Fed Watch: Is the U.S. Central Bank Now Buying Stocks Outright?
Over the last week, I’ve outlined how the Fed is now forced to intervene in the financial markets on a regular basis.
As I write this, the Fed is now intervening in the form of:
- Lowering interest rates (the Fed has done this three times in 2019).
- A $60 billion per month QE program through which the Fed prints $60 billion in new money every month and uses it to buy assets from Wall Street.
- A $120 billion overnight repo facility through which banks “park” some of their less liquid assets with the Fed in exchange for cash, thereby increasing their liquidity.
- A $45 billion term repo facility through which banks “park” their cash with the Fed for set periods of time in exchange for increases liquidity.
You’ll note that most of these interventions affect the stock market indirectly by making capital cheaper/providing liquidity to Wall Street.
However, I believe the Fed is doing more than this. Indeed, if what I believe proves true, and my research strongly suggests it is, then this will be the single greatest discovery of my investment career…
The Truth about Central Banks
I believe the Fed is intervening DIRECTLY in the financial markets… as in BUYING STOCKS outright.
First and foremost, you need to understand that central banks have been buying stocks for years.
The central bank of Switzerland, called the Swiss National Bank, literally prints money and buys stocks in the U.S. stock markets. (You can see a recent SEC filing from November 2019 in which it lists the companies it owns here.)
And it’s not the only one.
Japan’s central bank, called the Bank of Japan, also prints money and buys stocks outright. As of March 2019, it owned 80% of Japan’s ETFs. Yes, 80%. And it is a top-10 shareholder in over 50% of the companies that trade on the Japanese stock market.
Put simply, it is no longer a conspiracy theory to claim that central banks actively intervene in the stock market. We have concrete proof this is the case.
And we’re not talking about a small amount either. Between the Swiss National Bank and the Bank of Japan alone, we’re talking about over $300 BILLION in stock positions.
Of course, this begs the question: What about the U.S. central bank?
Clear Signs the Fed Intervenes in the Markets
Technically, the Federal Reserve (or “the Fed”) is not supposed to buy stocks or stock futures. And they certainly do not include those assets on their balance sheet listings, which are published every week.
However, we know from Fed meeting minutes that the Fed does indeed own positions in the markets that it does not publish.
Case in point: Back in October 2012, then-Fed Governor Jerome Powell (now-Fed Chair), explained what happens when the Fed decides to sell its investment positions during a discussion:
“So when it is time for us to sell, or even to stop buying, the response could be quite strong; there is every reason to expect a strong response. So there are a couple of ways to look at it. It is about $1.2 trillion in sales; you take 60 months, you get about $20 billion a month. That is a very doable thing, it sounds like, in a market where the norm by the middle of next year is $80 billion a month. Another way to look at it, though, is that it’s not so much the sale, the duration; it’s also unloading our short volatility position.” [Emphasis my own.]
Source: Federal Reserve
Here, Powell is stating that the Fed has a “short volatility” position ― meaning the Fed is either shorting the Volatility Index (VIX) via futures, or options.
However, I believe the Fed is doing more than this. I believe the Fed is OPENLY intervening in the stock market on a regular basis.
Whether it’s a direct intervention or done via a proxy, I don’t know. But I have personally watched the market react in ways that indicate a clear intervention by the Fed.
I’ll explain how and why in tomorrow’s article.
But for now, let me tell you that I’ve been working on this research for over eight months. In fact, I’ve developed a REAL TIME trading strategy that can identify when the Fed is about to intervene in the markets.
The kind of money you can generate if you can successfully “front run” a Fed intervention is the stuff of dreams.
Already, this system has produced gains of:
- 22% in 35 minutes
- 56% in 100 minutes
- 70% in 130 minutes
- 85% in 90 minutes
- 123% in 65 minutes
- And even 367% in one day.
I’ll detail this trading strategy in the coming days. But for now, know this…
This is the single most incredible discovery of my career. Stay tuned.
Editor, Money & Crisis