Media Manipulation: How You’re Being Played in the Markets

Media Manipulation: Controlling Perception and Market Behavior

Updated Oct 9, 2024

In today’s interconnected world, manipulation is not merely a tool—it’s the playbook. The media landscape, dominated by corporate giants and driven by profit, uses every opportunity to shape narratives, sway public perception, and control the behaviour of individuals. As technology continues to evolve, so does the sophistication of media manipulation. The masses, often slow to react, are swept along by carefully curated stories and information, unaware they are being nudged into decisions that benefit the few. Until a mass awakening occurs, we can expect the markets to climb to unprecedented levels, with corporate debt and speculative investments reaching unfathomable heights.

The Illusion of Economic Recovery

One of the most glaring examples of media manipulation is the narrative surrounding economic recovery. If the recovery were truly authentic, interest rates wouldn’t have remained artificially low for such an extended period. Central banks, particularly the U.S. Federal Reserve, have played a pivotal role in stabilising the stock market. Still, once their direct interventions eased, corporations stepped in with an even more insidious tactic—stock buybacks.

Stock buybacks were once a rare occurrence, but in recent years, they have become the primary strategy for companies to inflate their earnings-per-share (EPS) figures. Companies are borrowing money at low interest rates to repurchase their shares rather than reinvesting in innovation, improving operational efficiency, or expanding their workforce. This manoeuvre artificially boosts the EPS, creating the illusion of profitability and stability. As a result, stock prices rise, benefitting executives and shareholders, while the company’s and economy’s long-term health suffers.

The Share Buyback Frenzy

The stock buyback phenomenon isn’t new, but it’s reaching unprecedented levels. Between 2010 and 2020, U.S. companies repurchased more than $5 trillion worth of their own shares, according to a report by Goldman Sachs. This trend has only accelerated in the aftermath of the COVID-19 2020 Market crash with companies like Apple and Microsoft leading the charge. Instead of using their vast capital reserves to weather economic uncertainty or invest in new technologies, these companies are doubling on buybacks.

David Kostin, Goldman Sachs’ chief U.S. equity strategist, highlighted this issue when he stated, “Corporate buybacks are the sole demand for corporate equities in this market.” Without this artificial demand, the stock market would likely face more significant corrections, but the media narrative rarely addresses the inherent risks. Instead, it celebrates rising stock prices as evidence of economic strength.

The Media’s Role in Shaping Perception

The media plays a central role in amplifying the illusion. With billions of dollars at stake, the narrative around stock buybacks is framed to benefit corporations and Wall Street elites. The dangers of over-leveraging and the long-term consequences of this behaviour are downplayed or outright ignored. When mainstream media outlets report on corporate earnings, they focus on the EPS figure, often neglecting to mention that buybacks have artificially inflated the number. This selective reporting creates a distorted view of the economy, leading investors to believe that companies are healthier than they are.

One expert, Robert Shiller, Nobel laureate and Yale economist, has been vocal about the risks of relying on stock buybacks to drive market gains. “We’re seeing a dangerous overreliance on financial engineering to boost short-term profits,” Shiller warned in an interview with CNBC. “In the long run, this will hurt the economy and the average investor.”

The Power of Crowd Psychology

Crowd psychology plays a significant role in perpetuating these manipulative practices. The masses are typically slow to recognize the signs of manipulation, and by the time they do, it’s often too late. This delayed reaction allows corporations and their media counterparts to continue their practices with little resistance.

As share buybacks continue to surge, driven by low interest rates and media-fueled optimism, few are questioning the sustainability of this behaviour. And why would they? The market is up, their portfolios are growing, and the media reinforces the idea that everything is fine. But when the bottom inevitably drops out, the average investor will be left holding the bag.

One of the most profound insights into the behaviour of crowds comes from Charles Mackay’s classic work, Extraordinary Popular Delusions and the Madness of Crowds, published in 1841. Mackay wrote, “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” This observation holds today as the masses continue to follow the herd, oblivious to the dangers lurking beneath the surface.

The Legal and Regulatory Landscape

One would think that regulatory bodies would step in to curb the worst abuses of stock buybacks and media manipulation, but the reality is far from ideal. In 1982, the Securities and Exchange Commission (SEC) passed Rule 10b-18, which effectively legalized stock buybacks. Before this, buybacks were considered a form of market manipulation. Since then, companies have exploited this loophole to enrich executives and major shareholders, all under the guise of returning value to investors.

However, there has been growing criticism of this practice. Senator Elizabeth Warren, for example, has been a vocal critic of corporate stock buybacks, calling them a “market manipulation gimmick” that enriches the wealthy at the expense of workers and long-term shareholders. Warren and other progressive lawmakers have called for reforms to limit or even ban stock buybacks, but the likelihood of such legislation passing remains slim.

The media’s role in this regulatory stagnation cannot be overlooked. With many major news outlets owned by corporations that directly benefit from stock buybacks, there is little incentive to push for change. Instead, the focus remains on short-term market gains, further entrenching the manipulation system.

The Impact on the Average Investor

Navigating a market that is so heavily manipulated by media and corporate interests can be daunting for the average investor. Many turn to financial news outlets for guidance, but as we’ve established, they often serve the interests of the corporations they report on. This creates a vicious cycle in which investors are led to believe that they are making informed decisions when, in reality, they are being steered toward actions that benefit the few at the top.

One potential solution for investors is to focus on long-term value and fundamental analysis rather than being swayed by short-term media narratives. Benjamin Graham, the father of value investing, famously said, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” By focusing on a company’s long-term prospects and ignoring the noise created by media and stock buybacks, investors can protect themselves from the worst excesses of market manipulation.

The Role of Gold in a Manipulated Market

In an environment where media manipulation and financial engineering dominate, it’s important to consider assets that are less susceptible to these influences. Gold has long been viewed as a haven in times of economic uncertainty, and with good reason. Unlike stocks, which can be artificially inflated through buybacks, gold’s value is based on its scarcity and intrinsic worth.

John Hathaway, a senior portfolio manager at Tocqueville Asset Management, has been a vocal advocate for gold in the current economic climate. “We’re living in a time of unprecedented monetary debasement,” Hathaway said in a recent interview. “As central banks continue to print money and corporations engage in buybacks, the value of fiat currencies will decline. Gold offers a hedge against this inevitable decline.”

While gold has not yet reacted strongly to the massive currency debasement we are witnessing, it is only a matter of time before it does. For this reason, it is wise to maintain a core position in gold, even as other investments continue to perform well.

Conclusion: A Game That Benefits the Few*

At its core, media manipulation is about control—control of perception, behaviour, and wealth. The game is rigged in favour of corporations and elites, who have the resources and influence to shape the narrative. For the average investor, the key to navigating this landscape is awareness. By recognizing the signs of manipulation and focusing on long-term value rather than being swayed by short-term media narratives, individuals can protect themselves from the worst excesses of this system.

As legendary investor Warren Buffett once said, “The stock market is designed to transfer money from the Active to the Patient.” Those who can see beyond the media’s manipulation, who are willing to take a long-term view, and who invest in less susceptible assets will ultimately come out ahead.

The masses may be slow to react, but for those paying attention, the path to financial success lies in understanding the game—and refusing to play by its rules.

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