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“Markets Don’t Go Up, They’re Put Up”

Posted by Larry Doyle on August 20, 2010 6:57 AM |

I have to admit, while I personally view myself as an optimist by nature, I come from an immediate and extended family which could redefine what it means to be cynical. Often, I will initially chuckle when hearing my siblings (6 brothers, 1 sister) and uncles characterize an individual or situation in less than glowing terms. The busting on each other typically continues until somebody goes over the line. That happens fairly regularly.

Lucky Shamrock

Invariably, a number of my brothers, uncles, and I will not be able to restrain ourselves from laughing, while the individual targeted for the good-natured ridicule exits the conversation often cursing under his breath. Such is life in a close-knit, Boston Irish Catholic family.

That strong, competitive, acerbic cynicism does not end at Mom’s kitchen door but carries over into the workplace. My immediate and extended family largely pursued careers in the legal and investment fields. Both career paths have allowed our cynical wit to flourish. Why do I raise this topic?

I am reminded of a conversation with my uncle a few months back while reading The Wall Street Journal’s Wild Trading in Metals Puts Fund Manager in Cross Hairs. Let’s review today’s news highlighting allegations of market manipulation by a former high profile trader at one of the world’s largest hedge funds. Then we can position this story against the direct, humorous, witty, and cynical view of a Boston Irish stockbroker with 50-plus years of experience. Let’s navigate as the WSJ writes:

In late April, the CFTC filed a civil complaint against Moore (Capital) claiming that an unnamed former portfolio manager attempted to manipulate prices in the futures markets. People familiar with the case say the former manager is Mr. (Christopher) Pia. Moore paid a $25 million fine to settle the matter, without admitting or denying wrongdoing, but the investigation of Mr. Pia is continuing. A spokesman for Mr. Pia declined to comment.

The hedge-fund industry has been rocked over the past year by allegations that fund managers reaped illegal profits by trading stocks based on inside information. The investigation of Mr. Pia and the case against Moore suggest that commodities trading also can be an insiders game—a market where big investors may be able to throw their weight around to move prices to their advantage.

Prices in the futures markets for commodities help determine how much consumers pay for everything from a carton of orange juice to a gallon of gas. Cases involving investors trying to artificially move commodities prices are nothing new. But abusive trading practices have become more prevalent, says Bart Chilton, a CFTC commissioner, because regulators, until recently, have lacked the tools needed to aggressively go after and punish wrongdoers. (LD’s emphasis!!)

Over the long term, supply and demand dictates prices in the commodities markets. What concerns regulators, for the most part, are efforts to move prices over the short term. The growing number of large investors speculating in commodities has created “aberrations” that can present the “opportunity for foul play,” says Mr. Chilton.

The recently enacted financial-reform bill, Mr. Chilton says, will give the CFTC more enforcement tools to pursue more cases involving disruptive trading practices in the commodities markets, and to levy stiffer penalties.

One way investors bet on commodities is through the futures market, where they enter into contracts to buy or sell raw materials at a set price on a specified date. In its complaint against Moore, the CFTC said the unnamed portfolio manager engaged in a practice known on Wall Street as “banging the close.” That involves trying to move the price of futures contracts by inundating the market with orders just before trading ends.

Although this specific situation with Christopher Pia and Moore Capital is focused on commodities trading, the simple fact is variations of ‘banging the close’ or assorted other techniques can be used to illegally move many markets. Although I never put much credence in those who promoted conspiracy theories and tales of market manipulation, I now do not discount those who hold these feelings —  including my uncle, a world class cynic and longstanding broker. What did he share with me a few months back? He offered, “Larry, it’s a racket. Markets don’t go up, they’re put up.” I chuckled and he responded, “You think I’m kiddin’ ya?”

To know him is to love him.

In light of our current market structures, especially in the equity markets, maybe my uncle is actually less cynic and more wise sage.

For those interested in techniques and strategies used to manipulate markets, check out the following: churning, pump and dump, daisy chains, ghosting, wash-salesbear raids, cornering the market, false market, bucketing, circular trading, front running, tailgating, jitney. Regrettably, these practices and variations thereof have gone on for time immemorial.

Larry Doyle

I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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  • fred


    My experience for what it’s worth…

    1. The thinner the market the more opportunity for manipulation.

    2. various types of trading strategies move in and out of favor; dominating to consensus then failing miserably thereafter.

    I’m reminded of a the interview with Michael Marcus in the book Market Wizards, when asked by the author about market misconceptions his response, “the foolish belief that there is a conspiracy in the markets. I have known many of the great traders in the world, and I can say that 99 percent of the time, the market is bigger than anybody, and, sooner or later, it goes where it wants to go. There are exceptions but they don’t last long.”

    • fred


      Interesting off subject topic for discussion. CNBC interviewed the CEO of the Carlyle Co. He mentioned the companies frustration in hiring qualified engineers and skilled tradesmen so they can ramp up for a potential economic recovery. The tie in to this post, the career choices you mentioned of your family members.

      The employment dilemma:

      In order to attached the made in the USA label, business must locate near pools of available low cost labor, typically found in areas of rural and small town America.

      Currently the majority of our engineering schools are graduating foreign nationals as more and more educated Americans are choosing other professions in areas such as medicine, investments, and law.

      Foreign nationals, as did our own ancesters, prefer to live in and around large cities in communities of common heritage, or, if they become disenchanted with their American experience, often return to their place of birth where opportunity is now more abundant.

      How do we make engineering, math and science more glamourous for our children as career choices? How do we make small town America a more attractive place to settle down not only for foreigners but for highly educated Americans? These are the types and places for jobs in demand. If business can’t fill these jobs in the U.S.A., in a global economy, why wouldn’t they relocate overseas?

      America needs a stronger manufacturing base, I personally never bought into the arguement for a service based economy. Hard work and real products are what made this country great, so let’s stop whining, roll up our sleeves and get our hands dirty, if nothing else the exercise will be good for our collective soul.

      • LD


        Great points you raise in both comments. Thanks. In regard to the second about employment and opportunity, I would say we need to make it attractive in terms of capital and quality of life.

        If states promote practices which protect capital and address quality of life, I feel strongly that the money and the people will follow. Regrettably in far too many parts of our country, we are not starting from a base position but truly from a major hole. How do we get back to level ground before being able to move forward?

        Start renegotiating and restructuring the financial obligations which are strangling the reasons why capital would enter in the first place.

        In regard to quality of life…where are our good old American values? You know The Greatest Generation in our nation’s history was a product of the Depression. Will we experience the same phenomena moving forward? Will we relearn what it truly means to sacrifice or will we keep our hands out looking for a bailout?

        Thanks for furthering the dialogue.

        • fred

          I once read somewhere that each generation benefits from the sacrifices of those generations that precceded it: it makes you wonder what kind of a legacy the “Me Generation” will leave to it’s children and grandchidren.

  • Barbara

    Hi Larry:

    Great article———–you certainly captured the essence of the man and the family, as much as we love them.

    Your Uncle Eddie really enjoyed your comments.

    Good luck and much success at Greenwich Investments.

    Love, Aunt Barbara

    • LD


      Glad that it brought a laugh and a smile. As you well know, there are plenty of times when you can’t truly figure from where the cynicism emanates, so you shake your head, and say “it is what it is”, “they are who they are” and we love them all the more.

      You really can’t make this stuff up. If you tried to describe the crowd and the situations to somebody who has never experienced the scene, you could not possibly do it. Invariably, you would end up saying, “you’d really have to be there.” Even then, they might not believe it. My better half came away from her initial visit indicating how ‘interesting” it all was, even with all the love.

      Best to you and yours!!

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