Inompetent, But Curious After being hazed all day and into most evenings by my firm’s Options Specialists for about six months, I was given a seat on the trading floor. It is from that point on that I began the conversion from business school idealist to incompetent cynic. In fact, well before I officially became a trader, I witnessed “broad daylight” collusion every day. The myths of the “fair and orderly market” and the “competitive open outcry system” were dispelled almost immediately as soon as I had learned enough as a trainee to be able to slow down the frenetic action to a pace that was comprehensible. What do I mean? Why is this important? Well, in theory, the traders of options on a given stock are supposed to be competitors that do not cooperate with other members to set market prices on which the public will execute trades. The reality is that the main trader, typically the specialist, makes the bid-ask spread market and the majority of the time the entire trading crowd simply states their level of commitment to the market that he has made. Here is the problem, OUR watch-dog, the SEC, rarely if ever has done anything about this clear violation of the law. Many techniques and devices are employed to encourage market makers to play ball. Any time spent on some of the options floors over the years would have revealed this to the SEC. This means… they know it and they just do not care. They have always known it. This may not be a revelation here in 2010 with Rick’s “crowd” being a rather enlightened one, but 20 years ago this matter-of-fact flouting of the law initially stunned this “Econ/Finance” dual-major as these business practices were conspicuously absent from the textbooks. What does this prove? It proves what many of you — but until recently not nearly enough people — believed: The government is entirely about strategic, selective prosecution. Shocked, right? The government and the markets are corrupt! I am sure that many of you are floored! Hold on though, I am “going somewhere” with this as it is stated.
As you have probably already guessed, this “welcome to the real world of our markets” experience put me on a path that would shatter nearly all of my idealistic beliefs about a country with systems that I was raised to revere. Just in case you weren’t sure how corrupt things actually are within our markets, it’s my hope that any faith that you may have reserved is fully gone by now because if it can happen in plain view amongst competitors then much more can clearly occur behind closed doors. Let’s get back to that “assume that others know what you know” concept and in doing so, we’ll leap ahead in time by about five years.
Beneath the Surface
As the years in the options markets and on the floors and desks began to add up, less and less of the reality being presented to me actually made any sense to me at all. For the first five or so years of my career, the Internet wasn’t there to reference at all. The next few years brought some maturation to the Internet but the information available from it wasn’t nearly as raw and diverse as it is for us today. This made for tedious times when I would search for hours nearly every weeknight in an ongoing effort to learn more of the truth that I believed was out there somewhere. I gradually stopped feeling as though the marketplace was littered with cheaters and manipulators, as it always had been, and began to feel as though there was much more at work beneath the surface.
Yes, you are on to me again, I sensed the dreaded “conspiracy.” “Conspiracy theorist” isn’t the kind of description that most people would seek to invite upon themselves, but labels never really bothered me. I raise this because I want to encourage folks to stay on the path they are on in seeking the truth, despite the fact that I do not hold the answers, as I believe that the trends and developments that we’ve had to contend with over the past 20 years cannot be purely coincidental. These persistent and evolving feelings continued to develop and eventually led me to think of things within a simplistic biological construct in an attempt to draw the best analogy that I could. This was somewhat ironic because biology could very well be my area of greatest ignorance and not for a lack of competition. Fortunately, after searching for commentary that contained the analogies I was drawing, and before I was forced to relearn all the “stuff” from high school bio that I’d forgotten, a much more intelligent and well informed commentator brought forth the best description that I have found to describe what has and is happening to Uncle Sam and by extension his subjects. Her name is Catherine Austin Fitts, and although it remains impossible for me to verify her claims and research, her “take” on things seems the most plausible to me of all that I’ve researched and considered. Her profile has risen dramatically since I first encountered some of her work about 12 years ago but, in the case that readers haven’t come across her work, I encourage them to stop by her site even just to briefly peruse her writings. Her “type” of information (things like $2.3 TRILLION missing from our Federal Government) is what I was referring to when I noted how traders assume that other traders possess the same information. I hope that she will not mind me sharing this from her Solari website, as it is the basis for the operating thesis that I’ve co-opted ever since then:
Tapeworm Economy
In a tapeworm economy a small group of insiders centralize political and economic power at the expense of people, living things and the environment, in a manner that destroys real wealth. A tapeworm economy is one in which it is considered acceptable to make money from our popsicle index (Ed.- established societal standards) going down. In investment terms, it is an economy with a negative return on investment. It is parasitic in nature.
The way an actual tapeworm operates is to inject its host with a chemical that makes the host crave what is good for the tapeworm and bad for the host. So the Tapeworm Economy is adept at using media and education and numerous financial incentives to get us acting against our own strategic interests and instead supporting and depending on the Tapeworm.
The symptoms of the Tapeworm are many – narcotics trafficking that targets our children, runaway exploitive and predatory corporate practices such as the patenting of life, terminator seed and the destruction of our topsoil and food supply, fraudulent inducement of debt to homeowners, students and consumers, suppression of knowledge and renewable energy technology, criminal mismanagement of government credit and resources, black budget operations and the manipulation of currency, financial and precious metal prices and markets. These practices introduce organized crime throughout all aspects of our lives… these transactions drain our families and neighborhoods on a daily basis – much like a tapeworm drains its host.
A Revelation from Ms. Fitts
Again, this may not seem entirely like a revelation to many of you now, but as noted, I was by good fortune able to stumble upon Ms. Fitts’ commentary and website back in the late 1990s, if memory serves. Hers along with the commentary of assorted others gave me the confidence I needed to leave the legacy thought-paradigms that I’d been indoctrinated in as are most American kids. The more I thought about things from this newly confident perspective the more the cognitive dissonance receded from my mind. In an effort to bring a little more tangibility, I’ll over-simplify an example by using the dominant thought of the late 90’s era:
The market did nothing until the Republicans surged in the 1994 elections. Wall Street is supposedly tight with them so they must not like Clinton and thus his administration must not like Wall Street. So even though almost all of these earnings and economic reports seem entirely too perfect vs. expectations, Clinton’s SEC et al. wouldn’t let “Wall Street Fat Cats” and Evil Corporatists slide if they could nail them.
Hopefully you now have a sense of how much clearer things became for me when I felt confident enough to abandon the conventional consensus and traditional schools of thought regarding the current set of underlying problems. A technique that has always worked well for me is the old “step back and see the big picture,” especially when things seem either too perfect or incongruent. Detaching and deconstructing, drawing analogies and then putting them into perspective against what I’m seeing or sensing has normally helped to keep me slightly ahead of the consensus in the markets. This is important because as an options market maker you need to not only be concerned with the now but possibly two years out and beyond as you are making markets on options that can repeatedly affect your risk profile for those durations. The liquidity in long-term outer-month options is not nearly as reliable as the front months so you had better be pretty sure of yourself when you pull a two-year trigger. I did not find this to be simple task because there is not much time left for esoteric research after you have been focused on managing risks to yield profits in highly-bubbletized markets for most of the day.
The Payoff…
I do apologize for feeling it necessary to work some of my personal background into this piece, but now that I have, we can finally get to the payoff I’ve been driving towards. Much of what you’re about to read may no longer carry the shock value that it once did, but that’s always the case from what I’ve observed. Over 90 percent of our peers will always seem to treat the minority opinion with nothing less than disdain, only to claim in retrospect that “…well, everyone knew that. That’s no surprise.” Yes, they are pretty quick to price it into their working model when the rest of the majority has finally acknowledged that the unlikely has become the actual.
It’s been about 20 years since the “PAX Americana” and “peace dividend” discussions began to pollute the mainstream dialogue. So what happened? How is it that the USA now finds itself at the mercy of the central planners in communist China? Wait, hasn’t the MSM repeatedly told us that we weren’t in asset-price bubbles and that true prosperity was constantly being created as a result of these series of non-bubbles? What happened here in a “nutshell”?
Here is my brief “nutshell.” The last 20 years of faux “prosperity” are primarily the result of absurdly misguided credit expansion and various forms of hyper-manipulation (accounting fraud, falsified statistics and reports, ) engineered by various organizations and entities of various sizes, some of which work in concert. As for “backup” on my claims, I’d cite many of the same items that several other Rick’s Picks commentators have in their comments and possibly a few of my own: John Williams (Shadow Stats) on Statistical Fraud; John Hussman on pervasive Accounting Fraud; FASB Accounting Standards Degradation; Revelation of the True Value of and subsequent Humiliation of the Ratings Agencies; FED Serial Bubble Fomentation / Deformation of the natural Business Cycle; 20 years of housing appreciation and related activity condensed into roughly 5 years; various episodes such as Dell computer’s adding an estimated $1.8 billion over two years to the bottom line as the result of writing put options against their own share price while Michael Dell waxed on with boundless optimism; not having to account for employee stock options for years; Seagate’s filling warehouses with hard drives and counting them in “Sales” to “beat the number”; Henry Blodget-esque IPO-related fraud; the effective “Enronization” of corporations; Wall Street and our government at every level. Etcetera.
Web of Collusion
In 2010, most of the items listed above have been acknowledged, but I can tell you that arguing about these items and issues in real-time was not a pleasant experience, as the key information was not easily referenced. Most of the contra-side arguments focused on how “complex” a web of collusion would have been needed to pull off such thorough deception. The problem with this position for me has always been that the key vulnerability of the system is too easily overlooked. I’m referring to what is now popularly identified as the mainstream media (MSM). My perspective is that “if you have the MSM, you have all you need”. It shocks me still that most of the professional traders that I know still take their news from these propaganda outlets. The unfortunately reality for me though is that it all flows from there.
Another argument that I’ve heard quite a bit over the years is that the “profit motive” would serve to incentivize an MSM member or organization to report reality. I’m both surprised and unsurprised at times when I find myself listening to this argument for what seems like the thousandth time. Let’s just step back for a moment and consider things another way. The first rule of investing is preservation of capital, at least in theory. That being the case, why is it that the MSM (the people’s watchdog) has never exposed the widespread fraud that has underpinned all of these bubble-driven markets over the past 20 years? Why is it that they treated non-believers with scorn on the rare occasions when they actually permitted them to appear on air? Why didn’t they learn from the first bubble and become more skeptical in their treatment? Where were the investigative pieces, the exposés, that only seem to be broadcast-worthy after the inevitable pop has occurred?
USA Rapidly Deteriorating
Sticking with the step-back-perspective theme with an eye towards wrapping things up, let’s consider how dire things are at present. I hate to add even more length to this piece but it is clear from just a few headlines that the USA is in rapid deterioration mode, and not just fiscally/economically:
- A nearly perfectly divided electorate that’s addicted to the right/left paradigm
- Police are ignoring calls for certain serious crimes yet indoctrinated citizens are more fearful of firearms than of having to defend their families and homes against illegally armed thugs with no support from law enforcement
- Education here is largely a qualitative and fiscal farce
- In what could be described as an unimaginable achievement, popular culture now makes anything prior to the 70’s appear to have been a modern Renaissance period
- Our government is dedicated to Homeland Security at airports but our borders are porous. The MSM will never highlight this contradiction. Is it possible that “the war on drugs” only applies to those that aren’t with the company?
- Perpetual wars are by and large accepted when they are even thought of at all
- And of those plans to bring back those jobs that are never coming back and about revitalizing and retooling those manufacturing centers that will never hum again?
- Can we really Smartphone and service business our way out of the destructive vortex that we’ve allowed them to conjure at will with an end goal of debt enslavement?
- What I refer to as the “Manipulation Cartels” have amassed and consolidated power like never before
- The “button pushers” seem to want to implode the system but on their timeline and with some fragments of realism included to maintain “believability”
Now, does this seem like a country that should legitimately be on the verge of a genuine and powerful bull market leg towards new highs? I’m not sure about your life, but I’ve found it difficult to get my best-laid plans to work out even when I’ve done everything right consistently over a good period of time! Yet with our society crumbling into freefall before our eyes we’re told that the market is wildly undervalued. As I’ve noted in the forum, I do believe that the market can remain detached from realities for a good long time. New highs wouldn’t shock me at all because I’ve seen how powerful and resourceful the manipulation can be at times. What would still shock me is the number of people that wouldn’t question the legitimacy of such a scenario. By the way, are we sure that it is preferable that this dysfunctional prison-barge-of-a-society really is worth saving in its current form? Do you really have confidence that any of our real problems will be solved while working within this entirely gamed system?
Dystopia Is ‘In’
It is clear to see that the present and future are much bleaker for the people but that the elites have done a fine job to this point to preserve and expand their positions and thus have at least in relative terms set themselves up quite nicely for the next round of disparity expansion. The Bravo channel may not have officially pronounced it yet but Dystopia is “in” now and there’s a good chance that it will have more staying power than the leisure suit.
It is my belief that more Americans need to leave the type of thinking that they, like I, were raised to perform behind for their own survival. Because of what are generally described as libertarian beliefs and as I believe the quagmire to be hopelessly intractable, I strongly advocate peaceful secession from what is still referred to as the United States of America. It’s my wish that more folks would realize that we’re only united by the chains of debt enslavement and that it makes little practical sense to allow malicious statists on the other side of the continent to lord over the lives of our families and children. Ask yourself why the federal government should still enjoy our confidence? It, along with our representatives, has epically failed us in every conceivable way. It eludes me as to how folks can actually believe that it can all be attributed to political incompetence and chance. I would find it exceedingly difficult to calculate the odds of this rapid and complete collapse being pure in nature. I had planned to spin through the Carousel of Frauds, from NAFTA to the era of the PC to the era of the Internet; and with both productivity gains, to the commodities manipulation to the housing bubble and finally to the fact that it’s all been made to happen by the same cartels of legalized criminals, that despite it all, still control our lives to a large degree! But I’m literally 10x over my requested word limit already! [Perfectly all right, Will. I’d be eager to read this at book length. RA]
If You’re Unconvinced…
If you remain an unconvinced true believer in the American Way and believe that people like me have been taken in by the “conspiracy theory” cottage industry, all that I can respond with is, “You may be right”. It is impossible to know for certain what is referred to as the “absolute truth.” Nonetheless, I would ask that you only consider one more suggestion that I make here: Learn how to implement what is known by options investors as the “collar” strategy for your portfolio just in case your feelings change at some point in the near future.
Obviously, as a regular reader, I value Rick’s perspective, but I feel as though I differ with him rather significantly with regards to the levels and totality of manipulation of various forms that are at work not only in the markets but that has permeated nearly everything at this point in time.
Having spent nearly 20 years doing what I can to uncover the truth after continually witnessing the statistically improbable occur just on the heels of the highly unlikely, I’ll conclude with this: No matter how cynical one thinks he or she is, I’ll take the contra-side every time and bet that the overwhelming majority of investors are not nearly cynical enough in their analysis. My friends, these financial sociopaths and their sociopol lackeys play for keeps.
