Short Selling Debate

[Aussiest]

Re: Lending to short sellers - why would you do it?

but what is in it for the lender of the stock?

I don't really care if my long stock is lent to somebody selling short. Afterall, i enjoy the benefits of short selling. It's a win-win situation for everybody.

 

[Wheep0]

Re: Lending to short sellers - why would you do it?

My old broker asked me if I was interested in lending my stocks for this purpose.

I changed to a new broker the next day.

100% against my belief. I am an investor though on a mid to long strategy.
I actually think when done in context with a healthy market, its beneficial.

The problem being of course that being in such a vicious downtrend that we have seen, the serial shorters, have been in the midst of their own personal bull markets, never been easier to short stocks over the last months from what I can see. It was a no brainer seeing the patterns that we were seeing. This has led to some fundementally decent companies being in a position where they should not have been. May be thats healthy as well, dont really know. Survival of the fittest and all that..

No matter if its a right or wrong view you have, one thing is for sure, the serial shorters are all a little edgy.. not so much a given all of a sudden.

wheep0

 

[Largesse]

Re: Lending to short sellers - why would you do it?

I think saying that shorting a share is 'trashing' it is extreme too.

ABC might have been a 'spooge' company (not familiar with that term) but the short sellers did a whole heap of people a favour, stopping idiot buyers from pouring more money into it and the share price.

I agree entirely with you on ABC. Short sellers saved alot of future inevstors money in that case, but I stuggle to justify the 'trashing' (i will use that term in this case) and eventual destruction of Lehmann's.

I am all for short selling in general but what happened there was abbhorrent behaviour, clearly manipulative and targetted. Lehmann's were in no worse position then most of the brokers at the that moment in time, excluding JPM and GS. My belief is that Citi is STILL in worse shape then Lehmann's was.

 

[cutz]

Re: Lending to short sellers - why would you do it?

Who was your old broker Wheep0 ?

 

[cutz]

Re: Lending to short sellers - why would you do it?

I am all for short selling in general but what happened there was abbhorrent behaviour, clearly manipulative and targetted. Lehmann's were in no worse position then most of the brokers at the that moment in time, excluding JPM and GS. My belief is that Citi is STILL in worse shape then Lehmann's was.

If Lehmann's were no worse why the rush for the exits, what i'm getting at is if a company is profitable, a huge reduction in share price should have no bearing on profitablity unless of course a capital raising is required.

Any thoughts?

EDIT>> On second thoughts Lehmanns may have not been worse off but a decision was made to cut them loose, in other words allowed to fail and they failed not due to short selling but toxic waste on their books.

 

[Timmy]

I think those that don't like short selling and short sellers are just rehashing the
old "doesn't play well with others" criticism. Short sellers should be banned
because they wreck the game for everyone else (meaning they sell before I have had
the chance to take my profit by selling). If only the short sellers were banned
then the ponzi scheme could continue indefinitely and we would all be happy (well, at
least I would because I could sell before the price reaches a silly high). How
dare short sellers expose me as being stupid!

Short seller = not a team player.

LOL

 

[Largesse]

I think those that don't like short selling and short sellers are just rehashing the
old "doesn't play well with others" criticism. Short sellers should be banned
because they wreck the game for everyone else (meaning they sell before I have had
the chance to take my profit by selling). If only the short sellers were banned
then the ponzi scheme could continue indefinitely and we would all be happy (well, at
least I would because I could sell before the price reaches a silly high). How
dare short sellers expose me as being stupid!

Short seller = not a team player.

LOL

short selling to expose an unrealistic shareprice is one thing.
short selling a company into recievership, ala Lehmann's has much further reaching consequences than just a few billion in lost equity.

 

[Trembling Hand]

short selling a company into recievership,

So it wasn't that no one was willing to do business with them because they had wrecked their own balance sheet with toxic debt in playing their own ponzi scheme?

 

[nunthewiser]

lol unreal

short sellers did not send anyone into recievership

 

[brianwh]

But I still don't think my original question has been answered. Why would the owner of a stock lend it to someone whose intention is to drive the value of the stock down. And I'm not talking about the day-traders with their relatively small scale involvement but many of these players are very big operators with the ability to move markets (sometimes with a little rumourtrage thrown in maybe). I can see that the market may be improved but that is of questionable value to the owner of the stock.

 

[cutz]

But I still don't think my original question has been answered. Why would the owner of a stock lend it to someone whose intention is to drive the value of the stock down. And I'm not talking about the day-traders with their relatively small scale involvement but many of these players are very big operators with the ability to move markets (sometimes with a little rumourtrage thrown in maybe). I can see that the market may be improved but that is of questionable value to the owner of the stock.

Refer to post #153.

I think you are being a little misguided, pick up a copy of the fin review and see for yourself the amount issued stock on the short side, as TH has already pointed out some of this may be market maker hedging, not directional bets.

Who are these big players you're talking about ???

Here you go, you don't even have to go out to get the paper. http://www.asx.com.au/data/shortsell.txt

 

[brianwh]

"Who are these big players you're talking about"?

Short of doing detailed research/analysis, off the top of my head I think you'll find that LEH was shorted out of existence by a hedge fund run by a person named Einhorn.

 

[nunthewiser]

"Who are these big players you're talking about"?

Short of doing detailed research/analysis, off the top of my head I think you'll find that LEH was shorted out of existence by a hedge fund run by a person named Einhorn.

lol

i thin k you will find that lehmans demise was purely from financial mismanagement and toxic debt .absolutely nothing to do with shorting the stock ...... yes they may have proofited greatly but gotta let u in on a lil secret here ......... no good shorting a stock UNLESS you get to cover your position also .....

anyways been through this evils of naughty shorters countless times and it seems that unless ppl actually know how it works it seems a lot easier to blame shorters for everything from recievership to cracked boiled eggs

ask twiggy , he,ll tells ya

 

[sails]

As I understand it - if a stock is fundamentally sound, being shorted to low levels will bring the buyers out in droves. Short sellers usually pick the ones that are fundamentally shaky to begin with and then seek to profit from it's anticipated demise.

 

[Timmy]

hedge fund run by a person named Einhorn.

Bless him!

 

[Timmy]

But I still don't think my original question has been answered. Why would the owner of a stock lend it to someone whose intention is to drive the value of the stock down. And I'm not talking about the day-traders with their relatively small scale involvement but many of these players are very big operators with the ability to move markets (sometimes with a little rumourtrage thrown in maybe). I can see that the market may be improved but that is of questionable value to the owner of the stock.

Brian - you ask a good question.

Lending your stock for short selling is not compulsory, and if you have lent it you can 'call it back' at any time. I don't know how a lender of stock would answer your question - perhaps they own put options/warrants or are short cfds and are either fully hedged or are net short themselves ... there are a few different scenarios that could be applicable. Or perhaps it is the case that they are not aware of the uses to which an aggressive short seller can put these borrowed shares (not everyone in the market educate themselves very well).

 

[Trembling Hand]

But I still don't think my original question has been answered. Why would the owner of a stock lend it to someone whose intention is to drive the value of the stock down. And I'm not talking about the day-traders with their relatively small scale involvement but many of these players are very big operators with the ability to move markets (sometimes with a little rumourtrage thrown in maybe). I can see that the market may be improved but that is of questionable value to the owner of the stock.

Brian they get interest payment above cash rates plus the divs etc. They still control the shares. And they know that lending a tiny percentage of market cap out to a fundamentally sound company will do NOTHING to the share price long term.

What SOUND companies are you trying to say are "trashed" by this big operators

 

[beamstas]

Shorting a company does no harm, as the shares have to be bought back eventually

The harm is done when holders of LONG positions sell

 

[nulla nulla]

lol unreal

short sellers did not send anyone into recievership

How do you know?

Scenario:

Big hedge fund decides company xyz is over geared with debt to current asset values;
Big hedge fund scouts arround and borrows a substantlal amount of stock from the superanuation funds and Banks for an upfront fee and flexibilty on when it has to return the stock, covered by ongoing monthly fees;
Big hedge fund commences a progressive attack shorting the stock;
The first short drives the stock down causing the margin loan holders to cover their shortfal or sell into the falling share price driving the market down further;
The big hedge funds can either close out their shorts, at the margin called reduced price or see if they can push it further;
They decide to push it further and attack again;
More margin calls, with the margin lenders having to sell into the falling market beacause their clients have run out of capital to prop up their portfolio's or the client calls time to sell as the share has fallen so far and could fall further;
the hedge fund can close out the short or wait and see what happens next;
oops, the banks are now concerned, as the share price has fallen below their comfort levels for their loans to company xyz. They want greater security and higher interest rates or their money back;
oops, xyz can't refinance with any other banks, lines of credit etc and calls in an administrator; and
the banks say "no you don't, we will put a Receiver & Manager in to look after our interests. And guess what, it was an arm of the bank that lent the shares out in the first place to the hedge funds so that the hedge fund could short the market. Cunning beggars, they get their fees no matter what.

 

[cutz]

Wow nulla nulla,

That sounds pretty far out,

Got any examples of companies that have been pounced on by the vicious hedge funds.