Pump & Dump Scheme vs Short & Distort Scheme

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Pump & Dump Scheme vs Short & Distort Scheme

This interesting article uses stages to help explain not only the stages of the highly publicized PUMP & DUMP scheme but also the stages of the lesser known SHORT & DISTORT scheme.

PUMP & DUMP vs SHORT & DISTORT

Most traders have heard and read of the Pump & Dump scheme. But very little has been written about the other side of the trade or its opposite, which is the Short & Distort.

Now lets take the Short & Distort scheme and apply it to the rules of Pump & Dump for stock manipulators.

In order to make these market manipulations work, the professionals assume:

(a) The Public is STUPID and
(b) The Public will mainly buy at the HIGH and
(c) The Public will sell at the LOW.

Therefore, as long as the market manipulator can run crowd control, he can be successful in his agenda of stock manipulation by controlling the market's greed and fear.

The Pump & Dump Scheme

Stage 1: The Acquisition of shares.

Please note: all sharp price movements, whether up or down, are the result of one or more, usually a group, professionals manipulating the share price.

(Loading): In stage I of a Pump & Dump scheme Manipulators after acquiring their shares leak information and pump the stock to get buyers silently. This leads to front loading also.

Stage 2: The Promotional Campaign!

Note: this is designed to spread a rumor/story and to play on the emotional greed of a pie in the sky find. It begins to spread across the financial world. Joe public rushes in not to miss the next gold rush.

(PUMP/Greed) Newsletter writers are hired -- either secretly or not -- to cheerlead a stock. PR firms are hired and let loose upon an unsuspecting public. Contracts to appear on radio talk shows are signed and implemented. An advertising campaign is rolled out (television ads, newspaper ads, card deck mailings, e-mails, etc.).

The company signs up to exhibit at "investment conferences" and "shows" (mainly so they can get a little "podium time" to hype their stock and tell you how "their company is really different" and "not a stock promotion.") Funny little "hype" messages are posted on Internet newsgroups. BTW the more, the merrier. 1000% returns are projected.

Stage 3: The infamous DUMP!

(DUMP) The once low volume that caused a bit of a spike suddenly changes to big volume. The stock manipulators sell out their positions into the new buying brought on by the promotion campaign.

Stage 4: The Silence or News Vacuum!

(Silence) No more news or insider leaks of information to pump the stock to get buyers. The front loading sells out. The silence plays on the emotional fear of being hoodwinked. Negative opinions begin to spread across the financial world. Joe public sells out to cut their losses. The really slick market manipulators would even seed the Internet news groups or other journalists to plant negative stories about that company. Or start a propaganda campaign of negative rumors on all available communication vessels.

Stage 5: The Distortion!

(Gone/Waiting/Shorting):

Stage 6: The Accumulation!

(Gone/Waiting/Buying): If the manipulator sees an opportunity the stock is on the floor and not part of the Short & Distort campaign they will begin buying back and slowly accumulating. As the Shorters were shorting the first manipulator was selling, so now it goes the other way. Buying to put pressure on the shorter to cover. Accumulation by new investors and averaging down of old investors leads to the pressure on the shorts.

The Short & Distort Scheme

Stage I: Monitoring

In stage I of a Short & Distort scheme Short groups Monitor spikes in volumes on stocks with no rumors.

Stage 2: Flagging

Shorts Flag stocks that run up then sits back and wait patiently for their time.

Stage 3: Preparation

The Shorters research the company and develop their Distortion of the rumors to be used later.

Stage 4: Actual Shorting

The shorts step in selling on every possible up tick. This is the Reverse of front loading. Preparations are made to attack the guy who had earlier written positively about the company and take out, discredit, any new long-term champions or messengers.

Stage 5: Distortion Campaign

The shorts step in and increase selling on every possible up tick. Just as with the pump, newsletters, e-mail, PR firms against P & D, etc. are simulated. Expertise in the field is recruited for credibility. Any possible twist using POS (Purposely Omitted Syntax) and PAS (Purposely Added Syntax) is conveniently used on every possible angle. If the POS/PAS is discovered then attack the messenger. Above all control the message boards.

The group clutters the message boards, so no positive information can be readily found. Justification is the Value of the Company in the market. Projections of $0.00 worth and loss projections of 100%

Note: The market manipulator will do everything in his/her power to keep buyers OUT OF THE STOCK. Cut your losses is touted to stimulate fear. You bought higher but now they need you to sell lower.

Stage 6: Pressure

The shorts have taken it too far. The volume is increasing and the price is not effectively dropping. A stalemate occurs. Personal attacks increase. Threats of legal action, SEC involvement, and yes even death threats increase. Increased secret IDs are employed to increase the cluttering, personal attacks and the distortion. So begins a string of lies that run for as long as one's stomach can take it. Desperately playing on the "you have been had" scenario. Any new news will be hit it hard by shorters to kill any interest.

Note: Watch the volume not the share price. A market manipulator will have various brokers buying and selling the stock to give the APPEARANCE of increasing volume but the price goes down. Thus stimulating the story the company is selling or an off shore reg S or other convenient scenario. Watch for large blocks that show up but have a MM special code, cross overs, etc.

Stage 7: The Cover

Without warning the buying pressure is too much and the short begins to cover. Short covering combined with new investors buying into the stock causes the stock to go up. Often the whole thing starts again. Just a vicious cycle sometimes.

Please sir, may I have some more?

Please sir, may I have some more?

Tuesday, March 11, 2008
Between calls to their brokers, investors had little time during Tuesday’s stock market rally to ask themselves one important question: Is the Federal Reserve’s latest attempt to free up credit markets big enough?

David Rosenberg, North American economist, believes the answer is No. The Fed introduced the Term Securities Lending Facility, which will lend up to $200-billion (U.S.) to primary dealers – essentially swapping U.S. Treasury securities for unwanted Federal agency debt and agency residential mortgage-backed securities, for a period of 28 days.

Other central banks, including Canada's, have followed suit with similar liquidity injections, triggering a stock market rally.

But Mr. Rosenberg points out that $200-billion is chicken feed next to the $6-trillion market for total mortgage-backed securities (MBS).

“As with the other liquidity measures introduced, the new facility will not alleviate the current credit crunch or economic recession, in our view,” he said. “The size of the auctions, while sizable in terms of the Fed’s balance sheet, are actually fairly small in light of the overall credit situation and in no way does this solve – or is intended to solve – the massive writedowns and losses in the banking sector that are ongoing in this cycle.”

What’s next? Mr. Rosenberg said that there is speculation the Fed could start buying agency debt itself, which it hasn’t done since 1999, or even buy agency-MBS, though he is not hopeful.

“Also garnering a lot of attention is the possibility that the Fed could decide to lend directly to non-banks via the TAF (Term Auction Facility), something they last did in the 1930s. We cannot rule out that the Fed would be forced to revive this option, but the benefits of such action would need to be weighed against the headline shock of bringing back a Depression-era measure.”


© Copyright The Globe and Mail


Stocks jump on credit bailout

TheStar.com - Investing -

Stocks jump on credit bailout
Days of sharp sell-offs turn to major investor gains after central banks pour billions into loan markets

March 12, 2008 Madhavi Acharya-Tom YewBusiness Reporter
Stock market investors rejoiced yesterday as central bankers around the world, including Canada, announced plans to help ailing financial markets with a huge injection of cash.
But economists say that while the latest intervention may soothe jittery credit markets for the time being, it won't be enough to cure the U.S. economy.

The Bank of Canada said it would enter into 28-day purchase and resale agreements for $2 billion on March 20 and another set for $2 billion on April 3.

The Bank of England, the European central bank, the U.S. Federal Reserve, and the Swiss National Bank also announced similar measures.

Canada's contribution is tiny compared to the U.S. Federal Reserve, which will lend up to $200 billion of Treasury securities for 28 days.

"It's primarily a U.S. move and we're doing a small part. I think that's appropriate," said Don Drummond, chief economist at TD Bank Financial Group. "The financial problems are much more serious in the United States."

Stock markets soared on the news, and the gains strengthened through the day. In Toronto, the S&P/TSX composite index gained 2.61 per cent, or 339.44 points, to finish trading at 13,344.53.
In New York, the blue-chip Dow Jones industrial average gained 416.66 points, or 3.55 per cent, to finish at 12,156.81.

The S&P 500 index closed at 1,320.65, up 47.28 points, or 3.71 per cent.
The gains helped turn around days of sharp market sell-offs, led by financial sector stocks, as another, so-called third wave of credit fears has made lenders very uneasy. There are renewed worries that big Wall Street investment firms are facing liquidity issues as they take massive writedowns for housing and mortgage assets related to subprime borrowing.

Banks tightened their lending after the U.S. market for subprime borrowing collapsed last August, making it difficult for companies to get their hands on short-term financing.
As the signs pile up that the U.S. economy is headed for trouble – slowed consumer spending, record high gasoline prices, and a housing slump – banks are still reluctant to lend.
"This is a tourniquet, it will staunch the bleeding, but it may not turn us around and bring the patient to health," said Susan Wachter, real estate and finance professor at The Wharton School, University of Pennsylvania.

The same central banks also co-ordinated a similar liquidity injection in December to help companies with end-year needs for extra cash.
"Pressures in some of these markets have recently increased again," the Bank of Canada said in a release yesterday.

"We all continue to work together and will take appropriate steps to address those liquidity pressures."

In Canada, banks and financial institutions put up government or provincial bonds, or a few other select securities, and in exchange, they get cash from the Bank of Canada for 28 days.
The Fed said also it would make U.S. treasury securities available to cash-strapped banks through weekly auctions for 28 days, rather than the traditional overnight period.
"The fact that it's 28-day loans instead of overnight should help it have some impact but let's face it, this is not the be-all and end-all of curing U.S. woes," Drummond said.
"That's going to be a long time in the making and will take more than something like this."
With files from the Star's wire services

Eric Sprotts View Of Markets

Sprott sees financial turmoil pushing gold to $2,000

By Stewart Bailey Bloomberg News Service Monday, March 10, 2008

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aVMsmS.ikYd4

Turmoil in global credit markets may lead to the collapse of a North American bank, pushing bullion prices up to $2,000 an ounce as investors seek a haven in gold, Eric Sprott said.

This year's decline in banking and brokerage stocks will worsen, said Sprott, 63, founder and chairman of Sprott Asset Management, which manages about $7 billion.

In response, the company is short-selling financial stocks and increasing holdings in bullion and mining companies, Sprott said.

He declined to name which bank he thought may collapse. "We're in a systemic financial meltdown," Sprott said in a March 6 interview at the company's Toronto headquarters.

"There are probably 10 companies that are broke that are still trading -- banks and financial institutions." Sprott, who in 2004 foresaw uranium and crude-oil prices rising, expects that the global financial system will come under increased stress as banks, faced with slipping stock prices and capital erosion tied to subprime-mortgage loans, battle to raise money to offset losses caused by asset writedowns.

Bear Stearns Cos. dropped as much as 14 percent today on speculation the company lacks sufficient access to capital. The company, the second-biggest underwriter of mortgage-backed bonds, led Wall Street shares lower in the past six months as the world's largest banks and securities firms wrote down $188 billion of assets linked to devalued loans.

The "concentration" of Sprott's short selling is in financial stocks, housing, and consumer products, he said. Short selling involves selling borrowed stock on the expectation share prices will fall, allowing the short seller to buy the equities in the market at a lower price to repay the debt. ...

'Easiest to Short' "The brokerage companies, the investment banks are the easiest to short,"

Sprott said. "Do I understand what's happening in the business? Yes, there is no business." Sprott said his company's offshore hedge funds have increased the proportion of gold in their portfolios to about 30 percent.

The company is also buying small mining stocks that have yet to "blossom," including Dynasty Metals and Mining Inc., Golden Star Resources Ltd., and MAG Silver Corp., he said. Gold has gained for seven straight years and reached a record $995.20 an ounce in New York on March 5.

The precious metal rose 16 percent this year before today, compared with a 12 percent drop in the Standard & Poor's 500 Index and a 24 percent slump in the seven-member S&P 500 Investment Banking & Brokerage Index. ... Funds double The Sprott Gold & Precious Minerals Fund and the Sprott Canadian Equity Fund have both more than doubled in the past five years.

The S&P 500 Index gained 58 percent in the same period. Sprott says the collapse of U.K. mortgage lender Northern Rock in September precipitated some bullion purchases by skittish depositors seeking a safe investment for the money they had withdrawn from the bank.

That presages the larger effect that a banking failure in North America would have on gold demand, he said, since investors will have few good alternatives. "Government bonds are a joke at the interest they're paying,"

Sprott said. "You can buy gold or other real things -- gold, silver, platinum, palladium -- things that hold value."

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