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Here Come the Market Manipulators - Scott Adams' Blog

Here Come the Market Manipulators

Small investors are piling into the stock market with an enthusiasm we haven’t seen in years. That’s never a good sign. Meanwhile, many financial experts with their charts and graphs say there is no doubt – none whatsoever – that we’re heading toward a “correction” that will be a big one.  But of course we have plenty of other experts with their own charts and graphs saying the stock market is still a good bet.

Remind me why anyone trusts financial experts?

What you need is a cartoonist to tell you how to invest. My prediction is that there will be a correction of 20% or more sometime in 2013. That will be followed by a jerky climb for the next several months back to wherever the stock was before the fall.

My prediction is based on the observation that the stock market appears to move as if it is manipulated by a network of big players. They lure in the excitable small investors by allowing the market to show a year or two of solid gains then they sell their shares, spook the world with predictions of doom, and buy back into the market at the lower prices.

The way the big players cover their collusion is by synchronizing their sudden exit from the market with bad financial news. And if there isn’t any naturally-occurring bad news, they create a phony story of certain doom that sounds plausible. The financial news outlets depend on finding “reasons” for moves in the market, so they are more than happy to report that the phony crisis is the cause. And once a “reason” takes hold in the public consciousness, all of the lesser-important pundits chime in to support that explanation.

When I say there is manipulation and collusion in the financial markets, it doesn’t mean there are actual meetings in which billionaires smoke cigars, drink expensive cognac, and make their evil plans. It might be enough that they are all so aware of each other’s moves that they just play follow-the-leader and do so faster than small investors. The sort of market manipulation I’m describing only requires one billionaire leader who is closely watched by the other billionaires. When he sells, they sell, and they all understand why.  The big players who time it right get a 40% gain for the year while the underlying value of their stocks is unchanged at the end of it all. It is the perfect crime.

Does any of that sound plausible to you? Or do you believe the markets are mostly honest, give or take a few high profile cases of insider trading?

Normally I wouldn’t buy into a conspiracy theory that has no smoking gun type of evidence. But financial markets are a unique situation. When you give people in that industry the motive, the opportunity, and a near-zero chance of getting caught, how can you expect them to play fair? The bigger shock to me would be to learn that the markets are free of manipulation. That would be a violation of everything I know about human nature.

So look for a 20% correction in 2013.