Is The Central Bank�s Rigged Stock Market Ready To Crash On Schedule?
We just saw a major rift open in the US stock market that we haven�t seen since the dot-com
bust in 1999. While the Dow rose by almost half a percent to a new all-time high, the
NASDAQ, because it is heavier tech stocks, plunged almost 2%. Tech stocks nosedived while
others rose to create new highs. Is this a one-off, or has a purge begun for the tech
stocks that have driven the nation�s third-longest bull market?
Yesterday�s dramatic �rotational� divergence between tech stocks and the rest of the market,
which as Sentiment Trader pointed out the only time in history when the Dow Jones closed
at a new all time high while the Nasdaq dropped 2% was on April 14, 1999, stunned many and
prompted Bloomberg to write that �a crack has finally formed in the foundation of the
U.S. bull market. Now investors must decide if any structural damage has been done.�
This is important because, without the nearly constant lead of those tech stocks, the market
would have been a bear a long time ago. Tech stocks created half of the market�s gains
in 2017. Financials, which led the Trump Rally, also hit the rocks in recent weeks, at one
point erasing almost all of their gains for 2017, though they recovered a little of late.
If both continue to falter, the rally rapidly implodes and maybe the whole bull market with
it.
The Tech sector suffered its worse high-altitude nose bleeds at the end of May � the biggest
outflow in over a year. Said Miller Tabak�s Matt Maley in a note to clients:
Everybody remembers 2000, so they might be getting a little nervous with this development.
I just wonder how many people have said to themselves, �If AMZN gets to $1,000, I�m
going to take at least some profits.
Last Friday, of course, may be a one-off, but it may also be happening because central
banks are pulling the plug on their direct ownership of the stock market or, at least,
their hoarding of tech stocks. That direct cornering of the stock market largely went
unnoticed until this past quarter. Central banks now have enough interest throughout
the US stock market to be considered as having cornered the entire stock market, which means
they have the capacity to let it fall or to keep it where it is by just refusing to sell
their own stocks.
Have central banks rigged the stock market entirely?
Whether or not the market implodes now depends entirely on whether central banks let it fall.
If they decide to continue to buy up all the slack, they may be able to keep it artificially
afloat a lot longer because they can create infinite amounts of money so long as they
keep it all in stocks so that it only creates inflation in stock values, as it has been
doing, and not in the general marketplace. We have certainly seen that not much of it
trickles from Wall Street down to Main Street. So, there is little worry of creating mass
inflation from mass money printing.
I have long suspected that central banks were the only force preventing the crash of the
NYSE that I predicted for last year and that started last January, which was the worst
January in the New York Stock Exchange�s history. Last week, however, was the first
time I read something that indicates I was right about the Fed propping up the stock
market in order to take us through an election year by the extraordinary means of buying
stocks directly.
In an article titled �Central Banks Now Own Stocks And Bonds Worth Trillions � And
They Could Crash The Markets By Selling Them,� Michael Snyder writes,
Have you ever wondered why stocks just seem to keep going up no matter what happens? For
years, financial markets have been behaving in ways that seem to defy any rational explanation,
but once you understand the role that central banks have been playing everything begins
to make sense�. As you will see below, global central banks are on pace to buy 3.6 trillion
dollars worth of stocks and bonds this year alone. At this point, the Swiss National Bank
owns more publicly-traded shares of Facebook than Mark Zuckerberg�. These global central
banks are shamelessly pumping up global stock markets, but because they now have such vast
holdings they could also cause a devastating global stock market crash simply by starting
to sell off their portfolios�. The truth is that global central banks are the real
�plunge protection team�. If stocks start surging higher on any particular day for seemingly
no reason, it is probably the work of a central bank. Because they can inject billions of
dollars into the markets whenever they want, that essentially allows them to �play god�
and move the markets in any direction that they please. But of course what they have
done is essentially destroy the marketplace. A �free market� for stocks basically no
longer exists because of all this central bank manipulation.
Last Friday, of course, may be a one-off, but it may also be happening because central
banks are pulling the plug on their direct ownership of the stock market or, at least,
their hoarding of tech stocks. That direct cornering of the stock market largely went
unnoticed until this past quarter. Central banks now have enough interest throughout
the US stock market to be considered as having cornered the entire stock market, which means
they have the capacity to let it fall or to keep it where it is by just refusing to sell
their own stocks.
Have central banks rigged the stock market entirely?
Whether or not the market implodes now depends entirely on whether central banks let it fall.
If they decide to continue to buy up all the slack, they may be able to keep it artificially
afloat a lot longer because they can create infinite amounts of money so long as they
keep it all in stocks so that it only creates inflation in stock values, as it has been
doing, and not in the general marketplace. We have certainly seen that not much of it
trickles from Wall Street down to Main Street. So, there is little worry of creating mass
inflation from mass money printing.
I have long suspected that central banks were the only force preventing the crash of the
NYSE that I predicted for last year and that started last January, which was the worst
January in the New York Stock Exchange�s history. Last week, however, was the first
time I read something that indicates I was right about the Fed propping up the stock
market in order to take us through an election year by the extraordinary means of buying
stocks directly.
In an article titled �Central Banks Now Own Stocks And Bonds Worth Trillions � And
They Could Crash The Markets By Selling Them,� Michael Snyder writes,
Have you ever wondered why stocks just seem to keep going up no matter what happens? For
years, financial markets have been behaving in ways that seem to defy any rational explanation,
but once you understand the role that central banks have been playing everything begins
to make sense�. As you will see below, global central banks are on pace to buy 3.6 trillion
dollars worth of stocks and bonds this year alone. At this point, the Swiss National Bank
owns more publicly-traded shares of Facebook than Mark Zuckerberg�. These global central
banks are shamelessly pumping up global stock markets, but because they now have such vast
holdings they could also cause a devastating global stock market crash simply by starting
to sell off their portfolios�. The truth is that global central banks are the real
�plunge protection team�. If stocks start surging higher on any particular day for seemingly
no reason, it is probably the work of a central bank. Because they can inject billions of
dollars into the markets whenever they want, that essentially allows them to �play god�
and move the markets in any direction that they please. But of course what they have
done is essentially destroy the marketplace. A �free market� for stocks basically no
longer exists because of all this central bank manipulation.
We now know some of that enormous stimulus was spent on US stocks.
This time is different
I�m not saying, by the way, that the Fed has never purchased US stocks. We all know
it bought lots of stock when it bailed out automakers and banks in the early days of
the Great Recession. At the time, that was a peculiar thing to do, in and of itself;
but the policy of soaking up slack in the stock market generally by buying perfectly
sound companies as a form of economic stimulus is new in the US. In fact, it was so much
something that simply wasn�t done (and should never be done) that the US central bank merely
suggested it last year as a brave new approach should their recovery fail, should the economy
need a new boost after quantitative easing had lost all of its utility due to diminishing
returns and should we find ourselves in a recession. (Clearly proposed as a last-ditch
effort.)
Well, having run that flag up the pole without hearing too much objection to the idea, is
it too much to think that, when the market did fail badly last January, the Fed found
other central banks willing to leap into that role for them? Why not? It was no secret that
China�s move of that sort was the only thing that saved China�s stock market (though
it also made it no longer a true market by effectively nationalizing many of China�s
corporations).
Of course, the Federal Reserve could own stocks directly that are hiding within some broad
category on its balance sheet as well as any stocks that it still holds from its direct
bailouts. They have already begun talking about starting the unwind of their massive
balance sheet this year. If that includes an unwind of stock purchases, it will certainly
bring the market down in Trump�s first year. If the Fed isn�t planning a stock-market
failure by conspiracy, the question remains, will the Fed allow the stock market to fall
even if they are just becoming aware their recovery won�t hold?
While normally we would caution that the Fed may simply step in during any concerted selloff
amid the broader market (catalyzed by the tech sector) as it has every single time in
the past, this time it may let gravity take hold: after all, not only did the Fed caution
during its last FOMC minutes that elevated asset prices have resulted in �increased
vulnerabilities� and that �asset valuation pressures in some markets were notable�
but as Goldman also warned recently, Yellen may be looking for just the right �shock�
with which to reaffirm control over a market which is now interpreting a rate hike as an
easing signa (see �Goldman Asks If Yellen Has Lost Control Of The Market, Warns Of Fed
�Policy Shock�)
On the conspiratorial side, that may just be the Fed�s best friend, Goldman Sachs,
helping create the excuse the Fed needs for letting the market go. Why would Goldman want
that? Well, so long as Goldman casts its bets against the market, they (and maybe this time
their clients) could reap large rewards if the Fed lets the market go. They�d come
out like champs.
If the Fed�s recovery plan failed too soon after Trump�s inauguration,however, people
would not automatically blame him, and any conclusion people reach on their own is far
stronger held. That�s how a confidence game works. If the market fell right after he was
inaugurated, people would possibly see it as a mess he inherited. If the failure was
seen as something baked in during the Obama administration, the Fed would have to own
its own abject failure because the Obama administration reigned throughout the Fed�s recovery program.
Moreover, if the Fed�s recovery failed during the Obama administration, Trump�s victory
would be certain because America always votes it pocketbook.
For the Fed and the globalists to hope to dodge all blame, Trump would have to be in
office long enough to do enough or fail enough for people to say, �This is clearly your
fault.�
While that was all speculation when I was saying last year, it does seem to be the way
things are playing out. And now that it is clear central banks have been soaking up massive
amounts of US stocks, it�s a little more than just speculation.
Putting conspiracy aside, this market still looks like it is falling right when I predicted
it would
Whether by conspiracy or sheer blindness and idiocy, the Fed is about to raise rates right
into a falling economy. GDP in the first quarter went really soft, and I believe, contrary
to what the Fed projects, second quarter GDP will come back negative unless great massaged.
(In fact, first quarter GDP may have been negative if it were not such a government-manipulated
number in the first place.)
One indicator has remained a stubbornly fail-safe marker of economic contraction: since the
1960, every time Commercial & Industrial loan balances have declined (or simply stopped
growing), whether due to tighter loan supply or declining demand, a recession was already
either in progress or would start soon�. As US loans have failed to post any material
increase in over 30 consecutive weeks, suddenly the US finds itself on the verge of an ominous
inflection point. After growing at a 7% Y/Y pace at the start of the year, which declined
to 3% at the end of March and 2.6% at the end of April, the latest bank loan update
from the Fed showed that the annual rate of increase in C&A loans is now down to just
1.6%, � the lowest since 2011. Should the current rate of loan growth deceleration persist
� and there is nothing to suggest otherwise � the US will post its first negative loan
growth, or rather loan contraction since the financial crisis, in roughly 4 to 6 weeks.
Why is loan growth finally slowing again? Simple. GDP and loan growth are showing us
something that a rigged stock market cannot and will not. The Fed started raising interest
rates, and immediately applications for new home mortgages and auto loans started to subside,
and the recovery started to falter � just as I said would happen more than a year ago.
I�ve maintained all along that the Fed cannot raise interest rates (reduce its economic
stimulus) without crashing its recovery (that, however, was without foreseeing when I first
said it that they would prop things up via their potent proxies for a short time because
that is simply moving central-bank stimulus from being overt to being covert).
Of course, another significant factor that helped the Fed raise interest rates in March
was the fact that the financial market was already ahead of them. Interest was rising
on its own purely out of speculation over the Trump effect, wherein markets were repositioning
(or, at least, appeared to be) for the anticipated fiscal stimulus of Trump�s big tax cuts
and the huge debts to be created by his infrastructure spending plans. (However, we also now know
the market was rising due to enormous central bank stock purchases. No wonder the rally
was so steep, but that now appears to be all unwinding.)
The Fed has a history of knee-capping its own recoveries by raising interest just as
the economy is getting wobbly in the knees anyway, so we should not be surprised (even
from a non-conspiratorial outlook) if the Fed fails to see its recovery is crashing
all around it and raises rates directly into failure.
Just recall how Ben Break-the-banky failed to see the last recession when he was standing
right in the middle of it. The Fed has a peculiar talent for that. Sometimes I think conspiracy
rises as the most likely answer only because its so hard to be believe that people who
are that smart can be that stupid. Yet, Gentle Ben was either supremely stupid in the area
of his supposed greatest expertise, or was lying about the lack of recession, which often
happens when people are conspiring. So, you choose � stupid or conspiratorial. Either
one is still going to
take this market down.
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