Posts filed under “Short Selling”

Short-Selling Bans Do Not Work!

Bloomberg.com – ECB Said to Await German ESM Ruling Before Settling Plan
European Central Bank President Mario Draghi may wait until Germany’s Constitutional Court rules on the legality of Europe’s permanent bailout fund before unveiling full details of his plan to buy government bonds, two central bank officials said. With the court set to rule on Sept. 12, investors looking for Draghi to announce a definitive purchase program at his Sept. 6 press conference might be disappointed, according to the officials, who spoke on condition of anonymity because the deliberations are not public. The program is still being worked on and staff may not be able to finalize it by then, said the officials, who are familiar with thinking on the ECB Governing Council. An ECB spokesman in Frankfurt declined to comment.

Bloomberg.com – Dutch Elections Risk Muddying Merkel’s Crisis-Fighting Efforts
Next month’s Dutch elections risk complicating Europe’s efforts to resolve its debt crisis, with the coalition government that emerges likely to reflect both anti-European sentiment and resistance to more austerity. A third of Dutch voters in the run-up to the Sept. 12 vote back the Socialists, who oppose more spending cuts and refuse to hand over more sovereignty to Europe, or the Freedom Party, which seeks an exit from the European Union and the euro. That will make it tough for caretaker Prime Minister Mark Rutte’s Liberals to find support from perhaps three or four parties for a majority in parliament and keep cutting the deficit.

Comment

The quiet summer is about to give way to a three week period that will settle a lot of things. Consider:

Right now the odds of Obama winning the election are 57% on Intrade. According to Gallup, his approval rating is still below 50. So while he is leading, it is not a comfortable lead.

Next week is the Republican convention (starts Monday in Tampa, which is now under a hurricane watch). A week after that is the Democratic convention. If history is a guide (see the “D” and “R” on the chart below), a week after the last convention we should expect to see one of the candidates take a more commanding lead in the polls.

Click to enlarge:

  • On August 31 Bernanke speaks in Jackson Hole. The Federal Reserve always tells us nothing ofpolicy substance will be in the speech. Last year Bernanke laid out Operation Twist and two years ago he laid out QE2. So, we’ll see.
  • On September 6 the ECB governing council meets. Draghi was expected to detail his “whatever it takes” bond purchase program. But, as the story above says, this might be put on hold until September 12 (below).
  • On September 7 the always-important payroll report will be released.
  • On September 12 the German court rules on the constitutionality of the eurozone’s permanent rescue fund. This ruling is critical to Europe.
  • On September 12 the Dutch election could have big implications on all of Europe, as noted above.
  • The September 12/13 FOMC meeting is shaping up as the make-or-break moment for QE3. At this meeting the FOMC members update their forecasts and Bernanke holds a press conference. These events lend themselves well to policy changes (adding QE3), which is another reason many expect action at this meeting. Additionally, the next meeting is not until late October and that is perceived to be too close to the election.

So on September 14 we will know a lot more than we know now. This is the anniversary of the Lehman bankruptcy and if the markets disappoint we can re-run that event a few weeks before an election all over again!

Source: Bianco Research

The Financial Times – Gillian Tett: Don’t be fooled by short-selling bans
If a new paper published in a report from the Federal Reserve Bank of New York is correct, the answer is sobering. In recent months, a group of Fed and independent economists have analysed the impact of the short selling ban that was put into place in the US during the financial crisis of 2008, between September 22 and October 8 that year.* Those 2008 conditions are not necessarily identical to those currently prevailing in the eurozone. But the conclusions from the research are clear; these economists do not think short selling bans work. For there is precious little evidence that the ban in US markets truly halted share price declines; on the contrary, the impact was (at best) neutral, they claim. However, the ban hurt market mechanisms, as liquidity dried up.

Comment

We have been arguing this point for years:

While naked short-selling has always been illegal in the U.S., short-selling of all types was banned in the U.S. from September 19, 2008 to October 8, 2008 on select financial stocks. As the chart below shows, those restricted stocks dropped 26.3% in value during the U.S. short-selling ban. During the same period, the S&P 500 dropped 21.42%.

Click to enlarge:

Source: Bianco Research

Category: Short Selling, Think Tank

The Next 21 Days

Bloomberg.com – ECB Said to Await German ESM Ruling Before Settling Plan European Central Bank President Mario Draghi may wait until Germany’s Constitutional Court rules on the legality of Europe’s permanent bailout fund before unveiling full details of his plan to buy government bonds, two central bank officials said. With the court set to rule…Read More

Category: Short Selling, Think Tank

Dangerous being short?

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…Read More

Category: Short Selling, Think Tank

Chanos on Markets, China

Chanos on China

Thu 12 Apr 12 | 07:00 AM ET
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Hedge Fund Titan on the Markets

Thu 12 Apr 12 | 07:55 AM ET

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Category: Short Selling, Video

Higher, but not a blow out take up of ECB’s LTRO

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

Category: Bailouts, Short Selling, Think Tank

Does Banning Short Sellers Work?

Market Declines: Is Banning Short Selling the Solution?

Robert Battalio
Hamid Mehran
Paul Schultz

Abstract
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

Read More

Category: Federal Reserve, Short Selling, Think Tank

The Impact of Phoney Short Squeezes

> 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

Category: Analysts, Financial Press, Really, really bad calls, Short Selling, Trading, Web/Tech

Housing’s Big Chill

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

Category: Analysts, Credit, Real Estate, Short Selling

Muddy Waters’ Carson Block: Still short Sino-Forest

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.”

Category: Short Selling, Video

UltraShort Indices

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

Category: Really, really bad calls, Short Selling, Trading