The Phaserl


Is the Central Bank’s Rigged Stock Market Ready to Crash on Schedule?

by David Haggith, The Great Recession Blog:

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.” (Zero Hedge)

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. (Zero Hedge)

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. (The Economic Collapse Blog)

It is no secret, of course, that central banks were attempting to create a wealth effect by pumping up stocks through their own member banks — buying US bonds back from banks with free overnight interest with the proviso that banks use the income to buy stocks. As I wrote during last year’s stock market plunge, even central bankers finally admitted to that.

What is a secret is the fact that they have started buying stocks directly in order to pump up stock indexes. Federal Reserve chair, Janet Yellen, began talking openly about the possibility of doing that last year when it became obvious that the stock market was failing, and I speculated that the Fed actually started to do what they were talking about covertly through proxies so it wouldn’t show up on their own balance sheet.

Those proxies could have been there own member banks, but it turns out to have been other central banks. Their ability to get other central banks to do that for them could go like this. “We’ll buy $100 billion of your bonds if you agree to buy $100 billion worth of stocks in the US stock market to help us keep this thing up through the election season.” (Replace bonds with whatever else that central bank may need to see happen in the economy that it manages.)

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