Market Manipulation

It's time to go in for the kill. Buy as much physical Gold as you can.

The most recent gold bear raid has vastly enriched the bullion bankers, once again, at the expense of everyone trying to protect their wealth from global central bank money printing. The central plank of Bernanke's magic recovery plan has been to get everybody back borrowing, spending, and "investing" in stocks, bonds, and other financial assets.  But not equally so - he has been instrumental in distorting the landscape towards risk assets and away from safe harbors. That's why a 2- year loan to the US government will only net you 0.22%, a rate that is far below even the official rate of inflation. After the two years is up, you are up $44k (interest) but out $260k (inflation) for net loss of $216,000. That wealth, or purchasing power, did not just vanish: it was taken by the process of inflation and transferred to someone else. This explains, almost completely, why the gap between the rich and everyone else is widening so rapidly, and why financiers now populate the top of every Forbes 400 list.  There is no mystery, just a process of wealth transfer of magnificent and historic proportions; one that has been repeated dozens of times throughout history.

Many have argued that sovereign CDS markets 'caused' the problems in Europe - as opposed to simply 'signaled' what was in fact being hidden by cash market manipulation. But as the IMF notes in a recent paper, there are times when the CDS market leads the cash bond market and other times when it lags. But as far as looking at risk in Europe and the US, based on a wonderful model that uses Markov-switching to predict what the probability of the world being in a low-risk or high-risk state, we are as 'low risk' as we have been since the crisis began. Each time that level of complacency was reached before, equity markets have rapidly sold off. What is perhaps most notable is the systemic compression of every risk indicator, first VIX (Kevin Henry and the fungible excess reserves of every prime dealer whale), then the liquid SovX index (via Greece CDS auction uncertainty and 'naked' short bans), then the Euro TED Spread (via LTRO), then individual Sovereign CDS (via Draghi's 'promise'). The result, the 'free-market' signal of risk is non-existent.

Years after the CFTC, under the leadership of Goldman's Gary Gensler, theatrically agreed to investigate whether the price of precious metals was manipulated during trading - whether systematically or ad hoc - only to let that inquiry fizzle and drop the whole idea proclaiming there is manipulation, the commodity futures regulators are once again taking a look at shady activities originating at London. Or rather, it is "discussing internally" whether the daily London gold and silver price fixing is open to manipulation.

On November 12, 2012,  Adam D. Clark-Joseph published Exploratory Trading, which analyzes CFTC audit level trading data in the eMini S&P 500 futures market. This is a special, "regulators-only" data-set that contains all orders and trades, and each order and trade has a trader identifier. What this paper exposes is astounding. Nanex notes that the top HFTs probe the market by aggressively pinging order books and then analyzing market reaction: a practice that allows them to get a private glimpse of the "true" supply and demand at the expense of everyone else. Once the market direction is ascertained, these HFT aggressively remove liquidity, causing an immediate market move. Since the eMini is heavily arbitraged by SPY (which in turn is arbitraged by its many components and options), these sudden moves in the eMini will set off waves of overwhelming message traffic as traders and algos react and reprice thousands of instruments in milliseconds.

Yo Liz:  Subsidies for the zombie banks total more than $3 annually for every dollar in income reported by the industry... 

• Kuroda to Hit ‘Wall of Reality’ at BOJ, Ex-Board Member Says (BBG)
• Venezuelans mourn Chavez as focus turns to election (Reuters)
• South Korea says to strike back at North if attacked (Reuters)
• Milk Powder Surges Most in 2 1/2 Years on New Zealand Drought (BBG)
• As Confetti Settles, Strategists Wonder: Will Dow's Rally Last?  (WSJ)
• Pollution, Risk Are Downside of China's 'Blind Expansion' (BBG)
• Obama Calls Republicans in Latest Round of Spending Talks (BBG)
• Ryan Budget Plan Draws GOP Flak (WSJ)
• Samsung buys stake in Apple-supplier Sharp (FT)
• China Joining U.S. Shale Renaissance With $40 Billion (BBG)
• Say Goodbye to the 4% Rule  (WSJ)
• Traders Flee Asia Hedge Funds as Job Haven Turns Dead End (BBG)
• Power rustlers turn the screw in Bulgaria, EU's poorest country (Reuters)

After exposing the stock market manipulative arsenal that is High Frequency Trading, quote stuffing, flash trading, packet churning, layering, sub-pennying, liquidity, latency and dark pool arbitrage, NBBO and Reg NMS exemptions, "hide-not-sliding", collocation, and much, much more for four years, or so long even Credit Suisse joined the chorus we started in April of 2009, we are glad to learn that finally, with a ridiculous Rip Van Winklesian delay, but better late than never, "the FBI has teamed up with securities regulators to tackle the potential threat of market manipulation posed by new computer trading methods that have taken operations beyond the scope of traditional policing." In other words, the SEC has finally realized it can no longer pretend it is not co-opted, but because it has no clue where to even start with HFT, has asked the help of the Feds. Which in itself is hardly reason for optimism, but if there is one thing Hans Gruber has taught us, it is that when the Feds get involved, the first thing they do is cut the power, and in this algo-based market that will end some 99% of all daily manipulative practices we have all grown to love and look forward to every single day.

Whenever I endeavor to explain America’s current economic situation to a person who likely receives most of his information from skewed mainstream news sources, I try to use two comparisons; the Great Depression, and Weimar Germany, because what we are experiencing is actually a combination of elements from both events. In the end, the madness of debt spending is going to annihilate this country anyway.  Fiat printing and infinite QE will eventually result in the dumping of our currency as the world reserve, causing devaluation and hyperstagflation.  Stimulus and the monetization of government liabilities are crippling us.  The problem is, this nation is irrevocably dependent on such measures.  Cuts will result in almost similar catastrophe, but on a faster time frame and perhaps a slightly shorter duration (depending on who runs the show in the aftermath).  I’ve been saying it since 2008 – there is no easy way out of this situation.  There is no silver bullet solution.  There will be struggle, and there will be consequence.  It is unavoidable.  All we have to decide now is how we will respond when the inevitable disaster comes.

I really need to stop being so pessimistic. I’m getting richer by the day. My home value is rising at a rate of 1% per month according to the National Association of Realtors. At that rate, my house will be worth $1 million in less than 10 years. Every mainstream media newspaper, magazine, and news channel is telling me the “strong” housing recovery is propelling the economy and creating millions of new jobs. Keynesian economists, Wall Street bankers, government apparatchiks and housing trade organizations are all in agreement that the wealth effect from rising home prices will be the jumpstart our economy needs to get back to the glory days of 2005. Who am I to argue with such honorable men with degrees from Ivy League schools and a track record of unquestioned accuracy as we can see in the chart below? These are the facts. But why trust facts when you can believe Baghdad Ben and the NAR? It’s always the best time to buy.

• Spain’s Deficit Widened to 10.2% on Bank-Rescue Cost (BBG) - or as Rajoy would say, when one excludes all negatives, it was a surplus
• Monti Austerity Pushes Italians Toward Parliament Upheaval (BBG)
• Russia accuses U.S. of double standards over Syria (Reuters)
• Euro Area to Shrink in 2013 as Unemployment Rises (BBG)
• UK, China central banks to discuss currency swap line (Reuters)
• Italy Court Rejects Challenge to Bailout of Monte Paschi (BBG)
• Japan's Abe to showcase alliance, get Obama to back Abenomics (Reuters)
• Russia’s missing billions revealed (FT)
• China Home-Price Gains May Presage Policy Tightening (BBG)
• Fed unlikely to curtail stimulus despite rising doubts (Reuters)
• Banks face fines up to 30 per cent of revenues (FT) - just as soon as Basel III is passed (i.e., never)
• J.C. Penney Can Raise Billions Under Revised Credit Line (BBG)
• Cost of Dropping Citizenship Keeps U.S. Earners From Exit (BBG)

Regardless of whether a market is moving up or down, there is always someone making money somewhere. There are various examples every day – be it a billionaire selling a stock short (i.e., Herbalife) or a company selling a meal short on ingredients (i.e., horsemeat economics). Some methods are legitimate, and some are not. But one thing is for sure... energy markets are by no means immune to such collusion. The natural gas market is coming under increased scrutiny, as price movement ahead of the main event of the week – the weekly storage report – appears to be being manipulated by high-frequency trading (HFT). High-frequency trading is nothing new to financial markets, but it is new to the natural gas market. It has also spawned some wonderfully inventive names to describe the pre-storage report shenanigans. The best term by far has to be ‘banging the beehive’, which is where a flood of orders is sent to trigger a huge price swing immediately before the data is released. Regardless of how comical these names are, however, this creation of ‘synthetic momentum’ is market manipulation and is being investigated accordingly.

Gold has come under pressure from heavy liquidation by hedge funds and banks on the COMEX this week. The unusual and often 'not for profit' nature of the selling, at the same time every day this week, has again led to suspicions of market manipulation.

Gold’s ‘plunge’ is now headline news which is bullish from a contrarian perspective. As is the fact that many of the same people who have been claiming gold is a bubble since it was $1,000/oz have again been covering gold after periods of silence.

We have gone from a supply and demand market to a funds flow market and this really sucks for consumers. 

The oil industry is full of bad analysts.