Philip Gvinter

Goldman Sachs: No Global Financial Espionage Story Here

Kid,

That is what makes market manipulation hard. With enough capital one can always drive a price in one's direction, the difficult part is either hedging out the exposure as you reach your max position size or selling out of/covering the position at a profit after taking on an excessive portion of overall market volume. The trick to doing this is to create hype or find the greater fool. I firmly believe that it was the entry of the prop desks and hedge funds which drove oil from the 60s to the 90s, it was the dumb money following on their heels and buying their positions with double digit cost basis in the triple digits and the real demand holding prices there until all speculative appetite collapsed and forced prices back to the 30s. Manipulating a market is easy, profitably manipulating a market is hard. GS are good at what they do so the difficulty of creating hype and finding greater fools to unload inflated positions on is not hard.


On Jul 06 12:39 PM Kid Dynamite wrote:

> Paul, I don't know where you are getting your information (PLEASE
> tell me you're not reading Deep Capture), but this is the EXACT business
> i used to do. What you're describing is just the broker shorting
> the stock to the customer. I have no idea what you mean by "delivering
> index receipts"... if Barclays wants to buy 5x the average volume
> of an illiquid stock from me, I still need to locate it (borrow it)
> to short it to them. There is no market maker exemption here on
> the index rebalancing. And note - this HELPS the customer - as instead
> of them ripping the stock higher as they try to buy an illiquid issue,
> I have provided liquidity to them and prevented the stock from moving
> as much as it otherwise would have. The alternative is that the
> broker does NOT short the stock to the customer, and the stock just
> moves up 50% as the broker tries to buy it all at one time - is that
> preferable?
>
> Your point about the broker (GS/LEH, whoever) "driving the shares
> into the dirt" to cover positions is a massive misconception. First
> of all, the broker is SHORT the stock - he needs to buy it (or, if
> he's long it, he needs to sell it)... it does him no good to sell
> more of a stock he's already short to "push it down."... remember
> - when the broker covers the short position, he has to buy the stock
> from someone, and we already know these are illiquid stocks! So
> you can't just drive it down and then "cover it" - the act of covering
> the short will drive the stock right back up.
>
> This is what i hated about Taiibi's piece about GS manipulating the
> oil market - if GS is long oil, they can absolutely make oil go up
> by buying MORE oil... but then they need to SELL the oil! when they
> sell all this massive position that they've been using to "push the
> market around" - the price would go right back down, and they wouldn't
> make money,.
>
> In short, Paul, I have never heard of a broker holding an unreported
> unlocated market maker exempt short position in a stock for the length
> of time you're talking about in reaction to an index rebalancing
> trade.