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The Short-Selling ban HURT investors

October 10, 2008 8:00 am

What is the difference between the U.S. and the Russian economy? Answer: In Russia, they do not pretend to be capitalists. Seriously though, it appears that we are getting closer to nationalizing many of the broken industries that still remain in the U.S. such as automobiles, airlines, financials and who knows what else. Our government has become heavy handed in what was supposed to be “free markets.”

Now that the end of the temporary short-selling ban is upon, the debate will surely continue for some time as to its benefit. As we saw the equity markets enter a period of historic volatility and selling pressure, many investors are wondering, what exactly was the point of the SEC ban on short-selling of almost 1,000 stocks?

Read the full article on MSN TopStocks HERE

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Written by Andrew Horowitz · Category(s) Economy, Stocks    |  Tags: •   

2 Responses to “The Short-Selling ban HURT investors”

  1. Karl on October 10th, 2008 12:05 pm

    Wow, what do you make of the fact that the VIX was over 72 today and trading volume was over 3 billion by noon!? Do you think this is just a rebound from the ban on short selling being lifted and everyone covering their shorts? I expected that yesterday but not today. And earlier this week I bought VIX at 45 and sold at 53 because I thought surely it wouldn’t stay that high for too long…..haha! Shows how much I know :)

  2. Jonathan Lawson on October 10th, 2008 12:30 pm

    I wrote this to on a message board earlier. It was mentioned that Italy announced a short selling ban today. Won’t these politicians ever learn?

    ***************************************************
    Banning short selling is NOT the answer. Naked short selling is different, that should be banned. “No short selling” bans are deadly to proper market function.

    There are indeed people making money to the downside, but not many as a percentage. They are the trendfollowers. I stopped following the trend around SPX 1100 and have been paying for it. I didn’t follow all the short signals, disappointing. Many of them in the IWM, XLU, XLE. And the long in GLD.

    When the US Gov’t banned short selling and announced their initial plans for the 700B, the market covered extremely quickly. Hundreds of hedge funds when out of business (not just short sellers, but market neutral funds and liquidity providers) this reduced liquidity and bids. Then it gave funds the opportunity to sell at artifically higher prices. Many other Hedge Funds just closed their books for the year, or minimized their trading because the rules have continued to change. That is what causes this cascading crash. Few bidders, many liquidation sellers.

    Funds that were still near fully invested could not short weak sectors, so they had to short S&P futures to hedge their portfolio. That is cause this “slow motion” crash. ’87 was cause by “insurance” programs doing the same thing in a more rapid fashion. Read Demons of our Own Design by Bookstaber for a more detailed explaination and warning.

    I should have seen this coming. I should have been more short than I was. But alas, I was not. It is amazing to watch my portfolio evaporate even as I am 86% in cash (larger percent everyday, due to evaporating working capital).

    I have been playing counter trend for the last 2300 Dow point, as have many. This market would be much easier if I just followed the trend and had more short hedges in place
    I am looking for a mid-morning bounce off SPY 86. We will see. I don’t know who wants to be holding over the weekend.

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