# Are stock markets "manipulated"?



## jargey3000 (Jan 25, 2011)

Or, should I ask: to what extent? and by whom? Any comments, examples?


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## cainvest (May 1, 2013)

Short Answer: Yes
Long Answer: Google "stock market manipulation".


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## jargey3000 (Jan 25, 2011)

I know. Hoping to get some input from the crowd in here.


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## tygrus (Mar 13, 2012)

jargey3000 said:


> Or, should I ask: to what extent? and by whom? Any comments, examples?


Well there is the HFT scam we all know about, but that effect is minimal if you are not a day trader.

But the bigger issue is how stocks are marketed. The banks and brokers sell you on buy and hold forever, but then they and the traders and hedge funds trade it like a banshee while mom and pop add stability and liquidity to the market.

The other issue is if the market is such a good place to be, why don't companies buy each others shares? I mean Apple is sitting on 500 billion in cash, why does it buy shares in its rivals to make sure it has all the bases covered. You never see that.

The other issue I have seen is when I worked in the corporate world, when the executives were given stock or options or warrants, they never held them, they cashed them in immediately.


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## RBull (Jan 20, 2013)

Yes. What kind of input?


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## fatcat (Nov 11, 2009)

RBull said:


> Yes. What kind of input?


:biggrin:


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## james4beach (Nov 15, 2012)

Yes, stock markets are manipulated. The biggest player in this, by far, are the central banks. This is an ongoing, long duration manipulation.

Within central bank manipulation, there are two categories I can think of.

*One: indirect*, money printing and liquidity operations. Low interest rates (e.g. Federal Reserve's 0% policy rates) means that global markets get flooded with money. It means that money is cheap to borrow on margin, but system-wide there is just a lot of excess money sloshing around. This money finds its way into assets, and invariably into the stock market. QE is an additional mechanism to flood the global market with excess liquidity. All of these central bank actions result in upward pressure on the stock market, and artificial price inflation in stocks.

*Two: direct*. It has also been revealed in recent years that central banks directly buy stock index ETFs and stock futures. The Bank of Japan, for instance, has bought $100 billion (CAD) worth of stock ETFs. Their central bank now owns so many Japanese stocks that they are the second largest institutional holder behind the state-run pension plan. Clearly this is a direct, massive manipulation of stock prices.

The US Federal Reserve's involvement in direct stock purchases is less clear, but there is evidence that they are involved in the same game. The best evidence of this is the existence of a new program, that only appeared a couple years ago, called the Central Bank Incentive Program from the Chicago Merc exchange. This is the futures exchange where US stock index futures are traded. The Central Bank Incentive Program was created to help facilitate the increasing amount of business with central banks which trade in the CME's products.

Central banks such as the Federal Reserve do not have open books, they aren't transparent or auditable. They do engage in secret programs that take years to come to light. Since the CME has this Central Bank Incentive Program, we know that some central banks are buying stock index futures. Whether it's the Federal Reserve, ECB, Bank of Canada ... I don't know.

Either way I think it's very clear that central banks manipulate stock prices. It's a combination of low interest rates, QE, and direct purchases of stock ETFs and index futures. All of these push the prices of stocks above the price they would normally be, and cause you to overpay.


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## BoringInvestor (Sep 12, 2013)

tygrus said:


> The other issue is if the market is such a good place to be, why don't companies buy each others shares? I mean Apple is sitting on 500 billion in cash, why does it buy shares in its rivals to make sure it has all the bases covered. You never see that.


I couldn't imagine shareholders of Apple would want the company to invest it's earnings into a competitor. Seems counter intuitive.


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## tenoclock (Jan 23, 2015)

Successful companies with excess cash like Apple will not invest that in the stock market because the Return on Investment in reinvesting to grow their business operations is almost always greater than the stock market. I know many rich people due to my line of work and most don't use the stock market to get wealthy, most have their own businesses and any excess cash they get, they reinvest in their own businesses to grow it. Only when they retire or stop growing will they dabble in the equities market a bit.


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## gardner (Feb 13, 2014)

Companies with free cash will often have a venture capital arm that they use try try to develop new complimentary businesses. They will use free cash to directly buy competitors or complimentary businesses. Often the free cash is tied up in Ireland or the Caymans because it can't be repatriated without a tax hit and can't be invested in anything easily.


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## BoringInvestor (Sep 12, 2013)

gardner said:


> Companies with free cash will often have a venture capital arm that they use try try to develop new complimentary businesses. They will use free cash to directly buy competitors or complimentary businesses. Often the free cash is tied up in Ireland or the Caymans because it can't be repatriated without a tax hit and can't be invested in anything easily.


I can understand buying out a competitor or complimentary business, but not the way it was described earlier in this thread (buying shares in a competing firm).


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## Rusty O'Toole (Feb 1, 2012)

It's been front page news in every financial paper and program for years. The government manipulates the bond market, stock market, and money market all the time and has for years. Every time they make an announcement, financial experts go over it with a fine tooth comb since they know the government has more effect on markets than anything else.

There are also big banks, hedge funds, investors, and financial institutions that do the same. 9 times out of 10 when some famous financier does an interview he is 'talking his book' in other words, trying to induce someone to do something to his advantage, such as buy something he wants to sell or sell something he wants to buy. Or vote for some law that will send him a few more billions.

The games never end. Go a little deeper and learn about the London Gold Fix which was exactly what it sounds like, and a lot of other illegal fixes.

A site called Zero Hedge features this kind of news, they get the stories from a few days to 1 1/2 to 2 years before the main stream media. The main stream media seems to be careful not to expose these stories until it is too late to do anything about them.


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## james4beach (Nov 15, 2012)

Right and let me remind everyone, the financial media (TV, newspapers) regularly cheers the central bank's manipulation of the stock and bond market.

For instance, the main stream media applauded QE for the boost it provides to the stock market. It is also now well known that there is a very high correlation between QE and the S&P 500.

As an investor, you must be aware of this manipulation happening. There are big consequences; for instance, without QE, there's a risk the stock market will decline. Similarly, if central banks stop buying stock ETFs and futures, the stock market may decline.


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## Just a Guy (Mar 27, 2012)

There is, of course, a very good video on this...

https://m.youtube.com/watch?v=W90V_DyPJTs


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## tygrus (Mar 13, 2012)

BoringInvestor said:


> I can understand buying out a competitor or complimentary business, but not the way it was described earlier in this thread (buying shares in a competing firm).


Well imagine you are blackberry and you have about a snowballs chance in hell of taking any significant amount of the iphone business. Wouldn't it make more sense to invest in the guy who has the market share so you don't implode one day ala Nortel and be chased by lawsuits for 10 years?

I think shareholders would be ecstatic if you told them our business has grown as far as it can, we will continue to offer product X and make reasonable improvements, however, we made a strategic investment 5 years ago that ensures our survival and income growth irregardless of market share. Why is business an all or nothing approach? You do whatever you need to do if you want to protect your business. And nobody says it has to be a competitor. It can be a supplementary business like Amazon investing in Fedex etc. Or why not just buy the S&P or TSX index so you have some cushion?


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## tenoclock (Jan 23, 2015)

tygrus said:


> Well imagine you are blackberry and you have about a snowballs chance in hell of taking any significant amount of the iphone business. Wouldn't it make more sense to invest in the guy who has the market share so you don't implode one day ala Nortel and be chased by lawsuits for 10 years?
> 
> I think shareholders would be ecstatic if you told them our business has grown as far as it can, we will continue to offer product X and make reasonable improvements, however, we made a strategic investment 5 years ago that ensures our survival and income growth irregardless of market share. Why is business an all or nothing approach? You do whatever you need to do if you want to protect your business. And nobody says it has to be a competitor. It can be a supplementary business like Amazon investing in Fedex etc. Or why not just buy the S&P or TSX index so you have some cushion?


Blackberry or similar companies do not have the cash to invest in the stock market. Whatever cash they have is borrowed long term from lenders such as banks and other lending institutions. Most companies that do have a lot of cash reinvest in improving their business and profitibility because the return on investment is much much greater. Conservative management might manage liquidity by tying a % of assets in bonds and stocks and money market securities to meet short term and medium term liquidity requirements. Other companies might reinvest that cash into opening new facilities and expanding operations which would generate profits (and not dividends). Companies that do not want to expand as fast would want to pay out dividends with that cash. A host of different reasons.


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## Eclectic12 (Oct 20, 2010)

tygrus said:


> ... The other issue is if the market is such a good place to be, why don't companies buy each others shares?
> I mean Apple is sitting on 500 billion in cash, why does it buy shares in its rivals to make sure it has all the bases covered. You never see that.


I'll have to dig out which annual report was listing 30% of the business income from business operations and 70% from their investment portfolio.
Insurance companies as a group also have big investment portfolios to fund their future payouts.

As for Apple ... you'll have to ask them why they don't want to use their money to get into the investing business.




tygrus said:


> ... The other issue I have seen is when I worked in the corporate world, when the executives were given stock or options or warrants, they never held them, they cashed them in immediately.


On one hand, where the executive plans allows the immediate cash in ... keeping shares runs the risk that the shares can't be sold for enough to cover both the CG and taxable benefit taxes. So I can understand why they may not choose to.

On the other hand, I wonder how many companies all exercise option then immediately cash out. Most of the annual reports for Canadian companies I've read list things like "shares held", "values *required* to be held" and "Complies with Share Ownership Requirements".

Some companies require the CEO to own 5x their salary in shares while others have a vesting period for options then a holding period before the shares bought can be sold.


It makes for an interesting read of the corporate compensation section of the annual report.




BoringInvestor said:


> I can understand buying out a competitor or complimentary business, but not the way it was described earlier in this thread (buying shares in a competing firm).


Depends on one's business as well as what the corporate culture is good at.

As I say ... insurance companies are an example where during the fall of 2008, market performance was listed as a concern for the insurance company's investment portfolio.



> Guloien, who took over the top job in May, has said Manulife needs to build its capital base to “withstand the most odious circumstances” caused by stock declines, and to satisfy global regulators ...
> Manulife said net income climbed 76 percent to C$1.77 billion, or C$1.09 a share.


http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNqmEvhepGYw


Cheers


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## Rusty O'Toole (Feb 1, 2012)

Just a Guy said:


> There is, of course, a very good video on this...
> 
> https://m.youtube.com/watch?v=W90V_DyPJTs


"What's important when you're in that hedge fund mode, is to not do anything remotely truthful" -Jim Cramer about 5 minutes in.


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## Rusty O'Toole (Feb 1, 2012)

Blackberry invested in new product and new software and now has the best most secure product in the industry. But you aren't going to hear about it in the main stream media.

They were BANNED in Pakistan because they refuse to give the government a back door into their customers' phones, the only company to do so.

This is why the US government won't let the media do anything but slam Blackberry.

http://mobilesyrup.com/2015/07/24/p...al&utm_source=twitter.com&utm_campaign=buffer

So, you can have a secure Blackberry or an Android you can hack in a split second

http://www.npr.org/sections/alltech...-phones-would-let-hackers-in-with-just-a-text

Which would you rather have? Which do you think they would rather you have?


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## sags (May 15, 2010)

Everyone expected the Saudis to cut their oil production. 

The Saudi insiders knew they weren't going to, and they knew what would happen to the price of oil.

Is it beyond the realm of possibilities that some found ways to financially benefit themselves from the knowledge ?

Or are they the most morally upright group of people on the planet.


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## Eclectic12 (Oct 20, 2010)

tenoclock said:


> Blackberry or similar companies do not have the cash to invest in the stock market.


BB doesn't have the cash now as their market share/profile has tanked. When they still had market share - they had at least $2 billion in cash, waiting for use.

Then too, before Microsoft started paying dividends, activist shareholders were railing at the pile of cash.


It is not typical over every company but there there are some companies that have to decide what do with their cash.


Cheers


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## tenoclock (Jan 23, 2015)

Eclectic12 said:


> BB doesn't have the cash now as their market share/profile has tanked. When they still had market share - they had at least $2 billion in cash, waiting for use.
> 
> Then too, before Microsoft started paying dividends, activist shareholders were railing at the pile of cash.
> 
> ...



Yes but there is a reason why companies hold cash, maybe it was for a debt covenant. Maybe it was for in an upcoming R&D project. Maybe they were holding it to acquire new assets, new facilities or buy startups. Why would they want to invest in the stock market if their business model is successful and producing greater returns than 7% that they would get in an index fund? Most businesses, and even most people will get higher returns on investment outside the stock market if it has anything to do with running a business and reinvesting profits (or waiting with that cash for new profit making opportunities) And the cash isn't sitting idle, it's still earning interest.


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## Eclectic12 (Oct 20, 2010)

Sometimes ... in the case of Microsoft, the analysts were pointing out that there was no debt covenant, upcoming R&D yet year after year after year there was piles of cash. 

I'm not sure on what basis Microsoft decided to follow the analysts recommendation to start paying dividends.


Cheers


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## Rusty O'Toole (Feb 1, 2012)

Somebody bought 400 put options on one airline 2 or 3 days before 9/11. The authorities never did figure out who, although it is trivially easy to trace them. There were a number of shady stock and option transactions in airline and insurance that week.


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## dogcom (May 23, 2009)

And wasn't it Dick Cheney who allowed oil companies to drill in the gulf without a relief well and then bought out the biggest oil cleanup company in the world about a month before the gulf spill.

http://www.salon.com/2010/05/03/dick_cheney_halliburton_oil_spill/


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## BoringInvestor (Sep 12, 2013)

Rusty O'Toole said:


> Somebody bought 400 put options on one airline 2 or 3 days before 9/11. The authorities never did figure out who, although it is trivially easy to trace them. There were a number of shady stock and option transactions in airline and insurance that week.


Just 400? That seems insignificant.

Looking at American Airlines, today there have been >1,200 out-of-the-money puts traded with a July 31st expiry.
If we look at future expiry dates we can add thousands more.


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## Rusty O'Toole (Feb 1, 2012)

I mean ONE transaction. Who buys 400 puts with a few days to expiry? Maybe it was entirely innocent but it would be interesting to know. Right after 9/11 I saw a couple of stories about this but no follow ups.


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## Rusty O'Toole (Feb 1, 2012)

If you really want to see market manipulation, look at what the Chinese government is doing right now.


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## james4beach (Nov 15, 2012)

I think some of you guys are failing to see the forest for the trees.

The amount of manipulation by the central bank(s) far exceeds any bit of minor manipulation on individual stocks by traders. The effect of their printed money, and securities purchases (like buying stock ETFs and stock futures) has an enormous effect. Same goes for their massive intervention in the bond market. In either case, _they are inflating asset prices_ -- both stocks & bonds.

These central banks have been pumping stock and bond markets higher for the last 7 years in an unprecedented way. This is historically unlike any previous period in western economies. The manipulation *forces* you to over-pay for any of your purchases. That's the manipulation you should be worried about, because it's going to cause you to lose money no matter which stocks you're buying.


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## lonewolf (Jun 12, 2012)

Yes there is manipulation even the Clintons were in on it with Goldman when Bill Clinton was in office (white water). The job of the president is to make sure the law of the land is with held. If the head of he country was cheating & a lot of people in the U.S just love the Clintons what do you think the odds are of stopping manipulation? Even the flash crash orders were cancelled because the powers that be said they should not of went through. Someone makes a good call & the player is punished for it.

Although the markets are manipulated the powers that be are no match for the cycles in human psychology & the markets will have there way.


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## Rusty O'Toole (Feb 1, 2012)

" The job of the president is to make sure the law of the land is with held. "

Don't you mean upheld? O wait, I see what you did there.


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## dogcom (May 23, 2009)

All of Europe will have to have bail in legislation passed this summer and Canada and the US already have it. We all have to remember if we don't hold it we don't own it so all those one's and zero's we have in brokerage and bank accounts may not be worth the pumped up manipulated gains we all have received. One needs to get registered and get their stock certificates in their hands of the companies you own. 

You have to wonder why they are pushing everyone into paper and a cashless society as well and yet are very interested in the complete manipulation of the PM markets. Last Sunday night they sold 2 billion dollars in paper gold in 2 minutes before Shanghai opened which is stupid if your looking to get the best price and then busted all the stops since they know where they are and took the longs from those stops to wash their positions. I am just saying the manipulation of everything is completely out of control and when it breaks it can't be good.


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