Are Financial Markets Manipulated?
Markets, economy, liquidity and financial bubbles: big players move their pawns
«I have a clear message for you: within our mandate, the ECB is ready to do whatever it takes to preserve the Euro. And believe me, it will be enough» — Mario Draghi
I don’t want to overload this new letter with expectations. I’m not an economist, but a simple reader who delights in taking in the news, studying charts and analyzing data we are constantly shown every day. I’m an analyst and prefer to stay in my comfort zone, although I admit these are complicated months. What we have been witnessing for the past few weeks are dystonias that I’ve also discussed in some recent articles in Dax Trading Ideas.
Financial markets and economy are two very different things. Sometimes they move closer together, sometimes they move apart like a wave that touches the shore and then turns back. An old stock market saying goes like this, «markets can remain irrational longer than an investor can be solvent». You will basically burn through your money before a stock, a currency, an index, makes its move. After all, timing is critical in a trader's choices, less so for a long-term investor. There are many legitimate questions: how can I predict future performance? With the information at hand, is it possible to find inefficiencies or elements that give us a satisfactory statistical advantage? Is it possible to do this if we are just a drop in the ocean of markets? Is manipulation a truthful concept? If yes, why continue to play the game?
These are the questions that plague everyone involved in finance, from the junior assistant in the institutional trading room to the award-winning economist. I admit my aversion to the latter category, no offense to scholars and graduate students, but substance is very different from the form. Models applied and studied in universities and economics textbooks should be torn up and then rewritten after every financial crash, after every central bank intervention, in short, every day there is a new story to tell completely disproves the previous one. The problem with macroeconomic sacred texts is that what is studied is nothing more than static models, devoid of any kind of personality. An example I can give in this regard is the words of Mario Draghi in 2012 whose anniversary was celebrated with a tone of emphasis.