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Pumping: the real problem

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November 29, 2006 – Comments (3)

I'm always amazed at the way those who claim to care about stock price manipulation only care about it when stocks go DOWN. Stock drops, everything is suspicious. Must be naked shorting! A journalist cabal! "There on taek from teh hege fundss!"

Where are these people when there's OBVIOUS evidence that the real problem is naivity and complacency about upward manipulation of garbage stocks?

One case in point, Manchester, Inc. (MNCS.OB)

I've written about this company a couple of times.

Here: http://www.f...06101802.htm

Here: http://www.fool.com/news/mft/2006/mft06112105.htm

That second article is about the paid pumping going on on Manchester's behalf, pumping that continues today with another bogus press release supported by a $30,000 payoff from some outfit called "Blue Chip IR" out in Vegas.

Remember, the guys who run this Manchester went on yet another penny-stock promotion site (one where Patrick Byrne recently gave another classic interview) and blamed naked shorting for the stock's recent fall. Not a word, however, on how a stock with no business to back it up (before recently) had managed to have a price that did nothing but go up for months...

And now that there's clear evidence of paid pumping for Manchester? We hearing anything about that from management?

You can get an idea of the quality of the wire service carrying this latest Manchester pumping by looking at its website, a penny-stock promotion extraordinaire: http://www.wallstreetnewsalert.com/

How does THIS outfit make its money? Cash handouts AND by pumping stocks in return for shares, which it may sell WHILE IT IS PUMPING the stock -- read its own admission here: http://www.thenewssvc.com/LTDN112806.html

Also pretty interesting that it puts up these releases as graphic files, not text. My guess is they're worried about these schemes being indexed by search engines.

The real problem with stock manipulation is the pump up. The inevitable crash is merely the result.

3 Comments – Post Your Own

#1) On November 29, 2006 at 3:34 PM, metoo105 (28.77) wrote:

Man, I completely understand your frustration here. Perhaps you might take some solace from Oscar Wilde's quip.

But your phrasing here still leaves me wondering about your bent. "The real problem," you say. Maybe it's the more excessive or more severe or more easily targeted problem - the problem most in need of remedy even - but it does't to my mind negate the existence of the other: the pump down.

Wouldn't you agree that they are both nasty problems?

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#2) On December 01, 2006 at 12:05 PM, metoo105 (28.77) wrote:

Let me elaborate. And also offer praise. I too learn lots from your picks and very much appreciate your work. The fellows jumping in to pat you on the back makes me think that maybe you might not get enough of that. My hat is off to you too for sure. Yours are without a doubt the only MF articles that I always, always make sure to read. And though I am still just getting started at short selling, I've got to say that your analysis has in the past already made me some money. So thanks for that too.

And perhaps, I now better understand. I've just been plowing through The Art of Short Selling, where personality of the short seller is given some color and which might apply. Perhaps it's a necessary element what that one needs to do all of the hard work to uncover the rot. But I for one have never fully been able to get my head around why it must be all one or the other. Every stock from the standpoint of most is a buy or a sell. Everyone has an agenda or an opinion about the future that dictates an absolute conclusion. The struggle does, of course, lead to some kind of dialectical knowledge or truth along the way, but it glosses over the reality, which is that this truth ought really be just a moving probability of success or failure. Moreover, I'd think that the conclusions that one might draw are going to be further complicated by one's personal goal of anticipated success. (That is for a given stock we might draw differing conclusions based on what each of our targets is for an acceptable return and level of risk. Budweiser might draw a 12% ROE next year, but that would probably still not be enough for me to get excited.) But it's always the same, as a collector of facts about a given company, a person has to go to one source to gather all the good that can be said about a company, and another source to collect all the bad. The whole divide gets reflected throughout Wall Street through the division of analysts into buy and sell side folks. The war of words between the two sides takes on the dimensions of some kind of epic Manichean struggle, where folks attack each other on the basis of method and principle, which strikes me as off.

Frankly, I am of two minds when it comes to unscrupulous stock promoters since as an investor, they present opportunity from the mispricing that they create. So on the one hand, it seems to me like the SEC should beef up their enforcement bureaus to see that these folks stop taking people's money. But on the other, there's carpe diem and thanks fools for picking up my dinner and mortgate payment.

I absolutely see the need the for sell-side reporting and would agree that there is without a doubt not enough of it going on since all of Wall Street pushes the latter and has institutionalized lying about the numbers. The crap that you must have to deal with and the mistreatment and the history of folks getting a raw deal for doing their jobs are all grotesque. But in my opinion, the larger need is without a doubt the big fish. Take for example, the latest stock option scandal winding its way through the markets. Perhaps it was only possible to figure this one out the way it was figured out, through a statistical analysis. But I think not since there were so very many law firms and consulting firms involved, I find it just amazing that this kind of thing could go on for so long without someone asking someone at one of the right law firms or consulting firms the right set of questions.

This brings me to the second point which is that the target matters. Picking on the small and micro cap junk stocks is perhaps sometimes just too easy. But even more to the point, it creates a special obligation to report in a more neutral manner given the inherent volatility and likelihood of overshooting on the downside as well. If you don't, then you run the risk of becoming an unwitting participant of contributing to the pump down, which was my point before about neglecting to discuss the value of the uranium concessions as nonperforming assets that have been rising in value.

If people erroneously claim that you are part of journalistic/hedge fund cabal, it's probably just their paranoia talking. And a suggestion, that if you're not, you might consider taking a stab at it since your articles could certainly move these small cap markets. It's exactly the same paranoia that you might respect in others, I'd guess. It's the one that gets harnessed when you look at incompetent managers and dare to think that they might be both liars and thieves when everyone else would rather be in church.

Here's the sweet quote from the Staley book: [short sellers] are often men of biting humor. After all, their stock in trade is an ironic transubstantiation of values--a satiric commentary on the standards of men.

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#3) On December 01, 2006 at 7:34 PM, TMFBent (99.80) wrote:

Long, and interesting thoughts. But the final point is this: if these small-cap stocks weren't overpriced, my reporting on their BS wouldn't matter a whit, and certainly not in the long run. In the end, companies are price based on what they can accomplish, and that's why I don't care if they "move" on my criticism. (For the record, they very often do not.)

And for those who are truly interested in holding these firms, they ought to be glad for every downward pop that comes, for whatever reason, because they get to buy a great company at a discount.

Sj

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