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How do Hedge Funds Manipulate Stock Prices?

How do Hedge Funds Manipulate Stock Prices?

As we struggle to fathom why our financial markets have fallen so dramatically, many in the financial media have ignored the role played by short sellers and manipulators. When men controlling billions of dollars in trading power make a bet, they will go to any lengths to make that bet pay off – including manipulation and gaming our system.

Methods Used To Manipulate Our Markets –

Establish short positions over a period of 20 – 30 days – at this stage the selling is done gently – the markets do not even feel a ripple. Once that is done, wait for a trigger to crush the price down. Any trigger will do – floods in Chile , hurricane in Cuba , bomb blast in Afghanistan . The deliberate heavy selling is now done by different funds and entities allied with the short betters. A lot of the selling and buying thus happens between allied parties – something called CIRCULAR TRADING. Circular trading though illegal is hard to trace and the SEC has made no efforts to trace it.

By beating down the market heavily, they force those who had bought the shares on margin to be squeezed. Resulting margin calls from brokers will force many to sell at a low price – loosing tons of money. Stock analysts allied with the team play a major role in putting a spin to justify the manipulation

RIMM – profit up 75% – stock down 27% in a single day

POT – profit up 300% – stock down 50% over the last 3 months

From the above it’s easy to see how our financial system, our government, our regulatory authorities are turning a blind eye to the whole system being manipulated.

We only have to take a comparative look at stocks that have short selling banned and those allowed – to make a clear case that short sellers manipulate our stock markets.

Bank of America (BAC) – up 60% after the shortselling ban

CITIBANK (C) – up 40% after the shortselling ban

First Bancorp(FBP) – up 45% after the shortselling ban

Shortselling permitted stocks-

Potash (POT) – down – 50%

Apple (AAPL) – down – 30%

United States Steel(X) – down 45%

Indian stock market has plunged almost 40% since short selling for major institutions was allowed. [Just a few days before presenting the Budget, finance minister P Chidambaram has finally given the go ahead to short selling by institutional investors by clearing issues on its taxation. – http://www.financialexpress.com/news/Nod-to-short-selling-by-institutional-investors/277414/ ]

Compare the drop in stock markets –
Thursday 18, October – major stock markets down 8- 9 %
Chinese Shanghai Index down 3% (They dont allow short selling)

The major debate has been how big a role short sellers play in a market’s decline? When a stock falls by 27$ in a single day – how much of that fall can be attributed to short sellers? Hard to say. Same was the problem we faced when elephants and wildlife was being decimated around the globe. How do you prove the ivory tusk you just bought came from a dead elephant or an elephant that was just killed? In our wisdom we humans decided to ban the ivory and wildlife trade completely.

[ HYDERABAD : The volatile Sensex has found its victims here in a macabre way. K Upender, 34, killed himself and took along with him his wife Swati and two-year-old son Sai Ashij. The huge losses in the stocks business was too much for him to bear.- http://timesofindia.indiatimes.com/Cities/Hyderabad/Bear_run_pushes_family_to_suicide/articleshow/3501114.cms]

Huge and sudden market declines have caused people to take their own lives along with whole families. When we are dealing with an issue this serious, it is imperative that we ban an activity that contributes significantly to this major problem

Short selling originated at a time when brokers ran their own stock exchanges in the wild west style, before there was any regulation. It is as vital to the economy as is a piece of rusted nail on the road that can blow a hole in your tire.

My question is – why would the people in power allow this? Is it because the hedge funds contribute few hundred million dollars to political parties every year?

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