Is It...or Isn't It?

Larry Doyle, a long-time Wall Street veteran and publisher of the Sense on Cents blog, hosts a Sunday night show, "No Quarter Radio's Sense on Cents with Larry Doyle," on Blog Talk Radio. In this week's edition, which features an interview with Phil Davis of Phil's Stock World, Larry raises a question that a few of us, who are amazed at and unsettled by the willingness of investors to throw caution to the wind and repeat the mistakes of the past (see "Back Buying the Same Kind of Crap" for one example), have occasionally wondered about ourselves:

Is the stock market being manipulated?

I can not count the number of times I have been asked that question over the last 9 months. Rather than my offering personal opinions which market pundits may view as sour grapes or worse, I want to revisit a ten-minute segment of my interview last evening with Phil Davis.

The segment runs from 29:45 until 40:00 (audio player provided below). If you do nothing else today, please listen to this dialogue between Phil and myself. Neither of us goes into this conversation with agendas or preconceived notions in an attempt to score points. I will offer an edited version here. I think you will find the information, thoughts, and opinions offered to be enlightening.

PD: It’s getting more and more likely that there’s going to be an event that takes the market down and that’s because of the nature of the market rally. The rally has been a very thinly traded, low participation rally.

LD: I want to pursue that….the idea that there could be or will be some sort of an event. Obviously, all of the governmental support that has come into the market, all of the quantitative easing, the easy money, the 0-.25% Fed Funds rate…all sorts of other backstops. Now they’re trying to figure out how to ease some of those supports out of the market while China and India have increased their rates. Are we overextended? Have we created a little bit of an asset bubble?

PD: I think we have created a ‘helluva’ asset bubble…..Let’s be honest. We were delusional in 2007. Those valuations were completely wrong….the earnings were fake and I want to emphasize again fake because they were fake. They were not only not real earnings but what were reported as earnings turned out to be tremendous losses. The financials were putting out fake numbers…it was all fake…..How did we get the market back to where it is then? How is this even possible?

LD: How much are we overvalued?

PD: Don’t forget the Dow is fake also. They took out GM and Citibank from the Dow. Those are two zeros and they put in Travelers and Cisco…that’s 640 Dow points that were added because they swapped GM and Citi for Travelers and Cisco. Now is that real?

LD: I look at the most actively traded stocks. Almost everyday the most actively traded stock in the market is Citi…this isn’t real…

PD: Whether Citi is real or not, I think you touch on something more important, though. The most active stock is Citi. The next most active stocks are Bank America, Wells Fargo…

LD: Also AIG.

PD: Those trades are 80% of all trades in the market and the total market volume is less than half of what it was back then. In other words, you’ve got half the market participation of what it was and of that half, 80% of it is concentrated in less than half a dozen financial firms.

LD: What does this say about the future of Wall Street?

PD: It says that the people who are running the system are in total control of the marketplace. There is no retail participation….on a relative basis.

LD: They don’t believe it.

PD: ….it looks like a bunch of crooks….

So, is the market being manipulated? I would guess that depends on how one defines manipulation. That said, market volume and market depth tell us a lot. I thank Phil Davis for providing this ’sense on cents.’

I strongly encourage you to take ten minutes and listen to this segment of No Quarter Radio’s Sense on Cents with Larry Doyle Welcomes Phil Davis. If time allows, listen to the entire show.

Comments

[Sandy]

Yes the market is being manipulated. I have been following the S&P futures for the last year. Since Feb 17th, I have been coping the monthly options on a daily basis showing about 100 strike prices. They do high volume calls and puts deep out of the money. They know that traders will sell to them the naked position. March expiration there were alot of options left on the table where no one cashed out of the position. My trading platform will give the the Daily volume and open interest. After they drive it up, they keep a bid in to keep from selling off. Even on the down days, once driven down, they keep a bid in allowing only small movements. It is always very controlled.

[roger]

How incredibly naive people can be,if the opportunity
is available, people will seize it.
\the more the environment provides unlimited opportunity ,the greater the corruption.

[StevenT]

Doesn't matter anymore to me.
I've already voted with my feet.

These days I wouldn't touch the US Stock Market with a ten foot pole.

CORRUPTION!

[rachel]

you bet its being manipulated. One guy who has a real handle is the guy from http://www.forecastfortomorrow.com he knows his stuff and has been right on alot of stuff over the years, including the market crash back in 2008

[roger]

manipulation is part of the system,and the most
powerful manipulator of all,one that shape the social brain
and our culture ,is the advertisement industry.
Dr. Goebbels thought highly of this propaganda machine.

[Rick]

So, what is the next phase, now that the people have becoming more aware of the manipulation of their lives by special interests?
What happens when the illusion can no longer be maintained through deception, and manipulation - when the majority of the people refuse to participate in the lie anymore?
Is that when the niceties disappear?

[gordon]

zerohedge posted this, showing 7 million and 3 million share blocks of SPY used to MANIPULATE! Who the F has that kind of money? It's time to offer $1Million reward to a whistleblower- insider to reveal which desk at Golman and JPM is actually The Plunge. I've followed markets for 30 yrs, this is the most corrupt I've ever seen it in the US, we hope to get the H out of this SESSPOOL that once "was". The US is finished. READ>
http://www.zerohedge.com/article/some-observations-spy-vwap-and-block-manipulation-fsa-launches-probe-front-running-block-tra

[Ed]

I reckon that manipulation is a more-likely-than-not MAYBE.
I'd write this again today:
"Stock market price manipulation would be 'dirty' -- but, of what we can already see, what do we know that is 'dirty'?" at
http://groups.google.com/group/misc.invest.stocks/browse_thread/thread/8c6e5dbd8152d13a/cd6a82d17af8b9f3?hl=en&q=ttsmyf+%22maybe+dirty%22#cd6a82d17af8b9f3