Stock Market Scheme

The Stock Market: The Law of Supply and Demand or Controlled Entity

We all know the stock market goes up or it goes down. The market makers – those people, institutions, that specialize in the trading of a particular stock or stocks would have you believe that stocks fluctuate according to the laws of supply and demand. That is nonsense. In fact, the market maker can peg a stock at a set price and keep it there as long as they want to. And how do they do this? You ask a very good question! They do this through what is known as a “short sale”.

Let’s say Apple computer comes out with a new product which is in very high demand – the iPad or their latest iPhone 4 – and the public rushes to purchase Apple shares. Let’s assume Apple has two hundred million shares outstanding and the share price before the announcement was $80.00 per share. The public upon hearing the news of Apple’s new innovative product rushes in and purchases 50 million shares of apple stock and push the price up to $130.00 per share due to the overwhelming demand for the shares. Well eventually demand dries up as people are unwilling to pay the new higher prices for the shares. Now What happens? Now how are the shares being controlled you ask? Quite simply – by the short sale. A short sale allows the market maker in a stock to borrow shares that they do not own and to sell them into the market place with the idea of evening out their account in the future at a lower price. This will allow the market maker to rake in a substantial profit. So in this particular case the market makers will watch apple shares rise on demand until they feel that the demand is met. They will start borrowing millions of shares and sell them in the open market at $130.00 per share and keep dumping shares at $125.00 per share until they find a level which they believe is equilibrium. In fact, once demand subsides the market makers can keep borrowing shares and lower the price of the stock to whatever level they want the shares to be pegged at. At that point they will slowly suck up the shares like a vacuum cleaner and eventually even out their account at these lower prices and clear huge profits.

People that borrowed on margin or credit will see the monies that they have borrowed evaporate before their own eyes. It makes me sad to see this - but it happens over and over again. As the stock falls, margin calls are being triggered and the market maker would know at which levels people have borrowed lots of credit to buy shares. If they force the shares down far enough they would then trigger margin calls. The poor investors are then forced to capitulate and sell their holdings at a loss.

 How do I know all this? I have seen it happen countless times and it makes my eyes squirrelly. The market makers are basically liberating so called investor’s of their monies in what is a manipulated and controlled game. The Stock Market is a man made construct and thus an artificial system. In ancient times there was no stock market. Farmers would bring their produce to a market and sell them and take the monies home. There was a bartering system . There was no artificial construct. The farmers did not need middle men – stock brokers, brokerage houses, speculators – to liberate them of their earnings derived from their hard labours. Their work was real.

This type of market manipulation was very evident in the past few years and finally came to a head when the United States government had to lead a bailout of many of the leading banks in the country. With the new movie – Wall Street – coming out soon, I would like everyone to know that the Stock Market does not operate on the Laws of Supply and Demand but that it is in fact a Controlled Man-Made Entity. Thank you for your patience and understanding on such a dry subject. On a positive note, if you know what the market makers are up to then you can always make some money with them. I will consider that as a potential topic for a future hub. Happy investing!!