The Watchman Letter: Who was the panic buyer of the US equites on Monday 4/2/2018 ?
The DOW open at 24,076 and dropped to 23,344 by 2:00 PM. The 732 Point dropped caused investors to panic. The crowded Tech Stocks were in a free fall. The DOW, S&P 500 and NASDAQ were down over 3%, then some entity or entities started panic buying into the close. Who was the investor trying to catch the falling knife ? This was not the time to buy the dip. So lets use some Sherlock Holmes deductive reasoning to rule out some of the Investor suspects.
- The Retail Investors: Retail Investors have a herd mentality. So if there is panic selling, they will follow the herd and sell.
- The Institutional Investors: Money managers are disciplined investors. They were selling stocks at a certain percentage point. They would not sell stocks, and then buy the dip. They would wait to see the when the volatility subsides and look for a stabilizing trend.
- The Central Banks: The Central Banks are reducing their balance sheets. So they are not the buyers.
The only Investor left is the US Treasury. The US Treasury is allowed to purchase assets using the Exchange Stabilization Fund/ESF. The ESF has Trillions of dollars to move markets up or down. They are allowed to manage markets to protect the US Dollar. There has been no real price discovery in the markets since 1987 with the start of Reaganomics.