Hello from your favorite Pessimistic Investor

[phlgirl]

Short Selling banned???

I had no idea that was even possible.

SEC bans short-selling - Yahoo! News

 

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[AroundTheWorld]

I was just getting on to post this as well.

Wow.

 

[michael]

Short Selling banned???

I had no idea that was even possible.

SEC bans short-selling - Yahoo! News

I believe this applies only to naked shorting.

Here is another article I read about this.

reportonbusiness.com: Regulators move to crack down on rampant short selling

Heres the third paragraph from the bottom

From the time the SEC announced its temporary short selling restrictions in July until the order expired in mid-August, the S&P Financials sector surged 14 per cent. The VIX index of market volatility eased by 26 per cent.

Perhaps it is a prudent move then to halt naked shorting, at least until the markets recover but the move seems like sucking on throat lozenges to cure a cold its a measure which will only ease the pain of the problem we have but not solve it.

(disclaimer: I am only really learning the workings of the market so feel free to ignore this if my understanding is just incoherent B.S )

 

[michael]

BTW reps to RandallG and Greatbear

As I slowly teach myself the fundamentals of investing I find it extremely useful to read countless posts where the both of you put these fundamentals into practical use making sense of the current market conditions so many thanks to the both of you

:cheers::cheers:

:thankyousign::thankyousign:

 

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[randallg99]

I am more pessimistic than ever....

if these bailouts don't work, our financial systems will undoubtedly collapse....

just wish I bought a few more k of RGLD a couple of days ago... or maybe sold it... gyrations are crazy

naked shorting is banned on financials and that's probably producing the rally we are seeing today... I think it's criminal. There's no way free markets can operate without so much intervention.

the news alone spewed from the FED is very compelling but Paulson just announced that it needs additional "100's of billions" of dollars to solve the crisis...

the problem is not that we are so afraid of our financial system, but what will happen afterwards. We have seen collapses and complete failures before, but not with so much money printed.... the catch is that now, as tax payers, we will be on the hook for up to 1 trillion bucks and how we will pay.... higher taxes are in the cards. this I can give you an ironclad guarantee.

Thanks to all for reps--- but it's very important to keep in mind that my discretionary investment style is not ideal for everyone... I help other people manage their risk and portfolios so perspectives may be different.

If I was a trader, I probably might have been trading these gyrations like a fiddle, and admittedly I have to a small degree but too much sugarcoating is creating a lot of irrational moves

good luck

 

[Russ H]

phlgirl/ATW-

Short selling was the cause of the meltdown of the financial investment banks this week-- traders were *betting* that they would fail, so the stock values started to plummet.

So by some measure, the shorting actually *caused* the investment banks to tank.

That's why they're putting a 10 day ban on short calls.

They need to shore up the confidence in the system.

-Russ H.

(Paper asset folks-- if I got this wrong, please correct me)

 

[AroundTheWorld]

- - - just as in the commodity markets will freeze a particular commodity for the day if it has dropped significantly. I guess the idea is to protect the investors from their own emotions....

It could also be compared to what FDIC insurance could do to prevent a bank run.

But, a part of me is shocked to see investment choices (in fact - the smart investment choice of the day) being eliminated. Sort of like making it illegal for American's to own gold.

 

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[phlgirl]

Oh, I totally get the thought behind the move (pretty sure ATW does too) but thanks, Russ.

I should have been more clear.

I was just completely unaware that the 'administration' had the ability to pull the plug on certain portions of the *free* markets - without any warning. These past few months have redefined the power of the 'administration' in my mind.

Sorry if that is too political.....not sure how else to phrase it.

 

[Russ H]

phlgirl-

Sorry I misunderstood.

I think the rules are being rewritten each hour, this week.

And thing is, I don't feel like it's the "administration" that is doing it-- what's happening is that the world's banks and financial market heads are all working together, to come up w/a plan, and then the various countries/legislatures/parliaments/executive/judicial branches are going to make it "legal".

Example: Last night, England announced it would change its laws to allow a massive buy-out deal to go through that would save some institutions over there.

Truly an amazing week-- and more to come.

Our children's children will read about this in their history books.

-Russ H.

 

[Russ H]

This week has been the single most important/scary week for the world financial markets since the 1930s.

I'm not sure if everyone here knows this.

As one of the articles in my dd thread put it a few days ago, before the latest restructuring:

"The average person is not panicking right now. The pros are."

-Russ H.

 

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[AroundTheWorld]

Yea - - big stuff coming down the pike. This (and a few other things that I believe are coming in the future) is the reason for this thread: http://www.thefastlanetomillions.co...n/9336-survive-thrive-all-economic-times.html

Phlgirl: That was exactly my reaction. While I understand what they are trying to accomplish - - it is just staggering to me to see the government reaching that far into an investor's options.... very similar to when the government made it illegal to own gold. When they tie the hands of investors, what will the investors do?

 

[Edge]

phlgirl/ATW-

Short selling was the cause of the meltdown of the financial investment banks this week-- traders were *betting* that they would fail, so the stock values started to plummet.

So by some measure, the shorting actually *caused* the investment banks to tank.

That's why they're putting a 10 day ban on short calls.

They need to shore up the confidence in the system.

-Russ H.

(Paper asset folks-- if I got this wrong, please correct me)

With all due respect, Russ, I couldn't disagree more. The short sellers didn't get Lehman in their CDO deals, the short sellers didn't put all that worthless crap on their balance sheets, the short sellers did their homework, and the short sellers were right. Blaming short sellers lets the real culprits escape.

Last month speculators were blamed for the creation of an asset bubble (oil), this month they are being blamed for the fall of a different asset bubble? Sounds like a very cheap scapegoat to me.

By banning short selling, we joined the ranks of Pakistan, they've had the ban in place for some time now. How does this help advance and heal a free market economy?

Sorry if I just sound like someone that is sour for missing a few bucks today, that isn't the case. I'm really sour becuase last night I was rereading MJs post about being the driver vs. the passenger while at the same time digesting what is going on in our financial system right now. I'm sour because the light went off and I asked myself if any of us are truly drivers. Can any of us truly say we are the drivers right now?

One of the most sacred investment i've noticed among the fastlaners is the money market fund and treasuries. Well yesterday, you basically had to pay the govt to hold your money and money market funds were almost replaced with mattress covers over the last 48 hours.

 

[AroundTheWorld]

I'm sour because the light went off and I asked myself if any of us are truly drivers. Can any of us truly say we are the drivers right now?

One of the most sacred investment i've noticed among the fastlaners is the money market fund and treasuries. Well yesterday, you basically had to pay the govt to hold your money and money market funds were almost replaced with mattress covers over the last 48 hours.

Go foreign....
Or... Go gold, silver or commodities....
and, I'm sure many other ideas I haven't thought of...

Their move to stop short sales is certainly limiting, but ALL the options haven't been taken away.

 

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[Edge]

Go foreign....
Or... Go gold, silver or commodities....
and, I'm sure many other ideas I haven't thought of...

Their move to stop short sales is certainly limiting, but ALL the options haven't been taken away.

I'm not saying that I am quitting what I am doing, nor do I feel like all my options have been taken away. I'm saying that the light bulb lit up enough for me to realize I am not in the drivers seat as much as I thought I was.

This isn't just about short selling, it is about keeping markets free. There has been enough intervention in real estate, commodities, and equities (foreign & domestic) for me to say that these markets aren't completely free. Again, i'm not going to stay away from these markets, I just realize that the rules can drastically be changed against you at any moment. These are rules that I can't manage and that keeps me from being in the drivers seat.

Again, i'm not typing this to be some type of sob story, i'm just saying that I feel i've been naive in the past. There's lots of opportunity in insane markets, just don't get a false sense of security that the rules are out there to keep a level playing field.

 

[AroundTheWorld]

Ah.. gotcha. Makes sense

So, "smart" is the ability to adapt a plan or strategy to a change in the rules....

 

[Russ H]

i'm not going to stay away from these markets, I just realize that the rules can drastically be changed against you at any moment. These are rules that I can't manage and that keeps me from being in the drivers seat.

Again, i'm not typing this to be some type of sob story, i'm just saying that I feel i've been naive in the past. There's lots of opportunity in insane markets, just don't get a false sense of security that the rules are out there to keep a level playing field.

Edge, as always, I appreciate your POV. And I also respect the fact that you disagree w/what I wrote.

Your knowledge of paper assets and the markets is at least 3 orders of magnitude (1000x) greater than mine-- probably even more. So I did not post what I did to mislead-- more to try and put into words what I thought was going on.

As to the comments today by you, ATW, and Phlgirl about changing times and levels of freedom, I guess I've always been more in the "I have no power" camp on these things. My POV on the markets is that they are controlled by those much bigger than me-- anyone from Buffet to investment groups to central governments to worldwide consortia.

So I haven't been surprised by what's happened in that regard. I don't feel like I lost any real freedoms here, since I never felt like I had them in the first place (sorry if that sounds cynical, it's just based on life experience).

Please don't think me a Pollyanna for saying this, but I think your epiphany at your naivete may have been the best thing that could ever have happened to you this week. Having a better understanding in what you can-- and cannot-- do is always liberating and expansive. Even if it doesn't seem so at the time it happens.

The knowledge/realization you have today will help you much in the days and years to come, don't you think?

-Russ H.

 

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[randallg99]

phlgirl/ATW-

Short selling was the cause of the meltdown of the financial investment banks this week-- traders were *betting* that they would fail, so the stock values started to plummet.

So by some measure, the shorting actually *caused* the investment banks to tank.

That's why they're putting a 10 day ban on short calls.

They need to shore up the confidence in the system.

-Russ H.

(Paper asset folks-- if I got this wrong, please correct me)

short selling was absolutely, positively not the cause of the meltdown this week.

these companies' entire net worth rightfully evaporated ... if you look back in this thread I posted extensively how these companies couldn't even justify their balance sheets.... short sellers had every right to sell against it

ANd these companies were actually worthless before the government interjected... the short selling did not drive the price down. the companies balance sheets did it to themselves.

I would have agreed with you a year ago that the short attack drove the price down... but it's not speculation anymore and these companies flat out had terrible financial statements

if it weren't for the gov't intervening, they would have been bankrupt!!!!

 

[randallg99]

Ah.. gotcha. Makes sense

So, "smart" is the ability to adapt a plan or strategy to a change in the rules....

Being smart means that you would have forseen the government taking the toxic debt owed to these failing companies and moving them away from their balance sheets at original value only to hold them in an entity specifically designed to have the gov't absorb the losses at the tax payers expense. Unfortunately, I am not as smart as I look.

I really think the fed picked the lesser of the two evils and their monumental short term thinking probably saved the world for a day, but inflation is going to be a colossal problem

ah, still at work... pretty soon that grey goose is gonna hit the spot after a week like this....

 

[Russ H]

Again, thanks for the clarifications, both Randallg99 and Edge.

Goes to show that I'm actually dumber than I look (which is pretty scary, when you think about it!). :smx4:

-Russ H.

 

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[veli]

I agree Edge. Its beyond me how they think this will ease the problem. And it really gets me when they manage to blame the shorts for the problems. Shorters add liquidity to the market in my opinion. Shorters will never make a company go under, only the company itself can do that by bad managment and as Edge said, lousy balance sheets. But, the government needs a scapegoat, so yes, lets blame it on the shorters. This reminds me of Ayn Rands book "Capitalism" where she describes how the gov over the years has blamed capitalism for all its troubles...and in the process gaining more and more power and control over it by issuing new legislations, controls etc. Just like we are seeing today.
There is no such thing as a free market, all the countries in the world has mixed economy. US stopped having a free market 100 years ago.
These companies in big trouble should have gone bankrupt, not trying to be said by some aid package.
By banning shorts and printing more money they are only making things worse in my opinion. This has all the ingredients of a pyramid/mlm scheme.

I hope Im proven wrong and that what they do work works, but I really find it hard to believe.

 

[mglshark]

Back to naked short selling ban, the SEC / Feds allow this to expire a couple weeks ago then just brought it back. Really need to go back to the uptick rule AND go after the big players that could NOT prove they had the borrowed stocks just for short sales. A LOT of big players really did not have the shares covered and would cheat to dog pile on stocks going down. The SEC & Feds knew better but they took away both uptick rule and allowed naked short selling.

What gets me is that my sis handed me a RE book written by a local RE investor in San Diego predicating all this about 4 years ago, it was so dire yet logical about highly leverage bank loans, credit swaps (via computer), bad loans, etc that one run on a bank without fed backing would cause such a collapse worldwide. Way beyond short selling which is just the icing on a bad cake! Wish I paid more attention back then...

Marc

 

[andviv]

Funny.

All that much energy in finding who to blame...

instead of focusing on how to profit from the current and future rules changes.

 

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[Russ H]

All that much energy in finding who to blame...

instead of focusing on how to profit from the current and future rules changes

THere you have it, folks.

The formula the rich have used for CENTURIES to keep themselves rich and keep the poor busy (casting blame, trying to cover their arses) while they just got richer and richer.

Rep Speed, Andviv.

Complaining and casting blame (or looking for a scapegoat) is a waste of energy-- and an exercise for someone who wants to be in the slowlane-- for life.

-Russ H.

 

[kimberland]

But you do have to know the real WHY
short selling is being banned.

You only win when shorting if the stock goes down in price.
It only makes sense to ban shorts
if you feel shorting will be an attractive option in the near future.

So my gut says the big brains
are betting on the market taking a dive.
By banning shorts, they're buying companies time.

 

[kimberland]

You also have to look at this
from the executive team's perspective.

If you were told
that no one was allowed to short your company
for the next X days,
what would you do?

Me,
I'd report all the stinky news I have been hiding.

It is kind of like when a company has a bad year,
management knows they won't make bonus,
so they bring out all the dead bodies
and make it a REALLY bad year.
Then the next year,
their comps look good,
they make their numbers
and they get their bonuses.

 

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[andviv]

Kimberland, amazing.

So, now that you feel that this is what will happen, how do you profit from it?

From what you are saying, and given that you are investing for the long term, it would make sense to buy stocks now and later this year and wait till May-July next year to sell them as you mentioned the next year they will start with a clean slate... how's that?

 

[kidgas]

So, now that you feel that this is what will happen, how do you profit from it?

With all the volatility in the market, you could consider purchasing a straddle on those stocks you think might be most volatile, eg financials.

 

[unicon]

A bank loans on character, capacity, and capital

An investor invests for production and productive purposes (cash flow)

Neither cares substantially on who is shorting temporarily in the market place

The US is now short on character, capacity, and capital

It is also short on productive production and dollars

It can only print dollars as credit is also drying up (capacity problem)

Contraction is coming at a greater rate with mass printing

Its back to production as a discipline as growth can no longer be funded by borrowing

The bail outs of financial institutions more than likely offset years of historical growth netting negative over past 5- 10 years

Only salvation is the amounts trickled down and retained for useful investment and production by the individual

Having financial institutions operable cannot stop the loss of credibility or the contraction

Printing money is only buying time, the lendor will be paying this obligation back, not the borrower

 

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[JesseO]

Let's print more and more money, just like that (unnamed country in Africa) place where it now costs 2 trillion dollars for a loaf of bread. I'm sure there;s enough wealth in the country to go around! MJ, Russ, Cantwait, AroundTheWorld, etc you guys want to pony up the bill for our government bailing out private companies who should have simply gone bankrupt for their stupidity?

 

[Russ H]

MJ, Russ, Cantwait, AroundTheWorld, etc you guys want to pony up the bill for our government bailing out private companies who should have simply gone bankrupt for their stupidity?

You can always leave if you don't like it, Jesse.

Find a nice island somewhere.

You think I'm happy about this sh*t?

You are mistaken, my friend.

But whining about it does not change things.

Whining/complaining is the new great American pastime.

Don't become a party to this stuff, Jesse.

You're way too smart for that.

If you don't like something, and don't want to leave, you have 2 choices:

CHANGE THE PROBLEM

or

CHANGE YOURSELF.

Think about it.

One of these is much easier-- and faster.

Figure out how to make things better.

Changing the PROBLEM is a job for politicians, lobbyists, multi-national corporations, and captains of industry and finance.

Changing YOURSELF is a cake walk compared to this.

You know this. Everything I know about you is about proactive decisions for change.

So please,

Don't mistake my attitude for passive acceptance

and complacence.

-Russ H.