You know it makes sense

Thursday, September 18, 2008

Given that the Russians seem to own most of the UK (or at least London), it makes sense for the British authorities to adopt certain practices of their new uber-lords. And given that the Russkies, upon reaping the harvest of their serial unpleasantness towards foreigners, have simply shut their stock markets down until further notice, you know it makes sense for the FSA to simply ban all short selling of financial stocks for the next eight years.

Pretty soon, the authorities will simply delete the "sell" key off of all electronic and broker trading systems, and appropriate all red paper sell tickets that may have survived from the 1980's. Only one way for stocks to go then, baby.

Yep, all is good with the world. BUY BUY BUY!

Addendum: Apparently the NY attorney general will use the Martin Act to deal with short-sellers, er fraudsters. (Might Macro Man suggest he start with the slippery characters at Lehman NY who drained all the cash out of Lehman London on Friday night, leaving his buddies there with nothing but a pile of stationery and $80 billion worth of turds.)

Big Brother is now truly watching you.

Remember, heard it here first.

Posted by Macro Man at 6:23 PM  


The Pakistanis have some experience in this department ...

Anonymous said...
7:13 PM  


Anonymous said...
7:18 PM  

Only a piddling example of the risk of direct interference in markets that you can't hedge against.

Charles Butler said...
7:36 PM  

How the hell does one hedge options then?

In an alternative (better) universe:
"2005 - FSA bans owning more than 1 house"

t said...
7:37 PM  

Holy cow! What next! ""You gotta know when to run..."" -- like now.

Anonymous said...
7:39 PM  

Anon, quite. And I suspect there will be a few guys who suddenly discover that NY in September offers a climate that is a trifle too hot for them.

Macro Man said...
7:45 PM  

Holy fucking shit!

Zion 22%
RF 29%
LVS 23%
BC 12%

Anonymous said...
8:22 PM  

While I generally try and keep profanity in the office and off this space, I can only concur.

These markets are well and truly broken.

Macro Man said...
8:28 PM  

Are they totally crazy?? i've never seen an intraday move of 70+ points of s&p500.. my god!
You can't short sell stocks forever, you need leverage and lending also..
if they think that short-selling is the problem, they haven't the solution for this meltdown..

8:35 PM  

Cox (SEC) resignation being called for in US. The first of many, no doubt. The LEH cash siphon was astonishing. LEH mgmt was often misguided, occasionally stupid and always full of hubris, but I never believed them to be unethical. Now I know better. I hope that LEH employees are given some recourse through the bankruptcy courts, but realize that will not put food on the table for years, if at all. LEH's actions are shamefuld.

Anonymous said...
8:35 PM  



Anonymous said...
9:23 PM  

Great! When spoos re-open, no doubt they'll shank 15 points before you can say "I wish I'd sold my Sep calls"

Macro Man said...
9:30 PM  

Why not go all the way switch red to green on all market data screens a la Hang Seng??

Anonymous said...
10:05 PM  

OMG, to late to count out the team 1250! (Those suckers never give up...)

Anonymous said...
10:14 PM  

Anon @ 8.35, if half the stories that I've heard re Lehman NY v London are true, then there will be a long queue leading from Seventh Avenue directly to the lowest pit in Hades.

Macro Man said...
10:15 PM  

Markets were actually headed down after ww coordinated liquidity injections weren't working. Midday rather seriously (? ~ 1.5%). 3Mo Treasuries ~ .01% ! Kickstart was Resolution Trust like fix which Schumer started committing to around 2 p.m.

dblwyo said...
10:42 PM  

according to the uk administrator press conference lehman had a global treasury function - all money parked in NYC overnight from all wordwide subsids every night and then moved back in the morning as required. On the sunday night new york said the money would not be forthcoming monday morning resulting in London op RIP

Would imagine same to be true of all us investment banks??

Ghost Rider said...
12:26 AM  

team 1250 strikes again!


SEC intends to temporarily ban short selling, but it's not clear if the commission has approved the move. Cox is briefing congressional leaders. Separately, the government is seeking congressional authority to buy distressed assets.

Anonymous said...
12:47 AM  

but that's not enough



Anonymous said...
12:49 AM  

Striking isn't it? soon lawmakers forget.

Here is the States....a few more savvy, see-through-the-financial-happy-talk shorts would have saved investors a lot of money when worthless internet stocks were being bid up to ridiculous valuations in the late 90's. Lawmakers back then made it so financial prohibitive to short equities that market bulls overwhelmed the bears.

The message being sent now is the free market is only cool if it's working in your favor.


Anonymous said...
1:35 AM  

MM, here's something for you to think about re short selling:

First of all, let me state that as a trader I value the "price discovery process" and believe that short selling contributes to that process. HOWEVER, the "problem" with short selling is that from a societal point of view, short selling contributes almost no positives WHILE LEADING EVENTUALLY TO UNACCEPTABLE SOCIETAL DAMAGE. Here's what I mean:

(1) When the stock market is running an extended bull market, the short sellers are constantly overwhelmed --- just look at the "hedge fund" data for the short selling category over the past twenty years. The weight of short selling during this period was overwhelmed by factors of ten, twenty or more by long side buying impact, so that bottom line the short sellers, who may well have been correct in their analysis of the fundamentals,had during this period no discernible effect upon the "correct" pricing of stocks during the overall bullish drive in the stock market --- and surely did not provoke any calls for a "more rational" stock market, or action thereto. The short sellers were totally ignored by the market.

(2) On the other hand, when confidence in the stock market is fragile or negative, in the context of a weak economy, etc., the short sellers can have an enormous impact on stock prices for sectors (especially financial) and for the market overall. Stock buyers typically become scarce, so they don't offset the selling coming in from the shorts, and the overall negative psychology can send things down in a hurry. THIS, OF COURSE, HAS A HUGE IMPACT UPON THE REAL ECONOMY (MAIN STREET) --- which of course means a lot more to many people and many politicians than what it means for a bunch of stock traders such as ourselves.

While from an intellectual and trading standpoint you and I can argue that the shorts are now thereby simply showing the "true value" of all those previously overvalued stocks, the fact is that "main street" takes a big hit from the down market, which can easily go into downside overshoot, even without the shorts piling on. But it does seem the current short selling of the financials in the US and UK is rather "over the top", from a fundamental standpoint, and could be leading to a very damaging overshoot impacting the "real economy".

From a societal standpoint, there will be hell to pay...

Anonymous said...
2:19 AM  

I really don't know how this plan can change something, as long it is not the mother of all bailouts.

The problem is not that they can't sell this assets, but that they cannot sell them at appropriate levels without going insolvent.

so if there is no active market and the securities are trading at 10 cents a dollar(if at all), will now the FED/Treasury step in and pay 30 cents?
If you look at the market reaction, that is what they are counting on.
just look at the 60 bln $ of level 3 assets at GS and you know where the fish stinks from.

Anonymous said...
2:39 AM  

Question -- what is the point of Lehman NY to trade w/ all that money, if the story is true? It is not as if they would get any bonus out of it...

Anonymous said...
3:24 AM  

FSA announcement makes no sense in the long-run but triggering the 1pm buying spree put me nicely in the green today after soiling my Depends @ 12:59pm. Rule Britannia!

Next time I'm in London, I'll be more than happy to stuff a Benjamin in every donation box I see at the museums. Assuming the US doesn't go Zimbabwe before I get there.

Anonymous said...
5:27 AM  

If short selling "caused/exaggerated" the rout in the equity market, then can we make an equivalent call that long positioning "caused/exaggerated" the rise in commodity markets (a very popular theory being studied by the US Congress). As a result, would it not be consistent to ban "long buying"? There is already serious talk about curbing the activity of "speculators" and index fund buyers who have allegedly pushed up the price of all sorts of commodities. What sort of market mechanisms are the regulators trying to build? Great blog.

ib said...
10:12 AM  


The logic is simple. Persecute short speculators when they are driving down the price of what people tend to own (stocks, houses etc), and long speculators when they are driving up the price of what people tend to buy (oil, food etc).

RebelEconomist said...
11:49 AM  

Buying or selling restrictions are insane. There are exceptions, such as arms or drug trade. But the arbitrariness of what’s going on now incidentally in those countries that were so extremely neo-liberal will hurt their market. They bail out X but not Y, they restrict selling A but not B, if they restrict selling why not buying? And please, this has nothing to do with the real economy. The real economy doesn’t care whether the casino thinks company Q is worth F. It just does not have an impact UNLESS people start taking casino numbers for real.

If banks start borrowing against virtual house prices or employees start building their pensions on virtual equity value THEN it could affect the real economy. Now, the most obvious would be to say: “Erm... yeah, I think you guys made a mistake.” But instead, they are now collectively trying to outdo the market and avoid the consequences. So far, their efforts to restore confidence look *very extremely* promising. They will manage to perpetually jump from one bubble to the next. But it requires persecuting those that think otherwise, i.e. short sellers. Sorry, but this is NOT a free market!

mikarsky said...
1:29 PM  

Not sure it’s Armageddon but we were, almost literally, dancing on the edge of the precipice. Go chart IRX YtD, especially on a log scale. Tu the markets went deeper into cardiac arrest worldwide than just before the BSC rescue. Whatever the ideological merits or objections one might have to RTCII the equity markets were about to nose-dive, as we know, big time again and the world credit markets weren’t responding to the de-fillibrator. I’m happy to debate the philosophical pros and cons but much happier to be around to do so. Thu up until 2:59 it wasn’t clear that opportunity was on the table. Fri we could, and can continue, to criticize the dancing bear for being a bad dancer.

dblwyo said...
3:12 PM  

Post a Comment