Market's late rebound may revive manipulation rumors

San Diego Union Tribune ^ | Don Bauder

[dalereed]

Market's late rebound may revive manipulation rumors

July 16, 2002

Yesterday's late-hour market snapback is certain to rekindle rumors that the major stock market indexes are manipulated at crucial times – possibly with the Treasury or Federal Reserve as a conspirator.

Whether those rumors are true or not – and I believe they probably are – there is no question that yesterday's late recovery did not involve small investors: It was an institutional phenomenon.

The reason that questions will be asked is that market breadth was much worse than the performance of the indexes. For example, on the New York Stock Exchange, losers topped gainers 3 to 1, although the Dow Jones industrial average was down only 0.5 percent and the Standard & Poor's 500 down only 0.4 percent.

The Dow was down 440 at one point; a steep ascent in the last hour and a half trimmed the loss to 45.34.

It was somewhat reminiscent of Oct. 20, 1987, the day after the huge market crash, when stocks were plunging a second day, but suddenly recovered and closed up 100. But losers topped gainers 3 to 1.

It was widely assumed at that time that index futures were manipulated, perhaps with the connivance of the Fed. It worked. Markets recovered.

Skeptics believe that when the market is sinking too fast, the Fed and/or Treasury call the big houses on Wall Street and tell them to buy index futures and options. The short sellers – who bet the market will go down – immediately smell a manipulation, and hurriedly cover their shorts by buying stocks. Then buyers, believing there is a rally afoot, jump in.

Down volume doubled up volume on the New York Stock Exchange, says Kennedy Gammage of La Jolla's Richland Report. Such statistics "suggest the crisis-control team was at work," he says.

In response to a command from Washington, D.C., the large Wall Street houses bought call options on indexes and on the stocks that have the most weight in the indexes, he says. The houses also buy futures, he says.

European markets closed down 5 percent yesterday, well before the U.S. exchanges closed. The dollar was weak. Foreigners have been pulling money out of U.S. stocks. "The smart money in Europe is skeptical about our markets," says Gammage. Early in today's session, market technicians will try to determine whether overseas money is buying or selling.

"Barring any kind of news that would influence things one way or another, Europe will recover (today)," says E. James Welsh of Carlsbad's Welsh Money Management. He believes yesterday's rally was rigged. "Obviously, somebody came in and did purchasing of S&P (Standard & Poor's) futures," says Welsh.

"It could have been the Fed or the Treasury – as surreptitiously as possible," he says. Then the shorts covered, buyers jumped aboard and stocks zoomed back. The rally could continue, "But the ultimate low in this bear market is quite a bit lower."

Richard Russell of La Jolla's Dow Theory Letters says, "Maybe you can't call it manipulation," but a lot of mutual funds, some huge, jumped in and did buying.

He's skeptical of the rally gathering much momentum. "When you get a big down day and a recovery during the day, it has to go to a plus day, otherwise they are burning up ammunition," he says. "We just saw them burning ammunition."

He's not sure if there is a crisis-control team. Other countries such as Japan openly buy stocks to prop up the market. And many countries try to drive their own currencies up or down.

"Large institutional investors came into the futures area, it spilled over into short covering, and then there was bargain-hunting," says Tom Clutinger of Clutinger Williams & Verhoye.

But although it might have been a technical move yesterday, he believes that stocks are near a bottom and the long bear market – one of history's worst – is near an end. "If there is a summer rally, we will have corporate news to support it," he says.

Cossey Ernest Frank Cossey, former chief executive of TLC America, was sentenced to 57 months in prison yesterday by U.S. District Judge Napoleon A. Jones Jr.

Investors were told they would make 12 to 15 percent a year putting money into largely rundown real estate properties being fixed for resale. TLC raised $146 million from 1,850 mainly elderly investors. But he was spending the money on a lavish lifestyle; it was a Ponzi scheme, in which early investors are paid off with funds from later investors, according to Denise L. Rubin, head of Internal Revenue Service criminal investigations here.

Cossey also placed $20 million of investors' funds into a prime bank note scheme, in which investors are promised huge returns through rapid-fire trading of financial paper offshore, according to Daniel E. Butcher, the assistant U.S. attorney who handled the case.

-------------------------------------------------------------------------------- Don Bauder: (619) 293-1523; don.bauder@uniontrib.com

Copyright 2002 Union-Tribune Publishing Co.

[dalereed]

I think this is much closer to reality than speculation.

[Poohbah]

All it requires is a suicidal degree of stupidity on the part of the big trading houses.

[spoiler2]

The plunge protection team performed this function regularly, during the last two years of the Clinton Fiasco, IMHO.

[bandleader]

Another"Conspiracy Theory"?Did You Ever Hear Of "Bargain-Hunters"??

[Oldeconomybuyer]

How many mutual fund managers were seen firing buy orders from behind the grassy knoll?

[steveo]

ABC radio yesterday said the closing rally was '...due to greedy investors looking for bargains'

[w1andsodidwe]

I believe that program trading could also be an issue. In other words, you have all of these funds setting indicators in the same or similar computer programs that signal when to buy and when to sell. It stands to reason that when the price drops then the buy indicators kick it and it looks suspicious.

I have always believe that program trading should be banned because of this, but a lot of people perfer to trust the program that was designed by a human more than their own instincts.

[dead]

Pay no attention to the man behind the curtain.

[Ciexyz]

Bad news, if the Europeans distrust our markets and are pulling money out.

[DownWithGreenspan]

No doubt about it. But don't forget that "market manipulation" works both ways - up and DOWN. And who benefits when the market goes down, or from a so-called "bad economy"? Democrats.

When the Dow is in full crash mode, that's not "little investors" causing it, it's big investors. Little investors likely don't even realize that people can and do profit in a DOWN market (short sellers, e.g.).

I wonder what the political contributions of the big brokerages and mutual fund companies look like? Couldn't be that they go mostly to Dems, could it? Couldn't be that these scumbags artificially propped up the market during the Klinton years of Fraud and Deceit, and are now doing the opposite in order to harm the economy and G.W.B. and Congressional Republicans as we come up on the 2002 elections?

Anyone who naively believes that the market is driven by small investors and that no manipulation occurs had better not even be in the market, because they are going to get burned bad.

DWG

[eno_]

The big brokerages are susceptible to pressure. What makes you think the government refrains from using tools it has handy?

[Nov3]

bump for later

[Pete]

Another"Conspiracy Theory"?

Hardly a conspiracy theory. The "Working Group" was formed after the 1987 crash. Manipulation of index options and the futures market is observable.

Here is a Washington Post article from February 23, 1997 titled the Plunge Protection Team.

Labeling stock market manipulation as a "conspiracy theory" is lazy.

[Uncle George]

Yes it was manipulated by millions of Americans who chose to NOT SELL their Mutual funds in spite of the liberal efforts to bring this econemy down so as to help their election hopes.

[Guillermo]

The short sellers – who bet the market will go down ...hurriedly cover their shorts by buying stocks. Then buyers, believing there is a rally afoot, jump in.

This is exactly what the Asst Dean of Emory U's biz school said this morning. He was also bashing the "analysts". "Were they selling furniture before they became an analyst"?

[Poohbah]

The big brokerages are susceptible to pressure. What makes you think the government refrains from using tools it has handy?

Sure. Uncle calls the brokerage and proposes something unethical and illegal. Brokerage president invites Uncle to perch and rotate on the "finger of friendship." Uncle applies pressure. Tape recording of phone call mysteriously turns up at the editorial offices of the New York Times, Washington Post, Washington Times, Barrons, and Fortune. O'Neill spends several days trying to defuse the issue before getting fired.

[Dog Gone]

I have no doubt this happened. What normally would have happened was an even sharper selloff at the end of the day as mutual fund managers struggled to come up with the cash for those investors who sold their mutual funds late Friday or on Monday.

Instead, an inexplicable rally in the index occurred, even though the overall market was broadly lower. There is no rational reason for it except that it was intervention. I'm not really opposed to that. The air needs to be let out of this market in manageable steps, not in a very short time.

[lone star annie]

I have thought this since the 90s. Bob Rubin was at the root of the market bubble to enrich his buddies on Wall Street. Payback time to sink the markets in order to let the RATS control the markets.

If in the minds of the public, that only RATS can deliver a strong market that will ensure RAT control forever. That is why the media keeps harping the importance of the stock market.

[LibWhacker]

. . . the Fed and/or Treasury call the big houses on Wall Street and tell them to buy index futures and options.

Somebody tell me again why it's not a good idea to require government to get its revenue, not through taxation, but through investment and speculation in the markets? Because you don't want the government dominating and manipulating free markets, right? Well, guess what? . . . It does anyway.

[eno_]

Read the Wash Post article. It gives examples of the kinds of goodies the government can provide to big brokerages just on a regulator's say so. Nothing overtly illegal or unethical. You suggest a level of independence that does not exist in such a tightly regulated industry.

Why do you think there is such a big gulf between the lamestream media and citizen-media on the Internet? No conspiracy needed: just the fact that a concentrated media is easier to influence.

[jiggyboy]

Presumably these "bargain hunters" independently decided that every stock on the board had fallen to its optimal "bargain price" at the same instant, so they all started to buy every stock on the board in the same five-minute period.

"Program trading" is prohibited when the major indices rise or fall a certain amount. That level is roughly 1%, so the markets were well past it at the time of the mass epiphany. The buying was done "by hand".

[Poohbah]

The amount of goodies would have to exceed the prospective losses to be incurred by brokerages being that stupid--and that is a LOT of goodies, more than a regulator can give on just his say-so. And the government would have to reliably deliver said goodies--which they probably wouldn't.

[discostu]

Like so many conspiracy this one revolves around an constructed oxymoron. In order for this PPT thing to exist within the available evidence we have to have a group so powerful that they can move the DOW hundreds of points in a matter of hours, but so weak they haven't been able to do anything about the steady unwind of the market in 2002.

[spoiler2]

The Plunge Protection Team is a GOOD thing, because like a shock absorber, it helps cushion the lemming-like panic selling of the intra-day and gives investors an overnight period to adjust.

If the market still wants to go down the following day for rational reasons, it will, but it does so from less of a panicked opening bell.

[Dog Gone]

The steady unwind of this market is probably a healthy thing. Share values were based on pure speculation, not intrinsic values.

The question is how to unwind it without overly harming the economy.

[Sacajaweau]

"Playing" the market is nothing new. The impression from the Dems is that all you little guys should take your money and run 'cause we're going to dig up so much dirt on the "opposing" party, you just won't believe it.

Like no big Dems have any interest in the market or sit as CEOs or on Boards of major companies or receive any money from these companies. The bottom line is you have trouble raising money among the majors but you DO get money from all these companies and you'd take all you could get.

So you set the stage for the "herd" to vote for you, the poor and ignorant who have nothing to lose and are continuously fed a diet of "bad Republicans".

But beware...Middle America has realized the mistake of putting their eggs all in one basket. Many of them will now "learn" to diversify....something they have known all along. Many of them may even read the company reports or do a little research.

Some local Xerox employees have been saying for years that the company was slowly diminishing. Did they roll over their money? Nope! Are they crying? Yes!

They didn't even listen to themselves. Geez

Sac

[ken5050]

Correct..and this is actually the type of "yo-yo" actio that we need to see before ther bottom is reached...there's still a lot of cash sitting on the sidelines, and there's still a lots of irrational exuberence floating around...and both have to be flushed from the system..so program trading kicks in..gooses tghe market up, folks pile in, and get wiped out the next day..they need a few more smacks upside the head....

[ThinkingMan]

Count me as one of those greedy investors! The market was full of bargains yesterday.

[discostu]

While I agree share values were spiked that doesn't mean there has to be an unwind. Not if there's a group of conspirators working behind the curtain to prop things up. If we have a group of conspirators that can move the Dow 350 points in just a couple of hours then in theory they should be able to push the market back up over peak in less than a week. At the very least they should have been able to prop things up for modest gains/ losses during this whole time. There's no reason why share values have to represent anything logical. So why allow any unwind? If you've got that group of conspirators to prop things up then things should be propped up.

IMHO this odd ball porpoising we're seeing is because of 24/7 news and the internet. Back in the "good old" days you'd see the same cycle drawn out over the course of a week as people didn't know what was going on in the market until they got home. So your drops were slower (most of the time) and your bargain hunter bounce didn't hit until wednesday or thursday, often with a massive continuation of the drop on friday (almost every crash has been on friday). Now everybody with money in the market probably has a job where they can track the market in pretty close to real time during various breaks at work, panicked dumping spreads faster, you hit the bargain hunter bounce faster, then the next day the pug ugly starts all over.

[Jay W]

Like so many conspiracy this one revolves around an constructed oxymoron. In order for this PPT thing to exist within the available evidence we have to have a group so powerful that they can move the DOW hundreds of points in a matter of hours, but so weak they haven't been able to do anything about the steady unwind of the market in 2002.

You miss the point about the PPT.

1. It is not a conspiracy theory.

2. The PPT's job isn't to hold off the overall decline, which it cannot do, but to make a given day's decline tolerable and manageable, so as to hold off widespread panic. It can't stop the collapse of the market. Nothing can stop that. What it can do is lessen the damage for any given day's "plunge." The Dow still went down yesterday, but not as bad as it was heading for.

3. It is a Plunge Protection Team, not a Decline Protection Team.

4. Stop wasting time with accusations about "conspiracy theories." It ain't healthy.

[discostu]

It is a conspiracy theory, there are people theorizing that there is a conspiracy, the infamous Post article proves nothing, it only talks about tools in place openly (temporary market shut downs) and theorizes other possible abilities.

If you're going to go through all the trouble to make a PPT to make declines "smooth", why not make a DPT that keeps the declines away all together? If you're going to give a group the power to manipulate the market why reign them in, go whole hog, let's spike this baby up to 20,000 and let the good times roll.

I'm not making accusations, I'm pointing out why this idea doesn't hold water. I personally believe in the definite probability of a number of conspiracies, what I've learned over the years though is certain really good ways to spot unrealistic conpiracy ideas. The oxymoron. If the popular theory requires the conspirators to be both incredibly powerful (or smart) and amazingly weak (or dumb) then it just doesn't hold. You can't have things on both ends of the spectrum. If you've got people capable of making the Dow swing 350 points in just a couple of hours then you've got people capable of never having let it drop like a stone in the first place, and never letting it have serious or long term declines. It's simple logic.

[Dales]

Richard Russell of La Jolla's Dow Theory Letters says, "Maybe you can't call it manipulation," but a lot of mutual funds, some huge, jumped in and did buying.

Yes, and they bought what was on the indexes. But if you look at the earnings yield for the components of the indexes, you find that they are looking pretty good. For example, the composite earnings yield of the S&P was about 1.5 points higher than the yield on long term government bonds. If the yield is higher in stocks than in bonds, there is going to be institutional money moving towards stocks in general.

I think that the bottom has been reached.

But if there were manipulation going on, would you be opposed to intervention by those who can to prevent further meltdown and loss of wealth for them and for others?

[Dales]

Now, if it was Heather Graham behind a shower curtain, then I would pay attention.

[spoiler2]

"let's spike this baby up to 20,000"

Since the PPT is working with our tax dollars, I'm glad they do nothing more than thay are at the present.

Can you imagine how many dollars it takes to move the Dow just one point, let alone the multiples you speak of?

[eno_]

The market is not like a pothole. If the market were a pothole, it would be like a pothole that could move or stretch to confound any "shock absorber." Which is why figuring out and arbitraging market intervention is so lucrative, vide Soros's Quantum Fund.

[Wolfstar]

Don't forget foreign investors who might want to help bring down GWB. Arabs – and there are plenty of ultra wealthy Arabs (OBL to name one) – unhappy with his stand on Arafat and the Palestinians and/or with his proposal to go after Sadddam. Leftist Euro-weenies unhappy with a whole range of GWB's policies, from Kyoto to the ICC, that reaffirm American sovereignty and right to act in our own interests. There are whole hosts of anti-American interests, both here and abroad, who think they would benefit from a weakened GWB and a strengthened Dem (Leftist) Party here. We also have too many people on the right here who seem congenitally incapable of grasping the big picture.

[It'salmosttolate]

"Another"Conspiracy Theory"?Did You Ever Hear Of "Bargain-Hunters"??"

How much did you buy?

[eno_]

Actually the Post article spells out explicitly how bank regulators can stretch the liquidity of brokerages (or deny this favor). That is a very concrete intervention tool, completely informal, and need not be disclosed at all. Are you suggesting that this tool, and ones like it, stay in the drawer because our government is staffed with saints who would never do such a thing? Also, brokerages that are incentivized (strong-armed) into providing plunge protection are doing it with - literally - our money, if it is mutual fund buying that is supporting a market.

[eno_]

They don't need no stinking tax dollars. They have your 401k.

[Joe Hadenuf]

LOL!

[AntiScumbag]

you are correct, there is no such thing as the ppt, it is nothing except the flakey invention of the perpetual conspiracy crowd who don't understand markets and need something on which to place blame for things that mystify them

beyond the conspiracy garbage, the amount of sheer ignorance on this and virtually all other threads having anything to do with markets is astounding

the general public is unaware of the large amounts of hedge and other aggressive fund money that moves in and out of short-term trades

the general public is unaware that "program trading" is the result of arbitrage between futures and cash and has no net effect across all markets

the general public is unaware of the fact that markets never move in a straight line for long and that a 400 point short-covering rally after a 1,200 point decline is not only completely normal, but something to be expected, and it could continue and still be nothing more than another bear market blip

i could go on and on, but it will be lost on the tin-foil hat crowd and others who haven't a clue about markets

[Wait4Truth]

Ping!

[dennisw]

PPT bumpski.

[discostu]

It spells out how they CAN. The only listing of anything this "group" is known to do is turn off the markets for a while when things go crazy and let everybody breathe. Listing off what can be done is not proof of something. The aritcle proves nothing.

All I'm suggesting is that if you've got a group manipulating the markets the least interesting or useful thing they would do is just stop dramatic plunges. If you've got somebody powerful and smart enough to swing the Dow as dramatically as we saw yesterday afternoon then there's an implication that these people should be powerful and smart enough to have kept that major dip from happening at all, and it's a gimme that they would be able to keep the massive decline we've seen this year from happening. Why only do the most transparent and least useful manipulation? Why not the much more subtle and useful practice of simply not letting things drop seriously or steadily? Why paint with broad strokes when precision work will do the job so much better?

[Jackie]

To: The Manipulators

The Fed and/or Treasury call the big houses on Wall Street and tell them to buy index futures and options.

Just let it go! Let the market find its bottom. Stop delaying the inevitable.

[CecilRhodesGhost]

Between 1971 and 1976 the debt in US rose from $409 billion to $631 billion. Then debt experienced its greatest growth during the 1980s, fueled by an unprecedented peacetime military buildup. In 1996, the Outstanding Public Debt roared past $5 trillion. The unconstitutional "share" of this debt for every American man, woman and child is currently $18,883.02 and will continue to increase, along with individual credit card debts, mortgages, automobile leases and so on. It's just the way things work in today's corporate-led world. Understand that the Fed is realizing a dream that bankers have held since time began. It's a good thing for some. Today, the world stands before the dawn of a new global community, run by mega-corporations and internationalist financiers. Most of the revenue collected by the US government in the form of individual income taxes will go straight to paying the interest on the debt alone. And as borders stay open to expand trade, the governments will break and crash because of the welfare state, immigrant education and healthcare demands. So people will look at government as a failure and run to the bank-led new order of things. At the rate the debt is increasing, eventually we'll reach a point where, even if the government takes every penny of its citizens' income via taxation, it will still not collect enough to keep up with the interest payments... much less care for the troubles caused by NAFTA, open borders and free-trading mega-corps. The government will own nothing, the people will own nothing, and the global banks and corporations will own everything. The new order of things will foreclose on America just as it is on the EU, and Asia. The trilateral thread will be complete!

PS- this all was planned a long time ago, even before the League of Nations.

[Myrnick]

I agree, we are probably looking at approaching bottom. The interesting thing about yesterday's action was the volume and the inflows to the bond market. Volume was not much more than average and inflows to bonds were not unusually high. What this says to me is that institutional investors were not taking money off the table yesterday (which, when they do they usually go to bonds). I think what we saw was small investor capitulation with short covering and some institutional buying in the last 90 minutes of the day.

[cynicom]

You mean, the big guys don't play fair??? Who would have ever thought that?

[dennisw]

You perfectly explained the PPT. Their mission is to smooth out declines, to minimize the negative and cynical psychology. To keep declines from spiraling out of control...Fine example being the 1987 drop of 500 in the DOW. PPT smoothed out the next trading day to help out investor confidence.

It's one thing to see DOW 5,000 this September and another to see DOW 5,000 two years from now. It's best for bubbles to be deflated slowly.