The Shorts Aren't the Problem

Some Things That Make You Go Hmmmm.....

I mentioned recently that I'm disappointed and really saddened at recent events.  The socializing of America is transforming our markets into a predictable situation where ill-gotten profits will be easily taken due to some regulatory body or legislation.  The end of free markets, the start of rigged markets.  There are some things that make you scratch your head and wonder...

How About a Lifeline to the Oil Traders

With oil dropping from the nosebleed heights of $147 to just under $100 in a few short months, where was Congress with their banned short selling rules for oil traders?  Is it the 'pick and choose' markets they want to manipulate?  I suppose some long oil traders really felt some pain since early July, yet no protections were put in place to protect their downside.  Of course, the financials got their help with a nearly trillion dollar bailout....but no love for oil traders?  Doesn't seem fair, now does it?

At Some Point, Value Should Win Out

Where did the buyers go on Thursday?  I'm not talking after the bailout was announced, I'm talking about when Morgan Stanley (MS) plunged 60% and Goldman Sachs (GS) dropped 40% in a couple of hours.  If they loved them at the open, they surely loved them at these prices, right?  Was it a raid on the banks?  Fear was present, with the VIX reaching multiyear highs.  However, prices on these and other names had not been seen in years, perhaps decades.  Were they going out of business?  Hardly so.  Value becomes too good to pass up, even in a panic.  I suppose some scooped up shares at these fear moments and are sitting pretty today.   

Timliness Is Everything, and the Fed Times it Right...For the Moment

Like Mighty Mouse, the Feds come in to save the markets right when the moment seems most dire.  Is it no coincidence that time and again the Fed comes out with a plan or measures to support falling prices?  Last week, was the market on verge of collapse?  Perhaps it was.  But this sweeping (and expensive) moves gets done right at the moment the market were about to fall off a cliff, creating panic and widespread fear among market players.  As stated above, a VIX higher than 30 tells us players are paying up for protection.  The bailout plan was cause for some relief, though...along with the banned short selling rules, and fueled the markets to rally hard.  But it really smells bad here, and the timing is curious...but seems to be effective.  Getting things done is Washington is a monumental task, but when the gun is pointed squarely at it...there is a big election around the corner...then it is more than likely a big solution is at hand.  I call it 'just-in-time' politics, get it done right before a catastrophe occurs.  Very effective when the voters are watching closely. 

Short Sellers Are Not the Problem

Shorts provide a great service to markets.  Everyone knows it, but who better to make the scapegoat for bad decisions and poor performance?  The balance and liquidity are needed to have free markets, but now the government tells us we can't take the other side of a long trade.  Until this nonsense is sorted out, the rigged market phenomenon will continue to persist.  No wonder fear levels are elevated and sustained, who can get a foothold?  How many times will a policy decision be made to preserve market prices?  Sadly, this may play out in a sheer panic.   

Disclosures: None

Comments

[MarvinMBA:]

The end of the market as we knew it is now. With the structural changes and losses the average guy is taking, we have a long way to go to restructure faith in our long term future. My suggestion is to get out of the market completely, stick with CD's and hope interest rates will rise....if the 800 bil deal goes thru prepare for 8 buck gas and 5 buck milk and 20 buck meat. Hyperinflation will be here shortly and just get worst and worst as the economy falters. We are getting screwed with the big investors laughing up their sleeve as the replace their securitized investment instead of repossing and working out their defaulted equity. WHY ARE WE HELPING THE BIG SHOTS INSTEAD OF THE AVERAGE GUY ON THE STREET WHICH I GUARANTEE WILL BE GOING DOWN THE TUBES IF THESE DEAL GOES.

2008 Sep 23 05:29 PM

[Fighting Yoda:]

Let the bust cycle play out. Stop trying to prop the markets. The markets must be allowed to fall to their natural values/sentiment. Govt meddling is destroying the markets.

It is not the shorts, longs have gone into hiding for obvious reasons.

Good luck and good bye.

2008 Sep 23 10:16 PM

[red1:]

I heard a historian speaking today, and he explained something I'd never known before...he said that the exact same thing happened during the Great Depression. The people were so disgusted that they insisted the banks and the people who were responsible for the collapse had to be cleaned out and to LET THEM ALL FALL! It is the same reaction ALL of us are having today.

So that's what they did, and within a couple of weeks, he said that all of those people, who rightly wanted *justice*....there was a sudden collapse and they were ALL out of work and panic ensued. We all know what happened next. 10 years of starvation and children growing up without food and hardworking Americans who couldn't find a job to save their lives - literally. His argument was so grounded in historical detail, it made me rethink my position.

My spouse works for Morgan Stanley, so I've had a front row seat to this disaster for the past few weeks and it's been Hell. But, a few thoughts...I'm a *little guy* too, as are 99% of the people who work for companies like Morgan Stanley, etc... Ivy league education, law school and 25 years at some very high levels in the financial industry, and we make enough to support a house, 2 kids and a Honda Accord. And we are all part of that tax base that is going to be eating that $700 Billion bill if they pass this bail out.

We are one of those families that took our the 30 year fixed on the tiny house we could afford and never took out any equity loans. We put ourselves through college, pay our bills on time and have zero, yes, zero credit card debt. It wasn't as fun as most people were having, but we lived in an expensive state and the cost of living was high, and it sure beats losing your house and sleeping on a park bench.

So, just so you know, I agree with you, HOWEVER...

My spouse is the first person to say that the *short* sellers are a VERY important and integral part of our markets, but NO DOUBT, they KNOW FOR A FACT at the top of those companies that there were *sinister* forces behind those short sales. Despite **excellent** earnings reports, etc... from both Morgan and Goldman, the stocks were continuing to be shorted, and the powers that were making it happen were HUGE Hedge Funds that were ganging up together to make a quick profit by bringing those companies down. Because of course, together they could collapse these entire firms and essentially guarantee they would *win that bet*. This was NOT *normal* short selling going on last week. Not by a long shot. Why, I asked, would they want to do this to their own country? Well, they really don't care. Honestly, they are there to make a buck and couldn't give a rats behind if they put 45,000 people out of work in one day. Hey, they made hundreds of millions of dollars - AND they are going to make even more when they collude to drive those prices back UP, so the more it drops, the cheaper they get to BUY those sales...

THEY WANT PEOPLE TO PANIC AND SELL THEIR SHARES SO THEY CAN BUY IT ALL UP EVEN CHEAPER.

Furthermore...many of those Hedge Funds are filled with *sovereign wealth* money....foreign.

As for those of you who want to just let the markets collapse...YES, that would be my wish too, however, they are so big that they will bring us ALL down with them. In essence you WILL be cutting off your nose to spite your face. And you see, WE will all be the one's standing in the bread lines because those guys at the top, they will take their families to some compound they own in the Caymen Islands and retire with plenty. YOU will be unemployed and not able to feed yourself for perhaps decades.

I was privy to a BIG meeting where the Hedge Fund guys talked about this making the S&L scandal look like a flea compared to what is happening now, and that unemployment will be far into the DOUBLE DIGITS. My spouse has been predicting this for months now. I don't know...maybe you have enough money to feed your kids and just ride this out to *punish* those guys, now matter how bad it gets, but we don't.

The people in this business have been privately referring to this as the "GREATER" Depression. I heard a top economist this week explaining that the Great Depression was *Great* because the government DIDN'T step in earlier and that the American Public has no idea just how ugly this could get and how personally ALL of our lives will be impacted - immediately.

You want them PUNISHED?? ME TOO. I say hang them in the public square and never let it happen again.

Our generation and after us....(I'm in late 30's) Do you think the 25 year old kids who've grown up with their cell phones and ipods and designer clothes and structured "club sport" soccer teams are going to have any idea how to handle starving and wearing cardboard on their feet for shoes in the winter?? I'm not saying it might not be a good thing for them to experience that, but no one in our generation remembers the Great Depression any more. People don't live on farms. We have cars and malls and cell phones and TV. Really, it's disgusting. My Great Grandmother fed her entire neighborhood out of her garden during the Depression...in Jersey City! Who can do that anymore?

Either way, we get screwed. And in fact, I'm even more bitter because I didn't even get my boat, SUV, McMansion and trips to Hawaii during the boom. I was toiling away at Home Depot on my own home repairs, saving so I wouldn't be one of those bad decision makers and I wouldn't have to pay, and here I am anyway.

We need to learn our history in this country. We can take *them* down and make **them** pay, but in doing so we are going to take ourselves down too. Unfortunately, they were right when they told us this is better than the alternative, which could make you wish you'd just coughed up that $700 billion.

2008 Sep 24 12:07 AM