Plunge Protection Team leaving fingerprints on Tuesday’s market moves

There’s something rotten in the markets

On Tuesday morning the Dow futures was down 540 points just before the opening of trading. By 10:30 am the Dow index was miraculously down 3 points.

Over the course of the trading day the Dow moved 1,167. That type of volatility you only see on bitcoin. The index closed up 567 points, but the strange indicator on the Street was that the e-mini futures for the Dow were +920 at the close. These two numbers are normally in the same range and not 360 point difference.

Wednesday morning saw the e-mini futures down 250 points at 6 AM and improve to -86 points at 7:30 AM.

However, looking at the markets — including dollar strength, precious metals and bitcoin — it looks like there is much forced selling by funds that have to liquidate assets before announcing the fund is closing.

I wrote yesterday about the VIX index, which for much of the Trump presidency hovered around 10 suddenly exploded to over 50 on Friday.

I still believe the trigger for Friday’s 666 point decline was the release of the FISA memo by the House of Representatives committee. The idea of corruption and felonious behavior at the top of the Obama Administration  was hinted by all the congressmen who had read the memo.

So once the VIX started to rise on Friday, the funds that we caught short on the VIX had to liquidate other assets to cover the options contract. This selling cascade poured into Monday’s trading.

As I wrote yesterday, there were forces in the stock market futures to bolster Tuesday’s market open after Monday closed down over 1,000 points. My colleague John Crudele and I both see the Plunge Protection Team had a hand in bolstering Tuesday’s open.

 

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Fed leaks lead to billions on Wall Street balance sheets

My collegue at The New York Post, John Crudele, wrote on Monday about how the New York Fed President Bill Dudley, back in 2011, was meeting with the Street during “quiet periods” at the Fed.

Crudele FOIAed Dudley’s calendar to see who is was lunching with during the tumultuous time in 2011.The quiet period is the time frame where the Fed is considering policy changes prior to a meeting. The prep work prior to the meeting with position papers and economic modeling gives the participants a strong sense of what is being considered, hence the quiet period.

During one of these times in March 2011, Dudley met with Jan Hatzius, chief economist of Goldman Sachs. Dudley held the same position at Goldman, so he and Hatzius were friends. Yet Goldman could profit immensely knowing if the Fed was leaning toward implementing QE2.

This all comes to life as Richmond Fed President Jeffrey Lacker resigned immediately last week for leaking information ahead of the Fed minutes being released.

However, Lacker “crime” was confirming and advancing a bit information on the Fed that was published days before by Jon Hilsenrath at the Wall Street Journal.

That story prodded an investigation by many federal agencies from the SEC, CFTC and then NY federal attorney Preet Bharara. No further information has been uncovered who was involved in tipping off Hilsenrath for his  exclusive story.

The Federal Reserve’s purchase of trillions of dollars in specific securities is the prime reason why Wall Street wanted to get the tip in order to front run the Fed. There are billions to be made in fees and profits by the actions.

Let’s not forget that Goldman and other Wall Street financial firms own the Federal Reserve, by holding shares in the institution, so the conflicts are tremendous.

 

What happens when conspiracy theory become market fact?

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.