It's only a free market going up. In reality we don't have a free market.
new short sale rules next week?
- Thread starter Copernicus
- Start date
It's only a free market going up. In reality we don't have a free market.
I agree, I have nothing against short selling/downside strategies. But regulators step in because of the bigger picture which is what most people don't understand.
Hypothetical: If XYZ stock has some bad news, not horrible but not great, stock begins selling off. A daytrader or scalper such as yourself steps in and shorts X amt of shares, makes 40/50 cents, cover your position, pat yourself on the back for a good trade. This: great job, do it all day long no problem have a ball. The problem is when XYZ comes out with the bad news and Hedge fund A already knows somethings fishy because he's got an ace in Goldman and they decide to buy a few thousand puts and short 10 million shares simultaneously through different accounts and funds to spread the bias and cripple the open stop orders only to drive the price up and sell again all because they knew what they shouldnt have but have 100 billion dollars so can do it and get away with it is the problem.
Then how do you explain the new all time high in the Dow a few years back, yet employment and income growth have been stagnent for the past decade.
Unfortunately that is the problem. Using real estate as an example, a lot of financially responsible people got priced out. Had there been some type of short sale available, the bubble could possibly have been prevented. Shorting stocks gives other long term investors a chance to buy a share of a company at a FAIR price.
You can't use real estate as an example because everyone knows that real estate prices were hyperinflated due to the huge amount of bullshit that went on in the real estate market, hence the bubble and the shitty predicament we're in now. If the mortgage lenders and banks hadn't priced in the bullshit than most of this wouldn't have happened in the first place. But when a waiter gets approved by a bank for a 700k mortgage at 100% financing even though he makes 20k a year because the banks somehow believe that the price for the home will go up 45% in the next year or whatever, so even if he can't pay for it and they foreclose, it'll be worth more to them and they can sell it for a profit.
Too bad that's not how the real world works. I said, I have nothing against shorts, its the way that things are regulated in favor of the ones that it shouldn't be that bothers me.
And how many "long term investors" do you know that are shorting stock? Most don't, same goes for long term managers. Thats why they're long term. To reduce risk most use option strategies instead of outright shorting. Less risk to the portfolio and clients. Short term traders/funds are the ones that mostly short stocks.
Even when an institution builds a short position in a company, they will always offset it with another strategy to hedge the positions and its never held short for a long period.
Besides, real estate short sales do not work in the same capacity that equity short sales do. And its obviously never as quick.
From the Yahoo story:
"Under pressure from Congress, the SEC proposed a number of measures last year to rein in short selling. Although the activity is a legitimate form of investing, lawmakers and bank executives blamed short selling for contributing to the downfall of now-defunct investment banks Lehman Brothers and Bear Stearns."
That little thing by BSC and LEH of over leveraging CDO's wasn't the cause. Uh huh.
The real problem is that the Senate is broken. The filibuster was invoked twice as much last year versus any previous year ever. Over 200 bills passed in the House are in limbo. Obama couldn't take a leak if it was up to the Senate. Special interests rule. We have the best government that money can buy!