The Big Tip Off

• Posted by DynamicHedge
• on August 9th, 2011

Image source: Web Seer Project

One of the first things you learn to accept as a trader is that the game is rigged.  Meanwhile the rest of the world pretends that some sort of rules and decorum govern the market.  Stories like this make the pretending really hard to do.  Especially for the retail investor.

Traders at major Wall Street firms and major investors told the FOX Business Network that S&P’s announcement Friday night, hours after the close, that it had downgraded the U.S. debt didn’t come as a surprise.

“We were well aware that something was likely to happen,” said a CEO of a major money management firm. “Our trading desk felt confident that S&P was about to pull the trigger.”

A Standard & Poor’s spokesman would not deny that the ratings firm held meeting with banks on Thursday and Friday, and declined to comment further.

To be sure, chasing down the source of such frenzied trading activity is difficult, and it’s unclear if S&P was the source of the rumors—or even the sole source. S&P alerted officials in the Treasury Department of its decision to downgrade the country’s debt early Friday, so a leak could have come from the government side.

But if Wall Street was given a heads-up about S&P’s action, which contributed to Monday’s 635-point drop in the Dow, it would raise serious questions about whether traders on Wall Street relied on non-public information to sell stocks prior to the official announcement.

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