greece/EU situation hit a wall today demonstrates the degree of control the Fed and the U.S. Central Planners have over the markets now.    The S&P 500 futures opened down 30 points when global electronic trading opened Sunday evening.   Gold and silver spiked up.  Both markets began to reflect some degree of the risk to the global financial system posed by Greece’s potential financial collapse.

Of course, as has been the case since the 1987 stock market crash, the Fed/Treasury – collectively the plunge protection team (PPT) – went to work containing the damage to the paper markets.  This entailed methodically working the S&P 500 higher during the course of the night and methodically pushing gold/silver back down – click to enlarge:

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The manipulation of the markets reflected by these overnight trading charts of the SPX and Gold futures epitomizes the extreme degree of market intervention by the PPT. Ever since 1987, and since Reagan signed the Executive Order which authorized the PPT to prop up the stock markets, there’s been market intervention “creep” in this country. Robert Rubin’s role as Secretary of Treasury was to transition the Working Group on Financial Markets (PPT) from its stock market propping function into a full-fledged, all-encompassing market intervention mechanism.

A colleague of mine this morning remarked that after today the market intervention going on should become blatant to everyone.  I scoffed at this notion.  Most people in this country are either not aware of what’s going on in DC and Wall Street or don’t care.  I was watching CNN this morning and the Greek Tragedy was not even reported.  If you only get your news from CNN you have no idea that the EU could fall apart.  Therefore, you have no reason to believe that the stock market should be falling off a cliff and gold should be going parabolic toward the sky.

The markets have become unimaginably imbalanced in the degree to which the paper derivative securities misrepresent the underlying financial, economic and political reality. Yes, stocks and bonds are nothing more than simple derivatives in that they are pieces of paper which are supposed to “derive” their value from underlying entities that issue them. But the underlying entities are nothing more than cesspools of accounting fraud, criminality and Ponzi schemes designed to suck wealth out the system.

The financial markets – and specifically the U.S. financial markets – have become collectively the biggest Ponzi scheme in the history of the universe.  This condition has been made even worse by the fact that the people running these markets and our Government have become completely immune from prosecution or even indictment. They are criminals who are above the law.

Examples of this are becoming limitless, but consider that an open felon who, as Secretary of State, sold U.S. foreign policy to the highest bidders for her own personal gain is now the front-runner candidate to be the next President.  The only way that our system can become more distorted, debauched and depraved than that will be when the Government begins to herd malcontents and critics into “internment” camps.  Don’t think for moment that is not in the playbook…

…when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you–when you see corruption being rewarded and honesty becoming a self-sacrifice–you may know that your society is doomed.   –  Ayn Rand, “Atlas Shrugged”

 

Is The Global Financial System On The Brink Of Collapse?

A reverse repurchase agreement, also called a “reverse repo” or “RRP,” is an open market operation in which the Desk sells a security to an eligible RRP counterparty with an agreement to repurchase that same security at a specified price at a specific time in the future.  LINKIMF tells regulators to brace for global ‘liquidity shock’ LINK.

The financial news spin-doctors are attributing today’s abrupt sell-off to a report of a Bloomberg terminal outage and to a report that China has expanded its list of stocks available for shorting.   This explanation for the plunge in stocks globally is so absurd it almost leaves me speechless.

I have been postulating since mid-December that the strange volatility we’ve been experiencing in the markets – combined with the most intensive effort I’ve ever seen by the Plunge Protection Team (the Fed + the Treasury’s Working Group on Financial Markets) to prop up the stock market and keep a manipulative cap on gold – is occurring because there’s is a massive derivatives melt-down going on behind the scenes.  The volatility reflects the turmoil and the market intervention in stocks and precious metals reflects the effort to keep the problem covered up.

But a good friend and colleague showed me graph this morning that shows my thinking about a derivatives collapse may be correct – click to enlarge:

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That graph shows the Fed’s Reverse Repurchase Agreement operations with foreign Central Banks and big foreign banks.   A reverse repo is an operation which generally is thought of as being used as a tool to remove short term liquidity from the banking system.  However, as you can see from the timing of the first massive spike up, which occurred in early September 2008, it is an absurd notion to think the Fed would have removed liquidity from the system. (Note:  the second spike up in 2011 coincided with the Fed’s “Operation Twist” which was essentially a huge QE extension disguised with a “twist” – but nonetheless was done to keep the system from collapsing).

No, instead the massive operation was conducted to INJECT Treasury collateral into the global banking system.  Treasuries are used as collateral against derivatives positions.  It’s in a sense margin collateral for the big boys.   When an entity (typically a bank or hedge fund) takes on a derivatives bet, it needs to post collateral to protect the counterparty from a decline in the value of the bet.  Treasuries are the de rigeur collateral, although the ECB now allows everything for collateral except loans to lemonade stands.

When the value of the derivatives bet declines because the value of the underlying asset declines (think:  Greek debt, oil debt), more collateral has to posted.  Eventually, the market runs out of collateral and there’s a collateral short squeeze.  The use of hypothecation exacerbates the situation by several multiples.  Please note that Zerohedge intermittently reports big spikes up in Treasury settlement fails.  This reflects the extreme shortage of collateral.  When collateral has been posted but not hypothecated, it can be called and used for settlement.  When that Treasury has been hypothecated by the custodian of the collateral, it becomes harder to call, especially when it’s been hypothecated several times.  Big spikes up in settlement fails occur.

Circling back to my postulation that a massive, ongoing derivatives melt-down has started, as the derivatives lose value, more Treasury collateral has to be posted.  When the situation becomes extreme, collateral isn’t posted and counterparties begin to fail, especially if the counterparty can’t come up with the cash needed to remedy a derivatives bet gone bad.   My bet is that the Greece situation ignited the problem and the collapse in the price of oil threw millions of gallons of napalm on the situation.

The reason I believe this explanation is correct, is from the graph above.   We know that in 2008 we were told that a big derivatives accident started in Europe and spread to the U.S.  Lehman filed for Chap 11 on Sept 11, 2008.    We also know that AIG and Goldman experienced a massive counterparty default collapse in September 2008 that was remedied thanks to rather explicit lies circulated by Ben Bernanke and Henry Paulson about systemic collapse if TARP wasn’t approved.

A reverse repo can be looked at as tool to remove liquidity from the system OR as a tool to inject Treasury collateral into the system.  We know the Fed has been “testing” a new Reverse Repo system since mid-2013 that take Treasuries from its “SOMA” holdings (SOMA = the Treasuries the Fed purchased with QE) and use them for reverse repos, including reverse repos with MONEY MARKET FUNDS and foreign central banks/ Too Big To Fail banks.  Nothing happens by accident and that spike above shows us why the Fed was “testing” a new reverse repo system.

The only reason the Fed would need to inject massive amounts of Treasuries into the global banking system is because there’s an extreme shortage.  A massive derivatives accident requiring massive amounts of collateral to be posted has developed.  If Treasuries are not available to post as collateral, while at the same time a massive amount of hypothecated (Treasuries out on loan, several times over) collateral fails are occurring, it will cause the banking system to seize up.  The giant spike up shown in the graph above is occurring because the Fed is engaging in an enormous reverse repo operation in order to prevent the global financial system from collapsing.

Remember I suggested some time ago that the elitists like give us a warning before something bad is about to happen.   As my colleague John Titus states:  “the true elite aristocracy are polite criminals – they consider it gauche to flush the toilet while we’re in the shower without giving us a heads up.”

This is why the IMF issued this warning yesterday for the financial media to publish:

The so-called ‘flash crash’ on US bond markets last October and the collapse of the Swiss currency floor in January showed how quickly liquidity can vanish, acting as “a powerful amplifier of financial stability risks.”   LINK:   IMF tells regulators to brace for global ‘liquidity shock’

THIS is why stock markets globally are selling off hard today.   The S&P 500 is now down over 1%.  Typically the Plunge Protection Team has been able to prop it up by noon EST when it falls at the open.  So far today the sell-off has accelerated.

I guarantee that the reason for this  is unequivocally NOT because the Chinese Government is letting the public short a few more stock issues OR because Bloomberg experienced a widespread terminal outage.   But it does go a long way to explaining THIS:  LINK

Fed Governor’s Speech Perfectly Time To Stop Market Plunge Monday

Bill, these markets are frighteningly artificial.  Even though we know they are manipulated on a daily basis, I would bet good money that the effort going on behind the scenes to prop up stock and bond prices and hammer the precious metals sector would shock everyone in the GATA community.  – my comment to Bill Murphy today (His latest podcast LINK)

Although the stock market was closed last Friday, the stock market futures were still trading globally.   When the U.S. Government’s highly questionable employment report hit the tape showing a 50% miss in jobs added in March vs. Wall St. forecasts, the S&P 500 futures plunged 20 points.   It looked like a huge stock market dump was in store for Monday.

But a funny thing “happened on the way to the opera” and the stock market took off like scalded greyhound on amphetamines.  Why?  As it just so “coincidentally” happened, right before the stock market opened on Monday, NY Fed’s Bill Dudley “serendipitously” released the text of his speech he was delivering to some organization of business stooges in New Jersey.

Anytime a President of a regional Fed Bank makes a public statement on the timing of interest rate hikes or the pace of economic activity that influences that timing, it is well established that it moves stock, bond and currency markets.  – Wall Street On Parade  (I highly recommend reading that link)

Several remarks in Dudley’s speech would lead one to conclude that the Fed would not be raising interest rates any time soon and that the pace of rate increases would be “shallow” when they begin.   Let me translate this for you in a way the hedge fund HFT algos would have interpreted the remarks:   “The Fed is not raising interest rates this year so party on by dumping even more pension and institutional money in to the stock market – in fact, borrow as much as you can and throw that at stocks too.”

The Fed knows that it can manipulate the direction of the stock market by issuing remarks designed to imply monetary policy direction.  That was Alan Greenspan’s primary genius – he was the first Fed head to understand the power of the word as a tool to trigger the directional flow of hedge fund money.   The Fed has been methodically and strategically releasing implied policy statements since at least the early 1990’s when hedge fund capital began to explode.

As it so happens, Bill Dudley is the head of the NY Fed, which offices in the same building as the Treasury’s Working Group on Financial Markets.   The NY Fed has one of the most sophisticated trading floors in the world.  I would bet both of my manhood jewels AND my dog’s life that Dudley made sure that the release of his speech was well orchestrated with the Plunge Protection Team’s effort to keep the stock market from plunging and then light a fire which ignited the S&P 500 to soar over 40 points, or 2%, from the Friday’s futures’ low (2,046 to high yesterday of 2,086 on the cash index).

The more blatant the Fed becomes with its market interventions, the stronger the stench of desperation becomes.  No one can say with even a modicum of certainty when the bottom will fall out of this Orwellian Ponzi Joke, but it is going to extract a horrifying enormous amount of wealth from the public when it does.