Justin Mamis On New Short Selling Rules
By Barry Ritholtz - February 26th, 2010, 12:30PM
Here is my quote of the day:
“Those so-called adults who fuss about short sales are really silly. What competent grown-up would short a stock after – that’s after – it has fallen 10%. Don’t these people understand how the stock market works?
Selling short on an uptick is sound, to say nothing of having been tried and true for decades. What in the world is dangerous about that? When these same bureaucrats let them play in the derivatives daisy fields to their wallets content.”
-Justin Mamis
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February 26th, 2010 at 12:54 pm
Let us have symmetric rules, at least:
If no short sales (sell-on-margin) except on an uptick, then no buy-on-margin unless there is a downtick.
February 26th, 2010 at 1:04 pm
“When these same bureaucrats let them play in the derivatives daisy fields to their wallets content.”
-Justin Mamis
____________________
Corrected:
When these same bureaucrats let them play in the derivatives daisy fields at taxpayer expense.
February 26th, 2010 at 1:05 pm
The comment makes no sense.
Or rather some of the segments make sense. Others are arguable. Others are arguing with each other.
February 26th, 2010 at 1:15 pm
What’s wrong with short selling is that you’re selling something that doesn’t belong to you, and anyone who sells short is a thief. The only exception should be if brokerages obtain the *specific and explicit* authorization of the property (share) owner *before* lending the share out for a short sale.
If anyone wants to sell my private property short, I expect them to show up on my doorstep with an authorization form and a contract compensating me for the use of my property.
Anyone who disagrees with that is a rank collectivist.
February 26th, 2010 at 1:35 pm
Amen and Amen! This country is being run by (and has recently been run by) people who think they know everything but who in reality are shamelessly ignorant. Has Barrack Obama ever shorted a stock? ever even bought a stock? Has Mary Schapiro ever shorted or bought derivatives? Chris Cox? It is just shameful that people who do understand the business of shorting and derivatives AND the proper role of regulation – such as Paul Volker and Brooksley Born – don’t have more influence in our government.
February 26th, 2010 at 1:47 pm
Amazing, there are investors out there like franklin 411 who don’t understand that shorting has to be a part of any investing strategy. Or does your loyalty blinds you and you just have to agree with everything that comes out of administration.
Do you never buy a hort ETF for hedging? Are you really limiting yourself to only making money when the market goes up? Do you think that Buffet, who is so loved by investing media and retail investors in general because it can be used as a poster boy for buy-and-hold (unless you look ore closely), doesn’t short or hedge?
February 26th, 2010 at 2:05 pm
franklin411 Says:
What’s wrong with short selling is that you’re selling something that doesn’t belong to you, and anyone who sells short is a thief. The only exception should be if brokerages obtain the *specific and explicit* authorization of the property (share) owner *before* lending the share out for a short sale.
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Read your Margin Account agreement carefully. In that you likely granted your broker the right to loan securities that collateralize your margin account. If you don’t like that , then don’t use a margin account – use a cash account.
From Fideilty’s Margin Account Agreement:
“Fidelity can loan out (to itself or others) the securities that collateralize your margin borrowing.”
February 26th, 2010 at 2:41 pm
Politics tends to govern Obama’s decisions more than economics. I’m not sure I understand the politics that surround short selling, except that the banksters don’t like it.
February 26th, 2010 at 3:03 pm
The banksters don’t like it because they see another fall coming and they don’t want us plebs shorting their stocks, or the stocks they want to artificially prop up. They have other ways of effectively shorting through derivatives, so they want the playing field to be tilted their way. As always.
February 26th, 2010 at 3:08 pm
Look you can hate short sellers all you want, but the long-only cheerleading of the late 90′s cost alot of people alot of money. Enron might still be paying employees and buying real companies with worthless stock, costing more people more money, if the short sellers had not attacked its ponzi bizness model.
In a perfect world we wouldn’t need short sellers. But someones gotta come after corporations who hide losses off balances sheet, lie, obfuscate, and blatantly cook the books – and in doing so betray the shareholders who THEY are supposed to be acting on behalf of – all the while paying themselves handsomely(see HealthSouth)
The serengeti would be a much dirtier place if the vultures and hyena’s don’t clean the carcasses off the plains. Removing short sellers from the financial eco-system would be disastrous.
And I would remind people that short sellers get clipped plenty, you just don’t read about it because its not a sexy story.
February 26th, 2010 at 3:17 pm
Short selling is an integral part of nearly all productive and profitable trading strategies. The best and simplest description of trading (anything) came to me from a gentlemen who was a Chicago Merc floor trader and from whom I learned much of the art. He described it simply as buying low and selling high, but not necessarily in that order. He equated it to any merchant activity – buy at wholesale, sell at retail, borrow for inventory if you don’t have it and the opportunity for sales at a profit is good.
The “banksters” don’t like it when their stock is falling, but you can bet that their trading desks are fully into short selling.
February 26th, 2010 at 4:27 pm
There is a lot of confusion and misdirection about short selling.
1. There is nothing wrong with ss when:
a) all short sellers have to put up the same amount of margin, ie 150% on stock-and You have to declare a short- that has not been happening for how long now??some pigs more equal than others? the rules are there just Fr’kn enforce them!, where are the regulators? idea:-Make the margin be cash tbills or gov’t securities– top drawer stuff- from a tax collecting entity , no crap as acceptable margin. It doesn’t matter your politics, if a government can collect taxes they are the next surest thing other than death. That is why Greece does not qualify.
b) yes re-instate the uptick rule on all short selling and ( good idea) instate a down tick rule on all margin buying- doing this may prevent computer driven melt ups and melt downs– we can do it, the systems are in place, lot easier to do with those computers
c) people/institutions with no or very little of their own skin in and on the table should not be able to game the system putting it at risk.– Speculation and speculators add liquidity but they are not the reason the market exists. It does not exist for their sole benefit, the market exists to allow capital to move to more productive ends, thus enriching the whole economy and its society– and by market I don’t just mean stocks, but bonds and commodities and currencies, hell even Mickey Mouse watches
I know, I know –so Novel!, so Simple!–it is so damn… quaint, almost old fashioned!
You will tell me it could never work because things are different now……….. yeah, right
I will get back in my cave now– have a good weekend
February 26th, 2010 at 5:36 pm
Fuck this shit is getting old. I thought I was dumb. I’m a person who believes in truth, but after being intimately involved with the markets for over three years now I believe there is no truth. Somewhere the shits has got to hit the fan! We are getting close.
February 26th, 2010 at 7:01 pm
Mr. Franklin411 – its one thing to read your margin agreement – its another thing to understand it. Share’s held at Fidelity or any other on-line broker are not held in your name, but their’s – it’s called street registration and they have every right to hold your marginable shares as collateral. With that – they have the legal right to lend them also.
Shortly selling is a VERY important and integral part of the liquidity you and every other retail investor take advantage of every day. Without it – the liquidity providers (market makers) wouldn’t exist – and with out them – the next time you want to sell your, “long only” shares – your broker will say – “to who??”.
February 26th, 2010 at 10:36 pm
“the market exists to allow capital to move to more productive ends, thus enriching the whole economy and its society”
Yes yes Yes a Novel Concept Learned by every neophyte on the planet. Sort of like “Everyone is equal in the eyes of the law” or ” We are all born with the same opportunity , it is our unique abilities that separate us”.
Or one of my absolute favorites from one of the annihilators of modern American Society , Alan Dershowitz, “The ten commandments are past history, and have absolutely nothing to do with America today”
Let me ask you something. If you are Catholic, and send your kids to private schools when the government pays for others. And these same kids outperform their public counterparts, and you have devices set up to limit the progress of those you believe to be achievers at the expense of those you believe to be privileged.
Have you applied your “market” principles?
Because if so, in the America you live in today. Or at least the America you have experienced over the past 40 years, you have a clear example of rigged Oligarchy and nothing even remotely resembling the operation of an efficient economic system.
This is like saying. Well allow people to build McMansions and those who are the most dishonest amongst us will occupy them.
Or issue credit cards. And those who are the most dishonest amongst us will ring them up and refuse to pay them.
Or make car loans available. And those who are the most dishonest amongst us will create derivatives based on your likelihood to pay back the loan that has been given to you, COLLECT all the money for the note they have issued, trade in the security they’ve created solely out of your economic activity to their own benefit and then attempt to dilute or devalue your remaining equity in anything you own at the end.
Oh wait we do have that. This is what’s called the American banking system and state you see today.
An eternally frozen oligarchy of rigged players and sham economics teetering on the edge of global collapse to the benefit of the modern day Hapsburgs.
And somewhere there is some poor poor soul who has come to the conclusion that the only way this could occur would be the “efficient” operation of a market.
Ha. The very problem today is that the market is stop gapped from operating efficiently to save the necks of the criminals who destroyed it.
February 26th, 2010 at 10:53 pm
Hey theta77. You ever read this part of the agreement?
Since Fidelity is also a 401(k) ‘funder’ or somebody who operates under the rules of ERISA.
As of Jan 1, 2008 IRS regulations permit 401(k) holders to transfer their invested assets to a Roth IRA or individual IRA so long as the plan administrator allows release and transfer of such assets to a private bank trustee.
But for some reason FIDELITY elects not to do this .
Why ? Because just like social security for the federal government. 401(k)’s like their distant cousins PENSIONS are long term loan solutions for so called market participants.
Just as the Mafia used the Teamster pension plan to finance their long term goal in Vegas.
Fidelity uses the marketing of 401(k) plans as a hidden long term LOAN program to finance their goals, increasingly paying themselves more and more fees out of “shareholder” assets.
And when the one person spoke loudly enough about the need to reform the former Kings of the Mutual fund, they did everything possible to remove him from the political scene in order to be permitted to continue their scam far into the 21st century.
It’s amazing how politics , law AND economics can truly intertwine if you can follow the bouncing ball.
Moral of the story? Scum with no responsible borrowing patterns occupy properties they can’t afford using the ACTUAL assets of the people who pay for your wonderful “system”.
February 27th, 2010 at 12:40 am
“Selling short on an uptick is sound”
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Right. Maybe if you are Goldman Sachs.
I use a contrarian strategy for my daytrading, but I would never short in an uptick.
February 27th, 2010 at 9:18 am
wyenot, I agree with that. Short selling has some legit uses, and can do some good. It just has to be regulated. In addition, they need to institute a serious tax on every single trade in domestic and foreign markets. Something so big that, if trading continued at current pace, it would bring in a trillion every year. Like tobacco taxes it would kill itself, as in, that trading would be diminished drastically because of the tax. Then all of those lazy bums and pesky little leaches, who sit all day making money out of money, could go get a real job, and start producing something useful. It is absurd, and a testament to the inefficiency of capitalisms, that a third of our GDP is from money shuffeling. We are getting close to a level of inefficiency that would make the old style Russian planned economy blush.
February 28th, 2010 at 4:11 pm
The real problem is “NAKED” shorts. Naked Shorts are Stock Market FRAUD. There should be much more SEC ACTION on this front.
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BR: While its true that naked shorts are illegal, its also true that it is a minor issue — one that had nothing to do with the 2008-09 collapse.
And it can be stopped merely by requiring BDs to demand delivery of stock. Many of them fail to do so, because they would rather collect a penalty fee for failure to deliver.
I have yet to see any hard evidence or quantifiable proof that this is a major market wide problem. (If you have any academic papers you can point me to, it would be appreciated).