• Market Crumbs

Happy 1 Year Anniversary Of "The Phone Call Heard 'Round The World"


Image via Seattle Times

The Battle of Concord in 1775 had "the shot heard round the world," which began the American Revolutionary War and led to the creation of the United States of America.


New York Giants baseball player Bobby Thomson hit the "shot heard 'round the world" to win the National League pennant in 1951.


United States Secretary of the Treasury Steven Terner Mnuchin had the "phone call heard 'round the world" exactly one year ago today.


On Sunday, December 23, 2018, Mnuchin—while vacationing in Cabo San Lucas, Mexico, decided to call the CEOs of the six-largest banks in the U.S. after the S&P 500 fell nearly 14% from its high on the first trading day high of the month through the Friday close. Stocks had sold off basically all month, with the S&P 500 closing lower 12 of the 14 days during the period following a lack of progress on a trade deal, a rate hike by the Federal Reserve and an imminent federal government shutdown.


With the Dow Jones Industrial Average hitting a 1-year low and the S&P 500 hitting its lowest level since 2017, Mnuchin had seen enough and determined it was time to interrupt his vacation to stop the bleeding.


"The CEOs confirmed that they have ample liquidity available for lending to consumer, business markets, and all other market operations," the Treasury Department's statement on the call read. "He also confirmed that they have not experienced any clearance or margin issues and that the markets continue to function properly."


There was one section within the statement that was enough to start one of the most vicious V-shaped rallies in recent memory. "Tomorrow, the Secretary will convene a call with the President's Working Group on financial markets, which he chairs. These key regulators will discuss coordination efforts to assure normal market operations."


The President's Working Group on Financial Markets aka the Plunge Protection Team (PPT) was created by Executive Order 12631 and signed on March 18, 1988 by President Ronald Reagan. The PPT was created to determine what happened on Black Monday in 1987 when the Dow fell 22%, which remains the largest single-day percentage loss for the Dow in history. The PPT makes sure markets operate "smoothly," essentially meaning they don't go down for sustained periods.


The S&P 500 put in a bottom the day after the call and hasn't looked back since. Since the Christmas Eve bottom, the S&P 500 has gained 37%, hitting countless fresh all-times on accommodative monetary policy, buybacks and hopes of a trade deal as economic conditions deteriorate. The timing of Mnuchin's call and the reaction from markets ever since might be the most blatant example of how those who sit on the PPT—Secretary of the Treasury, Chairperson of the Board of Governors of the Federal Reserve System, Chairperson of the Securities and Exchange Commission and Chairperson of the Commodity Futures Trading Commission, care about the performance of the stock market over everything else.


It's certainly been a tough year since the "phone call heard round the world" for those who are bearish. With the markets sitting at all-time highs, it will be interesting to see how much the S&P 500 would have to decline by before Mnuchin makes another phone call. One thing is certain, though, you can hardly call those who have said the PPT is real for all of these years conspiracy theorists anymore.


Leftover Crumbs

  • Another blow to Boeing. Just a few days after announcing production on the troubled 737 MAX will be halted, Boeing is now having issues with its spacecraft program. Starliner, the spacecraft that is being developed to transport crew to the International Space Station, failed a test launch due to software incorrectly keeping mission time. The unmanned test mission was supposed to rendezvous with the ISS and return, but will now return to earlier than expected. "What we were trying to do is make sure we could do this entire mission end-to-end completely automated and that didn’t work," said NASA Administrator Jim Bridenstine. 

  • Have we hit peak Star Wars? Star Wars: The Rise of Skywalker brought in $176 million domestically and $198 million internationally, for a total of $374 million, in its opening weekend. The total marks the lowest opening weekend of the new trilogy that has been released by Disney following its acquisition of Lucasfilm in 2012. The Force Awakens brought in $247 million during its opening weekend, while The Last Jedi brought in $220 million during its opening weekend. Viewers may be waiting to watch it on Disney+ as the reviews have been less than stellar, notably a 58% “Rotten” score on Rotten Tomatoes.

  • Another corporation running into trouble with unions. The National Labor Relations Board (NLRB) has filed a complaint against Chipotle for reportedly firing an employee in retaliation for trying to organize with a union. The complaint alleges that a manager at a Manhattan Chipotle threatened to fire or cause physical harm to employees who engaged in union activities. The manager also offered promotions to employees who provided information about other employees who organized, according to the complaint. Chipotle joins Google, which is also being accused of retaliating against employees who organized, in the news for anti-union behavior. 

  • He wants out ASAP. Uber co-founder and former CEO Travis Kalanick continues to dump his shares in the ridesharing company. Kalanick sold an additional $383 million in stock last week, leaving him with less than 10% of his holdings. Kalanick hasn't wasted time selling his shares since the company's lockup period for insiders expired on November 6. At his current pace, Kalanick will sell his remaining $250 million worth of Uber shares within a few days.

  • Congrats on the promotion. Google and Alphabet CEO Sundar Pichai has received a new pay package just a few weeks after Google co-founders Larry Page and Sergey Brin handed him the reins. Pichai was awarded a $240 million stock package as well as a $2 million annual salary effective in 2020. The stock package, which will be paid over three years, could increase a further $90 million if shares of Alphabet outperform the S&P 100 index. Pichai has received nearly $1 billion in stock grants over the last five years.