Market Manipulation – You Bet!

Market Manipulation Concerns Investors

Once in a while I receive emails from worried investors who complain about market manipulation. I always find this somewhat surprising because I honestly thought everyone understood that markets are manipulated.

This is of course just my opinion but after investing for almost 4 decades I thought is was pretty obvious. Market manipulation has been around since the days of Rome when they traded everything from livestock and slaves to gold. What I cannot understand is why this is such a concern for investors.

However while markets may be manipulated, the long and intermediate term markets are not. No one truly knows what events are next or what calamities await the world. I believe that stock market collapses like Monday are not known in advance. The same with all big collapses throughout stock market history.

But for example, the move by the Federal Reserve in 2009 to begin Quantitative Easing 1 which was followed by QE2 in 2010 was absolute market manipulation. I was pretty sure everyone saw this or certainly they should have. The Federal Reserve wrote about their plans and announced their plans to not just America, but the entire world.< /br>

The same holds true for the announcement that Quantitative Easing 2 would be ended. I was again under the impression that everyone knew that there was a very good chance the market might tank after June.  The article I wrote back in April called “Dance Near The Exit” I thought summed up the whole QE issue and I know there were lots of parallel articles like mine on probably dozens of financial websites. Therefore I figured everyone knew market manipulation was taking place.

I have a lot of retired broker friends and they would be the first to admit that markets tend to be manipulated, but not intermediate or long term direction. As well crashes are crashes.

Market Manipulation

Is Market Manipulation A Conspiracy?

Even Buy and Hold Is Market Manipulation

The whole concept of buy and hold could be considered a manipulation. By having people invest their money in corporations, which is the BUY part and NOT take their money back out, which is the HOLD part,  publicly traded corporations have a stable and steady capital base to work from. I think every investor has heard how they should just buy a quality company and hold it for long term investing and not worry about the day to day swings in the market. Well that in itself is market manipulation.

Companies sometimes announce a share buy back and sometimes they do this when their shares are down or in what they think is under valued share prices. By doing this and announcing it, they are manipulating their stock.

As well computers today are programmed to trade within pennies, at support lines, at resistant lines, at volume levels, at percentage levels. These trading companies like Goldman keep their algorithms secret for obvious reasons. But this created high volatility and can move markets or individual stocks or sectors.Indeed during periods such as August 8 and again today August 9 when the market has had wild swings, these computer programs can exacerbate the swings which increases market volatility.

This doesn’t mean that we as individual investors cannot earn a profit by learning how to view the market and the conditions of  the overall market, sectors, volume, currency swings and the world economies in general. In fact these computer programs are assisting investor such as myself who sell options to garner the larger premiums. Thanks to volatility option premiums are larger making my profits better.

Gold has to be another prime example of market manipulation. The rise in Gold is certainly being manipulated, but at varying times it is also being driven by fear and the movement of the US dollar and other world currencies. That doesn’t mean I cannot enjoy a great profit in gold shares or by trading specific gold stocks or ETFs.

Market Manipulation – Summary

Just my opinion but I don’t get too worked up over market manipulation. It was around long before I was born and will certainly be here long after I am gone. Instead I think the best piece of advice is to accept that market manipulation is obvious and as investors we should be prepared for risk and learn how to protect capital.

That too is a lesson Warren Buffett’s preaches. Learn to not only accept market manipulation but to see it for what it is, opportunity.

  • BillP

    I agree 100%, Teddi. I don’t think it’s ILLEGAL manipulation that’s going on for the most part — although certainly there are illegal manipulations that happen.

    Like — local pit traders “gunning” for stops. A stock is going down. It gets to 25.10 and support is at 25.00 and the 200 day MA is at 25.00 also. It doesn’t take a genius to know that there are going to be stops at 25 or 24.90. So… the locals pick a slack time (lunch time maybe?) and sell short to move the market just .20 … Sure enough the market dips to 24.90, and the stops are hit. That moves the market to 24.70, where the locals cover their shorts, and the stock is back at 25.00

    Things like that.

    But you are very right that medium and longer term the market is NOT fixed.

    BillP

  • BillP

    I agree 100%, Teddi. I don’t think it’s ILLEGAL manipulation that’s going on for the most part — although certainly there are illegal manipulations that happen.

    Like — local pit traders “gunning” for stops. A stock is going down. It gets to 25.10 and support is at 25.00 and the 200 day MA is at 25.00 also. It doesn’t take a genius to know that there are going to be stops at 25 or 24.90. So… the locals pick a slack time (lunch time maybe?) and sell short to move the market just .20 … Sure enough the market dips to 24.90, and the stops are hit. That moves the market to 24.70, where the locals cover their shorts, and the stock is back at 25.00

    Things like that.

    But you are very right that medium and longer term the market is NOT fixed.

    BillP