'Plunge Protection Team'? Asset Allocation Daily

By SA For FAs :

A Short Modern History Of Gold

"What we are left with is a conclusion that will likely please neither gold bugs nor gold-haters. Gold is not really an effective inflation hedge unless that inflation is a symptom of a systemic loss of confidence in fiat currencies." ( Roger Salus )

Market Entry Point

"I also don't want you to concern yourself about waiting for the absolute bottom. In retrospect, people think of 'the low' as a big event that… happens. In reality, no one realizes it at the time, and it usually happens a lot faster than you think. You can be sure there will still be people predicting the next big leg down." ( Jeff Miller )

Hit To Berkshire's Book Value

"In the larger frame of reference the decline is probably not a big factor in Berkshire's present and future value. In the immediate to short term frame of reference, however, the numbers have an implication for what investors will see in the 4th quarter and full-year earnings statements." ( Jim Sloan )

A No-Deal Brexit

"Our scenario predicts that the economic consequences of a no-deal Brexit would be damaging. The UK economy lacks sufficient strength to absorb the full impact of a chaotic Brexit. Firms would face new trade tariffs, potentially severe cross-border delays, and disrupted domestic supply chains, prompting the delay or cancellation of investment projects and recruitment. In addition, the household economy would be hit via substantial real income and wealth losses." ( Markit )

Plunge Protection

"Treasury Secretary Steven Mnuchin held calls on Sunday with the heads of the six largest U.S. banks in order to ensure liquidity and made plans to convene the 'Plunge Protection Team.' The group, which also met in 2009 during the latter stage of the financial crisis, includes officials from the Fed and SEC." ( Wall Street Breakfast )

Thought For The Day

Many a conspiracy theory swirls around the presumed unlawful doings of the so-called "Plunge Protection Team," which in actuality is a legally constituted Working Group on Financial Markets, consisting of the Secretary of the Treasury, and the chairs of the Fed, SEC and CFTC. Some financial commentators, including quite distinguished ones, have made inferences based on market activity that the group has intervened in markets by buying, or getting large financial institutions to buy, stock index futures.

In a society in which revealing all is often a pathway toward fame and fortune, it's hard to credit a theory like this, and I don't. But for the sake of its many fans out there, let's assume that it were true. If so, my warning to you is that the PPT is not going to save you.

When the market's time to plunge - really plunge - comes, the big banks (whose share prices have been crushed in 2018, mind you) will be the first to duck for cover. If propping up the stock market is presented as the patriotic thing to do, they will not be covering themselves in Old Glory. It is far likelier that their primary focus will be survival; many of these firms in 2008 only managed with the government's help. And the strongest banks' helping hand will extend as far as a government handout. JPMorgan acquired Bear Stearns in 2008 only after Uncle Sam brokered a very sweet deal.

Markets are vast, and the world of private investors as a whole far exceeds the influence of public institutions. For that reason, the Secretary of the Treasury and the chairman of the Fed will be as successful at fending off the next big market crash as the Secretary of the Interior will be at preventing a breach of the San Andreas Fault.

So while some may find it offensive that a Plunge Protection Team exists to protect monied interests, and others (i.e., monied interests) find it a source of comfort, neither should be complacent about a plunge not materializing since the overshooting and subsequent correction of markets are as old as history.

If the government really wants to help avoid a plunge, then the best it can do is not provoke one. It can't keep market participants from pursuing their perceived self-interest, but it needn't initiate trade wars or allow a truly threatening level of debt to accumulate. Sooner or later, one of these problems may be sufficient to tip the balance toward a plunge.

At the individual investor level, what is needed is independent thinking. Don't wait for your favorite market pundit to declare the PPT real or not, or to announce what the market is going to do next. It is within your power to establish your own plunge protection team by keeping some significant portion of your resources in safe assets so that an extended market crisis will not inhibit (and may enhance) the achievement of your financial goals.


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See also 50 Worst Performing S&P 500 Stocks Since Market Peak on seekingalpha.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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