One important lesson investors can learn from the market action over the past decade is that the government plays a very important role.
As I pointed out in this week's #PropagandaWatch video, the stock market is often portrayed in the financial media as a magical crystal ball that can predict the future and see into the hearts and minds of men. We are routinely told that it shows us the resilience of consumers, for example, or that it can predict the next economic cataclysm or that we can pore over it like an X-ray to reveal the true health of the economy.
And as I also pointed out in that video (and much of my other work over the past several years), this perception of the market is a bunch of hooey. As we all know (or should know by now) this central bank created phony baloney reality inversion bubble that the markets are "revealing" to us is just that: A bubble. More precisely, it's a bubble that has been 93% filled with hopium and paper promises from the Federal Reserve.
But what if I were to tell you that there was yet another mechanism by which the markets are manipulated? A mechanism wielded by a cabal of four men? One that is admittedly and on the record empowered by the POTUS to prop up the markets whenever they start flagging?
Does that sound like "conspiracy theory?" Well, it's not. Just another humdrum conspiracy fact. This cabal of four is known colloquially as the "Plunge Protection Team" and it's been on the books since 1988.
By "on the books" I mean the books of the Federal Register, specifically 53 Fed. Reg. 9281 (Mar. 22, 1988), which carried notice of Executive Order 12631, signed off by President Reagan on March 18, 1988. Issued in the wake of the infamous "Black Monday" stock market scare of 1987, EO 12631 established a "Working Group on Financial Markets" to identify and consider "the major issues raised by the numerous studies on the events in the financial markets surrounding October 19, 1987." Consisting of the treasury secretary, the Fed chair, the chair of the Securities and Exchange Commission (SEC) and the chair of the Commodity Futures Trading Commission (CFTC), the group was empowered to "consult, as appropriate, with representatives of the various exchanges, clearinghouses, self-regulatory bodies, and with major market participants to determine private sector solutions wherever possible" and to report back to the president.
Sounds pretty innocuous, doesn't it? Well, I hate to burst your bubble (pun intended), but the Working Group on Financial Markets is no mere innocent study circle and it didn't start and end with the crash of '87. It continues to operate to the present day, and its mandate includes active and ongoing interventions to prop up the markets whenever they start plunging. Or even sagging.
The name "Plunge Protection Team" comes from a Washington Post article that ran under that headline in February, 1997. In that report, Brett D. Fromson revealed how the Working Group on Financial Markets (like "defense planners in the Cold War period") war game various market cataclysms and their response to them. One scenario detailed in the article involves a large sell-off on a Monday morning after a week of tanking markets.
"The chairman of the New York Stock Exchange has called the White House chief of staff and asked permission to close the world's most important stock market. [. . .] In the Oval Office, the president confers with the members of his Working Group on Financial Markets—the secretary of the treasury and the chairmen of the Federal Reserve Board, the Securities and Exchange Commission and the Commodity Futures Trading Commission. The officials conclude that a presidential order to close the NYSE would only add to the market's panic, so they decide to ride out the storm. The Working Group struggles to keep financial markets open so that trading can continue. By the closing bell, a modest rally is underway."
The report acknowledge that each of the Plunge Protection Team's constituent agencies (the treasury, the Fed, the SEC and the CFTC) have a "confidential plan" on file to deal with a market meltdown. But aside from trivial details (the SEC's plan is called the "red book," for example, after the color of the document's cover) nothing of substance is revealed. How, exactly, do the agencies plan to "keep financial markets open so that trading can continue"?
A major clue to the PPT manipulation puzzle came in the form of a 1989 Wall Street Journal op-ed by Robert Heller, then exiting a three-year stint as a governor of the Federal Reserve System. Entitled "Have Fed Support Stock Market, Too," Heller's article argued that the so-called "circuit breakers" set up after the Black Monday 1987 scare were not sufficient to prevent another recurrence of panic. "Instead," he opined, "an appropriate institution should be charged with the job of preventing chaos in the market: the Federal Reserve." In Heller's vision, the Fed could prevent a market rout by stepping in to purchase stock futures contracts during sell offs.
Rather than a mere op-ed offering a proposal for something the Fed could do in the future, however, some reporters—like John Crudele, the man who drew attention to Heller's "proposal" in the first place—have suggested that the Wall Street Journal article was in fact a trial balloon, preparing the public for the eventual revelation that the Fed was already intervening in the markets.
If Heller's op-ed was a trial balloon, the full truth was finally revealed to the public in the wake of "the day that changed everything." After all, if the PPT was ever going to intervene to prop up the markets, the pandemonium of 9/11 and the ensuing market sell off presented them with the perfect opportunity to do so.
And so it was that George Stephanopolous appeared on ABC's Good Morning America on September 17, 2001, to blithely announce to the American public that their markets were a sham:
“What I wanted to talk about for a few minutes is the various efforts that are going on in public and behind the scenes by the Fed and other government officials to guard against a free-fall in the markets. . . . The Fed in 1989 created what is called the "Plunge Protection Team"—which is the Federal Reserve, big major banks, representatives of the New York Stock Exchange and the other exchanges—and they have been meeting informally so far. And they have a kind of an informal agreement among major banks to come in and start to buy stock if there appears to be a problem. They have in the past acted more formally . . . I don’t know if you remember but in 1998, there was a crisis called the Long-Term Capital Crisis. It was a major currency trader and there was a global currency crisis. And they, with the guidance of the Fed, all of the banks got together when it started to collapse and propped up the currency markets. And they have plans in place to consider [doing] that [again] if the markets start to fall.”
And, just like when it was calmly admitted in 2016 that the "record bull run" of the past decade has been a Federal Reserve-created mirage, the public was flat out told in 2001 that the Fed would coordinate with the banks to interfere in the markets as needed. And in both cases, these revelations were promptly memory holed and ignored in all future reporting of the market's gyrations.
All of which is well and good. But what does a market intervention actually look like? And is the PPT still acting to prop up the markets today?
Well, let's examine a case study. It was Monday, February 5, 2018, and things were playing out on the floor of the New York Stock Exchange much like the "nightmare scenario" painted in the 1997 Washington Post article on the PPT cited above. After a 666-point decline the previous Friday, the Dow Jones was down a further 1,600 points on the day, as big a decline as the index had ever seen. . . . And then, miraculously, late in the afternoon "[s]omeone arbitrarily and aggressively started buying stocks and halved the loss."
It hardly takes a seasoned quant to read the signs of PPT intervention in the market from that day. Not only did the blogosphere pick up on the obvious manipulation, but so, too, did the mainstream press.
In fact, the MSM is finding it difficult to avoid reporting on the PPT, now that Trump's Treasury Secretary (and Skull & Bones alumni) Steven Mnuchin is now announcing the group's meetings to the press and then, magically, the markets levitate the next trading day after a mysterious late afternoon rally!
Calm down, conspiracy theorists. There's nothing to see here. After, all, as Forbes assures us:
"In the 'old' days, traders used to refer to a secret club that would step in and save the day. That secret club was known as the plunge protection team. In the old days, no one could prove that they existed but the world has greatly changed (in so many ways) since the 'old' days. So, I guess the next time the government steps in and decides to fire a bazooka, it is worthy for investors to pay attention."
Oh, and don't forget the punch line: "One important lesson investors can learn from the market action over the past decade is that the government plays a very important role."
Indeed.
Well, whatever else may be said, gone are the days when the financial press could cover up the existence of the Plunge Protection Team or hide its obvious interventions in the market. But they can, as usual, continue to ignore this obvious manipulation when they report on how the markets are telling us about consumer sentiment, or the future of the economy, or whatever else we are expected to believe that these magic 8-balls known as the DJIA and the S&P are telling us.
Happy investing!