Posts filed under “Short Selling”
Just a very short note today, as I’m tied up.
Yesterday, the UK authorities announced pretty interesting measures to supply liquidity to UK banks, in case of difficult markets, if this weekends Greek elections results in Syriza winning. As you know, I don’t believe that will be the case, but the UK authorities are putting in place precautionary measures. In addition, Mr Draghi stated that “the ECB has the crucial role of providing liquidity to sound bank counter parties in return for adequate collateral. This is what we have done throughout the crisis….and this is what we will continue to do”. He added that EZ Central Banks “will continue to supply liquidity to solvent banks where needed”, though he refrained from providing details. (source FT)
The BoJ, Mr Shirakawa, stated that central banks had a common understanding of the importance of stability – code for coordinated Central Bank action, if necessary. (source FT)
UK financials are up between 4.0% to 6.0% today, with EZ financials up, by similar amounts – great news.
To be short the financial sector at present is, in my humble view, a really high risk strategy.
I will repeat that I believe New Democracy will win this weekends general elections in Greece, which will produce a relief rally. The EZ will offer some concessions, but the Greeks will not deliver and, at some stage in the future, will be forced to exit the EZ. At that time, the EZ will have to put in place steps to avoid contagion, which will be positive for markets. My view remains that the ESM will be granted a banking licence, so as to increase its firepower – the other alternatives (bond redemption fund, EZ wide deposit guarantee scheme, or Euro Bonds) seem less likely at this stage, though will be introduced at some time in the future. The ESM has to be enlarged as it will have to bail out not just the Spanish banks, but Spain itself. It is highly unlikely (indeed close to impossible) that EZ countries will increase their commitments, particularly as the proposed E500bn fund, assumes contributions from both Spain and Italy.
Yes, Greece has an amazing ability to disappoint. However, if in the unlikely event Syriza wins, Central Banks globally (including the FED) will flood the system with liquidity – they have basically told you that. In another words investors have, in effective, a free put on Central Bank action. Seems crazy to go or indeed remain short in those circumstances, especially when the market is excessively liquid and/or short. In addition, I cannot see the attractions of being long 10 year bonds – German and French, in particular at current yields.
The Euro is strengthening – another positive sign. However, even though the Euro may well bounce on better news from Greece, I remain bearish on the currency
I remain positive on, inter alia, the financial, energy, mining and London property sectors.
15th June 2012
Very short note today, as I have just got back to London and need to get back into the swing of things. Will start writing my daily notes from next Monday. Over 800 banks (523 previously) subscribed for E529.5bn of the ECB’s LTRO funding – slightly above expectations of around E500bn, but, in my humble…Read More
Market Declines: Is Banning Short Selling the Solution?
In response to the sharp decline in prices of financial stocks in the fall of 2008, regulators in a number of countries banned short selling of particular stocks and industries. Evidence suggests that these bans did little to stop the slide in stock prices, but significantly increased costs of liquidity. In August 2011, the U.S. market experienced a large decline when Standard and Poor’s announced a downgrade of U.S. debt. Our cross-sectional tests suggest that the decline in stock prices was not significantly driven or amplified by short selling. Short selling does not appear to be the root cause of recent stock market declines.
Furthermore, banning short selling does not appear to prevent stock prices from falling when firm-specific or economy-wide economic fundamentals are weak, and may impose high costs on market participants.
Hat tip FT Alphaville
> Stock investors may take days to distinguish real news from noise, according to Federal Reserve Bank of New York. This is especially true these days, given false announcements of bailouts, Fed interventions and rescues. They tend to cause fake short squeezes that temporarily spike markets, only to see them ultimately head lower. To get…Read More
I always laugh whenever I hear anyone say eejit hack claim “No one saw it coming!” This video — featuring a thinner, less gray version of your humble blogger — discussing the coming housing storm in 2005 gives lie to that claim. The advice: Sell banks, Sell Home Builders, Sell Home Depot and Lowes. Video…Read More
Carson Block of Muddy Waters spoke to Bloomberg Television’s Erik Schatzker about Sino- Forest earlier today.
Block said he is still short Sino-Forest and that he isn’t a “ninja assassin” who brings down stocks. He thinks of himself as someone who is “protecting investors.”
I don’t understand why, but I keep seeing portfolios strewn with Ultra-Short inverse funds. These are the ETFs that bet 2X and even 3X that major indices will go down. 20, 30 even 40% of some accounts are laden with these. Please stop. Eventually, the downside bet will be a moneymaker. Eventually. But if you…Read More
I’ve been doing the slow burn on a very foolish article in Tuesday’s NYT Dealbook, about European Short Selling rules. The author is somewhat clueless about shorting. He writes: “Companies have long complained that short-selling can lead to stock manipulation. In the financial crisis, managers at Bear Stearns and Lehman Brothers accused large investors of…Read More
I know Whitney Tilson from our Street.com days. He is a smart guy, and a very good Value manager. But like many value guys, he can be early (on trading desks, they call that “wrong”). In his January letter to investors, he discusses some of his recent shorts that have not worked out (see PDF…Read More