As a Founding Father, statesman, diplomat, inventor, author, publisher, scientist, philanthropist, political theorist, and abolitionist, Benjamin Franklin would have known more than than most about human nature when he uttered his famous
“Believe none of what you hear and only half of what you see.”
When we hear about the markets being rigged, popular images about crooks come to mind – the Jordan Belforts and Gordon Geckos of this world, manipulating markets in illicit schemes and screwing the ‘small guy’.
The truth is that you don’t have to go that far to get a taste of how the markets are sometimes massaged by those with enough pull to turn the situation a little in their favor.
The stock market works so that the ‘smart money’ will anticipate a move in the market long ahead, position themselves when sentiment and prices are low(er), and when both have improved, sell into a market of willing buyers, the ‘dumb money’.
Of course, the smart money is happily involved in engineering this improvement in sentiment and prices. This can be done for example by creating and leaking information to the financial media, in effect telling fairytales to the peasant investors so as to steer their behavior.
As the celebrity TV finance commentator and former hedge fund manager Jim Cramer put it, you “create a new truth to develop a fiction“.
Imagine you have a 2B$ position to exit – if you were to sell suddenly into a market that does not have the right liquidity and buying demand, your selling would crash the market, and your profits with it.
But if you could ‘make’ a market liquid enough with buying demand, wouldn’t that help quite a lot?
Big Investment houses and their institutional clients are no foreigners to this practice. They wire bear news to the public when the market is about to turn positive, and bull news when the market is topping – and regularly act the opposite way of their own recommendations.
Are houses like Goldman Sachs just notoriously bad at calling the market? Their consistent decade-long track record suggests otherwise. Instead, they ‘make’ a market to buy from or sell into moving it too much, for themselves or as ‘hired guns’.
Two days ago, investment bank Morgan Stanley issued a ludicrous upgrade on Tesla (TSLA) stock, with a price target at $400, roughly 60% above the market. TSLA has been stuck in a long-term downtrend, had a 75% peak-to-valley drawdown in January, is now at the height of its 2023 rally still stuck below 35% overhead selling supply. It’s a tired past leader of the 2020 market, and shows no signs of breaking its down-trend anytime soon.
This upgrade of course came with the necessary vernacular of the day, citing supercomputers and ‘AI mojo’ as the reasons to recommend investors to go to an “overweight” position of Tesla stock in their portfolio.
What an altruistic investment bank, offering free and unsolicited market advice and research to millions of small “investors” they normally couldn’t care less about. Helping them to succeed.
Well, let me tell you – someone is in dire need of dumping their Tesla shares, and Morgan Stanley is more than willing to help out making a market, creating a ‘new truth to develop a fiction’ in order to attract just enough buyers to absorb the dump.
