By John Galt
September 20, 2011 – 23:00 ET
Is the Vampire Squid telling us the results of 2011’s FOMC meetings?
The term is not mine, it’s the term of affection assigned by Matt Taibbi in his Rolling Stone piece “The Great American Bubble Machine” where in his April 2010 the case was made that Goldman Sachs, aka one of the two largest shareholders in the Federal Reserve, was preparing to inflate one more bubble to profit on the backs of American citizens. Of course the worst part of the situation is that when the final implosion of our economy occurs, the squid is insulated much like many of the banksters within the Fed hierarchy because they are married to many intricate behind the scenes aspects of our nation’s monetary machinery.
What I found fascinating about the Vamp is that a pattern seems to have emerged with the stock behaving poorly right before and if not immediately after, within trading days, of FOMC meetings in 2011. Since the Fed is comprised of member banks like Goldman Sachs (Symbol: GS) which hold sway over the life or death decisions for much of our economy, the question has to be asked:
Is Goldman telegraphing a negative or deflationary signal for tomorrow’s FOMC meeting?
First, let’s analyze this chart of the daily closing prices in 2011:
(CLICK ON CHART TO ENLARGE/REDUCE)
The red lines on the chart mark the day of trading before the FOMC meetings begin. If you notice though, this entire year has been marked by sharp downward moves in GS prior to and almost immediately after each Fed meeting. Is this the Fed’s dark signal that indeed they intend to quietly drain reserves from the system or at least provide the appearance to so as to control inflation and force the political elites to reign in their absurd deficit spending habits. By allowing the announcement of some variation of Operation Twist but no balance sheet expansion the message will be crystal clear to the markets that a recession is perfectly acceptable to wring out some of the idiotic excesses of the past two years and longer. The warnings from the Fed have been continuous since the crisis began in 2008 and if they are consistent with their European Central Bank brethren, forcing austerity might be the only solution which cures the broken system in Washington, D.C.
This is a very dangerous game but President Obama has been gambling with flaming torches in a gasoline lake every time he challenges the Fed’s authority or questions the wisdom of some of their actions. Should the Fed elect to enforce its edict as the unofficial “fourth” branch of government, there is little the political class could do but endure this deflationary drain and enforce their wishes. The challenge will be to see if Operation Twist is more like Operation Twistee-Freeze where the Fed dunks the economy into a frozen state until concrete action on our national debt is implemented. While the FOMC might well reveal the return of the 1960’s operation, adding liquidity to encourage more long term, high dollar purchases like automobiles, homes, and cars does little for the middle class who has witnessed wage stagnation and necessity inflation for over a decade. Thus the signal today from GS is quite disturbing and if the pattern holds true, $98 per share or lower for GS might well validate that the Fed is pulling the plug on the D.C. party until adults seize control and take the punch bowl away.