13 Jan 11
Originally posted by joneschrShort selling can be used to manipulate the market to the downside.
They temporarily halted it, in attempt to influence to the upside an extreme downward trend.... and evidence has shown that the action had little effect...
Which has really nothing to do with market manipulation. Again, I'm having trouble following what your argument is...
That was my point when I asked what would happen to the stock price if every stock share holder of that stock lent it to short sellers. Let me answer the question for you, the stock would be worth nothing. Get it?
Short selling should be minimized as much as possible. Nobody should be able to profit from a loss. If it is allowed to continue people will be able to profit from inside information not just on the upside of a stock price but the downside as well. Goldman Sachs is an excellent example. They profited from a crappy deal they helped create. Without shorting it could not happen.
Let me say it again "nobody should be able to profit from a loss".
13 Jan 11
2 edits
Originally posted by Metal BrainNo, I don't get it. At best you can make the case the stock would be priced nothing. Temporarily. It says nothing of what the stock is worth. It says nothing of the value of the ownership of the company that the stock represents. That hasn't changed at all.
Let me answer the question for you, the stock would be worth nothing. Get it?
And for that reason, it wouldn't be priced to 0.... because nobody in their right mind would sell something at 0. Unless the company is indeed worth nothing. In which case, the market is being pretty efficient and I don't see the problem.
13 Jan 11
Originally posted by Metal BrainIf you sell some stock, after which the stock price drops, you have profited from a loss.
Short selling can be used to manipulate the market to the downside.
That was my point when I asked what would happen to the stock price if every stock share holder of that stock lent it to short sellers. Let me answer the question for you, the stock would be worth nothing. Get it?
Short selling should be minimized as much as possible. Nobody shoul ...[text shortened]... ing it could not happen.
Let me say it again "nobody should be able to profit from a loss".
14 Jan 11
Originally posted by joneschrIt was a hypothetical scenario. I merely wanted to show that market manipulation can result. I think I have shown that.
No, I don't get it. At best you can make the case the stock would be priced nothing. Temporarily. It says nothing of what the stock is worth. It says nothing of the value of the ownership of the company that the stock represents. That hasn't changed at all.
And for that reason, it wouldn't be priced to 0.... because nobody in their right mi ...[text shortened]... h nothing. In which case, the market is being pretty efficient and I don't see the problem.
I think Goldman Sachs has shown how inside information and short selling doesn't mix well. I don't see how people can defend short selling after Goldman Sachs' "crappy deal" profits were made.
Do you want to defend Goldman Sachs too?
14 Jan 11
Originally posted by Metal BrainNobody is defending goldman sachs. They were crooks. But you are having trouble understanding that short selling is used by responsible traders for responsible purposes and the presence of misuse doesn't make the practice incorrect.
It was a hypothetical scenario. I merely wanted to show that market manipulation can result. I think I have shown that.
I think Goldman Sachs has shown how inside information and short selling doesn't mix well. I don't see how people can defend short selling after Goldman Sachs' "crappy deal" profits were made.
Do you want to defend Goldman Sachs too?
If a person commits insurance fraud by burning his own house down, you don't outlaw matches.
14 Jan 11
Originally posted by joneschrIt couldn't be misused if it were not allowed. I don't see any convincing reason to allow it. Apparently you think it does more good than harm. I say it does more harm than good. I'd go as far to say it is a no brainer because allowing investors to profit from a fall in a stock price encourages manipulation that is harmful to the markets. I don't know why it is so hard for some to see.
Nobody is defending goldman sachs. They were crooks. But you are having trouble understanding that short selling is used by responsible traders for responsible purposes and the presence of misuse doesn't make the practice incorrect.
If a person commits insurance fraud by burning his own house down, you don't outlaw matches.
If the SEC thinks it is harmful part of the time why justify it? I have no heard anybody successfully defend it as something that is beneficial. I have heard the empty claim that it helps to stabilize the market but I don't buy into it. I think it is bunk.
Some people are just making too much money with inside information using shorting. They will say anything to defend it, even if it is a lie. They don't want to let go of such a great scam.
14 Jan 11
Originally posted by KazetNagorraSure, that could be the case. It could also be the case that short selling is making the stock undervalued because it is dropping so fast that investors are unlikely to buy until the short sellers decide to stop shorting, if there are enough of them.
What do you mean? In what way is it not profiting from a loss? Surely, when someone is short selling they are also assuming the stock is overvalued?
What if so many people decided the whole market was overvalued when the stock market fell it becomes a trend? Mass short selling. Don't tell me it is not possible.
After all, you keep bringing up that tulip thing.
14 Jan 11
2 edits
Originally posted by Metal BrainPeople short stocks as a way of hedging the purchase of other stock or of calls. In addition, the practice of shoring increases the fluidity of the market and is part of the reason you can pretty much instantaneously buy whatever stock you like at any time.
It couldn't be misused if it were not allowed. I don't see any convincing reason to allow it. Apparently you think it does more good than harm. I say it does more harm than good. I'd go as far to say it is a no brainer because allowing investors to profit from a fall in a stock price encourages manipulation that is harmful to the markets. I don't know wh nything to defend it, even if it is a lie. They don't want to let go of such a great scam.
As KN said, shorting is not really that much different than selling. When you sell and then the stock goes down, you didn't just sell "overvalued" stock. You sold stock on the market and THEN its value decreases.
If, as you say, stock can be "overvalued" then shorting helps provide the market service of "correcting" the value of an overpriced stock. If a stock is priced too low, anyone can buy, allowing the stock to finds its market price. Likewise, if a price is too high, shorting allows (most) anyone to sell, also allowing the stock to find its market price.
Every argument you've made against shorting can be made about all types of securities trades. The stock market works because of all of its components. Start stripping components for no compelling reason and before you know it, the stock market isn't as fluid or efficient.
14 Jan 11
Although I'm no expert on the impact of short selling (naked or not) in the financial markets, I think one should stop to think a bit about what the role of the financial sector is.
In short, the role of the financial sector in a society is to divert savings towards the best possible non-financial investments. For that to work out efficiently, liquidity is needed (we can go into why, if someone wants to). Most of the trades with relatively short trading horizons only serve this purpose, but apart from that they are pretty much zero sum. A trader's gain is another trader's loss.
I'm not sure how short selling contributes to improving the liquidity of those who hold the underlying asset, which is the one we require the liquidity for. That said, I'm not fully convinced that it's as destabilizing as some claim (although it opens up the possibility of investor fraud like the GS/John Paulson case which should never be tolerated).
14 Jan 11
Originally posted by sh76If a stock price is overvalued then sell your stock if you want to. Everybody has the right to do that, but don't borrow the stock from someone that would not sell otherwise. Let them sell it themselves. I don't see how that is a bad thing.
People short stocks as a way of hedging the purchase of other stock or of calls. In addition, the practice of shoring increases the fluidity of the market and is part of the reason you can pretty much instantaneously buy whatever stock you like at any time.
As KN said, shorting is not really that much different than selling. When you sell and then the stock ...[text shortened]... compelling reason and before you know it, the stock market isn't as fluid or efficient.
If you have any evidence that shorting helps to stabilize the markets please present it. I'll believe it when I see it.
14 Jan 11
Originally posted by Metal BrainDo you have any evidence that short selling destabilizes the markets?
If a stock price is overvalued then sell your stock if you want to. Everybody has the right to do that, but don't borrow the stock from someone that would not sell otherwise. Let them sell it themselves. I don't see how that is a bad thing.
If you have any evidence that shorting helps to stabilize the markets please present it. I'll believe it when I see it.
14 Jan 11
Short sellers have been blamed for every market crash since the 18th century.
In each of these crashes, we recognize deeper problems as the cause of the crash -- bad lending practices, "irrational exuberance", exposed fake balance sheets....
Short sellers don't destabilize markets -- the markets destabilize themselves. There's good reason that the main focus has been on lending practices and the housing bubble as the cause of the last crash, not short sellers.
At the very most, I think you could make an argument that short sellers recognize instability and have a role in initiating the collapse. But their presence doesn't introduce the instability. And you might argue they often prevent collapses by exposing problems before they become bigger. Short interest is a valuable indicator of health.