Here’s the one question your broker never wants to hear:
“Explain to me how the stock market is not rigged if only 20 stocks account for almost 30% of all daily trading volume, if only 99 stocks account for more than 50% of all daily trading volume and if the bottom 12,112 stocks account for less than 0.05% of daily trading volume?”
Though these were the statistics for the US New York Stock Exchange during the month of June, similar shenanigans were used to rig other major global stock market indexes higher during the global stock market rallies that occurred during the first half of 2010. In 2007, an analysis of the world’s stock markets revealed that only a handful of financial firms controlled the bulk of trading volume every day on the world’s leading stock exchanges, with the most concentrated power being exhibited in the US, the UK and Australia.
At times, during the first phase of our current global monetary crisis, the rigging games were even worse (yes, despite the exhortations of politicians that the global economy is recovering, there will be a second phase to our global monetary crisis). For days on end in 2008 and 2009, when it was necessary to rig the share prices of Fannie Mae, Freddie Mac, Citigroup, AIG higher to prevent an absolute loss of confidence in the US financial sector, those four stocks alone accounted for 33% to 50% of the daily trading volume on the NYSE. On December 17, 2009, Citigroup stock ALONE accounted for an astonishing 47% of the composite daily trading volume in US markets. One has to remember that before the monetary crisis reared its ugly head that C, FNM and FRE only comprised 1% -3% of the daily composite trading volume in the US. Knowing this makes the above percentages I discussed seem even more ludicrous. Though those ridiculously rigged percentages have now fallen considerably, the fact that in June, a mere 99 stocks still accounted for MORE THAN HALF of all daily trading volume in the US stock markets needs to be addressed. So ask your broker why this is.
If your broker admits that the markets are rigged (and there is almost no possible way he or she can deny that markets are gamed though it would be an amusing experience to listen to how your broker might explain the above facts in the same breath of an explanation that markets are still free), and the rigging produces random days when the market shoots up 2.5% only to fall 2.5% two days later, then ask your broker the follow-up question: “If algorithmic High Frequency Trading programs are manipulating the world’s broad stock market indexes daily as seems clear from stock market trading patterns, then why should I possibly engage in investing in the broad stock market indexes if there is virtually zero chance of me beating the HFT programs?”
Remember that the commercial investment industry and Wall Street titans have always rigged the stock market game to their extreme favor. This is why JP Morgan, Bank of America, Citigroup and Goldman Sachs reported PERFECT 2nd quarters this year, when all declared 60 profitable trading days out of 60 trading days even as the US S&P 500 plummeted 15% and produced multiple days when 2% plummets were followed the next day or just days later with 2% explosions higher. To perfectly predict these huge swings in volatility and be profitable every single day does not seem plausible — unless…unless you are the firms rigging the market. Though Citigroup doesn’t break out its trading revenue by quarter, two insiders at Citigroup were knowledgeable of its trading activities stated that Citigroup had a perfect trading record during the second quarter.
Matthew McCormick, a banking analyst at Bahl & Gaynor Inc. in Cincinnati, stated, “It’s statistically improbable to have three firms batting 1,000 and also pitching a perfect game. You wonder why the rest of America has some suspicion about proprietary trading.” I would go further than McCormick and say that it is statistically IMPOSSIBLE under free market conditions, given the enormous volatility in the 2nd quarter 2010 in US markets when 2% plummets in stock market indexes were followed by random 2% explosions higher for no apparent fundamental reasons, for not four, BUT FOR EVEN ONE firm to declare a perfect daily trading record unless they control the systems that control the markets.
During the global monetary crisis, the gaming factor has undoubtedly increased exponentially. Unless you are a professional capable of identifying how the system is being gamed (which 99.9% of “professional” brokers are not), you have virtually no shot at beating the gamed system today. Every professional trader, even the skeptics, have been forced to admit that the signs are too overwhelming that the major global stock markets are being gamed these days. So just remember that in a scam there is always a shill and a mark. To answer the question of whether you have any business investing in broad stock market indexes that are so obviously rigged, ask your broker/adviser to answer the first question above and listen to his/her explanation. Then remember, if after the conversation, you still can’t figure out who the mark in the game is, that means the mark is you. And when the rigging games fail to maintain their staying power, as the rally that global stock markets experienced in the first half of 2010 were all fake, better watch out below. This is why we’ve always said on our website at maalamalama, “if one expects to be profitable in today’s investment world, one MUST realize that ALL MARKETS ARE RIGGED” and absent of this realization, it is next to impossible to come out on top.
