posted on Feb, 17 2009 @ 10:23 PM
yes i always was a bit turned off by that perfect 777 figure back in the fall.
whats most important to remember though is that the DJIA is not an average of all stocks being traded, merely an average of 30 major corporations
traded in high volume across the exchanges.
so in order to manipulate the dow, you can easily pump equity into a few stocks (or components, as they are referred to) and create an artificial
change in the range without changing market conditions dramatically.
Whats REALLY creepy is the way stocks that aren't components of the DJIA still tend to track the index to a certain degree. there are few that
outperform, or swing on a greater percentage than the index, but few (barring the obvious corporate event here and there, especially in biotech)
behave against the DJIA.
Its as though the lot of investors trading securities feed into some self determinate collected conscious. The S&P is by far the more accurate index,
in terms of establishing market direction.
The PPT is certainly out there trading through the prime brokerages of the best securities firms, Goldman Sachs E&C, JPM, CS, etc. I doubt they
interfere as much as people here may want to believe, but the real paradox on wall street isnt the tinkering by the treasury, but really the way money
has straight up vanished from equities (that form the indexes) and into the credit derivatives market.
Its a fundamental--when theres less money in a market and thus less liquidity, prices swing in a less predictable fashion and exaggerate/overreact to
buy/sell pressure. With huge corps getting squeezed by volatility in their capital/equity, their exposure to credit downgrades and defaults
heightens. This is why the Credit Default Swap (CDS) has become such a profitable and monstrous credit derivative. Theres hundreds of trillions of
dollars of unsettled/open contracts in the derivative markets, more than the worlds GDP for 4 years. Though its hard to chart, a large majority of
this is in credit derivs. Thats an awful lot of money speculating on the failure of companies.
whats particularly nasty about this is it's Hedge Funds and alt investment firms that've made the killing on these instruments, taking gains on
massive payouts from the so called "insurance" provided by the CDS. HF clients are folks who are often already loaded(as minimum initial
investments at top shelf funds range at about 7mil) and they get the returns in cash minus usually 20% plus fees.
This money isn't getting transferred from one company to the next, like some massive corporate/gov takeover. its going right into the bank accounts
of private citizens, with no compulsion whatsoever to generate an impact on the market, positive nor negative. This is not a good thing.
Believe me, if half the money held in open derivative contracts was invested into the stock market, the DJIA would be well over its highs in 2007.
Instead, investment banking and institutional investment firms (overseeing pensions, mutual funds etc) are getting robbed paying out to HFs collecting
on swaps. Why do you think this bailout money is so hard to trace? Short CDS gains can turn 100k into 10 million in a year. Imagine paying out on
that bet, youd be F**ked too.