Short selling

[brian0918]

It's almost like the government gave people a list of risky stocks from which they should divest, and people are responding. The government's saying, "nope, nothing wrong with these companies, don't you dare try to say otherwise. Move along now, nothing to see here." Owners of the stock, of course, don't seem to be taking the bait, and are selling off in response to the ban.

Does this seem to you like what's happening?

Edited September 22, 2008 by brian0918

[adrock3215]

It's almost like the government gave people a list of risky stocks from which they should divest, and people are responding. The government's saying, "nope, nothing wrong with these companies, don't you dare try to say otherwise. Move along now, nothing to see here." Owners of the stock, of course, don't seem to be taking the bait, and are selling off in response to the ban.

Does this seem to you like what's happening?

I agree that the government has definetely flagged companies that are at risk. But, it is hard to come to a conclusive statement on what market participants are really feeling here. I have never traded in a market where shorts are not allowed, and neither has anyone else. But, volume in many of these guys is 30-50% of usual. Financial companies including BAC, WB, FNM, FRE, CS, UBS are 50% of normal volume or less. Some of new ones on the list like GE and GM are dry compared to a usual day. UNH and AET (God knows why healthcare companies are on the "banned" list, maybe they're just throwing anyone on the list who contributes money to their campaigns) are less than half the volume as usual.

Like I said, I think on Friday the move up was due to shorts covering their positions. (If I am short, to complete the transaction I have to go in the market and buy it back, thereby pushing up the price. If you have thousands of people and funds doing this on the same day, obviously the stocks will shoot up.) My feeling is that the dry volume is telling us that no one is making a bet on these names until the short-sale ban is up, but I could be wrong on that.

[adrock3215]

They added more companies to the list recently. Now we can't short IBM, CVS, or Autonation (AN) (for all the sense that makes).

[Ordr]

They added more companies to the list recently. Now we can't short IBM, CVS, or Autonation (AN) (for all the sense that makes).

Is October 2nd the end-date for these newly-added companies as well?

[adrock3215]

Is October 2nd the end-date for these newly-added companies as well?

As far as I know, yes. But there is much speculation that they will extend the short-sale ban; my suspicion is that they will.

If anyone is interested, you can find updates on the short-sale ban on NYSE's website. Although the website only posts news related to the NYSE, you can get an excel file from there of all the companies that the ban has been put into effect for. In addition, you can notice that every day, from the origin of this horrendous ban, more companies have been added. I think this just proves how quickly regulations can grow out of control.

[Steve D'Ippolito]

Frankly the first thing I would do once the ban was lifted would be to short the companies that are banned. They wouldn't be singled out by this reg if they didn't "need the protection."

The government surely knows this, and if a short term crisis were all that they were interested in, they'd have banned ALL shorting, thereby avoiding putting a "short me as soon as you can" sign on certain companies. Therefore I expect the ban to turn out to be indefinite. Now it's going to turn into a game: Can I figure out if a company is weak before the feds do and slap this ban on them?

[adrock3215]

This ban was just extended until Oct 17th. I guess I shouldn't be surprised. However, this is very unfortunate for me, as I am out of work until then. I tried to continue trading the week after the ban first went into effect and I took some big loses that messed with my psychology. The market behaves different with the ban in place, and I wasn't able to adjust.

[Ordr]

This ban was just extended until Oct 17th. I guess I shouldn't be surprised. However, this is very unfortunate for me, as I am out of work until then. I tried to continue trading the week after the ban first went into effect and I took some big loses that messed with my psychology. The market behaves different with the ban in place, and I wasn't able to adjust.

That's awful to hear, Adrock. Hopefully the rotten bastards will see the error in their ways soon and lift that ban so you and other people won't be forced to suffer any more injustices.

[Steve D'Ippolito]

This ban was just extended until Oct 17th. I guess I shouldn't be surprised. However, this is very unfortunate for me, as I am out of work until then. I tried to continue trading the week after the ban first went into effect and I took some big loses that messed with my psychology. The market behaves different with the ban in place, and I wasn't able to adjust.

Oh, but don't worry, Mr. Rearden, you'll produce your Miracle Metal, somehow.

I hope these idiots either pull their heads out of their asses, or you figure out how to adjust. Which one I would prefer to see is left as an exercise for the student. (Hint: It is also the one I think won't happen. I suspect this will be a permanent ban; they've stepped into a fresh steaming pile big time, and have no way to undo the ban without causing the crash they were trying to prevent.)

[adrock3215]

The SEC is going to lift this ban at 11:59 PM EST on Oct 8. You can see details here. Interestingly enough, this article provides some good points:

The short-selling ban has had some unintended consequences, such as disrupting the trading strategies of institutional investors who for years have used short positions to safeguard portfolios, said Nick Perry, equities options analyst at Schaffer's Investment Research.

"The idea behind the ban was to calm everybody down and the immediate response was throwing chaos into the system," he said. "The hedge funds that made up a good chunk of the market volume are pulling back because they can't short."

For instance, a common strategy on Wall Street is the so-called "pairs trade." Hedge funds would routinely go long and short on two correlated stocks like Ford Motor Co. and General Motors Corp., both of which are protected by the ban. If the auto industry tanks, both positions offset each other.

"The ban curtails buying in some stocks," Perry said. "You're basically pulling buyer demand out of the market."

[adrock3215]

If anyone is at all interested, there is some data compiled on this page about how the short sale ban hurt the options market. It's definitely a different perspective on the intervention, and I failed to realize just how much this ban affected all different types of markets. It is astounding to see that transaction volume in options fell by as much as 50% after the ban was enacted.

[brian0918]

Is there a page that lists all the stock symbols that were banned? I want to see tomorrow what happens to all these stocks; my guess is we'll see one of the largest market drops yet.

I found it: http://www.nyse.com/attachment/CONSOLIDATED-SSPROHIBTION.xls

Click to the tab called CONSOLIDATED (ALL) SS LIST. There should be 976 in the list.

Edited October 9, 2008 by brian0918

[brian0918]

Here's what happened to the NASDAQ stocks that were removed from the ban. Dots indicate when they were unbanned:

[softwareNerd]

You need to show some benchmark for comparison (either the NASDAQ index, or some similar company that did not have the ban in effect). Better still, instead of plotting the individual % movement, plot the % movement relative to the benchmark .

Edited October 9, 2008 by softwareNerd

[adrock3215]

Is there a page that lists all the stock symbols that were banned? I want to see tomorrow what happens to all these stocks; my guess is we'll see one of the largest market drops yet.

I'm not so sure about that Brian. With the shorts on the sidelines, many of these stocks have had overexaggerated drops. I think that, with things back in order, we may return to a more normal market. I wouldn't be surprised if we go up tomorrow. We seem to be in for a dead cat bounce anyway.

But, one can never know for sure. That's the thrill of trading. Right now (10 PM EST) the DOW and S&P futures are about even. I'd hate to be holding positions overnight in this environment. At any second some government bureaucrat may come out and try to prop up the markets, and if you're on the wrong side of a trade, you could get smoked at the open.

Edited October 9, 2008 by adrock3215

[adrock3215]

This market is unbelievable! We got the dead cat bounce off the open, and we sold off all day after that. Check out the last 2 hours--we got smoked.

Here come the people saying that short-selling is to blame for today's sell off: http://money.cnn.com/2008/10/09/news/compa...sion=2008100914.

[wilicyote]

*** Mod's note: Merged with an earlier topic. - sN ***

I accept that investing in the potential success of others, and then reaping the reward, in part, of their success is moral. It is an act of production. The wealth gained by such an act of production, is rightfully yours. You have earned it, not just because you were willing to risk your money, but also because your success was only possible by virtue of the success of the one you invested in, specifically his PRODUCTIVE success.

I am having trouble integrating "short selling" in the market into moral behavior as viewed from the perspective of objectivism.

Please allow me to be clear, lest their be confusion. I am not asking whether it is legal. I am asking if their is a reason that an objectivist would consider it moral.

Can anyone help me out here?

Edited February 7, 2009 by softwareNerd
Added 'merged topic' notice

[Ordr]

Here's a pretty informative topic from a few months back: http://forum.ObjectivismOnline.com/index.p...ic=13828&hl

[wilicyote]

I have read this entire post and it really doesn't answer my question.

What I am asking is at the fundamental level. Producing is moral, destroying is immoral. Betting on production is moral. Investing (making an informed and rational bet) in production is moral. Betting on failure is...

If a moral man produces more than he consumes, a man betting on the failure of production, by selling short is producing what? How can he be producing more than he consumes?

I understand the relationship, and the role of short sellers in the stock market as it exists today. I am not asking if it is necessary in order for our present market system to function. I am asking a question of ethics. I suppose I posted this in the wrong sub-forum then, huh?

[West]

I think there's some conflation between being 'productive' (and therefore being moral) and 'creating material goods' (or sharing in it by way of betting on it). Since we live in a society with an advanced division of labor, many opportunities open up for making a profit without resorting to farming or manufacturing. How do they create this profit? By means of information. In principle, there's no difference between investigative journalists, investors, traders, or even more broadly, teachers/professors (philosophers, historians, economists, etc.). All of these professions seek out knowledge about the world and make a profit on this knowledge, whether it's negative or positive. In the act of trading, value is created since it is to mutual benefit--both parties get something that they value more.

It's true that short selling doesn't represent the material creation of goods, but the information that short sellers ferret out, upon which they trade, represents the creation/preservation of values in the objective sense of the term.

If a moral man produces more than he consumes, a man betting on the failure of production, by selling short is producing what? How can he be producing more than he consumes?

He's producing in the sense that he is gaining knowledge that has a price. The profit that he gains from this knowledge constitutes his demand (and is where his consumption derives from). Philosophers do the same thing. This particular form of being productive is entirely moral.

edit: for clarity.

Edited February 7, 2009 by West

[softwareNerd]

The article linked in the original post, was from September 2008, when the government restricted short-sales in almost 800 stocks. However, earlier, in July 2008, the government had already banned short-selling in about 20 stocks of financial companies. One of these was Fannie Mae.

It is interesting in looking back and seeing whether the rule even had the government's intended effect of stopping the slide. Investment adviser and economist, Mish Shedlock, shows a chart of the stock price of Fannie and explains how all the government achieved was a tiny hiccup, almost lost in the bigger picture.

Despite this, the SEC voted to apply some restrictions (not a ban) on short-sales.

Edited February 27, 2010 by softwareNerd

[agrippa1]

I have read this entire post and it really doesn't answer my question.

What I am asking is at the fundamental level. Producing is moral, destroying is immoral. Betting on production is moral. Investing (making an informed and rational bet) in production is moral. Betting on failure is...

If a moral man produces more than he consumes, a man betting on the failure of production, by selling short is producing what? How can he be producing more than he consumes?

I understand the relationship, and the role of short sellers in the stock market as it exists today. I am not asking if it is necessary in order for our present market system to function. I am asking a question of ethics. I suppose I posted this in the wrong sub-forum then, huh?

Remember what investing is: It is taking capital from non-productive use, and putting into a productive use. Betting, yes, but betting that the business in which it is invested will prove to be among the most productive uses of capital.

Short selling is taking capital out of a business that one thinks will prove among the least productive uses of capital, and transferring it to an investment elsewhere. A short seller takes money out of a business and invests it in other business, or just keeps it as cash. Later, he puts a smaller amount (if he's right) of money back into that business, at a time when he believes that the near term will prove to be more productive for that company, or at least less non-productive.

Investment is the quest to move money from less productive ventures to more productive ventures. The ability to make that judgment and to move the money correctly is as important as the ability to produce. When the government outlaws short selling, they are preventing the efficient movement of capital away from less productive businesses; in effect, subsidizing failure.

Subsidizing failure is what all non-Capitalist governments do. Failure is the obliteration of economic power, which is necessary for the dominance of political power.