Mr. Seabreeze,

As some may have noticed, I have not had much time for tomfoolery sparring as I did some weeks ago. However, since I vaguely remember you as some kind of shill for the miscreants, I thought I would dash off a quick response. Unfortunately there is little of substance to which one can respond. (When confronting you folks I am reminded of the high school jock-and-pom-pom crowd: "OH, MY, GOD, can you believe he actually SAID that? Everyone is laughing at him. It's just like OH-MY-GOD what is he THINKING of?")

I'll write until I get bored.

"Be sure to check out the PowerPoint presentation that accompanies Overstock's complaint. Eerily evoking of the paranoid psychotic diagrams in A Beautiful Mind...."

At the risk of being schoolmarmish, I think "evocative" is the word you seek.

"Overstock shows itself caught in a web woven by many more entities than it actually names in its suit. One of those diagrammed entities is the "Sith Lord." while another, I must disclose, is Barron's -- although the diagram names a reporter who hasn't worked here in years.....As you should already suspect, the company's charges about Barron's are ludicrous. "


Well, it is a Fool's errand to argue with folks in the habit of making claims without adducing evidence ("as you should already suspect" being the adult version of the Valley Girl "OH, MY, GOD, can you believe he actually SAID that?" mentioned above). But for those readers who are in the habit of critical thinking and to whom evidence matters, I include the following:

Is Ms. Strauss Einhorn still connected to Barron's? Interesting question. Certainly not in a formal sense (no article for a couple years), but within Barron's she is spoken of as being still connected to them but currently on a leave of absence. For example, if one clicks through today one will still find her prominently listed on their masthead:

Example #1: http://www.barronsmag.com/about/contents.html

Commodities Corner, by Cheryl Strauss Einhorn. This regular column focuses on the commodities markets, which serve as an excellent indicator of the economy and other markets. (Commodities are the raw materials to make other products - e.g., wheat, corn, soybeans, copper, gold etc.)

Example #2: http://www.barronsmag.com/reso_use.html

Commodities Corner, by Cheryl Strauss Einhorn. This regular column focuses on the commodities markets, which serve as an excellent indicator of the economy and other markets. (Commodities are the raw materials to make other products — e.g., wheat, corn, soybeans, copper, gold etc.)


As far as the independence of her work there, let this stand as a fine example. It is a long article, but I include in it every actual quote so the reader can get a feel for her objectivity:
=================================================================
"Clock Ticks For Short-Sale Rule- SEC may drop biased trading restrictions
By CHERYL STRAUSS EINHORN (Barrons, 10/2/00)

"The SEC is considering dropping its restrictions on short sales of securities. The rules were implemented in 1938 to prevent stock manipulators from driving down share prices through short-selling. Proponents of the so-called short-sale rules have long maintained they are needed to help promote stock-market stability. But detractors consider the regulations outmoded in today's increasingly transparent market. Besides, they point out, no precautions have ever been legislated to rein in manipulators seeking to drive up prices through similar means.

"Although the SEC has put out a concept release seeking comment on the restrictions from securities-industry participants, Annette Nazareth, head of the market regulation division, acknowledges the whole subject is up for grabs. 'Personally, I can find no economic basis for the short-sale rule,' she says.

.....

"While the short-sale rule has remained fundamentally unchanged for the past 62 years, financial markets have changed radically since the 1930s. For openers, there has been substantial improvement in market surveillance. And as the volume, velocity and complexity of trading escalate, restrictions on short-selling 'may inject unnecessary inefficiencies' into the market, Nazareth says.

"John Damgard, president of the Futures Industry Association, agrees. "It makes no sense to prejudice a sale up or down," he says.

"The uptick requirement, he adds, just serves 'to make people feel warm and fuzzy, because they like things to go up.'

...

"Dan Loeb, a New York hedge-fund manager, would like to see the uptick restriction abolished because it increases the difficulty of implementing short sales. Besides, he notes, 'Shortsellers provide a service to the market by increasing liquidity and providing a cap on speculative stocks.'

....


"The SEC, according to its concept release, is considering eight different measures regarding short-sale regulations. In addition to outright elimination, these include suspending the short-sale rule when a stock or the market rises above a certain price threshold; providing exceptions for actively traded securities; focusing shortsale restrictions on certain corporate events, such as mergers, or trading strategies, such as options expirations; exempting hedging transactions and revising the definition of "short sale."

....

"The short-sale issue is timely in part because Congress this week is expected to pass legislation lifting the 1982 ban on trading stock (as opposed to stockindex) futures. With trading volume in bond and currency futures down 10% this year, the futures business would welcome the opportunity to move into the equity market. Global competition, too, is propelling the issue forward. Beginning in January, the London International Financial Futures and Options Exchange plans to begin trading futures on a handful of U.S. stocks, including AT&T, Cisco Systems, Citigroup, Exxon Mobil and Merck.

"Ironically, if the ban on stock futures is lifted, the short-sale rule could become moot. Not only are there no ticks in futures, but also short-sellers would not have to borrow shares to short them. Thus, they wouldn't face having their shares 'bought in,' which is what happens in a short squeeze, a form of market manipulation. Investors then would be able to sell futures on stocks without cumbersome restrictions or regulatory bias."
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Now this is so laughably bad it is hard to know where to begin.

"Clock Ticks For Short-Sale Rule- SEC may drop biased trading restrictions "

Gosh, nothing like a nice unbiased headline.

"Besides, they point out, no precautions have ever been legislated to rein in manipulators seeking to drive up prices through similar means."

Yes, those awful people who would seek to drive up stock prices by similar means, which, in this case, would mean... buying stock. Oh wait, there is a difference: if you seek to "drive up" stock by buying it, there is a limit to how much you can drive it up - you are limited by how much stock there is to buy. If you seek to drive down stock by shorting it, how does your limit compare? The answer is, no one knows.

There must be some limit. I think. But as diligent readers understand by now, if Reg SHO provides a limit, no one knows what that limit is: all fails were grandfathered in January, and the threshold is apparently set at the .5% of shares outstanding plus the amount of those grandfathered fails (which the SEC won't disclose). In addition, when a company is over that threshold of FTD's, the SEC and DTCC and NASD and NYSE refuse to say by how much.

For example, right now we are on a Reg SHO Threshold list, which means that someone has sold but then failed to deliver an amount of stock that is over the threshold of what could have legitimate explanation. How much more? We don't know by how much. We had about 20 million shares outstanding at the start of the year: .5% X about 20,000,000 = about 100,000 shares. We know our threshold was therefore set at 100,000 shares + .... well, however many fails existed on that date in January but that no one will tell me. And whatever that sum comes to, we are over it by... some other number that no one will tell me.

Is this as crazy to readers as it is to me? I know the typical reader must be wanting to say, "Nah, it cannot be that crazy." That is what I told myself to. But I dug around in it for months, and I can tell you, it is this crazy. (Incidentally, my best guess is 5 million to 25 million shares based on a variety of analyses that thoughtful strangers are sending me. One intelligent seeming fellow has sent me an analysis that shows that, since we went on Reg SHO, there have been $2 billion of short sales in our stock. Which is odd, because I think there has only been a total of about $4 billion of market activity in our stock over the same time period [I am estimating and doing mental math, but it seems right].

At the risk of being churlish, I would politely suggest that when a "threshold" is set to include the number of fails that existed on January 3, 2005 (but no one will tell us that number), and when a company goes over a threshold their name appears on a list (but no one will say by how much), then the whole thing is rather pointless.
And we are one of hundreds of NYSE and NASD companies. I don't think the "similar means" are all that similar, therefore.

OK, we are on the Reg SHO list of companies: that is nice to know. But I am not sure it provides much of a limit to anything. And remember, Ms. Strauss Einhorn was writing when there was not even a Reg SHO, and so even today's feeble limit did not exist. In that context, does the symmetry implied in the statement "no precautions have ever been legislated to rein in manipulators seeking to drive up prices through similar means" seem legitimate to most readers?


Going on: I challenge any reader to find one direct quote that represents the opposing point of view. Instead we are treated to such insights as, "Personally, I can find no economic basis for the short-sale rule," says Annette Nazareth in her infinite economic wisdom. Incidentally, students of this issue will recognize this name, as she was the head of enforcement of the SEC who consistently fought against Reg SHO and is largely to blame for its enervated form. (Some enterprising readers might also dig up the name and position of the man to whom Ms. Nazareth is married, and what his stake in this fight is.)

"Thus, they wouldn't face having their shares 'bought in,' which is what happens in a short squeeze, a form of market manipulation. Investors then would be able to sell futures on stocks without cumbersome restrictions or regulatory bias."

A short squeeze is a form of "regulatory bias" in the same sense that the Unabomber having a pipe-bomb go off in his hand is a form of "prosecutorial bias."

Well, I am all broken up about Mr. Seabreeze's friend Ms. Strauss Einhorn and her worries about "cumbersome restrictions" and "regulatory bias," but my buffalo burger has shown up and then I am off for some fly-fishing.

Tight lines to all,

Patrick