A painful squeeze on short sellers

Shorting is dishonest and high level scamming.
USA has been run by lazy, self serving bureaucrats and pandering politications. Maybe this will change soon.
We need to clean out the infection that has crept into the market over the last 10 years. Clean it from the inside out. That will take real courage and committment. I hope Obama is up to this difficult and dangerous job. Our hopes and prayers are with him and his family.

In essence, short selling is legalized gambling. The excuse that it serves to “properly value” overvalued stocks is bogus. Nobody short-sells because they have the interest of a “fair stock evaluation” at heart. They short sale because they believe they can temporarily manipulate the market direction to make a quick buck. This does not serve an average shareholders interest of a “fair stock evaluation.”

Short selling and hedge activity create artificial volitility in the market and are simply someone gambling with borrowed money. It shoud not be legal on the stock market.

looks like vampire short sellers met holy water when they tried to suck the blood out of VW. Anyway happy halloween even though we dont celbrate it here

I see no reason for short selling. Short selling is unproductive. The Congress should make short selling illegal.

you are WRONG ! WALLSTREET is NOT Las Vegas . I absolutly see no purpose to short selling . In any case because of lack of monitoring by the SEC , naked short selling has destroyed companies , jobs ..
It did work till SEC allowed short selling some because ….
After next week ,we will have some ADULTS in the white house and this too will be over !!!!

I agree with the post that stock exchanges serve our economy well when they allocate capital to well run companies. An INVESTOR is somebody who puts his money in a stock with the idea of improving a company, watching it grow. And if it fails to do so, he moves his money to another stock. A small startup company has a good plan, investors buy stock, the company puts it to good use instead of incurring burdensome debt, the company serves the market and grows, everybody wins.

I agree with the post that short sellers are parasitic speculators. They build nothing but their own bank accounts. Rob P telling the rest of us to wise up ignores the history of speculation in stocks and commodities. The speculative bubble in commodities this summer drove a lot of livestock feeders out of the business this summer, and now corn is back down to $3.50, but a large part of the market for corn has been destroyed. It will take many years to repair the damage. Ron P and people like him need to grow up, quit looking for the quick buck, and do something productive with their lives.

Shortsellers are no more than bottom feeders who provide no usefull service to the markets,inspite of what they like to lead us to think. I agree with the comments of one writer who believes that no stock should be available for borrowing without the explicit permission of the stock owner in writing. If someone were to borrow my car, boat, tools or anything else I own without my permission it would be called stealing. where is the logic in allowing someone to “borrow” my investments without my permission, especially when it can have such a pernicious effect on those very same investments. When my stocks are borrowed to use for shorting, not only are they taken without my permission, they are returned worth less than when they are taken, so I’ve been robbed twice. This not only wrong but should be prosecutable and should be looked into by the legal authorities of both the Federal Government and the State Attorney Generals.

Short sellers are very similar to insects on a corpse. They are not responsible for the death of a company. Blame the CEO’s, politicians and lax regulators for the demise. Whenever a firm starts blaming short sellers, run for cover if it is not too late.

Short selling is the market equivalent
of yelling “FIRE” in a crowded theatre
again and again and then offering to buy it cheap from the desperate owner.

It should be prosecuted as a criminal act!

The best way to resolve this is to ban
margin buying and selling.

It is nothing less than fraud.

It’s very nice to live in a free country. However, freedom comes at a price.
MORALS and ETHICS.
You are free to treat others as you would like to be treated.
You can not cheat, steal or live as a self serving individual.
We are all part of this planet and once someone starts to take more that their fair share the system breaks down.
The People must demand that something be done to stop those self serving leeching criminally, fraudulent ‘money experts’ who have been manipulating the market and selling stocks they didn’t own, and buying with money they didn’t have. For God’s sake – where are the regulators?

The very article designed to show that we should not demonize short sellers served to convince me that we should demonize them. They and others who play with the market serve simply to destabilize the market and make life miserable for the rest of us who want something orderly. Imagine if this happened at your local supermarket – individual items would rise and plunge dramatically from day to day because someone is playing with potato chip futures or selling bananas short or something. It is, as others have pointed out, simply a form of gambling and it should be illegal.

Short sellers do not add stability to the market. They are leeches that start rumors, feed on rumors, destroy companies. The SEC are a bunch of dunces. They need the uptick rule-but the wonderful hands-off “REDS” and their deregs approach won’t impliment the rule. That is OK-they will be out the door big time and soon. Then the regs will come!!

The lack of enforcement against naked short selling is inviting the sort of disaster we have had. Bets belong in Las Vegas, not in the NYSE. I guess there are certain brokers who long to be bookies and to let out their inner “made man.”

The market has rallied for past couple of weeks as expected. The rally will last for another few weeks, after which the market will stay in a trading range for a while.

The probability of another downward movement is very high from the trading range established above.

At some point next year the market index DJIA will break downward through the trading range established above, thus presenting short sellers an opportunity.

Till such time a downward movement begins next year, the bear market bulls can toss around some short sellers, and rightfully so.

I just looked at the past 6 months of trades (344 in total) and their directions:

Long (174) = -4.2%
Short (170) = +52.2%

Basically, if it is rising, I go long, if it is falling I go short, risking no more than 1% capital on each trade. I am not biased towards any direction. Maybe once the Market starts moving up again, I will have better results with my Long trades.

Short-sellers are parasites on the markets. They are not building shareholder value. They just suck blood out of the market.

Some other posters have suggestions about how to regulate short-selling so that it will be less harmful. While some of these ideas could work, I don’t think there’s time to try them to see which do and which don’t; $ trillions will have been lost while we run the experiments. We are in a genuine financil crisis, and the existing regulations and regulators have failed us, so we need to suspend all short-selling permanently, until at least the end of the current crisis.

If someone wants to sell a stock, he can buy it first, and then sell it. Otherwise, there are put and call options, so he won’t even need to borrow the stock to benefit from a price drop: buy puts or sell calls.

We must stop the shorts from destroying any more of our markets than they already have.

Short selling without strong regulation is inviting trouble.

First: Bring back the uptick rule, and make the minimum uptick .125.

Second: Enforce the ban on naked short selling, by requiring that the stock be actually borrowed before shorting. Those going around the regulation should be prosecuted with the RICO act.

Third: Investors should give written permission for their shares to be loaned to shorts, this must be done in a separate document, not buried in the brokerage agreement.

Fourth: Pension funds should not be allowed to lend their shares for shorting.

May be shorting serves a purpose, but I cannot see it from my point of view.

You shouldn’t be allowed to sell something you don’t own.

short selling has a long and storied history on Wall Street, as well as in Europe and other markets. Like any other tool that uses borrowing, it is both powerful and dangerous.

Imo the SEC and European regulators who banned shorting did the market a disservice, perhaps a major one. Shorts provide additional liquidity and speedier value opinions — both of which are valuable to other players in the markets.

If you don’t think the short sellers have made a correct decision, you are welcome to buy the stock long — thus risking your capital in the same manner that they are risking theirs.

Making a return because you were willing to take a calculated risk with your capital is what the market trader is all about.

The “damages the issuing company” argument, imo, is nonsense. Shorts, as you point out, can not wait months or years to close their positions. This means that the market conditions you think they create that injure a company are temporary and can be waited out by the company — raise capital later rather than now.

The capital markets do not exist solely to serve the whims and desires of companies that want to raise capital — that’s only one function. Another function is to give fast opinions on the future of capital already invested in a particular situation — and short sellers add to this function.

[Let's avoid discussing the idiotic behavior of those firms that issued contracts based in part on maintaining the value of their own shares -- that's plain dumb and deserves to punished in the marketplace as it was.]

I’ll even go so far as to say that anyone who was short when the SEC banned shorting in the issues they were short has a cause for legal action against the government. Banning the transaction after the fact seems to me an “ex post facto” law — which the US Constitution prohibits. Were I running a hedge fund which lost large amounts in the temporary ban, I’d certainly be exploring this lawsuit.

I am not one to know or care about the many nuances of Hedge Funds, Derivatives or Short Selling for that matter. I’m the fool that picks what I feel are a few good companies to buy stock in and then forgets about it and goes back to work. I too am repulsed by the short term pressure for results and what this does to a businesses focus and our long term economic health as a result.

The sport of running a business down with rumors, feeding stockholder’s fear, and purposeful speculation for financial gain is not a positive thing for our economy. In fact as American tax payers we are paying for the ruination of enterprises that may have been fine if such regulations as “Mark To Market” would have been recognized for being a failure in it’s application. Short Selling and driving companies into the ground enriches a few and can hurt many.

The American people are angry and will probably elect a Democratic Administration, that will most likely be only to happy to pile on more cumbersome regulations that the wrong people will find new ways of getting around, and the poor saps playing by the rules will again have pay for.

The problem is not short sellers, per ce, but excessive speculation. How much is “excessive”? I think it is when emotion, rumor, market sentiment and/or the compelled sales of a few big players, are much bigger market movers then the health and value of a company.

Nearly all wall street trading (hardly fair to call any of it investment anymore) is gambling. I believe this is bad for the market, bad for the generally economy and very bad for genuine but un-knowledgeable investors. (You know, all those poor working smucks dumping savings into their 401ks every month.)

Wall Street is broken as an investment vehicle. It is a casino. Unfortunately, casinos do nothing useful.

The proper role of short sellers appears to depend on your view of the purpose of the stock market.

Since I view the market as a way to efficiently allocate capital and reward long term savings, I see a well defined role for short sellers. Because rewarding short term speculation is not a purpose of the stock market, I do not believe short sellers should have free reign. This explains why long buyers need not be burdened by a down-tick rule.

Completely banning short sellers prevents them from playing a role in the “efficient allocation of capital” goal.

So bring back the “up-tick” rule and play ball already.

i feel the same way about short selling as i do about buying a stock. they are just opposites. you buy a stock when you think it is going up. you short a stock when you think it is going down.you just do not have unlimited potential with a short sale.

As Bob Precther said, “Short sellers are the one group that must by stock”, why would want them to go away. I’m surprised the markets don’t ban selling.

Even Bob Brinker came out against the SEC’s abolition of th up-tick rule. I note the SEC only took that action after a pilot program and seeking and reeiving coments from any interested investors and experts. (A couple of individual investors were the only ones that objected on grounds that it could lead to bear raids, maybe they were right.)

The SEC said that in the “modern” market there are checks, regulations, and oversight that prevent stock price manipulation. Has the last year proved them wrong? I do not know. Maybe someone has some facts instead of blanket opinions unsupported by evidence.

It seems to me the market was emotion driven and they can’t regulate that yet. (The doom and gloom press should be exposed for the fools they are but that’s another story.) Also, shouldn’t we have a down-tick rule for long buyers?

Paul–I’ve decided to sell your house and your car. I think they’re overvalued. I think this because some other houses in your neighborhood are not appreciating fast enough and another guy in town had to sell his car because he lost his job. Me and my genius buddies will continue selling houses in your neighborhood. When the new owners come to move in, we’ll buy back your house at a lower price than we sold it. This is how efficient and transparent markets work. Please send me the deed and title ASAP.

You guys are full of it! So “investing” is only if you’re long a stock? Come on, don’t be stupid! If a company is overvalued, then investing against it (shorting) is not gambling nor speculative any more than going long thinking it will go up. Wise up! There is just unlimited upside to everything! BTW – shorts also put a bottom in the market because as my profits go up at some time I’ll have to cover which means I buy the stock! IF you are discouraged by the recent rout in stocks, blame the SEC’s (and fed’s) intervention that prevented shorts from putting a floor in. Don’t blame the shorts, as they are simply the other side of a trade just like any other business transaction. Few things in life are win win situations, so grow up. Most of you are the ones that probably were saying everything was rosy last year! Ignorance isn’t a good investment strategy.

Short sellers are speculators, one step removed from people who bet on sports, horses, and dogs, with one big difference; enough of them doing the same thing can destroy a company by driving down the value to a point that the company cannot finance new bonds or stock issues. The worst short sellers are purchasers of naked CDS, betting a relatively small amount that a company will default on its bonds, such as happened with Lehman. Before you feel too much sympathy for those guys, remember that there is a very good chance that $120 BILLION of our tax dollars went to AIG to bail them out on naked CDS losses. And the guys who bought naked CDS on Lehman made out like bandits….thanks to the AIG bailout.