Wednesday, July 16, 2008

A Bad "Short" Day

I guess today we “Took it in the shorts” (I sure did). It’s amazing how those bank stocks jumped up in price. Wells Fargo raised their dividend 2¢ and the stock rose $7. I guess since the Sage of Omaha owns a lot of it, people are running scared. The guy's not dumb, the stock's a dog and raising the dividend is a John Paul Jones move, only I ain't the Seripis.I’m glad Buffet didn’t raise the dividend 8¢, I might have been sold out! Fannie Mae up $2 and Freddie up $1.50, some real value there! Maybe just a lot of short covering.

I can see Fannie and Freddie jumping around a bit, once you get under $10, you are day-trader-fodder.

The SEC has restricted naked shorts (this doesn’t affect the average trader shorting with local brokerages; they are loaning you the stock). The restrictions apply to primarily hedge funds. The 19 stocks on the list are: Fannie Mae, Freddie Mac, BNP Paribas, Bank of America, Barclays, Citigroup, Credit Suisse, Daiwa Securities, Deutsche Bank, Allianz SE, Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley, Royal Bank, HSBC, J P Morgan, Mizuho Financial, and UBS. Hedge funds are the target of this restriction.

Do you get the idea that a lot of people think that something is wrong with these stocks? Is it wise to own stock on this list? I guess the real question is; do you think any stock on this “Do not short list” is going to prosper in this market and make you money?????

The banking system is pretty much toast; its running from its own shadow. Senator Schumer proved it by pointing to one bank and it dropped dead in 11 days. That bank probably had another 18 months before it would have been a problem child, now we will never know.

The point is, we have a panic in progress. Did we stop it today by banning hedge fund shorts???? Banning shorts has never worked in the past. Do you get the idea that the world you knew is not the world you see now?


Sackerson said...

It's been far too interesting for far too long. What kind of lionheart must you be to play in the market when it's fibrillating? See you when the Dow hits 9,000-ish.

Anonymous said...
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Anonymous said...

They didn't "ban shorting", they are being more strict about locates. Basically they are turning reg SHO from T+3 to T+0, which is a totally reasonable thing to do. Hell, I don't think it would be a bad idea to bring back the uptick rule.

The issue here is that without the locate rule, a hedge fund can too easily manipulate a stock price, the long equivalent would be having unlimited leverage, no margin at all. The hedge funds do do this, for what its worth, all the time. Without needing the locates, there's nothing to keep them from pooling together in secret and CRUSHING a stock, and then covering a few days later saying, "oh, yeah, the locates broke, sorry." Which is an abuse of the regulatory system.

Anyway, its certainly not banning shorting. It's just making sure each share is being shorted by one guy at a time so that we have some semblance of market order. The books are not infinite, there is not bottomless liq, and stocks don't trade smoothly through each price, so we need some regs to keep order.

I'm Not POTUS said...

Wow that guy was channling Karl big time... He forgot to remind everyone to vote for anyone other that EITHER Democrat or Republican in how ever many more elections they allow us to have.

Filling up all the elected houses with novice, inexperienced nobodies has got to work better than leaving any of the Reds and Blues in place. K street would vapor lock if this happened. Mob rule will prevail rather than the Mobster rule we have now.

Also the problem with banning naked shorts only for your special friends is that it is a clear violation of the constitutional right to equal protection under the law. Naked shorting is technically illegal for all stocks.

But since rule of law is not real, it's ok.

Jim in San Marcos said...

Hi Anon 2:59

I've learned that a lot of the SEC rules can be changed in mid game. Thats what really messed me up this week (or so I like to think). I never expected that!

The uptick rule was a great one, I think that synthetic options and the the derivatives market makes it meaningless to the hedge funds.

I think (my best guess here) that the new covered option rule is crimping the way the day traders do business.

It definitely did something that was unusual. There is really no reason for the bank stocks to go up unless the shorts didn't have the bankroll to cover.

I had more than enough to cover my shorts, but the thought of something so doomed to failure going up, made me mad enough to cover and let the nuts fight it out. I'll probably get back to shorting early Monday morning.

Another thing you touched upon was pooling funds to take a position. I think that some of these funds have gotten so big that they don't have to pool funds. Lets face it, when you have billions to "invest," you can do it "Your way!"

Thank you for your post

Jim in San Marcos said...

Hi Im not Potus

The guy had to have spent some time writing what he posted, but I have to draw the line, no one is going to scroll mouse forever. Just because you write something doesn't mean it will be read. That just doesn't seem to sink in to some of these posters, deleting does.

Sadly, I don't think new blood in Congress would help, I can't stand to hear the bickering between the Democrats and Republicans. It's a pathetic joke! It doesn't really matter who you vote for. In the 1930's the people were so pissed at Congress that they had to cut their own salaries.

I don't think we have to worry much about naked shorting. What irritates me is the 6% margin for shorting in the futures pit, that has to stop. If it stops by itself, that could be too late for everyone. It will be "Game over, insert another quarter."

Are we having fun yet? Take care and thanks for your post.

Jim in San Marcos said...

Hi Sackerson

I didn't forget you. I would bet that the market drops right through 9000 as an an "air pocket." I see DJIA at 5000 going to 2000.

We are not talking value here. What stocks pay a dividend that support their price? Maybe Wells Fargo, but if you are selling dynamite and Bic lighters at the same time, you are liable to have a problem or two that was "unexpected!"

Looks like your side of the pond went up this week. When does everyone over there start the 30 vacation? Is it now?