Guest Article: Central Banks Are Using The Trade War To Hide Their Direct Influence On Stocks, by Brandon Smith

There has been a lot of confusion lately in the mainstream economic media as well as in independent media circles as to the behavior of stock markets in the wake of the recently initiated global trade war. In particular, stocks suffered one of the longest runs of negative days in their history in June, only to then spike just after Donald Trump “officially” began trade war tariffs in July. The expectation by many was that the headlines would cause an immediate and continued downturn in equities markets, but this was not the case. Many analysts have been left bewildered.

This is an issue I have touched on multiple times since the beginning of this year, and it is something I predicted long before Trump’s election in 2016. But it is obvious that the schizophrenic nature of stocks needs to be addressed in a very concise, no-holds-barred fashion, because there are still far too many people who are looking at all the wrong causes and correlations.

First, let’s be clear: stock markets are NOT tracking the news headlines. The past month should have proved this if there was any previous doubt.

It is hard for investors and some analysts to grasp this fact, primarily because for at least the past few years it appeared as though stock markets were utterly dictated by headlines out of Bloomberg, Reuters and other mainstream media outlets. Once investors and analysts became used to this narrative it was difficult for them to adapt when the dynamic changed. They are still living in the past based on an assumption that was never quite correct to begin with.

In reality, headlines never actually dictated stock prices; it was always the Federal Reserve among other central banks.

As I and others have noted consistently, stock market valuations for the past several years have tracked almost perfectly with the Fed’s balance sheet. That is to say, every time the Fed purchased more assets and increased the balance sheet, stocks went up.


After years of the notorious “Fed Put,” we now have an entire generation of investors and market writers that have never experienced a stock environment in which equities actually fall according to the health of their corresponding companies or the economy at large. The past year has been a bit of a shock for them, and it’s only going to get worse.

The Fed’s large scale interventions in stocks are now essentially over, which is exactly why stocks are no longer hitting new historic highs every month as they used to. The massive bull market rally of the post credit crash world of 2008 has stalled, and here are the reasons why.

Central Banks Tapering QE

The Federal Reserve was only the first to begin tapering its purchases of treasury bonds. Japan is now in the midst of what many are referring to as a “stealth taper” of its own bond purchases. The European Central Bank has announced it will likely end its QE program by the end of this year. Bond purchases helped first to support the ever growing debt burden of the governments and nations in question, but along with artificially low interest rates, it made bond investment less desirable in terms of profits. This pushed the majority of investors into stocks, where profits were essentially guaranteed by the central banks.

Now that QE is ending around the world and rates are rising along with yields, bonds are becoming a competing asset, luring investors away from stocks once more.

Central Banks Raising Interest Rates

The Federal Reserve has been raising rates consistently since the end of 2016, exactly as I predicted they would before the U.S. election. Interest rates are a direct influencing factor in stocks — low interest rates and cheap overnight loans to corporations by the Fed allowed these companies to continually buy back their own stocks, thereby decreasing the number of stock offerings available on the market and artificially boosting the value of the stocks that were left circulating.

Corporation have taken on a historic level of debt not seen since 2007 in order to keep their stocks prices high. Now that interest rates are rising, the party is almost over. The only source of capital left to fuel the stock buyback bonanza has been the Trump corporate tax cut. Instead of using this cut as a means to increase employment, innovation and to bring manufacturing back to the U.S., companies have instead squandered it on boosting the stock market yet again. However, as we have seen this year so far, without the aid of cheap money from the central bank the effects of stock buybacks are diminishing.

How long will it take for corporations to completely exhaust this last revenue stream? I predict stock buybacks will die off by the end of this year. And with rising interest rates, all that debt they took on in order to keep stocks elevated will now become rather expensive to hold onto. Once stock buybacks diminish, markets will crash.

It’s important to note that the Fed is not the only central bank that is raising interest rates. The Bank of Canada and the Bank of England among others are beginning to push higher rates as well.

Federal Reserve Cutting Balance Sheet (And Hiding The Effects)

The Fed has been the single most important trigger for stock markets. Period. As noted above, it was the Fed that created the historic bull market rally after the derivatives collapse. Jerome Powell, the current chairman of the Fed, stated back in 2012 that this was the case, and also made statements on what would happen if the Fed ever raised interest rates and cut asset purchases, ending the central bank’s “short volatility position.”

What did Powell predict in 2012? Essentially, a stock market crash. And, yet, as the new Fed chair he is implementing the exact measures he warned about back in 2012.

With every new balance sheet cut and rate hike, the Dow Jones in particular tends to lose 1,000 points or more. The damages have been mitigated by continued stock buybacks from corporations as well as smaller asset purchases by the Fed after the fact, but as already mentioned, the buyback stop gap will be ending shortly.

I should also note that the St. Louis Fed recently ended its reporting of data on cuts from week-to-week (known as FRED data). There are other sources for this data, but the Fed seems to be pushing data points that show the size of cuts per month, rather than WHEN in the month those cuts were made. The St. Louis data was originally reported on a weekly basis, which means we can more closely compare Fed asset cuts to stock market movements.

If we look at a 2018 year-to-date chart of the performance of the Dow Jones side by side with the St. Louis FRED chart of balance sheet cuts before the Fed discontinued it, we can see for example that on January 24th the Fed made a dramatic cut in their balance sheet, and two days later on the 26th the Dow began to drop precipitously. On February 7th the Fed increased asset purchases slightly, and only two days later stocks began to recover. On February 21st the Fed cut dramatically once again, and once again stocks plunged. On March 2nd the Fed added a smaller level of assets and stocks recovered. I would also note that when the Fed does not cut, but simply keeps assets mostly static as in May, stocks rise.

Like clockwork, only when the Fed dumps its balance sheet do stock markets fall with any aggression.

Again, I believe the Fed is not attempting to hide the size of its asset dumps when it discontinued FRED data, but it is attempting to hide the exact TIMING of when the cuts occurred. In this way, they hope to incrementally remove this and similar data reports and distance themselves from any blame by making it more difficult to connect Fed cuts to specific weekly plunges in stock markets.

A distracting argument has been circulating over the influence of algorithmic computers versus the Fed. To be clear, the claim that market plunges and rallies are somehow due to algos and not the Fed is misguided. FRED data was normally released long after stock movements had already begun. Meaning, any influence algorithms might have had came AFTER the fact, not before or during the Fed’s balance sheet actions. Algos are not magic despite predominant and odd misconceptions; they DO NOT predict the timing of Fed asset cuts or purchases. They do nothing more than lag behind the already direct influence of the Fed on equities.

The Fed is also suddenly attempting to change the way it reports on Yield Curve data, which has in the past been a very accurate indicator of when a recession will take place. Why? Most likely because the Fed has been pushing the claim that the economy is in swift recovery when their own data shows that it is actually in swift decline. The Fed needs a rationale for their rate hikes and balance sheet cuts – actions which they KNOW will cause the next financial crash. The central bankers are hiding FRED data and Yield Curve data because they are deliberately sabotaging what remains of the US economy, and they are seeking to do this without taking any responsibility.

Trade War Distraction

The trade war continues as the most effective possible distraction from central bank activities. In every instance of a stock market decline, which takes place after every instance of a Federal Reserve cut in the balance sheet or an interest rate hike, Donald Trump also seems to make yet another trade war announcement. During Jerome Powell’s most recent congressional hearing, discussion strayed far from any examination of the Fed’s culpability for economic weakness. Instead, the majority of questions revolved around the “threats” presented by Trump’s tariffs and their negative affects on markets.

The only outlier has been the “official launch” of the trade war with China, which saw stock markets suddenly rise. I have witnessed numerous analysts and commentators frantic over the fact that stocks did not fall on the headlines. Some have even suggested that the investment world “loves the trade war.”

What these commentators do not understand is that the headlines are meaningless and the trade war has little to do with the behavior in equities. It is the Federal Reserve and to some extent other central banks that are controlling stock market prices, along with corporate stock buybacks which are facilitated by the Federal Reserve’s low interest rates.

I’ve said it before and I’ll say it again — what we are witnessing is a controlled demolition of the U.S. economy, and stock markets are merely an extension of this process. They are a lagging indicator, not a leading indicator. Stocks fall when the Fed dumps more assets, and these cuts are growing larger and larger as 2018 drags on. Stocks rise when the Fed slows asset cuts in a particular week, or when companies initiate more stock buybacks. That’s it. That is all there is. There is nothing else to look at when predicting what stocks will do at any given time.

The facade will end when balance sheet cuts expand to a point at which buybacks cannot keep up and the slack in markets grows too fast. Or when stock buyback cash runs out (probably by the end of this year). The trade war can and will cause various problems within the global economy, but the greater cause of fiscal distress will always be central banks. They are to blame for any future crisis.

This article was originally published at


  1. I’ve been following Brandon Smith ever since 2011. It was on cold snowy Montana night in Perkins restaurant when Brandon introduced many Oath Keepers and Patriots to: a plan for a “global economic reset” to replace the U.S. dollar as the world reserve currency, China’s role in a global currency, Yuan, IMF’s Special Drawing Rights (SDR’s), Baltic Dry Index etc. Brandon was probably the youngest guy in the room. But he immediately commanded the respect of the rest of us.

    Any financial analyst can attempt to explain ‘what IS happening’. Brandon Smith PREDICTS ‘what WILL happen’ and supports his predictions with facts. He has arguably a track record second to none.

  2. You say “I should also note that the St. Louis Fed recently ended its reporting of data on cuts from week-to-week (known as FRED data). There are other sources for this data,”

    Do you mind telling what those other sources are?


  3. You say “I should also note that the St. Louis Fed recently ended its reporting of data on cuts from week-to-week (known as FRED data). There are other sources for this data,”

    Do you mind telling what those other sources are?

  4. I have known for a while the stock market doesn’t deal in “real” money, but couldn’t get to the how or why. Now it makes sense. Seems the Fed should be charged under RICO statutes.

  5. It seems the fear traders should review their past doom and gloom articles before again stating collapse is right around the corner.
    The following is just a few of Mr. Smith’s predictions over the last 4 years.
    And he has been wrong.

    The dollar is strong against all other currencies; it constitutes the bulk of trade and is the major player in SDR’s. We also have the strongest military anywhere in the world.
    And the Dollar is still King circa 2018!

    Fear Trade- Brandon Smith

    “It won’t happen overnight. The economic collapse is a “process, not an event” – one that takes place over the course of several years, even a decade. According to Brandon Smith, 2017 will likely see a major acceleration of that collapse”

    “That’s right, mark my words, one day ‘soon’ the Fed, the IMF, the BIS and others will attempt to convince the American people that the erosion of the economy and the loss of world reserve status is actually a “good thing”.
    August 27, 2015”

    “The bottom line is that the stock market, the greatest false indicator of all time, is on the verge of implosion; and the banking elites are positioning themselves to avoid blame for this implosion while the rest of us are being sold on the most elaborate recovery con-game ever conceived.”
    The ceremony initiating our nation’s fiscal destruction will likely take place in the near term.”
    Nov 12, 2014

    See Jim Rickards, Harry Dent, Peter Schiff and now Brandon Smith.
    The money must be good in the con of fear trading

    1. Agreed. Doom porn pays almost as well as its namesake.

      You were also kind enough not to mention the example from this very article:

      “In reality, headlines never actually dictated stock prices…”-Brandon Smith

      Less than 10 hours after this article posted:

      “…and then EU trade concessions deal headlines sent traders into a buying panic, sending US stocks soaring…”-Zerohedge

      Dow up almost 200, NASDAQ up almost 100, S&P 500 flirting with ATH’s. HF machines that scan headlines and other sources do 80% of all trades after the first half hour of trading and up to the last half hour.

      I appreciate what all the people you mentioned have done to inform an otherwise ignorant population of the behind-closed-doors operations in the financial world, but the predictions have become ridiculous. I look at them with the same disdain some have for predictions of comets destroying Tennessee. Most of these rants have become nothing more than preaching to the choir. Most of us are well aware of the evils of the Federal Reserve and Wall Street. The question is when do we start to do something about it.

      “Markets can remain irrational a lot longer than you and I can remain solvent.”

      1. Great reply, DD. Made me laugh, too.

        One thing I always thought was interesting about economics is that all the theories attempt to be based on rational actors. However, there is nothing rational about economics. It just seems as change is always the thing to fear.

        I can recall when oil prices where really high, the talking heads said that was something to fear. Then, when the oil priced collapsed, the talking heads also said low oil prices were something to fear. Fear is the constant.

  6. I’ve been hearing this gloom and doom stuff for many years. Even just last night on Coast to Coast AM there was some nutbag claiming silver at $2000 and ounce in the next few months. If silver goes that high, you are talking a loaf of bread at $100 or more. Over time I expect silver to hit maybe $200. Even then it will be FED caused inflation that causes the climb, not an actual growth in the real value of silver based on availability in the market place.

    As far as FED manipulation of the stock market, this is the one area where I agree with Brandon Smith and all the rest. The FED works to keep the market going strong, however the players in the market actually do react to the headlines. Heck even a conversation on Fox Business Network has prompted a rise or fall in the Dow, S&P 500, and the NASDAQ. Look at what happened with the talks between Trump and Juncker at the European Commission. Trade deal equal stock rise, and that is just preliminary talks with no real outcome. They have a long way to go.

    I believe the economy is going to crash. When? I don’t know, and neither does anyone else. That doesn’t mean we shouldn’t get prepared today. Actually it means we should, and soon. The FED is the biggest threat to us all. It will be the actual cause of the coming collapse. My guess is soon. I used to think it would happen before the 2018 elections, possibly the October surprise, now I’m not so sure. We may have until just before the 2020 elections. It’s all up to the FED and the Deep State.

  7. To Rodger D

    The best financial advisor are local professionals that work with you based on your assets, your risk thresholds, your age and if you want growth or capital preservation.

    To build wealth is really easy if your expenses are less than your bills and you invest 10% into tangible items and not the latest CDO’s or derivatives that were popular 11 years ago before they all blew up.

    Also, there is the time factor in investing. The earlier you save the more growth one will achieve given even modest gains.

    I like the idea of diversity,( only in economics), that spread risk across over many areas.
    That wisdom came from Solomon to have 7-8 investment strategies; Ecclesiastes 11:2

    Now if it’s your plan to build wealth,( note all wealth is from God; Deuteronomy 8:18), for just you and never share or give to others than your plan will fail.

    The future global world order is found in Revelations 1:8;
    “I am the Alpha and the Omega, says The Lord God,” who is and who was and who is to come
    The Almighty

    1. Amen brother. And the best financial advisor is Jesus Christ: “Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal; but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. For where your treasure is, there your heart will be also.” – Matthew 6:19

    2. Skip, whoa. You failed to answer my question. You disparaged four analysts. OK. Then specifically what analysts would you recommend that we listen to for the most accurate financial and global world order predictions?

  8. Rodger D

    I did not disparage those men. I just brought up their past statements that showed they were wrong with future predictions on global events and how that relates to US economy.

    Your question about who do I suggest one should listen to concerning world events and I told you it’s found in Scripture.

    No man knows what tomorrow will bring, but Scripture tells us in very specific language on how world events will shape mankind’s future.
    However, Christians are told not to worry about them.

    Proverbs 3:5 “ Trust in the Lord with all your heart, and do not lean on your own understanding. In all your ways acknowledge Him and He will make your paths straight.”

  9. Interesting article. Seems logical. At times I sensed a cynical view of what the Fed was trying to do. What I didn’t see was any discussion of should the Fed still have all these assets on its balance sheet (I would say no). if the Fed is selling off assets like it should this would be good long term even if painful short term. If they are selling it would also be good if they did it slowly and under the radar so as not to alarm the market or otherwise influence the market or interest rates beyond the effect of selling assets and shrinking the money supply. The Fed is really in a bad spot. Congress can’t balance spending and revenues, working hard to increase spending and reduce revenues instead of the other way around. Corporations aren’t investing in productivity improvements and instead are playing financial games to increase share prices and CEO bonuses. The Fed has way too many assets on its balance sheet. Interest rates are artificially low by historic standards. Banks are gambling again. Pension funds aren’t fully funded and aren’t using realistic earnings assumptions. 50 to 75% of people live paycheck to paycheck, with a significant portion struggling to pay for basic necessities. We use a single inflation value when in reality inflation rates are different in different sectors of the economy. I don’t see easy answers.

Comments are closed.