Precedent exists for government manipulation.
Hello from New York, where I don't much care how they "fix" Fannie Mae (FNM) or Freddie Mac (FRE), but the related witch hunt to crack down on "rumor mongering" has me frothing at the mouth.
I expect the government to use whatever means they have at their disposal to ensure the smooth operations of the financial markets. You may approve or disapprove of the government behaving in such a manner but you can't deny that there is precedent for such manipulation (see: Long Term Capital, Bob Rubin's October '98 Bear Slaughter, Last August's manipulations, etc. et al).
Since there is precedent for intervention, you can trade accordingly, however you feel about the morality of it.
What are the pro traders saying about your stocks?
Minyanville's Buzz and Banter- 14 day FREE Trial
Muzzling negative opinions with a perverse bias towards punishing those criticisms which prove to be correct (the government is targeting rumor mongers in Bear (RIP), Lehman (LEH), Fannie and Freddie) is the antithesis of a free market. It's neither rational nor tradable. It's simply oppression.
SEC Chairman Christopher Cox's stated goal is to "ensure that investors continue to get reliable, accurate information about public companies". Bear Stearns, the catalyst for this witch hunt, was liquidated at $10 per share. Lehman Brothers is down 80% year to date.
Which information was more reliable, accurate and useful to investors: Chairman Cox saying the murmurs of troubles at Bear and Lehman being spread prior to equity holders are being destroyed or the officially blessed and widely publicized "buy the dip" reports being issued on the financials throughout the ongoing crash?
Markets only "work" for the general public when both big and small investors have access to information which can help them make informed decisions. By the definition of "informed", if you only have the bullish case you aren't informed.
To paraphrase Kipling, "Free is Free and Fake is Fake and Never the Twain Shall Meet". Silencing the bears isn't just Stalin-esque idiocy; it's a move towards creating outright fake markets. It's a strategy that has never worked for the long term and never will. A fake market is one in which no one, anywhere, should participate.
Be very, very afraid of Government Agents attempting to "save" free markets. Vote accordingly.
Here's what I'm watching when not Raging Against The Machine:
With the stock down about 40% in the month since she was fired, I think it's safe to say by now that Erin Callan wasn't to blame for all the problems at Lehman.
- Goldman Sachs (GS) is finally back in the $150's; a level I've been waiting for and wanting to buy for months. Am I buying? Nope. Two reasons for that: First, I'm a sissy. Second, I'd like the 155's more.
- Who isn't the government trying to "find and prosecute" for spreading incorrect information about stocks? The folks who were screaming the "Maccau and Vegas will make keep these casino stocks rocking for years!" in 2007. Las Vegas Sands (LVS) (to pick on just one of them), down a cool 80% since the highs of last October.
- The point is neither to Monday Morning QB the casino longs nor mock the companies themselves. The point is that you can play the momentum game all you want as long as you have the discipline to sell when the fever breaks (Ag, Alternative Energy and Oil names, I'm looking at you).
- That said, I'm still long the USO. I've been beaten fighting trends in the past; at this point, I'd rather join them.
- I'm not sure why I chose Zions Bancorp (ZION) as my proxie for "well run regional that is going to be in a lot of trouble if/ when this crisis picks up steam" but I'm finding the practice of punching up the ZION quote to be increasingly depressing. Especially since I'm not short (hey, I am a capitalist).
- Speaking of regional banks; National City (NCC) shareholders not assuaged by the company announcing that "all is well". Here's a good investing rule of thumb: When all is, in fact, well at a company it's unnecessary to halt trading to announce that fact. The more somebody says "trust me" the faster you should run away with your hand on your wallet.
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