Planted Stories

Nize Notes

If you have been trading the markets for any length of time, you probably realize that some stories are planted in the financial press by people with agendas. Usually it is traders, maybe even a hedge fund, stuck with some stock position they can’t get rid of–so they talk to a friendly reporter, start some kind of rumor to boost the stock and then get out of the position. Sometimes it’s a short-seller who has the ear of a reporter and wants to create some downward pressure in a stock. And sometimes it is the government that plants a story. Today’s New York Post may contain an example.

The lead story in the financial section of today’s New York Post is headlined:

DIAMOND PRICES CRASH AS LEBANON IS BOMBED

Interesting headline, but when you read the article some problems arise.

“The price of a benchmark, top-quality 1-carat diamond slipped from $6,692 at the start of fighting to $6,652 yesterday,” the Post tells us. This is a crash? A drop of $40 on a $6,692 item? A drop of about a half per cent.

The Post goes on:

The world’s diamond-trading market has been disrupted with plunging prices in the wake of Lebanon’s bombing attacks that wrecked its notorious diamond-smuggling rings run by Hezbollah terrorists.

The illegal black market for rough gems was centered in areas controlled by Hezbollah in and around Beirut and is said to have raised as much as $100 million for terrorist activities, industry experts say.

Of course, the experts are anonymous, which may be par for the course for political sources, but financial sources love to get their name in the paper. That’s why financial firms hire them, so that they do get the firms name in the paper. A real industry expert wouldn’t go anonymous on this kind of report.

Secondly, if the “… bombing attacks…wrecked its notorious diamond-smuggling rings run by Hezbollah…” Wouldn’t prices be going up instead of down?

Back to the Post’s narrative:

One industry analyst in London, who asked to remain anonymous, said terrorists may have flooded the market with uncut stones just prior to the outbreak of fighting to raise cash.

Interesting concept, in that from our vantage point, although Hezzbolah did kidnap two Israeli soldiers, Israel appears to be the combatant that decided to escalate the conflict. And, shall we say, it is reasonable to assume that Israel did not put a call in to Hezzbolah diamond dealers to alert them before the fighting started. So why would Hezzbolah or any other terrorist flood the market just before the outbreak of an Israeli attack, when it is extremely unlikely they would have been aware of such?

In short this smells to us like a government agency disinformation machine keeping the folks back home entertained. And, it is a damn sloppy, contradictory job at that. The operative who put this out must have worked on the Saddam has weapons of mass destruction story.

The lesson here, though, is that this stuff does happen, and when the dollar begins to crash and gold begins to soar over $1,000 per ounce expect a wacky disinformation story to pop up from time to time. Hey, it’s your tax dollars at work.