French bank SocGen issued a report this week, which puts the lie to central banks not playing in the stock market.
While some have written about the President’s Working Group on Financial Markets — commonly called the Plunge Protection Team — for its involvement in the equity markets, many have called them conspiracy theorists for thinking the Federal Reserve along with Treasury would conspire to buoy stock prices in short or longer term.
China earlier this month came out and announced it was buying stocks after the Shanghai index lost more than 30 percent in value after changing margin requirements.
And now SocGen says you do not have to wear an aluminum hat to say the Fed is in the stock market picking winners and losers.
China is not alone in trying to influence equity prices, central bankers the world over have become obsessed with asset prices, to the extent that the notion of central banks making outright purchases of equities is no longer confined to the lunatic fringe. Of course none of these institutions are remotely interested in ‘weighing up’ the long-term returns. If they were, given the absence of attractive valuations and actual cash flow growth, they might be a little more circumspect in their cheerleading.
So do the high-frequency traders know the threshold for when the NY Fed equity desk will go into buy mode, so they can front run Uncle Sam? Who is on the Fed’s buy list?
The easiest way for the Fed to manipulate markets is to buy e-mini futures in S&P and Dow. This has been the working theory of my colleague John Crudele.
So here’s to the Plunge Protection Team, perhaps they can issue reports on their holdings, so we can profit from the trades they are doing with our money.