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Thread: Please explain

  1. #1
    Senior Member Rocky's Avatar
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    Please explain

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    Can someone who understands the Stockmarket please explain this to me.
    It seems to me that Wall Street has become an out-of-control juggernaut that is a law unto itself. First they brought us the GFC due to their irresponsible and immoral behaviour (and total lack of oversight by the government).
    Now we have a Stockmarket crash caused by panic selling by the institutional players, of stocks and shares that seem likely to be affected by the impending pandemic.
    Now, I understand that the role of the institutional players is to protect their organisations against financial losses resulting from a drop in share prices of companies that are potentially exposed to damage resulting from the pandemic. It appears however, that panic selling of such stocks drags the whole market down causing much greater losses overall than if everyone was just to ‘sit it out’ and take whatever losses occurred as they occurred.
    I realise that what the institutional players do is to ‘cover their ass’ and force the smaller players (individuals, superannuation funds etc) to take the loss and therefore fund the institutional players gain.
    What this (and the GFC) looks like to the average punter, is the big financial institutions stealing from the rest of the population. (I guess if you have lots of shares in the big financial institutions this is marginally acceptable)
    It just seems to me from down here on the ground that Stockmarket peaks and troughs are nothing more than a strategy engineered by the ‘big players’ to steal profits from the rest of society that is exposed to the market but not actively engaged in playing it.
    I kind of wonder if there isn’t a way to manage the Stockmarket so that it isn’t such a damaging force for the rest of society. Could the government suspend trading (for e.g.) at the first sign of a significant crash and say to the institutions – “ride it out” rather than take the rest of the community down for their sole benefit.
    It just looks to me that the Stockmarket is a massive wealth-generating machine for the elite financial institutions that do not seem to answer to anyone and are able to distance themselves from the negative global consequences of their actions (as happened to most of them – excepting Lehmanns – in the GFC.)
    Now I probably have all of this wrong but I’d like to hear from people who actually know something about how it all works.
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  2. #2
    CoffeeSnobs Owner Andy's Avatar
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    Could the government suspend trading (for e.g.) at the first sign of a significant crash
    China does that if the index drops too much in a day. Gives everyone a chunk of time to take breath before acting the following day.

  3. #3
    Super Moderator Javaphile's Avatar
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    Of course the governments could do it, but it is those same big financial players who are making a killing in those markets that control those governments. Why would they cut their own throats?


    Java "You didn't really think the voters ran the government did you?" phile
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  4. #4
    Senior Member Barry O'Speedwagon's Avatar
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    Quote Originally Posted by Rocky View Post
    Can someone who understands the Stockmarket please explain this to me.
    It seems to me that Wall Street has become an out-of-control juggernaut that is a law unto itself. First they brought us the GFC due to their irresponsible and immoral behaviour (and total lack of oversight by the government).
    Now we have a Stockmarket crash caused by panic selling by the institutional players, of stocks and shares that seem likely to be affected by the impending pandemic.
    Now, I understand that the role of the institutional players is to protect their organisations against financial losses resulting from a drop in share prices of companies that are potentially exposed to damage resulting from the pandemic. It appears however, that panic selling of such stocks drags the whole market down causing much greater losses overall than if everyone was just to ‘sit it out’ and take whatever losses occurred as they occurred.
    I realise that what the institutional players do is to ‘cover their ass’ and force the smaller players (individuals, superannuation funds etc) to take the loss and therefore fund the institutional players gain.
    What this (and the GFC) looks like to the average punter, is the big financial institutions stealing from the rest of the population. (I guess if you have lots of shares in the big financial institutions this is marginally acceptable)
    It just seems to me from down here on the ground that Stockmarket peaks and troughs are nothing more than a strategy engineered by the ‘big players’ to steal profits from the rest of society that is exposed to the market but not actively engaged in playing it.
    I kind of wonder if there isn’t a way to manage the Stockmarket so that it isn’t such a damaging force for the rest of society. Could the government suspend trading (for e.g.) at the first sign of a significant crash and say to the institutions – “ride it out” rather than take the rest of the community down for their sole benefit.
    It just looks to me that the Stockmarket is a massive wealth-generating machine for the elite financial institutions that do not seem to answer to anyone and are able to distance themselves from the negative global consequences of their actions (as happened to most of them – excepting Lehmanns – in the GFC.)
    Now I probably have all of this wrong but I’d like to hear from people who actually know something about how it all works.
    Many of the things you describe certainly occur with vary degrees of frequency. I don't, however, really understand what you are suggesting in the "I realise that what the institutional players do is to ‘cover their ass’ and force the smaller players (individuals, superannuation funds etc) to take the loss and therefore fund the institutional players gain." bit though. How exactly are they forcing us to take the loss?

    It's also worth bearing in mind that its not just 'shareholders' of the big financial institutions who benefit when their investment decisions pay off. Many of these institutions are operating funds in which small, medium and big investors supply capital....it is those investors who benefit (lose) most directly when the fund manager gets it right (wrong). It is true however, that high wealth individuals are more likely to be investing through these funds.

    I don't think there's any great financial conspiracy in this particular case. It's not just a case of big players winning and small guys losing. A lot of the losses and gains are shared among large investors who make what turns out to be the wrong/right call. There is a lot of competition among the hedge funds (which aren't really hedge funds anymore) and other institutional investors. Some big guys stand to lose a lot at the moment. Basically, my take is that there are two things going on here. 1) Prior to this event, equities were significantly over-valued relative to fundamental earning power of the firms on whose assets they are issued, there are times when everyone sorta knows that this is the case but everyone's trying to guess when others will admit it (i.e. when prices are going to fall), and 2) the the Corona thing comes along and provides the spark for a major correction plus more for good measure. People are trying to figure out exactly how this crisis is likely to affect the earning power of real world businesses.....and that is very uncertain at the moment.

    And yes, most exchanges have the right to suspend trade, but in this case I don't think it would make any difference (other than to people who want to make short term bets). Open trade again tomorrow and you are going to see the same thing happen.

    I don't want to sound like an apologist for the financial sector because this obviously a lot of dodgy stuff that does occur. Ordinary investors' greed helps things along nicely as well. When interest rates are low, people do dumb things in pursuit of a return.
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  5. #5
    Senior Member LeroyC's Avatar
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    Rocky I think you answered your own question and explained things pretty well yourself, albeit from a slightly cynical point of view. It’s pretty much capitalism 101.

  6. #6
    Senior Member Rocky's Avatar
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    Andy - that's right - it's the dumping of very large volumes by the institutional investors that causes the crash. In the normal situation, smaller traders dumping moderate amounts of stock over longer periods takes some time before it impacts the Market in a big way and it gives other players time to decide how they will jump.

    Java - God NO! I know only too well that big business/finance owns governments. Dirty Rupert is an e.g. of that.
    Of course they won't cut their own throats, but it is more about a groundswell of public opinion telling them they must not allow big business to keep cutting ours.

    Barry - It seems to my simple intellect that they force 'us' to take the loss by causing the crash which allows them to take their profits and leave everybody else with diminished share value, reduced Superannuation balances etc. There is nothing we can do about the fact that we have 'lost value' and that in a month or two they will move back in and pick up shares at a much lower price. Market manipulation by any other name.
    Sure - widespread greed runs the system - and it is gambling by any other name - but I'm not shedding tears for the people who, through greed or stupidity, make bad financial decisions. I'm concerned about the intrinsic corruption in the whole Wall Street/Stockmarket system which we seem happy to tolerate and which robs the "innocent bystanders".

  7. #7
    Senior Member robusto's Avatar
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    Barry, the stockmarket is a formidable and irrational beast that few understand, and even fewer can explain.

    There's a saying: The share market can remain irrational much longer than investors can remain solvent.

    But some can predict tops and bottoms within a day or so months ahead of the event using calculations which seem diabolical. I can't. But I've seen it. Pure magic.

    People naturally want explanations for everything that happens including movements in the stock markets... but the simple answer is most times there are no rational explanations.

    I don't profess to be an expert, but for decades I traded shares as a day trader. My eyes glued to my charts on my screens. Yes, charts. I tend to ignore company fundamentals, and concentrate pretty much solely on TA--technical analyses of charts.

    While some bury their heads in company reports, profit and loss, depreciation, dividends etc...I bury mine in repeating chart patterns, Bollinger Bands, gravestone and hanging man candles , Stochastic indicators, moving averages, resistance and support channels, Fibonacci retracements and dozens more indicators.

    I shake my head every day when news organisations claim to explain why the market went up... or down. Nervousness about Britain leaving the EU forced stocks down, they'll say. The next day when those fears are still rampant, but stocks inexplicably rise, they'll say the market shrugged off those fears.

    Makes sense? No.

    A couple of points.

    It wasn't wall street that brought us the sub-prime crash of 2008, but US banks and mortgage agents with their greedy commissions selling low-doc or no-doc mortgages wo people who'd never make the repayments. I won't cover that old ground.

    Technically at the moment we have a stock market correction. A 3816 point or 12.9% fall for the Dow Jones Industrial Average of 30 stocks.

    Stock markets are a dangerous place. Institutions are the sharks, and wide-eyed mums and dads who swim with them aren't aware of the dangers.

    Small "investors" are really gamblers who think the only way a stock can move is up. Just as others go to the casino or pokies thinking those place are there to give them money for free.

    The New York Stock Exchange does have inbuilt safety valves where trading is automatically suspended when a pre-determined fall happens. Then trading resumes.

    You are right, institutions with deep pockets can manipulate the market in any direction they wish -- even as the market falls there's money to be made.

    Hedge funds especially make money by short-selling stocks.

    They "borrow" stocks, often from pension funds who have plenty of them, or even brokers like our Comsec, for a fee, and sell them as though they own them.

    As the price droops, they buy them back at a much cheaper price, and return them to the original owners.

    They pick on vulnerable stocks, and often this has a dramatic affect accelerating a fall.

    By the same token, if the stock goes up rather than down, there's a massive "short-squeeze" as the short-sellers panic buy stocks, forcing the price up and up. Many years ago a short-squeeze made Volkswagen the world's biggest company by market capital for less than a day

    The stock market is what it is...and not for the faint-hearted. Any idiot can make money in a rising bull market...but you have to know when to get out before the inevitable fall.


    The sharemarket generally is several months ahead of the present. Traders, investors, are focused on what the future will bring.

    Daily news about this and that is regarded as "noise" to be ignored.

    Don't listen to the noise, but look at the chart to see what's what.

    The government telling institutions to "ride it out". Interesting. But if you had your money invested with an institution and saw its value declining and wanted to cash out, and the fund manager was forced to sit on the sidelines "riding it out" ...how would that work?

    The idea also assumes that the only way is up. Stocks do become over-bought to the point they become unattractive to buy. They fall, and become attractive again.

    Sorry to have to say it, but you need corrections to restore some semblance of "sanity".

    In March 6, 2009, stocks were deemed a buy again after the sub-prime crash. Had the economy turned around? Things were rosy again? Nope, but shares were deemed cheap enough to buy again, and thus began the longest bull market in history.
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  8. #8
    Senior Member Barry O'Speedwagon's Avatar
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    Quote Originally Posted by robusto View Post
    Barry, the stockmarket is a formidable and irrational beast that few understand, and even fewer can explain.

    There's a saying: The share market can remain irrational much longer than investors can remain solvent.

    But some can predict tops and bottoms within a day or so months ahead of the event using calculations which seem diabolical. I can't. But I've seen it. Pure magic.

    People naturally want explanations for everything that happens including movements in the stock markets... but the simple answer is most times there are no rational explanations.

    I don't profess to be an expert, but for decades I traded shares as a day trader. My eyes glued to my charts on my screens. Yes, charts. I tend to ignore company fundamentals, and concentrate pretty much solely on TA--technical analyses of charts.

    While some bury their heads in company reports, profit and loss, depreciation, dividends etc...I bury mine in repeating chart patterns, Bollinger Bands, gravestone and hanging man candles , Stochastic indicators, moving averages, resistance and support channels, Fibonacci retracements and dozens more indicators.

    I shake my head every day when news organisations claim to explain why the market went up... or down. Nervousness about Britain leaving the EU forced stocks down, they'll say. The next day when those fears are still rampant, but stocks inexplicably rise, they'll say the market shrugged off those fears.

    Makes sense? No.

    A couple of points.

    It wasn't wall street that brought us the sub-prime crash of 2008, but US banks and mortgage agents with their greedy commissions selling low-doc or no-doc mortgages wo people who'd never make the repayments. I won't cover that old ground.

    Technically at the moment we have a stock market correction. A 3816 point or 12.9% fall for the Dow Jones Industrial Average of 30 stocks.

    Stock markets are a dangerous place. Institutions are the sharks, and wide-eyed mums and dads who swim with them aren't aware of the dangers.

    Small "investors" are really gamblers who think the only way a stock can move is up. Just as others go to the casino or pokies thinking those place are there to give them money for free.

    The New York Stock Exchange does have inbuilt safety valves where trading is automatically suspended when a pre-determined fall happens. Then trading resumes.

    You are right, institutions with deep pockets can manipulate the market in any direction they wish -- even as the market falls there's money to be made.

    Hedge funds especially make money by short-selling stocks.

    They "borrow" stocks, often from pension funds who have plenty of them, or even brokers like our Comsec, for a fee, and sell them as though they own them.

    As the price droops, they buy them back at a much cheaper price, and return them to the original owners.

    They pick on vulnerable stocks, and often this has a dramatic affect accelerating a fall.

    By the same token, if the stock goes up rather than down, there's a massive "short-squeeze" as the short-sellers panic buy stocks, forcing the price up and up. Many years ago a short-squeeze made Volkswagen the world's biggest company by market capital for less than a day

    The stock market is what it is...and not for the faint-hearted. Any idiot can make money in a rising bull market...but you have to know when to get out before the inevitable fall.


    The sharemarket generally is several months ahead of the present. Traders, investors, are focused on what the future will bring.

    Daily news about this and that is regarded as "noise" to be ignored.

    Don't listen to the noise, but look at the chart to see what's what.

    The government telling institutions to "ride it out". Interesting. But if you had your money invested with an institution and saw its value declining and wanted to cash out, and the fund manager was forced to sit on the sidelines "riding it out" ...how would that work?

    The idea also assumes that the only way is up. Stocks do become over-bought to the point they become unattractive to buy. They fall, and become attractive again.

    Sorry to have to say it, but you need corrections to restore some semblance of "sanity".

    In March 6, 2009, stocks were deemed a buy again after the sub-prime crash. Had the economy turned around? Things were rosy again? Nope, but shares were deemed cheap enough to buy again, and thus began the longest bull market in history.
    Thanks Robusto......I'm very well versed in how these things work (I've been in the very middle of this game before) and don't disagree with too many things that you say. I was commenting in response to a post on this particular rout. I wasn't arguing that we don't corrections. Short-run market behaviour is chaotic. These guys always have a standard 'time to unwind' on their positions which are based on a gradual sale that doesn't tank the price, but that goes out the window when the order book becomes totally one-sided.

  9. #9
    Senior Member robusto's Avatar
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    Oops, my apologies Barry. My post was in response not to you but Rocky.

  10. #10
    Senior Member Barry O'Speedwagon's Avatar
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    Quote Originally Posted by robusto View Post
    Oops, my apologies Barry. My post was in response not to you but Rocky.

    All good mate.

  11. #11
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    Rocky if you wish to enjoy a great read I can recommend two books. No they're not dry hardslog Economics or Investment theory.
    But they were entertaining. Written by Bill Rogers an Economics Prof at Harvard. Who was also the partner of George Soros and together they started the first hedge fund in the 70's.

    Titles were - Investment Biker ('79). And the follow up book was Adventure Banker (2001).
    Both cracking good reads based on travel, adv. touring and world economics / investment 101 weaved in.

  12. #12
    Senior Member Yelta's Avatar
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    Morning Rocky.

    The market is constantly changing, when things get overheated or there is an event that makes people nervous we will experience a fall, journalists seize the opportunity to announce a crash and relish the chance to inform us the end is neigh, most involved directly know full well its only a correction, of course these announcements only add fuel to the flames and panic small investors even more.

    They gleefully inform us that X billion dollars was wiped from the market value overnight but fail to mention that the losses are in fact only a small percentage of the previous period of gains.

    Have a look at the chart in this link https://www.macrotrends.net/1319/dow...storical-chart it puts things into perspective.

    As you can see, the latest correction still sees the Dow at almost the highest its ever been, then have a look at previous falls, they are always followed by a recovery, even from 1965 to 1982 there were opportunities for those who were abreast of the situation.

    Things are seldom as bad as the media paint them.

  13. #13
    Senior Member robusto's Avatar
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    Here's my chart of the Dow Jones Industrial Average. Last night's action is represented in the last green candle.

    It gapped down from the previous red one, and with its small upper body and long thin tail this candle pattern usually --not always, but usually--indicates that next day will be a reversal up.

    Notice how the fall from the market top top has hit the very important (to traders) 61.8% Fibonacci level, pretty much, to the point.

    Also notice how the day's low coincided with the May low at which point the market rebounded. (Longer term, though, that May low has no major support)

    At the open, stocks fell 494 points. The selloff continued, bringing the fall to 1083 points. The moment the level hit that 61.8% Fibonacci level, buyers stepped in, reversing the fall and lifting the market upwards by 728 points.

    Those are the sort of things the daily headlines "Dow falls 357 points" don't tell you.

    dow friday.png
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  14. #14
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    The market is pricing in real time but is often ahead of the curve based on what it thinks will happen. At the moment it sees more downside and so while it may be volatile it will continue going down. It is driven by the virus as that has shut caused so many business losses. The world economy was starting to show signs of strain and lower business activity before this hit so it is also more than about the virus. It most likely was due for a correction even with out the virus, with it, it will be particularly bad news for investors. I think it is unlikely we will get good news until the end of 2020 on the virus and it could even be longer than that.

    You never know though and money is cheap so people buy low and live in hope they have bought at the right time for future profit.

  15. #15
    Senior Member Yelta's Avatar
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    Note with interest, the Dow gained 1300 points overnight, the Aust market is expected to follow suit today.

    A lot of smart operators will have done very nicely out of this little hiccup.

    Will be interesting to see what happens over the next few days, may well be a dead cat bounce.
    deadcatbouncechart.jpg

  16. #16
    Senior Member Barry O'Speedwagon's Avatar
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    Quote Originally Posted by Yelta View Post
    Note with interest, the Dow gained 1300 points overnight, the Aust market is expected to follow suit today.

    A lot of smart operators will have done very nicely out of this little hiccup.

    Will be interesting to see what happens over the next few days, may well be a dead cat bounce.
    deadcatbouncechart.jpg
    I hadn't touched shares for more than 10 years until yesterday morning. Had a shot at Boral, Adelaide Brighton, NAB and Myer at 10.15am yesterday. These are buy and holds, but got em at a good price relative to today.....but this ain't finished yet.
    flynnaus likes this.

  17. #17
    Senior Member Yelta's Avatar
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    Quote Originally Posted by Barry O'Speedwagon View Post
    but this ain't finished yet.
    It certainly ain't, good time to buy.

  18. #18
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    A battle between cheap money and pending economic disaster.



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