Imagine that you live in a town called "StealsVille". Its a very nice town, in fact, its so nice that it doesn't need a police force. No Sheriff, no city cops, nothing. In addition, it is against the law for residents to own firearms; after all, StealsVille is a pleasant, peaceful community.
Well, one day in StealsVille a bank opens up and starts taking deposits. All is well, and the merchants have a place to put their money every night after they sell you groceries and such.
This works out well for a little while, but pretty soon a few bad guys figure out that there are no police - and the pretty teller behind the counter is prohibited by law from owning a firearm. It is not long after that StealsVille experiences its first bank robbery.
StealsVille's bank is crushed - their vault is cleaned out - literally - while the employees watch helpless.
The next day, emboldened by the simplicity of the operation, it happens again - but this time after they hit the bank they drop by the grocery store and clean them out too.
The day after, the local bar gets added to the list.
Pretty soon StealsVille doesn't seem like such a great place to live. All the law-abiding citizens start thinking about breaking the law a bit themselves; after all, there are no cops, and they're getting robbed blind - literally - on a daily basis. Those with money pick up and move onward, looking for a place where they can either own a gun or where there are some cops, leaving StealsVille to founder.
And founder it does, until finally, the last grocer and hardware store owner, unable to make a living, close shop.
Soon StealsVille is a ghost town......
Are our equity markets turning into StealsVille?
Last night it sure seemed that way.
Most of the evidence has been "conveniently buried", but last night around 12:30 CT the most outrageous example of what has been going on brazenly for the last year began.
First off was a supposed "report" in a Korean newspaper that KDB was buying Lehman - the majority of it - for $6 billion.
This was rather implausible, since Lehman's complete market cap as of 4:00 ET yesterday was materially less than that amount.
What followed was a flurry of so-called "press releases" from various parties - including a flat denial from the Korean government.
Not to be deterred in the pumpfest, The Street, Marketwatch and others ran with the claim that Lehman was being bought out, along with Bloomberg TV, incessantly pumping the alleged "buyout" for several hours.
The result was a wild set of spikes in the futures up and down by nearly 10 handles - for that time of night, an absolutely enormous move, as people went spastic over and over trying to figure out what the truth might be.
Then this morning, Lehman preannounces, losing more than half their share price in one quarter - and there is no deal.
The futures, which had been pumped incessantly last night on the so-called "buyout" that wasn't, instantaneously collapsed back to near yesterday's closing levels.
Haven't we had enough of this crap? Over 280,000 contracts traded since the lockup until I wrote this, with a whole lot of them being losers if bought overnight - all on the back of illegal rumor-mongering.
This has gotten totally out of hand. Clearly, the move in the stock itself - over $2/share ahead of the release and then back down to near yesterday's closing levels - have led to enormous losses by people who believed this nonsense. Ditto for those folks trading futures.
What is especially galling is that the rumors are getting more and more brazen by the day. Now we're the point that people don't even bother trying to hide things or send them "Crackberry Express" - instead they just circulate utterly false - and knowingly so - claims, moving markets by hundreds of Dow points!
We have gone from a "market" to a rigged casino where every poker player comes with an extra pair of aces up their sleeve, and the game has turned into one of "who can slip his on the table first" and literally steal the pot.
Why?
The "why" is simple - there is no punishment for this sort of thing being doled out. At all. Chris Cox has decided to sit and eat donuts in the coffee shop instead of doing his damn job, and the rest of the market is all too happy to play along.
What Chris and the others who cluck at this sort of thing (because it is moving markets upward on "difficult days") is that for every winner there is a loser in the market, and when the game gets rigged too many times the people who are necessary in order to have a liquid and fair market take their money and leave!
Also yesterday, and quite ominously, the CBO has issued an opinion that the Fraudie/Phoney bailout has had the effect of putting the entirety of the $5.3 trillion they own or guarantee on the public balance sheet.
This produced a blubbering two-year-old style reaction from a number of people in Washington DC, although I don't see why. I've said for quite some time that if they bailed out FanFred this is what would (and should) happen. Well, it did.
Now we've got a little problem because our government's balance sheet has just been put in the wood chipper - feet first.
Needless to say the "Conservative Talk Radio" folks went absolutely bananas over this, and wasted no time in blaming the Democrats.
This, of course, is a lie - these institutions are a mess as a direct result of the malfeasance and active corruption of both political parties.
I'll leave you today with a short (~10 minute) video that I recorded last night on this very point....
Have a great day!
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