Tag Archives: Rigged financial markets

The Stock Market Is Broken, Now for All to See, by Wolf Richter

Posted on February 5, 2021 | 2 comments

The stock market seems like a great place from which to stay away right now, for a variety of reasons, not the least of which is because it’s a rigged game. From Wolf Richter at wolfstreet.com:

The historic short squeeze, engineered by a bunch of deeply cynical small traders, exposed just how rigged the market has been.

It has finally blown into the open for all to see. The stock market has been broken for a while, for a long time, actually. The idea that the stock market is where price discovery takes place on a rational transparent basis, with ups and downs, and some amount of chaos, but free of rampant manipulations – that idea has now totally imploded.

What has been visible for a long time but now blew into the open is just how manipulated the market is, by all sides, how overleveraged the big players are because the Fed encouraged them to, and how enormous the risks are, and how crazy the trading strategies are.

And the stock market soared to record out-of-whack valuations, in a terrible economy where at least 10 million people have lost their jobs and are still out of work, and where entire industries have gotten crushed. The whole thing is propped up by stimulus and bailout payments to consumers and companies alike.

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Posted in Collapse, Crime, Cronyism, Financial markets, Government

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Yes Virginia, the system is clearly rigged, by Omid Malekan

Posted on February 2, 2021 | Leave a comment

Powerful and rich people will try to rig government and government regulations to their advantage. The mystery is why so many people continue to clamor for still more government. From Omid Malekan at medium.com:

 
 
 
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Before sharing my opinion on the WallStreetBets events of last week, I want to make one thing clear: I believe strategies like the ones used to drive the price of Gamestop stock higher are reckless and dangerous. I would never participate in them. They are likely to end badly for the majority of those who get involved.

With that out of the way, let’s review something important that happened last year, when big cap tech stocks like Tesla and Apple started exhibiting unusual volatility to the upside. It turned out that Softbank, one of the largest institutional investors in the world, had been executing a dangerous strategy of buying record amounts of out of the money call options on those stocks. Their actions forced some of the options trading establishment into something called a gamma squeeze, a positive feedback loop that can be thought of as the options markets’ equivalent of a short squeeze. Here’s the FT:

The surge in purchases of call options — derivatives that give the user the right to buy a stock at a pre-agreed price — has been the talk of Wall Street, as the sheer size of the trades appears to have exacerbated a “melt-up” in many big technology stocks over the past few months. In August alone, Tesla’s share price shot up 74 per cent, while Apple gained 21 per cent, Google’s parent Alphabet rose 10 per cent and Amazon 9 per cent.

One person familiar with SoftBank’s trades said it was “gobbling up” options on a scale that was even making some people within the organization nervous. “People are caught with their pants down, massively short. This can continue. The whale is still hungry.”

As the article also points out, it was generally understood that what Softbank was doing (with billions of dollars, no less) was dangerous. Not only could it end badly for them, but it had painted other players into a corner, creating a dangerous dynamic that could reverse abruptly.

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Posted in Banking, Business, Financial markets, Governments, Investing

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