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 Metals for the podcast link:
On the pension fund issue, I am of the same opinion as your friend. Going one step further, I believe we will see private equity join hands with the worlds FED’s and help facilitate the asset propping process. A model for how that may work would be the private equity purchase in 2016 of Krispy Kreme, Donuts (of all things!) the ECB purchasing a large slug of the bonds floated to seal the transaction. The beauty of having private equity take public enterprise private is the assets are then “mark to model” , effectively hiding the underfunding problem. Be interested in you/your friends thoughts on that. Best regards, dh
I think we are channeling our inner Zimbabwe. Yes the stock
market has gone through the roof but, the dollar is rolling over.
Correct me if I’m wrong but isn’t that what happened in both Zimbabwe
and Venezuela ? I cannot imagine the social consequence that is going
to unfold when the U.S. enters that level of currency devaluation.
The compelling question for most people who are not shills for the banking cartel, I suspect, is when and how does this blow up. To me, the answer to how it blows up has been revealed, over the last number of months, by the action in the dollar. In the face of rising treasury yields, the dollar has been falling. This tells me that the Fed is committed to a course of currency debasement, that will go beyond the quarantine of money counterfeiting within the financial markets.
There is no way for the federal government to fund it’s burgeoning deficits, other than through money printing. We are witnessing collapsing real savings pools, the end of the business cycle, skyrocketing debt in all sectors (as you point out), and the demise of the petro dollar.
Some might say the other cartel members will provide the funding. Maybe. But at some point in a cartel, the members begin to chisel on each other, recognizing the jig is up, and retreating from the rigging scheme to save themselves – particularly with a member such as the Fed, who are compelled to fund a financially and internationally intransigent government such as ours.. We might be at that point now.
The chart of the 10 year has completed a cup and handle and is targeting 3.5 %. I don’t see how the stock markets can maintain their current valuations when the 10 year will be yielding almost twice as much as the S&P. They either nip it in the bud beforehand, (halt the rate escalation), or there’s big trouble in River City.
An intervention in the treasury market should signal an even bigger sell-off in the dollar, as everyone will know the game (QE) is on again.
It seems like the central banks and their minions have a choice between letting the stock market tank as it wants to naturally or having it nominally increase while effectively tanking just as bad when considering the lost value of a crashing dollar . And they’re choosing the latter.
It’s reminiscent of that Greenspan testimony in front of congress circa 1998 where he said that they can guarantee that you’ll get your social security check. They just can’t guarantee the value of that check.
Very interesting comment, re: Greenspan & the ‘value’ of one’s social security check in the future. I would love to see the original. I’ve done a quick search at cspan’s website looking at transcripts but can’t find this quote. Do you think you could meditate a bit more on it and see if the date / forum come back to you? 🙂
Here you are: https://www.youtube.com/watch?v=gqUzQjXNliU
Great. Today marks my first day of retirement (on a company pension) after 29 years of cubicle slavery (Hell with fluorescent lighting, I prefer to call it) and I stumble across this article. You’re top notch, Dave, absolutely, but excuse me while I knock back a couple of stiff rum and cokes, I suddenly hear them calling my name.
isn’t it a little early for rum and cokes? how about bloodies or vodka/grapefruit juice?
Takes a good push to overcome inertia Dave. Hey it’s rum watered down with coke. Hell if I were him I’d go right for the tequila shots lol