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There are times in your life when you just want to believe there’s a safety net under you. This is one of them.
When I first saw a reference to the Plunge Protection Team, I of course assumed it was a suicide-prevention program for bankers who work in skyscrapers. As our president often says, who knew that it would be so complicated? Or, as he also often says, who cares?
Here’s why it’s interesting. There is no apparent, rational explanation for why the stock market continues to fly so high. No standard valuation of shares — not growth, not profitability, not return on investment, not the price/earnings ratio, not anything — can remotely justify the prices being paid for paper in this crazed casino, populated by riverboat gamblers playing fast and loose with OPM (other peoples’ money), chasing the chimera of 20 per cent returns.
It should have crashed in 2015. And in 2016. There is no reason it should have survived 2017. And here we are. You know how, when you gaze at a perfect spring day full of flower scents and birdsong, you find yourself believing anew in God? Well when you look long and hard at our insane stock market, and its longevity, you start wanting to believe in a Plunge Protection Team.
There is a basis for belief. Its formal name is the President’s Working Group on Financial Markets, created by President Reagan after the market crash of October 1987. The Group — consisting of the Secretary of the Treasury and the Chairs of the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission — was tasked with recommending ways to enhance U.S. financial markets, prevent significant volatility, and maintain investor confidence.
Before long the Group was tagged with a nickname (by the Washington Post) — the Plunge Protection Team. The nickname both reflected and encouraged the suspicion that the Team had a secret mission that went far beyond its public assignment of giving advice — to directly intervene in the stock market when it started to head south, and buy it back to health.
It is hard not to see the hand of the PPT in days like Monday, February 5, 2018, for example, when the market pulled a Wile E Coyote and stepped off a cliff. After shedding nearly 700 points on Friday, the Dow vaporized another 1,000 points on Monday — one of the worst daily losses in its history, right up until the final hour of trading.
Those of us who had been waiting for the crash for years gathered around Bloomberg terminals and CNBC screens watching the numbers unravel like the altimeter of a plane about to run out of altitude, airspeed and prospects. Then, just above the ground the plane miraculously stops its descent, levels out, and begins a laborious climb back to where it was. You saw it with your naked eyes — how could you not believe in miracles and the PPT?
There are seasoned observers of the financial markets who see the hand of the PPT in every recovery from a pronounced drop. There are others who scoff, and say any notion that any group of people could so quickly and easily manipulate a multi-billion-dollar-a-day market is a prime example of an urban legend. Someone is always saying that it happened to his cousin, honest to God.
Given that the vast majority of today’s stock market trades are executed by machines running pre-written algorithms, executing in nanoseconds, free of human intervention, it’s hard to believe that any PPT could intervene effectively. It would be like throwing a line on a horse travelling at the speed of light, vaulting aboard, and wrestling him into the barn.
Thanks to the malfeasance of the profiteers and the malpractice of the journalists, there is no way to know if there is such a thing as a Plunge Protection Team. But something is maintaining the stock market at incredible altitudes, and it ain’t hydrogen. Sometimes, as when you’re appreciating a fine spring day, you just have to believe in something.
There’s no question that, where the stock market is concerned, the fix is in. It’s a closed system – a loop of sorts.
I’m reminded of 1984 (the novel). Winston Smith is approached by his neighbor, who praises Big Brother for economic policies that have had the effect of maximizing productivity and ensuring prosperity. Then he asks Winston if he has any used razor blades to spare.
I’m Winston’s friend. Thankfully, the three-day-old beard has become fashionable in this strange day and age.
On a lighter note, a priest, a rabbi and Vivaldi walk into a bar and…oh, wait – I promised not to go there.
I would hope that each member of the Plunge Protection Team would be supplied with plungers.
Their duties would include “DRAINING THE SWAMP”
The Swiss, Japanese, and European central banks have played a major roll in the artificial levitation of world financial markets by showering them with printed money. This has been going on since the start of 2016. Even so, I am also amazed that the crash that started to happen this year was simply arrested and now the DIJA rolls around in a range between 23,500 and 24,500.
Hi Tom,
There is also the story that a lot of cash is being diverted out of the realms of goods and services into financial products. Down here in Down Under land, employers are required to regularly pay 9.5% of an employees wages into retirement savings – which generally equates to the stock market, the bond market, and real estate. This of course is driving up those markets (which I reckon is inflation, but people get lost in definitions) and meanwhile reducing the inflationary effect in real world goods and services as it pulls excess cash out of the economy. Printing money and expansive monetary policies has only ever had one outcome – hyperinflation. Dunno, but that is how it looks to me.
Chris
There is a good reason for the PPT. Without an elevated stock market, it is game over. It is all industrial society has going for it.
Par value is a per share amount appearing on stock certificates. It is also an amount that appears on bond certificates. In the case of common stock the par value per share is usually a very small amount such as $0.10 or $0.01 or $0.001 and it has no connection to the market value of the share of stock.
I got that definition of par value from the accounting coach blog. That means when you buy a share of Google at 900 dollars you can’t get Jack for it if you were to sell it back to Google. You also have no vote on any of the companies decisions. It’s only a worthless piece of paper. You can get left out in the cold, with your thumb up your bum at any time. Just as soon as someone announces the emperor has no clothes. Many of the companies that issue stock lose tons of money year after year. Yet the fairy tale is still believed by the majority of the people. Market prices based only on demand. It’s a Ponzi scheme of monumental proportions. That’s why share price plunges as soon as there are no new suckers buying. Ponzi schemes collapse just like that. A criminal Enterprise made legal. A sham upon which our very existence depends. Madness of a scale never seen before at any point in human history.
I want to add that the market cap of the NYSE is more than 16 trillion dollars. Nearly the entire GDP of the USA or the whole of Europe. Think of the implications.
I really enjoy your narrations of your writing. I just happened to be admiring a beautiful spring day while listening so your metaphor struck home.