First an Overview of the History of the Stock Market, and Common Misconceptions.
Stock Market Investors have felt the pain of a supposedly falling gold price, with withering losses in the value of junior commodity company share prices and gold stocks that dwarfs by multiples the decrease in the price of gold. The price of gold has fallen by roughly 25%, while most gold stocks have fallen by 40% to 80%, How do you deal with this? Don’t fall prey to the predators. This is what is happening, and this is what you have to do.
The Fallacy of Fair Value in the Stock Market
There are people that study the stock markets and the metals markets and pontificate on how the stock market values stocks fairly, and how the stock market predicts the future of the economy, and all kinds of other nonsense. The truth is that the days of fair valuation of stocks are long gone as is the antiquated theory that the stock market foretells the future economy. To illustrate, just look at the zooming stock market just before the 2008 crash, or the current downdraft. The stock market moved in the opposite direction until too late. Those days of looking at the stock market as some type of predictive mechanism, are days of yore, they are days gone by, when the stock market was composed of millions of average people investing their money – supposedly. But this fallacy wasn’t true then, and it isn’t true now.
The Surprisingly Accurate Decisions of the Masses
The theory is that an average of all individual decisions, is more accurate than any individual’s decisions – on average. There have been studies recently whereby by some unfathomable reason, it is indeed proven that when a mass of unrelated people, from unrelated places, with unrelated backgrounds, decide something, it is on average far more accurate and correct in hindsight, than the decisions of any individual. I don’t understand why this is true, but I accept that it is true.
Although this research had not yet occurred decades ago, still this conventional wisdom was granted to the stock market – a belief that the valuation that the stock market gave to any stock was accurate and fair. That was a naive and simplistic view as the Financiers of Wall Street, the Railway Barons, The Steel Barons and the other powerful folks dominated the stock market in the early 1900′s and manipulated the stock market to their own benefit. So the Stock Market was a minefield, and the Power Barons used it to raise money, and to make money. That was fair game, so long as the average investor also had a chance.
The next iteration of the stock market was the boiler room, where shills and scam artists did their best to fleece the unsuspecting of their wealth by using the telephone and the mail to promote non-existent or newly created overvalued stocks that could be sold to the unsuspecting. Stocks sold this way were here today and gone tomorrow. Fleecing of the investor was an honored profession.
The Fallacy of the SEC and Cleaning up the Stock Market
As the abuses of those people become more recognized, the public outcry created an environment to create all of the rules and regulations to supposedly make the stock market much fairer and a more level playing field. So rules and regulations proliferated and grew to absurd lengths. The sheer numbers of words necessary for any public offering has now grown to such an absurd volume, that the cure is much worse than the disease. Anyone who has the time and energy to read all of the disclosures and risk warnings, either has nothing else to do with their lives, or is a very unusual person.
Unfortunately, the SEC is Writing Rules and Ignoring the Bigger Issue
The stock markets are no longer the place for the average person. Individual investors have been replaced to a large extent by Mutual Funds, ETF’s, and with more and more influence, manipulators using computerized stock trading, algorithms, unbelievable high volumes of micro-second buying and selling, program trading, and massive amounts of capital used to influence the market. All of the rules written by bureaucratic organizations do not protect the average investor against what the stock market is now. They are busy mired in history, prosecutions, and irrelevancies to the modern markets.
Wall Street Sows the Seeds & Reaps the Harvest
When these massive amounts of capital are now employed to influence the stock market, it doesn’t matter whether a stock is overvalued, or undervalued, or has good corporate governance, or zero corporate governance. For the last 3 months, it has been the commodities market that has been the source of great riches for these market manipulators. If you start understanding how it works, you can profit from this.
The Current Harvest by Wall Street of Money from the Unsuspecting
The current round of manipulation started in April 2013. Goldman Sachs warned its clients about a pending weakness in gold, which was a sign – those that understand the ‘speak’ of the insiders knew that the time was right.
Then at the opening of the market on April 12, 2013, some ‘unknown’ party offered for sale at market price 100 tons of gold, and followed that with an additional 300 tons of gold two hours later. To put this into perspective, 100 tons of gold was worth about $5,600,000,000. 300 tons of gold was worth about $16,000,000,000. That’s over 20 BILLION DOLLARS.
Can you imagine yourself betting 20 BILLION DOLLARS that the price of gold will fall? I doubt it. To see and understand those transactions in detail, visit my blog of April 17, 2013.
As far more physical gold deliveries were offered for sale, than purchasers wanted to buy, the price of gold fell – and fell hard. Gold buffs who were prophesying that gold was headed for the moon, got blindsided, and if they were in margin, they really lost big. Fortunes were lost in those few hours, and Wall Street cleaned up. They bet big, and they blindsided the gold buffs with such massive capital, that the floodgates collapsed, and the traders made big money in those two hours and afterwards. The price of gold plummeted, and it took with it, the value of gold stocks, then silver stocks, then all commodity stocks.
Wall Street knows a good thing when they see it. Just like everyone jumped on the bandwagon in 2005-7 to sell worthless mortgage backed securities to the unsuspecting, in 2013 traders and manipulators jumped on this bandwagon to short the commodities sector starting with the junior gold explorers and producers. It didn’t take much to see the opportunity, and Wall Street’s License to Harvest Money from the Average Investor, jumped into high gear.
Why Spoil a Party – Wall Street Sowed the Seeds, Now the Crop was Ready to Harvest. Tomorrow’s article describes the way investors and commodity companies were decimated and what to do about it to save your portfolio.
Sign up for CymorFund’s Stock Pick investor newsletter at www.cymorfund.com. Articles on specific stocks as well as commentary and explanation of the stock markets and stock trends.
We may or may not have positions in securities we name. In making an investment decision consider numerous factors such as portfolio balancing, timing, cash and capital reserves, asset allocation and other. Do your own research. Matters discussed contain forward-looking statements that are subject to risks and uncertainties and actual results may differ materially from any future results, performance or achievements expressed or implied.
Views expressed are opinions and not investment advice. You should retain a licensed professional to guide you and not rely on the opinions expressed herein. This report is neither a solicitation nor a recommendation to buy or sell securities. We are not a registered investment advisor nor a broker-dealer. The information contained herein is based on sources which we believe reliable but is not guaranteed as being accurate or a complete statement or summary of the available data.
