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Ebeling Heffernan Special Report: The Trouble with Shorting

While I have no issue with the idea of trading in both directions, I do myself trade long and short positions. In recent times the shorting of stocks has reached a level where it now threatens the actual exchanges that it trades on.

The problem is not the fact that many have a negative opinion on the market and wish to trade short, the problem is in the mechanics of the short position. If I am trading FX I can short the USD Vs the Euro, I do this by Buying Euro, Selling USD, this is nothing like an equities short.

To replicate the equities short in the FX market to short the USD, I would need to print new USD and sell them at a discount, a process otherwise known as counterfeiting.

This is the type of shorting that is occurring on the markets, it is by its nature a crime against the company and the shareholders. Should the company want to issue new stock it would need to file forms, possibly get shareholder approval and explain the reason why it wants to issue stock, shorting simply “creates” new stock, diluting shareholders and defrauding the company.

Markets are based on a basic law of economics, Supply and Demand. The limited supply of an item compared to the level of demand establishes a price. If you create an unlimited supply, as you do with shorting or counterfeiting there is no value in the item.

Governments spend millions to protect their currency from counterfeiters for a reason, widespread counterfeiting erodes the value of the currency, as shorting erodes the value of a stock price.

While shorting should not be made illegal it should be taken off-market, by the use of CFDs where one “wagers” where the price will be in the future, like trading futures. The shorting of stock by falsely creating stock whether other stock is borrowed, or the position is cash-covered has to be stopped.

I can speak with a good deal of authority on 2 stocks traded on the Pinks, 1 I have clear evidence of the entire float plus 11% sitting on my desk in the form of requests to transfer to a new company, yet the stock is still trading everyday. Another I can account for 105% of the float in accounts that I myself can see. I have no doubt this is repeated Equity after Equity on the exchanges in the USA.

As I do not think that the Government will act at any speed to correct this situation I have in conjunction with Paul Ebeling discussed and planned in detail how to make a great deal of money from this gigantic hole it the equity markets, maybe the loss of money by those shorters will start to turn the tide on this activity.