Strangeness, Short Selling and Raids

Strangeness

Strangeness is a property of elementary particles, usually rather rare, hence the name. But recent reports from around the world show an unusual outbreak of some kind of namesake "strangeness" worldwide in humans. With the unusual dichotomy between reality and perception and opinions, strange situations worldwide seem to be occuring often. Perhaps there is a massive quantum fluctuation in it, spreading strangeness over the world.

Some Examples

EuroZone year over year core inflation was 2.5% vs. headline inflation 4%. Gosh, that conspiracy of the bureaucrats to keep core inflation low must be worldwide. Maybe it's a secret society of gnomes ?

World economic fears pervade the press, but Intel beats earnings forecasts on revenue up 9.4% year over year. Odd that the world is ending yet more chips are demanded.

30-year Treasury bonds yield about 4.5%. Core inflation is bewteen 2 and 2.5% depending if the measure is the PCE or CPI. Strange with all the screeching about "inflation" that the "bond vigilantes" are drowsy and bored. I guess that market believes the core is correct and screechers are wrong.

Screechers say all financials are horrible. Wells Fargo reports a good quarter and raises its dividend. Strange incongruence.

Strange ... a 'recession" with no "recessing" - from Briefing.com:
"Industrial Production Springs Back in June
Following a 0.2% decline in May, industrial production increased 0.5% in June. "

Short Selling

Risk aversion is a fundamental economic and financial concept. For a fixed $ of gain or loss, human beings do NOT equally rate the outcomes of a gain or loss. Utility curves are "curves" with convexity. This is known from consistent experimental and theoretical studies. So why is the canard put forth that "short selling" is just the same as buying ? The two actions are inherently not simple opposites. Simple "selling" is the opposite of "buying".

Short selling is a creation of "virtual" shares to sell onto the markets. The creation arises out of a "borrow" transaction. If fact the shares sold short can be re-borrowed from whomever bought them and sold short again ... and again ... the same shares. Sort of like a "bubble". There is no limit. So let's cease equating two actions.

The SEC, being in the pocket of Wall Street lawyers and hedge funds, and currently having some "libertarian" ideological infection not tempered with populism, unleashed the huge money pools to raid the markets by removing decades old restrictions on short selling. The uptick rule is a visible example which was done last year. Since then, what has happened ? A graph in the Wall Street Journal online today shows trhat shares sold short on the NYSE has almost doubled.

Bear Raids

Another article in the Wall Street Journal put some light on how the manipulators are conducting raids. They simultaneously attack the stocks with short sales and hit the credit default swaps for the companies. Then the "rumor" about the credit default swaps gets passed around directly or simply via trading screens. So fears are created and others panic to add to the selling pressure. The WSJ article provide suspicions of CEOs of Lehman and Bear, Stearns that some Goldman, Sach traders in London in concert with major hedge funds might be doing this.

The UK's FSA has already discovered that hedge funds were manipulating shares of companies with rights offerings in London. So using London as a base for these raids fits.

Credit default swaps are a derivative contract that should either not exist or be tightly regulated. They are not bonds. A firm can "short" of companies "credit" with impunity without any actual credit exposure to hedge - simply as a speculation. Why does this derivative contract and the market for it market exist ? Obviously it should be tightly regulated with massive collateral requirements, perhaps simply gutted. Finanicial markets worked fine for decades before the creation of this monster.

1920s Manipulation

Certainly anyone familiar with the culture of the 1920s in the US and Europe must be aware that human behavior has not changed. Women wore short skirts then - the flappers; avante garde art, jazz music, dancing, and women could vote. So why do some deny that Wall Street money pools would act differently now ? Are they run by persons with high moral values ? Or do they simply worship the god of money ? With no rules, of course they will raid and pillage and rape stocks. The SEC let the bears loose last year. All those short selling restrictions need re-introduced and modernized to include derivatives.

Alpha Fund Moves

As readers know, my Alpha Fund is for high risk, high reward capital. And has been hurt badly due to my incorrect "early" buys in the banks and GE. So yesterday after much thought, I restructured it as follows:

1. Put back some money I had taken out in May when I cut back on big bank exposure.
2. Sold CVX, DVN, AAPL, GOOG, EDU, HDB, ICN and FCX. Most of these seem stagnant and will not move up a lot unless the big banks recover first.
3. Bought more BAC, C and JPM. I will buy even more BAC, JPM and C after their earnings reports, if satisfactory in my opinion.

I made these moves to attempt to save my year in the Alpha Fund and hence justify my efforts and capital there. If I can't do well there, I would just put it all into my Krypto Fund which is outperforming nicely and relax. All this was noted in less detail in yesterday's blog comments.

Word of the Day

"Discursive" - adjective [$10]
Discursive means 1. rambling or digressive; 2. (philosophical) proceeding by argument or reasoning.
Sentence: Today's discursive blog post collected many related elements and observations, but really needs more explanation. (a self-review)