Posts filed under “Short Selling”
Last night, we discussed the absurdity of banning all short sales. The details of the SEC action have been released (see below). The specifics are a "temporary halt in short selling in 799 financial institutions" until October 2nd.
I have been trying to contextualize this, and I keep coming back to what seemed like a wild theory yesterday that seems a whole lot less wild today. During the day, I had an interesting phone conversation with Joe Besecker of Emerald Asset Management. (We used to do schtick together on Power Lunch, and made for an amusing financial comedy team).
But Joe is a good money manager, a great stock picker, and a thoughtful guy. He raised an intriguing issue: None of the many hedgies he knew were pressing their bets recently. The bear raids on the banks and brokers were NOT a case of piling on by US based hedge funds. And from what he was seeing and hearing about in terms of order flow, the vast majority of the financial short selling the past week or so were being done overseas. It appears that the lion’s share of shorting was coming out of overseas bourses such as London and Dubai.It may not be a coincidence that the financial short selling ban is both here and in London.
Then there is another coincidence: The huge increase in shorting of the financials occurred on the anniversary of 9/11. And on top of that, the same institutions attacked on 9/11/01 were the ones suffering in recent days.
Joe asked the question: Is anyone investigating whether this is a case of financial terrorism? He wanted to know if someone was at least looking into this question (Joe is buds with Jim Cramer, and mentioned it to him, who then omitted to cite in his column that this was Joe’s theory, not his own).
Anyway, its an interesting theory, one that seemed kinda out there — until last night’s emergency action. Nothing else really explains the insanity of banning short sales — except for Joe Besecker’s questions. I can think of only 3 other possibilities that explain this insane action:
1) Extreme idiocy and incompetence — not unthinkable ftom the gang that couldn’t shoot straight in DC these days;
2) Following the impetuous Fannie/Freddie rescue, the timing of this certainly has political overtones. We will see if it gets extended a month from October 2nd to November 5th.
3) Some other factor, possibly financial terrorism.
I can think of no other explanations for the dismantling of the free operations of trading markets.
The grand irony of all this is that Naked Shorting has been very profitable for the big broker dealers, like Morgan And Goldman and Merrill and Lehman. They have looked the other way for years, and the SEC has been AWOL on this issue.
Short sales require a locate (shares to borrow) and then a subsequent delivery. It should take less than 3 days to deliver the borrowed shares, but instead, delivery is often delayed indefinitely. Failure to deliver leads to a margin charge, which can be as high as 9-15%.
If you want to know who to blame for the past 5 years of naked shorting, you only have two places to look: The Financial brokers themselves, and the nonfeasance of a feckless SEC.
SEC: Ban All Short Selling (September 18, 2008)
SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets
SEC Chairman Christopher Cox
FOR IMMEDIATE RELEASE 2008-211
Here is tonite’s theater of the absurd SEC headline:
SEC intends to temporarily ban short selling, but it’s not clear if the commission has approved the move. Cox is briefing congressional leaders. Separately, the government is seeking congressional authority to buy distressed assets.
This is nothing short of a total panic by people who have no clue what they are doing. And to think, I mocked Russia for being a nation run by market commies.
This is the ultimate bailout attempt, which will have repercussions far far beyond our imaginations:
1) We suffer a loss of Market Integrity; The US is now a Banana Republic
2) Blatant market manipulation: this is nothing more than an attempt to force markets higher;
3) 60 days prior to a presidential election? This is a none-too-subtle attempt to influence the elections — especially coming on top of the Fannie/Freddie bailout;
4) The coming pop will create a huge air pocket, ultimately leading to us crashing much lower;
5) Expect a huge increase in volatility — upwards first, then down;
We Are A Nation of Morons, led by complete Idiots, making us complicit in our own self destruction.
Interesting chart via Sentiment Trader: We see Hedgies are now as short as they were in 2004. > > I am not sure that hedgies are that short, but that’s merely a low confidence anecdotal info. I’ll ask Sentiment Trader where they get this data from.
Wow, this guy Christopher Ailman is utterly clueless. I don’t usually say things like this, but "Way to keep your eye on ball, genius!"
I don’t have much of a problem with the uptick rule — its pointless, and is easily worked around by hedge funds — but i can take it or leave. And, I agree that rules against naked short-selling — already illegal — should be enforced.
But if you think the current economic, credit and financial problems are caused by shorting, you are simply a smoking too much dope. (Don’t do drugs, or you will end up a brain-dead piece of lawn furniture).
Idiots . . .
One of the nation’s top pension funds taking aim at short sellers, with Christopher Ailman, CalSTRS CIO and CNBC’s Maria Bartiromo.
To review, it wasn’t the excess leverage, or the under-capitalization, or the lack of risk controls, or the bad investments in all of the real estate related paper, or the insolvency — it had nothing to do with the nonfeasance on the part of the Fed, and the SEC going AWOL — no, it was the short selling.
Financial punditry has reached new lows — and with Luskin and Ben Stein running around, that ain’t easy.
This blame game is short on logic
FT, August 21 2008 20:02
Out of 254 financials in the S&P 1500 Composite Financial sector, 12 meet the criteria of being under $10, and having been over $20 in the past 3 years: CNB, ETFC, WM, HBAN, LEH, NCC, SOV, DRH, MTG, TSFG, BPFH, PBKS. Thanks to Mike Panzner for the data screen
It ain’t just Lehman, Fannie and Freddie: There are plenty of other Pigs in the sea. > Washington Mutual (WM) We are long this — my trading desk has been trying to bottom tick this today — but I don’t like it as anything other than a trade. > American International Group (AIG) We are…Read More