Registered Investment Adviser Caleb Lawrence
Much like yesterday early meaningful gains faded into the final hour with the major averages trying to hold onto positive territory on little real news.
The Kansas City Fed regional index gained a point in February to 17, on strength in production and employment. Prices for raw materials jumped for a second month on strong gains in energy prices.
The substantial gains seen in the markets over the last 18-months or so has confounded many an investor, while flying in the face of fundamentals and exogenous shocks. While it’s a known fact that the Japanese and Swiss central banks actively intervene in financial and equity markets in theory the Federal Reserve is supposed to confine itself to the bond markets through the various QE or Quantitative Easing programs. As it is very hard to explain the gains the major averages have achieved of late without either divine intervention, or central bank intervention. That said clues are becoming increasingly common leading to more and more pundits expressing belief in said Federal Reserve intervention. Paul Craig Roberts, a former Associate Editor of the Wall Street Journal and Assistant Secretary of the U.S. Treasury under President Ronald Reagan joined with Economist Michael Hudson and Wall Street veteran Dave Kranzler to write that “it appears that in May 2010, August 2015, January/February 2016, and currently in February 2018 the Fed is rigging the stock market by purchasing S&P equity index futures in order to arrest stock market declines.” All happen to be periods when the Standard and Poors 500 index rally appeared to be in danger of failing. BNY Mellon in collaboration with the University of Cambridge’s Judge Business School, found that 39% of central banks surveyed are now investing in stocks and 72% “reported use of derivatives as part of their investment management activities”. Warren Buffet famously labeled derivatives as “financial weapons of mass destruction”, and it should be noted that the infamous 1996 implosion of Long Term Capital Management stemmed from a group of individuals that attempted to create their own reality, with the help of a few derivatives. It worked for a while, until it didn’t. The banking scandals in the post crisis period since 2007 have shown that the large multi-national banks, aka the “Too Big to Fail or Jail crowd”, have essentially rigged every market possible in the name of fun and profit. The Economist noted in a recent series of reports significant patterns of patently illegal insider trading as well. So much for efficient market theory, or effective regulatory oversight.