The share market has been so well organised by the Big-End-Of-Town that the general population is kept completely in the dark about what is going on. Let’s give credit where credit is due. You may not like it but they have organised things beautifully to suit THEIR interests at the expense of everyone else.
A friend of mine who has spent some of his career in finance wrote this to me when he heard I was complaining about the manipulation and short selling of Galaxy Resources (GXY). he had this to say.
Ben, you clearly don’t understand the market when you say things like:
"The market has changed, it doesn’t work the way it used to, it now operates like a casino."
Statements like that are rubbish. You are looking for an excuse to cover up your own failures. The bottom line is that the market is always changing and that you don’t (and probably never did) understand the market. You kept picking the wrong stocks and now you are looking for someone or something to blame.
Short selling had nothing to do with Galaxy Resources' share price collapsing and everything to do with the substantial fall in the price of Lithium. And also some poor management decisions, some arrogance and a lack of fiscal restraint. It's so blatantly obvious. I can't believe someone would be so stupid as to blame short sellers!
Ben, in the big picture, short selling and manipulation have little to do with a share price collapsing. Share prices collapse because of bad fundamentals, bad management decisions, bad business models and unfavourable market conditions such as when the underlying commodity prices (e.g. metals, Lithium etc) are falling. If a company has corporate acumen, genuinely good management, a sound business model and good assets the market will see those and demand for the stock will lift prices. If a company has poor management, a poor business model and other negatives, the market will also see those and selling pressure will push prices lower.
And as markets rise, they become more emotional and therefore more volatile. This is a natural cycle that occurs in the markets and people use the excuse "the market's rigged, it doesn't work the way it used to" as a cop out. Ben, it's not because of short selling and share price manipulation.
Well, fair enough buddy. I guess everyone is entitled to an opinion. However, I would argue that my friend was describing how markets used to work.
Anyway, it's always nice to get a lecture but an alternative is provided by two long-term Galaxy Shareholders who have been studying the fall in Galaxy's share price.
When Lithium miner Galaxy Resources’ share price started plummeting, the Galaxy shareholders started investigating. For three years they observed the way a number of institutional banks manipulated Galaxy. In those three years Galaxy was regularly the most shorted stock on the ASX with Credit Suisse being the most aggressive short seller. Credit Suisse also happens to be near the top of the list of institutional brokers whose trading programs continuously set and maintain artificial prices in daily trading. The combination of short selling and using algorithms to bring down the price was a lethal combination for Galaxy which fell from a $4.58 peak to a low of 78c.
Some argue that Galaxy fell that far in price because of the fall in the Lithium price during that time. It’s an obvious point and one well used by those wishing to deny that the Galaxy share price was being manipulated. Swarms of posters on Hot Copper consistently push that view. But it holds no argument for Galaxy. The mum and dad investors of Lithium stocks in Australia are not sitting at their computers all day watching the Lithium price and buying when it goes up and selling when it goes down. The majority of these investors are predicting a surge in electric cars and batteries. They fully understand that commodity prices go up and down but also the need to just sit things out if the fundamentals remain strong. They are not just going to dump their shares when Lithium prices fall. During the three years that the two Galaxy shareholders observed the manipulation, Galaxy sold a tenement for a quarter of a billion dollars. The sale cashed up the Company and it bullet-proofed the Company’s balance sheet.
By the time the manipulators had used short selling and algorithms to bring the price down to 78 cents the company was trading at a value almost the same as the amount of cash they had in bank. Go figure! Every other asset they held counted for nothing. Netcomm shareholders can tell you what happens next. So can Pan Australia shareholders, UGL shareholders and in recent times, Bellamy shareholders got to discover how it all takes place. They weren’t particularly happy.
Undervalued share prices inevitably lead to opportunistic takeovers, or in some cases, receivership and even liquidation. All scenarios share one thing in common. Valuable company assets end up being acquired on the cheap.
Does anyone really believe that it is all just coincidence?
The two Galaxy shareholders clearly understood how the game is played. They did the research on a Hot Copper user who was continually making negative comments about Galaxy. It turned out that he was a Credit Suisse cooperative. They compiled a list of questions for a quarterly conference call to ask the board publicly. When the company directors disallowed their questions, while allowing the short seller, Credit Suisse, to ask four questions, the penny dropped as they pondered, out loud. “Why would the Galaxy Board give preferential treatment to the short sellers who were trying to destroy the company?” They then formed an action group called the Galaxy Fight Club and put some questions in writing to the Board.
They asked Board if it would be willing to commission a report into the manipulation of its share price. And if the report returned overpowering evidence of manipulation, would the Board be prepared to take the appropriate actions against the brokers concerned and/or the ASX for allowing such trading to occur?
The two shareholders got a letter back thanking them but dismissed their concerns with the following statement.
“Galaxy regularly monitors trading of its shares on the ASX, including short selling. Recognising that short selling is legal in Australia, our monitoring has not indicated any improper share price manipulation. If Galaxy believed that improper share trading behaviours were being undertaken, we would certainly consider what action should be taken – either by the Company to the extent permitted, or via the applicable regulators.”
From the courtesies given to Credit Suisse at the AGM, and the Company response to allegations of manipulation, the Galaxy Fight Club Group have been considering the possibility that the Galaxy Board didn’t have a problem with a manipulated share price. Although having to contemplate that situation was concerting in the extreme. Surely not!
The one certainty is that a takeover now looks inevitable. No doubt it will come with a recommendation from the board. And no doubt directors will receive all their bonuses paid out and they will receive new board positions. The Chairman Martin Rowley has been very lucky to date in that respect. He was formerly the Chairman of Battery Minerals, a miner that got taken-over by a bigger fish, and he was fortunate to be made Chairman of the larger entity. How good is that? And before all of the manipulation commenced, Rowley brought onto the board a former Morgan Stanley head honcho and vastly experienced operator in Mr Peter Bacchus. It may have been coincidence that manipulation then started to rear its ugly head.
If not coincidence, could it be just plain old-fashioned good luck when manipulators eventually make a corporate move on a Company with valuable assets, they usually find that key Directors willingly move aside without putting up a fight. Usually, they end up being okay but for shareholders it is a vastly different story.
And finally, to my old mate who is prone to giving lectures on how markets operate based on fundamentals, he just might be able to explain the following conundrum. Why is it that markets are performing strongly in the wake of the Covid-19 disaster; especially when there is a flood of money printing because of the federal reserve bailing out the BIG banks, and buying up all the dodgy assets it can get its hands on, yet companies are dropping like flies and workers are being stood down in droves?
And why is it that in the ‘everything bubble’, which has inflated all assets beyond belief, that precious metals can’t get out of their own way in trying to catch a bid. Could massive levels of government intervention be manipulating our entire financial system and pointing it upwards?
Because when you think about it, on-going market strength in the face of appalling fundamentals and ridiculous overvaluations after a multi-decade boom, just doesn’t make sense. Maybe my mate is dead wrong and it is those dreaded ‘algos’ that are behind it all, and pushing prices up, down and sideways according to the dictates of their owners and breaking all the rules about setting and maintaining artificial prices in the process?
Co-written with the team at asxinsights.com