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Most Manipulated Markets in History: Dave's Daily

 

Many have been worried about the integrity of markets as third-party insiders (Fed, Treasury, Exchanges, Trading Desks and etc) have manipulated conditions their way. It's nothing new but it seems extreme currently. A series of circumstances exist where third-parties are hiding in plain sight, boldly manipulating markets.

A series of events has taken markets down, some fundamental and others engineered.

An obvious inflationary situation was becoming present most obviously in emerging markets (BRICs). There authorities were looking at inflation data "honestly" versus the phony data ("core" rate) U.S. authorities were selling. Those countries started tightening using a variety of tools to cool things off. That began serious stock selling in those markets.

Next, many large banks have maintained short and naked short silver positions at the COMEX. These banks were losing large amounts and were being squeezed as silver prices went parabolic. Further, with open interest expanding this required the exchange to keep a larger than normal quantity of physical silver inventory to meet delivery demands. As we demonstrated yesterday, the exchange's inventory was reaching a low point. What to do? The pressure from the banks on the exchange must have been enormous to bail them out. By implementing margin increases this works and is typical to control markets not letting leverage get out of hand. But, the exchange implemented a draconian series of increases or 5 in the last 9 trading days. As one said, "This was like shooting the lifeboats." The clear intent was to knock prices much lower and appeared as "piling on" even as prices started to fall. This turned ordinary selling into a panic leading to across the board commodity selling as investors scrambled to meet margin calls.

Wednesday, even as the dollar was still falling precious metals were also falling which was odd. U.S. stocks were sold on Wednesday even though the DJIA was unchanged. This was misleading given broad selling beneath the headline index.

Thursday the ECB did not raise interest rates as was expected and Chairman Trichet was fuzzy about future actions. With the dollar much oversold this led to euro selling and yen buying as so-called "carry trades" were targeted for destruction.

Also on Thursday, with another margin increase for silver and rumors of similar actions for other commodities (gold, crude oil and etc) selling in the commodity sector exploded. Let's remember one thing; the job of the exchange is to maintain "orderly" markets and not cause chaos. Does a roughly 25% silver price drop in 4 trading days qualify as orderly? Hardly. The only conclusion is the exchange achieved chaos from order but for whose benefit? Riddle me that.

The hammer dropped on stocks Thursday with a horrible Jobless Claims report throwing a wrecking ball into estimates causing most stock prices to fall sharply. The only exceptions were in sectors (Consumer & Transportation) benefitting from weaker commodity prices.

It's interesting all this coincides with monthly DeMark readings indicating trend exhaustion, the May Flash Crash Anniversary, the presumed end to QE2 at hand and the "sell in May and go away" maxim. Does that seem a little too pat?

Volume once again spiked on selling as no doubt stops were hit. Breadth per the WSJ was negative.

 

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