There was just one other time in history when the market was this far above trend. More offense again when the market trades back at its long-term trend line (red dotted arrow in the middle section of the chart). None of the explanations offered by mainstream media to explain the incongruous stock trading were accurate. It was not because the stock market had anticipated worse or that the market was rallying because it thought the worst of the economic fallout was behind us. It was because the one emergency funding facility that the Federal Reserve has quietly ramped up more than any other, its Foreign Central Bank Liquidity Swap Lines, was working its magic on Friday. The Dow Jones Industrial Average rallied 455 points by the closing bell on Friday.
He was only kept in check by establishment conservatives in his administration — but those will be gone the next time around, Boot said. But there is some evidence the Plunge Protection Team may influence larger institutions such as banks and hedge funds to do so. Nowhere in the order does the group gain the power to purchase securities on behalf of the government. As 2024 starts, and Wall Street hopes for the Federal Reserve to start cutting rates, the case for rate cuts has grown weaker and weaker After a relatively strong jobs report, the most recent… On March 20, the Fed announced that itself along with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank would be increasing the frequency of its 7-day swap line offerings from weekly to daily. To understand what happened on Friday, you need to understand what Fed Chair Jerome Powell was methodically setting in place in February.
- Yes, some critics argue that the PPT interferes with the natural market forces and potentially creating moral hazard.
- The Plunge Protection Team comprises several top government economic and financial officials.
- However, the manner in which these entities create stability for the system is not necessarily based upon the interests of investors trying to achieve individual positive outcomes.
I personally don’t know whether the intervention of the Working Group on Financial Markets created or contributed to the 1,000 point surge in the Dow on December 26th, 2018, or the 600 point recovery the following day. If they did intervene – I further can’t say that I know the specifics of how they did it. We don’t know what of the many open powers of the member organizations are being used.
However, the rest of us don’t know, so it comes down to speculation and the kinds of things that we personally tend to believe. The President’s Working Group on Financial Markets, known colloquially as the Plunge Protection Team, or „(PPT)” was created by Executive Order 12631, signed on March 18, 1988, by United States President Ronald Reagan. Treasury Department might raise some eyebrows, it’s all been handled quietly for years at the trading desk of the New York Fed – photos of which the New York Fed refused to provide to Wall Street On Parade.
References to specific securities, investment programs or funds are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities. Norges Bank (central bank of Norway) has $5.4 billion of the Fed’s U.S. dollar swap lines. Such a team could use its sovereign currency creation powers to not only support markets but to act as a world treasury and fund useful things like healthcare, education, and infrastructure instead of saving bondholders and commercial banks from bad investments. However not precisely a secret, the Plunge Protection Team isn’t widely covered and doesn’t release the minutes of its gatherings or its recommendations, reporting just to the president. This behavior drives a few onlookers to contemplate whether the government’s most important financial officials are accomplishing more than breaking down and prompting — as a matter of fact, that are actively mediating in the markets. The „Plunge Protection Team” (PPT) is a conversational name given to the Working Group on Financial Markets.
Beginning on February 3, Powell started dialing the head of one central bank after another. Before the month of February was over, Powell had spoken to, or met with, the heads of 14 different foreign central banks. This was an unprecedented number of central bank contacts in such a short period of time for a man telling Americans everything was fine with our banks and our financial system.
The “Plunge Protection Team”: What is It? Does It Act In the Interests of the Average Investor?
But after Christmas, the DJIA and the S&P 500 both recovered and reversed most of the losses in the next few days. Conspiracy theorists attribute the recovery and gains in the indices to the intervention by the Plunge Protection Team. Since members of Congress receive a paycheck from the government, thus making them government employees, the statute would even seem to bar Congress from prying open the doors to this secret trading vault. „But we do know that in general, people who pick a fight with her don’t win.” „Newsmax host Greg Kelly went as far Monday as to accuse Swifties of 'elevating her to an idol … and you’re not supposed to do that. In fact, if you look it up in the Bible, it’s a sin!'” notes Berlatsky.
Conspiracy theorists have speculated that the group execute [sic] trades on several exchanges when prices are heading downward, collaborating with big banks, such as Goldman Sachs and Morgan Stanley in unrecorded transactions. They often point to a 1989 speech published in The Wall Street Journal by former Federal Reserve Board of Governors member Robert Heller, which suggested the Fed could directly support the stock market by purchasing index futures contracts. Scheme scholars have speculated that the group executes trades on several exchanges when prices are going downward, teaming up with big banks like Goldman Sachs and Morgan Stanley in unrecorded transactions. They frequently point to a 1989 discourse distributed in The Wall Street Journal by former Federal Reserve Board of Governors member Robert Heller, which suggested the Fed could straightforwardly support the stock market by purchasing index futures contracts. In March 1988, in the wake of the stock market crash of 1987, then, at that point President Ronald Reagan made by executive order the President’s Working Group on Financial Markets. The concept was to make an educated, yet casual, advisory group on the markets for the president and regulators.
Is the Plunge Protection Team Hard at Work?
This document is a general communication and is provided for informational and/or educational purposes only. None of the content should be viewed as a suggestion that you take or refrain from taking any action nor as a recommendation for any specific investment product, strategy, or other such forex deposit bonus purpose. The reality is that 75% of the money now sits in the hands of pre-retirees and retirees. Emotion will rule reason and I fear the world of buy-and-hold investors are unlikely to stay the course. I continue to believe we sit late cycle (very late) and the market sits way above trend.
PPT & Fed Differences
Made in 1988 to give financial and economic recommendations to the U.S. The recent activity in stock markets could have unnerved you, particularly if you have a lot of money tied up in stock markets. Things today are looking ominously like they were before 2008, when stock markets peaked in October 2007 before beginning a long, slow slide. That said, if the WGFM did intervene – it wouldn’t be conspiracy theory in action. It would the Treasury, Fed, SEC and CFTC successfully doing exactly what they are supposed to be doing – by executive order of the President of the United States. At least temporarily interrupting the momentum of a major breakout to the downside that threatened financial stability is exactly what the WGFM is supposed to do, it is why the group was created in the first place.
And when markets are threatening to collapse, it pulls out all the stops to keep markets running. You can put the odds in your favor and there are times to play more defense than offense and vice versa. I have forever studied investor sentiment and did work with Ned Davis https://bigbostrade.com/ Research to see if we could find a systematic signal (buy when everyone else is panicking and sell when greed is palpable). What does work are simple risk management rules – like a moving average rule. But not always, so one has to stay disciplined (as you well know).
Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management. “Understanding that we do not know the future is such a simple statement, but it’s so important.