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European shares are in full melt-up mode, the Stoxx 50 (FEZ) at its high of the day, +4.2%....
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Friday, August 12, 2011, 9:19 AM ETEuropean shares are in full melt-up mode, the Stoxx 50 (FEZ) at its high of the day, +4.2%. Italy (EWI) is the biggest gainer, +5.2%. The short-selling ban looks to have won the day, for the moment. European indices are about 10% higher since the idea was floated about 24 hours ago.
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think it through for a moment... shorts covering now, stock up... when the longs think it's time to sell, stock goes down... who will buy?
Couldn't have said it better myself.
www.tradingstocks.net/...
It is going to crash again. Short selling ban will not stop it. In fact, without having shorts who would be covering at the end of declines, new declines will go down like a rock without having anyone who has to cover. Rallies will not have the fuel of shorts who will panic and cover. Welcome to the stock market of relentless declines. Coming to a European market near you soon. We may overshoot bottoms to the downside without shorts.
It is true that banning short selling does not work in markets in which there are real problems. In these markets, long investors bail out because the issues are real and its not just speculators pushing prices down. However, just the mere rumor of a short-sale ban in Europe caused prices to skyrocket, meaning the amount of short speculators in the market was huge. In fact, volume yesterday was almost as big as the day before it, indicating that all those who shorted on Wednesday probably covered on Thursday, with the remainder covering today. Now that short-selling is off the table, if Soc Gen and BNP start falling again, we will know there are real problems out there, and that will be the real signal to be scared. In essence, the short-sale ban has given has an invaluable tool, which is to know exactly who is doing the selling. It appears from recent market actions that it was in fact short sellers doing all the selling. Because this type of crisis of confidence can actually trigger a real crisis in the banking industry, it is important to limit downside speculation by scared traders.
The argument that no-short didn't work here does not hold water when compared to Europe. Our government enacted a no-short financial rule AFTER the collapse of Lehman Brothers, when it was far too late to reverse the damage. If there had been a no-short financial rule before Lehman went under, we would have a much better idea of how these things work. But in any case, the problems with Lehman's hidden liabilities and worthless commercial mortgage assets would have caused it to collapse eventually regardless. In case of French banks, they do not have the same capital shortfall that our banks did in 2008. Furthermore, the roadmap to backstopping these banks is very clear to the ECB, and they would have a ton of options in case of a last-resort event. Either way, 2011 is not 2008, and we will not have a repeat of the financial crisis less than 3 years later.
The result of that will be increased inflation and further dollar debasement.
I have no problem with short selling - unless you are talking about naked short selling. A naked short is tantamount to printing money. It is in effect expanding the supply our outstanding shares. Issuing shares is governed by SEC rules and require disclosures, etc. Naked short is the "illegal" issuance of additional shares of the company's stock and is dilutive and can do nothing else but lower the price because of the extra supply.
They tend to amplify swings in price, dog-piling on to declining stocks, and then covering during panicked short-squeezes.
An efficient market does not need short sellers.