Dana Cole

Friday's Turnaround: Raid on the Shorts

Bill, it looks like you WANT the market to go down. If the final hour's rumor had caused the market to tank, would you still have written this article? Would you recommend that an SEC observer be posted to pull the hook on NEGATIVE rumors?
There seems to be a lot of people around like Bill Ackman, Meredith Whitney, Prasant Bhatia and others who are determined to make a name for themselves by talking the market down. In particular, Ackman comes off like he's not going to be happy unless Ambac goes out of business or he's in charge of the company himself. You seem to be among that crowd.
If all of you are right, then the short side of the market is definitely where we want to be, and we should be thanking you for handing out the advice.
On the other hand, if there's one thing we've learned from trading for a while, it's that NO ONE is right in the markets all the time. You may be right for a while, even for a long time, but then along comes the day when you are wrong. And vice versa.
Even though the short side of the market has been paying off for quite a while, no matter where the market is, there's always going to be someone who's saying we're headed for a steep fall and there's always going to be someone who's saying we'll be at all-time highs before the year is out. That is not the question.
The question is:

Which is the path of least resistance?

From the tape, I see a lot of folks who are either very scared or are determined to push the market down - all on RUMORS. If they go on shorting and being scared and no one sees any value in lots of companies that are historically underpriced and still functioning without problems, then we've got another 20% down move coming very soon.
However, I also see a lot of guys waiting around with money burning a hole in their pockets, looking for any excuse to buy. If in 2008 the great credit scare of 2007 turns out to be not quite so scary after all, the latter are definitely going to take over for a while. All that will require is that someone with cash gets a handle on what all the CDO's out there are actually worth and begins to snap them up. After all, the Real Estate market goes up and down, but it doesn't go down forever until we don't need land and houses anymore. Do you see that happening sometime soon?