Guest Post: A Grand Unified Theory Of Market Manipulation

Tyler Durden's picture

Comprehensive report on some of the more inexplicable things in capital markets, compliments of Precision Capital Management.



hat tip English Bob

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phaesed's picture

Excellent report and spot on about the July auctions, the sell off in equities timed perfectly well with the rise in treasuries... which ended the day before the prior 30 year auction.

ghostfaceinvestah's picture

Does anyone doubt the Fed was intervening in the equity markets?

Seems like a no-brainer to me.

Anyone know of a good wheel-barrow manufacturer?  I figure they would be a great investment.

phaesed's picture

It's not about whether they were intervening, it's more about how and where to make sense of the larger game plan.

Anonymous's picture

gonna need the bobcat with the snowbucket

Dixie Normous's picture

I'm not buying any of it.

The market has gone vertical since July 13 (there will never be any retracements of anything ever again) because of sound fundamentals and super positive reports, I know because I saw it on tv and the interweb.  Soon, when all the "money on the sidelines" finally wakes up and gets in, this market will really move.

We've learned our lesson, no more boom and bust. Just eliminate the bust!

Anonymous's picture

well, prices come first, fundamentals will follow. same happened when ABX kept on moving down well beyond fundamentals... the rest is history.

Dixie Normous's picture

I was being facetious but even during the internet bubble I don't recall a rally like the one we've had off July 13 lows, without any real pull back, 16 days and 125 S&P points and counting and not one retracement of more than 20 points off a high?

If you're going to pump at least make it look good.

This is just an attempt to draw stupid money in.

Who would buy here?

Rusty_Shackleford's picture


Upsloping yield curve!!  Yeeeee Hawwwwww!!!

Anonymous's picture

All rallies are "manipulated" at first. I don't see the big news. This has been going as long as there has been a stock market.The question is when will the rug get pulled, usually once retail is in. Other than that, this is business as usual at any major market sell-off with ultra negative sentiment and a pile of shorts. This site is getting a little childish at times.

Anonymous's picture

'All rallies are "manipulated" at first'

This is just a dumb comment. Rallies are not manipulated at first. The rally from the March lows actually made perfect sense. People were in an extreme state of panic, and then we got to a point of selling exhaustion. Nothing ever straight-lines in one direction, its unnatural.

The manipulation of the rally began, imo, a month after those lows, where we starte to divorce from economic realities. Market movements since then, where magical bids come out of nowhere to lift everything in sight, and almost perfect correlations between all asset classes is stupendously idiotic and concocted. That didnt happen at the beginning of this rally.


Anonymous's picture

Sure, and that daily end of the day tape painting was just a coincidence, right?

Anonymous's picture

RIGHT - and there was never investor capitulation at that point either. The bottom was not broken, it was save.

Anonymous's picture

IMO....the tarp recipient, the treasury, the fed exaggerated the sense of panic and drove the SPX down to 666. It should have equilibrated around 750 to 800. There fuckers knew what they were doing even before the TARP program (any others) began. They create the hype, chaos and fear through their subsidiaries...the major media.

If you think the manipulation is no different than before, then you've been drinking the kool aid. Outright, blatant attacks on our system have occurred and no one is held accountable. Its all about money. That's it. And everyone here is no different. If you were, you and others would refuse to participate in this rigged market. And don't tell me "that's the way it is". My response is, "that's not the way its suppose to be, so lets fix it".

How many of you spend countless hours playing this POS game...a rigged game. More rigged than a casino. Why is it tolerated? You spend more of your time trying to figure out how and when you will be fooled, then you do trading.

Its a fucking joke. And so are all the people that put up with this crap. Just a sick, wasteful joke. But, please do carry on, you might just get lucky.

Anonymous's picture

You're not saying anything different than what was said in 2003, 1996, 1982 etc... who cares of you are a trader? Yes, this will all fall apart AT SOME POINT (maybe even today), but meanwhile, all the morons screaming bloody murder missed out once again on a great rally.

Anonymous's picture

Who says those that those who know this fakery haven't made money during the rally?

That is quite an incorrect assumption.

Tripled my money on B of A. Double on DXO, 20 points shorting 30 year... etc, etc.

Just because the Casino is rigged doesn't mean you can't make a little money
waiting for the eventual retest.

Thanks anyway Kudlow !

newera22's picture

Ditto Oso. About a month after was when what I call the "+20 buy moves" came on the Dow. They would use a couple of them between the 1:00 to 3:00 time frame in order to basically (what I call) "lock the market in" for the last hour. And they have continued with carefully placed +20 point buy shoots, out of nowhere blatantly jamming market up. I would love to see some research about where those were coming from (as if we don't really now).

Anonymous's picture

Manipulated rally? What about manipulated long squeeze from Jan 6 to March 6,09? By Jan6 big boys/MM knew the score whahre we stand economically/finacially.

Long squeeze led to short squeeze, fed has nothing to do with it.

Project Mayhem's picture

they found the Bernanke boson!!

Anonymous's picture

You watched that show about the LHC last night, didn't you...

Anonymous's picture

Date: Monday, August 3, 2009, 9:41 AM
> Wall Street profits from trades with Fed
> By Henny Sender in New York
> Published: August 2 2009 23:04 | Last updated: August 2
> 2009 23:04
> Wall Street banks are reaping outsized profits by trading
> with the Federal Reserve, raising questions about whether
> the central bank is driving hard enough bargains in its
> dealings with private sector counterparties, officials and
> industry executives say.
> The Fed has emerged as one of Wall Street’s biggest
> customers during the financial crisis, buying massive
> amounts of securities to help stabilise the markets. In some
> cases, such as the market for mortgage-backed securities,
> the Fed buys more bonds than any other party.
> Wall Street benefits from Fed and Treasury -
> Aug-02Editorial: The value of bank independence -
> Aug-02Opinion: Trichet should convene a trip to the beach -
> Aug-02In depth: US banks - May-07In depth: Central banks -
> Mar-09However, the Fed is not a typical market player. In
> the interests of transparency, it often announces its
> intention to buy particular securities in advance. A former
> Fed official said this strategy enables banks to sell these
> securities to the Fed at an inflated price.
> The resulting profits represent a relatively hidden form of
> support for banks, and Wall Street has geared up to take
> advantage. Barclays, for example, e-mails clients with news
> on the Fed’s balance sheet, detailing the share of the
> market in particular securities held by the Fed.
> “You can make big money trading with the government,”
> said an executive at one leading investment management firm.
> “The government is a huge buyer and seller and Wall Street
> has all the pricing power.”
> A former official of the US Treasury and the Fed said the
> situation had reached the point that “everyone games them.
> Their transparency hurts them. Everyone picks their
> pocket.”
> The central bank’s approach to securities purchases was
> defended by William Dudley, president of the New York Fed,
> which is responsible for market operations. “We believe
> that opting for transparency is a greater good,” he said.
> “If we didn’t have transparency, we’d be criticised on
> other grounds.”
> However, another official familiar with the matter said the
> central bank “has heard that dealers load up on securities
> to sell to the Fed. There is concern, but policy goals
> override other considerations.”
> Barney Frank, chairman of the House financial services
> committee, said the potential profiteering may be part of
> the price for stabilising the financial system.
> “You can’t rescue the credit system without benefiting
> some of the people in it.” Still, Mr Frank said Congress
> would be watching. “We don’t want the Fed to drive the
> hardest possible bargain, but we don’t want them to get
> ripped off.”
> The growing Fed activity has coincided with a general
> widening of market spreads – the difference between bid
> and offer prices – as the number of market participants
> declines. Wider spreads enable banks, in their capacity as
> market-makers, to make more profit.
> Larry Fink, chief executive of money manager BlackRock, has
> described Wall Street’s trading profits as
> “luxurious”, reflecting the banks’ ability to take
> advantage of diminished competition.
> “Bid-offer spreads have remained unusually wide,
> notwithstanding the normalisation of financial markets,”
> said Mohamed El-Erian, chief executive of fund manager Pimco
> in Newport Beach, California.
> Spreads narrowed dramatically during the years of the
> credit bubble.
> Brad Hintz, an analyst at AllianceBernstein, said he
> doubted that spreads would ever return to those levels, a
> development that could be pleasing to the Fed.
> “They want to help Wall Street make money,” he said.
> Additional reporting by Brooke Masters in Washington
> Copyright The Financial Times Limited 2009

Anonymous's picture


Anonymous's picture

Why would the rally stop? GS is making money hand over fist... As long as the gov't is providing the funds, the party continues.

Anyone have any realtime data as to when the Fed might drain the liquidity?

zeropointfield's picture
zeropointfield (not verified) Aug 3, 2009 9:40 AM

can they drain it at all? if the whole rally is powered by the Fed pumping money, then the whole thing will come crashing down when they withdraw it.

Anonymous's picture

So long as there's still one person trying to short there will be a rally.

Chumly's picture


Meanwhile, the Congress prepares to recess, Barry, Michie and the kids will be heading out to their $50,000/week vacation home to BBQ some $100 steaks soon and the dollar/oil equation is perilously close to a breakout that will put a crimp in the average citizen's weekly Ramen budget.


Anonymous's picture

Ah, sumahhring on the vinyahhhd. How quaint. Perhaps Carly Simon can play them a song?

Chumly's picture

yeAH, yeAH, I went tooa dinnahh pahhdy Satahhday nite and all the locals were all kindah goin' happy-crazy over the idyer of Bahry bein so close by...

Chumly's picture


In fact, I expect a "wag-the-dog" event in the two weeks to put the brakes on this rally - the USD (with an oil rally to boot) is in deep trouble as we post here.

Anonymous's picture

This guy is spot on....

Anonymous's picture

I trust you are sending this to senate, congress, white house, etc. Please tell me, because I've written enough today to make y hand fall off

Anonymous's picture

Nice report. Now everyone rush out and buy commercial property and an extra home so we won't have to experience anymore pain on the part of the FED. They are working so hard.

Anonymous's picture

Funny how greed destroys us. Barney Frank, if he lives long enough will see his fortunes like the rest of the fat cats crumble when the 2nd US Civil War is upon them. (Created by their own greed)

Anonymous's picture

Nice! I like this. That bone smuggler will probably not see 2012.

Anonymous's picture


Think about how this works the next time you look at your pension or 401k statement and then you see Goldman et. al. reporting massive trading profits. Those profits are nothing more than these Wall Street firms ripping off the whole system. And one more point, some of the blogs reporting this activity are speculating that the Fed does not know how much mark-up is being taken by Wall Street on these trades. I beg to differ and would suggest that Bernanke and his cohorts have a very good idea how much is being made on this trade.

Anonymous's picture

put this article on the must read list.

newera22's picture

I just want a free market back.

There must be separation of Goldman and State. These big bankers are ADDICTED to government. They need to be broken up from their love for big government.


Bring back a free and open market where intelligent investors and risk-takers can price MARKETS.

pc_babe's picture

...meanwhile, back in the curency pit, is that the greenback doing a reverse one and a ha-lf somersault with three and a half twists, in the Freefall position?

MarkD's picture

It must be that "strong dollar policy" that is putting the spring in the diving board.

Anonymous's picture

as of now it has completed at least 2
summersaults.....i am sure currency intervention
will occur later today but the dollar is
slouching toward gomorrah....

Anonymous's picture

The FRBNY conducted a POMO on July 30 for $6.5B, and the equity market tanked during the last hour.

Anonymous's picture

Short end of the curve. Purchasing 2012 and 2013 vintages. Day before (29th) monster end of day push on purchases of 2019-2026 vintages.

30th was also 7-year auction.

Anonymous's picture

This is some great analysis. The government wants the TARP banks to be profitable so they won't be consumed by their bad loans. So the FRNY is helping drive up equities and letting the banks make a killing from the equities run up. I'm concerned how long this can be sustained. Reminds me of John Law's Mississippi Company.

mitchrothschild's picture

i would not get in the way of this rally.  as consumerism has replaced religion/politics, it's obvious that there is something almost holy in the hope of everyone getting bigger and better toys and pay checks.

Anonymous's picture

I am posting an excerpt of a post by James Anderson from Minyanville's Buzz and Banter....

"The attached table and chart are the New York Stock Exchange Tick Indicator. Tick is defined in the following manner. If a stock trades up from its last trade, that is a positive tick. Down, it would be a negative tick. The Tick Indicator simply sums up all the positive and negative ticks on all the NYSE stocks and reports that number every 10 seconds. (At least my software reports it every 10 seconds.)

The table includes all reported ticks from 10:00 to 10:06 this morning. The column on the right is the difference from the tick reported 10 seconds earlier. The chart is the difference column. As you can see in this 7 minute period, the tick swings wildly back and forth from a high of 580 to a low of -318. Remember, those are 10 second swings.

Folks, It's not people doing this. This is HFT at work. Is it just noise? Does it really matter? Obviously it matters to the people doing it because they are extracting profits from somebody." .....

Sancho Ponzi's picture

This has got to be the greatest juggling match in history. Does anyone truly believe the FR can continue laundering (sorry, monetizing) MBS's and flooding the market with 200+ billion of treasuries / month without consequences?

Here, Ben, let's see you juggle 3 knives.

So far, so good. Let's try 4

Okay, now 5

Good boy, here's another

Meanwhile, SPY breaks through 100 - freaking insanity



Miles Kendig's picture

The share vol/price action in the top 200 over this period has been somepthin'...

Anonymous's picture

The fed has wired an commodities IED to the equity market to give it "leadership" - Pimco out with call Fed doesn;t raise rates until 2011. Question is will the Fed be making that determination.

Anonymous's picture

Outstanding report; makes great sense, and the analysis on the POMO effect is the first time that I have seen such.

newera22's picture

Goldman and Fed just printing money via stocks. Show up at the stock market and walk away with a wheel barrel full of cash.

Anonymous's picture

Then wheel it to the supermarket for a loaf of bread.