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Pump and Dump

Posted by Larry Doyle on May 6, 2010 2:28 PM |

Has the price action over the last year been largely nothing more than one of Wall Street’s greatest scams? Which scam is that? The classic scam in the securities industry known as pump and dump. While this scam is typically relegated to penny stocks or thinly traded stocks, the fact is the basic principles have been utilized within our current market structures as well.

The coordinated actions amongst global governments, regulators, and accounting boards have allowed the system to disguise the fact that our global economies remain mired in excessive debt. Obviously, certain countries and companies are much less impacted by debt than others but largely speaking the global debt vs GDP ratio remains exceptionally high. This fact is not changing anytime soon.

I view the massive runup in asset prices over the last year as a combination of:

1.¬†A rebound from the “doomsday Armageddon” scenario of early 2009
2. Support by easy government money
3. An abrogation of accounting standards
4. A preponderance of high frequency trading.

In the midst of these scam-atic measures, the economy both here at home and overseas (primarily within the EU), remains severely challenged. Go ahead and compare our economy to any selected point in time and disspell my premise. I am stating that people should look at the overall trendline and eliminate the noise from selected individual data points. The trendlines show our economy struggling along at best. In the face of these struggles, the government may be buying time and relief for investors but the debt burdens remain.

Will the immediate reality of servicing the debt in Greece spread to other nations and ultimately our own shores? Unless real fundamental changes occur in how Washington does business, the answer is yes. Can Washington make those changes? I am not optimistic.

Washington has proven it is a large part of the problem. Can it be part of the solution?

Is pump and dump the best we could do?

That is all I have seen so far.


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