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A quick thought on “evil short sellers”

Short Selling, eh? This is a highly contentious issue, of course, but mostly because there is a lack of real understanding about the mechanics of the market, particularly by politicians and churchmen.

Data Explorers is a fine company that I came across a few years back thanks to an introduction from a good friend of mine in the Stock Loan industry. In simple terms they track percentage of stock that is “on loan”, which gives an indication of the amount of shorting happening in any particular stock. They do a lovely job of collating all the data from the various firms who are involved in this industry, then redistributing it to give everyone a “bigger picture” view (this info doesn’t come cheap, mind!).

Their figures show that there wasn’t any extraordinary shorting going on in many financial stocks in recent weeks, and therefore the banning of short selling is probably a complete waste of time, and is a knee jerk reaction to uninformed people’s ranting on about city fat cats.

Now let’s look at the share prices of our high street banks. Let’s pluck RBS out of the air as an example. The ban on short selling, designed to stop large downward movement in the share price, was announced last Friday morning, and RBS traded up to a high of 263. Where is it now, without the evil fat cats able to short it? 164 is the answer. So has it helped? You be the judge.

Also now bear (no pun intended) this in mind: Today the market has recovered some of yesterday’s drubbing after a bad start. FTSE Futures are up 233 points from last night’s late close as I write this at 12.30 on September 30th. This sort of recovery sometimes has shorts running for cover, and their buying can exacerbate the up-move, except the shorts have been banned from their trading activities, so they haven’t got anything to cover, and it could be argued that this has created a false market that’s actually stopping or at least stalling the recovery, by taking out an entire potential stream of buyers “on the bounce”…

What a mess we’ve got oursleves into…

And now for something I said in my Dow report today, and I quote:

“Can I ask we all put something into perspective for a moment please? We may have just seen the biggest one day points drop ever, yes, but I was just starting my career in 1987, when the Dow dropped from 2246 to 1737 (22%) in one session. 1706.9 (the low a few days after black Monday) was never revisited…”
Even without potential shorts covering, and even without a bailout plan, maybe we’re “doing the capitulation thing” right now, maybe the panic will be over by the end of the week, and maybe good old fashioned buying and selling; supply and demand; can work this thing out…
Safe trading, and let’s hope we all look back on this in 6 months, content that it got sorted without everything going “to the dog house”, which is what most people seem to be thinking at the moment…