Regular readers know I am a fan of Scott Adams, creator of the comic Dilbert and occasional commentator on a variety of matters.

He has a somewhat odd blog post up, titled, Here Come the Market Manipulators. In it, he makes two interesting suggestions: The first is to decry “market manipulators,” who do what they do for fun and profit to the detriment of the rest of us. The second is to say that these manipulators are likely to cause “a 20% correction in 2013.”

Let’s quickly address both of these issues: First off, have a look at the frequency of 20% corrections in markets. According to Fidelity (citing research from Capital Research and Management Company), over the period encompassing 1900-2010, has seen the following corrections occur:

Corrections During 1900 – 2010

5%:  3 times per year

10%:  Once per year

20%:  Once every 3.5 years

Note that Fido does not specify which market, but given the dates we can assume it is the Dow Industrials. (I’ll check on that later).

Note that US market’s have not had a 20% correction since the lows in March 2009. I’ll pull up the relevant data in the office, but a prior corrective action of 19% is the closest we’ve come, followed by a ~16% and ~11%.

As to the manipulators of the market, I can only say: Dude, where have you been the past 100 years or so?

Yes, the market gets manipulated. Whether its tax cuts or interest rate cuts or federal spending or wars or QE or legislative rule changes to FASB or even the creation of IRAs and 401ks, manipulation abounds.

In terms of the larger investors who attract followers — I do not see the same evidence that Adams sees. Sure, the market is often driven by large investors. Yes, many of these people have others who follow them. We need only look at what Buffet, Soros, Dalio, Icahn, Ackman, Einhorn and others have done to see widely imitated stock trades. But that has shown itself to be a bad idea, and I doubt anyone is making much money attempting to do so. And, it hardly leads to the conclusion that any more than the usual manipulation is going on.

Will be have a 20% correction? I guarantee that eventually, we will. Indeed, we are even overdue for it, postponed as it is by the Fed’s manipulation.

But I have strong doubts it is going to be caused by a cabal manipulating markets for fun & profit. It will occur because that’s what markets do . . .

 

 

 

Previously:
Dilbert’s Unified Theory of Everything Financial’  (October 15th, 2006)

7 Suggestions for Scott Adams (November 27th, 2007)

Don’t Follow Wealthy Investors, Part 14 (February 17th, 2008)

 

Category: Markets, Philosophy, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

11 Responses to “Scott Adams Discovers Market Manipulation”

  1. PeterR says:

    20% correction?

    “No prob, I will work on it . . . ”

    HAL
    2001, A Space Odyssey

  2. PeterR says:

    Correction — Odyssey.

    Nice strip today too:

    http://www.dilbert.com/strips/

  3. Herman Frank says:

    Sorry Dilbert, disagree with you.
    The experiment of frugal lives turning into miserable lives will make the miserable electorate force the politicians to take the pot of misery off the stove for a couple of years. Before interest rates change they’ll (finally-) force them make use of the cheap funds in the market to start getting a pot of gold to invest in infrastructure, economic stimuli creating JOBS, and think about GROWING the economy. (Yes, thank you Mr Ben!)
    Who cares about doubling a balance sheet if the alternative is a total stand-still economy with enough misery sucking the life out of anything resembling “an economy”. Who’s kidding whom? The Fed balance sheet has exploded and what do they have to show for it, except for a bunch of super-bratty banks?
    OK Dilbert, coming back on the 20% dip in your glass bowl: “No, once the politicians realize that growing/stimulating an economy will produce better sustainability than starving it to death – and start beating that drum – the stock market is going UP 60+%”.

  4. Petey Wheatstraw says:

    “Will be have a 20% correction?”

    Of course we will. We’ll have one even larger than that, eventually. As always the real question is when. Interesting that Adams call it for this year.

    Right on with the underlying reason being Fed manipulation. This market is as false as anything I’ve ever seen (except, perhaps, Obama being a Progressive/Liberal). Have people made tons of money? Yes. People made money off of the housing and dot com bubbles, too. Fraud is not a good foundation for any cultural relationship.

    At some point, all of the trash we’ve shoved under the rug will have come out and force us to deal with it.. After all, the rug can only cover so much.

  5. Chad says:

    Have there been any studies done on using these semi-predictable downturns to invest? Buy’n hold, but never invest cash saved unless a 5% drop or more happens?

  6. RW says:

    Yes, (1) the market is manipulated and (2) copying the play of big players is rarely profitable. We will have a correction too (and I’ve got a modest bet that sequestration will trigger it relatively soon but am ready to be wrong) but the tell is not going to come from big players regardless (see 2).

  7. constantnormal says:

    OK, so the market manipulators are not going to cause a 20% correction this year … or if they do, it is a correction that would have occurred anyway … so when will the manipulators cause a “correction” that would not have otherwise occurred? And how big will it be?

    I’m thinking here of something that will make the LTCM fiasco and the London Whale’s market-distorting antics look tiny by comparison … and that points to the cloud of hundreds of trillions in unregulated, unaudited swaps that is orbiting our financial world, kinda like a Van Allen belt … eclipsing the Fed’s not-inconsiderable manipulations completely …. such events always (I was going to say “nearly always”, but then paused to try and identify an exception …) involve unrestrained leverage amid the backdrop of a chaotic market that sooner or later turns the tables on the leveraged manipulators …

    Will it be in 2013? 2014? 2020? Tomorrow?

    Nobody can foretell when the bell will ring, only that it surely will … and the potential energy that is already bound up in the system is immense …

  8. constantnormal says:

    “But I have strong doubts it is going to be caused by a cabal manipulating markets for fun & profit. It will occur because that’s what markets do . . .”

    Careful, BR, you are one step away from embracing the Theory of Efficient Markets …

  9. RW says:

    For the “what goes around, comes around” file: Courtesy of Brad DeLong

    Will Rogers (from his Daily Telegrams November 1929) on “Market Confidence”:

    America already holds the record for freak movements. Now we have a new one. It’s called “Restoring Confidence.” Rich men who never had a mission in life outside of watching a stock ticker are working day and night “restoring confidence.” Writers are working night shifts, speakers’ tables are littered up, ministers are preaching statistics, all on “restoring confidence.”

    Now I am not unpatriotic, and I want to do my bit, so I hereby offer my services to my President, my country and my friends to do anything, outside of serving on a commission, that I can in this great movement. But you will have to give me some idea of where “confidence” is. And just who you want it restored to.

    I have been trying my best to help (the President) and Wall Street “Restore Confidence.” Confidence, is one of the hardest things in the World to get restored once it gets out of bounds. I have helped restore a lot of things in my time, such as cattle back to the home range. Helped to revive interest in National Political Conventions. Even assisted the Democrats in every forlorn pilgrimage, and a host of other worthy charities. But I tell you this “Restoring Confidence” is the toughest drive I ever assisted in. When I took up the work two or three weeks ago, confidence was at a mighty low ebb. Wall Street had gone into one tail spin after another…

    I am telling (folks) that the Country as a whole is “Sound,” and that all those who’s heads are solid are bound to get back into the market again. I tell ‘em that this Country is bigger than Wall Street, and if they don’t believe it, I show ‘em the map…

  10. hammerandtong2001 says:

    It’s a good thing for Mr. Adams that he makes his money drawing cartoons.

    His blog post is quite uninformed.

    .

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