Gaming the Federal Reserve

I am the only economist in the world who treats the Federal Reserve strictly as a political body carrying out political agendas. The Federal Reserve Open Market Committee has decided for now not to raise interest rates. The Fed is charged with the responsibility of continually elevating asset prices. Market manipulation is often attributed to the mysterious group some call the Plunge Protection Team or the President’s Working Group on Capital Markets. The concept of a formal organization serves as a stalking horse and carries some credibility with it. The euphemistic mind has trouble conceiving of an unofficial group that moves the market up for their own benefit without any regard for the rest of the country. But, that is exactly the way it works.

What is called the Plunge Protection Team is actually a consortium of criminal enterprises working together to enrich themselves only. Any statute they violate is never noticed. Of course the day of the Fed’s interest rate decision was changed from Wednesday to Thursday so that it would receive no attention during the CNN Republican Debate. No questions were asked of the candidates that had anything to to with Federal Reserve policy or central economic planning. This is no accident.

The ideal circumstance for a criminal organization is simply to skim a little profit off of each transaction within the market they are exploiting. This is the basic goal of the high frequency trading firms. It is not the speed at which they operate that is directly harmful to investors. It is the speed that allows them to successfully compete with each other. The high frequency trading firms could operate a lot slower and still run stops and entice traders into unprofitable situations. The faster a firms operates, the more trades it can sabotage and exploit.

From my vantage point as an euphemism-free economist, it is clear that the criminals are not making the profit they need and expect any more. The advantages the Federal Reserve provides them may not be enough to guarantee their continued participation on the Fed’s behalf. The efforts to elevate equities this week have been enormous. Today, September 17, is what I call an up-no-matter-what day. On these days, prices are supported aggressively all day. The VIX gets hammered and no stock that has been green is allowed to go red. Today, The Dow 30 closed down anyway. Some indexes closed higher. The Russell 2000 is easy to control because the entire Russell 2000 has about the same capitalization as one Dow stock. The Russell 2000 closed higher.

The criminals prosper by getting exclusive information from the Federal Reserve. With that advantage, their profits have been guaranteed up to this point. The criminals may have actually taken a loss today. Probably they did. Even though I am playing it cautiously, I am completely sure the criminals will disappear from the long side of the market when the Federal Reserve’s information no longer guarantees a profit. When that happens, the market will crash because it is only by virtue of the criminals that the market is going up at all. That is why I keep 20% of capital on the bearish side.

What investing comes down to is knowing the economy is being destroyed by the Federal Reserve and central economic planning, while stocks are pushed higher for the profit of a few. One of two things will happen first. The nation’s economy will be gutted to the point where losses are so great that no organized effort is enough to prevent lower prices. Or, selling pressure will become so great that the high frequency trading firms can’t prevent a drop. Their algorithms may become unprofitable and they might exit the trading arena.

The failure of the economy and the financial markets is guaranteed.

The Grazin’ is Good, by Curbside Jimmy.