MONEY 152 - STOCKS

THIS IS MY 152^nd BLOG ON UNDERSTANDING MONEY TOOLS

December 28^th, 2018

www.understandingmoneytools.blogspot.com

I normally don’t write two blogs so close to one another, however in the past 6 days so much has happened in the stock markets that I thought an accurate accountability should be done.  I was familiar with all of it, but resorted to research to get the exact dates, information and terms to pass on.

First of all, I believe in a free market society and what has happened since Saturday, December 22^nd astounds me.  Uncle Milty Friedman would be turning over in his grave!

Financial reports I receive mentioned that Treasury Secretary, Steve Mnuchin, was calling the 6 largest US banks starting December 22 and 23 to inquire as to their liquidity. (The ability to convert to cash, or currently cash on hand.)  I wasn’t certain as to why until Wednesday, December 26^th.

With the downturn in the stock markets the past few weeks, I mentioned the “Purge Protection Team” in my last blog 151.  Again, that was enacted into law under President Reagan on March 18, 1988 as a result of the stock market tanking on October 19, 1987.  At the time, I was head of the Pension Department and it’s investments with Trust Company of America.  So I remember it well.  This law was Executive Order 12631, and also called the “Working Group on Financial Markets” as well as the “Presidential Working Group”.  The “team” consists of the Treasury Secretary of the US, the Federal Reserve and Board of Governors, and the Chairperson of the Commodity Futures Trading Commission.   Rarely has the government used this vehicle, as it should be for emergencies to control markets.  The last time I believe it was used was on October 6, 2008 at the start of the Great Recession.

Most mornings I check world markets and stock futures.  The morning of the 26^th was no exception.  The Asian markets including the Japanese Nikkei exchange were well down, including our stock market futures.  The US markets started to follow where they left off Monday, well down and no surprises to me as the market averages are way too high and now normalizing.  What surprised me was the afternoon of the 26^th when the markets shot upward and the DOW closing up over 1,000 points.  Can’t happen with the trend and free market.  My assumption was that the government instituted the Purge Protection Team and was buying stocks to offset selling, and then these banking institutions will warehouse the stocks.  I only have a couple friends remaining with Wall Street connections feeding me information, but I was right. Apparently, the Feds were scrambling the last 6 days to get this completed and stop the down markets.  Once again, the Feds stepped in the afternoon of December 27^th, and I suspect will continue. 

By Executive Order, Mr. Trump’s ego apparently cannot handle downward corrections albeit natural so we will continue to have government controls intervene.  Is something wrong here?  Yes.  The markets can rise in an “out of control fashion”, but cannot come down.  Are people’s 401K plans damaged by the downward trend in markets?  Yes, but we need to face reality.

Eventually, the markets should trend down.  The banks will run out of money moderating the selling going on.  In the meantime, expect these wild swings in the markets.

I hope you learned something from this blog.