WHAT IF MARKET MAKERS DID THIS?
Posted by politicalpartypooper on January 5, 2009
What if the Uberwealthy caused the market to swoon?
Normally, I’m not into conspiracy theories. But knowing what I know about the stock market, I have to ask myself this question. Is it possible?
If I sincerely evaluate our current economic condition, I find myself admitting that it is definitely possible for one group of interests to make the entire market crash for their own purposes. Why would they do that? To make money, of course; lots and lots of money.
Here’s how you’d do it. First, you have to be filthy, filthy, stinky rich; to the point that on a windy day, your odor makes an entire town smell like greenbacks. There are hundreds of people like this in America and across the globe. One group of such people could set a trend in not just one sector of the market, but the entire market. We call them “market makers”. People like Warren Buffet. They buy their stocks at discounts, and sell at premiums. If the Dow Jones Industrial Average hit 14,000, and you were one of twenty wealthy bastards selling huge gobs of stock at once, essentially, the market’s smaller players (mutual funds) and individuals (you and me) might begin to sell off as well. However, the smaller players are always at least one step behind the market makers, and often many steps behind. Especially because as a Financial Adviser, I tell my clients to keep owning what they bought because what we bought together was a good company when we bought it, and there’s no reason to believe that in the space of three months, they’ve suddenly forgotten how to manage.
My clients will recover, nicely, I think. But those that sold in the last five months may never recover. The Uberwealthy? They made the market. They sold high, and now, they are buying low. Basically, if this occurred, they are stealing the profits of many who panicked and sold stocks low. An unregulated market such as ours could conceivably give birth to such a scheme that would play out repeatedly, and never be discovered.
You have to ask yourself; how does the Credit Default Swap scheme, and sub-prime mortgage sectors take out an entire market? We’re not just talking about the financial sector of the market, we’re talking about EVERY sector.
Yes, we can watch CNBC and listen to the talking heads discuss confidence and credit freezes, but seriously, the corporations on the Dow Jones Industrial Average would never, ever be affected by a credit freeze. They might be affected by a lack of consumer confidence, but to the tune of fifty percent? It’s not likely.
Here’s why the credit freeze shouldn’t have affected the DJIA. These corporations are so huge, that they rarely require borrowing for growth, except to use for write off purposes and mergers or equipment purchases. But if they do require borrowing, they won’t be headed to the Fed, or to their local bank for a loan. A bank lending freeze could never stop a major corporation from borrowing money. The companies on the DJIA issue their own Corporate Bonds.
Bonds are nothing more than a fancy promissory note. The corporation promises to pay you so much interest every year, in exchange for the privelege of borrowing your money. Bonds are sold at $1,000 each, but it’s usually pretty hard to buy less than five thousand dollars in bonds. These bonds have a maturity date, at which time, the last interest payment, and the principal are due. A Ten Year Corporate bond paying five percent would cost at issue $1,000. Over the ten year period, that bond would pay five hundred dollars in interest. At Maturity, the holder of the bond will receive $1,050 (last interest payment and principal). Banks may be involved in helping these corporations to sell their bonds, but no more than brokers and dealers are. To make a long story short, I’m not buying the credit freeze as being a part of the reason why the DJIA has suffered so much in the last year. Major corporations issue their own bonds; they have no need of banks for long or short term borrowing. However, they could be affected by consumer confidence, which would cause you and me to refuse the purchase of their bonds because we do not believe they are a worthy credit risk. This has not happened in the actual market. Bonds are selling as well as they ever have in any bear market.
We all know that the stock market is a psychological animal. Unfortunately, so do the market makers. If a group of greedy, less-than-ethical “makers” decided to make a run on a certain sector, they would certainly succeed in bringing the rest of that sector with them. Remember, these market makers trade in blocks of stocks and bonds. They don’t buy one hundred shares. They buy hundreds of thousands of shares. To accomplish a swoon in the entire Stock Market would be no more difficult than to cause one sector to swoon. In our current case, market makers would not have needed to make one sector swoon, as that would have been accomplished for them in the Financials sector. What better to time to hide an attack on the global markets than during a crisis which threatens to take down one sector?
Let’s face it. We’ll never know for certain. But you need to know that there are market makers in our stock market. CNBC and our government believes these people are benevolent, and would never purposely cause the entire market to swoon. Seeing what I have seen in the last year, I wouldn’t give the market makers that much credit.
This I do know: The Dow Jones Industrial Average is way down, and the only logical explanation is consumer confidence? I’m not buying it. I’m not saying that something untoward occurred. I am saying that it is possible. But it’s also posible that the market makers screwed up totally in the last year, and unwittingly took every American investor with them. It’s just that I’m having trouble believing the “unwittingly” part.