Investing
Some may be more plausible than you think
Five market conspiracy theories that may be more plausible than you think.
In 2012, in this column, we discussed a few stock market conspiracy theories. Investors, it seems, love conspiracies. Why? Well, psychologists would say that, when we can ‘ blame something else’, it is easier to accept the losses we experience in the stock market. And what better thing to ‘ blame’ than a conspiracy against you?
Let’s look at five more conspiracies, and gauge their plausibility as well.
Trump wants the market to do well, especially prior to next year’s election
Whenever the stock market rises, U.S. President Donald Trump certainly seems to gloat and take credit. Having markets at a record would certainly help his chances for re- election next year. Bashing the Fed and pressuring it to lower interest rates certainly implies that he wants the markets to go up. And, he knows that a single tweet from him can move markets dramatically. Stock market bears say that the market is thus ‘ artificially inflated’ and destined for a crash. But seriously, why would you fight this? You have a man who can move the markets a thousand points with a single comment, heading into an election year. Do you really think the tweets are going to be negative? Conspiracy conclusion: Confirmed.
The price of gold is manipulated
At one of my former employers this was always a big topic, and I have seen all of the theories on this one. When gold doesn’t do much investors tend to pull this one out as a reason for weakness. ‘ There is no gold in Fort Knox,’ they say, or ‘ big banks are short gold so they need it to go down.’ Maybe these statements are true, maybe not. Either way, gold really has not done much for a long time. One might have thought that gold would have soared during the 2008 financial crisis, when companies worldwide were imploding. Sure, gold went up a bit, but hardly to the degree that one might have thought in a crisis scenario. The reason we don’t quite believe this one is that gold bugs only trot their theories out when the price of gold is down. If gold rises, it is never mentioned. But, of course, if you really can manipulate prices you can make money both ways. There is no reason to only manipulate the price to the downside. Conspiracy conclusion: Iffy. There is a
‘ Plunge Protection Team’
Investors love this one, the theory being that anytime there is a market crash or economic crisis then governments will swoop into action to save the world. In 2008/2009, for example, the Fed changed the rules, buying back assets from weak companies and limiting short selling. But, is this a conspiracy, or simply good common sense? Financial markets depend on confidence, and in 2008 confidence was swirling down the toilet. The Bank of England was within hours of closing. Without some government intervention, it might have been really, really bad. So, governments worldwide stepped in with some relief measures. Short sellers, of course, did not like the new rules, but rest assured nearly everyone else did, as the world did not plunge into a 1930s depression. Conspiracy conclusion: Confirmed, but it is not actually conspiracy. It is planned government action in reaction to a crisis.
Traders play around with bid/ ask spreads to create the illusion of big buying or selling
If you have ever looked at bid/ask quotes closely, you might notice lots of ‘ funny’ moves by traders. Large buy orders just below the current market, or large sell orders just above the current offer. Traders will often put in orders they have no expectations for, in order to create the illusion of demand or supply, and possibly influence trading prices in the direction they desire. Think about it: if a stock is $ 5.25 bid, and an order shows up for 100,000 shares at $ 5.00, then buyers will notice and perhaps be more aggressive knowing there is a larger order supporting them a bit lower down? But is it a ‘real’ order?
Sure, if someone comes along and wants to sell 100,000 shares at $ 5.00, there is going to be a trade. But more likely than not the order will simply be cancelled once the stock moves a bit higher with all the ‘excitement’ of a large buyer. It also works on the sell side, of course, with a large sell order ‘ shaking’ out some nervous sellers so that buyers can pick up shares on the cheap. Conspiracy conclusion: Confirmed. We see it happen every day.
China manipulates its currency and markets
Whenever an investor considers buying in China, advisers always urge caution, because ‘ the government controls things.’
But this is really not so different from other countries. China plays around with bank reserve requirements and provides other forms of stimulus when growth slows, and tightens things up if growth gets too hot. Sure, company accounting is different in China and there are plenty of other things to worry about, but these are not conspiracies, simply facts. Of course, the government in China might call it ‘support’ and not manipulation, but if the government wants a market or currency to move a certain way, it is going to move that way. Conspiracy conclusion: Confirmed.