Today the Securities and Exchange Commission banned investors from actively short selling 799 different financial companies. While only temporary, the decision was made during an emergency as the financial crisis continues to cause chaos for the stock market.
The market as a result has skyrocketed for the second day straight with the Dow up over 400 points as of the first 30 minutes of trading (3.71%). Alongside the Dow the Nasdaq is up 3.09% and the S&P 500 is up 3.71%.
Short selling can push the price of stocks down with dramatic results that have been seen in particular within the Financial sector. Short selling is the act of borrowing stock in an attempt to buy it back or "cover" the shares at a lower price, and in turn keeping the difference.
Christopher Cox, the Chairman of the SEC, made several statements Friday addressing the current situation and the SECs stance on taking whatever means necessary to combat price manipulation.
This move is an attempt to give the financials a temporary price boost, and so far so good as most of the large financial stocks are up over 30% already today.
This move reeks of panic & stupidity. I don't know what to say. Punish the short sellers who got it right and reward the banks who got it wrong. Why not let the market work itself through and feel what ever pain we must. Instead we will be paying for Mr. Paulsons generosity for generations.
Are you kidding me? With how much damage that has already been done by short players I'm surprised this notion wasn't taken earlier.
The economy and the market are one of the most crucial intertwined synergies on the planet. Anyone hedging against the upswing should seriously ask themselves what sort of investor they truly are. We all want to make money but the arbitrage is out of control.
To add to that, I lost over 50% of my position once in a matter of days due to shorting. magnify that sort of damage, some of which has already occurred, and their temporary ban is a no-brainer.
Brandon - you think the shorts are responsible for this? Way Hmmm, let's walk through a small list of players:
1) Fed easing credit as far back as Greenspan.
2) Banks giving loans to anyone with a heartbeat.
3) Consumers taking risks (loans) without thinking.
4) Fed continues to ease credit.
5) Bankers decide to LEVER up 80:1 and continue to do so after its obvious that the market has major issues.
6) SEC does nothing as far back as 18 months ago.
7) bankers trading CDS's and not recognizing the danger.
The list goes on. You really are out of the loop on this. Maybe you want to do some reading and see that this has been tried before in prior panics. Maybe you want to ask yourself why people were shorting the banks in the first place? it's a band aide to stop a bullet wound to the heart. It's about their balance sheets, not about the shorts - see item # 5.
As far as losing 50% shorting, well ask yourself if you have ever bothered to learn about position sizing. How about stops? How many books have you read on shorting? Taken any seminars? What system do you use? have you back tested it? If so how far back? How about not shorting? Just because you lost money on a trade doesn't make shorting bad or anyone who shorts, naked or otherwise, evil.
Another thing you need to understand is this - the ban is temporary. Do you think the balance sheets are going to be crystal clean overnight? As soon as the ban is lifted, the sick stocks will rightfully be targeted. Shorting is a pure piece of the market that only children and old ladies think are evil. I'm guessing Cramericans too. But they are hardly adults, they are more like children.
So what now for the finest free market system in the world, Brandon? What if retailers are getting whacked - can I not short them b/c Hank P decides I shouldn't benefit from my research and my risk? How about the automakers? maybe the bio's or the airlines? What if I want to hedge a massive long position? What if I use shorts to gauge the strength of a specific stock or sector? Where does it end? Don't you think that it's an awful signal to send to the markets that you will only gain and never lose. That risk, the bread and butter of all traders is now null and void.
One last remark. As far as the damage that has already been done, I got news for you: what good is the remedy is it kills the patient?
I don't know how long you have been trading or how in depth you have studied the market, but one day you just may recognize how big of a mistake this was. By then though, it will be too late.
TSSS
TSSS
I've read your blog and how outraged you are about this. You do have several valid points, although are pretty cemented in your position, which is fine. I'm by no means an active trader or claimed expert in this field, but do have an understanding for the fundamentals of economics and how the market interplays.
Your list of 1-7+ I'm well aware of. I read the news every morning just like you do and was fairly surprised to see they did actually execute the temporary ban. I do however feel it was the right move for where we are NOW, not yesterday or tomorrow. Shorting, unlike a sports bet, has direct effects on the securities perceived value.
I'm from Detroit and the Lions, our pro football team, are horrible. If I hedge they are going to lose, it is not going to have any direct correlation to the actual outcome of the game. Shorting is a different story. It does have a direct impact on the values and strategies of those in the "trading game."
My point is, I do agree with you that it is an essential component to a free market system since it is an aspect that plays a vital role; however, when the system is getting the shit beat out of it left, right, up and down then the players that begin to manipulate that aspect even more are only hindering the overall amount of time & momentum needed to recuperate.
In regards to the bath I took, I do know what a stop is and position sizing and the rest of the core fundamentals.
I'd rather have seen this temporary ban then the $85 billion dollar bail-out of AIG. That's because it's only temporary, not permanent. The government and regulators need to do more utilization of the tools and policies they can implement and manipulate then throw money at it.
Brandon, I reread my post and it came off way too hard. I am very passionate about the market and our free trade system and that bleeds into my writing. I have studied past panics and the reactions are always wrong - they look to calm the masses and for quick answers.
To use your analogy, I would rather have 2 or 3 terrible seasons as my team (the jets) rebuilds then 10 generations of mediocre to poor results cause we bankrupt the team picking all stars. It's a matter of taking your medicine. Sometimes it doesn't taste great, but in the long run we would be better off.
This is a very crazy time. It is something that you will talk to people about 50 years from now when the young guns of that generation have never experienced a true bear.
Again, I hope I am wrong and that the fix is in. I hope in 15 years I can look back and say, "boy, was I wrong." I just don't think this is the case.