Central bankers are watching Marx’s dictum all that is solid melts into air play out in global stock markets with a terror informed by the scalding memories of 2008’s global financial meltdown.
Once the trap-door opens, there is no bottom without prompt action by the world’s Plunge Protection Teams–the plausible-deniability action heroes of the hyper-speculative status quo who leap into action when global stock markets threaten to melt down.
After half a decade of ceaseless saves, we all know the mechanics of Plunge Protection.
Since the majority of trading is now done by software programs (trading bots, algorithms, etc.), the first step is to create positive momentum so the bots will detect an “up day” and buy, buy, buy.
The easiest way to generate positive momo is to buy a truck load of S&P 500 futures in a time of low volume, where the impact will be the greatest. usually this is pre-market open.
If this fails, the next step is to send a central bank Talking Head out to discuss more quantitative easing. Announcing the central banks’ readiness to do more of what has goosed markets higher for six years will generally spark a buying frenzy, as those who have bet against central banks over the past six years have had their heads handed to them on a platter.
If this fails, grandiose but purposely vague claims of “doing whatever it takes” are issued. there is no need to actually have a plan, or to lay out a plan in public; the open-ended announcement is generally enough to reverse a trap-door decline.
If this fails, it’s now serious. The Plunge Protection Team must start buying equities. This is usually done by private proxies via dark pools or offshore accounts or by state agencies–investment funds, retirement funds, etc.
When things get very serious, the central bank can buy assets directly, and in such massive quantities that the markets are forced to respond appropriately.
If this fails, the last resort is a coordinated buying campaign by all the central banks, acting in concert. This last stand has a rallying cry: Plunge Protection Teams of the World, Unite!
Of course the PPTs of the world monitor key technical support levels, but what the PPTs are really monitoring is the dangerous sentiments of fear and panic. When the trap-door opens and the herd turns to selling, the entire six-year prop-job will crumble.
The herd must be turned away from selling by any means available, and at this point, that means coordinated buying by all the world’s Plunge Protection Teams.