Big Stock Market Drop....8/26/2022

[ConnecticutMarc]

The NYSE dropped 1008 points today when the FED said that it keep on fighting inflation. That represents a collosal loss of money. And anybody who buys into the stock market deserves to get taken on a one way ride!!!!!

[NFriday]

As long as people hold onto their stocks, most people should be okay.  It is also important to diversify.  I happen to like index funds.

[melbourne_yankee]

Well................

The stock market isn't a place for "investing" anymore.

It is just a gambling den where insiders and high frequency traders rip off others.

There are all sorts of rules for ordinary people and another set for those with connections.  Australia has to be one of the most rigged markets when it come to that.  Huge changes over the past 25 years here  that favour the big money.

But just wait for the market to drop when China makes a move on Taiwan.........................

[melbourne_yankee]

IMO the US stock market is still at ridiculous levels.

 

There is very little value in the US market and the values have been propped up by the ridiculous money printing of the Fed that has allowed numerous companies to trade at Price to Sales and price to book value that have no basis in reality.

The yield on many stocks is non-existent or so low that they offer very little return for you investment and what return you get is destroyed by inflation and taxes.

I think that for the person that can do the research and has the ability to read income and asset statements as well as  statements of cash flow, the Japanese stock market offers lots of companies that trade at good value.

 

Of course, you have the problem of foreign exchange risk and not being able to read Japanese................

 

[ConnecticutMarc]

On 8/27/2022 at 10:13 PM, melbourne_yankee said:

Well................

The stock market isn't a place for "investing" anymore.

It is just a gambling den where insiders and high frequency traders rip off others.

There are all sorts of rules for ordinary people and another set for those with connections.  Australia has to be one of the most rigged markets when it come to that.  Huge changes over the past 25 years here  that favour the big money.

But just wait for the market to drop when China makes a move on Taiwan.........................

I'd much rather take my chances with a street hustler than with the NYSE!!!!

[melbourne_yankee]

Nah, the NYSE, other than High Frequency trading, is a piker compared to the games that get played in Australia.

Here companies often do capital raisings where they sell more shares to "fund" the companies operations.  This usually includes paying for director and company officers salaries, bonuses, and other incentives first and then everything else next.  Here you could make over $A150,000 in salary alone being a company secretary for a money losing crap company with 5 or 6 employees.

Anyway, back to capital raisings which is the ultimate scam and rip off of ordinary shareholders.

The raisings are generally of two types: institutional and then institutional and ordinary shareholders combined ones.

In the first only institutional type the company can sell up to IIRC 10% (15% during the pandemic) of shares outstanding without shareholder approval.  These shares get sold at a deep discount to the market price. For example, the  shares are trading at A$10 and the company will sell 50 million shares at $8 a share.  The additional shares automatically dilute the ownership of the company to ordinary shareholders, cause the price to fall, and usually mean an instant profit for those participating in the offering.

The institutions buying the shares at $8 most likely know in advance that the offering is coming and as soon as they find out start selling the shares short at the market price which in this case is $10.  When they get the new shares they deliver the  shares and close out the short for their instant profit while ordinary shareholders see the value of their shares fall. Sometimes they fall even below the $8 issue price after all the "new" shares are liquidated by the  institutions. If the institution hasn't sold the shares short they can dump the shares in the market at prices higher than that $8 right away.

These institutions get the shares as soon as they send in the money as most of these offerings close within a couple of days.

In the other  type offering where both institutions and ordinary shareholders participate the offering is usually done in two parts with the institutional offering taking place first and the institutions getting the shares weeks or months ahead of the ordinary shareholders so they can again dump the shares right away for a profit or deliver the shares if they sold short.

Ordinary smucks have to wait for the offering document, send in their money, and then wait to get their shares.  By the time they get the new shares the price has already fallen by a whole bunch to reflect all the new shares outstanding and they may or may not be looking at a loss.

And in these type offerings the institutions will get the vast majority of shares on offer with sometimes at little as 10% reserved for the ordinary smuck.  So they again not only see the value of their shares drop, but get diluted down the drain as well, but instead of seeing 100% dilution in the above institutional offering they maybe be only be diluted by 90% or less.

Ordinary shareholders ain't in the club as George Carlin would have said.

And then you have these nifty program trades which only institutions or big funds are allowed to do.  Individuals and ordinary shareholders are not allowed to do them.

Here each there are minimum number of shares in a "lot" that can be traded in one order for ordinary participants in the market.  The size depends of the price of the shares with normal lots being, 10, 100, or 1000 shares.  If you own 896 shares of a company  that trades in 1000 share blocks you have to do a special one time order to get filled which costs more brokerage commission.  If you own 1196 shares of that company you can sell all 1196 shares in one lot or sell 1000 and then get stuck with the other 196 that have to go the previous route.

So what about program trading?

These entities that are allowed to do the program trading can sell or buy any number of shares regardless of the minimum lot requirements.  For example, they can sell 11 shares, 50 shares 3 shares, and so on rather than the minimum 1000 shares at one time.

And you can see it happen in real time if you have real time quotes here.  I once watched some institution sell less than A$100 of shares this way and knocked the price of a company's shares down by 25% wiping out millions of dollars of value in the company  for that $A100.

Lastly, lots of company shares are held in what they call nominee accounts here.  Big banks provide a service to funds, big investors, and institutions to hold the shares that they  own in a nominee account in the bank's name.  So you can have a big bank holding, for example, 25% of company XYZ shares.  These shares may be owned by a hundred different companies, but the actual ownership is hidden.

By law, once an entity owns more than 5% of a company they are required by  law to disclose the ownership.  However, if that ownership is spread among different banks and kept below that 5% at each bank, there is no way to really know the actual ownership.  These nominee accounts can also be used to short shares (and take advantage of upcoming capital raisings as described above) and even trade on inside information.  With hidden ownership, it is hard to regulate that part of trading.

These are only a few of the way that markets are rigged here.  There are many others, but take a longer explanation.

Years ago there was some outfit that put out a document explaining many of these type schemes and rigged market action in stock markets across the world.  It made for interesting reading.

[mnleona]

Dropped almost 1300 yesterday. Up around 50 as I write this today.