A Flagrantly Overbought Stock Market — Time For The Small Investor to Play Chump Again

Some things are totally predictable. The sun will rise in the east and set in the west. The tides will go out after coming in. The Yankees will always have more to spend on talent that their rivals.

Something else is totally predicable. After Wall Street sharpies have rigged the stock market to rise in ways that generate undeserved profits for themselves for a long enough time, they’ll complete the rip-off cycle by suckering in small investors to take the inevitable dive that follows.

This isn’t a one-time thing. This is an always-happens thing. You see it five times, 10 times, lots and lots of times, it’s almost too obvious to mention. It’s an old Circle Of Gold ponzi-variant writ large.

Manipulators start the game and others watch them get rich. The sideline watchers hold back suspecting a trick until they are finally conned into believing that THIS TIME IT’S DIFFERENT. They take the bait at last and throw in their savings.

The stock market has been climbing for years during which time the real economy first plunged, then settled into the painful doldrums. In all that time the market riggers, pumped up with tons of cash from an enabling Fed, have piled up more and more undeserved stock market riches. Now it’s time for someone to take the fall. And it ain’t gonna be the market riggers.

If I were guessing, I’d say the the Dow will be pumped up a little beyond 14,000 before the plug is pulled. Small investors took out many billions from mutual stock funds during the rigged run up. Now, bled by the returns they’ve been getting from depressed interest rates on safe investments — rates held down by the market riggers’ friends at the Fed — the fish are finally taking the bait.

The sun will rise in the east tomorrow. A brilliant prediction? Hardly. A rigged stock market in which a fall is soon inevitable, one that hurts the small investors while the big boys lock in their profits. A brilliant prediction? Dah. No. No brilliance required.

(Two books from this author available from Amazon — Fifteen Feet Beneath Manhattan and The Big Belch)

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  • slamfu

    Sounds about right. Although the market has seen some big rises without a complete dip in the trough of the cycle. The real issue is will the house of cards the financial sector has built up to the tune of hundreds of trillions of dollars in the derivative/credit default swap markets come tumbling down with it, truly screwing us.

  • dduck

    But, but, I thought the market went up because of people’s confidence in Obama, sorta like they were for all of his positions because they voted for him. :-)

  • Willwright

    Well if it was truly rigged then somebody should be able to beat it all the time which I’ve never heard of. I read that Warren Buffet as close as you probably get to someone to winning almost all the time does his own research generally just going to the public library and reading. He doesn’t think to much of stock analysts research, he called what they do more marketing than research. In this sense the market can be rigged by people giving advice without disclosing theirs or their firms interest in a particular investment. Go back and look at the Internet stock bubble and the mortgage product bubble, a lot of stuff was hyped that was junk and how the hucksters made millions (for a while). There are quite a few people who should be reading the WSJ through bars.

  • zusa1

    Willwright, the lobbyists beat the market (and don’t forget congress):

    http://www.economist.com/node/21531014
    http://www.huffingtonpost.com/2011/05/24/members-of-congress-get-a_n_866387.html

    Jim Simon’s math skills don’t hurt either, but that’s not rigging. The silver market is a small enough market that I think there is some success rigging that ala Hunt brothers.

  • Willwright

    Zusai what you say is true but this is jus people acting on inside information about stocks in the market. Not ethical nor legal in most cases. Another case is Martha Stewart who did end up doing time. This all pales in the face of what went on with Internet stocks and the shenanigans leading up to the financial crisis. This will never go away completely as long as human beings are involved. The best we can hope for is a fair chance for all and swift punishment for those would don’t follow the rules. The financial markets play an important role in our economy and on the whole have contributed significantly to our development.

  • ROBERT COUTINHO

    When the market soars while the economy stagnates, there is no doubt that the fix is in. The only question to be asked is when to abandon ship.

  • dduck

    I always passed on to my clients the old adage; buy low and sell high. Of course that depends on your previous history and actions. If you are ahead of the peak of October 2007, I would definitely think about lightening up on stocks depending on your individual circumstances. If not, it is harder to give general advice.

  • epiphyte

    If I’d followed my own advice over the past 20 years, which is to buy in the 1st three months of a democratic presidency, sell seven years later, and find something more useful to do with your money for the entire duration of any intervening republican administration, I’d be much, much better off than I am today. As would we all.

    er…
    That’s it.