Posts filed under “Short Selling”
And speaking about not understanding what caused the bear market, we have this recent SEC action:
“The Securities and Exchange Commission narrowly approved curbs on short selling, addressing what some consider a cause of the 2008 financial crisis despite criticism that there was no evidence to support the move.
The commission voted 3-2 on party lines to make the curbs final, in another indication Chairman Mary Schapiro is having trouble gaining unanimity for her ambitious agenda to toughen the nation’s securities rules.” (emphasis added)
Once a company’s stock price falls 10% from the prior close, traders could only execute short sales for the stock at a price above the market’s best bid. The curb stays in place through the following day.
At least it was a 3-2 vote . . .
Curbs Short Selling, Disappointing Goldman Sachs
Bloomberg Feb. 24 2010
In 3-2 Vote, SEC Limits Short Sales
WSJ, FEBRUARY 25, 2010
Funny, despite having flipped bullish earlier this year, I still get all manner of Bear email sent to me. I guess any bullishness from me is perceived as a trading call only (heh heh) . Anyway, this hit my inbox, via FallStreet — I guess I am a Cub — and I found it amusing:…Read More
Whatever little patience I had with Patrick Byrne, and his overzealous friends at DeepCapture.com, has now become officially exhausted. As I noted last week (DeepCapture.com Scraping Facebook Friends), this group found the Facebook friends and relatives of any journalist, critic, fund manager or blogger who dared to criticize Overstock (or Deep Capture), and then published…Read More
Here is something weird, and a little creepy: The freakshow that is DeepCapture.com seems to have grabbed all of the Facebook friends of anyone who has ever: a) written anything positive about short selling or 2) said anything negative about Overstock.com. http://www.deepcapture.com/wp-content/uploads/2009/12/facebook-data.csv For those of you who are unaware of what DeepCapture is, the name…Read More
12/3/2009 We have been watching AIG after it fell below its recent support (red lines on the attached chart) around $32.75…Now after almost a week of trying, and failing to move above (failing on higher volume) we now see AIG moving lower. Our first trading target would be low $20’s….and use the level of the…Read More
We have a bull market excess stupidity.
Now that I think about it, this could very well be the longest bull market in history, running as it has for several 100,000 years.
The latest manifestation of this intellectual failure is the new government proposals to ban or radically restrict short selling.
Of all the anti-free-market proposals out there, turning equities into a one way bet is by far the least defendable, most ignorant, most damaging to the markets we have seen.
“They have been reviled as the bad hats of Wall Street, nefarious traders who cashed in on the market collapse and, some insist, helped precipitate it. Now short-sellers, the market skeptics who correctly called last year’s downturn, are coming under even more unwanted scrutiny, this time from federal regulators. The Securities and Exchange Commission appears poised to reverse itself and reinstate rules that would make shorting stocks — that is, betting their prices will decline — somewhat more difficult.
Whether the S.E.C. will go far enough to satisfy the many critics of short-sellers is far from certain. The controversial role of these investors has divided not only the financial industry, but also federal regulators. As the S.E.C. considers its options, the debate is heating up. Hedge funds and big pension funds argue that short-selling is vital to modern markets. Such trading not only enables investors to hedge their risks but also to ferret out weak companies or, as in the case of Enron, outright frauds.”
Short sellers are the messengers, and they tell the story of fraud, over-valuation, and irrational exuberance. They also act as a good counter balance to the Street’s inherent cheerleading. Short seller Jim Chanos explains why the SEC should not further restrain Short Selling in some recent commentary (Letter tp the SEC is here).
One of the factors that the lawyers at the SEC don’t understand is the importance short sellers play in cushioning collapses. A brief excerpt from Bailout Nation:
“In September 2008, with the crisis in full ﬂower, [SEC Chief Christopher] Cox made shorting ﬁnancial stocks illegal. Apparently, he was unaware that ﬁerce market sell-offs often end with short sellers covering their positions, locking in proﬁts on their bearish bets. With short sellers out of the market, the downturn became even ﬁercer. From the market highs of October 2007, the S&P 500 and the Dow Jones Industrial Average were cut in half in 12 months. Much of the damage came after the no-shorting rule went into effect.”
Here is a chart of the S&P500, showing when the ban went into effect and the subsequent result. The ban did not cause the sell off, but it removed natural buyers from the process that could have cushioned the blow:
S.E.C. May Reinstate Rules for Short-Selling Stocks
NYT, July 2, 2009
SEC Should Not Further Restrain Short Selling
JAMES CHANOS, PRESIDENT OF KYNIKOS ASSOCIATES LP,
Thursday, July 02, 2009 at 06:11 PM EDT