More on Short Selling

I do NOT want short selling banned. Short selling is a legitimate way to profit from recognizing and finding overpriced stocks and frauds. Short sellers like the famous Jim Chanos and Ray Dirks provide a public service and must NOT be restricted. But ... you knew a "but" was coming ... just as practices and abuses creating bubbles on the upside should be eliminated, so should practices and abuses on the down side.

Selling short shares that are not actually borrowed is a ridiculous abuse. The SEC should impose these rules over every stock. And should not give exemptions to option market makers as that is just a loophole the beefers can drive a truck through. And the SEC should NOT let these rules be circumvented via ETFs or via swaps or futures. Letting beefers sell short nonexistent shares is a colossal abuse and is sheer manipulation. It's incredible that this practice was so widespread and shows how corrupted the SEC is.

And the SEC should reimpose the uptick rule. As I wrote yesterday, there IS a difference between normal buying and selling and short selling. There is a human psychological difference between gains and losses. So a rule that helps prevent bears raids is a good one and is in the public interest.

The growth of short selling has been simply colossal since 2006. Today's WSJ has a chart showing the number of shares sold short has doubled in just two years to 18 billion shares for the NYSE and 10 billion for NASDAQ. In dollars, this is about $1 trillion. If one took into account the effective short positions in options and futures, that number would be much higher. Today's Financial Times reports "Shares sold short rose four-fold to $5,000bn in the three years to 2006, according to research from the London Business School, and the price of shorting rose about 300 per cent." Incredible.

Cost of short selling are rising, according to both WSJ and FT.

Hello bubblewatchers - this short selling binge sure seems like a bubble before our eyes. Maybe the SEC and UK regulators actions might prick it before more damage is done.

Travel: I go on an annual outing this afternoon to the North Woods and return on Saturday night. So no post will made on Friday.

PS: Gasoline demand was flat vs. prior weeks. No summer driving season exists this year. That peak is now a flat plain.

PPS: Why oh why does "asking questions" and "expressing worries" nowadays pass for analysis ?

Word of the Day

"Miasma" - noun (plural) [$10] (another word card from high school days 40 years ago)
Miasma means a pervasive influence or atmosphere that tends to deplete or corrupt.
Sentence: Washington DC is ungulfed in a miasma of the lobbyists, legal profession, and power seekers. The SEC is corrupted by its staff and commisioners who want jobs at Wall Street firms, their law firms and hedge funds, so it shades rules and regulations to their benefit and not for the common man.