Shorting Ban: Thinning of the Herd, or Just Plain BS?

I have tended to pay attention any time this year the Proshares Ultrashort Financials (SKF) falls under 100. It has been a "Take it to the bank" (pardon the pun) bet anytime we have sunk below that price level. The May-July market decline drove SKF from a low of 89.47 on May 2nd to a high of 211.75 on July 15th. The early September run took the ETF from 96.40 to 154.77. The largest decline in NYSE history only took it from 96.10 to 119.99.

At first glance, you may say that this is the effect of stifling short selling. However, the fund stated last week that while it would create no new shares, the existing shares will still trade. Scarcity should have been magnified in fund price during a genuine panic over financial equities.

I beleive there are larger dynamics at work.

The first consideration is that the most at-risk financial firms comprising the fund have already been either seized, merged, liquidated, or sold. The herd has been thinned. This is a key filter to the media cry that 'we have to do something to save the financial system!' The weakest sisters have already been forced into marriages and allowances have been made for their prior indiscretions.

Secondly, the inability to create new shares has throttled the hedge fund trade, which has fueled this 'crisis' as much as anyone.

Lastly, the failure of the remaining investor universe to push the price more than $24 during the largest down day in history which was supposedly prompted by a fear of financial equity meltdown, screams to me that this is an engineered panic designed to achieve a political objective. Hand it to Congress. Although arising from fear more than wisdom, Congress has denied Wall Street from turning us upside down and shaking out the last of our pocket change.

The vulture capitialist firms were lining up funds to start picking the carcasess before Hank hatched his 'brainstorm' which the media now believes as gospel. If congress can hold the line we can start cleanup and get this mess behind us more like 1921, when it was accomplished in a year, than like the Depression which took 10 years and similarly featured a desperate attempt to throw more credit at the problem.

Stock position: None.

Comments

[Fish Gone Bad:]

You: "I believe there are larger dynamics at work"
Me: You are absolutely correct.
You: "I believe there are larger dynamics at work."
Me: You are absolutely correct.
You: Everything else you said.
Me: WTF? At first I would think you were some kind of retard, yet your somewhat spirited input had some misdirection to it. So I can only think you are a tool.

Clark Jenkins

2008 Oct 03 02:07 AM