(John Crudele) Mysterious forces were trying their best, but they couldn’t keep the stock market from swooning Wednesday.
They failed in the morning, despite massive purchases of stock index futures contracts. Within minutes of the market’s opening, the Dow Jones industrial average was down 350 points. Later in the day — after a lot of shocking ebb and flow — the Dow bottomed out with a decline of 460 points.
It was only in the last hour of trading that the market saviors managed to trim the Dow loss to just 173 points. And they succeeded only after Janet Yellen’s private, upbeat remarks about the economy were leaked.
Welcome to a new kind of stock market — one that the average investor should refuse to be invested in.
Anyone whose investments tightly track the major indices is now losing money since the beginning of 2014. The Dow is down 1.1 percent on the year, with the S&P and Nasdaq up 3 percent for 2014.
Just for the record, I’ve been telling you for years that the stock market was in a bubble and that you should enjoy it while it lasts because bubbles always pop.
Of course, if you could time the end of the bubble, you’d be doing quite well. Miss the end and you are back to where you started. Or worse off in terms of confidence and finances.
I obviously don’t know whether we are now seeing the end of the current stock market bubble, during which the S&P index has risen 102 percent since October 2008. But there are people like my friend Peter Grandich of Trinity Financial, who has been excellent at predicting market corrections in the past and who thinks this is the end.
I already brought up the sensitive issue of a market crash in a column on Oct. 9 that began: “Is this the month the stock market will crash?”
October is historically a spooky month for stocks, and in that column I rattled off the crashes and major price corrections of 1929, ’78, ’79, ’87, ’89 and 2008 to prove it.
Will 2014 soon be added to that list? That’ll be the cliffhanger in today’s column.
But let me explain about the unknown forces in the market these days. Call it by a nickname — the Plunge Protection Team. Or call it the President’s Working Group on Financial Markets, the official name given to the group when it was formed by President Ronald Reagan after the market turbulence of 1989.
These forces may be working from a script in the “Doomsday Book,” which the US government recently fought to keep secret when it was brought up last week during the AIG trial in Washington.
Here’s the bottom line: Someone tried to rescue the market last Wednesday. And it’s becoming a regular occurrence.
The details of last Wednesday morning are these: At the same time the Dow was off 350 points, the S&P index was down 43.80 points, That was an enormous decline in just 11 minutes of trading and it was an indication that Wall Street was not having a good day.
Then, someone (or something) started buying S&P futures contracts en masse. Twenty-one minutes later, the S&P index had regained 30 of those lost points and was back at 1,861.
Maybe you’ll believe that there was some manipulation going on if you knew that a guy named Robert Heller, who was a member of the Federal Reserve’s Board of Governors until 1989, proposed just such a rigging as soon as he left the Fed.
Look it up. Oct. 27, 1989, Wall Street Journal. Headline: “Have Fed Support Stock Market, Too.” By Robert Heller, who had just left the Fed to head up the credit card company Visa.
“It would be inappropriate for the government or the central bank to buy or sell IBM or General Motors shares,” Heller wrote. “Instead, the Fed could buy the broad market composites in the futures market.”
In case you don’t know the lingo, Heller is proposing that the Fed or government purchase stock futures contracts that track — and can influence — the major indices.
These contracts are cheap and a government could turn the whole stock market around quickly — but probably not permanently.
Wow! Doesn’t that seem a lot like what happened Wednesday at 9:41 a.m., when S&P futures contracts were suddenly and mysteriously scooped up?
Let me allow Heller to finish his thought because it’s important to anyone who believes in free and fair markets.
“The Fed’s stock-market role ought not to be very ambitious. It should seek only to maintain the functioning of the markets — not to prop the Dow Jones or the New York Stock Exchange averages at a particular level,” he continued.
But times change and so does thinking. In recent weeks, we’ve discovered that the CME Group, the exchange in Chicago, has an incentive program under which foreign central banks could buy stock market derivatives like the S&P contracts at a discount.
It’s not that these foreign banks need a break on the price of their trading. But it does show that there is a back-door way — through foreign emissaries — for the Fed and the US government to prop up stocks like Heller suggested, and — maybe — not get caught.