So riddle me this. Short selling was still disallowed yesterday, yet financials utterly imploded. How in the world were those America Hating Evil Shorts going in there and pounding the Morgans and Goldman’s and all their friends?
Could it be, perhaps, that there are other ways to go “economically” short a stock without physically shorting it? Well, yes, we’ve gone over many of them since the Hank Doctrine came down. Could it be that some sellers were actually longs, both physically and economically? I imagine that too.
A more logical interpretation is that the rule did give pause to anyone thinking of selling the stocks for whatever reason (although merely thinking of selling the stocks was outlawed too). So in a sense a rule we mocked maybe did have the intended affect, similar to a trading halt. There was some utility to slowing it down, although I would be more inclined to have just let it play out. In fact I suspect we’d all have been better off if The PPT had just allowed more flush-outs over the course of time.
If you want my (uninformed) theory, here it is. The actual shorts maybe weren’t even economic shorts at all, rather they are hedges against CDS or CDO’s, or some other product out there that I don’t totally understand but allows unlimited and unregulated size betting on the fate of a company. If I’m standing in an options crowd and someone keeps coming in and buying puts from me by the truckload, I am going to have to keep shorting stock. Or doing a spread with someone that gets me physically long the stock that I can then turn around and sell . Am I the one “gambling” or “manipulating”? Of course not, it’s the guy buying all those puts. So compare the sizes of the markets, and it’s easy to see how a CDS panic spilled over into the shorts that Dick Fuld (and everyone else) actually abetted before becoming mortified by them
But whatever. We are here. I could argue financials both ways going forward. On one hand, sure looks like people went economically short ahead of the “real” shorts. So maybe they get whipsawed on that trade. Remember, shorts do actually get caught all the time and chase.
On the other hand, well, they sure act like wallpaper. I covered a small long gamma UYG position WAY too early, so unless it goes towards 17-18 again, I’m done.
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Shhhh…. We have people involved in devices like credit swaps. They needed some money, so we helpped them out. We banned short sellers, and now the demand to hedge somewhere goes up. Then as people panic to buy up credit swaps, and “cover” if they’re short, thhose who bought credit swaps can sell and make egregious amounts of coin.
i won’t tell anyone, lol.
AS far as I know, short selling ban ends on two conditions the earlier of the condition if met:
1. No matter what…it ends Oct. 17 2008 [or]
2. Three days after the bailout package is authorized.
The bailout package was passed and signed on Monday last week. Three days after is Thursday of last week.
If you see from thursday of last week to today it is about 7 days and we saw the market taken down from 10900 to 8300 where we are now. Makes sense to blame short sellers and hedge funds (again short sellers)???????????????????
I tried to short GS/C/BAC/xlf/ge etc yesterday just a dummy order (did not execute) and the order will be taken to short from E*trade. Only UYG/MS/and a few others will still not be allowed and that said like no shares can be borrowed (may be E*trade did not had any to loan)…??????Makes sense????????
–Anand.
I asked Mr. Fly about GS and UYG about their future in the next few years, please Adam can you throw your comments?