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David Barron

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Sunday, 29 July 2007
The Pump And Dump Boys
Mood:  down

I'm not writing about guys who are looking for one-night stands. I'm writing about smooth stock manipulators who can do it legally.

Basically, "Pump and Dump" schemes are spam promotions intended to boost(pumped) the prices of penny stockes which are then sold for a quick profit (dumped). This is illegal.

Boosting stock prices through financial irregularities like "Enron" did a few years is also illegal.

However, there are legal ways of boosting stock prices and one of the best is through "M & A",  mergers and acquisitions. In Canada, this happened with INCO, Alcan and other numerous companies. Either the merger can happen with equity/cash or with leverage/debt.

Unfortunately in U.S. a "credit crunch" has appeared because too many bad mortgages have been given to too many credit risks resulting in massive defaults(the subprime fiasco).

Chrysler has had difficulty in finding a buyer because of this credit crunch. It's now perceived that it will now be more difficult for companies to buy other companies because of tightening credit. This could prevent stock prices from rising quickly.

It's just plain nuts to lend money to credit risks. That doesn't happen very much in Canada. Our mortgage/lending market is stable.

Things went crazy in the stock markets. The U.S. GDP was up 3.5% last quarter. It's best showing in four quarters, but speculators DUMPED stocks throughout the world: The Dow had a 4.2% loss, the S&P 500 4.9%, the TSX(Canadian Index), a 5.7% loss.

Rumors of mergers and acquisitions can send companies' stocks soaring. 

Stock prices should be based on the financial health of businesses and the prospects for the economy. Over the next year, I see investors dominating the North American markets instead of the pump and dump boys.

The Wall Street Journal Reports

 


Posted by qualteam at 10:40 AM EDT
Updated: Sunday, 29 July 2007 5:12 PM EDT

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