Is seems perhaps that Lucifer knocked at the door this last Friday afternoon at 4PM EST at the Marriner S. Eccles Federal Reserve Board Building when the DOW index closed down 666 points – just as the former Fed chairwoman handed-off the ball to incoming chairman Powell and scurried out the backdoor.
The “big fat ugly bubble” that Yellen inherited from BB (Ben Bernanke) – is now much bigger, much fatter and much uglier – after four years of central banker coordinated global bubble blowing bonanza. During Yellen’s exit interview Friday on the PBS News Hour she assured the little people once again that there is no “bubble” but nevertheless advised that investors should be “careful”- in a classic last bit of Fedspeak double-talk on her part.
In response to 666 Friday sell-off sign, Asia markets closed down overnight and European markets were significantly down as the US markets opened yesterday (Monday). Powell on Sunday night failed to execute a narrative inversion financial engineering strategy involving another semi-covert round of “quantitative sleazing” (not to be confused with the well-known probably played out strategy of Fed overt “quantitative easing”) and the DOW proceeded to set a new down day record in absolute points (closed down 1175 points).
Quantitative sleazing is where the Fed prints money and shorts volatility futures contracts directly or indirectly through other agents at key moments to manipulate automated computer trading and general market sentiment. It is important to note, that one month after BB announced QE3 - Powell back in 2012 expressed concern (in FOMC minutes) about future unwinding of QE and a concern about how to “also unload our [Fed] short volatility position” (see ZeroHedge; Fed Chair Powell's Admission: "The Fed Has A Short Volatility Position"). This begs the question also now whether the Fed has other short futures contracts positions it needs to unwind or whether it will be expanding the same going forward under Powell’s leadership at the Fed.
The intent of quantitative sleazing is to use the unlimited power of the purse of the sovereign authority (to print money as necessary) to financially engineer market sentiment (regardless of reality) so as to induce (some would say force) investors to for example “buy-the-dip” or at least not sell into a dip.
Quantitative sleazing can also be used to suppress selected markets sectors/assets if the Fed thought it would be useful for creating a TINA (there-is-no-alternative) situation and thereby essentially enforcing compelled compliance by investors. The risk of this type of unsavory Fed monetary policy is that eventually there may be serious blowback politically and a crisis in confidence when gaslighted investors either wakeup and/or panic in mass as they see that they are being herded like sheep into economic badland lands – to be slaughtered financially.
Last night Asian markets closed-down again and Europe is trading down as I write. It looks like the “bulls” (or the Fed?) are trying to push U.S. futures out of negative territory before markets open in the U.S. today. Alternatively, it may be possible for the Fed to monkey-hammer down volatility (sell it short) during the day – to execute a belated narrative inversion strategy and perhaps enlist speculators that still want to “buy-the-dip” but were thrown under the bus yesterday – and otherwise attempt to prevent the equity markets from hemorrhaging today.
However, if the horses have already left the barn regarding volatility (i.e. cannot be corralled by the Fed) then the precious metals sector might get to see the “eagles fly” again.
Disclosure: I am/we are long VIXY.
Additional disclosure: I am long volatility and various names in the precious metals sector.