Comments on: Short Sighted http://www.zeigen.com/blog/2008/09/short-sighted/ The Mack Family experience. Wed, 01 Sep 2010 18:29:42 +0000 hourly 1 By: StuartB http://www.zeigen.com/blog/2008/09/short-sighted/comment-page-1/#comment-127535 StuartB Sun, 21 Sep 2008 19:30:35 +0000 http://www.zeigen.com/blog/?p=896#comment-127535 I agree that it's bad the US Govt had to step in and change the playing field to prop up the market. However, I don't have as much faith in you in the stock market being the driving force in our economy. There's too much short-sighted self interest (rather than long term company well-being) which results in CEO's selling a company up the river, while making millions after 1 year of tenure. Not being a finance guy...I can only wish there was another type of market companies could join which would still allow the average investor in, yet not subject the company to the volatility after one non-record breaking quarter. I agree that it’s bad the US Govt had to step in and change the playing field to prop up the market.

However, I don’t have as much faith in you in the stock market being the driving force in our economy. There’s too much short-sighted self interest (rather than long term company well-being) which results in CEO’s selling a company up the river, while making millions after 1 year of tenure.

Not being a finance guy…I can only wish there was another type of market companies could join which would still allow the average investor in, yet not subject the company to the volatility after one non-record breaking quarter.

]]> By: Stephen http://www.zeigen.com/blog/2008/09/short-sighted/comment-page-1/#comment-127319 Stephen Sun, 21 Sep 2008 03:38:44 +0000 http://www.zeigen.com/blog/?p=896#comment-127319 I agree with your points (and you're far more familiar with the market than I am). If the SEC had acted to put fair and equitable controls on short sellers, I'd applaud. But this emergency ban for a half-vetted list of 799 financial stocks reeks of the worst kind of desperation. I agree with your points (and you’re far more familiar with the market than I am). If the SEC had acted to put fair and equitable controls on short sellers, I’d applaud. But this emergency ban for a half-vetted list of 799 financial stocks reeks of the worst kind of desperation.

]]> By: Davis Freeberg http://www.zeigen.com/blog/2008/09/short-sighted/comment-page-1/#comment-127224 Davis Freeberg Sat, 20 Sep 2008 21:53:09 +0000 http://www.zeigen.com/blog/?p=896#comment-127224 I don't blame the short sellers for the problems in the larger market, but there's no doubt in my mind that many tech companies have been subjected to unfair bear raids. This is especially true of the small cap companies where it takes very little to move the needle. A falling stock price can create a self fulfilling prophecy and when money managers with extreme amounts of wealth are able to punish a stock without impunity it certainly distorts the true value of the underlying company. The solution for companies is to focus on their business and prove them wrong, but as the hedge fund industry has grown we've seen more and more abuses take place. Even more concerning than the shorts though, are the phantom equity and bermudian options that are allowed to be underwritten on the very same stocks that have seen these raids. If a company wants to dilute their equity that's between them and their shareholders, but when major investment banks are able to create synthetic shares, it allows them to dilute other equity without the company in question benefiting from the cash that comes from these underwritings. When the ordinary investor is told that there is only 100 million shares outstanding for an issue, but there is really another 900 million unregistered and unreported derivatives trading in the market, then how is it fair to those who don't have access to this information? Banning short selling isn't the solution and people should be allowed to bet on the don't pass line, but shorts should have the same reporting requirements as longs. If someone's bet more then 5% of a companies stock that they'll fail, how are they not considered any more of an insider then someone who is long 5%? Likewise, if someone owns more then 5% as a result of a derivative bet, then why are they not considered an insider just because these are legally classified as "bonds." There are no easy answers to these issues, but until they start to regulate the derivative market, no one is going to know what reality is. I don’t blame the short sellers for the problems in the larger market, but there’s no doubt in my mind that many tech companies have been subjected to unfair bear raids. This is especially true of the small cap companies where it takes very little to move the needle. A falling stock price can create a self fulfilling prophecy and when money managers with extreme amounts of wealth are able to punish a stock without impunity it certainly distorts the true value of the underlying company. The solution for companies is to focus on their business and prove them wrong, but as the hedge fund industry has grown we’ve seen more and more abuses take place.

Even more concerning than the shorts though, are the phantom equity and bermudian options that are allowed to be underwritten on the very same stocks that have seen these raids. If a company wants to dilute their equity that’s between them and their shareholders, but when major investment banks are able to create synthetic shares, it allows them to dilute other equity without the company in question benefiting from the cash that comes from these underwritings.

When the ordinary investor is told that there is only 100 million shares outstanding for an issue, but there is really another 900 million unregistered and unreported derivatives trading in the market, then how is it fair to those who don’t have access to this information?

Banning short selling isn’t the solution and people should be allowed to bet on the don’t pass line, but shorts should have the same reporting requirements as longs. If someone’s bet more then 5% of a companies stock that they’ll fail, how are they not considered any more of an insider then someone who is long 5%? Likewise, if someone owns more then 5% as a result of a derivative bet, then why are they not considered an insider just because these are legally classified as “bonds.” There are no easy answers to these issues, but until they start to regulate the derivative market, no one is going to know what reality is.

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