Short selling......was it to blame?

[Alf W]

While short selling may not be wholly responsible for the current economic mess my belief is that it's contributed very heavily to the instability of many companies.

More like the instability of many companies contributed wholly to the short selling activity.

If the bloke in the street wants to play stock markets with the big boys then he shouldn't complain when they nick his sweets occasionally. Luckily for me, when I got my fingers burnt in the dot com crash I was only playing the odd grand here and there.

With share prices swinging about so wildly at the moment there's some quite easy money to be made out there

[TykeMerc]

While short selling may not be wholly responsible for the current economic mess my belief is that it's contributed very heavily to the instability of many companies.

[sasguru]

Didn’t a fair number of the congregation make this very point at the time to be told that they were wrong and that mob rule, born of ignorance, should apply?

Indeed. Why not make atW the Chancellor and we can have a re-run of the old Soviet system

[sasguru]

People who make money from hedge fund 'industry' say "Hedge funds not to blame".

In other news: Pope admits to Catholic leanings; ursine faeces discovered in sylvan glade. And now, a message from our sponsor.

Funny but not strictly accurate. DataExplorers does not seem to be linked to the hedge fund industry and the numbers can easily be verified.

Short selling is simply one of the means whereby the market identifies failing companies and reallocates capital ....

[HairyArsedBloke]

Short sellers could not have been to blame for the share price falls in UK banks, according to data just published, as consultants warn the shorting freeze imposed by the Financial Services Authority has damaged market confidence.

The level of stock borrowing of HBOS shares, whose price tumble last week led to the bank being taken over by rival Lloyds TSB, was 3% of the available shares last Friday, according to UK analyst DataExplorers. It had been at about this level, which is typical of all UK public companies, since August.

Didn’t a fair number of the congregation make this very point at the time to be told that they were wrong and that mob rule, born of ignorance, should apply?

[KentPhilip]

No

Next

[BrilloPad]

No.

Next.

[ace00]

Yes.
Stocks must never be sold, except at a loss.
It's only fair.

[DS23]

lol

[NickFitz]

People who make money from hedge fund 'industry' say "Hedge funds not to blame".

In other news: Pope admits to Catholic leanings; ursine faeces discovered in sylvan glade. And now, a message from our sponsor.

[Cyberman]

Short selling, in the case of hedge funds causes panic by creating massive falls in share prices by selling of very large volumes of shares. These shares are not even owned by the hedge funds, but by their actions they cause other shareholders to sell because they fear losing their investments, which drives the price down even further.

Borrowing by companies can be dependent on share price, so this activity can actually drive companies out of business very quickly.

Therefore, short selling of shares should be banned permanently IMO.

[DaveB]

Maybe, or maybe not. Perhaps the popular press got it wrong:




Source: eFinancial news

Doesnt take into account the practice of "Naked Shorting" where the trader doesnt actually bother to borrow the shares he is selling in the first place. They rely on being able to buy shares on the market at a profit in order to fullfill their sales before the deals are completed when the market closes. It is supposedly outlawed by the various market regulators but is effectively untracable in the normal course of things.

[aceboy]

Maybe, or maybe not. Perhaps the popular press got it wrong:

Short sellers could not have been to blame for the share price falls in UK banks, according to data just published, as consultants warn the shorting freeze imposed by the Financial Services Authority has damaged market confidence.

The level of stock borrowing of HBOS shares, whose price tumble last week led to the bank being taken over by rival Lloyds TSB, was 3% of the available shares last Friday, according to UK analyst DataExplorers. It had been at about this level, which is typical of all UK public companies, since August.


Investors need to borrow stock if they want to sell shares short, and the level of stock borrowing is used as a proxy for the amount of short selling. The levels of stock borrowing of other UK banks was also in single digits. At Bradford & Bingley, it was 6.8% of the shares available to be lent; at Alliance & Leicester, it was 6.8%; Standard Chartered, 2.3%; Lloyds TSB, 3.1%; Barclays, 4.5%; HSBC, 2.8%; and at RBS, 1.2%.Jacob Schmidt, chief executive of independent hedge fund research firm Schmidt Research
Partners, said: "The numbers are extremely low. They are lower than we thought." UK politicians have lambasted hedge funds as "spivs" that used short selling to force down the share price of UK banks such as HBOS. The low levels of stock on loan show these criticisms are misdirected, Schmidt said. "Hedge funds are only partially to blame, if at all."
Moreover, the effect of the ban has been to reduce confidence in the market for financials stocks, according to investors. Although their critics claim short sellers artificially dampen companies' share prices, asset managers say short selling normally plays a role in lowering the price of shares that have risen too high and, while short selling is frozen, investors are worried that share prices will no longer reflect the value of the companies concerned. Schmidt said: "Now even a long-only investor cannot buy financials shares with confidence because the market is being held up artificially and everyone knows it." Jeremy Hall, a partner and fund manager at boutique hedge fund manager Cartesian Capital, said of the freeze: “It could lead to a technically-driven market as share price movements are not down to fundamentals.”
The volume of trading on Monday in HBOS' shares, 8 million, was the joint-lowest in 50 days, according to data published on Bloomberg. The 20 million shares traded yesterday was back within the normal range. A spokesman for the FSA said it hoped the introduction of the freeze on short selling on
selected financials stocks, which allows existing short positions to be maintained but bans any new or increased short positions, would clamp down on market abuse and would therefore increase confidence in the market.

Source: eFinancial news