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  • Short Selling: Myths and Facts
    Short selling – nothing is at all wrong with it. All market participants and institutions and regulators, academicians have always seen great value in it. It is somehow when we hit bear markets shorts start getting blamed. Shorts provide very important service to the market – price discovery and liquidity.

    Lot of studies were done on depression and stock market downfall – the unanimous conclusion after even Congressional studies– shorts did not cause the market slide – it was over valuation and the reckless bullish speculators.

    Let us take the case of Lehman – it was insolvent – no run on the bank on liquidity issues no rumor mongering. Unlike Bear it had the Fed window for any liquidity issue. No one wanted to buy it at any price. Its prized asset now has been sold to Barclays for $1.75 B –a third of the estimated distressed price, and Barclays was the only bidder. If the Lehman had any value – someone would buy it whole or parts at decent price- but that was not the case.

    Bears are the heroes they have exposed the balance sheets of these institutions. Shorts did not put leverage or the toxic stuff on these balance sheets. The institutions have been lying – “we are well capitalized and everything is marked down conservatively”. All lies.

    The action of banning short selling is exposing – what a house of cards there is – even after a Trillion $ bailout – still these institutions are vulnerable. So short selling has to be banned – no up uptick, no naked short banning. Simply a ban.

    Just remember shorts are out gunned and out numbered and despised. They have no means to over power the markets. Most market participants are simply long only.

    Have lost all confidence in these markets – Govt. has become the biggest manipulator – coming up with these draconian rules on option expiration day (not the first time).

    Getting out of the market –closing all my long and short positions. Investing in Gold, money markets, and China – at least the Govt. stays out of the market.
    Sep 22 13:28 pm |Rating: 0 0 |Link to Comment |View article

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