Behind the Shell Game Lurks a Black Swan

When we half-jokingly talk about DaBoyz and how they are continually manipulating the markets, we sometimes lose sight of the fact that they really are out there, rigging the game so that they cannot lose. However, even as these Masters of the Universe maintain quasi-criminal control over the short- and intermediate-term swings, they understand as we do that there are larger, uncontrollable forces lurking in the form of black swans such as the collapse of Lehman Brothers. A post in the Rick’s Picks forum from Mario Cavolo brilliantly describes the interplay between the manipulators and those larger, dangerous forces. Here’s Mario with some thoughts on the subject that hit us like a bolt of lightning:



“Rick, I have been in a state of particularly deep pondering of these issues for the past few days, stimulated by the way, by my carrying around and reading Nassim Taleb’s classic, Fooled By Randomness, when I had a sudden insight. In the same way that I have learned here from you and others as well, we realize that ‘DaBoyz,’ the ‘PPT’ and various other interested groups (the Goldman Sachs trading desk, with 40x higher volume) with such ability, even possibly illegal ability, interfered and manipulated the market with enormous cash infusions after the March low, forcing it up beyond reason and fundamentals, such heavy handed manipulations demonstrated by all kinds of evidence in daily trading activity, volume spikes, etc.

“Well guess what? THEY are at it again, my friends, and why shouldn’t it be the case? In the short and intermediate term time frames, they absolutely can and do manipulate index levels, gold and the dollar if they want — right or wrong? Those same BOYZ have made their latest set of new strategy decisions, of what WILL go up or down in the range they’ve decided, within the context of the current overall state of affairs and the intermediate-term time frame.

The action, including strange inexplicables, is sending the message right now: Part I. Yes, gold and stocks have had their nice ride to the topside of the trading range, and there is not much upside left in this intermediate time frame, so it is time to reasonably take profits, let the market breathe/correct/trade sideways. Well they know that’s what most everyone is thinking now: there is very little upside to this run, few are that foolish a risk taker, eh? DaBoyz know it too, and know it’s time to let it breathe/correct for a while. Taleb just taught me about this “asymmetry” in the upside and downside. Part II: Yes, at the same time as stocks/gold are popping up, the dollar has had its scary ride down to the lower side of its trading range and now it’s time to take those stock and gold profits and park it safely in dollars.

“A dangerous game? Yes, of course. Do they have a choice? No. They have to do this, Rick, to address it, to manage it, to make choices, (while also preserving their own status, of course). They are responding and adjusting, responding and adjusting, while praying that some random black swan doesn’t suddenly appear again to disrupt the delicate balance of the sand pile currently in place. The state of affairs here in October is quite different than May. In fact, what would you really do to unwind it, to solve it, to balance it, to save it?
“I am surely incapable of properly answering such an enormous question.”
As are we, Mario. Thanks for weighing in.

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