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Why the E*Trade Shorts Have It Wrong

dan-o said: "you didnt mention how the request for authorisation to issue new shares factors into the share price. also, how about a blog on how etrade plans to use those shares and what sort of future dilutution shareholders have in story for them. seems to me, shorts are staying short b/c they expect dilution to push them further into the money. "

So what you are really saying, dan-o, is that shorts are remaining short because they are naive.

Experienced and seasoned traders know that authorization does not mean issuing, and that delution is no more likely with E*Trade now than with any other company. The fact that they want the shares authorized just means they want some in the bank in case they do have a need someday, such as for example to aquire another competitor.

There are about 95 million shares shorted last time I looked, and while I agree that some of the shorties may be that naive, I seriously doubt that all of them are.

Comparative Price Shopping: Selected Banking, Mortgage and Brokerage Stocks

This reply is in regards to User 181270. Although I doubt (s)he will see or respond to it, I am perhaps replying for the benefit of anyone else who might read his/her comments and be misled by them.

User 181270 claims that E*Trade will experience "projected losses of 1-1.5B in the next 2-3 years". That statement is simply untrue.

The management's "projected loss" was documented in the Q4 earnings release for 2007, and you can see it for yourself here: files.shareholder.com/...

If you look closely, you will find that management did project $1-$1.5 billion in potential loss, but that number is cumulative and includes the $460 million loss for 2007.

Notice page 12, where the cumulative loss is broke out by years and identified with higher and lower amounts. After last year's hit, you will see that management is really predicting the potential for another $.7 to $1 billion for the TWO years of 2008 and 2009.

What people like User 181270 do is their subtle manipulation of the facts, turning $.7-$1 billion into $1.5 billion, and turning the next 2 years into the next 3 years. And by doing that, they catch a lot of people who don't take the time to do the research and find out (s)he is deceiving them.

On thing is for certain that I agree with User 181270. The price has indeed been hovering in the $3-$4 range now for some time. But its not because that is a fair market value for ETFC. The main reason that it has been held so low is because of people like User 181270 who can be so effective at distributing deceptions such as this one about the future losses.