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Monday, January 30, 2017

Manipulation: Part 2

Repeating the examples of Part 1 with my take.

1) The Federal Reserve cuts interest rates and promises to keep them low to “calm” Bond investors.  (Bonds, Stocks) &
2) The Federal Reserve/BOJ promises to buy X amount of bonds and common shares per year for 3 years at least  (Bonds, Stocks)

A large percentage of the investing community see this as "artificially" suppressing interest rates and boosting demand for stocks. I have to disagree. While the Fed can control the short term rates, the long term rates have a mind of their own. In fact, every round of QE announcement and follow through has seen long term interest rates rise/stay flat (TLT go lower/stay flat) while withdrawal of QE has caused interest rates to fall (TLT to go up). So how the fuck can the Fed be influencing stock prices by QE when they cannot attain their primary end point?

3) OPEC cuts oil supply to increase the price (Oil).

As the producer of that commodity they have the right to set the price. We have no right to insist they blow up their budgets, run the risk of hyperinflation (Venezuela is already there) so that we can make an extra hiking trip in our inefficient SUVs. 

4) UBS sells stocks from its own inventory during a panic to trigger stop-losses on its customers, in order to purchase them back lower (Stocks)

Stop-loss triggering is used by every professional trader/bank since stop losses became available. If you don't want to be screwed, use mental stops away from common support zones or use options. If you don't like it go play Nintendo, don't play with the big boys. 

5) Between 2004-2010 Goldman Sachs fixes the daily Libor rate 1 basis point lower than it actually would have by selling a large amount of a Libor product to a pre-agreed colluding bank on close. It would only impact products that trade of Libor rate close and not influence any daily trading nor the long term movement of Libor. During this time Libor rose 300 basis points and then back down 300 basis points. (Libor rate)

This is a really good example. Because first it is manipulation and Goldman Sachs should have their balls cut off for robbing people. It also shows that over the long run they have no influence on the direction of Libor rates. Same as for Gold and Silver. They can cause selloffs (similar to example 4 above) but Gold price rose 700% in the 10 year period from 2001-2011. Silver rose 900% trough to peak. That is a massive failure for someone short. Here is another point, If the big banks were consistently short about 400,000 contracts during the bull run...with no counter hedge.....they would be short 40 Million ounces of Gold. That means trough to peak they would have lost 70 Billion. A bit hard to hide.  

6) US Shale producers differ drilling unprofitable wells to help increase price of oil (Oil)

No different than 3 but if you listen to the news channel, Shale producers are somehow are "good" and OPEC somehow "bad".

7) OPEC agrees to keep over producing to bankrupt US shale with the idea of reducing production to bring prices over $200 in 3 years. (Oil)

This pricing out of competitors has been used in every industry in the last 200 years around the world. Depending on exactly how it is done, it may be illegal in some countries. 

8) Home Depot gets its major shareholders to agree not to sell any stock for 3 years…promising a large expense cut, large dividend increase and offer to buy 30% of remaining outstanding stock. Stock increases 100% with 1 year as shorts scramble for cover (HD stock).

Perfectly valid tactic. In fact, part of the reason stocks have gone up so much is due to the buybacks by the S and P 500 companies over the last 8 years. 

9) US Shale producers hedge 80% of their oil production for 1 year by shorting 500,000 contracts (worth 27.5 Billion) of oil futures as prices briefly touch $55. Prices remain depressed for some time (Oil)

This has actually happened. The producers are hedging major amounts and this will likely keep a lid on prices. So the producers (in this case oil) are the commercials on the COT, and they have been so badly burnt that when they once thought anything under $90 was a bad price, now think $55 is a great price. Their hedging is depressing prices and the dollar amount is higher than Gold shorting, yet this is rarely compared to Gold shorting. 

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