Tag Archives | pump and dump

Plunge Protection Team? Pump and Dump?

Hi Mark,

Recently I have been seeing a lot of the classical pump and dump
scheme in RUT. The futures usually went much lower compared to previous
day's close, then RUT opens by gapping down, and then rising back up
again, usually to previous level. And all this happens with a lot of
rhetorical delusions on the news, like 'futures down on euro woes',
'stocks up amid whatever nonsense'.

So my question is, do you see this as a concern? My opinion is 'I
do'. I think the zig-zag behavior is hurting people with stop losses.
That means the guys with proper risk management will be toast.

On the
side note, do you believe this is the undoing of plunge protection team?

John

***

Plunge Protection is a giant topic all by itself. I have no proof it
really exists. But plenty of people are convinced. From Wikipedia:

"The Working Group on Financial Markets (colloquially the Plunge Protection Team) was created by executive order on March 18, by Ronald Reagan.

The Group was established explicitly in response to events in the
financial markets surrounding October 19, 1987to give recommendations for
legislative and private sector solutions for "enhancing the integrity,
efficiency, orderliness, and competitiveness of [United States]
financial markets and maintaining investor confidence".

"Plunge Protection Team" was originally the headline for an article
in The Washington Post on February 23, 1997,
and has since become a colloquial term used by some mainstream
publications to refer to the Working Group.
Initially, the term was used to express the opinion that the Working
Group was being used to prop up the markets during downturns."


In my heart, I believe the Obama administration wants to do the right thing.
However, I think in our horrible financial condition, there is just no
money available to support the markets. Thus, I don't believe the PP team would be doing much, if their mandate is to actively support the markets.


***

Pump and dump works for the stock of small companies. I don't see how
it can work for a gigantic index. Perhaps I am merely being naive.


***

I do believe, as you obviously do, that the stock markets are no longer a
safe place to invest. Trading is still viable.  But investing for a
decades-in-the-future retirement account: That's just a gamble.


I believe the quants have demonstrated the ability to take much of the
inefficiency out of the markets, and if they had not been over-leveraged
and greedy, they would still be doing so.

My point is that the
individual investor, as well as the professional money manager, has
virtually zero chance to win.

And the thieves still run the place. Allowing the banks to survive, and
now prosper with zero remorse and zero appreciation for being saved –
that's just too outrageous for words.


Sure investors can profit, but the game has changed. Careful research no
longer matters. Things we cannot comprehend rule the markets.  It's a
brave new world in which trading with open-ended risk (such as being
naked longs stocks) is unacceptable.

701




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