No, I’m not really referring to a short squeeze. If anything, I’m talking about a LONG squeeze.
What I am referring to is that there SHOULD be a nominal balance between longs and shorts in a free market. Many longs feel that shorts are somehow their enemy, as if this was a cheerleading exercise. No, if you’re a long, shorts can be your best friends. When and if markets fall precipitously, one of the things that puts the brakes on is the action of shorts covering. But if the SEC and the Fed successfully conduct this campaign to chase shorts out of the market, those brakes will not be there. Did you know that short selling isn’t even allowed in the Chinese market? And it’s down about 50%.
We really do not have price discovery like there once was in US markets. The markets are dominated by hedge funds and some of the larger banks who, if you think about it, have significantly reduced prospects for making money unless and until the credit markets free up. Witness the trading profits put up by Goldman, Lehman, et al. They are large, larger than ever.
So by the time the Fed will come to the rescue of banks who blew their brains out with stupid loans, to the rescue of FNM/FRE who are mismanaged by homeless politicians and party hacks in patronage positions, and most vigorously to their pals in the major banks, how much a free market is left?
I hate to keep repeating myself, correct me if I am wrong, BUT ONE CAN STILL SHORT just not naked shorts...