Stop the Short Sellers
There's probably a baseball analogy in here somewhere but I'm not sure where it is. Oh well, here goes. A shortstop's job is to stop players from getting to third base and if you can't get to third base, there's no way you can score a run. And while I'm at it, the image of Chris Dodd in an umpire suit standing on the third base line with his thumb in his ear, is sort of sweet, too. As is, the image of Tim Geithner in a catcher's mask looking the other direction while rogue players steal home (it's not his fault, it was in their contract from the previous season).
But, baseball analogies, aside, the truth is, we have to stop the short sellers. England outlawed short selling in the 1800's and you can track the beginning of the downturn in the stock market from July 6, 2007, the day the Bush Administration deregulated and got rid of the "uptick" rule. This SEC rule mandated that every short sale transaction be entered at a price that is higher than the price of the previous trade. Introduced in the Securities Exchange Act of 1934 as Rule 10a-1. It was implemented in 1938. The purpose of the uptick rule was to prevent short sellers from increasing the downward momentum when a stock is already experiencing sharp declines. It's gone. And, now, every time the market has an upswing, the short sellers, (or as a broker I know refers to them, "the vultures), just lay in wait to come in and drag everything down.
The stock market had a sharp spiral downward this morning. Some are blaming it on GM and uncertainty about the upcoming G20 conference. But, really, an analyst at Morgan Stanley named Jason Todd "determined that" investors should sell U.S. stocks following the steepest rally since the 1930s because earnings are likely to keep weakening. And the vultures came out swinging. Good job. It's easy in a market as volatile as the one we're in, now, to come out with a self-fulfilling prophecy.
And, not to sound like Pollyanna but it's time for some old-fashioned values and common sense. Invest in something you can believe in. Don't create a toxic environment where people can profit from failure and loss.
We ran into someone on the street over the weekend who is in the consulting division of Goldman Sachs. Their job is to assess business plans and make recommendations for investment or raising capital for same or taking a company public. Do you know how many companies they've recommended in his office in the last year. Zero. Cash-saving tip to Goldman Sachs, shut down the consulting department. If all you're going to say is, "no", you could do it on a pre-recorded message.
Shouldn't some of these companies who've taken bail-out money be required to sometimes place a bet? And not to bring up another baseball analogy, but you can't win if you don't play. And neither can any of us.
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AMEN!!!!!!!!
THANK YOU for writing a post I could not agree with more. You have captured exactly the toxicity that the shorts have been bringing to the market ever since they've been allowed to run amuck.
The SEC needs to stop "considering" reinstatement of the uptick rule and JUST DO IT.
Wasn't there legislation in the works to reinstate the uptick rule? Whatever happened to that?
short sellers have to do FAR MORE DUE DILIGENCE than betting long on a stock.
why?
the losses of short sellers is theoretically infinite. upside is limited (100% because a stock can only go down to 0).
that means, they have more to risk than you hoping a stock will go up. they keep the managers mismanaging a company at check.
ban naked short selling. sure.
ban short selling. ABSOLUTELY NO.
Certainly ban naked short, but they are illegal now, why hasn't it stopped them?
Hedge funds are failing all over the place, Shorts hedgeing is a gamblers illusion.
Randomly conditioned by the occasional success, the gambler can never be de conditioned, at least that's what studies show.
That is, If something always fails, or always works, we learn fine. If something sometimes works, we never stop believing we made it work. Basic Skinner stuff.
The Markets have thrived without ANY derivatives before.
http://en.wikipedia.org/wiki/Short_(finance)#History
Short seller is far from a "gamblers illusion". Short selling also has nothing to do with derivatives. Naked shorting is already illegal and represents such a tiny amount of overall trading volume on the exchanges that it's not even worth talking about.
Considering that a bubble just popped, do you think the problem was the practice of short selling or the fact that not enough people were short selling? Face it, asset values were inflated, and a lot of companies were overvalued.
The problem with the market isn't that people bet against companies--it's that not enough people bet against companies. A lot of corporations march along with poor fundamentals because stupid investors don't take to time to find out how horrible the management and business really is. These investors inflate the stock price and we end up with idiotic bubbles.
And now we have people like Amy Ephron telling people that it's immoral to short sell--geez, like that's not a recipe for future disasters. Let's prop up another Enron, because it would be wrong to bet against it!
Who made the biggest profit?
George Soros--1.2 billion (that we know if).
He brought down the Bank of England and made a pile on that too.
MoveOn.Org and Obama supporter (maybe the puppetmaster).
Let me guess... you believe everything O'Reilly tells you, huh?
BTW... whining about short sellers still seems as foolish as it always does. You know who HATES short sellers? The people mismanaging major corporations. Why? Because short sellers researched their company, and saw how inept and poorly manage the company was... and are willing to put their money where their mouth is that these companies will do poorly.
If you get rid of shortsellers, the liars win. They are free to mismanage companies into the ground, and at the end of it all claim "oh, I don't know how this happened". You know, kind of exactly like what conservatives did to our government.
Soros himself said that he is having a great crisis...Soros is the $$$ behind MoveOn...so what is your point just gay tano? He was not whining as you nor was he crediting O'Reilly...this info came from Olberman and Maddow. You are the type that complains/condemns/hates if the AIG execs make their money selling the company short but love it when Soros does...
"There's probably a baseball analogy in here somewhere but I'm not sure where it is."
You probably have to go back to the Black Sox. Pete Rose mostly bet on his own team to win, so you can't blame him.
As I understand it, short sellers are making a bet that a particular stock in over valued and its price is going to come down. If the price goes up they lose their bet. The economy has been wrecked, not because of short sellers, but because of incredibly foolish financial decisions made by "financial professionals" from mortgage brokers on up, who were apparently oblivious to the fact the property market whose values had lost all connection to reality and what people could really afford. The fall in stock market valuation results from the loss of trillions in purchasing power as our inflated asset values come back to reality. In my neck of the woods, I couldn't believe how house prices were going up. I didn't know anyone who could reasonably afford these houses. I would ask, what jobs do these people do that can afford to pay this much? who are these people that are going to buy all these condos, where do they come from? and no one knew and I figured that there was a local property bubble, and values were going to fall. eventually. What I didn't realize was the total size of this asset inflation- multiplied across the country represented not accumulated wealth but accumulated debt. How many Nobel prize winners for economics are there in this country, and how many of them understand the linkage between property (wealth) and earnings? Short sellers are not the villains.
You are missing the malicious part of the deal. In many cases, the shorts collude with analysts to manipulate the stock prices so that they can make money. Jim Cramer (that idiot on CNBC) even admitted to doing this on tape.
Short sellers are VERY MUCH the villains. If they played by the rules, that would be one thing. But they DON'T. They manipulate the market to their benefit, and the detriment of everyone else.
BAN THEM!!!!!!!!
Look, the system is opaque and so people will game that opacity for short term gain (both upside and downside). Companies used the opacity to disguise the risks they held and disguise the nature of their assets. Those companies such as AIG, GE etc used that opacity to over value their stock.
If the companies word could be trusted, there wouldn't be any way in which short sellers, or company CEOs could manipulate the market. The truth is that Bush growth was really a paper growth, and had nothing to do with the real economy. The market has fallen largely because the previous gains were built on a lies. Short sellers had nothing to do with that. The people to blame are those who manipulated the market upwards and so inflated their rewards and compensation. You want to blame short sellers for this, but I cannot see how. It makes no sense to me.
Short-selling is part of the market.
I think it would be more appropriate to say "Stop the Criminality"
The system is corrupted and perverted beyond functionality.
"There's probably a baseball analogy in here somewhere but I'm not sure where it is."
The analogy isn't in the players, it's in the stats, reams and reams of stats.
Baseball used to be a simple game, as did football and basketball.
Oh, please. It's a MARKET, Ms. Ephron. It's not a battle between good and evil. Stocks aren't "good" when they go up and "bad" when they go down. They do both--all the time. That's what they're SUPPOSED to do. In fact, that's why we're in the mess we're in now--because people like you (i.e., Alan Greenspan) were loathe to let the market correct normally back in 2000. Nope, can't have that, can we? Gotta be all good, all the time. Your call for a ban on short-selling is simply a cover for what you really want (although you may not know it): A ban on selling, PERIOD. A ban on anything that keeps the market from going up all the time. LOL! Sorry--it doesn't work that way. Do some trading, and then get back to us, will you?
I think that the author is thinking about naked short-selling. Normal short-selling is important for the facilitation of buying and selling stocks. Naked short-selling, if I understand correctly, is short-selling while not wearing any pants.
I'm sure you're probably right. And I agree that naked short-selling should be banned. But she should get her facts straight before she starts pontificating...
Read about the master short seller John Paulson. Bet the mess in the economy would happened and short sold his way to billions.
http://www.portfolio.com/executives/features/2009/01/07/John-Paulson-Profits-in-Downturn
Getting rid of the uptick rule had nothing to do with the drop in the equity market from late 2007 to now. Anyone who thought so back then knows better now as the poor fundamentals of the financial companies and the economy have come to light. Regarding short selling, there is nothing wrong with it. It helps with price discovery and allows people to still make money when equity prices are trending down. Like several have posted already, it's still a matter of buying and selling - short sellers just sell first and buy back later. Many investors use short selling as a way to hedge a long portfolio. The best trade in the first half of 2008 was long commodities and short financials. There is nothing wrong with that. The fundamentals in commodities were very strong and in financials they were terrible. Short selling has been around in the US as long as there has been a market. There are stories of fantastic short attacks back in the 1870s and 1880s during the great railroad boom and bust. It's a healthy part of the market. As far as Goldman Sachs, it's been a prudent move for that division to make only negative recommendations in the last few months considering the environment. Goldman still owns huge amounts of equities and bonds, however, and trades everyday.
With all due respect, sir, it seems to me that the system has transformed over time to the point that what has been allowed has been the status quo for so long that none of the people involved can find it within themselves to change. You know, unlike union workers renegotiating a contract to keep their job. But no such thing for Wall Street people. You even said yourself that it allows people to make money even in a downward trend. Isn't that making money when there is none available unless one conjures a way to do so. It also seems clear that the financial system had packaged and sold a lot of worthless "products" globally, and yet has pointed the finger at the American consumer as the proprietors of the current crisis. No one should get something for nothing. Lack of regulation and collusion with our elected officals has got us to this point, that can't be disputed. I also don't need more credit(debt). How about higher wages and lower interest rates. That would be a stimulant.
For someone to short stock, they need to find someone willing to lend them the stock first. It's not "making money when there is none available". Second, securitizing loans has nothing to do with short-selling, nor does wages - but about that, FYI, disposable income has gone up substantially over the past 25 years, as has real median household income per family member.
Amy, EVERY transaction has a buyer and a seller. That's what makes it a market. For every optimist, there's a pessimist, no matter what kind of deal it is.
For every short seller, there's someone who thinks he's wrong.
There's a whole lot of people here who need to read Benjamin Graham's "The Intelligent Investor". I wouldn't recommend "Security Analysis" that Graham did with David Dodd. That one is a bit of a snoozer.
Graham's characterization of "Mr. Market" as being intensely manic depressive is spot on.
http://www.buffettsecrets.com/mr-market.htm
My favorite Warren Buffet quote: Be fearful when others are greedy, and be greedy when others are fearful.
There's a ton of fear right now.
BTW, you make your money when you buy, not when you sell.
Auldphart
What it seems many people don't realize every complete transaction has two halves: a buy and a sell. The person who goes long, buys first and sells second. The person who goes short sells first and buys second. What's the big deal?
Plus there are many times when a short-covering rally gives stock prices a big boost. That is, the shorts are BUYING and sending prices up -- is that 'immoral'? When those who are long are bailing out and sending prices lower -- is that 'immoral'?
The point someone made earlier about short selling being absolutely necessary to allow someone to hedge their bets with a put is absolutely the key as to why this whole argument is bogus. Sorry Amy.
In theory, I agree that short selling is problematic for a market that is 'supposed' to be about investing in the future of companies. But what we seem to have experienced in the markets is that gamesmanship, i.e. traders, who use their legal option of going 'long' on stock ABC (I mean this as a generic company, no relation to any real company) or going 'short' on stock ABC, are controlling the stock markets.
I find myself in the position of ONLY being able to recoup my losses on ABC by going short because the professional traders force the stock price down in their trading practices. It really has been a game/strategy for them, even though it has caused the stock price of otherwise profitable companies to greatly decrease in value. The average, not 'wall street attuned' person, who is not dumb but spends his/her time amassing knowledge in other area's, like say medicine, is disadvantaged in this system by not being knowledgeable about these sophisticated/sleazy 'regulations' that allow the pirates to steal from people who think they are investing, but are really giving their earnings to people who will steal/gamble it away. These same traders and manipulaters use these so called regulations to steal money from truly productive individuals. They and the system, bought and paid for by Wall Street, are corrupt thru n thru. and in serious times of finacial stress, this becomes truly obvious.
"I find myself in the position of ONLY being able to recoup my losses on ABC by going short because the professional traders force the stock price down in their trading practices. It really has been a game/strategy for them, even though it has caused the stock price of otherwise profitable companies to greatly decrease in value."
Did it ever occur to you that the stock price may be falling because the company's in crappy financial shape, it's business is heading down the toilet, or simply because the herd's been spooked and everybody's just heading for the nearest exit in panic? Just look what happened last year to Apple when rumors when people were afraid that Steve Jobs had a nasty form of cancer.
Lemme ask you a question. Do you know anything about P/E ratios, free cash flow, return on equity, debt to equity ratio, EBITDA, market cap, book value, etc., or are you just on a rant?
Auldphart
"simply because the herd's (I assume you mean average investor here) been spooked and every body's just heading for the neares exit in panic?"
Just who is it, do you think, is doing the 'spooking' of the herd. It is the people like Jim Cramer (who has admitted as much) when he was a hedge fund affiliate AND other 'traders' who seek to move stock prices by selectively leaking and spinning news of their target stocks.
I know P/E ratios and free cash flow, etc. but what I SEE is that, in this market, stocks are NOT TRADNG according to this information. Stocks are trading on rumor and innuendo put out by people in the Wall Street Culture.
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