The Week Ahead: PCE

1. Hottest News This Week

📣 PCE

The highlight of this week’s economic calendar is Friday's release of the Personal Consumption Expenditures (PCE) price index, which the Federal Reserve closely monitors as its preferred gauge of inflation. The PCE index provides insight into consumer spending trends and inflation pressures, making it a critical data point for understanding the Fed's monetary policy decisions.

📣 Eurozone Inflation

The Eurozone inflation data for August, set to be released on Friday, will play a crucial role in shaping the European Central Bank’s September interest rate decision. This report, following national data starting on Thursday, comes after a slight but unexpected rise in July inflation.

📣 SpaceX

SpaceX is gearing up for another milestone with the Polaris Dawn mission. The launch window is set for Tuesday between 3:30 a.m. and 7 a.m., according to the Kennedy Space Center.

2. Matt Allen’s Corner

Plunge Protection Team

Imagine a group of top government officials who step in when the stock market is in freefall, working behind the scenes to prevent a financial catastrophe. It sounds like something out of a thriller, but this group actually exists—and it’s known as the Plunge Protection Team.

What Is the Plunge Protection Team?

Officially called the Working Group on Financial Markets, the Plunge Protection Team (PPT) was created by President Ronald Reagan in 1988 after the stock market crash of 1987, also known as Black Monday. On that day, the Dow Jones Industrial Average plummeted by over 22% in a single trading session, the largest one-day percentage drop in history.

In response to the market chaos, the U.S. government wanted a mechanism to quickly address and prevent such drastic market declines in the future. Thus, the Working Group on Financial Markets was born, with a mission to stabilize markets during times of financial stress.

The group includes the Secretary of the Treasury, the Chair of the Federal Reserve, the Chair of the Securities and Exchange Commission (SEC), and the Chair of the Commodity Futures Trading Commission (CFTC). These are some of the most powerful people in U.S. financial policy, tasked with ensuring that markets remain orderly, especially during extreme volatility.

What Does the PPT Do?

The Plunge Protection Team’s exact activities are shrouded in mystery, which has led to plenty of speculation. Officially, the group’s role is to coordinate and develop strategies to prevent and respond to disruptions in the financial markets. This could involve everything from recommending regulatory changes to stabilizing measures like emergency interest rate cuts or market interventions.

One of the most debated ideas is whether the PPT directly intervenes in the stock market, such as buying large amounts of stock index futures to prop up prices during a steep decline. While there’s no hard evidence to confirm this kind of market manipulation, the possibility has fueled numerous theories, particularly during times of financial turmoil.

Why the Controversy?

The secrecy surrounding the Plunge Protection Team has led to both criticism and conspiracy theories. Critics argue that if the government is indeed intervening in the markets, it could create moral hazard, where investors take on excessive risk, believing the government will bail them out in a crisis. This could lead to inflated asset prices and ultimately, greater market instability.

On the other hand, proponents of the PPT’s role argue that some form of government oversight is necessary to prevent panic selling from spiraling out of control and causing unnecessary economic damage. They believe the PPT provides a backstop during times of extreme market stress, helping to restore confidence and order.

Historical Moments of Suspicion

The PPT has been the subject of speculation during several key market events. For example, during the 1998 Long-Term Capital Management (LTCM) crisis, where a massive hedge fund’s collapse threatened to destabilize global markets, the rapid coordination of a bailout raised questions about the PPT’s involvement.

Similarly, during the 2008 financial crisis, when markets were in freefall, some believed the PPT played a role in stabilizing the situation behind the scenes, particularly in the days following the collapse of Lehman Brothers. Again, no concrete evidence has surfaced, but the timing of certain market movements and government actions has kept the theories alive.

The Reality of Market Stabilization

While the idea of the Plunge Protection Team secretly manipulating markets might make for a good story, the reality is more nuanced. The group’s role likely focuses more on coordinating policy responses and ensuring that the major financial regulatory bodies are aligned during crises.

For example, in a market crash, the PPT might work to ensure that the Federal Reserve provides liquidity to the financial system, the SEC temporarily restricts short-selling to prevent further market declines, and the Treasury Department communicates with global financial leaders to maintain confidence.

Cheers,

Matt Allen

3. Comin’ Up

EARNINGS AND ECONOMIC DATA

💰 Earnings:

Monday: N/A

Tuesday: Box, Nordstrom

Wednesday: Nvidia, Salesforce, Crowdstrike, HP

Thursday: Dell, Autodesk, Lululemon

Friday: N/A

📈 Major Economic Events:

Monday: Durable-Goods Order

Tuesday: S&P Case-Shiller Home Price Index

Wednesday: N/A

Thursday: Initial Jobless claims

Friday: PCE

The author of this newsletter owns ETF’s (exchange traded funds) that may hold ownership interests in the companies discussed in this newsletter as of the published date of this newsletter.