Posted on 12/16/2008 2:00:42 PM PST by CutePuppy
Edited on 12/16/2008 2:48:04 PM PST by Admin Moderator. [history]
It’s a financial war against America and they are winning.
I do not believe there is such a thing as “honest short selling” it all depends upon an artificial lowering of the market price. It cannot be honest since the explanations of what happens is fraudulent. Honest bets against stock prices involve the options market where there is not fraudulent expansion of stock supply.
If it were made clear to account owners what was involved when their stocks are “borrowed” they would never agree to allowing it. Not that it would stop unscrupulous brokers from appropriating it anyway. Rather than having some disclaimer in 2 font among pages of documentation brokerages should blow up the warnings about your stock being appropriated for purposes AGAINST your interest. Then I will consider the label “honest” when applied to short selling.
And it always works against current owners’ holdings including stock held by the companies and counted as collateral and assets. It weakens companies by putting artificial financial pressure on them by lowering the value of their assets.
Markets do not function because some people want the price to go higher and others want them to go lower. They function because some people translate their wants into purchases and sales. My wish for Halliburton’s price is irrelevant.
Nor do I believe short selling has any impact on reducing collapses of the market overall and would have the opposite effect since it raises the risk or stock ownership something that should be avoided at all costs.
Which would be better--riding a roller coaster which subjects its rider to negative G's through the use of wheels below the track, or riding a coaster with the same track and velocity profiles, but without the under-wheels?
Short selling will sometimes subject the market to annoying pressures, but it's better to have the market weather such pressures on an ongoing basis than to have it glide along smoothly until it crashes totally.
Suppose I'm planning on buying $50/month worth of AcmeCo stock for the next twenty years. Are you saying I should object to a company doing something that would keep the price of AcmeCo stock lower than it otherwise would be? Why should I object to that?
“Government is “playing around” with the market, by having numerous rules and regulations, and from several different agencies like SEC, FTC, FASB etc., and laws including monstrosities such as Sarbanes-Oxley.”
yeah, that’s my point. We have to get rid of a lot of those rules. Not add new ones to patch up the effects of the old ones which will just introduce new problems.
If you’re going to ban shorts then you also have to ban longs. It works both ways.
I am concerned about the holders of stock not would-be buyers and oppose any artificial manipulation to help the latter at the expense of the former.
There is no “real” level of a stock price which shorts help find. The “real” level is what someone will pay for it on any particular day.
Your illustration does not address the point and does not consider someone coming in an “borrowing” your records without permission and depressing the price. And there is no problem with a market finding a truer value than you put on them WITHOUT fraudulent short sellers’ “assistance”. And with any market it is an assumption that you CAN sell your commodities or stocks near the price quoted without affecting the market price. Cpmparing a thinly traded market in a hoarded commodity has no comparision with the stock market.
That is the kind of maniplation which made the New York Central “the Scarlet Lady of Wall Street”. Nor do I understand why you would want to keep buying an under performing stock. It is not companies doing this since they could obviously depress the stock price by issuing more shares. And they would be real shares not fake ones.
The Elvis record analogy is not a good one because each share of stock represents ownership of a small percentage of the free cash flow of the company, even if it is not traded, and therefore is inherently valued at a some reasonable price, depending on interest rates.
Of course, if there is a flood of selling by former passive stockholders, the price will plummet, but not for long.....unless the selling is due to a decline in profits.
LOL, it was those banks and the brokers who were selling each others stock short. Trying to screw each other over.
Wall Street is a den of thieves.
Jesse Livermore was the greatest trader ever... however, as you pointed out, it was 1923 and the nature of undemocratized capital markets and the effect of a failure of one company that “had something wrong with it” on entire market and/or global economy at the time was negligible.
Companies with temporary “problems” or temporary lack of liquidity, even well managed, should not be “killed” or permanently damaged by “bear raids” for benefit of the very few at the expense of many, and deliberate capital destruction in cases where none would be with the passing of time doesn’t help our competitiveness in the global economy. Sarbanes-Oxley was not the only reason why many companies have either left US exchanges, or were taken private or have never been listed in the first place, thus denying US capital and economic advancement.
The theoretical “remedies” that Jesse and others propose are not really workable, because when panic ensues, “fundamentals” go out the window, which simply allows competitors PE firms (in some cases, the same who shorted before) to buy a company below its intrinsic value. Few manipulators win at the expense of many who were not at fault, even if a company was not in real trouble.
If a company has a “cold” that could be treated or would have been gone in a time, you don’t cure it by injecting a small pox virus, which could kill it.
Why CEOs of the companies have to deal with bear raids instead of devoting their time to improving the business, is beyond me, and it doesn’t do any good to our competitiveness in the global economy. It also explains why they would choose a short term thinking about their business instead of long term planning.
Just because few people may not benefit from killing the company or industry, doesn’t mean that market would not function properly or that “bad” companies would not otherwise eventually meet their demise.
While there are some people who will buy a certain quantity of stock and then neither buy nor sell any, many (if not most) stock holders periodically buy more shares for themselves.
There is no “real” level of a stock price which shorts help find. The “real” level is what someone will pay for it on any particular day.
In the absence of short selling, if a few irrational buyers buy some shares of a stock at a price above what any sane person would pay for it, it's possible for the market to reach a deadlock condition; the people who have shares won't want to sell them below "market price", but those who don't have shares won't be willing to pay an insane price for them, and thus no shares will trade at any price and the "market price" will remain at its inflated level. Who benefits from that inflated value? Not the stockholders--as soon as they try to turn that inflated valuation into cash, they'll find that they can't get nearly as much for the stock as it was supposedly "worth". I fail to see how thinking one has $100,000 if one only has $70,000 is a 'benefit'.
Stocks have a real value. It's often difficult to measure, and estimates will often vary considerably based upon people's predictions about the future, but there is some fundamental value. People who buy a stock at a price below that level or sell above that level make money instantly (whether they realize it or not); those who buy above or sell below, lose money instantly (again, whether they realize it or not). Those gains and losses are zero-sum, with one person's gains coming from another person's losses. Selling a stock short below its real value will be a losing proposition, unless one can find a sucker to take on an even worse losing proposition.
If you wouldn't allow short-selling, what would be your solution to ease liquidity in deadlocked markets?
Income averaging purchases are not a justification for short selling.
No gap between offer prices and buy prices remains long nor becomes large enough to warrant your concern. Your theoretic dilemna does not occur in efficient markets such as the stock market. No such “deadlocks” exist. This in not an argument justifying short selling.
And prices attributed to stocks are not arbitrary and do reflect the market as generally believed. What does one’s estimation of a stock price have to do with anything anyway?
It certainly does not cause a market to become illiquid. Remember the assumption of perfect competition requires no one player’s sale or purchase to effect the price it is given.
Shorts cause the zero sum game to be distorted because of the artificial downward bias towards stock prices which results from the fraudulent increase of shares for sale at a price LOWER than what the owners demand. There can be fewer negative economic policies than that requiring a company to take steps to protect its stock price. Money spent on repurchases cannot be spent on innovation or investment. Another hideous result of allowing such parasitic behavior.
There has not been a case of deadlocked liquidity in our markets outside of a generalized panic and short selling has no effect on that other than triggering more bankruptcies than would otherwise exist.
Not really being “long” just means you OWN the stock. A short seller is selling something he DOES NOT own but only fraudulently “borrowed”.
I don’t think naked shorts should be allowed.
But if you lend a share with the condition that someone can short it, that’s an agreement that the govt shouldn’t get involved in. The only problem would be if someone borrowed and he didn’t get permission from the lender to short.
The tool which allowed the short selling with impunity is the concept of willful delusion by the sellers that they had their positions covered with CREDIT DEFAULT SWAPS.This emboldened them to hedge 40 to 50 to 100:1 because if the bet went opposit of their 'bet', they lost nothing. Now, the gig is up and we all take it up the rectum. Not just us but our children and our grandchildren. I say what I say soberly. These people in government and in banking who allowed this to happen should be shot for treason.
He's done his [lion's] share of it, particularly trading on the inside information, in his past at Goldman Sachs, along with one Robert Rubin. I would not follow his stock recommendations, whether they turn out right or wrong. But that's exactly why he does possess a tremendous knowledge of the industry and knows how and when the manipulation occurs, which is why his insight into this is valuable, though not at all susrprising to anyone who watched short selling attacks and accompanies "market rumors" start with BSC in February and progressing to widen with culmination in mid September, before liquidity injection plan designed to prevent "run on the banks" (TARP) was announced.
That's why I had a link to "Anatomy of Morgan Stanly Panic" and a caveat about Cramer himself in first post. He provides the facts, and I do not have a problem with either his facts or his conclusions on what they meant - attacks on financial system, not just few "bad" mismanaged banks. Similar attacks happened in September, just before election campaigns were entering their final phase.
Good question. Here's one reason. For financial companies, who are always quite leveraged, there are outstanding loans and often, collateral agreements. Sometimes (this was the case with AIG, and is also true with GE, although not a major problem there), the loan agreements will stipulate that the company has to post additional collateral if their stock price goes below a certain level. The reason for this is that the value of the stock is seen as the equity cushion the company has against its loans. This is taken into consideration when the loan is made.
So, the sudden need to post collateral because the stock price has been deliberately manipulated downward can trigger collateral demands from debtholders, which will definitely hit the news and motivate people to sell. Besides, the collateral may not be available.
I think you're missing a couple of key factors: (1) shares which are sold short will have to at some point be bought back; if the short-seller is to make money, he will have to buy shares at a lower price than he bought them; thus, he will soften the bottom compared with what it would have been had he not bought the stock; (2) there are other factors which would sometimes, in the absence of short-sellers, generate a significant unbalanced upward pressure on stock prices. THAT WOULD BE A VERY BAD THING. Allow me to explain.
In some years, people in aggregate are going to want to put more money into a stock than they take out. In other years, they are going to want to take out more than they put in. In the years where more people are putting money into stocks, this will push up the price without generating anywhere near enough real value to justify the cost increase. Those high prices may make it look like the stockholders are making money, but those gains are purely illusory. As soon as people start taking out more money than is being put in, all those paper gains will vanish. The more people crowded into the market, the bigger the crash when they head for the door.
The only way short sellers in aggregate can make money is if they sell short the stocks during times of excess demand (limiting the harmful price increase) and then buy back their stocks when there's a glut (limiting the harmful price drop). While there will no doubt be some speculators who sell short even after the price has reached its equilibrium point, such speculators will, in aggregate, lose money.
Why is there a widespread notion that high stock prices are, in and of themselves, a good thing? High real values are a good thing, and prices are often a useful means of estimating values, but trying to prevent things from depressing prices is often a misguided battle.
(Yes, I know that some financial companies risk having loans called if their prices fall too badly, but the problem there lies more with margin-related practices than with short selling. The short sellers that make money tend to reduce market highs while mitigating lows; people who make bad trades on margin often lose their shirt, but in the process magnify the harmful effects of market highs and lows.
We should pass a law that stocks are only allowed to go up.
bump
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