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AP
SEC bans short-selling
Friday September 19, 6:38 am ET
SEC temporarily bans short-selling to boost investor confidence

WASHINGTON (AP) -- The Securities and Exchange Commission took the dramatic step early Friday of temporarily banning the routine practice of betting against company stocks.

The move, announced on the agency's Web site, may well be unprecedented and a reflection of regulators' concern about the widening scope of the financial crisis as entreaties come from all quarters to stem a swarm of short-selling.

In the announcement, the commission said it was acting in concert with the U.K. Financial Services Authority in taking emergency action to "prohibit short selling in financial companies" to protect the integrity of the securities market and boost investor confidence.

"The commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets," SEC chairman Christopher Cox said in a statement. "The emergency order temporarily banning short-selling of financial stocks will restore equilibrium to markets."

cont'd


http://biz.yahoo.com/ap/080919/sec_short_selling.html
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No. of Recommendations: 8
This is a disaster. A political solution -- raw meat for the masses -- to something that demands a financial one, or at least an enforcement one. Banning shorting on a large tranche of securities inhibits the price discovery mechanism in the stock market.

I have no doubt that there has been abusive short selling of financials, but the SEC already has laws on the books that it could (but does not) enforce. Further, it would be extremely easy to return the uptick rule, which would make it much harder to short shares serially.

One of the reasons that the Chinese market rose so high and then blew up is the fact that it is long-only. Price discovery is prevented. Shorting is very, very important to a healthy market.

It must be remembered that this financial crisis was not caused by short sellers. It is caused by the banking institutions themselves taking on insane levels of leveraged risk by buying hundreds of billions of poorly understood risk instruments.

The sound you hear right now is dozens of hedge funds blowing up since they can no longer hedge against a huge portion of our market. What happens when they have to sell?

Bill Mann
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Here's something that I wrote on this subject this morning for anyone who is interested:

"<b)The SEC "solves" its screw-up by screwing up again

Wow what a morning. There's lots of news out there. I have been trying to get my hands around what has happened and what it all means. First I will talk about what a disgrace the SEC is. I am completely disgusted with Chris Cox and his friends there. They all should be fired, without packages immediately.

I somewhat understand the need for the temporary ban on short selling, but it should have never gotten to this point. Let me explain.

Yes, many of the companies that the government has had to bail out or that have gone bankrupt were in bad shape and may have eventually gone belly-up anyhow...but hedge funds were accelerating this process to hyper-speed. Here's how they were doing it. They started by floating rumors out there and buying up Credit Default Swaps on companies. When traders and the idiotic ratings agencies (who are as much to blame as anyone for this mess) saw the CDS prices explode they said "wow, this company must really be in trouble" and its stock began to freefall. At the same time that the funds were buying up the CDSs, they were shorting the he-two-sticks out of the company's common stock...accelerating its decline. Hedge funds were going through and picking off companies one at a time. It would have continued and it was creating massive panic, so something had to happen. Unfortunately as usual, the government went too far.

The SEC already had rules on the books to prevent the sort of "naked" short selling that has been absolutely hammering stocks...yet it never enforced them. Furthermore, the SEC eliminated the "uptick" rule so now hedge funds can continue to pound on stocks hammer them into oblivion. If the uptick rule had remained in place and the naked shorting and rumor starting rules been actually enforced this short of rapid targeted destruction of individual companies would not have happened.

Instead of fixing its mistakes, now the SEC has gone way too far in the other direction by banning the short selling of 799 financial stocks (why couldn't they find one more company and just make it an even 800). Where do we live again? Russia, where they can just close the market arbitrarily for days at a time. This is the United States of America and we are supposed to have free markets. Shorting is a necessary part of that...within reason. If the SEC had taken the steps that I outlined above we would have never gotten into this mess so quickly. What does the short selling ban accomplish anyhow? Anyone who really wants to short these companies will just wait until the ban is over and then hammer away. Good greif. These companies still have all sorts of problems. Oh yeah, that's right the government is going to buy all of their bad paper. That should fix things...for them but not the citizens of this country. Hopefully later I will talk about the governments mind-blowing purchase of everything on Earth and its implications for the taxpayer, the economy, and the U.S. dollar.

Oh well, I wasn't short anything anyhow so it's nice to see some green in my portfolio today."

And here is a reply that I made to someone who was asking how short selling causes companies to go bankrupt:

" Thanks for reading, Russell. The way that hedge funds speed up the process of a company going bankrupt is they destroy clients' confidence in it. Let's take Lehman for example. The people who did business with Lehman saw what was happening with its stock and they decided that it would be safer to do business with someone else who was in better shape. No clients means no revenue to service debt and fund operations.

At the other end of the spectrum we have AIG. The massive purchasing of CDS and shorting of stock convinced ratings agencies that something was wrong with it. This caused the inept ratings agencies to downgrade or at least consider downgrading it. The downgrade triggered clauses that force AIG to have more collateral which it was unable to obtain when fear rules and the credit markets are seized up.

These are just two examples of how shorting sped up the destruction of companies.

Deej"

Short selling should not be banned, but its abuse should be prevented. A competent SEC would have been able to do this.

Deej
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The sound you hear right now is dozens of hedge funds blowing up since they can no longer hedge against a huge portion of our market. What happens when they have to sell?

This is why, while I will be letting my HG (sorry) and SA subscriptions expire, I see myself as being a long term GG subscriber. Bill, you (and the GG team) truly are the only MF advisor that I have any faith in anymore and a lot of it has to do with your presence on the boards and your understanding that there are factors outside of the business fundamentals that affect the value of our portfolios.

Yes, in the long term the market is a weighing machine. If I were 25 instead of 53 I would be buying every recommended company right now regardless of price. In 25 years I'd be golden.

We are a country of whiners, unable to accept short term pain for long term gain. Its all instant gratification. I had been swayed both ways by the deflationist vs the inflationist arguments. Its clear to me after today's moves that once again the fed will put the pedal to the metal on the printing presses.

I'll be taking profits where there are any during this blip and increasing my Gold and Silver holdings. Also looking to open some foreign currency CDs (Swiss Francs, maybe Chinese currency) When the opportunity presents itself I'll get back into SKF.

The US economy is well and truly FOO KED. In the long term it will survive, in the short term, it ain't gonna be pretty. God help America.

So there's my rambling rant which really was just going to be a quick "Thanks Bill" post.

Stay strong, don't be greedy

John
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I agree with the people who are upset with the short selling ban. Not just because of "it" but like all things in history, once the government enters it, they never leave.

Bears
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This is something that Cramer pounded the table on many months ago. I believed he was right about what he was saying then and I also believe it now:

http://www.cnbc.com/id/25784042


I believe the US is starting to become more socialist and the Chicoms more free market. Now isn't that something. It is one reason why more and more of my money is headed China's way as well as to other economies around the world.



Rob S
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It is one reason why more and more of my money is headed China's way as well as to other economies around the world.


China, IMO, is just suffering from bubble mentality and fear.

There are many questions that we would like answers to about what is real in their economy and banking system, but one thing remains solid, .... people ... China got a mess of people during economic growth. It may not be another overnight pop, but time and people are on China's side. Biggest consumer base in the world growing over there.

Bears
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Excuse me for asking idiotic questions:

1) Could someone plz explain Bill's comments on "price discovery"? Why are shorts important? I just don't get the Chinese stock market implosion due to lack of shorts. That it was overvalued by all metrics was obvious to all and yet ppl invested. At P/E of 40 what do you expect? The shorts did not protect against US tech crash in 2000.
2) I have read many articles on hedge funds with all claiming that these fund make the markets more efficient. To what extent is this actually true? Shouldn't hedge funds be banned? These people try so many bad tricks.
3) Shouldn't leverage for all institutions be restricted to < 2:1? My trading account has that restriction. Why shouldn't everyone else? I guess the standard answer is that it will reduce money supply and hence growth. If that is so we should accepts this kind of a financial diarrhoea.

Ok, here is the comment that makes me sound truly stupid. I think shorting and options trading should be banned. This is far from basic concept of investing by the virtue of owning companies. BTW how to do options trading help markets? Companies should reward employees with stock purchases rather than options. I have received these many times (restricted stock awards) and they do provide as much incentive if not more and keeps the company books transparent and is fair to share holders. Futures trading is valuable (also subject to abuse) as it guarantee business taking place in the time to come and help producers plan ahead. At least I can appreciate futures trading intrinsically.

Please feel free to chastize me. I really need to appreciate these ingenious financial tools intrinsically.

Thanks,

Anurag
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I believe the US is starting to become more socialist and the Chicoms more free market.

Perhaps you missed the news that the Chinese government has commanded government-controlled Huijin Investment authority to directly buy shares of banks.

That's direct stock manipulation, with little to do with the underlying condition of the banks. At a minimum, the US Treasury action was targeted at the source of the problem (quarantining real estate debt on the world's largest balance sheet). In China, they're just buying equities.

I wouldn't be too sanguine about China (and believe it or not, we're not) until its market allows short selling at all, and until they make moves to clean out their banking sector, which is a debacle.

Bill
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Could someone plz explain Bill's comments on "price discovery"? Why are shorts important?

Because a healthy system involves allowing investors to profit from their evaluatory edges. You want a situation where people have an incentive to look for problems. It does not solve bubbles, but having short selling be banned eliminates an extremely healthy component of a free and fair market.

"Banning shorting" makes no sense in a healthy market. You're essentially forcing investors and speculators not to be able to hedge. This makes no sense with commodities (farmers use forwards all the time to essentially "short" the stuff they're currently growing, as do drillers). It allows the people who are risk averse to participate in a market that they otherwise might not.

Bill Mann
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Bill,

Thanks for your reply. I am still trying to understand your comments. Sorry for being wood headed here.

You want a situation where people have an incentive to look for problems.

I get it. It is almost like a ticket for traffic violation. But I still fail to understand how important is this. What will happen if shorting is not allowed. China market was a bubble and hence the collapse. You agree with Chinese markets being in a bubble. But then why blame shorting? To what extent not having shorting contribute to it?

You're essentially forcing investors and speculators not to be able to hedge.

I don't get it. Why can't hedging be done by other means such as investing in other areas or going for less risky options like bonds.

This makes no sense with commodities (farmers use forwards all the time to essentially "short" the stuff they're currently growing, as do drillers).

I can understand its use for producers of commodities including agricultural products. But for other areas? Especially for investment firms how does it make sense?

It allows the people who are risk averse to participate in a market that they otherwise might not. <ii>

I don't get it. How does shorting entice risk averse people? Isn't shorting riskier?

Thanks,

Anurag
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Speaking of shorting (which I too admit that I have no clue how the process works), here's an interesting article on the Yahoo Finance page. This article includes a quote from none other than our own HG/GG favorite shorter - Mark Cuban.

http://finance.yahoo.com/banking-budgeting/article/105790/Wh...

"Any company that is built around the need to add debt is in trouble," says Mark Cuban, owner of the Dallas Mavericks and founder of HDNet. He ranks 161st on The Forbes 400 this year with a net worth of $2.6 billion. "The process of deleveraging is industry agnostic. If I had the time, I would be researching every company that needs renewable and expandable debt to survive and would short the sh*t out of it."

This article makes me cringe when I think about Mark Cuban and Chris Carey's Sharesleuth article.

Bill, I truely respect what you say and if you say that shorting is good for the market, then I have no choice but to believe you. But for the average small investors, like I'm assuming most of us are, the antics that the rich and powerful on Wall Street pull, and then cause us small guys to lose money, is frustrating.

If these new regs are put into place, who are they protecting? The average small US investor or the big Wall Street guys?


Cheryl
Discl: Please don't think that I'm advocating more governmental control over our lives, because I think we have enough of that already.
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<i.But for the average small investors, like I'm assuming most of us are, the antics that the rich and powerful on Wall Street pull, and then cause us small guys to lose money, is frustrating.

Well, that's the thing: were the antics of shorting shares more damaging than the antics of bankers leveraging up their balance sheets 30 to 1 and then buying subprime debt? Not in a million years they weren't. I shorted Lehman shares almost clean into the ground.

Let me make this a somewhat more emphatic statement: if the US went to permanently ban short selling, I would pull every single red cent I had out of the market, because the fix would right and truly be in.

It important to create the incentive for people to seek out and expose risks. Blaming shorts for what's happened is kind of like blaming flies for a pile of horse crap.

(ewwwwwww.)

Bill Mann
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Bill, I truely respect what you say and if you say that shorting is good for the market, then I have no choice but to believe you.

Questioning is always healthy. If we don't then we should never complain about goverment control in our lives. There is a whole bunch out there who supports government control due to their belief that govt is doing the best it can. No one is above reason.

So if you don't understand something, please ask. I have a feeling that most people do not understand shorting even if they understand the mechanics of its operation. I am still waiting for people to jump upon my last 2 posts and educate me. Let us see how many respond and enlighten us with their understanding. Maybe putting a modest discalimer of my question being stupid was not such a good idea.
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I wouldn't overreact on this one...

Heres the purpose of shortselling in a nutshell...
Hedge funds use shorts and options to protect positions and make more coordinated plays. One recent example is the CHK Chesapeake share buyback by the company. They wanted to bet on fundamental growth on improvement of operations, not spot nat-gas prices, so they repurchased millions of $ in shares and shorted natural gas at the same time. Another example is betting on a merger such as Yahoo-Microsoft by shorting Microsoft and going long Yahoo, thereby cancelling out the risk of the entire sector going up or down and betting only on relative price.

As for banning it - yes its an important move, but not for fundamental market reasons. This is an election year, the stock market is tanking, and the government needs to look like they are doing something.
Since people generally don't understand shorting, short-sellers are perfect scapegoats.
Banning it temporarily is a great move because it really won't effect much long term and it looks good for the politicians. Most government intervention is done by politicians with little or no knowledge of economics and very strong fundamental bias or small-interest ties which means more intervention is almost always a disaster.

-John T
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John

Thanks for chiming in. However, your answer is only repeating several concepts in the thread. I understand the mechanics of shorting and why people short, having it done myself successfully. I also understand what hedge funds to and what they do during mergers. Have read enough many articles on the web on that.

However, my questions remain: Why is shorting neccessary on everything out there? Why are hedge funds neccessary? What is the extent of damange the markets would undergo if these vehicles were not avaialble (except for the commodity producers?)

Your example of CHK is again of a commodity producer similar to a farmer. I can appreciate the neccessity of shorting here. But why do financial firms need these instruments? Why are we able to short financial stocks or tech stocks or pharma stocks ....

What is the extent of damage that has been done by shorting to the Chinese markets outside the bubble?

I am trying to gain a deeper understanding here...

Anurag
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I see that the UK jumped on the bandwagon by banning shorting of 26 financial companies.

The US ban ends October 2nd ......


Maybe, could, almost, around, there abouts, close to, near .... and that is for sure.


Bears
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Bill,

Well, that's the thing: were the antics of shorting shares more damaging than the antics of bankers leveraging up their balance sheets 30 to 1 and then buying subprime debt? Not in a million years they weren't.

I wasn't saying that it was. And I'm not blaming the shorts.

I'm questioning the reasoning behind this ban on shorting the financials. In the feds way of thinking, who are they trying to protect?

Cheryl
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Hi Anurag,
In answer to your questions about hedge funds:

They exist as the actual "BET" that something that most other people believe is TRUE, is in fact NOT TRUE. Hence they are useful anywhere some members of a group of individuals have opposite expectations, whether that be that the price of Currency/Money (will rise (or fall), or Profits of any industry will rise or fall,etc.

If I am precluded from making a profit from the research/discovery/'working' of my own 'little grey cells', I am not going to waste too much time altruistically warning others of their folly in piling-in to some security. The price may go higher and higher until one day it doesn't, sort of 'the greater fool theory' of markets.
Think tulip bulbs, dot coms.

The concept and implementation of 'Hedging' can get fairly complicated; it probably would be well worth reading an entire book on the subject.

Toni
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Really, the temporary ban on shorting financial stocks was just a knee-jerk, stop-gap solution to stop the bleeding. The idea is that in a climate of intense fear, shorts can push stock prices below where they really belong. Luckily, this is a short cooling-off measure. It looks like the ban will be lifted Oct. 2, or about 2 weeks from now.


I know it's been mentioned here why short selling is productive in healthy markets, but let me try to explain it using a different analogy...

Let's say you are doing an analysis on Company X. If you really like the company and think it's undervalued, you look to profit on that by buying their stock. You have a strong incentive to find this positive information about X because if it's there, you can make boat-loads of money off of it through capital gains.

But what if you find the company overvalued? Even worse, you dig deeper and find questionable financial figures (like 30:1 leverage while buying subprime debt) and are confident that Company X is going to suffer in the near future. You can then short X and profit from this information. You have a strong incentive to find out this kind of information. Without shorting, you have no incentive to dig deeper. Once something questionable is discovered, you ignore the company, because there's nothing to be gained from it.

By shorting, you are adding a valuable piece of information to the market. You are announcing that you are confident in a stock fall, so confident that you're willing to pay ~10% interest plus the dividend rate while waiting for your thesis to play out. If there is a large short interest in a stock, it should be an instant red flag to anyone considering a long position.

In short (pun intended), it enables a more balanced look at any company. Without it, you can only display enthusiasm or apathy for a company. With shorting you can get pessimistic views as well, which allows you, John Q. Shareholder, to get a better representation of the market's sentiment.
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Correction:

In answer to your question about Hedges (not Hedge Funds)
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Thanks for your comments!

Sorry, I still don't get it. I actually understand how shorting works, having done that myself. As Bill said, it is essentially profiting from the knowledge of inefficiency in a company and betting that at some point becaused of that the share price will go down. Similarly I understand a thing or two about hedge funds and using shorts to hedge one's investments.

What I don't get is if you ban hedgefunds and shorts except for the commodity producers, what is really lost? It is true that the opportunity for the smart people who figure out what is wrong with a company goes away but that is not what market should be. It is like being rewarded to solve a puzzle or discover a piece of info that does nothing for others. The idea that shorts eventually make a company realize its wrongdoings is too far fetched. They will realize it anyway.

I don't understand that in the absence of shorts stock market will rise into a bubble and collapse. It happens even with shorts. Bubbles are easy to spot once valuation exceed certain metrics. Staying in the market at high valuation is an individual's risk. Of course if you introduce more and more trading mechanism, they will all find a place in the market and impact the market. Of course some people will make money out of it. But just because something impacts the market does not mean it is neccessary for the market.

In my perception (could be faulty), all this business about hedging, shorting and options trading is nothing but a betting racket and market manipulation mechanism that smart and rich people use to get rich without producing anything. Some sort of legalized online gambling that is not random. ....with the exception of commodity producers and traders where hedging, and futures trading help in long term production planning.
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Hi Cheryl,

In my opinion
The Feds think the entire U.S. (and World) financial system was possibly on the verge of implosion (or Free Fall). Not so much a ripple effect as a tsunami. A Crisis of Confidence that had to be stopped dead in its tracks.

Mind numbingly scary.

So they've taken a very brief time-out until they can begin to determine what they need to do next. A calming down period because too many people are panicking and too many others are exploiting that panic.

Toni
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What I don't get is if you ban hedgefunds and shorts except for the commodity producers, what is really lost?

No, Anurag, in a fully functional market, shorts add liquidity. This is very, very important.

Now, no one is making the argument that markets are always efficient. I know some people who nearly went broke trying to short Juniper Networks in 2000. But this liquidity at the retail and wholesale level is quite important, even if it isn't entirely palliative.

Bill Mann
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Cheryl-

I got what you were saying. :-)

I'm not sure whom they were trying to protect. The companies and their shareholders, ostensibly.

One trouble I have with this is the LACK of similar concern the government showed when prices were running extremely high for assets.

Where was the cavalry when housing prices got to be out of control? Or where were they when oil prices were so low that exploration companies refused to lift a finger to find more?

It's an unequal set of regulatory priorities, purpose made to pander. I guess that's my problem with this whole thing, no will among our elected officials to treat the symptoms, and a willingness to run roughshod over people and their property rights when the house of cards (whatever it may be) collapses.
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Bill,

I am surprised on this discussion on short selling. I thought the US governement $1 Trillion Bailout is a much important and larger issues that is going to hurt US economy and especially USD. This has enormous impact for our service. Why are we not talking about it and instead talking about some trading restriction, which we all understand could be very well short term. But the $1 trillion bailout is going to impact, we the people, for decades.
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Definition of Naked Shorting:

The illegal practice of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it short. But due to various loopholes in the rules and discrepancies between paper and electronic trading systems, naked shorting continues to happen.

While no exact system of measurement exists, most point to the level of trades that fail to deliver from the seller to the buyer within the mandatory three-day stock settlement period as evidence of naked shorting. Naked shorts may represent a major portion of these failed trades.


Naked shorting is illegal because it allows manipulators a chance to force stock prices down without regard for normal stock supply/demand patterns.

In 2007, the Securities and Exchange Commission (SEC) amended Regulation SHO to further limit possibilities for naked shorting by removing loopholes that existed for some broker/dealers. Reg SHO requires lists to be published that track stocks with unusually high trends in "fail to deliver" shares. Some analysts point to the fact that naked shorting, albeit inadvertently, may help markets stay in balance by allowing the negative sentiment to be reflected in certain stocks' prices.



http://www.investopedia.com/terms/n/nakedshorting.asp
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Interesting part of the show Fast Money as it concerns the government bailout and the short selling ban:

"The Future of the Bailout
Tim Seymour joined the traders to talk about the future role of the government bailout. Seymour joked that the Fed will insure good weather this weekend and personal happiness. He says that as a manager, you have to evaluate where there's been a real policy shift or a quick reassessment of fundamentals that may not have changed. "What we have seen over the past few days is that there are policies in place that provide a different type of backstop," he added. He said he has turned to getting more net long, out of fear of short-covering. Icahn said he doesn't understand why the government has to come in to be the buyer of last resort in the CDO market. Macke said we become Pakistan this week, because it outlawed short-selling last June. However, since that time, the Pakistan stock market has fallen even lower."

http://seekingalpha.com/article/96428-irate-icahn-fast-money...
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Some more on the short sale ban. I find this part interesting also:

"At the same time, the SEC is instituting a new institutional disclosure form for weekly short sale activity in non-financial stocks. Starting now, the form must be completed on a weekly basis (!) in any week when a fund manager initiates, adds to, reduces, or closes out a short position. The rule comes into effect on September 28, 2008, and expires on October 2nd, unless extended by the SEC (which I'm assuming it will be)."


cont'd


http://seekingalpha.com/article/96285-sec-bans-shorting-fina...
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No, Anurag, in a fully functional market, shorts add liquidity. This is very, very important.

But this is obvious. Who ever participates in the market will have to bring in money.

Is the Chinese market short of liquidity?

What you are implying is that without short selling the people who are indulging in this practice will never participate. I don't agree with it. They still will. So liquidity is not going to suffer. Please explain further...

Thanks for humoring my questions here. This is valuable education, not just for me for a majority of us here.

Thanks,

Anurag
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Yes, the Chinese market is very much short of liquidity, as is the Indian market. Now, I know precisely how you are going to respond, but I challenge you to think much more granularly than you are about what I mean by "liquidity." It is not a market-based phenomenon. Liquidity matters on a security-by-security basis.

Every regulator of every highly developed market on the planet understands this basic tenet. I dare say even the Pakistani regulators get it now, since their decision to ban short selling on the Karachi Stock Exchange had the exact opposite effect of what they'd hoped. Liquidity evaporated, and participants trusted the market less. I don't want to appeal to authority here, but before you say "I don't agree," it is incumbent upon you to think through why this might be.

Pardon me if I end my participation here. I'm whipped, and want little more than to hang out with my 3-year old on a beautiful day.

Bill Mann
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The reason for short selling, Credit Default Swaps and Options are simple....They introduce random factors into the markets. If short sellers were allowed to do their job, the bottom in US financials could not be called with 100% confidence but something less than that.

Just another random factor to consider.......
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Bill
Thanks for responding. I will think and research more on your valuable comments before writing any further. Thanks for pointing me out in the right direction.

Rob,
I don't agree with the randomness impact here and also that anyone can predict the market bottom with or without shorts. I think we need to look deeply into what Bill has said. There are far more important force in operation which most of don't understand.

Thnx,

Anurag
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I have a low degree of belief that market bottoms can be predicted with 100% accuracy by anybody over time. The reasons I feel this way is because it against much of my philosophy of life.

Just like I thought the Dogs of the Dow theory was a genius idea....that is until I started to question the theory.....and questions often reveal flaws in just about any theory....

Dogs of Dow:

http://www.sherlockinvesting.com/articles/dogs.htm
http://209.85.175.104/search?q=cache:LbQjQotE9u8J:home.busin...


Now, I believe many or some people believe they can predict all bottoms but I doubt very many do. I believe some people call some bottoms right and other times they are drastically wrong.

Life is sort of like Two face in batman:

http://kr.youtube.com/watch?v=mgRP7JlBfWQ

I am sort of a quantum mechanics man....which means that I believe it is virtually impossible for anyone to have totally 100% accurate predictions on any given subject matter especially as the length of time one must remain accurate increases. Notice I said, virtually impossible, therefore allowing the fact that I might be wrong and consider myself a fallible being. A truly infallible being would therefore be godlike to me....and I pretty much have the same attitude toward God as the late?? Robert Anton Wilson http://www.rawilson.com/main.shtml

The subject of predicting perfectly the future was explored in one of the greatest Sci-fi series of all time that very few people understand...The Dune Series. Dune is basically about a man that has perfect visions of the future and then the question is asked "Is one seeing the future or creating it??"

From Dune....Dune Quotes....something to think about:

"Any road followed precisely to its end leads precisely nowhere."

"The person who experiences greatness must have a feeling for the myth he is in."

" Muad'Dib could indeed see the Future, but you must understand the limits of this power. Think of sight. You have eyes, yet cannot see without light. If you are on the floor of a valley, you cannot see beyond your valley. Just so, Muad'Dib could not always choose to look across the mysterious terrain. He tells us that a single obscure decision of prophecy, perhaps the choice of one word over another, could change the entire aspect of the future. He tells us "The vision of time is broad, but when you pass through it, time becomes a narrow door." And always, he fought the temptation to choose a clear, safe course, warning "That path leads ever down into stagnation."

"Prophecy and prescience — How can they be put to the test in the face of the unanswered questions? Consider: How much is actual prediction of the "wave form" (as Muad'Dib referred to his vision-image) and how much is the prophet shaping the future to fit the prophecy? What of the harmonics inherent in the act of prophecy? Does the prophet see the future or does he see a line of weakness, a fault or cleavage that he may shatter with words or decisions as a diamond-cutter shatters his gem with a blow of a knife?"

"Deep in the human unconscious is a pervasive need for a logical universe that makes sense. But the real universe is always one step beyond logic."

"The thing the ecologically illiterate don't realize about an ecosystem is that it's a system. A system! A system maintains a certain fluid stability that can be destroyed by a misstep in just one niche. A system has order, a flowing from point to point. If something dams the flow, order collapses. The untrained miss the collapse until too late. That's why the highest function of ecology is the understanding of consequences."

"If you believe certain words, you believe their hidden arguments. When you believe something is right or wrong, true or false, you believe the assumptions in the words which express the arguments. Such assumptions are often full of holes, but remain most precious to the convinced."

"Some actions have an end but no beginning; some begin but do not end. It all depends upon where the observer is standing."

"The trance state of prophecy is like no other visionary experience. It is not a retreat from the raw exposure of the senses (as many trance states) but an immersion in a multitude of new movements. Things move. It is an ultimate pragmatism in the midst of Infinity, a demanding consciousness where you come at last into the unbroken awareness that the universe moves of itself, that it changes, that its rules change, that nothing remains permanent or absolute throughout all such movement, that mechanical explanations for anything can work only within precise confinements and, once the walls are broken down, the old explanations shatter and dissolve, blown away by new movements. The things you see in this trance are sobering, often shattering. They demand your utmost effort to remain whole, and even so, you emerge from that state profoundly changed."

"Most civilization is based on cowardice. It's so easy to civilize by teaching cowardice. You water down the standards which would lead to bravery. You restrain the will. You regulate the appetites. You fence in the horizons. You make a law for every movement. You deny the existence of chaos. You teach even the children to breathe slowly. You tame."

"In all of my universe I have seen no law of nature, unchanging and inexorable. This universe presents only changing relationships which are sometimes seen as laws by short-lived awareness. These fleshy sensoria which we call self are ephemera withering in the blaze of infinity, fleeting aware of temporary conditions which confine our activities and change as our activities change. If you must label the absolute, use it's proper name: Temporary."

"The problem of leadership is inevitably: Who will play God?"

"Power bases are very dangerous because they attract people who are truly insane, people who seek power only for the sake of power."

"Paradox is a pointer telling you to look beyond it. If paradoxes bother you, that betrays your deep desire for absolutes. The relativist treats a paradox merely as interesting, perhaps amusing or even, dreadful thought, educational."

http://en.wikiquote.org/wiki/Dune


Just some of my philosophy toward life. It is ok to disagree with it because I am one that thinks there is virtually nothing or anything that is 100% correct.....even my predictions of oil going ever higher in the long term are fallible and could be wrong. I just only believe that the odds of me being right are good over time but I could be wrong.



Rob S
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Bill,

I am surprised on this discussion on short selling. I thought the US governement $1 Trillion Bailout is a much important and larger issues that is going to hurt US economy and especially USD. This has enormous impact for our service. Why are we not talking about it and instead talking about some trading restriction, which we all understand could be very well short term. But the $1 trillion bailout is going to impact, we the people, for decades.


Personally I like that we are discussing this on the Philosophy board. Certainly we have a little room for this matter.

I guess what bothers me in all of this is that I hate seeing the "rules of the game" changed on such short notice and for what to me is a questionable reason. I know I am going to hate in retropect that I will equate this to craps but what the hey. To me I would not like it if I was at a craps table and all of a sudden it was announced that they were barring bets on the Don't Pass Line for some time period. It would not matter to me one iota if I were betting only the Pass line. If the reason given was that most people bet Pass and many are fearful that Don't Pass bettors destroy the karma of the game and so it is to appease those who feel their presence is the reason they are losing I would be very upset indeed. Now if they find out that these Don't Pass bettors had been cheating, then use the existing rules to police that situation up also. Likewise continuing on my betting theme I have no real problem if the rules of the game change because new information comes to light that necessitates a rule change. For example when I was a lad I could go to Vegas and play Blackjack at a single deck table where they would deal to the bottom of the deck. I also knew "conventional wisdom" of play at the time. But with computational power came information. Oops it turned out that under the existing rules of the game the house did not have an advantage. Their success over the years had been the "ignorance" of knowing correct play. They had to change the rules of the game to reestablish a house advantage.

But perhaps in seeking a fair game I should recall the immortal words of Rusty - "Game? This wasn't meant to be a game. NEVER!"

Dave -
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Although it may be an unfair disadvantage to the short-only hedge funds, I am looking forward to seeing the proposed SEC rule of institutions of >$100million to be required to show their daily short sale positions. I know the first name I'll type into the SEC database that morning it becomes public will be Kynikos Associates.
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By the way does anyone else get the feeling that this record breaking rally will be short-lived in spite of the the short selling ban, the trillion dollar bailout of the banks' troubled MBA securities, the saving of AIG, the reinsurance of money market funds, etc., etc.? We still don't enen know how the government is going to value those securities or how many cents on the dollar they are going to buy them for.

I have a feeling that while financial armageddon was quickly averted, the skies aren't as blue as the significant relief rally would suggest. I happen to think that we will be retesting those lows of only a few days ago in a short period (less than 3 or 4 weeks). Government intervention helps only so much in a troubled deleveraging economy. Anyone think the U.S. will be the new Japan for quite a number of years?

Sometimes winning is not losing, and i'm going to limit my long equity exposure for awhile. It's amazing for a rookie, young guy like me to discover what a flemsy house of cards our financial system and markets are really based on. Hopefully our economic/financial uncertainty will have a happy ending, buy I'm not betting on it. And hopefuly the opposing political parties can put there differences aside for the benefit of the economy and the little guy. They say during panics the best thing to do is stay invested, but with the market giving us a chance to break even, I'm gonna sit on the side-lines for maybe quite awhile.

Happy Investing,

Frankiwa
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A interesting article to read:

http://ap.google.com/article/ALeqM5gfLoVVKTY0Zfj_xFFmO5vME0A...


On the question on whether the market has reached a bottom or not....Who really knows??? It seems from that article that the US and global economic condition has reached the brink.

Apparently, drastic decisions are being made and who knows if they will even work? Who knows the unintended consequences of these decisions with 100% certainty???


Rob S
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