Should shorting be suspended/banned?

[lesm]

Not many who know how markets work do though:

http://blogs.telegraph.co.uk/alex_s...rchbishops_are_wrong_shortselling_is_virtuous

'It is market abuse which is wrong and this can occur both when holding either long or short positions,'

The statement in the last paragraph in the article related to the Archbishop's comments above says it all.

Market abuse does occur on both sides of the market and is not solely related to shorting activity.

The emotive element associated with people's views on shorting gets in the way of the facts.

Cheers.

 

[lesm]

I'd say the clergy are incredibly economically literate Wayne...

After all, for centuries they stole and controlled the wealth of the unquestioning, uneducated and illiterate masses. It's a pity none of them could short the church. They might have had to live up to their actual words and teachings then.

Good point chops.

What is one the wealthiest organisations/institutions in the world?

 

[chops_a_must]

Good point chops.

What is one the wealthiest organisations/institutions in the world?

Depends if you call me an institution or not.

 

[Garpal Gumnut]

Without the ability to short there will be a lack of liquidity.

You buy a piece of furniture. (I owe this analogy to the ABC Counterpoint)

You pay money for the piece of furniture.

The furniture shop is shorting the piece of furniture.

They sell the furniture to you with the intention of delivering it.

They will get it from the manufacturer in 1 week and deliver it to you.

This is a short.

If it is banned.

No furniture.

No trading of furniture as it is impossible to keep all the furniture that people want on the floor.

It is pure foolishness to ban short selling.

gg

 

[wayneL]

Hey GG

I used that very same analogy here weeks ago.

Anyway, here's an interesting development:

Wall Street Firms Provide Way Around Short-Sell Ban

http://www.cnbc.com/id/26891418

Hedge funds executives have told CNBC that several Wall Street firms are marketing a new hedging product that would allow them to "short" stocks””even those on the banned short sale list.

The new "product" is being pitched to major hedge funds today to gauge their interest””it's unclear if any funds have agreed to implement it........... etc

 

[chops_a_must]

ROFLMFAO.

Where have we heard this sort of stuff before?

 

[wayneL]

Damien Reece in The Torygraph this evening:

I've very much enjoyed the interventions of the Archbishops of Canterbury and York in the credit crunch debate. Their criticisms reflect a strong feeling that markets these days lack morality.

But markets have always lacked morality. Their success has been based on being amoral. Free markets don't discriminate. Operating within legal frameworks, their amorality is the best way to distribute scarce resources, everything from corn seed to capital, rather than leave those decisions to central planners.

If there is a question of morality, then markets are the most moral systems of all in the way they enable liberty. Like archbishops, markets are not infallible and are guilty of mistakes. They get pricing wrong – the recent mispricing of risk, which has caused the credit bubble, being one of their biggest.

There are clear contradictions in capitalism, just as there are in the views of Dr Rowan Williams and particularly the rather more outspoken Dr John Sentamu.

His views are passionately held. But perhaps he should review his church's own wealth, with billions tied up in the very markets which he attacks for harbouring "asset strippers", a practice that was not exactly absent when the Church of England was created with the dissolution of the monasteries.

OOOOOMPH!

ROTFL!

 

[nioka]

Wow.

And you really proved your point there.

Others have asked you a legitimate question and it deserves to be answered.

Should shorting be banned from oil?

You don't deserve an answer but like the terrible two year old in the supermarket you will keep screaming until you get either a clip in the ear or get your lolly. To shut you up I will give you my answer.

Shorting a product can not be compared to shorting a stock. Shorting oil can not be used to bring a company towards an undeserved bankrupsy. Targeted shorting can (and has) been used to bankrupt companies or to drop their value for other reasons. You can not dispute this fact.

Therefore I have no attitude one way or the other regarding futures trading in the likes of oil, wheat, gold, silver, nickel etc. In some cases it is probably a necessary business activity as an insurance against uncertain prices.

Now that will open another can of worms as you will twist this answer to suit your argument. As I value every moment of my time you may not be able to engage me to debate this matter further. You can accept my reasoning as set in stone, as yours seems to be. THE END>>>

 

[mazzatelli1000]

Targeted shorting can (and has) been used to bankrupt companies or to drop their value for other reasons. You can not dispute this fact.

Nioka,
I dont need to change your views as whatever works for you, then good.
But for the sake of public forum there will be opposing views and dissection of each others post.

The relationship I have quoted, will seem the as if there is a direct relationship between shorting and the company tanking.

If anything the company would have been poorly managed and not deserving of its over valuation that would attract short sellers to that particular stock in the first place. As many have reiterated - short sellers can try and target a strong company and it will have minimal effect on the company's operations. There will be reputational risk, but its the companies assets and operations which will primairily determine whether it will continue to stay afloat, not the share price.

Also the impact of commodities trading is much more far reaching than just hedging delivery prices. It has inflationary impacts that eventually impact the stock market. Banning shorts in the commodities market will not be welcome.

Just my thoughts for future readers

 

[chops_a_must]

Shorting a product can not be compared to shorting a stock. Shorting oil can not be used to bring a company towards an undeserved bankrupsy. Targeted shorting can (and has) been used to bankrupt companies or to drop their value for other reasons. You can not dispute this fact.

My original gripe with you was about delta hedging.

Which in the case of any physical delivery of product, at its core, is entirely necessary to any market, vis a vis, all markets.

From what I can gather about the sub-prime disaster, is that the IB's were not hedging to delta, artificially the opposite in fact, hence the problem. They were carrying and fronting longs, at the same time they were long in the market they were dealing with. The opposite now seems to have been the case for the firms that have survived.

Despite all the rhetoric on here from yourself and others, no-one has as yet shown any example where a company has been bankrupted by short sellers. The companies that are failing are failing because no-one is prepared to deal with them, which is nothing to do with shorters.

I think your different view between products and stock is also flawed. Index futures contain stock, yet are a product.

Therefore I have no attitude one way or the other regarding futures trading in the likes of oil, wheat, gold, silver, nickel etc.In some cases it is probably a necessary business activity as an insurance against uncertain prices.

Umm... without sellers there can be no buyers in the futures market. They are contracts.

But unlike short selling stock, shorting futures and similar products, as can be seen in the corporate bond market etc. has a massive MATERIAL impact on the companies themselves.

So shorting oil, or any other fundamental product can bring about bankruptcy in a company. Although if they are hedged, something impossible if a broking firm for the company cannot do delta hedging, that may not happen.

Targeted shorting can (and has) been used to bankrupt companies or to drop their value for other reasons. You can not dispute this fact.

This comment is staggering.

Please someone give an example of shorters bankrupting a company. Please. Someone. Anyone.

And the comment implies you honestly don't think directors pump up share prices for various reasons. Absurd. But as most of us know, it ends up being a nil nil result in the end anyway.

Why do you think WBC and BOQ have held up well? I could just as easily short them as NAB, BNB etc.

At the end of the day, prices reach a point where people are prepared to buy.

But what your opinion supposes is that people and institutions should forego risk management at a time where risk aversion, and risk punishment is at an all time high, when looking at a good buying entry point. It makes no sense.

 

[cuttlefish]

Shorting a product can not be compared to shorting a stock.

Nioka - I had this difference in mind when the question came up - was wondering whether you would come up with it (I would replace the word product with commodity though).

In theory there is an unlimited supply of commodities so on that basis a short seller is always capable of eventually delivering.

Shorting oil can not be used to bring a company towards an undeserved bankruptcy.

This is nonsense imo and where you mistake shorting bringing a company down when its poor financial performance that brings down companies.

I want to post more on this topic of commodities vs stocks later but for now a quick question (one which if you think it through will help to illustrate a point.)

What would be the result of a MASSIVE shorting campaign on the share price of a company. Lets say a company has 100 million shares on issue - what happens if there is a HUGE naked short selling campaign on that company where shorters sell hundreds of millions of shares to drive the price right down to virtually zero?

Since the company has been shorted so heavily and heavy shorting 'bankrupts' a company in your opinion - would you sell that stock if you knew a huge campaign like that was in process and was the cause of the price falling?

(forget legislative rules about limits on shorting - this is a hypothetical question to illustrate a key point about shorting).

 

[It's Snake Pliskin]

My original gripe with you was about delta hedging.

Which in the case of any physical delivery of product, at its core, is entirely necessary to any market, vis a vis, all markets.

From what I can gather about the sub-prime disaster, is that the IB's were not hedging to delta, artificially the opposite in fact, hence the problem. They were carrying and fronting longs, at the same time they were long in the market they were dealing with. The opposite now seems to have been the case for the firms that have survived.

Despite all the rhetoric on here from yourself and others, no-one has as yet shown any example where a company has been bankrupted by short sellers. The companies that are failing are failing because no-one is prepared to deal with them, which is nothing to do with shorters.

I think your different view between products and stock is also flawed. Index futures contain stock, yet are a product.



Umm... without sellers there can be no buyers in the futures market. They are contracts.

But unlike short selling stock, shorting futures and similar products, as can be seen in the corporate bond market etc. has a massive MATERIAL impact on the companies themselves.

So shorting oil, or any other fundamental product can bring about bankruptcy in a company. Although if they are hedged, something impossible if a broking firm for the company cannot do delta hedging, that may not happen.


This comment is staggering.

Please someone give an example of shorters bankrupting a company. Please. Someone. Anyone.

And the comment implies you honestly don't think directors pump up share prices for various reasons. Absurd. But as most of us know, it ends up being a nil nil result in the end anyway.

Why do you think WBC and BOQ have held up well? I could just as easily short them as NAB, BNB etc.

At the end of the day, prices reach a point where people are prepared to buy.

But what your opinion supposes is that people and institutions should forego risk management at a time where risk aversion, and risk punishment is at an all time high, when looking at a good buying entry point. It makes no sense.

Good post.

 

[wayneL]

Who do we blame now for tanking shares?

 

[It's Snake Pliskin]

Who do we blame now for tanking shares?

Exactly Wayno!

Perhaps the BANK purchasing by governments?

 

[cuttlefish]

And no shorting means no short covering rallies to give it some bounce again the next day either.

(as an aside - the tendency for some ASX stocks to put in a small sharp rally towards the close of the session, that looks a lot like short covering, makes me think that in spite of the ban there is still a bit of intraday shorting activity going on.).

 

[cuttlefish]

Not looking good at the moment is it - though the US day's not over yet either I suppose - might rally strongly if they actually pass it now - possibly a good little psychological game - let the public see how the market would have reacted by it not passing, let the dissenting reps see the effect of a no vote on the market as well, and then pass it second time around perhaps?

 

[cuttlefish]

Just looked after posting that and I see they aren't planning on voting on it again today.

 

[mazzatelli1000]

d@mn these short sellers are good, how are they driving the markets down even when most of them are banned

 

[Trembling Hand]

See the No Short list dropped 12% last night.

No shorters to offer bids?? Ha!! give the fools what they want.

http://www.bloomberg.com/apps/quote?ticker=BUSNSHRT:IND

 

[chops_a_must]

Eh gad Brain.

When will this shorting of companies to the wall end?