Return to the Rigged Casino

  • The problem with “Stay out of the market — it’s a rigged casino!”
  • An insider who knows the rigging well (and knows your best revenge)
  • Day three of “liquidity injections” and Fed chief already looks tired
  • “We don’t know”: Powell phones it in for press conference
  • Oil elevated and so is Iran war risk: Meet John Bolton’s replacement
  • Here we go again: The 5 receives nonspecific praise.

“Don’t even try to ‘invest’ in this market, folks, and if you decide to trade, realize that you’re playing in a rigged casino and the entire force of the government is not only behind rigging the casino but explicitly endorses and permits the rigging to go on and continue, despite being fully aware of it.”

So wrote a financial blogger in a post that went viral around this time in 2011. “The fraud, the phony bids and offers and the high-frequency rip-offs have driven everyone away.”

It was a dear reader of The 5 who brought that post to our attention. “There will be no reason for subscribing to your publications,” he wrote, “if all of us, and mostly you guys, do not do all in your power to see that everyone is made aware of the fact that the game and casino you tout are crooked.

“The regulators are nothing more than gatekeepers for the thieves that are now in total control. You give advice that may overcome the thieves on occasion, but you will not, in the long run, overcome the bastards that are becoming more voracious every day.”

We totally sympathize with this line of thought. But there are a couple of problems with it.

First, there’s nothing new about it — even though we live in an unprecedented era of robo-trading, backroom dealing and bizarro monetary policy.

Back in the pre-World War II era, people complained bitterly about the market “pools” of the day — piles of money assembled by the wealthy and powerful, akin to present-day hedge funds.

“In the minds of amateur speculators,” wrote Fred Kelly in a 1930 book called Why You Win or Lose, “every pool is rarely gifted at foreordination and omniscience and has a magic wand with which it can put the price of a stock wherever it sees fit.”

The other problem is that many of the people who have a platform to complain about the rigged casino in the current era have already made their fortunes usually from their own businesses.

Such is the case with the blogger whose post went viral eight years ago. These people have the luxury of drawing down their savings to live on for the rest of their days.

You, on the other hand, are trying to build a retirement nest egg — or add to the one you’ve already got. What choice do you have other than to be in the markets?

Especially when the system is rigged so a 5-year CD earns a paltry 1.2% — less than the (rigged) rate of inflation?

And so we soldier on as publishers and editors, in search of ideas that can preserve and grow your wealth.

In our relentless quest, we just scored a huge coup on your behalf — recruiting a premier market insider to the Agora Financial team.

He’s Jon Najarian — legendary options trader and a fixture on CNBC.

Jon knows the casino is rigged after a finance career spanning nearly 40 years.

He got his start on the trading floors of Chicago in the early 1980s — after washing out as an NFL linebacker. (He did get to tackle the legendary Walter Payton during practice!)

This was a few years after the publication of A Random Walk Down Wall Street by Princeton economist Burton Malkiel. In Malkiel’s telling, the cumulative decisions made by the market’s players resemble a drunkard walking down the street — with each step, you have no idea where he’ll go next, and neither does he.

“Random walk theory” has influenced many market players over the decades. And Jon says it’s horse hockey.

“I’ve learned that stock prices are moved by more than just random events,” he says. “When you see the greed, corruption and manipulation that occur, it’s not really a random walk. History has shown that as long as we have financial markets, we’ll have those who try to influence prices.”

It was a revelation when he opened his own trading firm in 1989. He noticed when big firms came in with big orders… they were making profitable bets way more often than randomness would allow.

So Jon and brother Pete Najarian set out to discover the big firms’ proverbial secret sauce. They even hired a team of computer nerds in search of anomalies in the options market — hoping to discover hidden patterns that would point the way to lucrative trades.

Their mission succeeded beyond their wildest dreams.

“You can ride the coattails of the powerful insiders who trade or leak inside information — and you can do it legally,” Jon concluded.

“By using unusual option activity, you’re not trading on inside information. You’re using publicly available information to track them.”

From there, it’s a matter of knowing which trades are relevant and the best way to piggyback those trades yourself.

This is a science Jon has perfected across many years now for his firm and his personal account.

Now for the first time, he’s doing the legwork of uncovering these lucrative trades for people just like you — in a new trading advisory we call Weekly Options Profits With Jon Najarian.

We think this service is your best revenge against the “greed, corruption and manipulation” Jon describes. You might be playing in a rigged casino… but now you can look at the cards over the dealer’s shoulder.

We rolled it out for the first time yesterday to a select group of readers and got a tremendous response. Now we’re opening it up to you. Check out this exclusive interview with Jon and see how you can win in the casino even though the cards are marked.

Aaaand it’s day three of the Federal Reserve jumping in to liquefy the “repo” market.

The New York Fed electronically printed another $75 billion this morning, on top of $75 billion the day before and $53 billion the day before that.

As a reminder, repos are where Wall Street firms put up U.S. Treasuries as collateral in exchange for quick cash used for daily trading. But the repo market seized up on Monday afternoon and the Fed has intervened to stabilize repo interest rates, something it hadn’t done since the Panic of 2008.

Which is fine as far as it goes — except yesterday the Fed made its job harder by lowering the fed funds rate another quarter percentage point.

Repo rates are supposed to stay in line with the fed funds rate. Because of the cash crunch Monday and Tuesday, repo rates soared as high as 10% — juuust a wee bit more than target range for the fed funds rate of 2.00–2.25%.

Now that target range is 1.75–2.00%. So expect more “liquidity injections” where the three this week came from.

Despite the fact no one really knows why the volatility developed, Fed chairman Jerome Powell says move along, nothing to see here. “While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy.”

We almost feel sorry for the guy. Almost. He looks more and more haggard with every press conference. His aging-movie-heartthrob good looks are quickly giving way to those of a weary college professor who’s lost all patience with his students. Muss up his hair a bit and he could pass for a street bum.

Give this man a drink! [Federal Reserve photo]

So about the rate cut itself: After the one in July — the first in over a decade — he tried and failed to convey that it was a case of “one and done.”

Yesterday he tried and failed to convey that it’s a case of “two and through.”

“There will come a time, I suspect, when we think we’ve done enough. But there may also come a time when the economy worsens and we would then have to cut more aggressively,” he said. “We don’t know.”

We don’t know? Dude, you can’t even come up with a phrase like “data dependent” to make it seem as if the hordes of economists you employ are all science-y and stuff?

It’s as if he doesn’t even care anymore. Then again, if the guy who appointed him keeps berating him mercilessly — as happened again yesterday — who could blame him, really?

The market reaction to Powell is the sort of thing we’re getting used to.

The major U.S. stock indexes gyrated with every sentence he uttered, ending the day more or less flat. The dollar rallied, gold sold off.

This morning as everything settles down, stocks are in mild rally mode. At 3,020 the S&P 500 is only five points below its record close in late July. Gold is a hair below $1,500.

Among the day’s economic data, the number that jumps out is existing home sales — up 1.3% from July to August, way more than expected. Falling mortgage rates seem to be making high home prices a little easier to swallow and there’s new life coming to the housing market.

After three days of big swings, oil seems to be settling into a new normal.

At $58.58, West Texas Intermediate is lower than Monday’s peak over $62… but still well above what’s been typical since mid-July.

Yes, Saudi Arabian production should be up to full strength by the end of the month… but the risk of war breaking out with Iran remains elevated.

No sooner did we say yesterday that the war drums were beating more quietly than the president appointed another Iran hawk as national security adviser to succeed John Bolton. “Bolton without the mustache” is the general consensus on Robert O’Brien.

“O’Brien’s ascension proves a Trump maxim: the triumph of the personal,” writes Curt Mills from The American Conservative. “Policy differences may have forced Bolton out, but the president hires who he likes, even if he’s setting himself for the same cycle of disagreement and conflict.”

Meanwhile, Mills cites a source within Elon Musk’s private space firm SpaceX for this nugget: “The company has scaled back some of its commercial work in recent days in order to respond to a glut of requests for satellite imagery over the Middle East.” Hmmm…

“Yes, indeed — another day, another emergency stopgap measure by the Federal Reserve,” writes one of our regulars from upstate New York.

“Why does it scare the bejeezus out of me that the Fed is simultaneously trying to (a) lubricate the gears of the financial system and (b) salvage its own credibility while (c) its every word and narrative moves the markets?

“Not that anything could go wrong with that! I’m just curious.

“Then again, maybe the recent overnight liquidity event in the repo market was another example of the twitchy behavior of complex systems when they’ve reached a critical state. Jim Rickards has been warning us about this for some time.

“Regarding the ‘Wake up, Dave!’ comment from another reader: If you aren’t as awake (woke?) as it gets, I don’t have a pulse. Keep on keepin’ on…”

OK. Just gotta say it,” a reader writes. “Yesterday’s is one of your best. Thanks.”

Once in a while, we get some very nonspecific praise that leaves us befuddled. At least this reader identifies a specific episode of The 5 he likes.

But what was it specifically? The Wizard of Oz GIF? The Bill Hicks joke?

Oh, well. We take praise wherever we can get it, specific or otherwise!

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. If you’ve ever had a bad experience trading options, you need to hear this.

It’s not your fault.

The No. 1 reason people lose money with options might shock you. Maybe make you a little mad, too.

It all comes back to the “rigged casino” we talked about up top. And now’s your chance to turn the tables. Click here to learn how.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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