Tag Archives: PPT

The Powell Helium Pump

The stock market has gone “Roman Candle” since Fed Chairman, Jerome Powell, gave a speech that was interpreted as a precursor to the Fed softening its stance on monetary policy.  Not that intermittent quarter-point Fed Funds rate nudges higher or a barely negligible decline in the Fed’s balance sheet should be considered “tight” money policy.

Credible measures of price inflation, like the John Williams Shadowstats.com Alternative measure, which shows the rate of inflation using the methodology in place in 1990, show inflation at 6%.  The Chapwood Index measures inflation using the cost of  500 items on which most Americans spend their after-tax income.  The index is calculated for major metro areas and has inflation averaging 10% (The John Williams measure which uses 1980 Government methodology also shows the current inflation at 10%).

Using the most lenient measure above – 6% current inflation – real interest rates are negative 3.5% (real rate of interest = Fed Funds – real inflation).  The “neutral” interest rate would reset the Fed Funds rate to 6%.  In other words, the Fed should be targeting a much higher Fed Funds rate.

So, if the economy is booming, as Trump exclaims daily while beating his chest  – and as echoed by the hand-puppets in the mainstream media – why is the Fed relaxing its stance on monetary policy?  The huge jump in employment, per the December jobs report, should have triggered an inter- FOMC meeting rate hike to prevent the economy from “over-heating.”

In truth, the economy is not “booming” and the employment report was outright fraudulent. The BLS revised lower several prior periods’ employment gains and shifted the gains into December. The revisions are not published until the annual benchmark revision, on which no one reports (other than John Williams). Not only will you never hear or read this fact from the mainstream financial media and Wall Street analysts, most if not all of them are likely unaware of the BLS recalculations.

The housing market is deteriorating quickly. Housing and all the related economic activity connected to homebuilding and home resales represents at least 20% of GDP. And the housing market is not going to improve anytime soon.  According to a survey by Fannie Mae, most Americans think it’s a bad time to buy a home even with the large decline in interest rates recently.

Several other mainstream measures of economic activity are showing rapid deterioration:  factor orders, industrial production, manufacturing, real retail sales, freight rates etc. Moreover, the average household is loaded up its eyeballs with debt of all flavors and is sitting on a near-record  low savings rate.  Corporate debt levels are at all-time highs.  In truth the economy is on the precipice of going into a tailspin.

The stock market is the only “evidence” to which Trump and the Fed can point as evidence that the economy is “strong.”  Unfortunately, over the last decade, the stock market has become an insidious propaganda tool, used and manipulated for political expediency.  The stock market can be loosely controlled by the Fed using monetary policy.

The stock market can be directly controlled by the Working Group on Financial Markets – a subsidiary of the Treasury mandated by a Reagan Executive Order in 1988 – using the Exchange Stabilization Fund. Note:  anyone who believes the Exchange Stabilization fund and the Working Group are conspiracy theories lacks knowledge of history and is ignorant of easily verifiable facts.

Trump referred to the stock market as a “big fat ugly bubble” in 2016 when he was running for President with the Dow at 17,000.  If it was a visually unaesthetic sight back then, what should it labelled now when it almost hit 27,000 in 2018?  Trump blamed the recent decline in stock prices on the Fed.  Worse, Trump has put inexorable political pressure on the Fed to loosen monetary policy and stop nudging rates higher.  Note that this debate never covers the topic of “relative valuation…”

The weekend before Christmas, after a gut-wrenching sell-off in the stock market, the Secretary of Treasury graciously interrupted his vacation in Mexico to place a call to a group of Wall Street bank CEOs to lobby for help with the stock market.  The Treasury Secretary is part of the Working Group on Financial Markets.  The call to the bank CEOs was choreographically followed-up by the stock market-friendly speech from Powell, who is also a member of the Working Group.

The PPT combo-punch jolted the hedge fund algos like a sonic boom.  The S&P 500 has shot up 10.8% in the ten trading days since Christmas.  It has clawed back 56% of the amount its decline between early September and Christmas Eve.

In reality, the speech was not a “put” because a “put” implies the installation of a safety net beneath the stock market to stop the descent. Rather, the speech should be called, “Powell’s Helium Pump.”  This is because the actions by Mnuchin and Powell were specifically crafted with the intent to drive the stock market higher.  It’s worked for a week, but will it work long term?  History resoundingly says, “no.”

Make no mistake, this nothing more than a temporary respite from what is going to be a brutal bear market.  The vertical move in stocks was triggered by official intervention. It has stimulated manic short-covering by the hedge fund computer algorithms and panic buying by obtuse retail investors.

Investors are not used to two-way price discovery in the stock market, which was removed by the Federal Reserve and the Government in late 2008.  Many money managers and retail investors were not around for the 2007-2009 bear market. Most were not around for the 2000 tech crash and very few were part of the 1987 stock crash.

The market’s Pied Pipers have already declared the resumption of the bull market, Dennis Gartman being among the most prominent.  More likely, at some point when it’s least expected, the bottom will once again fall away from the stock market and the various indices will head toward lower lows.

In the context of well-heeled Wall Street veterans, like Leon Cooperman, crying like babies about the hedge fund algos when the stock market was spiraling lower, I’m having difficulty finding anyone whining about the behavior of the computerized buy-programs with the stock market reaching for the moon.

The Fed’s Frankenstein

“Commentators keep asking why the Fed can’t raise rates if the economy is so strong? They still don’t realize that the economy was never strong. They confuse a bubble for strength. Without 0% rates and QE the bubble can’t survive. But a return to those policies kills the dollar” – Peter Schiff on Twitter

I made that same argument about the Fed funds rate, the dollar and why the Fed has to keep “nudging” the Fed funds rate higher in a podcast conversation with James Anderson at Silver Doctors last week.

Yesterday’s 1000-point spike up in the Dow may have been the largest one-day point gain in Dow, but it was far from the largest percentage point gain. The two largest percentage point gains occurred in October 2008: a 11.08% gain on October 13, 2008 and a 10.88% gain on October 28, 2008. Those two days took the Dow just above 9,000. A little more than four months later, the Dow closed at 6,626. Yesterday’s market action was nothing more than evidence that the Fed’s Frankenstein has gone off the chain…

Despite official prevention efforts, two-way price discovery has been introduced to the stock market. The Establishment, lazy, entitled and fattened-up on the 10-year stock bubble, has gone into convulsions over the possibility that the stock market will do anything but move higher. The Wall Street Journal published an article blaming the Christmas Eve stock market massacre on the algos. Even well-seasoned market veterans like Leon Cooperman were whining about the two-way price action and the role of HFT-driven hedge fund algorithm trading. Where were these cries of distress when the market was driven relentlessly higher by QE-armed algos over the last 10-years?

Some chart “experts” have labeled the market “extremely oversold.” But the stock market has been extremely overbought for the better part of the last 8 years. By what measure is the market “extremely oversold” in this context? Looking at a monthly chart of the SPX going back to 1999, the MACD was at it’s most extreme overbought by far at the beginning of 2018.

But the current sell-off has barely moved the needle on the monthly MACD. It’s nice to draw symmetrical geometric shapes and lines which are fit to charts ex post facto (i.e. Monday morning armchair QB). But the fundamentals beneath historically overvalued financial assets are cratering very rapidly.

The drop in stocks since early October has done little to correct the extreme condition of overvaluation – aka “the bubble.” Using real numbers to calculate preferred valuation ratios used by “analysts,” rather than manipulated Government GDP/inflation and phony GAAP numbers used by these “analysts,” the overvalued condition of the stock market the most extreme in history.

A coordinated Central Bank-engineered bounce is to be expected and certainly there’s extreme political pressure in the U.S. for this. But more intervention preventing true price discovery merely defers the inevitable rather than fixing the underlying systemic problems. Furthermore, as evidence of the market’s reaction on Monday after reports hit the tape that the Treasury Secretary (head of the Working Group Group on Financial Markets) was convening the CEO’s of the six biggest banks to discuss the market sell-off, official intervention serves only to signal to the markets that something is profoundly wrong with the system, contrary to official propaganda.

Wednesday’s 1000-point price-spike reflects a completely dysfunctional stock market. Just like the big moves in October 2008, it also foreshadows a much steeper sell-off coming. The story did not end well for Shelley’s Frankenstein. Neither will it end well for the Fed’s creature. It’s going to get a lot more painful for those who have been conditioned to believe that stocks only rise in price.

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.

Who Could’ve Seen This Coming?

Yesterday was amusing.  The meat with mouths on the so-called financial networks were crying, “how could this have happened.”  Funny thing, that.  They don’t raise the slightest doubt of conviction when the Dow soars 2,676 points in less than two months  – 23,940 on November 29th  to 26,616 on January 26th.  But when the market takes back that move in 6 trading days it’s a problem that Congress and the Fed need to “fix.”

The stock market’s small accident last Friday was a warning signal. But, in the context of the move made by the Dow since it bottomed on March 5, 2009, barely registers on the radar screen:

I saw this table on Twitter and thought it was a good summary of the extreme bullishness that I’ve been documenting for the past few issues (Short Seller’s Journal):

The old adage states that “they don’t ring a bell at the top.” But that table above seems to have nine different “bells ringing.” Note: “NAAIM” is the National Association of Active Investment Managers (Note, I know MMF is money market funds but I’m not sure what the rest of the metric represents other than its some measure of investor portfolio cash vs stock holdings). As you can see, every indicator that measures relative bull/bear sentiment is at a bullish extreme.

A record one-day inflow north of $500 million was tossed by retail investors into one of the inverse VIX ETNs.  Hard to imagine a louder “fire alarm” ringing than that one.  The Dow shed 1,095 points from last Friday’s close – 4.1%. The first big chunk down was Tuesday, when it lost 363 points. It also lost 177 points on Monday. After two small days of gains, ostensibly in support of Trump’s State of the Union speech, the Dow plunged 665 points on Friday.

Monday was obviously the type of market behavior about which many, including this blog, have been, have been warning.  Who could’ve seen that coming?

Even more interesting than the action in the stock market was the action in the bond market. Historically, other than in times of extreme market turmoil, when the stock market sells off with force, the funds flow into the Treasury bond market. Bond prices rise and yields fall. But this week the 10-year Treasury lost roughly 1.4 points, which translated into a 15 basis point jump in its yield to 2.84% The long bond closed over 3%. Even short term Treasury rates rose. It will be interesting to see if this trend continues. It is exceptionally bearish for the housing market.

Now, self-entitled “exceptionalist” Americans will be begging their Congressmen to “do something” while Congressmen will be grand-standing for the Fed to “do something.”  But the “something” that was done from 2008 to 2015 is wearing off.  If the Fed is going to do God’s work and save the universe from natural market forces, it will have to print  even more money than last time around. That type of “doing something” will annihilate the dollar.

The immediate problem will be retail and hedge fund margin calls. If we don’t hear about ETFs and hedge funds blowing up after what happened yesterday, it means the PPT (NY Fed + the Treasury’s Working Group on Financial Markets – the “PPT” – which both have offices in the same building in lower Manhattan) has monetized and covered up those financial road-side bombs.

Hedge fund net exposure to equities had reached a record by early January.  “Risk appetite” by mid-January had reached an all-time high. Margin debt and “investor credit” began hitting all-time highs and all-time lows, respectively, in January.  “Investor credit” is, essentially, the amount of cash an investor can withdraw from a stock account after subtracting margin debt. This metric was north of negative $500 billion.

But, who could’ve seen this coming?

Part of the commentary above is an excerpt from the most recent Short Seller’s Journal.  If you want to learn how you can take advantage of historically overvalued stocks, click here: Short Seller’s Journal information page.

Lord Of The Flies: Dytopia Is Arriving

Paper money eventually returns to its intrinsic value – zero  – Voltaire

I was driving around Denver yesterday doing my “boots on the ground” due diligence scouting of the local housing market.  I continue to see some “sold” and “under contract” signs but I’m seeing a pile-up forming in new “for sale,” “price reduced,” and “for rent” signs.   The traffic update on the sports radio reported a back-up at an intersection in Denver caused by a fist-fight that had broken out between two drivers.  This country is sliding back into neanderthal times.

The U.S. economic system is slipping into dystopia and the Government/Fed is doing everything it can to try and prevent the process.  The two most obvious signs of this are the perpetual market interventions by the PPT to prevent a stock market dump and the relentless propaganda flowing through the mainstream media which originates from the policy-implementing elitists (business and political).  Both efforts are insidious attempts to force control over our system

Overnight the S&P 500 e-mini futures were halted twice.   The SPX mini is the Fed’s choice intervention tool because it can direct the market with minimal capital requirements.  The e-mini is hyper-sensitive to big orders and tends to lead the big SPX directionally because of this.   The emini trading was halted after a sudden plunge in the futures at 5:51 a.m. EST, after which a massive buy order (the PPT) hit the tape and spiked the eminis straight up. The market was halted again after the spike up stalled and the emini was about to plunge again.   You can see the action here:   E-mini Market Halt

The graphic linked above was provided by Nanex’s Eric Hunsader.  Prior to the market’s first market halt, Hunsader tweeted:  “emini getting tossed around like a rag doll:”

UntitledI found Hunsader’s allusion to “Lord of the Flies” to be quite haunting. For me it encapsulates the societal, political and economic direction in which the United States is headed. Rule of Law has been completely eroded by corrupt Presidents and citizen nonchalance. Many beside me have alluded to the fact that the U.S. political system now resembles that of a Central American Banana Republic. That’s no secret to anyone who cares to peek at reality.

But where this whole process starts to get scary is when that needle heads toward “Lord of the Flies.” That is the point at which we will see and experience the truly dark side of humanity. Too me the outbreak of fistfights at traffic intersections and the herds of panhandlers standing on busy urban and suburban corners reflects the movement of that needle past Banana Republic to the left…

I’m not an e-wave theory advocate but there’s merit to some of the analysis.  Robert McHugh is probably the most skilled practitioner of it these days and he’s run 5 different “wave” scenarios – all of them suggest a high probability of serious market crash coming soon – he specifically references the August sell-off as “gentle” in comparison.

If this stock market does what we all know it will do eventually, which is seek a level that reflects its true underlying intrinsic value, all hell will break loose in this country and we’ll start hearing reports of much worse occurrences than fist-fights at traffic intersections.

What is the “intrinsic value” of the S&P 500?  Based studying the earnings of enough S&P 500 companies using the GAAP accounting standards that were in place 20-30 years ago – vs. non-GAAP, adjusted-GAAP, and new GAAP accounting applications used today – I would suggest that S&P 500 has “fair value” around the 500-600 level.  A large portion of reported net income/EPS is income that is non-cash and is manufactured by new accounting gimmicks.  I detail this extensively in all of my (non-mining) stock reports.

The S&P 500 hit 666.79, which is in my “fair value” range, intra-day on March 6, 2009 (no, I don’t read any significance into “666”).  We saw how the Fed and the Treasury responded: they began dumping trillions of printed dollars into the banking system and drastically altered some of the GAAP accounting rules – i.e. they changed the rules of the game.  This was in response to the S&P 500 seeking fair value.

What is frightening to contemplate, in the context of Eric Hunsader’s haunting Tweet, is what the Government’s response will look like this time around when the PPT loses control – which I believe is occurring now – and the S&P plummets again in an attempt to seek it’s proper level.  Remember:  just like water, the stock market eventually always finds its own level.

On The Verge Of Systemic Breakdown?

I think we are fairly close to a systemic breakdown and if that occurs, the price changes in all asset classes are going to be extreme. Gold and silver bullion and their respective equities are arguably the cheapest assets on the planet today and remain historic safe havens even if most of the morons in our society fail to realize that fact at the present time. I have always found that buying undervalued, under-owned and, most assuredly, under-loved quality assets to have been a sound strategy. The fact that we are at historic extremes in everything today just reinforces that opinion. I may be underestimating the opposition but I think they are in deep trouble. I would much rather be playing our hand rather than theirs at this moment.  – an email to me from John Embry

Since the de facto collapse of the U.S. financial system in 2008 – accompanied by the Taxpayer bailout of the Too Big To Fail Banks – the Federal Reserve and the U.S. Government have been throwing trillions at the system in order to keep the system from collapsing again.

Please note:  the underlying system problems have never been addressed.  Rather, they’ve been medicated with $3.6 trillion in money printing and a $7.5 trillion increase (70%) in Treasury debt since then of 2008.

The markets are beginning to show the stress from 6 years of Fed and Government intervention (Govt = the Treasury’s Working Group On Financial Markets).   The central planners have created a catastrophic degree of moral hazard by removing all downside risk from the paper asset markets.  This in turn has created the biggest stock and bond market bubbles in the history of the known universe.

But yesterday Zerohedge published an article which shed some light on just how dangerous the stock and bond markets have become.   The article revealed that several of the largest fund management companies have lined up bank credit lines as an attempted means of creating the liquidity that will be needed when the inevitable investor exit from these catastrophically rigged markets commences:

Vanguard, the second-largest U.S. ETF provider, lined up its first committed bank line of credit last year and now has a $2.89 billion facility backed by multiple banks and accessible to all of Vanguard’s funds, covering some $3 trillion in assets, the Pennsylvania-based fund company told Reuters.  Zerohedge link

Of course, I laughed out loud when saw that Vanguard was planning on using $2.8 billion to support the potential selling that will occur across $3 trillion in insanely  overvalued assets.  The selling will take prices down in very large “step function” fashion – the $2.8 billion safety net will be like bringing a bottle of Elmer’s glue to fix a huge break in the Hoover Dam.

The investing public has been entrusting their retirement money to the bankers and fund managers who have all willingly participated in the greatest financial Ponzi scheme in the history of the world.  Enron and Madoff were mere sideshow distractions to the real theft of wealth going on right under our collective noses.

Make no mistake about it, we are indeed “fairly close to systemic breakdown” and this is the reason the Government/Pentagon has been tightening down its regimen and training for the control of mass civil unrest when the collapse occurs – LINK.

Anyone who has the ability to get their money out of any retirement fund custodial structures should proceed immediately.   The frenetic volatility of all the markets and the open blatantness with which the central planners are trying to hold up the markets indicates to people like John Embry and myself that we are drawing closer to a collapse.

I can guarantee you that the paltry billion dollar credit lines being arranged by the biggest fund management companies will be completely flattened by the steamroller coming down the Street at your money.