# Fake Tweet Sends Stock Tumbling - AKA Fingers are poised on the SELL button.



## haley4217 (Dec 16, 2012)

First off forgive me for quoting NBC.

"The chart of the Dow Jones industrial average just after 1 p.m. may as well have been a chart of America's heartbeat -- stopped for a moment, again, by seemingly horrific information. The Dow lost more than 140 points almost instantly, before recovering five minutes later.

It's incredible what a single 12-word lie can do."

So, here's my question. How much faith does the investing public have in the strength of the US economy and the stock market if a tweet that went out to about 4,000 followers of an AP Twitter account can drive the market down so abruptly? The first thing that came to my mind is the vision of a person (guess that represents we the people in this US economy) standing balanced precariously on the edge of cliff when someone unseen reaches a hand into the picture to give us a gentle shove over the edge.

If the market is so jittery that a fake tweet can cause a 140 point slide, putting aside that it gained the loss in a few minutes, what is going to be the effect when there are serious events. I know that many are on the edge after the terrorist attack in Boston, could another serious attack be the catalyst that pushes the economy over the edge? 

If there is another serious event on US soil, would this cause an irreversible slide off the edge which we might not recover from?


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## Sentry18 (Aug 5, 2012)

Ah yes, the conversion of free thinkers to sheeple is almost complete <_insert evil laugh here_>. I don't know if people are just willing to believe anything or if people are so skeptical of the "news media" that they think social media is the only trustworthy source. Either way it's sad that BS like this can control the stock market.


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## invision (Aug 14, 2012)

well, you got to take into account the instantanious re-tweets... if it went out to 4,000, and each of those recipients re-tweeted to say just 100 people who follow each of the recipients - that is 400,000 recepients in under 2 seconds... Now think if one twitter account has 4,000 followers, image if all 4,000 had 4,000 followers, so your now talking 16,000,000 getting the message in 2 seconds... 

Basically someone made a hell of a lot of money in under 5 minutes...


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## partdeux (Aug 3, 2011)

This was strictly a computer generated crash.


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## Marcus (May 13, 2012)

I agree with partdeux.

The retail investing public hasn't returned to the stock markets since they've been burned twice since 2000 by the dot com bust and the housing/great recession/depression bust. The only entities able to move that fast are the HFT (High Frequency Traders) which use computer algorithms earn profits off of tiny pricing changes.


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## Bobbb (Jan 7, 2012)

haley4217 said:


> How much faith does the investing public have in the strength of the US economy and the stock market if *a tweet* that went out to about 4,000 followers of an AP Twitter account can drive the market down so abruptly?


"A tweet" =/ "A tweet" =/ "A tweet"

The momentary nightmare of President Biden can give most rational people the sweats and have them reaching for a Linus Security Blanket and in a moment of panic/dread trying to pull their money out of the market while there was still some value to the money.

Obama chose well, he's anti-impeachment proof with Biden as VP. So this was no just "A tweet" it was a tweet which signaled impending catastrophe.


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## Woody (Nov 11, 2008)

For me, it just goes to show how far separated from reality the stock market is. It has nothing to do with the economy or how any business does. What it has become is a plaything for institutions with money to make more money without actually producing anything of value. They suck a living out of skimming money on a gain OR loss of a stock. The only thing the general public gets out of them is higher prices on everything we need to survive.

A majority, but not all, of us here have nothing to invest in the stock market so we only see the loss of our spending powers in higher prices. The MSM nightly gives reasons for a rise or fall in the markets, it is all BS.


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## invision (Aug 14, 2012)

partdeux said:


> This was strictly a computer generated crash.


I think you have may have misunderstood what I was trying to say... Those who hacked the account and sent the tweet, made a fortune buying high... If they are using computers to hack the twitter acct, then they are also using the computers to do trades too.


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## Marcus (May 13, 2012)

invision said:


> I think you have may have misunderstood what I was trying to say... Those who hacked the account and sent the tweet, made a fortune buying high... If they are using computers to hack the twitter acct, then they are also using the computers to do trades too.


I think you misspoke about the instigators buying high.

*If I was going to do something like this,* I'd buy puts on 1 or more indices (DJIA, S&P, etc) at or very near current pricing (strike price at current index level.) Then I'd put in sell orders for those puts and buy orders for lower strike price call options. Then I'd initiate the tweet and make money on the way down by selling the puts, buy the calls, and then sell the calls as things returned to normal after the fraud was exposed. That way, you make money as the indices go down and you make money as they go up.


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## invision (Aug 14, 2012)

Marcus said:


> I think you misspoke about the instigators buying high.
> 
> If I was going to do something like this, I'd buy puts on 1 or more indices (DJIA, S&P, etc) at or very near current pricing (strike price at current index level.) Then I'd put in sell orders for those puts and buy orders for lower strike price call options. Then I'd initiate the tweet and make money on the way down by selling the puts, buy the calls, and then sell the calls as things returned to normal after the fraud was exposed. That way, you make money as the indices go down and you make money as they go up.


Ok, yep, agree... Like I said, someone made some serious money on this tweet...


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## labotomi (Feb 14, 2010)

High frequency trading is the major reason the effect was so pronounced. A quick drop in prices sets off a lot more trades that exacerbate the problem. If the computers weren't involved the drop would have been much less because it couldn't happen so fast and the truth about the tweets would have come out before the drop was substantial.

I wouldn't take it as people looking for a chance to dump their shares as implied by the OP. If the large investors are nervous about the market, they would already be pulling out. Since the market isn't declining rapidly I don't think there's excessive fear about the market's condition.

I am though, still looking for a reason for the lofty levels the markets have attained. Without improvement in unemployment, budgetary concerns and companies reporting profits that are anything but extraordinary, I see no reason for these levels. 

My personal opinion is that *slowly* people will realize that most companies in general are overpriced and there will be a correction. I don't think it'll reach the +60% retraction that others here have predicted but I think it will be somewhere in the 20-30% range. I'm nearly completely rebalanced into the more stable areas that didn't take a huge hit back in 20098/2009.


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## invision (Aug 14, 2012)

labotomi said:


> I am though, still looking for a reason for the lofty levels the markets have attained. Without improvement in unemployment, budgetary concerns and companies reporting profits that are anything but extraordinary, I see no reason for these levels.
> 
> .


It's called a bubble being created solely by the government printing and buying bad assets at $85B a month (QE3)... Once that stops completely, you will see the market stall and then go down... They (the fed) are looking at this in a Keynesian approach - spend your way out - the problem is, it has worked before and before and before - creating just more debt... They think that having the common people believe that the market is good, that it should give them confidence to themselves acquire more debt - thus spend money to create more demand... The problem I see is most people (that I know) have started more of a stronger movement to become debt free... Which goes against the grain of the Keynesian approach... And is a reason, we aren't seeing it work this time, plus several bubbles burst at one time, not the typical 1 bubble that can cause a recession... So, in turn the fed is fighting this "Save Money Mindset" by keeping the interest rates as low as possible, so the only alternative to make money work for you is through the equities investment area. Look at interest rates for CDs for example - hmmm make <2% on a jumbo, or have potential greater returns through dividends paid by stocks... Secondly, I just read somewhere that 9x% of individuals making under $100,000 have less than 3 months liquid assets if one member loses a job. And for those making between $100,000-$300,000 the number is that same. The % is only slightly lower for those in the 300-500 range... My wife and I combined put us in the last group... we have 6 months for both of us... But that money isn't making us any real money because of the low interest rates... The mindset of the fed, if they were to examine our savings would be... You only need 3 months for one of you, you should spend the rest - after all you are the 1%. Sorry, but not any more...


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## labotomi (Feb 14, 2010)

invision said:


> It's called a bubble being created solely by the government printing and buying bad assets at $85B a month (QE3)... Once that stops completely, you will see the market stall and then go down...


I think that this contributes but hardly think it's the only thing driving the direction of the market.

Printing money and making it available for extremely low rates can help businesses avoid the higher costs of their debt but it doesn't change the fact that they're still only marginally profitable. Even if the money were perpetually printed and made available at these rates it shouldn't cause an increase in the stock markets when company growth and profits are unremarkable.


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## Marcus (May 13, 2012)

I can explain it, but I can almost guarantee that you won't like it. At best, it will make you very afraid.

Some facts to preface my explanation:
1. As invision mentioned, the Fed is buying $85B/month in bonds. They're doing this to control the yield curves on US Treasuries which in turn, controls the yields on all high quality bonds which are usually tied in some way to the yield on Treasuries.
2. The Fed is purchasing somewhere around 60% of US Treasuries at the weekly auctions. They're doing this so there isn't a failed Treasury auction with the ensuing disaster for banks due to mark to market provisions in the law.
3. The bond market dwarfs the equities market. If I recall correctly, it's about 10x bigger. Corporations, states, and local entities use bonds to finance projects or refinance debt.
4. In the old days, 30 year Treasuries were the primary way that the US financed its debt. Since the late 90s, the mix has changed to roughly one third in short term (3-5 year maturity), one third in medium term (10-20 year maturity), and roughly one third in long term (30 year) maturity. This was done to take advantage of lower prevailing interest rates. But if interest rates were to rise, the effects of such a spike will now be felt much sooner and much heavier since the maturities (the technical term is duration) are shorter overall.
5. The bond market has been in a 30 year bull market as interest rates have fallen since the early 80s. Last year, we started seeing negative effective interest rates on some foreign government debt.
6. Since the Fed was created in 1913, the purchasing power of a Dollar has fallen ~96%.
7. The federal government has abdicated any sort of fiscal responsibility especially since 2007. We're having Trillion dollar budget deficits which can't continue without severe consequesnces for future generations.

There is a thing called the business cycle. Basically, it is a boom and bust cycle as companies expand and contract. A recession/depression is the bust part. In those times, certain types of stocks do well since consumers will cut back on discretionary purchases during the bust, but will still buy things like toilet paper. But they won't buy new cars or new houses since they will have a fear that they might lose their jobs. Think of the business cycle as 2 steps forward and 1 step back. That's historically how it's been with 2 exceptions: The Great Depression & The Great Recession. Governments have tried to control the business cycle to make the booms bigger and the busts smaller without a lot of success. Right now, we should be in the boom part of a normal business cycle; but, we're not. Government policy is mostly to blame for the lack of a strong recovery since the government didn't allow the uncompetitive businesses to fail during the latest bust, but rather bailed them out using taxpayer funds.

So why are the stock markets so high?
Since the Fed is controlling interest rates by keeping them at historical lows, they are attempting to drive investors into the markets. CDs pay next to nothing so there is no 'safe' investment anymore. Bonds are extremely vunerable to even modest interest rate increases which means that a bond investor is risking huge losses if interest rates ever return to historical norms. We're in the midst of a worldwide currency war as governments compete to lower the value of their respective currencies in an effort increase exports. 

So that leaves 3 types of investments: Land, PMs, and stocks. PMs pay no dividends and have security issues if you take physical delivery. Many folks believe the PM markets are being manipulated by large institutions through the commodity exchanges. Land is vulnerable to interest rate increases much like bonds. Land however can bring in rent through leases. However with interest rates at historical lows, land prices can't really get much higher. So that leaves the stock markets as the place to try and achieve a reasonable return on your money. The Fed is pushing people to invest in the stock market by making every other type of investment risker than stocks.

Here it is in a nutshell:
CDs- you lose buying power to inflation because of low interest rates.
Bonds- you lose money if inflation rises through capital risk. Even moderate rates mean you'll lose 20-50% of your investment.
PMs- No dividends, market may be manipulated by big players, security risk or storage costs.
Land- vulnerable to interest rate increases, rents can vary depending on commodity pricing and drought.
Stocks- where the Fed is pushing people to invest. It's pretty much all that's left.


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