So this cosmic news yesterday from the SEC that begat a rally that had already happened? Turns out not so cosmic, limited to a few stocks. And not Effective Immediately.
My friend Greg is on the case here (and incidentally stands to have a windfall of search hits for his great Naked Shorts site). Apparently now you can't short without personally having drinks with Stock Loan. Other new rules require Dedicated Shorts to file tax returns, possess a drivers license in order to operate a vehicle, and get a passport prior to international travel.
Look, I know it's the principal that counts, and the fact that they are "on the case" to protect us all against the Evil Shorts Who Hate America.
But it's one of those "careful what you wish for" moments in my humble opinion.
What would happen if you put severe roadblocks up to shorting stock? It would transfer into derivatives. Bearish bets would still exist, they would just go places like Put options. And it would cause a lift in put premiums. Which of course would add to option volatility. Which would ultimately spill over into stock and market volatility.
Ever see an options board in a difficult to borrow security? Yes, many.
Ever see one with low volatility? I have not.
Not saying that allowing shorts free reign to do whatever they want makes any sense either. Just that there's a balance somewhere, and going too far the other way may produce the exact consequences they seek to avoid.
8 comments:
It's a classic Washington phenomena.
Let's appear to do something to fix a problem that maybe really doesn't need fixing, or needs a different kind of fixing. And the "fixing" which is ultimately selected may at best may affect nothing, or at worst, create unintended consequences that maybe at best creates a DIFFERENT set of problems or, at worst, MORE problems or more intractable problems.
Sarbanes Oxley. Ethanol subsidies. Invading Iraq (though maybe there we may finally be getting it right, a few billion dollars and thousands of lives later).
Given this classic Washington phenomena, it's amazing to me that a vast swath of the American public is inclined to socialize health care and that many would really have no problem engaging in Draconian economic measures to forestall "climate change."
God help us all.
not sure health care is a great example, that may be a case where any change would help.
But I get your point.
Here I think it's just a case of trying to deflect blame. I mean it looks very bad if you think about it. On the way up, the profits went to the Mozillo's of the world, but on the way down, the bill goes to taxpayers. So of course, let's bash the shorts.
Ya know I cant remember a time recently when the Fed Minutes came out in the same hour as "the look".
lol anyone wanna bet Cramer acknowledges this phenomena if the markets are green; but completely disregards it if we are in the red?
No Look anymore, sadly.
About health care, all I can say is: don't ever get really sick when you're in Canada, as a friend of mine did. Crawl your way back, even if it's to Detroit.
As for a guy like Mozillo, he may have millions but in the end he has to know, deep down, he has his own hell to face.
One of the biggest problems we have in this country is all too many people lay claim to being victims. I am sorry, the guy who gets the interest only loan (61% of all California mortgages in 2007) or an neg amortization has to, in the take responsibility for understanding he is selling a put. Even if, frankly, the buyer of the put doesn't tell him.
Ignorance (also read lack of intelligence) should not be an excuse.
no question. You really need to take responsibility for your own financial decisions. You bail him out and you punish the vast majority who only bought the house they could actually afford.
What I meant in general was i think the Villify the Shorts campaign in general is deflecting blame from the Mozillo's who pushed the envelope on all this.
"Get Shorty"...too funny. If these whinners can't stand the heat, they should GET OUT of the game.
yeah, it's a joke. Many thanks.
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