don't let the headline fool 'ya .. system is corrupted the question i have is it beyond repair .. and are there enough folks out there who give a damn?
Dec 9, 2009 08:30 AM
For those unacquainted with the term "pump and dump", it refers to the practice of buying shares of a stock, then hyping the value or expectation of the stock with rumors via public forums to generate buzz and increase the demand for the stock. After the stock price climbs from this artificial demand, the pump-and-dumpers sell with their gains, taking profits while the new stockholders are left holding the bag to face reality. I have developed a conspiracy theory that it is possible that the US government may be artificially inflating the market with the assistance of some insiders for the grandest pump and dump scheme ever devised. Allow me to present the basis of my conspiracy theory with evidence and analysis.
First, here are some basics. For a given stock or fund, the price increases when there are more buyers than sellers, and the prices fall when there are more sellers than buyers. This may not make sense to a newbie since a stock gets sold from a buyer to a seller, which implies a balanced number, one share buyer for each share seller. This equation only applies to the actual transactions. It is the demand that exists before the buy/sell transactions that drives the price. Therefore, if more people are placing orders to buy a stock than the number placing orders to sell that stock, the price increases to reflect the buying demand. If more people are placing sell orders than buy orders, the price drops to move the stock (selling demand). Investors normally buy and sell stocks based on the perceived future value of the stock, which is normally based on the health of the corporation that issued the shares (or a recent or anticipated event). The health of the corporation determines the dividends, growth potential and the desirability of owning a share of that company. So why are the stock prices climbing? As just discussed, there have been more buyers than sellers.
The market has been steadily climbing with only the occasional short-duration corrections since March of 2009. Consider the drivers of this climb. Improving job market? Nope. Consumer spending? Nope (except for some subsidized by government programs). Lower future tax expectations? Nope. Promising future outlook? Nope. Political harmony? Nope. Healthy world trade policies? Nope. World peace? Nope. Cure for death? Nope. Undervalued stock prices? Nope (maybe a few back in March). Earnings improvements? Some credit goes here, but not because of sales. Largely from cost cutting and because earnings were so bad previously (a relative improvement). So why are there more buyers than sellers, and who has been doing the buying and selling?
In 2007-2008, investment portfolios (401Ks, IRAs, etc.) were hammered as the market tanked. This dropped the stock prices considerably, which is good for the classic buy low, sell high strategy if you can afford to get in while it's low. Did everyone jump in immediately and buy stocks in March 2009 after the market hit bottom? No, we couldn't. What could have been used to purchase stocks? Our portfolio holdings were worth little since they had recently tanked. Even if those holdings were sold to buy others, it would not generate a net capital increase. The net sales and purchases would all balance out with some healthier stocks rising and some weaker ones dropping. The market as a whole could not rise significantly without newly added capital, which can normally only come from strong economy in a free market system as the result of produced and purchased goods and services. That is why stock markets classically move with some correlation to their economies. Did the capital come from private home equity loans or capital gains from real estate sales? Considering the residential real estate implosion, I don't think so! Did the capital come from cash savings? With the unhealthy job market, almost everyone is either saving as preparation for a possible job loss, or worse, spending their cash savings because of it. Also, our heads were still reeling from the recent market crash so it's not like everyone was primed to jump back into the game. Therefore, almost nobody was investing in stocks, but stock prices climbed because someone was buying. Who?
Search the term "trillions missing from treasury" via Google, look at the results, and you will find that it is well documented that trillions of dollars are missing from the US Treasury. Anyone that has worked with government monetary transactions knows that a dime does not change hands without rigid process and a detailed paper trail. Consider the paperwork required to pay your taxes as an example. Yet somehow, trillions of dollars are missing. To appreciate a trillion, write it down. It is a one followed by twelve freaking zeroes ($1,000,000,000,000). Now consider what a few trillion would do when injected strategically into a stock market that has hit bottom. Someone with a few trillion dollars could make a lot of profit buying low and selling high.
Such a scam could be made more effective with even more money available for market infusion. Moving massive amounts of money would not go unnoticed by the insiders so it would be necessary to get them onboard by making the deal attractive to them. Bail out money was one of the obvious incentives. That is why the executives of failed firms are allowed to receive their bonuses. The money was loaned without stipulation. If the bail out money had the proper conditions, such as being allocated for only repairing damage rather than rewarding incompetence, it would not benefit the cooperative executive insiders. Individuals with good credit histories cannot get large loans without explicit, binding agreements about how the money is used, but these firms that had already demonstrated faulty judgment were given unconstrained massive loans. Many of the highest involved government officials are former, top-level executives of the firms being bailed out. They are all in bed together.
Still, investing BIG money during a recession can be a risky venture. To get the Wall Street insiders onboard, rescued bonuses alone would not suffice. There would need to be some guarantee about their risk. Knowing when to buy and sell with a high degree of certainty controls that risk. Now consider that the value of the US dollar has been shrinking for years as a direct result of government control, and its decline has been very steady in 2009. The government has kept interest rates at a minimum level, and claims that it will continue to do so for the near future, while simultaneously claiming to have a strong dollar policy. With extremely low interest rates, climbing stock gains look very attractive compared to money wasting away to inflation in a bank account or money fund earning almost no interest. This draws private investors. Likewise, when interest rates climb, stocks become less attractive because of their relative risk/reward ratio. Since the government decides when the interest rates change, it effectively controls when the stock market will reverse direction. As an added bonus, the government also controls the distribution of stimulus money that has been helping to artificially prop certain economic indicators. This could provide for some additional strategic timing insight to insiders such as knowing which programs will be extended before everyone else. That is how the insiders could be brought onboard.
Keeping the dollar weak is a tool to help encourage investing in stocks and commodities. This allows carry traders who use cheap dollars to buy stocks, treasuries and commodities. Although our government states that it has a strong dollar policy, it does nothing to strengthen the US dollar. In fact, it often does the opposite as demonstrated by the massive currency printing. The currency in circulation has increased 120% in the last year. Action speaks louder than words.
To get the general public to invest, what could be more alluring than a sure thing such as a stock market that appears to only move upward? Look at this graph of the New York Stock Exchange Composite over the last 20 years for some perspective on the relative market surge that has happened in 2009. This steep climb rate trounces that of the thriving late 90's, but did our economy justify this? No way!
Headlines often affect the way that the market reacts, and many positive headlines helped to induce confidence in the market. However, if the market demonstrates resilience against bad news, that can really increase investor confidence. Bad news is minimized and only the bears complain. Somehow the market rallied on days even when the financial news headlines revealed that car sales plummeted after Cash for Clunkers ended, the trade deficit worsened, China threatened tariffs (in response to ours), unemployment growth disappointed, GDP growth news revised down, TARP justification admitted as worse than originally stated, etc. There have been many head-scratcher articles released by honest market analysts because it does not make sense. The market has been immune to bad news, which is extremely unusual.
One of my favorite headlines was the announcement that the recession was effectively behind us. Note that the bottomed interest rates, stimulus spending (such as mortgage assistance programs), and extended unemployment benefits have been continued, apparently without justification. If the economy has been repaired, why keep it in the expensive ICU (intensive care unit)?
Another popular theme in the financial headlines is that there is still billions sitting on the sidelines. This suggests that the market has much more climbing potential because of the uninvested private money. It has also been disclosed that insiders have been selling at record rates for months (Reference 1, Reference 2). If they have been selling, then outsiders must have been buying because the stock market moved upward. Since most people took a beating on the last market crash, and they have apparently been buying from the insiders, then how much money could really be sitting on the sidelines? These headlines must be trolling for the remaining suckers.
The entire rally of 2009 has been notably low on volume. Remember that it does not take a lot of extra buyers to notch the stock price up a tick. It only takes more buyer demand at each tick. The trending upward movement on consistently low volume also demonstrates the possibility of orchestrated flow. A recent article by TraderMark of Seeking Alpha pointed out the notable market spikes on Monday. This gives the trading week a nice optimistic start, doesn't it? Another notable trend is last minute volume spikes that happen almost daily at market closing. These volume spikes cause an overall rosy picture because the closing stock prices nudge up lifting those performance lines on the charts.
The low volume has everyone wondering, but it would be a symptom of such an operation. If all of the insiders went heavily into the market at any time, they would only be selling to each other (that was surely happening at the beginning to get prices moving). They never go in too heavy because they only want to go in enough to get the tick moving up, and then sell to the suckers that buy as a result and then do it again, drawing more private investors into the market. The insiders make iterative profits on the way to the big sting. They can do this with little risk because they know that the market will not move south until they let it. That is why the market seems immune to all forms of poison.
Note that one major indicator that cannot be directly controlled is the unemployment situation. It has not done so well because it cannot be manipulated with program trading and headlines. Saying that the job situation is getting/will get better did not get anyone hired. The best that they could do is say that jobs were still being lost, but at a slower rate. Of course it slowed down after paring down to a skeleton workforce. Saying that the economy, GDP, credit crisis, housing market, etc. are better can effect higher stock prices, however. Hence, the discrepancy.
You are probably wondering why people would get still onboard when the job and consumer spending indicators are screaming that something is amiss. Many people do not know much about the market. If they bother to look at a chart, it's a price chart, and those charts have been rosy. They invest based on what their peers and headlines are telling them, "the market is hot". They listen to their financial advisors. Common financial advisors are pressured into recommending stocks because of the momentum. Otherwise, they would have to explain why your buddy has been making super gains, while your account balance stagnates. By the way, if your advisor has not advised you to make some kind of gold investment, fire them right now.
When the US dollar value changes direction or interest rates are raised, it is widely known that stocks will crash. Guess who decides when this will happen. This is like being the puppet master. Sell off to the masses, maybe even take some last minute short positions, change the direction of the dollar and slam the door.
I know it is a wild and complex conspiracy theory, but the data supports it. That does not mean that it is the truth, but it is a theory that merits consideration. The founding fathers of our country intended for the people to control the government, not the other way around. When someone controls the purse strings of the population, they are its master.
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