Sunday, July 28, 2013

Markets, More Lies And Munipulation

To say the market is rigged is an understatement. After over 30 years of trading commodities, I will flat out state without any reservations that lies and manipulation run rampant. If you think anyone is looking out for the small independent trader you are wrong. An unholy alliance of the Federal Reserve, the government, and the too big to fail has left the rest of us in a precarious position. For the big boys, its insider information, and computer trading, this includes computing patterns that exploit where stops are placed, this improves their ability to wash the weak out of their positions.

The Plunge Protection Team (PPT) is not some urban myth or Oliver Stone-style conspiracy theory. It is hidden in plain sight, even though the U.S. Government prefers to be tight-lipped about it. The PPT was born out of the 1987 crash, it is formally known as the Working Group on Financial Markets, it was created by Executive Order 12631 and signed on March 18, 1988, by President Reagan. Just imagine the type of reversal Goldman Sachs and JP Morgan backed by the Federal Reserve can generate with a concerted effort to buy S&P 500 index futures at crucial support points late in the day, it is more than enough to turn the markets from red to green in the blink of an eye

Following the 2008 collapse, the market started showing some odd patterns and many of us saw these as the result of what we called the "plunge protection team" this team appears to have morphed into a full-fledged market manipulation vehicle over the years. When stocks like Amazon trading at an astronomical P/E miss earnings and actually lose money it is hard to explain how they reverse after hours losses to close the next day posting a new record close. May I suggest that the market has become so distorted it no longer reflects reality.

Promoting and linking this all together is the idea that higher equity prices reflect a strengthening economy and creates a wealth effect that drives consumer spending, with this in mind those pushing hope and confidence are all in. This is what drives the market as the souls in charge amass a fortune doing "god's work" by creating money out of thin air. The defense or argument that consumer confidence and the economy would be in far worse shape if "the to big too fail" had not manipulated the markets higher, is full of holes, and their motivation far less than noble.

The higher market prices mask many of the weaknesses we have created in the system while keeping intact pension funds and large banks higher prices have addressed none of the real problems, but merely set us up for a bigger fall. We have created an unsustainable house of cards that at some point will collapse under its own weight. While many investors are skeptical of the ever upward moving market any bears that put a toe into the water tend to be very timid and run tight stops, making them easy targets, and accomplices to those wishing to manipulate the market ever higher.

All this is supported by a mix of a "cheerleading" as teams of media shows spout market wisdom 24-7, advice from things like "don't fight the Fed" to "it is a risk on day" continues to push the markets ever higher. Beating the lowered earning expectations, or even missing a forecast is a recipe for higher stock prices. With great power should come great responsibility, it would serve those governing the market to take a long term view and realize they would benefit most by protecting and serving those in the marketplace, but greed tends to warp and distort reality.

If you think markets today are distorted, you are right. Distorted by artificially low interest, easy money, currency games, and more. A word to the wise, we have seen in the market a total disconnect from Main Street. It almost looks like those controlling this game are afraid to go into any weekend or holiday without a strong appearing market. Even a bad report on job creation is twisted and spun as to mean more Federal Reserve support for easy money policies and a reason to rally the market. No suggestion of weakness no matter how subtle can exist because it may begin to unravel or blunt the already fragile consumer confidence.

The bottom-line is that the higher the market goes the more vulnerable it becomes to a major collapse and sudden downward move. Lately, we are seeing some large quantities of money flowing across borders and into crazy investments. With each new rally I feel a bit of deja vu, we have seen this all before. Way back in 2007 we saw all stocks moving in unison, always upward, often ignoring both the news and reality, note, it is happening again. This is a reason for caution! If it looks like a Ponzi scheme, sounds like a Ponzi scheme, and feels like a Ponzi scheme, then it is probably a Ponzi scheme.

Footnote; This post dovetails with many of my recent writings. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged. The below post lays out some of the thought presented by economist Allen Meltzer,


  1. The Ponzi scheme only works if investors can be convinced that they will profit. The main difference with the market is that the profits are made by robbing ordinary working families who have no confidence in the promises of politicians, bankers and stockbrokers. I don't see the complete dissolution of the global financial system as a disaster, just an opportunity to reclaim the language of "investing", "profit", "economy", etc. to have real human meaning, instead of measuring them in currency. "Investment" is made in time, energy and commitment, "profit" is much the same as "sustainability", and "economy" means lack of waste. Until we all start speaking the same language, nothing else will change.

  2. An incident that took place in China on Friday is getting little coverage here in America, the market was down 1%, soared almost 6% then finished down on the day. A Chinese brokerage company reported a trading loss of $31.7 million and apologized to investors after errors in order-execution systems sparked the biggest intraday swing in China’s benchmark index since 2009. Everbright said the Aug. 16 incident “brings negative impact to the company’s brand reputation and market image,”

    The incident, which touched off a 53 percent surge in trading volumes in the Shanghai Composite echoed the May 2010 “flash crash” in which the Dow Jones Industrial Average fell almost 1,000 points before rebounding. Internal controls at Everbright were “obviously flawed” and no human errors were detected, the China Securities Regulatory Commission said on its website today. This is one reason that the markets are a dangerous place, if you are washed out with huge losses apologizes are of little value.

  3. I agree with your sentiment and appreciate your hard work here. It's disheartening to say the least. One of the things that scares me is hacking. The algorithms are so sensitive that wild swings can be maliciously manipulated. Sad.