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Tag: Fed

Are Stocks Manipulated?

I wasn’t old enough in 2008 to see, feel or understand what happened to the world, economically. It was only later that I learnt about the financial crisis and recession from the documentaries and movies.

When I started investing a few years ago, I invested in crypto before I invested in stocks. Once I tried to invest in stocks, I was turned off by how far behind the tech was. But I liked stocks for being the real thing. Representing real companies, with real earnings. More substance, and less speculation. Today, however, I’m confused between the two asset classes, and I thought to compare them a bit.

One of my first disappointments with stocks was that the trading hours were restricted to 9-5 / Mon-Fri as opposed to crypto-assets which are traded 24/7.

Another disappointment with stocks was the inability to own and store them the way I can own and store crypto. I had to leave the stocks with the broker account. I couldn’t move my stocks around between brokers and I couldn’t store my stocks in an hardware wallet. This is unthinkable in crypto. Only newbies leave their assets on an exchange or with a broker. Not your keys, not your money.

As for crypto, I hated the fact that markets were manipulated so much. USDT (Tether) faced allegations year after year that they are just printing USDT out of thin air and using them to manipulate crypto and specifically Bitcoin prices. That they don’t have the actual USD in their bank account in the same amounts as the USDT in circulation. Eventually, they were able to prove it time and again that they have the equivalent funds available with them.

What I’m seeing today happen to stocks makes me think that stocks are perhaps manipulated even more than the crypto-assets. For example, how the Fed is cutting interests to put market on steroids. The fact that Fed has injected trillions of dollars created out of thin air to solve what they term as “liquidity crisis”. But the most mind boggling is how these dollars are created, let’s hear that out from the ex-Chairman of Federal Reserve

I want to finish this off with circuit-breakers. What are these circuit breakers? Whenever markets dip more than 7% in a single day, trading is halted for 15 minutes. When markets dip 13%, trading is halted for another 15 minutes and at a 20% dip, trading is halted for the rest of the day.

This is unthinkable in crypto where we’re used to seeing 70% dips in a single day but no circuit-breakers are introduced to manipulate the prices. The amount of effort Fed puts in in keeping the stock prices afloat is nothing short of manipulation as these practices are unthinkable in crypto trading which we see as the free markets.

Why Does the Fed Cut Interest Rates When Stocks Fall?

As you may have seen that worldwide stocks are falling as the COVID-19 fears have completely taken over the markets. The S&P500 index has fallen nearly 20% from it’s ATH. Asian and European stocks are also following suit.

When markets crash like that, Governments step in and offer certain incentives to businesses like tax-cuts and cheap credit / lower interest rates etc. The governments say that cheap credit will enable businesses to fuel growth with lower borrowing costs. However, there’s an interesting theory on why the Fed really offers cheap credit and what the businesses really do with that credit, read below.

TL;DR: Companies use cheap credit (e.g 0.5% interest rate) to buy back their own stocks which post 5-10% profits per year.