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On Dec. 29, 2014, Bloomberg Business reported on confidential information they'd received regarding alleged insider training between JPMorgan Chase & Co. (NYSE: JPM) and oil giant BP Plc. (NYSE: BP). The confidential informant claimed traders at BP regularly received valuable information from JPMorgan (and other large financial institutions – enough to constitute a "cartel," according to Bloomberg).
These correspondences purportedly took place in an online chat room. The "valuable information" allegedly included tips about upcoming trades, details of confidential client business, and discussions of stop-losses, all related to global currency moves.
Copies of messages sent to BP traders over the course of a year were provided to Bloomberg News by "a person who had access to the online forums" in which the communication took place. The information within these emails offered an insight into currency moves minutes, sometimes hours, before they happened.
Does currency manipulation sound familiar? It should. On Wednesday, May 20, news broke that the foreign currency market was rigged.
According to The New York Times, Citigroup (NYSE: C), JPMorgan & Chase, Barclays (NYSE: BCS), and Royal Bank of Scotland (NYSE: RBS) pleaded guilty to federal crimes that culminated in the manipulation of the value of the world's currencies.
There's been no reports of evidence that BP traders were involved in this – or any – manipulation or information sharing. But one thing's for sure: BP would have benefitted hugely from this sort of information. As a company with global operations, BP is a major player in the $5.3 trillion-a-day foreign-exchange market.
According to Bloomberg, "Dollars earned from the sale of crude oil are converted into local currencies to pay the salaries of employees and fund infrastructure projects from Azerbaijan to Trinidad. Refined products such as liquefied natural gas and kerosene are sold for yuan and reais."
Had BP acted on these tips about currency moves (which, again, there's no proof they did; there's only mountains of conjecture), day traders, pensioners, and mutual fund investors would have been affected the most. These are the investors "who took the other side of a transaction at a lower price than they would have if they'd had the same information." The Justice Department accused the banks of collusion in one of the largest and yet least regulated markets, noting that at one bank one trader remarked "the less competition the better."
There are many who were not surprised to learn these big institutions were behind the manipulation of foreign currency – a sentiment that simply illustrates the mass distrust of these institutions.
And there are other "conspiracy theories" out there – probable ones. Some so likely, in fact, that they might as well be called "rumors" or "plots."
Here are four of the most popular stock market conspiracy theories around today… what do you think?
4 Stock Market Conspiracy Theories That Just Might Keep You Up at Night
Stock Market Conspiracy Theory No. 1: The Man Who Single-Handedly Killed the Market
If you remember the stock market "Flash Crash" on May 6, 2010, then you'll remember the panic that quickly ensued as a result from it. Just a month ago, however, in mid-April, 2015, one single trader was arrested for causing the flash crash. Initially, the SEC's former high frequency trading (HFT) investigator Greg Berman blamed Waddell & Reed Financial Inc. (NYSE: WDR) for "layering and spoofing" (tactics in which HFT traders place orders that they cancel before they are executed to create the false impression of demand. Doing so entices others to buy or sell a stock at the false price). But on April 21, 2015 – five years later – the SEC has fingered a new culprit… an individual: Navinder Singh Sarao.
Navinder (of Nav Arao Futures Limited Plc. in the U.K.) is a futures trader charged with illegally manipulating the stock market all by himself from his parents' basement. And this is where the conspiracy theory comes in – one that you might have already guessed: Sarao is a scapegoat.
But for whom?
Institutions such as the following high-frequency trading firms (a.k.a. "The Flash Boys"): Allston Trading LLC; Hudson River Trading LLC; Jump Trading LLC; Latour Trading LLC, which is an affiliate of Tower Trading; Merrill Lynch; Pierce, Fenner & Smith, owned by Bank of America Group; Octeg LLC, which has been merged into a unit of KCG Holdings Inc; Tradebot Systems Inc; Two Sigma Investments LLC; Two Sigma Securities LLC; and Virtu Financial. According to The Huffington Post, these firms have been involved in an SEC-led investigation for some time now: "The SEC has been seeking evidence of abuse of order types, as well as traditional forms of abusive trading like 'layering' or 'spoofing' and other issues relating to high-frequency trading that might be violations of the law, SEC Director of Enforcement Andrew Ceresney told Reuters in May."
And while the SEC hasn't produced enough evidence to take these institutions to court just yet, they do have enough evidence to indict Sarao.
According to London Evening Standard, veteran futures trader Danny Riley was appalled by the sudden shift in blame. "Nearly five years after the Flash Crash, the FBI have come to the conclusion that it didn't have anything to do with some of the largest algorithmic trading firms in the world," he wrote in a scouring and sarcastic blog entry. "It had nothing to do with [high frequency traders] KCG, Jump Trading, Optiver, IMC Financial Markets, Tower Research (Spire Europe), Citadel Tactical Trading, Hudson River Trading, Virtu Financial, Tradebot Systems, Sun Trading, Spot Trading, Two Sigma Investments, Flow Traders, Renaissance Technologies or RSJ Algorithmic Trading, but it all comes down to one trader in London by the name of Nav Sarao."
Stock Market Conspiracy Theory No. 2: Secret Forces That Swoop in to "Save the Market"
According to The New York Post, on Wednesday, Oct. 13, 2014, someone (or something) tried to "save the stock market." Their source claims that an invisible team was at work that particular day. Known as the "Plunge Protection Team," their specific job is to collectively save the market.
John Crudelle of The New York Post writes, "The details of [the morning of October 13] are these: At the same time the Dow was off 350 points, the S&P index was down 43.80 points. That was an enormous decline in just 11 minutes of trading and it was an indication that Wall Street was not having a good day.
Then, someone (or something) started buying S&P futures contracts en masse. Twenty-one minutes later, the S&P index had regained 30 of those lost points and was back at 1,861."
While this theory may sounds a bit bonkers, Crudelle goes on to point out that in 1989, Robert Heller – who'd just left his position at the Fed – suggested in a Wall Street Journal article that the Fed should help the markets out, too. "It would be inappropriate for the government or the central bank to buy or sell IBM or General Motors shares," Heller wrote. "Instead, the Fed could buy the broad market composites in the futures market."
And there you have it. "Wow! Doesn't that seem a lot like what happened Wednesday [October 13] at 9:41 a.m.," writes Crudelle, "when S&P futures contracts were suddenly and mysteriously scooped up?"
Why, yes. Yes it does.
Stock Market Conspiracy Theory No. 3: The Fed Is Master of Puppets (and the Universe)
Banks hold reserves as a backstop against panics that could potentially wipe out their assets. According to Money Morning's Associate Editor Jim Bach, "Right now, current reserve requirements are based off of a bank's liabilities. For any bank holding up to $14.5 million in liabilities, there are no reserve requirements. Between $14.5 million and $103.6 million in liabilities, banks are required to hold 3% in reserves. Above $103.6 million, the reserve requirement is 10%."
The amount of excess reserves aids in determining what's known as the "Fed funds rate" – or the rate at which banks will lend to each other in the extreme short-term to ensure they are all within these aforementioned requirements.
Now enter the Fed…
Bach writes, "Looking at the totality of reserves in the banking system, any in excess of requirements will work to drop the overnight rate to 0%… One bank with excess reserves will see a profit opportunity by lending, at interest, to a bank without the proper reserves. So if the effective overnight rate at this point were say, 0.5%, the bank with excess reserves would lend to the bank without excess reserves at this rate."
All of this bank-to-bank lending continues until each institution has met requirements. As long as they are meeting reserve quota, there won't be any demand for Fed loans. Bach writes, "The Fed will set Fed fund target rates and respond with open market operations accordingly to hit that target."
These open market operations consist of bonds issued by banks as credit for their lack of reserves. These bonds are purchased by the Fed and are used to reposition the asset side of the balance sheet to favor assets.
It's a complex balancing act. "This is why the current explosion in excess reserves can be nothing else but Federal Reserve stock market manipulation," says Bach. "If the Fed wants the interbank rate to fall to 0%, all it has to do is provide excess reserves in any amount. That's it. That's enough to drive the rate to zero."
Back in late October 2014, the Fed expanded its balance sheet and pushed trillions of reserves into the system. The question is: Why would it do so if it wasn't needed to support low rates?
Quantitative easing. A tactic the Fed claims is an effective way to pep up the economy. But that's not true. And this is where the conspiracy comes in.
"QE doesn't get people spending again," says Bach. "It doesn't get banks to go on a lending sprees, especially in a balance sheet recession where no one is taking on debt anyway… the only purpose beyond this is to force investors out of bonds and into equities."
Stock Market Conspiracy Theory No. 4: Manipulators Have Telepathy
This theory is a little more out of left field: "Dilbert" creator Scott Adams, like many, many others, believes the stock market is manipulated by a network of "big players" who lure smaller investors in by falsely showing them nice gains over a couple years before scaring the crap out of them and prompting them to sell. These big players then scoop up these sold shares at much lower prices.
While this theory doesn't sound so crazy, according to The Huffington Post, Adam's hypothesis as to how they communicate is a little harder to believe…
"As near as Adams can tell, these manipulators have some kind of mind meld that lets them know exactly when to buy and sell stocks, en masse. They don't even need those rat-telepathy implants!"
That's right. The big bankers silently communicate with one another not just with their minds, claims Adams, but with their actions. "The way the big players cover their collusion is by synchronizing their sudden exit from the market with bad financial news," Adams says.
Essentially this means that when one big bank fails (think Lehman Brothers, for example) or the economy goes into recession and the market sells off, it is not a sign of mass fear of corporate profits plummeting, but a secret signal for all the other "big players" to sell off their stock… so they can buy them back again at lower prices.
Where's the logic in Adams' supposition?
That's a good question. Adams says, "Normally I wouldn't buy into a conspiracy theory that has no smoking gun-type of evidence, but financial markets are a unique situation. When you give people in that industry the motive, the opportunity, and a near-zero chance of getting caught, how can you expect them to play fair? The bigger shock to me would be to learn that the markets are free of manipulation."
Well, as we've learned just this past week, there is indeed manipulation in the market. So Adams is right about that. But, writes Mark Gongloff in the HuffPost Business blog, "You permanently revoke your passport to Reality when you start proposing that the world's smartest, wealthiest investors are telepathically moving in lock-step to separate the hoopleheads from their gold. And the hoopleheads have proven stubbornly resistant to the lures of the Illuminati anyway: Despite stock prices more than doubling over the past four years, one of the best bull markets since World War II, retail investors have been unusually slow to tiptoe back into stocks."
We agree. Give us little guys some credit, Mr. Adams. We know better than to sell off our securities at the first mention of bad news. If we truly were that foolish, we wouldn't be where are today.
In this world nothing is certain but death and… just death. Forget the taxes: We're all required to pay income taxes, right? As individuals, at least. But big corporations? Well, they're another story. This year, the IRS collected roughly $1.4 trillion from U.S. taxpayers on April 15. Even individuals exempt from the federal income tax are subject to payroll taxes – and even the 14% exempt from both still must pay a sales tax. But buess how much 11 giant firms on the S&P 500 had to pay? Zero. Let's have a look at the companies that skipped paying income taxes in 2014…