Short Sell and You Go to Hell

We now have someone to blame and it is the short sellers that have done all the damage. Short Sellers  should all go to hell it seems.

Well, I have a very different view on that.

Short sellers are the sharks is the financial sea. They seek out the weak and over-leveraged companies and take them out. This is as it should be. (“Naked” short selling should be banned though)

My only complaint is that they didn’t have the guts to do it far sooner. Like all the “professional investors” and fund mangers out there, they knew the investment banks were highly leveraged and up to their neck in CDO’s and the like.

They also knew the ratings agencies were giving triple A ratings to these sub prime mortgage products.

If they had the guts and the integrity they would have nipped it in the bud, way before these investment banks leveraged themselves up 60, 90, 300 percent. (Or maybe they wanted the market to go up as high as it could so they would make more money on both the up and down sides)

At least they have shorted the market now and we should end up with a more realistic market, reflecting true value and not the frantic buying and selling of mutual funds driving the prices up to unsustainable levels.

That means there is still time for Baby Boomers to get their nest eggs in order over the next few years even if they have to work a little longer.

The financial world is changed forever. Governments may now take the time and money to catch up to the 21st century in making sure the financial institutions don’t risk other people’s money for their own enrichment without due diligence and fiduciary reasonability. Some jail-time would also help focus the financial minds along with sending them back to school to learn some business ethics.

If Governments had any sense they would institutionalise and promote short selling as a way to keep the bastards honest. They need to clean up short selling so it is an effective trading tool and doesn’t just destroy everything in its path in a bear market. That way they won’t need massive regulations which are easily avoided by these clever financial guys who’s job it is to find ways around such regulations.

Governments like to set and forget. That’s why they are always late to react to events. The money movers are on the ball 24/7 motivated by profits, always seeking out new ways to make a buck. Governments can never compete with that.

It’s much harder to convince all the short sellers not to sell short to take a profit on a weak company than to lobby some congressman or senator to pass a bill or offer a government handout when they get in trouble or too greedy.

Freddie Mac and Fanny Mae attest to that. I’m not sure they weren’t a retirement home for congressman and senators. How can one guy leave congress and make $90M in 6 years mismanaging a quasi-government organization?

There is something wrong with the world when a Fund Manager buys a company just based on it being in an index, then loans out the stock to a short seller so they can potentially lower the price. This is your retirement fund they are playing with. They should have more integrity than that.

If a company is worth short selling the fund managers should either short sell it themselves or sell any shares they own, not loan them out. They are the professionals and supposed to know if a company is good value. Where is their integrity?

Is this how it all worked? The fund managers bought the stock, loaned it to the short seller who sold it short. Then the short sellers bought it back at a lower price to make their profit, and the fund manager also bought more stock at that lower price. The aggregate demand for that stock would most likely send the price up in a bull market (especially with the “buy-on-dip” mentality) so the fund manager can book a paper profit and get his bonus. Everyone is happy, except the poor investor.

I wonder how many fund managers have interests in hedge funds and short selling organisations? That might be something worth looking at too.

There could be a bear market rally out of this week’s turmoil. The FED’s around the world have it in for the short sellers as the villains in all of this. The British Government has banned short selling of financial stocks for 30 days I believe. Talk about market manipulation.

Short Sellers won’t fight the FEDs. They will just cover their shorts and stand aside watching and waiting. When the FEDs go to lunch they will be back selling short if things are still not right. With so much shorting going on right now the market might only be able to go up as the shorts clear their positions.

Couple that with the US Government re-imposing the up-tick rule before a stock can be shorted and we may just have the pain a whole lot longer than we need to.

It might be a good time to check on your portfolio and if the market retraces to anywhere near a 10% loss on your original investment, consider exiting the market, or at least putting in a stop loss.

Rule #1 – Avoid Large Losses still applies, only right now if you have large losses greater than 10% you should really hang in there for the long term – just what fund managers want you to do.

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